Hellenic Petroleum - IMO 2020 on the horizon

Changes to bunker fuel regulation to be implemented on 1 January 2020 by the International Maritime Organization (IMO) will have major implications for both the refining and shipping sectors. Shipping costs will rise, sour crude discounts will widen, high sulphur fuel oil (HSFO 3.5%) demand will collapse, being replaced by increased demand for ultra-low sulphur fuel oil (ULSFO 0.5%) and marine gasoil (MGO 0.5%). In this note, we outline some of the options shippers and refiners are likely to consider ahead of 2020. We continue to believe that Hellenic (ELPE) is well placed given its high middle distillate yield, above average complexity and crude slate flexibility. Our valuation of €9.22/share (from €8.90/share when we last published) is based on a blend of DCF, EV/EBITDA and P/E multiples. Edison's FY19 and FY20 financial forecasts include management guidance on the impact of IFRS 16.

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