Hellenic Petroleum - Refining estimates and valuation

A recovery in benchmark margins in February and March 2018 will offer relief to investors after a crude oil rally compressed margins in Q417. In this note, we adjust our forecasts to mark to market for Q118, while reflecting the anticipated positive margin impact of shipping regulatory changes in late 2019 and 2020. Longer term, European refining overcapacity remains a concern with capacity growth exceeding product demand growth – OPEC expects Europe to account for c 51% of projected global refinery closures in the period 2018–2020. ELPE remains well placed to weather the storm, given recent investments enhancing complexity and middle-distillate yield; however, competition from marginal refineries is likely to remain a drag on benchmarks. Our updated blended P/E, EV/EBITDA and DCF valuation stands at €9.0/share, down from €9.3/share. We expect a projected 4.3% dividend yield to provide share price support, with the potential for an increased one-off shareholder return in the event of receipt of DESFA sale proceeds in 2018.