Summary
Repsol is an European business operator focused on the exploration, production, and transportation of oil and natural gas as well as renewable energy projects.
In my view, if management continues to accelerate capital expenditures in growing markets like renewables and the chemical industry, FCF will most likely trend north.
Analysts probably prepared their estimates by looking at the estimates of Repsol, which couldn’t be more wrong.
A few weeks ago, Repsol depicted a scenario with Brent at $70/bbl, which is significantly lower than the current price mark.
onurdongel/E+ via Getty Images Repsol S.A. ADR ( OTCQX:REPYY ) is not only investing heavily in the new low-carbon economy. In my view, the company will likely benefit from the recent increase in the crude oil price. I don’t believe that most analysts did modify their future FCF estimates after the recent investments made by management. Using conservative expectations of free cash flow, my DCF models implied more upside potential than downside risk. I am a buyer of Repsol shares. Repsol
Founded in 1987, Repsol is an European business operator focused on the exploration, production, and transportation of oil and natural gas as well as renewable energy projects.
The company has a diversified list of activities , and is present in a significant number of countries all over the world, which will most likely make its FCF figures less volatile: Integrated Management Report 2021 If I can go straight to the point, Repsol is currently delivering results above pre-pandemic levels, which I don’t believe the investors have noted. Keep in mind that the stock price is well below the stock price in 2019: SA In the last quarterly report, Repsol reported an increased activity in unconventionals, and a lot of progress in portfolio rationalization and diversification. In my view, if manamangent continues to accelerate capital expenditures in growing markets like renewables and the chemical industry, FCF will most likely trend north: Q4 earnings call presentation For starters, note that Repsol is currently transforming its industrial sites into decarbonized energy hubs. With many investment funds investing in the low-carbon economy , in my view, demand for the stock could trend higher in the coming years: Q4 earnings call presentation The Outlook For 2022 Included An Environment of $70/bbl, Which Is Lower Than The Current Oil Price Of More Than $100/bbl
In my view, nobody could tell about the invasion of Ukraine, and the recent increase in the price of oil. Repsol’s management was not an exception. A few weeks ago, Repsol depicted a scenario with Brent at $70/bbl, which is significantly lower than the current price mark.
Analysts probably prepared their estimates by looking at the estimates of Repsol, which couldn’t be more wrong. With this in mind, in my view, once analysts rebuild their scenarios, their net revenue expectations will likely be better. Q4 earnings call presentation Given the current increase in the crude oil price and the new activities of Repsol, market expectations seem too low. Analysts believe that Repsol may deliver sales growth of -3% and -6% in 2022 and 2023 respectively. For the year 2024, they expect an EBITDA margin around 14%. Finally, the operating margin should stay close to 4% with 2024 FCF at €1.94 billion. marketscreener.com Standard Case Scenario
Following a regulation enacted by the European Union in 2020, Repsol decided to invest significantly in projects, which would target climate change mitigation. In my view, Repsol will most likely receive a lot of funds from the European Union in the coming decades. Hence, I believe that the business strategy was smart: On June 18, 2020, the European Parliament enacted Regulation 2020/852 on the establishment of a framework to facilitate sustainable investment, as an instrument to achieve the goal of achieving a climate-neutral European Union in 2050. Source: Management Report Among recent investments, I would highlight the joint venture signed in Chile, and the acquisition of a large stake in the project Hecate in the United States. If management finds more suitable investments outside Europe, the company would likely receive money from money managers in USA and Asia: In line with the Strategic Plan, Repsol has also been investing in its international expansion in the renewables business, by acquiring 40% of project developer Hecate (United States) for 182 million euros and investing 101 million euros in joint ventures in Chile. Source: Management Report The company was very clear about its motivations in the most recent management report. Repsol appears to be looking at sectors that are not only innovative, […]
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