Equity
ANALYST VIEW - Wood ups target price, keeps 'Buy' rating for Hungary's MOL on Kurdistan upside
“On top of the implied 20%+ upside, we believe that Kurdistan (which we value at c.USD 2bn, or HUF 4,600/share, with a 50% risk weight) holds material upside, through more resources potential (in Akri Bijeel) and de-risking," said Robert Rethy, analyst at Wood & Co. in Prague.
He has cut some HUF 1,100/share off the Syrian value (HUF 500/share is still left) from his target price, which has suffered also from the Hungarian risk (a higher risk free rate and higher WACC).
“On the other hand, our higher crude and weaker HUFUSD assumptions lead to material earnings upgrades from 2014 onwards," the analyst added. He has lowered his Croatian risk weight to 10% from 15%, on the perceived improvement in the political climate.
“MOL does not look particularly cheap on 2012-13E headline multiples of 8-10x P/E and 4.7-5.0x EV/EBITDA. But it does, if we consider the estimated value of its Iraqi assets (which should not add any material earnings until approximately 2015), which are not yet reflected fully by the share price," Rethy said.
In his estimate, the Shaikan and Akri Bijeel blocks may be worth c.USD 2bn, or HUF 4,600/share (or USD 2.1/bbl risked NPV) for MOL, assuming 930m bbl unrisked resources (fully diluted), a 50% risk weight and a USD 95/bbl Brent price.
“This value may double or even triple upon de-risking and if MOL is able to add additional resources in Akri Bijeel. The risk is political primarily and not negligible at all (there is still no Federal Petroleum Law in Iraq). Both corporate activity and accelerated drilling are to be watched closely in 2012," Rethy added.
Apart from Kurdistan, he also sees growth potential (and impressive reserves addition) in Russia/CIS and in the improving political climate in Croatia. On the other hand, he noted that the risks side remains crowded: “Hungary (country macro + taxes), Syria, Croatia (fiscal regime), shareholders’ structure with a potential overhang risk, and a very bleak R&M backdrop. MOL has little to offer now outside the small, but very exciting slice of its E&P business."
Wood’s higher oil price (+ USD 8-14/bbl for 2012-15E) and weaker HUFUSD assumptions have led Rethy to upgrade his E&P estimates materially. This has been offset by lower Syrian volumes estimates (zero for 2012, 50% of the original estimate for 2013) for the next two years.
“Hence, we have cut our 2012-13 EBITDA (-1-4%) and EPS (-4-8%) estimates, while upgrading our 2014-15 EBITDA (+7- 10%) and EPS forecasts (+6-9). We also apply much more caution in R&M, at INA primarily, and have slashed our R&M EBIT estimates by 50%+ on average, for 2012-15E."
He has cut some HUF 1,100/share off the Syrian value (HUF 500/share is still left) from his target price, which has suffered also from the Hungarian risk (a higher risk free rate and higher WACC).
“On the other hand, our higher crude and weaker HUFUSD assumptions lead to material earnings upgrades from 2014 onwards," the analyst added. He has lowered his Croatian risk weight to 10% from 15%, on the perceived improvement in the political climate.
“MOL does not look particularly cheap on 2012-13E headline multiples of 8-10x P/E and 4.7-5.0x EV/EBITDA. But it does, if we consider the estimated value of its Iraqi assets (which should not add any material earnings until approximately 2015), which are not yet reflected fully by the share price," Rethy said.
In his estimate, the Shaikan and Akri Bijeel blocks may be worth c.USD 2bn, or HUF 4,600/share (or USD 2.1/bbl risked NPV) for MOL, assuming 930m bbl unrisked resources (fully diluted), a 50% risk weight and a USD 95/bbl Brent price.
“This value may double or even triple upon de-risking and if MOL is able to add additional resources in Akri Bijeel. The risk is political primarily and not negligible at all (there is still no Federal Petroleum Law in Iraq). Both corporate activity and accelerated drilling are to be watched closely in 2012," Rethy added.
Apart from Kurdistan, he also sees growth potential (and impressive reserves addition) in Russia/CIS and in the improving political climate in Croatia. On the other hand, he noted that the risks side remains crowded: “Hungary (country macro + taxes), Syria, Croatia (fiscal regime), shareholders’ structure with a potential overhang risk, and a very bleak R&M backdrop. MOL has little to offer now outside the small, but very exciting slice of its E&P business."
Wood’s higher oil price (+ USD 8-14/bbl for 2012-15E) and weaker HUFUSD assumptions have led Rethy to upgrade his E&P estimates materially. This has been offset by lower Syrian volumes estimates (zero for 2012, 50% of the original estimate for 2013) for the next two years.
“Hence, we have cut our 2012-13 EBITDA (-1-4%) and EPS (-4-8%) estimates, while upgrading our 2014-15 EBITDA (+7- 10%) and EPS forecasts (+6-9). We also apply much more caution in R&M, at INA primarily, and have slashed our R&M EBIT estimates by 50%+ on average, for 2012-15E."
