Finland’s Neste Faces Renewables Test After Shares Jump 130
(Bloomberg) -- Shares in Finnish energy company Neste Oyj have staged one of Europe’s biggest rebounds this year, more than doubling since April. But with the renewable fuels market set to come under pressure, some analysts are warning the rally may soon end.
After four consecutive years of declines, Neste’s stock has gained nearly 130% over the past six months as a new management team launched a turnaround plan and investors bought up shares in European renewables firms. The biggest factor in Neste’s surge was a dramatic increase in margins on renewable diesel.
Now, there are emerging signs of stress. Neste, which generated roughly 35% of its 2024 revenue from renewable fuels and more than half from conventional oil products, could suffer from overcapacity in the renewable diesel market.
“We don’t think the renewable diesel market is out of the woods yet, despite recent spot margin strength,” Morgan Stanley analysts led by Alice Bergier Winograd said on Friday. Neste earnings are “at the mercy” of an unclear supply and demand picture, they cautioned, recommending that investors stay on the sidelines.
Others are wary, too. As the company prepares to report third-quarter earnings on Oct. 29, its shares are trading just above the €16.5 average price target among analysts tracked by Bloomberg, and one fifth of analysts have a sell or sell-equivalent rating, the most in four years.
Bank of America Corp. downgraded Neste to underperform late last month, saying earnings momentum likely peaked in the third quarter with refinery downtime and softer margins dragging down future results. “Consensus has run away,” said analyst Christopher Kuplent.
The company’s oil arm could provide support. Barclays PLC analysts led by Lydia Rainforth said last week that firms with significant exposure to refining are likely to perform well in the third quarter.
Still, the Barclays team sees challenges in the near-term.
“While we like Neste’s longer-term investment thesis offering differentiated low carbon fuels, the current market remains oversupplied and challenging,” they said. “A contracting margin environment could lead to negative earnings momentum.”
A representative for Neste declined to comment.
The corporate overhaul underway is one source of investor optimism. Chief Executive Officer Heikki Malinen has been in the role for only a year, and in February, the company announced 600 job cuts and said it would focus on cost discipline. Malinen has experience in turning around underperforming companies, including stainless-steel maker Outokumpu Oyj.
“We expect the new CEO to execute his plans in the next two years, which could reset the company,” said the Barclays analysts.
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