Repsol
This Spanish energy company has roughly three sections, upstream oil and gas, chemicals and refining and electricity generation (renewables) in that order. They are planning to slowly try to reverse that order in the coming years by investing aggressively into renewables.
At current oil prices, I think FCF is between €3-5bn a year. Market cap is €17.5bn and net debt about €5.5bn by this time. At current forward strip, the company will generate FCF between 50-75% of its market cap in the next 4 years. FCF break even for upstream is <$40/barrel. And no Russia exposure.
According to their presentation they plan to be a business that generates roughly €3bn of FCF a year by 2025 at 60$ Brent and $3 Henry Hub pricing (they got some natural gas assets in Marcellus shale in US):
Dividend yield is 5%, but what I like is that they are really aggressive in buying back their shares. They expect to cancel about 8.5% of their shares in 2022 according to latest conference call. And planning to keep doing that every year. This could be conservative, as this was February 17, before energy markets went really crazy.
Their renewables plan is based on €42.5/MWH. Recently prices have reached €500/MWH in Spain. So the above estimates could prove to be very conservative…
Then there is their refining business. I have not looked too deeply into that, but we can see some price spikes there as well, as apparantly there is a shortage of some fuels (especially diesel) in Europe. And spreads have been blowing out in March. I think Europe has closed too many refineries and is dependent on Russian imports? According to management impact of high European natural gas prices will be very limited in their refining business.
Now I don’t know how utility pricing works exactly, but if retail energy prices stay seriously elevated, wouldn’t that mean renewable margins skyrocket?
It just seems to me that shares should trade a lot higher. They were trading above €14/share in 2019. Insiders seem to agree as they have been buying quite aggressively near current price.
The potentially very high FCF yield in current environment, aggressive capital returns, plus this stock still being cheap once things probably normalize in the next few years is the reason I am long at just under €12. DYOW and I may sell at any time.