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Repsol YPF Update Report – 1Q 08 Results

11 July 2008

Increase in hydrocarbon and retail prices to drive company’s top-line, going forward

Common Stock
Ticker: Target price: Current price:


Direct access to theprice based on fundamental factors, at a weighted average of target have calculated the target full report free of charge using prices obtained using DCF and comparative valuation methodologies. We continue to take a 6–12 month investment horizon for this stock, as the commodities market in which the company operates is
We reiterate the common stock to a BUY with a 6–12 month target price of €27.32 per share.

Fundamental research indicates a 19% upside in the common stock over the next 6–12 months. We

REP.MC €27.32 €22.99

highly cyclical and therefore trends can be captured more accurately within a shorter investment horizon.

Ticker: Target price: Current price:

REP US$40.98 US$36.66

The ADR is expected to appreciate approximately 12% over the next 6–12 months as the 19% fundamental upside is offset by 6 percentage point’s downside attributable purely to the anticipated depreciation of the Euro against the US dollar and 1 percentage point downside attributable to the reduction of current premium over the same period1.

We reiterate the ADR (1 ADR = 1 common share) a BUY with a 6–12 month target price of US$40.75.

Supervisor: Nirav Shah Analyst: Deepak Chugh Editor: Matthew Bridle Global Research Director: Satish Betadpur, CFA Next news due: 2Q 08 results, 31 July 2008

Investment horizon- short term actionable trading strategies
This report addresses the needs of strategic investors with a long term investment horizon of 6-12 months. If this report is provided to you by your broker under the Global Settlement, you may now also access (free of charge) the short term trading outlook that we publish from time to time for this issuer, looking at the coming 5-30 days for readers with a shorter trading horizon. These are available online only at

Report summary
Repsol YPF (Repsol) reported a robust increase in its top-line during 1Q 08 driven by strong performances across all of its business segments. Although its operating margin was impacted by a rise in input costs, its net margin improved with a decline in the effective tax rate given the divestment of its YPF segment. Going forward, we are confident of an expansion in the company’s production volumes given the company’s extensive capital expenditure plans coupled with the onset of drilling at its recently discovered field in Carioca. An expansion in production capacity coupled with our anticipated increase in crude oil and gas prices in the short to medium term will benefit the company’s top-line over our investment horizon. However, rising prices for oil are likely to increase input costs within its Downstream segment, pressuring Repsol’s margins. However, based on our fundamental outlook and current price levels, we view Repsol’s common stock as an attractive buying opportunity.

Currency impact for US investors
By itself, the impact of the anticipated currency movements on the ADR (now US$36.66), without considering changes in the share price, is broadly negative and is expected to be: Over 6 months: US$39.04 Over 12 months: US$34.86

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Refer to page 4 for all footnotes