3 September 2018 | 10:24PM MSK CEEMEA Refining Bright outlook for CEEMEA Refining; Buy MOL, Tupras, Motor Oil We expect CEEMEA refiners’ margins to increase in coming years as: the global S/D Geydar Mamedov +7(495)645-4041 | balance in the oil products market remains tight, driving global utilization rates
[email protected] OOO Goldman Sachs Bank higher, pushing cracks up; and their high complexity will allow the CEEMEA refiners Georgii Gorbatov to benefit from expansion of light-dark product spreads and heavy-light crude +7(495)645-4222 |
[email protected] spreads as IMO 2020 approaches. OOO Goldman Sachs Bank 1. High complexity (NCI of c.10) allows CEEMEA refineries to process heavier crudes. This is an advantage as we expect light/heavy crude spreads to expand with IMO 2020 as heavy crude has a higher sulphur content. 2. Product mix: high diesel yields and low fuel oil yields. Three of the five refiners we cover have a fuel oil yield <10% and most have a diesel yield >50%. With IMO 2020 approaching, we expect diesel cracks to expand, and HSFO cracks to collapse bringing parity between fuel oil and coal prices. Overall, we expect the price of CEEMEA refiners’ products basket to increase between now and 2020. 3. High FCF and dividend yields (2017-20E sector dividend CAGR of c.15%): CEEMEA refiners trade at average 2018-20E FCF/dividend yields of 10%/5% vs. US refiners on 7%/3% and Asian refiners on 5%/3%. Key investment ideas: Among the CEEMEA refiners we prefer MOL, Tupras and Motor Oil as: (1) their FCF and dividend yields are the highest in the sector on our estimates; (2) they trade at a discount to historical average valuations; (3) our 2018 EBITDA estimates are c.10% above Bloomberg consensus on average; and (4) we For the exclusive use of
[email protected] forecast the highest positive margin impact from expansion of light-dark oil product spreads in coming years.