1. Pair Trade: Long Repsol - Short Total
Wednesday, October 17th 2012
Companies Description Investment Case
Repsol (REP SM): After the expropriation of YPF assets, Repsol
decided going into a restructuring process. The company has to
reduce debt to retain its IG rating.
It has already made good progress on its non-core asset disposal
program. Repsol sold its Chile LPG business for $54m and a 20%
Market Price Data stake of its Ecuador upstream assets to Sinopec. Repsol has received
Repsol (REP SM) non-binding offers for its LNG business. The company seems to be
Last Price (€) 15.855 prioritizing this approach over more dilutive options to EPS. But, the
YTD Change -33.20% conversion of the preference shares into mandatory convertibles is
Mkt Cap (€ bn) 19.917 still a risk.
Total (FP FP)
Total (FP FP): At its interim strategy update, Total announced a small
Last Price (€) 39.97
YTD Change 1.19% downgrade to 2015 production target. Growth is skewed to post
Mkt Cap (€ bn) 94.534 2015. Growth is expected to accelerate in 2016/7.
Source: Bloomberg
The Company aims to sell $15-20bn of assets over 2012-14 to
Analysts Recommendations: balance its cash cycle and maintain gearing within 20-30%. Increased
cost efficiencies/synergies were targeted in downstream. Total is
going through a heavy capex phase of investment, which could
penalize the company’s returns and free cash flow generation.
The Long Repsol (REP SM) Short Total (FP FP) ratio has a current
value of 0.3967. We’ll define as our target 0.4168 and use 0.3852 as
our stop-loss level. Moody’s has today confirmed Spain’s
Source: Bloomberg government bond rate at Baa3 (still investment grade). This could
give some price momentum to Repsol’s stock price.
Market Multiples
P/E EPS DY Net Debt/ Technical Comment
2013 2011/13 2013 EBITDA
Est. CAGR Est. Est. Est. 2012
Repsol 9.27 -1.99% 5.56% 2.06
Total 7.31 3.75% 5.98% 0.54
Source: Bloomberg
Next Report Date
Repsol Q3 Results November 8th (bef-mkt)
Total Q3 Results October 31st (bef-mkt)
Source: Companies' Websites
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