Neste Oyj: Riding the Green Wave Amid the Storm

Investors in Neste Oyj (HEL:Neste) are playing a high-stakes game of strategic patience. While the company's Q1 2025 results disappointed on earnings and revenue, its stock soared 7.8% on the day of the release—a signal that Wall Street sees more than meets the eye. Let's dive into why Neste's long-term bets on sustainable aviation fuel (SAF) and its relentless cost-cutting could make this a “buy the dip” opportunity.

The Near-Term Storm: Missed Targets, but a Strategic Shift

Neste's Q1 2025 results were a mixed bag. Revenue fell short of forecasts, and the company reported a negative cash flow of €225 million, largely due to inventory normalization after prior-quarter refinery outages. Comparable EBITDA of €210 million also lagged expectations, with the Renewable Products segment hit by high feedstock costs for Chinese YUKO and Indonesian oils.

But here's the key takeaway: Neste is not just a fuel company—it's a climate tech play. The stock's surge suggests investors are pricing in the future, not the past. The company's performance improvement program, targeting €350 million in annualized cost savings by 2026, is already yielding results, with a €52 million annualized run rate achieved in Q1. This program includes refinery efficiency gains, streamlined logistics, and procurement overhauls—moves that will directly boost EBITDA margins as production scales.

The Green Bond Gambit: Funding Growth Without Breaking the Bank

Neste's issuance of a €700 million green bond in Q1 2025 wasn't just a financing move—it was a strategic masterstroke. The funds are fueling the expansion of its Rotterdam refinery into a 1.5 million-ton SAF powerhouse, which will be critical to meeting Europe's ReFuelEU mandate (6% SAF blend by 2030). This expansion, paired with its Singapore facility's flexibility to dodge U.S. tariffs, positions Neste to dominate SAF distribution in both regions.

Meanwhile, Neste's leverage ratio remains disciplined at below 40%, thanks to a refinanced €1.3 billion credit facility. This financial flexibility is vital as it ramps up capital expenditures to €1.2 billion in 2025—a bet that could pay off handsomely as SAF demand surges.

The DHL Deal: A Lifeline for SAF Demand

Neste's partnership with DHL, announced in Q1, is a game-changer. The logistics giant committed to buying 300,000 tons of neat SAF annually by 2030, locking in a massive customer for Neste's Rotterdam output. This deal isn't just about volume—it's about proving SAF's commercial viability. DHL's Sustainability Roadmap, which aims for 30% SAF blending by 2030, aligns perfectly with Neste's production timeline.

The Overhang? Overblown.

Critics will point to near-term headwinds: oversupply in renewable fuels, margin pressure from feedstock costs, and geopolitical risks. But here's why they're wrong:
1. SAF's regulatory tailwinds: The EU's ReFuelEU and U.S. incentives will force airlines to buy SAF, even at higher prices.
2. Neste's feedstock advantage: Its reliance on 97% waste/residue-based feedstocks ensures compliance with strict sustainability standards, giving it a leg up on competitors.
3. Cost-cutting is real: The performance program's savings are already materializing, and further refinery efficiencies could flip margins in 2026.

The Bull Case: SAF is the Next Big Thing

The global SAF market is set to explode. Analysts project demand to hit 20 million tons annually by 2030, up from just 1 million tons today. Neste's first-mover advantage—with 130 kilotons sold in Q1, tripling year-over-year—is a goldmine.

Buy, Hold, or Bail?

Neste isn't a “set it and forget it” investment. The path to profitability is littered with potholes like feedstock price spikes and geopolitical trade wars. But for investors with a 3-5 year horizon, here's why Neste is a buy:
- Valuation: The stock trades at just 7.95 euros, a discount to its peers in sustainable energy.
- Catalysts: Rotterdam's ramp-up, DHL's offtake, and 2026 EBITDA targets all create potential upside.
- Moat: Neste's technical expertise in refining complex feedstocks and its existing scale in SAF production are hard to replicate.

Final Call

Neste Oyj is a company in transition—fighting short-term pain for long-term gain. While Q1's misses are a speed bump, its strategic moves in SAF, cost discipline, and partnerships like DHL make it a must-watch stock for green investors. If you believe in the future of sustainable aviation, Neste is the jet fuel of choice.

Action: Buy Neste at current levels, with a 12-month price target of €10-12 euros as SAF demand takes off.

Disclosure: This analysis is for informational purposes only and should not be taken as financial advice. Always consult a licensed professional before making investment decisions.