Standard and Poor's (S&P) has revised its outlook on (1 6295 HUF, 0,00%) from stable to negative and affirmed the 'BB+' ratings. The negative outlook on reflects that a further downgrade of Hungary would likely result in a downgrade of , given the agency’s view of a maximum one-notch rating differential between and the sovereign rating and the risks to MOL's cash-generating capacity from weakening operating conditions.
In its last statement, S&P made it clear that rating pressures would increase on if it was to lower the sovereign ratings on Hungary. As the agency revised Hungary's outlook from stable to negative last Thursday, it was only a question of time before MOL’s rating followed suit.
Although MOL’s diversification into the E&P segment (70% of EBITDA in 2012) and its healthy liquidity justifies a one-notch rating differential between and the sovereign rating, a material divergence is hardly conceivable. Indeed, sector and Robin
Hood taxes should act as a stark reminder of how the feeble economic conditions in Hungary can act as a drag on the company. We maintain our neutral stance on . However, we note that another moderate (5%) sell-off would create a compelling entry point into the long-term value of the company. On 2013F EV/EBITDA now trades at an attractive 4.7x, or 19% below its historical average.