Repsol Profit Beats as Downstream Earnings Trump Oil’s Fall

(Bloomberg) -- Repsol SA’s third-quarter income beat expectations as retail and chemical operations helped offset lower oil prices.

• Adjusted net income was 522 million euros ($582.8 million), a drop of 66 million from a year earlier. That compares with an average analyst estimate of 475.7 million euros in a Bloomberg survey.

Key Insights

• Europe’s biggest oil companies have all reported impacts from lower crude prices in the third quarter: BP Plc relied on refining to compensate for lower revenue, while Equinor ASA was hit with a big drop in profit. Royal Dutch Shell Plc also beat profit estimates, but warned investors that returns might be less generous than they had hoped.
• Repsol is relying on strong cash generation and low debt to pay for a buyback of as much as 5% of existing shares announced in July.
• Net debt at the end of the quarter rose to 3.8 billion euros, 174 million higher than the previous quarter.
• “Repsol’s downstream business generates the majority of its cash flow, and we see challenges elsewhere in the business,” said Biraj Borkhataria, an analyst at RBC Capital Markets LLC, in a note on Thursday. “Our longer-term concerns mainly relate to re-investment risks with free cash flow, with uncertainty around both upstream and new energies pipeline. We maintain our Underperform rating.”
• READ: Repsol Upstream Growth, Downstream Resilience to Drive Earnings

Market Reaction

• Repsol stock fell as much as 1.2% on Thursday and was trading down 0.5% to 14.9 euros a share at 10:02 a.m local time. The company’s shares are up 5.5% year-to-date, compared with a 4.5% gain on the Stoxx 600 European Oil and Gas index.

Know More

• Upstream adjusted net income dropped to 218 million euros from 368 million a year earlier on the back of lower oil prices, even as output rose with the startup of new wells in Marcellus and Eagle Ford in the U.S. as well as in Canada and Colombia.
• Downstream adjusted income rose to 372 million euros from 336 million as the company’s commercial and chemical businesses counterbalanced softer refining margins, a key metric for the sector, which declined to $5.50 a barrel from $6.70 12 months ago.

To contact the reporter on this story: Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Helen Robertson, Christopher Sell

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