UBS Pulls Back on Neste, Citing 30% Rally That Packs In Regulatory Gains

UBS has switched gears on Neste (HE:NESTE), lowering its rating from buy to neutral. The reason? The stock's roughly 30% surge over the past two months has seemingly priced in the optimistic regulatory landscape that was expected to fuel Neste's growth, leading to a 2% dip in shares following the downgrade.

Despite this, UBS bumped up its price target from €20.50 to €23, which doesn't leave much room above the recent closing price of €21.68. The stock now trades near its three-year average, sporting an enterprise value-to-EBITDA multiple of 8.3x-a sign that the market may have already digested much of the favorable news.

The brokerage team points out that Neste's current share price roughly equates to a Renewable Products (RP) margin of about $580 per tonne. This is practically in line with their projections of $586 in 2026 and $602 in 2027, signaling that expectations might be well accounted for in the current valuation.

Looking ahead to the firm's Q4 earnings report set for February 5, UBS expects a mixed bag. They forecast an RP margin of $408 per tonne for the quarter, which is below the consensus of $457. This variance is driven largely by heavy maintenance work that has constrained production capacity.

Indeed, Neste's Rotterdam plant was offline for roughly half of Q4, with the Singapore facility also entering a turnaround period. Management previously hinted that these outages could knock up to $100 off the RP margin per tonne, influencing near-term profitability.

UBS responded by trimming its 2025 earnings per share forecast by 18% to €0.53, reflecting headwinds from falling diesel prices impacting both renewable and conventional oil products. However, it lifted its 2027 EPS outlook by 21% to €1.96, banking on a rebound in RP margins further down the line.

The analyst house expects RP margins to come in at $586 per tonne for 2026, topping the consensus of $546, though they admit there's quite a bit of unpredictability, especially regarding the mix between spot and term sales. Notably, spot margins have clocked around $900 year-to-date compared with roughly $550 for longer-term contracts.

UBS also upgraded its view on renewable diesel and sustainable aviation fuel demand for 2026, anticipating a pickup following supply hiccups in 2025. While changes to European regulations-particularly in Germany-have reduced downside risks for the next couple of years, the overall risk-reward now looks balanced rather than skewed heavily positive.

Neste runs renewable diesel operations across Europe, Asia, and the U.S., boasting a capacity of 5.5 million tonnes annually, alongside a large-scale refinery in Finland. The Finnish government still holds a significant stake of about 44%, anchoring government interest in the company.