Abundant supply of heavy crudes and 100% utilization should…

We believe 3Q16 results were…to access this report contact@researchgreece.com

We model realized 2016 margin at $9/bbl partially compensated by higher volumes yoy (+0.8mt given the shutdown in Q2 15). On flat EUR/USD yoy these yield…to access this report contact@researchgreece.com

Most EUR MED refineries expect strong margins to persist (Q4 so far is strong) driven by low oil prices (supply glut), crude sourcing, healthy demand, strong USD and capacity rationalization. There is no way of knowing for how long though; on balance most signs are positive: USD should remain strong ahead of higher US interest rates; oil supply will increase (Iran) unless OPEC makes a U-turn; oil demand should be solid. Thus, margins should stay high for most of 2016. For 2015 it feels safe to expect (record) adj. EBITDA of E790m for Hellenic and E585m for Motor Oil according to our models with current market caps valuing them at 4.7x and 3.3x. Share prices have rallied YTD: MOH is up 70% and Hellenic is up 17%; MOH outperformance is explained by its cash flow conversion; the cyclicality of the business is why we would own neither at current levels.

We raise our 2015 EBITDA estimate by 33% to E528m (-14% in 2016E) as refining margins remain strong YTD; shares trade 5.5x EBITDA 2015E or 17% lower than peers (but 35% higher than Motor Oil); problem is there is no visibility beyond this year; it has been low oil prices supporting margins, not higher demand for oil products. We believe a 5.0x EBITDA exit multiple on refining is more appropriate (in MOH’s case as well) given sovereign risks. We reiterate DOI although we expect Q1 to be strong; MOH would be a better/cheaper choice for those comfortable with the low visibility surrounding the sector.