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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (167271)	4/17/2012 9:55:00 AM
From: Dennis Roth	2 Recommendations Read Replies (2) \| Respond to of 206099

Repsol YPF SA (REP.MC) Resource Nationalism Event: Event – Argentina is to propose a bill to Congress that would nationalise YPF by expropriating 51% in YPF from Repsol (Repsol has ~57.4% in YPF) and this would give the government full control of YPF. This is likely to come with the risk of litigation and reputational damage with Spain, Mexico, the US and the G20. A nationalisation is also likely to make YPF a less efficient company and its neighbours (eg Venezuela) show that the state is often a poor sponsor. The volatility of Argentina's regulatory environment makes it a risky opportunity for IOCs that could provide the needed capital/technological investments, without which the development of the vast resources could be at risk. The saga can be protracted – Under Argentina’s expropriation law, a state tribunal (eg the National Appraisal Tribunal) will define the company’s value for the purpose of compensation. According to the expropriation law 21499, Article 10 states that the compensation will only include the objective value, not the hypothetical value of the company. YPF’s book value is ~€4.1bn or $13.6/ADR. It is unclear what the end valuation will be in the case of expropriation and when it will be paid. In view of historical precedence, this would likely go into international arbitration and this path can take many years. For example, XOM’s assets in Venezuela were seized in 2007 and a full settlement is still pending. Fundamentals – Repsol shares already price in ‘zero’ for YPF. Our risked NAV ex-YPF (and ex-vendor loan of ~€1.5bn or ~€1.3/share to the Petersen Group) is ~€21.5/share or ~€17.5/share at a conservative 20% discount. We estimate YPF would have contributed 25% to EBIT (or ~17% net) in a more normalised 2012E. At a normalised ~5% DY (avg since 2008), the current shares price in an unreasonable ~25% dividend cut. Its profitability is set to improve with the return of Libya, new upstream projects and capex is expected to be ~€500m lower ex-YPF y/y. Importantly, Repsol has a solid strategy in place ex-YPF with an admirable exploration portfolio and superior upstream growth. A sizeable portion of its clean net debt includes YPF’s consolidated net debt of €1.6bn. Valuation: Our TP of €25/share is based on a discount to our risked NAV. === 7 pages, 5 figures. Download link on page: sendspace.com