Equity
ANALYST VIEW - UBS downgrades Hungary's MOL to 'Neutral', keeps TP
UBS noted that MOL has been a strong performer ytd amid positive newsflow from its E&P division (Kurdistan). “We continue to see further catalysts out of Kurdistan, however expect this to be a 2H10 story. In the short term, we believe a lack of catalysts will mean that the market may focus more on the refining environment, which is showing some signs of weakness of late," the investment bank said in a research note on Monday.
MOL currently is completing its first well on Akri-Bijeel in Kurdistan. It already announced a discovery in March. UBS believes that MOL is “unlikely to provide a resource update until it drills an appraisal well on Akri-Bijeel, which will take place in 2H10." It noted that further wells will be drilled on Shaikan as well.Despite a strong March, UBS expects margins to remain structurally weak.
“We believe that the market mistook a periodic jump in refining margins through March for a structural change, given the outperformance of the refiners."
The surge in margins was largely due to heavier/earlier maintenance than normal, UBS said, adding that margins have retreated since.
“We expect periodic spikes in refining margins but margins on average to stay at weak levels due to a structural over-supply of capacity."
UBS’s HUF 21,500 TP is based on a cc. 10% discount to the bank’s SOTP valuation. MOL is UBS’s most preferred stock in the CEE refining sector; PKN (‘Sell’, TP PLN 27 based on risked SOTP valuation) is UBS’s least preferred.
“Our stock selection very much reflects our view of the broader sector, where we are cautious on refining, and have a preference for upstream exposure."
Risks
The risks associated with UBS’s investment thesis include “volatility in oil and natural gas prices, margins for global refining, marketing, and chemicals, as well as normal exploration risks associated with the oil and gas business."
Specific risks for MOL include whether, and if so at what price, MOL will gain control, and be able to consolidate, INA; and how investors will treat the buybacks MOL is executing.
“The group has also committed to acquiring a large upstream production unit at some point in the next five years, and MOL share price performance will be sensitive to the cost at which MOL achieves this goal," UBS added.
MOL currently is completing its first well on Akri-Bijeel in Kurdistan. It already announced a discovery in March. UBS believes that MOL is “unlikely to provide a resource update until it drills an appraisal well on Akri-Bijeel, which will take place in 2H10." It noted that further wells will be drilled on Shaikan as well.Despite a strong March, UBS expects margins to remain structurally weak.
“We believe that the market mistook a periodic jump in refining margins through March for a structural change, given the outperformance of the refiners."
The surge in margins was largely due to heavier/earlier maintenance than normal, UBS said, adding that margins have retreated since.
“We expect periodic spikes in refining margins but margins on average to stay at weak levels due to a structural over-supply of capacity."
UBS’s HUF 21,500 TP is based on a cc. 10% discount to the bank’s SOTP valuation. MOL is UBS’s most preferred stock in the CEE refining sector; PKN (‘Sell’, TP PLN 27 based on risked SOTP valuation) is UBS’s least preferred.
“Our stock selection very much reflects our view of the broader sector, where we are cautious on refining, and have a preference for upstream exposure."
Risks
The risks associated with UBS’s investment thesis include “volatility in oil and natural gas prices, margins for global refining, marketing, and chemicals, as well as normal exploration risks associated with the oil and gas business."
Specific risks for MOL include whether, and if so at what price, MOL will gain control, and be able to consolidate, INA; and how investors will treat the buybacks MOL is executing.
“The group has also committed to acquiring a large upstream production unit at some point in the next five years, and MOL share price performance will be sensitive to the cost at which MOL achieves this goal," UBS added.
