Neste Q3'25 preview: Strength in the European market

Translation: Original published in Finnish on 10/28/2025 at 7:30 am EET.

Neste will publish its Q3 report on Wednesday at around 9.00 am EET. Earnings are expected to have strengthened from the comparison period, which set a low bar. The recent strengthening of the European renewable diesel market is positive for Neste, and the uncertainty related to the coming years has clearly decreased. Reflecting this, we have made clear forecast upgrades, but we believe that due to the recent rally, the stock is already pricing these in. Against this backdrop, we raise our target price to EUR 18.0 (was EUR 14.0) but reiterate our Reduce recommendation.

Earnings strengthen from a subdued comparison period

We forecast Neste's Q3 comparable EBITDA to have risen from a weak comparison period level to 434 MEUR (was 383 MEUR), which is below the median forecast of a very fragmented consensus. The European renewable diesel market has been strong since early summer, reflecting its supply-constrained nature. Reflecting this, spot prices have risen significantly, and we have made upward revisions to our short-term forecasts. However, it should be noted that Neste had already sold part of its Q3 sales at this stage, and in addition, it has, as usual, had annual contracts for 2/3 of its annual sales concluded in different market situations. Thus, Renewable Products' ability to benefit from short-term market developments has been limited.

Our forecast for Renewable Products' sales volume in Q3 is 1.1 Mtons, representing a healthy 10% growth from the comparison period. We also forecast the segment's sales margin to have risen to USD 450/ton (Q3'24: USD 341/ton), which is still an absolutely modest level given the aforementioned factors. We also expect a slight improvement in the result for Oil Products due to product margins and thus a higher refining margin (Q3’25e USD 12.5/bbl vs. Q3’24 USD 10.6/bbl).

Guidance likely to be reiterated, focus on margin outlook

Neste has guided that sales volumes in Renewable Products and Oil Products will grow from the previous year. This reiteration in the Q3 report should be a given due to the low comparison figures. In our assessment, Neste's ability to improve its margin for Q4 is limited, partly due to its restricted capacity to benefit from the spot market because of annual contracts and maintenance activities. The recent rise in the European spot margin indicates a significantly healthier market situation than before, and it comes at a crucial time, also considering Neste's investment outlook. More important than the short-term margin level, however, is where the margin for 2026-2028 settles. In line with recent developments, we have raised our forecasts for this, and our EBITDA forecasts for 2026-2027 increased by 5% and 11%. We note that the balance of supply and demand can change rapidly, as there is still global overcapacity in the market.

Pricing reflects a healthy market situation

The valuation of the stock is quite high in relation to the company's current earnings level (2025e EV/EBIT multiple 41x). As the margins of Renewable Products recover, the market's focus has shifted to the company's earnings potential in the coming years. We have estimated the valuation level of Renewable Products in a sum-of-the-parts calculation, based on which Renewable Products is valued at approximately 10x EV/EBIT multiple relative to our estimated earnings level for 2028-2029. This earnings potential relies on the assumption of a healthy market situation and a sales margin higher than recent historical levels. Thus, in our view, the current share price already includes significant assumptions about a sustainable recovery in the market situation. At the same time, we believe that a good expected return at the current share price level would require stretching margin expectations too high.