2022-05-30-瑞士信贷集团-炼油商和生物燃料生产商看法调查_多头vs空头_27页_722kb

Refiners and Biofuels Producers Sentiment Check – Bulls vs. Bears

Core Content Summary

This document provides an analysis of investor sentiment towards key energy sector companies, focusing on refiners and biofuels producers, particularly in the context of the refining super cycle and LCFS (Low Carbon Fuel Standard) dynamics. The analysis covers 14 companies including MPC, VLO, PSX, DAR, DINO, GPRE, PBF, DK, CLNE, VTNR, CVI, CLMT, and AMTX. The core content includes insights on earnings potential, margin dynamics, valuation concerns, and strategic moves.

Main Points

Refiners

• Investor Sentiment: Bulls are optimistic about refiners due to the current tightness in crude, refined products, and natural gas markets, which supports higher margins. Refiners are seen as higher beta within the energy sector.
• Key Players: VLO is the favorite among refining bulls due to its high refining earnings contribution (90% in 1Q22) and strong crack capture ability. MPC and PSX are viewed as more defensive.
• Margin Dynamics: Refiners are benefiting from elevated Nymex gasoline crack prices ($48/bbl) and diesel crack prices ($49/bbl). RIN prices are a concern for some, but a lower D6 RVO obligation could be a positive for the sector.
• Valuation Concerns: Bears argue that some refining stocks are overvalued, especially if the refining super cycle does not continue into 2023. They also point to recession risks and potential normalization of cracks.

Biofuels Producers

• Investor Sentiment: Bulls are optimistic about the future of renewable diesel (RD) and RNG (Renewable Natural Gas) due to the pipeline of RD capacity and potential LCFS price increases. However, bears are cautious due to current LCFS price drops and the potential for EPA to reduce D6 RVO obligations.
• Feedstock Prices: Bulls expect feedstock prices (animal tallow, used cooking oil, distillers corn oil) to rise due to increased demand from RD producers, benefiting companies like DAR and GPRE.
• Strategic Positioning: DAR is positioned to benefit from feedstock price escalation due to its rendering and used cooking oil collection businesses, along with bolt-on acquisitions. GPRE is focused on achieving higher protein concentrations and securing long-term offtake agreements for its ultra-high protein product.

Key Information

Bulls' Arguments

• MPC: Strong midstream presence in the Permian Basin, high post-dividend FCF, and a promising Martinez RD project with Neste's support.
• VLO: High refining margin capture, strong EBITDA from refining, and a commitment to buybacks and shareholder returns. Bulls expect record earnings in 2022 and 2023.
• PSX: Significant cost reductions, strong dividend and buyback commitment, and a major renewable diesel project in Rodeo.
• DAR: Leading EBITDA potential in 2022 and 2023 due to its RD and RNG business, plus the Valley Proteins and FASA Group acquisitions.
• DINO: Strong position in the Pacific Northwest with high margins, potential for RIN cost reduction, and a diversified earnings model.
• GPRE: Reiterated EBITDA guidance, improved protein concentrations, and potential for long-term offtake agreements with pet food brands.
• PBF: High operating leverage, strong position in the Northeast and West Coast refining markets, and potential benefits from SREs.
• DK: High crude beta, expanding Permian midstream operations, and potential dividend reinstatement.
• CVI: Benefiting from higher fertilizer prices and potential RIN cost reduction from SREs and D6 RVO adjustments.
• CLNE: Strong RNG exposure with upstream and downstream partnerships, including TOTAL, BP, and Amazon. Bulls see it as an attractive entry point for the RNG theme.
• VTNR: Gaining traction due to low valuation (3.2X 2022 EBITDA), despite being up 220% YTD.
• AMTX: Investors are bearish due to execution risks and delays in RNG projects.
• CLMT: Bulls remain bullish on feedstock prices and their potential to drive higher margins for RD producers.

Bears' Arguments

• MPC: Concerns about the aggressive timeline and cost estimates for the Martinez RD project, potential asset closures, and possible slowdown in buybacks.
• VLO: High P/E ratio, potential normalization of cracks, and risk of earnings decline in 2023.
• PSX: Lags behind VLO and MPC in refining performance, and bears question its management team's ability to deliver consistent results.
• DAR: Concerns about declining RD margins, lack of cash distribution from DGD, and the need to enter the SAF market for valuation growth.
• DINO: Limited upside due to lower LCFS prices, potential product competition in 2024, and reliability concerns.
• GPRE: Needs long-term offtake agreements to prove market acceptance of ultra-high protein products, and bears question its ability to manage multiple growth initiatives.
• PBF: High RFS compliance costs, operational risks, and potential challenges in securing RD project partners.
• DK: Lower refining profitability due to underperforming refineries, and bears suggest investors should favor DINO over DK for refining exposure.
• CVI: Concerns about the pre-treat unit not being online by 2Q 2023 and high RFS compliance costs.
• CLNE: Bears argue that LCFS prices are declining, and the RNG theme is not yet fully valued by the market.

Valuation Highlights

• MPC: Trading at 10.3X 2022 P/E, while DINO trades at 6.65X 2022 P/E.
• VLO: Trading at 10-11X 2022 P/E, with potential earnings drop in 2023.
• DAR: Trading at 3.2X 2022 EBITDA, but bulls believe it could reach $1.6Bn EBITDA in 2022.
• CLNE: Trading at 4.2X 2024 EBITDA, with potential growth to $500M by 2026.

Strategic Outlook

• The refining super cycle is expected to continue into 2022 and possibly 2023, with refiners like VLO and MPC leading the charge.
• The LCFS price drop is a concern for biofuel producers, but CARB's potential to increase targets could provide a long-term tailwind.
• Feedstock price escalation is a key driver for RD producers, with DAR and GPRE well-positioned to benefit.
• Investors are favoring higher beta names over more defensive ones, with a focus on margin capture and cash flow generation.
• The energy sector is expected to outperform in a recession driven by high energy prices, but valuation concerns persist.