Last July meant a 13.7% cut in its share price for Repsol, which implied registering its worst month since July 2020. However, and despite the rebound it has experienced on the stock market so far August, Repsol shares have never been cheaper than they are today.
The PER (times that the expected benefits are included in the share price) of the oil company stands at 3.2 times for the next 12 months, according to the market consensus collected by FactSet. This ratio, so low that it is only seen within the Ibex 35 at present in ArcelorMittal and Acerinox (stocks more used to showing such affordable PER) is not given only by that of recent weeks.
In 2022, Repsol continues to earn almost 20% per year on the stock market, so the value cannot be considered bearish. In fact, it is the fifth most bullish value in the year for the Ibex 35. It is in the profit forecasts for this year that the explanation for why it is so cheap can be found. The record at 12,256 million euros, according to FactSet, and a net profit of 5,615 million euros, double what was forecast in January.
For next year the net result will fall to 4,127 million euros for all the experts, who will tend to calm down according to Bloomberg forecasts. However, the company’s profit will continue to be well above Repsol’s data prior to 2022 and, therefore, it is reflecting a PER for 2023 at a balance price, at 4.2 times. A multiplier that is below the average of the last 10 years (in the 12 times) with the distorting effect of the PER of March 2020, where the pandemic devastated the profit forecasts.
On the first day of January of the current year, the market consensus projected that the oil company would obtain 7,200 million ebitda, compared to the more than 12,000 currently estimated. Nothing less than a 70% increase in just over half a year. Obviously, the market calculations did not include the war in Ukraine or the rise in fuel prices in their January accounts. These variables are what have made it possible to improve: the company’s ability to convert crude oil into diesel, for example, and the economic return it derives from it.
In the first quarter of last year, Repsol registered a refining margin of 0.2 dollars per barrel. In the first quarter of 2022 it reached 6.8. But the real jump occurred in the second quarter when the Spanish oil company reached 23.3 dollars per barrel thanks to a price of crude oil that the market estimates will not be reached again this year. This improvement in profit was palpable in the publication of results until June (with a net profit of more than 2,500 million euros), where the group took advantage of the result to cut its debt by 50% and applied it to the refining business. A game to be highlighted by the Renta4 analyst, Alfonso Batalla, “in the face of a more complicated environment in Europe and its impact on the profitability and competitiveness of the facilities”.
Target at 17 euros
But the reality is that the investor is thinking more about how the price of oil affects Repsol than about the results that it will obtain this year and next. At the close of this Wednesday the company has fallen to 12.4 euros per share. And meanwhile, the market consensus collected by FactSet does not give up on the fact that Repsol is a purchase option. At current prices, the company has an upside potential of 39.5% to the target price of 17.3 euros.
From CaixaBank they even consider that the oil company should be listed at 20 euros per share. One of the latest investment firms to raise its price target has been Deutsche Bank. The investment bank raised its target price by almost one euro to 16.8 euros. Deutsche Bank justifies this appreciation in a more expensive Brent for 2023, according to its forecasts and in that since “Russia unexpectedly reduced exports of Nord Stream on June 24”.
Bankinter analyst Pilar Aranda cut her buy advice to neutral last week. At the same time, it has reduced its target price from 18 euros to 13.3 due to the correction in the price of oil in recent days. “After the strong advance in 2022, the sector loses attractiveness,” Aranda estimated, although she manifests Repsol’s strength as a multi-energy company that exceeds that of oil. A point in her favor if the conflict with Ukraine continues.
The ‘Brent’ at 94 dollars is still profitable for the sector
The price of oil no longer marks 120 dollars per barrel, in the case of Brent, as it did less than two months ago, but the oil companies can still take advantage of crude oil and its refining. The prices reached during the second quarter of 2022 may not be reached again, but the market consensus collected by Bloomberg estimates that for the third quarter of the year the Brent will be around 100 dollars and for the fourth it would be at 92.
Competitive prices for refining given the trajectory so far in 2022. However, not all companies in the sector have managed to maximize their profit when converting raw material into diesel, for example. For Citi analyst Alastair Syme, in the second quarter Repsol (as ExxonMobil also did according to the investment bank) has outperformed Shell. Although the price has been higher for the Anglo-Dutch in the second third, it has grown less.
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