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Neste bullish on renewable fuel, but shares dip

Finnish fuel firm Neste posted rising profits in its second quarter, saying it expects strong growth in renewable energy. Investors were not impressed, though.

Nesteen huoltoasema Hietalahdessa Helsingissä.
A Neste filling station in Helsinki (file photo) Image: Timo Jaakonaho / Lehtikuva

Finnish energy giant Neste said on Friday that its core operating profit for the April-to-June period rose to 277 million euros from 236 million during the same period of last year.

Turnover was up by 3.75 billion euros, compared to 3.3 billion in the second quarter of 2017.

Neste estimates that higher prices gave an 800-million-euro boost to its turnover over the three months. It says that comparable profits for its renewable fuels climbed to 177 million euros from 101 million in spring 2017.

"Very strong" guidance for 2018

It predicted strong margins in its renewable products division for the rest of 2018, upgrading its outlook for this year from "strong" to "very strong".

However results from its traditional oil products were weaker than a year earlier.

Overall, the firm’s results were close to expectations based on a Reuters poll of analysts. They had predicted a second-quarter operating profit of 278 million euros – a million higher than the actual figure announced on Friday morning. Total revenue exceeded analysts' expectations of 3.39 billion.

Stock slide

However Neste’s results disappointed investors. Neste was the most heavily-traded equity on the Helsinki Stock Exchange on Friday morning, losing more than five percent in value after the opening bell.

It become the second biggest decliner in the European Stoxx 600 index, dropping as much as 6.2 percent, but recovering somewhat later.

Neste shares have nearly doubled in value over the past year, thanks largely to its profitable biofuel business.

Billing itself as the world’s leading renewable diesel producer, the company makes diesel and other fuels from renewable materials in the Netherlands and Singapore. The latter facility may be expanded, says CEO Matti Lievonen.

The company also has two conventional oil refineries in Finland, in Naantali and Porvoo.

Friday’s decline was mostly due to the so-called additional margin in the renewable product division disappointing in the second quarter, OP Equities analyst Henri Parkkinen told Reuters.

Trade war could be a plus

Reuters reports the trade war between the US and China could benefit Neste if it leads to an oversupply in the vegetable oil it uses as feed stock. China ratcheted up import tariffs on US soybeans.

"We are seeing a downward trend in the vegetable oil market, partly due to the trade war," Lievonen told the news agency.

Following criticism over its reliance on palm oil, Neste now uses more than 10 different raw materials for its renewable fuels. They range from fish and other animal fats to used cooking oil.

The Finnish state is Neste’s biggest stockholder with nearly 45 percent of shares. The Social Insurance Institution (Kela) and the State Pension Fund (VER) are also among the five biggest owners.

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