BUY Repsol – Spreading its wings, +40% upside, PT EUR 12.5
*Renewable IPO which could be as early as June should provide a nice catalyst as the margins on the refining side
*Last week we saw a report in El Confidencial saying that REP SM has hired JPM for a spin-off of its renewable business as early as June for as much as EUR 4bn versus Repsol’s current market cap of EUR 14bn – almost 30%
*The report said that Repsol could aim to float just under 50%
*Back in November the CEO said he aims to sell the stake in the renewable arm within 18 months
*With the increased focus on renewable we believe that a separate listing would help boost the overall valuation of the company’s assets
*We also believe that as the vaccine roll-out will help boost the oil price in the next months as travel etc restarts
*The 12 month dividend yield is 8.9% – the company aims to keep this >7% – also plans to implement a buyback from 2022 and expect dividend to grow thereafter
*Our peer valuation comes in around EUR 10.6 while long-term DCF comes in at EUR 12.5 leaving between a +20-40% upside with the oil price around the current USD 60 per barrel
*The company is set to report results on the 18th February