Translation: Original published in Finnish on 10/28/2025 at 8:15 am EET.

The high refining margin in the Oil Products segment drove Neste's Q3 result clearly above our estimates. We have revised our refining margin estimates for the segment upwards, while our Renewable Products estimates, which had already increased in connection with the earnings preview, remained broadly unchanged. We do not change our target price of EUR 18.0 or our Reduce recommendation, even though the increase in short-term cash flow forecasts somewhat lowers the risk level for the coming years.

The refining margin for Oil Products was strong in Q3

Neste achieved a comparable EBITDA of 531 MEUR in Q3, which clearly beat both our and consensus estimates. The earnings level of Renewable Products grew largely as expected, driven by an elevated sales margin. However, in absolute terms, the sales margin for Renewable Products is far from the peak years. However, the group's clear earnings beat was driven by Oil Products, where the overall refining margin rose significantly above long-term historical levels, reflecting high product margins for gasoline and diesel. By the end of Q3, the free cash flow for the current year has been significantly negative at -173 MEUR, and thus indebtedness has remained high (Q3’25: net debt/EBITDA 4.3x).

The recovery of the market comes at a good time

Neste has guided that its sales volumes for the current year will grow in both Renewable Products and Oil Products. This is quite expected, as the bar is set low for both segments against weak low comparables. Due to volume constraints caused by maintenance activities in Rotterdam and Singapore, and the company's usual annual contracts already in place, Neste is unable to significantly benefit in the short term from the strengthened market situation for renewable diesel in European road transport. Thus, in Q4, we do not expect earnings growth in Renewable Products, but the current margin outlook supports the conditions for earnings growth next year. The recent strengthening of the market has come at an excellent time for the company, as the Rotterdam expansion will still consume a significant amount of investments next year (estimated 700 MEUR).

Upward pressure on Oil Products forecasts

We have made upward revisions to our forecasts for the coming years, largely concentrated in the Oil Products segment. At the EBITDA level, our forecasts increased by 1-3% as we raised our total refining margin forecasts for the segment. Longer-term earnings growth in our forecasts is driven by both volume growth and an increase in the sales margin in Renewable Products, which we expect to raise the segment significantly higher than its current level by the end of the decade. A key risk to these forecasts is the Renewable Products market and the balance between its supply and demand.

The price has sufficient long-term earnings potential

The valuation of the stock is quite high in relation to the company's current earnings level (2025e EV/EBIT multiple 45x). However, with the improved margin outlook for Renewable Products, the market's focus has already shifted to the earnings potential of the coming years. We have estimated the valuation level of Renewable Products in a sum-of-the-parts calculation, according to which Renewable Products is priced at approximately 10x EV/EBIT ratio relative to our earnings forecast level for 2028-2029. This earnings potential is based on the assumption of a healthy market situation and a higher gross margin than in the recent past. Thus, in our view, the current share price already contains significant assumptions about the market situation improving. At the same time, we believe that a good expected return at the current share price level would require stretching margin expectations too high.