Since April, as the stock has risen sharply one might think that everything is going well. However, in reality, the situation has been difficult in recent years.
Demand has fallen. Several projects have been delayed. Margins have collapsed. Regulatory uncertainties have revealed the Finnish group's dependence on a protective legislative framework: without strong constraints on customers, it is difficult for Neste to remain competitive against much cheaper petroleum products. The expiration of the US tax credit has weighed on exports from Singapore. Industrial incidents have exacerbated problems: a fire in Rotterdam, equipment failure in Singapore, limited capacity elsewhere. These difficulties have led to multiple profit warnings and a decline in growth potential.
In April, the stock bottomed out. At the time, we believed that the market was overly pessimistic. Even a little good news could be enough to revive investor interest. That is what happened: the stock jumped 140%.
In February, management launched a restructuring plan. The goal is to put the company back on a growth trajectory. Between 2022 and 2024, revenue fell by 20%. Margins collapsed. At the end of the second quarter, measures taken added €107m to EBITDA on an annualized basis. Sales of renewable fuels are growing again, particularly for SAF, sustainable aviation fuel. Refining is coming back to life at the Porvoo site in Finland, which is undergoing a transformation to low-emission processes. Free cash flow returned to positive territory at €226m, compared with -€225m in the previous quarter.
This progress allows the group to move forward more confidently with the expansion of the Rotterdam plant. The cost of the project is €2.5bn. For this year, Neste has confirmed its forecasts and expects volumes to increase in its two main divisions.
The stock is performing better than at the beginning of the year. However, caution is necessary after such a surge, which is mainly due to speculation. A real recovery will depend on the consistency of good news.
