TP increase on lower WACC
estimate and earnings revisions
We reduce our estimate for Tupras’s WACC by 40bp and our earnings estimates for 2012 through 2014 by 3% to 10%, while our 2012 volume estimate rises slightly. We lower our dividend estimates by less than our profit estimates, especially for 2013, as we think Tupras had room to increase its pay-out ratio vs. our estimates. TP raised 4% to TRY59.20.
Stabilisation of Eurobond yields and unfavourable product cracks
Turkish long-term Eurobond yields have stabilised at c.4.5% (down 50bp from those just two months ago). This is the main reason for the change in our WACC estimate. The changes in our earnings estimates are driven by notable deviation in product crack spreads from our estimates in 4Q12 and our assessment of slightly lower domestic sales prices.
TP based on a blend of DCF (75%) and peer comparison (25%)
A large portion of our TP comes from DCF as Tupras is in an investment phase. Tupras trades at a 30% premium to peers on average 2012E-13E P/E, but we think this is deserved given its more robust margins, better growth prospects and high dividend payments; we estimate an 8% yield for 2013.
Margins to show strength in 2013 even without further recovery
Given the significant number of refinery closures in developed countries, especially Europe over the last four years, we expect refining margins overall will remain higher in 2013 than those between 2009 and 2012. Yet we are unlikely to see any notable y-y improvement as the recovery in refining margins in 2012 has partly reduced the incentives for further significant refinery closures and major supply discipline. Changes to oil demand, especially in Europe and regions nearby, and therefore demand for refining capacity represent the biggest risk to our TP while the level of supply discipline by refiners is likely to be the biggest near-term risk.
We reduce our estimate for Tupras’s WACC by 40bp and our earnings estimates for 2012 through 2014 by 3% to 10%, while our 2012 volume estimate rises slightly. We lower our dividend estimates by less than our profit estimates, especially for 2013, as we think Tupras had room to increase its pay-out ratio vs. our estimates. TP raised 4% to TRY59.20.
Stabilisation of Eurobond yields and unfavourable product cracks
Turkish long-term Eurobond yields have stabilised at c.4.5% (down 50bp from those just two months ago). This is the main reason for the change in our WACC estimate. The changes in our earnings estimates are driven by notable deviation in product crack spreads from our estimates in 4Q12 and our assessment of slightly lower domestic sales prices.
TP based on a blend of DCF (75%) and peer comparison (25%)
A large portion of our TP comes from DCF as Tupras is in an investment phase. Tupras trades at a 30% premium to peers on average 2012E-13E P/E, but we think this is deserved given its more robust margins, better growth prospects and high dividend payments; we estimate an 8% yield for 2013.
Margins to show strength in 2013 even without further recovery
Given the significant number of refinery closures in developed countries, especially Europe over the last four years, we expect refining margins overall will remain higher in 2013 than those between 2009 and 2012. Yet we are unlikely to see any notable y-y improvement as the recovery in refining margins in 2012 has partly reduced the incentives for further significant refinery closures and major supply discipline. Changes to oil demand, especially in Europe and regions nearby, and therefore demand for refining capacity represent the biggest risk to our TP while the level of supply discipline by refiners is likely to be the biggest near-term risk.
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