Equity
ANALYST VIEW - Nomura upgrades rating, sharply raises target price for Hungary's Mol
Nomura highlighted the following factors regarding Mol in its research note published on 7 September:
“Why not turn buyers?," Nomura analysts pondered. They noted three points that in aggregate they expect will keep the shares at a discount to the sector: 1) “ongoing uncertainty over MOL’s 49% stake in INA, over which news flow remains mixed;
2) “the risk that an upturn in E&P operational performance from 2014 lows is constrained by lower capex and (fiscal and geological) uncertainty in Kurdistan;
3) “investors are likely to require reassurance on the economics of UK North Sea E&P acquisitions made prior to the oil price downturn."
Among the key issues/catalysts the analysts mentioned
- “Mol's balanced portfolio makes it relatively defensive to a lower-for-longer oil scenario. This was evident in our recent low case analysis EU Oil Majors - Testing USD 50/bbl; low case not priced in and has been borne out in 1H financial performance.
- “a more resilient earnings profile leaves the shares screening as increasingly inexpensive at 3.9x 2016E EV/DACF (USD 50/bbl) vs the sector 6.3x."
“Why not turn buyers?," Nomura analysts pondered. They noted three points that in aggregate they expect will keep the shares at a discount to the sector: 1) “ongoing uncertainty over MOL’s 49% stake in INA, over which news flow remains mixed;
2) “the risk that an upturn in E&P operational performance from 2014 lows is constrained by lower capex and (fiscal and geological) uncertainty in Kurdistan;
3) “investors are likely to require reassurance on the economics of UK North Sea E&P acquisitions made prior to the oil price downturn."
Among the key issues/catalysts the analysts mentioned
- Mol's future role and stake in its Croatian subsidiary INA, which “remains an important and unresolved issue," but with elections due in Croatia in late 2015, meaningful progress prior to that event now appears unlikely;
- Capex, which was lowered for this year from USD 1.5-1.8 bn to USD 1.5 bn earlier in the year and then to USD 1.3 bn with 1H results following an organic spend review;
- Kurdistan, where tension on the payment mechanism for oil exports continues despite the KRG’s recent statement.
- Board member Oszkár Világi was recently quoted (Bloomberg, 31 July) as saying Mol is ‘very interested’ in Iran and would want to be present there if the embargo is lifted. “Drilling there is much cheaper than deep offshore. It’s one of the few remaining places with enormous underexploited onshore reserves".
- New downstream efficiency programme: Mol is targeting another USD 500 m underlying improvement in CCS EBITDA by 2017, split USD 350 m asset & market efficiency gains and USD 150 m on strategic growth projects. 3Q results are to be published on 6 November.
