EEMEA Refiners: Crack spreads, differentials, valuations

2Q21 results: All three companies reported strong 2Q21 updates, with large oil price related gains (Tupras and PKN Orlen), generally stronger-than-expected marketing margins, positive impact of exceptionally strong petrochemical margins, and stronger upstream profits (both at MOL Group). As we expected (seeĀ CEE Refiners: Watch dividend upside risksĀ 13 May 2021) MOL Group significantly upgraded its FCF guidance, which implies ample room for stronger dividends with respect to 2021.

MOL Group: raise TP to HUF3,500 (from HUF3,000), maintain Buy rating. The stock offers the most attractive 2021 dividend yield in the sector, on our estimates, and still trades at a c.20% discount vs. early 2020 share price in USD terms despite fully recovered earnings and FCF guidance which is close to FCF generation in 2017-18, the strongest years in the company’s history. With this note we increase our target price for the stock to HUF3,500 (from HUF3,000) on the back of stronger natural gas price assumptions and stronger-than-expected marketing margins.

Tupras: raise TP to TRY125 (from TRY120), maintain Buy rating. It’s not surprising to see Tupras trading at the lowest FX-adjusted P/B multiples but most of its underperformance to-date came largely in late 1Q21 on the back of weaker TRY. Likely lack of dividend with respect to 2021 results is not helpful either, but once the company recovers its 2019-20 net losses there is chance of a decent dividend from 2022e and room for a high double-digit dividend yield from 2023e. A long wait, but it may be worth it. With this note we raise our target price for the stock to TRY125 (from TRY120) largely on the back of weaker TRY assumptions.

PKN Orlen: Maintain PLN74 target price and Hold rating. We find the stock’s current valuation fair given possible pressures on its earnings coming from higher natural gas prices and likely partly debt-funded dividend payments in 2021-22e (we treat fairly strong 1H21 FCF generation as a one-off driven by oil price recovery and note likely back-loaded capex program in 2021). We keep our target price for PKN Orlen unchanged at PLN74.


Source: HSBC Global Research