EU ENERGY SECTOR: Neste Pre-Supply Profile
Mar-12 11:53
NESVFH A3[N]
Weakly positioned for the rating – we had expected a full downgrade from Moody’s last week though the bonds have still underperformed slightly on the move to negative outlook. Cash flow to remain challenged until Rotterdam expansion capex subsides while the name will continue to face pressure from the depressed renewable margins outlook, underscored by a shift in focus from headline growth to internal efficiency. They profess commitment to IG and have made moves to protect the BS; the curve is already at BBB- levels which looks wide given the current rating though we don’t see much in the way of positive upside on the horizon. FV based on secondary is around Z+115-120.
- Operates both a traditional oil refinery and several renewable plants that produce fuel/materials from wastes, feedstock and residues. 44% owned by Finnish state.
- Renewable volumes growing YoY since at least FY16 (FY24: +10%) while traditional oil refining volumes have stagnated with focus on the sustainable side of the business.
- The issue lies with margins; oil refining margins normalised from elevated levels in FY23/FY24 though remain elevated vs. preceding years while renewables margins have collapsed in the face of global overcapacity, lower diesel pricing and higher feedstock pricing.
- Neste have stopped giving margin guidance but see the outlook remaining challenging in 2025. Equity analysts see a renewable refining margins remaining depressed well into the future, sitting just over half of FY23’s $863/ton in 2028 while unplanned maintenance/accidents present downside risks.
- EBITDA fell to €1bn in 2024 vs. the €2.5-3bn seen in 2021-2023. CF Before Financing swung to -€0.3bn from €0.8bn.
- Targets €350mn run-rate improvement by end-26 o/w €250mn is operational. CapEx for 2025-2026 seen at max of €2.4bn from €1.6bn in 2024. Divs paid cut from €0.9bn in 2024 to €0.2bn in 2025 with the prior policy abandoned.
- Longer-term, the opening of their Rotterdam refinery extension (delayed from 2026 to 2027) will see a more significant return to cash generation; CapEx beyond the Rotterdam investment is seen at ~€0.5bn.
- Moody’s-adj leverage of 3.8x seen declining to <3.5x this year against a downside threshold of not declining towards 2.5x. RCF/debt of 1.5% seen rising to 19.3% this year against downside threshold of not returning toward 30%. Both thresholds on a sustained basis.
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SCANDIS: EURSEK and EURNOK Extend Last Week's Selloffs
Feb-10 11:47
Scandi currencies outperform the G10 basket this morning, with EURNOK and EURSEK each 0.4% lower, extending last week’s selloffs.
- Bearish momentum in EURSEK has been bolstered by a cross of the 50- and 200-day EMAs, with the cross now through Friday’s low and eyeing the Sep 27th low at 11.2450. Speeches from Riksbank’s Seim, Bunge and Jansson headline the remainder of this week’s Swedish calendar.
- NOK strength comes following the higher-than-expected CPI-ATE reading this morning (2.8% Y/Y vs 2.6% cons, 2.7% prior) and the >4.50% rally in European natural gas futures.
- Our Commodities team point to the risk to gas storage from a drop in temperatures and expected boost to heating demand in NW Europe later this week as drivers of today’s TTF rally.
- EURNOK has pierced 11.6000, a notable pivot level going back to mid-2023, which closely coincided with the Dec 4th low (11.5998) and the 61.8% retracement of the June-August '24 rally (11.5953). This exposes the November 25th low at 11.5192 on the downside.
- Tomorrow sees the release of Q4 GDP (consensus and Norges Bank see mainland GDP at 0.3% Q/Q), before Norges Bank Governor Wolden Bache’s annual address on Thursday evening.
EQUITIES: Large Santander Put Option
Feb-10 11:43
BDS2 (17th Apr) 5p, bought for 0.08 and 0.09 in ~29.4k.
US TSYS: Unfazed By Latest Trump Tariffs
Feb-10 11:43
- Treasuries sit mildly twist steeper from Friday’s close, giving a sense of downplaying Trump’s weekend steel and aluminum tariffs announcement.
- That being said, there could still be sensitivity to upcoming details on those tariffs. Today’s docket meanwhile is particularly light although NY Fed inflation expectations take greater prominence than usual considering the partisanship clouding the U.Mich readings.
- Cash yields range from 0.5bp lower (front-end/belly) to 1.5bp higher (30s).
- 2s10s sits at 21.6bp (+0.8bp) vs overnight lows of 19bp but it’s still one of the lowest since mid-to-late December.
- TYH5 has kept to narrow ranges, currently at 109-05+ (-02) on modest cumulative volumes of 305k.
- The short-term trend needle points north, with resistance seen at 110-00 (Feb 7 high, snap reaction to NFP print) before 110-14 (Dec 14 high). To the downside, support at 108-20+ (Feb 4 low).
- Data: NY Fed inflation expectations Jan (1100ET)
- Bill issuance: US Tsy $84B 13W & $72B 26W Bill auctions (1130ET)
