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The Italian refiner reported weaker-than-expected results due to the refining environment in the quarter, rising prices for heavier and sour crude grades, and maintenance-related issues. The adjusted EBITDA was 50% below the consensus while the premium over the benchmark margin was $3.7/bbl, considerably below the company’s guidance of $5-6/bbl. Despite the weak results, Saras maintained its margin guidance for the FY23 average as the margins in the Q3 are holding up well.
Companies: Saras (SRS:BIT)SARAS S.p.A. - Raffinerie Sarde (SRS:MIL)
The solid beat for the consensus (+14%) was unsurprisingly driven by strong margins across the sector. Yet margins have substantially softened in Q2, denting the quarterly profits. H2 looks better as gasoline demand is robust and crack spreads are now above diesel margins. Saras is also expanding the renewable business with €750m allocated for capex and a target to reach 1 GW in installed capacity.
Unprecedented as it was, FY22 enjoyed substantial revenues and operating income thanks to elevated margins. The outlook suggests that margins are unlikely to repeat their FY22 levels but will still remain strong in FY23. The unexpected news of CEO Matteo Codazzi’s resignation (having taken office in only November 2022) and the appointment of Massimo Moratti has, however, raised governance concern about this family-run business.
The news that, in the aftermath of the Q3 release, the Saras Board of Directors has parted ways with CEO Dario Scaffardi by mutual agreement and appointed Matteo Codazzi was unexpected. The change in CEO should not overshadow the positive outlook as the strategy is not expected to change given the company’s governance structure. The results were lower than in the Q2 2022, but further improvements could be seen in the Q4.
Saras reported a margin of $22.5/bbl, against a benchmark of $16.9/bbl. This outperformance can be explained by Saras increasing its production (25.9 mboe in Q2 vs 20.5 in Q1 with the impact of the maintenance) and maximizing the production of middle distillates (53% of the yield, vs 48% in H1-21). All in all, it is positive that the company can optimize in very extreme times as well as during more normal periods.
Companies: SARAS S.p.A. - Raffinerie Sarde (SRS:MIL)Stora Enso Oyj Class R(Alien Mkt) (0KCK:LON)
Similar to Hellenic Petroleum, Saras had planned maintenance this quarter, with volumes down by 20% qoq and benefiting partly from the surge in margins. With the turnaround completed, the group will now be able to capture the exceptional market conditions, for as long as they last.
Results came in above consensus with refining improving despite the higher energy costs. Following the invasion of Ukraine, the oil markets have been shaken up. Usually, a supply shock (Russia exports 5mbd of crude oil) tends to be negative for refining margins but this time it is different as European refiners benefit from the loss of Russian middle distillates.
While refining margins are recovering, it is not enough to cover the increase in CO2 and electricity prices. This led the company to revise downwards its outlook (i.e. lower premium over the benchmark), a setback after the increase in Q2.
The adjusted EBITDA returns to positive territory, after four negative quarters, and was a tiny beat over the consensus. The outlook is not particularly rosy but shows a recovery and that the worse is finally behind the company. Saras has increased its guidance, now expecting to increase its premium over the benchmark from $3.8-4.3/bbl to $4.7-5.2/bbl, as a combination of higher margins in refining and higher remuneration in power generation.
The environment remains depressed but at least the results have not deteriorated since Q3 20. The company has merged its refining, power generation (from the IGCC) and marketing operations into one division, while renewables stands alone and should get more attention by the markets over time, as the company hopes.
The company is cutting costs where it can and has secured a €350m loan, partly backed by the Italian export credit facility. Investments are also on hold, with capex of €55m in 2021, down from €159m previously. This will help the company withstand the tough times ahead as it now guides for a recovery starting in H2.
While the recent entry of Trafigura in the capital is positive, management provided no further information at this stage. The latter has enough on its plate as it copes with a crisis, reducing the throughput as well as keeping spending to a minimum while it waits on margins to recover.
Companies: SARAS S.p.A. - Raffinerie Sarde
While the end of lockdowns allowed for gasoline consumption to resume, there is a large inventory overhang in the end products. This is due to refineries (including Saras) not cutting their runs to the extent of the destruction in demand. This will leave the market oversupplied for some time, making the outlook particularly negative for European refiners.
The trading division helped the group in delivering decent results in spite of the heavy maintenance activities. The group remains nonetheless in crisis mode, as the destruction in demand in Italy is severe, especially in gasoline. The dividend payment (€0.04 per share) has been suspended as a consequence, and the business plan is under review.
2019 is definitely a tricky year with a sharp rebound in refining margins this quarter. The latest developments in the global markets (e.g. drone attacks, surge in freight rates) seem to be positive for the Mediterranean refiner and partly offset the lack of momentum in heavy-sweet crude differentials. The short-term outlook is positive with management hinting this could be sustained in Q4.
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