Repsol Earnings: Shares Slide Despite Positive News on Shareholder Payouts

No-moat Repsol's first-quarter adjusted earnings rose to EUR 1.9 billion compared with adjusted earnings of EUR 1.1 billion a year ago largely on higher refining margins and improved utilization rates. Repsol announced it will return about 30% of cash flow in 2023, including a EUR 0.70 per share dividend in 2023 and the repurchase of 50 million shares before end of July. Additional repurchases later in 2023 are likely. The 2023 payout is at the upper end of Repsol's previous guidance range of 25%-30%. It is positive but below some peers, such as Total, which plans to pay out 40%. Given the relatively low debt load, investors might have been expecting more, potentially explaining the sell-off. The quarter's operating cash flow increased to EUR 1.8 billion from EUR 1.1 billion the year before; this covered capital spending and dividends despite increases in both. Net debt including leases decreased to EUR 880 million from EUR 5.9 billion the prior year, leaving Repsol with a gearing ratio of 3%, one of the lowest of its peer group. Upstream's adjusted earnings fell to EUR 474 million in the first quarter from EUR 731 million a year prior on lower gas realization prices and higher production costs. Production rose to 608,000 barrels of oil equivalent a day from 558 mboe/d last year due to new wells in the U.S., Libya, and Norway. The industrial (refining and chemical) segment's adjusted earnings grew to EUR 1,279 million compared with adjusted earnings of EUR 235 million the year before on strong refining margins and higher utilization rates. We expect continued strong performance from the segment even as distillate margins have weakened further in April, according to management. They remain high relative to historical levels, benefiting Repsol as its downstream is a relatively larger contributor to total earnings compared with peers. Management's comments on weakening margins could have contributed to the selloff. No change to our EUR 15 fair value estimate.