What is the fair value of Neste

After discussing the opportunities and challenges for Neste with my copilot, I have found out the following points:

The industry outlook

Oil products (49 % of Neste's revenue)

• Global oil demand is expected to plateau or decline slightly (-)
  • Increased adaption of electric vehicles
  • Improvements in energy efficiency
• Oil supply is expected to be good or superfluous (-)
• Oil prices will probably experience volatility (n)
• Road transport demand for oil will probably decline (-)
• Aviation and petrochemicals demand for oil will probably increase because the lack of alternatives (+)

Renewable products (30 % of Neste's revenue)

• Renewable fuels
  • The global production of renewable fuels, like biofuels and sustainable aviation fuels, is expected to expand significantly. (+)
  • Governments worldwide are likely to implement regulations and incentives to promote the use of renewable fuels. (+)
  • Innovations and technological advancements will enhance the efficiency and cost-effectiveness of renewable fuel production. (+)
  • The demand for renewable fuels is expected to rise, particularly in sectors that are hard to electrify, such as aviation and maritime transport. Especially sustainable aviation fuel is projected to see substantial growth when airlines try to be greener. (++)
  • International cooperation and partnerships will play a crucial role in the development of the renewable fuels industry. (-)
• Recycling plastics
  • The global recycling rate for plastics is projected to rise as more countries implement stricter regulations and policies to reduce plastic waste. Europe, for example, aims to recycle 50% of all plastics by 2030. (++)
  • The demand for recycled plastics is going to increase because of industries seeking sustainable materials. The global recycled plastics market is projected to reach $66.9 billion by 2025. (+)
  • Rising consumer awareness about the environmental impact of plastic waste will drive demand for products made from recycled plastics. (+)

Marketing and services (19,8 % of Neste's revenue)

• The management of service stations and convenience stores
  • Many fuel retailers plan to modernize existing stations with alternative fuels like biofuels and hydrogen, and installing more EV charging points to cater to the growing number of electric vehicles. (+)
  • Convenience stores at service stations will offer a wider range of products. (-)
  • Upgrading existing stations to support alternative fuels and EV charging requires significant capital investment. (+)
  • Ensuring a consistent supply of alternative fuels and managing the logistics of new product offerings can be complex. (++)
• Providing tailored solutions for businesses, including fuel cards and bulk fuel deliveries
  • Fuel card issuers will focus on providing a seamless and intuitive user experience which includes the development of mobile applications that allow customers to manage their accounts, monitor transactions, and access real-time data easily. (?)
  • There will be a stronger emphasis on sustainability, with fuel card programs integrating options for renewable fuels and EV charging. (+)

Research and development

Given their R&D expenditure of 94 million euros, Neste spent about 0.41% of their total revenue on this.

Compered to other companies

• BP: In 2023, BP spent approximately 298 million USD on R&D. With BP’s revenue being around 241 billion USD, this represents about 0.12% of their revenue.
• ExxonMobil: ExxonMobil’s R&D expenditure in 2023 was significantly higher, at around 1 billion USD2. Given their revenue of approximately 344.6 billion USD, this amounts to about 0.29% of their revenue.
• Shell: Shell’s R&D spending was around 900 million USD in 20234. With a revenue of about 381 billion USD, this is roughly 0.24% of their revenue.

Comparatively, Neste’s R&D spending of 94 million euros (approximately 100 million USD) is about 0.41% of their revenue, which is higher proportionally than BP, ExxonMobil, and Shell. (+)

Regulatory Environment

The regulatory landscape is heavily influenced by climate policies aimed at reducing greenhouse gas emissions. This includes mandates for renewable fuel content in transportation fuels and incentives for the production and use of sustainable aviation fuel1.

Stringent environmental regulations, including those related to emissions, waste management, and the use of renewable resources maybe become less stricter in USA. This could mean a rollback of environmental regulations that Neste has aligned with, such as those promoting renewable fuels and reducing carbon emissions1.

Neste has a significant presence in the USA.

A Trump administration might prioritize fossil fuel production, potentially impacting the market for renewable fuels. Neste would need to adapt its strategies to remain competitive, possibly by emphasizing the economic benefits of renewable fuels and their alignment with long-term global trends.

Tariffs or trade barriers could impact the import and export of raw materials and finished products1.

Despite federal policy shifts, many states and local governments in the U.S. continue to pursue aggressive climate and sustainability goals. Neste could focus on these markets to sustain its growth and influence1.

Neste’s ongoing investments in innovation and sustainable technologies could help buffer against policy changes. By continuing to lead in renewable fuels and sustainable solutions, Neste can position itself as a forward-thinking company, regardless of federal policy shifts1.