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February 28, 2013 3:18 pm
Anyone whose house has been burgled tends to cling more tightly to familiar things. Repsol is a case in point. After Argentina ran off with its prized YPF assets nearly a year ago, the Spanish oil and gas group has gone all upstream. The highlight of its 2012 results on Thursday was an 11 per cent rise in production. True, it was not a surprise. But in a year when the supermajors struggled to eke out any increases at all, it is worth noting how Repsol’s return to playing to its strengths is paying off.
One result is that its financial position is being bolstered. This week, Repsol sold its liquid natural gas assets outside North America to Shell for an enterprise value of $6.7bn – higher than analysts had pencilled in. The transaction allows Repsol to cut net debt in half to about €2.2bn and should protect its investment grade credit rating. This is an important step in allowing investors to assess Repsol on an underlying operations basis rather than through a haze of geostrategic (Argentina) and existential (credit rating) threats.
The question is whether current trading levels are a fair reflection of Repsol’s turnround. Its shares are up 50 per cent from their post-YPF low last summer. That has put Repsol on an enterprise value multiple of 5 times 2013 earnings before interest, tax, depreciation and amortisation – a premium to peers such as Eni or Total, which trade on an EV/ebitda multiple of 3 times. That may be a reflection of how chief executive Antonio Brufau has played a weak hand well since the YPF debacle in stressing Repsol’s upstream focus.
But read the small print. A fifth of Repsol’s shares are owned by two potential sellers – Mexico’s Pemex and the indebted construction group Sacyr Vallehermoso. That looks like a significant barrier to further upside for the share price. For as long as it remains the case, Repsol is likely to remain a turnround story.
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