Refining and Petrochemical Group
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Reported this morning a 58% drop in revenue along with a net loss of about $ 10.8 million in the second quarter of 2020. Among other things, against the background of the fall in oil prices and closure around the world, following the corona crisis – the stock soared in response by 7%. Why exactly? Analysts explain that the weak results were expected in light of the effects of the corona crisis on the company’s operations, but assuming that the vaccine will eventually reach Corona (currently it is expected to happen next year) – the current price of the strain is simply attractive. How much? The investment house IBI is giving the stock an upside of more than 70% over the current market price.
According to Ella Fried, Senior Analyst at Leumi Capital Markets, in response to reports in Zen: “The result is very good in relation to the forecast and the period. The Azeri margin (reference index for refining the user of a type of oil originating in Azerbaijan) the average of the last month – about $ 1.8 per barrel – again cuts EBITDA of 0. That is a exceptionally good quarter in today’s reality. “The slump in the stock and the change in tastes in the markets, which seek to ‘rediscover’ cyclical stocks as soon as the news of vaccines arrives – definitely make the stock an attractive long-term buy.”
According to Fried, “the report is reasonable, certainly in relation to our period and concerns. Unfortunately, does not represent in relation to today’s spreadsheets. Neutralized EBITDA (the important parameter in which refinery profitability is measured) amounted to approximately $ 82 million in the second quarter, compared to $ 0 in the previous quarter. “The second quarter of the year returned, as promised, to the neutralized results of BZN some of the accounting and real losses caused to the refining and inventory margins.”
The investment house IBI also believes that the stock is an attractive entry point. According to Liran Lublin, Director of Research Department, IBI Investment House BZN’s report showed better results than expected, reflecting the effects of the neutralizations in the first quarter. By reducing the investment budget for a year and a retirement plan for employees in order to maintain a balanced flow. Overall it can be said that the results of the fuels sector were not impressive but still showed good performance from the benchmark while the stability in polymers is expected to continue later this year.
The bottom line is that IBI believes that BZN’s pricing largely takes into account the weak results expected in 2020 and that in 2021 a return to normalcy in current price activity is expected, this is an opportunity to enter at a favorable price per share. “To take into account the model uncertainty in the near future “We are updating our target price for the NIS to NIS 1.15 per share and maintaining a recommendation for an excess return.”
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