ANALYST VIEW - UBS upgrades Hungary's MOL to 'Buy' (2)

http://portfolio.hu/en/cikkek.tdp?k=1&i=19541

UBS has on Friday upgraded Hungary’s MOL to 'Buy’ from 'Sell’, yanked its target price up to HUF 20,500 from HUF 14,000 and selected the stock as its top pick in the CEE oils sector. It said MOL has numerous catalysts absent elsewhere in the CEE peer group that could drive the share price. In addition, UBS believes MOL has "significant organic growth potential from its upstream (production growth), its new gas storage facility, and in particular, the restructuring of INA."

n a research note on the European refining sector, UBS has also upped its target price for Tupras to YTL 30 from YTL 25, while it maintained its 'Neutral’ rating and raised its TP for PKN Orlen to PLN 27 from PLN 23 ('Sell’ rating), saying the latter was its least preferred stock in the sector.

"MOL has attractive drilling catalysts in 2010, which are absent elsewhere in the sub-sector. We also believe there is a re-rating story in the making at MOL, as we expect attractive growth rates from the restructuring of INA and the projects in gas and power," UBS said.

The upgrade came about because UBS is now "more excited" about MOL’s E&P prospects after updating its valuation for Kurdistan, as well as applying a lower discount (to c10% from 20%) to its increased sum-of-the-parts valuation, as UBS is less concerned by the involvement of Surgut.

"We also believe that the unconventional gas play is far from over, despite recent disappointments, and highlight this as a potential upside to our valuation, as we have not attached any value to the upside potential. Nevertheless, we retain a 10% discount, to reflect country risk, but also a degree of caution regarding Surgut, as the market still is not aware of its intention as MOL’s largest shareholder. We do not believe that MOL is a takeout candidate, given its shareholder structure."

Meanwhile, in a separate research note, Credit Suisse has also riased MOL's target price to HUF 20,725 from HUF 18,529.

UBS said only two days ago that it maintained its 'Sell' rating and HUF 14,000 target price for MOL, considering the Hungarian fuels group's Q4 earnings report as negative.

It said one of the most positive developments was a decline in net debt to HUF 925 bn from HUF 977 bn in Q3 and below its own forecast of HUF 971 bn. This leaves gearing at c33%, down from 37% in the previous quarter.