Oil

Greg Fujii of Amelon Capital: Short Neste Oil OYJ

Greg Fujii of Amelon Capital, InvestPitch presentation produced by sumzero and Institutional Investor on the long case for Neste Oil OYJ ADR (OTCMKTS:NTOIY).

UPDATE full presentation below.

Also see Odey Shorts JCDecaux, D.E. Shaw Shorts Neste Oil

Greg Fujii of Amelon Capital: Short Neste Oil OYJ

“RINsanity” boosted Neste Oil OYJ ADR (OTCMKTS:NTOIY)’s earnings and stock to unsustainable levels. RINs have collapsed but estimates are unchanged and shares continue to trade at a premium multiple of unachievable earnings

Summary

Nearly all of the factors driving Neste Oil OYJ ADR (OTCMKTS:NTOIY)’s extraordinary earnings and soaring stock price are reversing, yet its shares remain at elevated levels. A bubble in RIN prices, US Government tax credits, and an unsustainable US renewable fuels mandate have driven peak earnings in Neste’s Renewable Fuels division, masking deterioration in its core Oil Products segment. The market for RINs however, has collapsed, along with biodiesel prices, and the EPA has recently signaled a reduction of its mandated renewables volume. Meanwhile, the reference margin for Neste’s core Oil Products division has compressed to fresh two-year lows. Despite these quite evident negative developments, consensus estimates call for sustained earnings to which the market is applying a premium multiple. We think expectations are unachievable and that shares are conservatively worth 40% less than current prices.

Company Background

Neste Oil OYJ ADR (OTCMKTS:NTOIY) is an oil refining and marketing company focused on premium-quality, lower-emission transportation fuel. Neste’s Oil Products division (~50% of YTD EBIT) operates two refineries in Finland with a combined distillation capacity of 15 million tons per annum. Neste’s Renewable Fuels division (~40% of YTD EBIT) sells renewable diesel and has refineries in the Netherlands and Singapore with annual capacity of 2 million tons. Neste Oil Retail (~10% of YTD EBIT) operates roughly 1,000 gas stations throughout Finland, Northwest Russia, and the Baltics. Based 30 minutes outside of Helsinki, Neste has operations in 15 countries, employs 5k people, and is 50.1% owned by the Finnish State.

Neste Oil’s predecessor was formed in 1948 and listed on the Helsinki Exchange in 1995. In 1998, Neste Oil OYJ ADR (OTCMKTS:NTOIY) and Imatran Voima merged and the new company was named Fortum. In 2005, Neste Oil was spun off from Fortum and again listed on the Helsinki Exchange.

Following a period of outsized earnings mid-decade, the global recession severely pressured refining margins and industry capacity was mothballed and bankruptcies ensued. Neste Oil OYJ ADR (OTCMKTS:NTOIY) reacted by rationalizing fixed costs and expanding into biomass-based diesel fuel with two plants in Singapore and Rotterdam. Neste’s biomass-based diesel is eligible for sale in the US to satisfy mandated volumes pursuant to the Renewable Fuel Standard.

H/T Curry Goat

UPDATE: full presentation can be found here- Greg_Fujii

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