Athens-based Hellenic Petroleum (ATH:ELPE, Financial)(LSE:HLPD, Financial), an oil and gas company, reported 67% sales growth to 2 billion euros ($2.23 billion) and a great 282% climb in profits to 123.8 million euros in its first quarter fiscal 2017 – 6% margin compared to 2.6% in the same period last year.
The company stated that it had strong financial results for the recent quarter brought by the recovery of crude oil prices and increased domestic market demand.
Total return
Local shares of Hellenic returned an outstanding 50% total gain compared to the Standard & Poor's 500’s 8.8% (Morningstar).
Valuations
Despite the recent share price ascent, Hellenic still traded at a good discount. According to GuruFocus data, the company had a trailing price-earnings (P/E) ratio of 4.8 times vs. the industry median of 16 times, a price-book (P/B) ratio of 0.94 times vs. 1.2 times and a price-sales (P/S) ratio of 0.27 times vs. 1.
The company had a 3.02% dividend yield with no trailing payout ratio (Reuters).
Average 2017 sales and earnings-per-share expectations indicated forward multiples of 0.26 times and 7.2 times.
Hellenic Petroleum
Hellenic Petroleum SA was founded in 1958. The company operates in the energy sector predominantly in Greece, Southeastern Europe and the Eastern Mediterranean.
Hellenic’s activities include refining and marketing of oil products, production and marketing of petrochemical products and exploration for hydrocarbons. The company also provides engineering services. Through its investments in DEPA and Elpedison, the companyalso operates in the sector of natural gas and in the production and trading of electric power.
In review, Hellenic has a 35% participation in the Public Gas Corp. SA (LSE:DEPS, Financial), the main importer and supplier of natural gas in Greece. Meanwhile, the company also is active in the production, trading and supply of electricity in Greece through its participation (50%) in the Elpedison B.V. joint venture (the remaining 50% is held by EDISON International).
Hellenic has business segments that include: Refining, Marketing, Petrochemicals, Gas & Power and Other.
Refining
In the first quarter of 2017, sales in Hellenic’s Refining segment grew 73.6% growth to 1.3 billion euros (63.4% of total company sales) and delivered an operating margin of 11.7% compared to 7.9% in the same period last year.
Marketing
Sales in Marketing grew 62.4% to 685.6 million euros (33% of total sales) and reported an operating margin of 0.4% vs. 0.03% in first-quarter 2016.
Petrochemicals
Sales in Petrochemicals grew 13.7% to 74 million euros (3.6% of total sales) and reported a margin of 35.7% vs. 35% in first-quarter 2016.
Gas & Power
Sales in Gas & Power fell by 15.7% to 376,000 euros and reported a margin of 39.6% (highest/most profitable among all segments) compared to 47.1% in the same period last year.
Exploration & Production
According to filings, Hellenic has significant international experience in the exploration and production of hydrocarbons (thanks to its participation as an equal partner in 17 joint ventures with recognized major international oil companies in Libya, Egypt, Albania and Montenegro) and is again focusing its attention on Greece.
As part of a consortium of international joint ventures, or independently, Hellenic has created a portfolio of exploration and production areas that it intends to develop in the coming years, attracting large international players from the global oil industry.
No revenue was reported in this segment, but losses have been evident in recent years. For the first quarter of fiscal 2017, Hellenic reported 1.2 million euros in operating losses compared to 2.96 million euros in losses in the same period last year.
Sales and profits
In the past three years, Hellenic recorded a sales decline average of 11.6% and profit margin average of 0.67% (Morningstar).
Cash, debt and book value
As of March, Hellenic had 1.1 billion euros in cash, cash equivalents and restricted cash, and 2.9 billion euros in borrowings with debt-equity ratio of 1.33 times vs. 1.4 times in December. The company added 133.4 million euros in shareholder equity –Â mostly brought by increase in retained earnings and 23.4 million euros in borrowings.
Of Hellenic’s 7.2 billion euro assets 1.5%Â was identified as intangible assets and had a book value of 2.25 billion euros vs. 2.14 billion euros in December.
Cash flow
In the recent quarter, Hellenic reported 39 million euros in cash flow from operations compared to 1.3 billion euros in cash outflows the same year prior. Most of the outflows last year were secondary to higher cash outflows in relation to payables.
Capital expenditures were 18 million euros leaving Hellenic with 21 million euros in free cash flow compared to negative or free cash outflow of 1.35 billion euros the same period last year. In addition, the company also allocated 0.9%, or 187,000 euros, of this free cash flow in dividends.
In addition, Hellenic had 21.9 million euros in debt repayments, net any issuance of debt.
Conclusion
Hellenic had impressive revenue growth figures in two major business generators –Â Refining and Marketing. These two segments contributed more than 95% of the company’s business in recent years. Profits for both segments have improved on a year-on-year basis, which indicates that Hellenic is on track to better profitability in the coming quarters –Â should the overall oil industry remain less volatile (referring to price).
Nonetheless, the company still has plenty of debt resulting in a leveraged balance sheet and fluctuating free cash flow in recent years.
Asking a 20% margin from the current book value would indicate a 1.8 billion euro valuation or 5.9 euros per share –Â 11% downside from today’s share price of 6.63 euros (at the time of writing).
In summary, Hellenic shares are a pass.
Disclosure: I do not have shares in any of the companies mentioned.
