On Monday, CFRA analyst Jeff Lye adjusted the price target for Galp Energia (GALP:SM) (OTC: GLPEY (OTC:GLPEY)) to €16.00 from the previous €20.00, while keeping a Hold rating on the stock. The revision reflects a valuation based on a 2025 EV/EBITDA multiple of 4.5x, which is higher than the industry average of 3x. The premium is supported by Galp's higher return on invested capital (ROIC).
Galp reported its third-quarter earnings for 2024, with an EBITDA of €820 million, a decrease of 22% year-over-year and 3% quarter-over-quarter. However, this figure surpassed the consensus estimates by 5%. The company's performance was bolstered by the competitive costs of its Brazilian portfolio and robust trading activities in oil, natural gas, and power.
These factors helped to compensate for the weaker refining margin, which stood at $4.7 per barrel of oil equivalent, dropping by 68% compared to the same period last year and 39% from the previous quarter.
Despite the pressures, Galp's cash flow excluding working capital for the third quarter remained strong at €540 million. Nevertheless, significant capital expenditures, dividend distributions, and share buybacks during the quarter increased the company's net debt to €1.5 billion, up from €1.2 million in the second quarter of 2024. The net gearing ratio also rose to approximately 31%, marking a 6 percentage point increase quarter-over-quarter.
Galp has decided to maintain its financial guidance for the year, with expectations for EBITDA and operating cash flow (OCF) to exceed €3.1 billion and €2 billion, respectively.
Despite the better-than-expected earnings for the third quarter, CFRA has chosen to maintain its 2024 earnings per share (EPS) forecast for Galp at €1.30. Furthermore, the firm has reduced its 2025 EPS estimate to €1.28 from €1.45, opting for a cautious stance amid the anticipated increased volatility in oil prices in the fourth quarter of 2024 due to ongoing geopolitical uncertainties.
InvestingPro Insights
To complement the analysis provided, InvestingPro data offers additional insights into Galp Energia's financial position. The company's current P/E ratio stands at 8.85, which is relatively low and may indicate potential value for investors. This is particularly interesting given that Galp's stock has shown a year-to-date price total return of 23.8%, suggesting market confidence despite the challenges outlined in the earnings report.
InvestingPro Tips highlight that Galp has maintained dividend payments for 18 consecutive years, which aligns with the company's commitment to shareholder returns mentioned in the article. Additionally, the tip indicating that Galp operates with a moderate level of debt provides context to the reported increase in net debt to €1.5 billion.
It's worth noting that InvestingPro has 9 additional tips available for Galp Energia, which could offer further valuable insights for investors considering the stock's potential in light of the recent price target adjustment and earnings report.
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