After a particularly strong half-year for the refining sector, both in terms of margins and profitability, supported by the tightness of available capacity and the geopolitical impacts on supply, the conflict with Iran further exacerbated the imbalances between supply and demand, leading to an explosive rise in margins (cracks) for diesel and jet fuel, notes Optima Bank in its analysis for Helleniq Energy.
After the recent ceasefire, crude oil prices quickly returned to pre-war levels, while margins (cracks) declined to some extent, but remained at high levels.
In our view, the lower global refining throughput of crude oil this year and the reduction in inventories, whose replenishment will take time, will continue to support refining margins for a longer period than previously expected, the analysts write.
In addition, the resumption of maritime transport through the Strait of Hormuz and the restoration of smooth crude oil supply allow for securing greater discounts on supplies (as in April and May crude supplies had been secured with price premiums), further boosting benchmark margins.
According to the International Energy Agency (IEA), global oil demand is projected to decrease by a relatively limited 1.1 million barrels per day in 2026, while supply is estimated to be lower by 3.9 million barrels per day.
For 2027, demand is expected to recover by 2 million barrels per day, while supply is projected to increase by 8 million barrels per day.
Overall, we have incorporated into our estimates an increase in refining margins of about $3 per barrel annually for 2026, despite the lower production of HELLENiQ ENERGY, due to the major general maintenance at the Aspropyrgos refinery and the scheduled maintenance of the Thessaloniki refinery in the fourth quarter of 2026, they continue.
HELLENiQ ENERGY continues to optimize its marketing network, increasing the number of company-owned stations, which offer higher profit margins through sales of higher-octane gasoline and cross-selling of non-fuel products.
The petrochemicals sector, after a prolonged period of global oversupply that drove polypropylene (PP) margins to historic lows, is showing a strong recovery due to the conflict with Iran, while from 2027 onwards a gradual further improvement is expected, supported by tighter supply of production capacity.
The target for installed capacity of 1.5 GW in Renewable Energy Sources remains unchanged, with the Group mainly expanding its capacity in the less mature markets of Bulgaria and Romania, while ENERWAVE aims to increase market shares in electricity supply activity and develop more flexible thermal generation.
Finally, hydrocarbon exploration and research activities are maturing, with the possible final investment decision (FID) for a test drilling in Block 2 expected in the first quarter of 2027.
We value HELLENiQ ENERGY based on a combined discounted cash flow (DCF) and comparable multiples model, applying distinct multiples to the estimated EBITDA for 2026-2027 for refining, petrochemicals, marketing, and Renewable Energy Sources activities, they continue.
This methodology leads to a new target price of €12.90 per share, compared to the previous target price of €9.80, implying an upside potential of 17.2%. Therefore, we upgrade our recommendation for the stock to "Buy" from "Neutral".
The stock is currently trading at a P/E ratio of 5.2x for fiscal year 2026 and an EV/EBITDA ratio of 5.0x, i.e. at a discount of about 35% compared to peer companies in terms of P/E and significantly lower than its valuation in a mid-cycle valuation.
We have upgraded our previous estimates for the Group's adjusted EBITDA by about €180-280 million, to €1.296 billion and €1.210 billion for 2026 and 2027 respectively, due to a more favorable than expected refining environment.
Accordingly, the Group's adjusted net profits are now estimated at €619 million for 2026 (an upgrade of 57.7%) and €528.5 million for 2027.
Regarding the generation of free cash flow (Free Cash Flow - FCF), taking into account operating cash inflows of €1.1 billion for the current year and capital expenditures of €650 million, we expect strong free cash flows of €459 million (and €323 million after interest payments).
Also taking into account dividend payments of €183 million, we estimate that net debt will decrease by €110 million, to €2.24 billion.
For the period 2027-2028 we forecast average annual free cash flows of €366 million (after interest) and dividend payments of €214 million (€0.70 per share). As a result, net debt is expected to be around €2.2 billion in 2027 and €2.0 billion during 2027-2028, with the Net Debt to EBITDA ratio remaining below 2 times.
As for the dividend per share, we have incorporated into our forecasts a distribution of €0.70 per share for the fiscal years 2026-2028, compared to €0.60 for 2025, which implies a dividend yield of 6.4%.