Analysts cheer Fina outlook

23 September 1997 18:51  [Source: ICIS news]

HOUSTON (CNI)--Just 20 days after its debut on the New York Stock Exchange, Belgian company PetroFina earned Tuesday a "buy" recommendation Tuesday from J P Morgan Securities, despite a muted outlook for its petrochemicals businesses.

In a 20-page company update, analysts from J P Morgan's London office predicted that PetroFina's chemicals business will contribute $351m (BF13.7bn) to the company's profits for this year - 28% of the estimated $1.3bn (BF48.8bn) total - and $251m (BF9.3bn) - 24% of the $1.03bn (BF38.5bn) total for 1998.

Overall, the analysts like PetroFina's outlook for upstream marketing but warn that petrochemical earnings should decline in 1998. They reported: "PetroFina remains one of the more exposed of the European oils to petrochemical margins. If new ethylene capacity in the United States comes onstream in line with our expectations, the resulting fall in operating rates may lead PetroFina to suffer negative earnings growth."

On PetroFina's chemicals business, Morgan said the company benefits from two major strengths, the scale of its refineries and the integration of its operations.

Calling PetroFina's refineries "world-class facilities," Morgan emphasised that they "provide significant economies of scale." In particular the report cited the polystyrene facility in Carville, Louisiana, and the polypropylene (PP) plant in LaPorte, Texas, as the largest of their kind in the world. In addition, the report noted, PetroFina also boasts Europe's largest PP plant in Feluy, Belgium.

Morgan said: "PetroFina has announced further expansions of its existing network." The analysts listed plans for a 100% increase in capacity by 2000 at PetroFina's Bayport, Texas, plant from its 1996 level of 195 000 tonne/year, boosting high density polyethylene (hdPE) capacity in the US. Meanwhile, they said, PetroFina will add 50 000 tonne/year capacity at its Feluy hdPE facility by next spring.

"These large investments should, in our opinion, improve economies of scale further for the company," the analysts reported.

They said: "PetroFina's cost positioning and strong integration are, in our opinion, major advantages, having enabled the company to withstand industry downturns better than most."

But the report identified Sigma - PetroFina's paints division - as its "weakest link." The analysts said they see little benefit from keeping that business within the group.

By: Gary Taylor
+1 713 525 2653

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