Repsol: best placed for new sulphur reduction law

Repsol dividend

Renta 4 | Repsol Downstream investors’ day showed not only the firm’s resilience but also its capacity for future growth. We recall that within its growth target for operational cash flow from 4.6 Bn€ in 2017 to 6.5 Bn€ in 2020 at 50%/b, Downstream cash flow would grow 800 M€: 300 M€ from international margins, 200 M€ from improvements in profitability from greater efficiency and 300 M€ from expansion and new low carbon business preparing for the energy transition.

It is foreseen that Downstream EBITDA will increase from 3.4 Bn€ in 2017 to 4.4 Bn€ in 2020, supported mainly by refining, which will be especially benefited by the 2020 IMO which could mean an increase of ›+1.5$ in refining margins (Repsol is the European oil company best placed to take advantage of the new norm on the content of sulphur in maritime transport given the flexibility of its refinery system, with an elevated conversion capacity -25% of European coking capacity vs 6% of refining capacity, ›50% of middle distillates production and the fact of already having completed all the necessary conversion) and the expected benefits of digitalisation (+1 $/b of refinery margins in 2021).

Downstream will also be driven by:

1) a growing contribution from Trading (+75/+100 M€ EBITDA in 2020) as well as

2) a positive evolution expected in the chemicals business (which will go from the current EBITDA of 500 M€ per year to some 600 M€ in 2020 and 1 Bn€ in 2025, including new growth initiatives and focused on products of greater added value, greater flexibility in the use of raw materials and increasing efficiency, all supported by growing demand +3% per year aligned with the energy transition)

3) commercial businesses (where they expect EBITDA to be multiplied by 1.4X between 2018 and 2022, based on its current leadership with 37% market share in Spain, 26% in Portugal and 22% in Peru and its strategic alliances – e.g. in El Corte Inglés – as well as digitalisation to offer new products and services to its client base, to which will be added the expansion and transformation of its commercial businesses, fundamentally focused on international growth in Mexico, consolidation in Peru and new mobility solutions, all with the objective of becoming a multi-energy provider)

4) the low carbon business to manage the energy transition, a new business for which it maintains all its targets for 2025 (4.5 GW of installed capacity, of which 70% is already completed, and 2.5 million customers of which it already has 850,000 with a growth of +1.3% in the last 6 months) and where they expect to complete their investment plan but always maintaining financial discipline (TIR›10%).