Citigroup initiates Hungary’s MOL coverage with ‘neutral’ rating

17 February 2012 14:41  [Source: ICIS news]

LONDON (ICIS)--Citigroup has initiated coverage of Hungarian oil, gas and petrochemicals group MOL with a 'neutral' rating, citing the volatility of its downstream segments, the financial services corporation said on Friday.

“The downstream business [which includes petrochemicals], while one of the most efficient in central and eastern Europe and Europe, can be volatile and hence is not a central earnings growth driver, in our view,” said Citigroup analyst Kenan Najafov.

MOL had indicated that disposals are possible for second-tier, non-strategic assets, “but in the right market environment – i.e. at the right price,” Najafov added.

“Again, we see this as a sensible strategy, but we sense that MOL is somewhat enamoured of its downstream business. We think it would be in shareholders’ best interest for management to at least consider whether there is scope for valuation creation from splitting upstream from downstream and letting them grow independently,” Najafov said.

Najafov said MOL, one of the top 10 polyolefin market players in Europe, benefited from having a highly integrated petrochemical segment.

Petrochemical production for the MOL group is largely based at the company's Hungarian subsidiary TVK and Slovak subsidiary Slovnaft.

Citigroup estimated that plus or minus €1 ($1.32) in MOL's model petrochemical margin changed the group's operating profit by plus or minus 0.1%.

($1 = €0.76)

By: Will Conroy
+44 20 8652 3214

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