Repsol results disappoint for lower realisation prices in crude and gas

Bankinter | Repsol has published weak results for 3Q19. Principal figures compared with the consensus (Bloomberg): Ebitda 1.597 Bn€ (-21%); adjusted NAP 522 M€ (-11%) vs 529 M€ estimated (Bloomberg); Net Profit 333 M€ (-47%).

Net debt is 3.836 Bn€ vs 3.662 Bn€ at the close of 2Q19 (after treasury stock operations of -565 M€). Total production has increased to 711 Mbep/day (+3%). By business areas, the downstream area has evolved positively (NAP 372 M€, +11%), driven by the better performance of commercial businesses (Mobility, Lubricants and GLP), Repsol Peru and the appreciation of the dollar, effects which compensated for the fall in refinement margins. But upstream evolved very negatively (NAP 218M€, -41%) despite an increase in production of 711 Kbep (+19 Kbep), lower exploration costs and the appreciation of the dollar against the euro. The weak results in this area are explained by lower realisation process for crude and gas, which have had an impact of -377 M€.

Analysis team opinion: They are weak results which have disappointed. The main reason is the reduction in realisation prices for both crude and gas, which has provoked a sharp fall in exploration and production business.

Our opinion on Repsol is possible and in fact re maintain our recommendation of Buy and Objective Price at 17.2€/share. That said, it is only recommendable for investors with a dynamic risk profile and who want to remain in the share with a long term horizon. We think that (i) Repsol has a business model that is ever more integrated and less dependent on the price of oil. In fact it is positioning itself ever more in the retail market for gas and electricity and the generation of electricity. A strategy which was reinforced by the purchase of Viesgo and with the acquisition of wind power projects. (ii) very well positioned for IMO 2020: a new normative which requires ships to use oil with a maximum sulphur level of 0.5% compared to the current 3.5%. This challenge is an opportunity for Repsol as it will strengthen its Downstream area. Repsol has already made the necessary investments to adapt its refineries to the new regulation. (iii) very attractive dividend (6%). (iv) healthy balance sheet. (v) share buyback programme.