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Repsol share price sunk after earnings: buy the dip

By:
on Apr 25, 2024
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  • Repsol's stock price dipped sharply after publishing its Q1 earnings.
  • The company's profits dropped sharply in the quarter as gas prices fell.
  • The company has committed to boost its shareholder returns.

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Repsol (ETR: REP) share price dipped on Thursday after the company published weak financial results. It dipped by over 1.30% and reached its lowest level since March 11th this year. It has dropped by 10% from its highest point this year, meaning that it has moved into a correction zone.

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Repsol’s earnings retreated

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Repsol, the 13th biggest Spanish company, published weak financial results. In a statement, the management said that the adjusted income tumbled from €1.89 billion in the first quarter of 2023 to €1.26 billion in Q1’24. Its net income also plunged to €969 million, down from the previous €1.1 billion.

The retreat was because of all its businesses, including upstream, industrial, customer, and low generation. Its upstream’s operating income fell to €442 million while its industrial income crashed by 32.8% to €731 million.

The company’s business struggled because of weak gas prices, higher exploration costs, and divestments of its Canadian business. Also, the company noted that its industrial business was struggling because of its refining, trading, and wholesale business. Also, it struggled because of its mobility and LPG business.

Still, analysts believe that the company will execute a good turnaround in the coming months. As part of this strategy, the firm expects to return between 25% and 35% of its cash flow to dividends and share buybacks. 

It expects to return about €10 billion to shareholders by 2027, a significant number considering that it has a market cap of about €18 billion. It is already also boosting its buybacks and dividends.

A key risk for Repsol is that it is boosting its investments in clean energy. For example, it acquired ConnectGen, an American company in the clean energy business in a €2.1 billion deal. It also started producing clean energy in Cartagena, a company that will produce sustainable aviation fuels (SAF).

Clean energy is a good investment on paper, but as other companies have shown, generating returns in the sector is tough. Companies like BP and Shell are all pulling back from their clean energy investments.

Repsol share price forecast

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repsol share price

REP chart by TradingView

Turning to the daily chart, we see that the REP stock price has pulled back from the year-to-date high of €16.22 to a low of €14.53 today. It has moved below the crucial support level at €15.50, its highest swing in September last year.

The stock has remained constantly above the 100-day Exponential Moving Average (EMA), which is a positive sign. Also, the stock has formed a cup and handle pattern, which is a positive sign.

Therefore, there is a possibility that the stock will bounce back in the coming months. If this happens, the next point to watch will be at €15.50, the upper side of the cup and handle pattern. A move above that level will see it jump to a high of €16.20.

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