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Analysis of Eni S.p.A.

Analysis of Eni S.p.A.

23 March 2022

Eni is engaged in the exploration and production of crude oil, as well as natural gas. The company operates in 4 segments:

1 “Exploration and Production” is engaged in the exploration and production of oil, condensate and natural gas, and also conducts projects for the conservation of forestry and the capture and storage of CO2.

2 “Global Gas & LNG Portfolio” is engaged in the supply and wholesale of natural gas through pipelines, as well as international transport. In addition, Eni sells LNG.

3 “Processing, Marketing and Chemistry” deals with the processing, supply, distribution and marketing of fuels and chemicals.

4 “Electricity & RES” is engaged in retail sales of gas, electricity and related activities, as well as the production and wholesale of electricity produced by thermal power plants and renewable energy sources.

The headquarters of Eni is located in Rome, Italy, it was founded in 1953.

Revenue for last year was equal to revenue for 2018, and there was a drop between them, in covid 2020 by almost 2 times. The pandemic times were clearly hard for the company: a net loss for 2020 of 9 billion euros. Free cash flow of 194 million euros. Of course, the indicators returned sharply in 2021. In total, today the company has the following multipliers:

P/E 7.6, forward P/E 7 (average current by competitors 27)

P/B 1 (industry average 1.6)

P/S 0.6 (industry average 1.3)

Debt 33 billion euros with current operating cash flow 12.8 billion euros

The dividends are $2.04, the yield is 6.8% per annum.

Stock Price: $28

The cash flow discounting model shows a fair price of $32.

Simply Wall Street values the company at $35.

Eni has one of the highest dividends in the industry, slightly higher only for the French Total. Moreover, Eni can easily afford to pay them: they account for 54% of net profit and 43% of free cash flow. Despite the large debt, the company is well capitalized due to high oil prices in the last 1.5 years.

Among the risks, it is worth noting falling assets and a negative profit forecast in the next 1-3 years. Dividends are usually high, but unstable: if profits fall, the company may reduce its dividends. However, there are no prerequisites for this yet. They pay twice a year: in May and in September. The next last day when shares are traded with dividends is May 23.

The shares are trading below the 20 and 50 day moving averages, which are at 29.8. But below the 200 day MA, which lies at $27.

If you put Brent and Eni prices on the chart, you can see that the cost of a barrel has grown above its pre-Covid highs, while Eni shares have not. Since all oil companies correlate to one degree or another with the barrel chart, Eni now has a noticeable upside.

Conclusion:

We believe that if the chart falls below $27, it is worth gaining long-term positions, since the company’s indicators allow us to count on business growth, and a high dividend yield protects the shares from a strong fall. If a barrel of Brent does not fall below $80, then Eni will have a wonderful year, which will reduce debt, and therefore increase the value of the business and the price for it.

It is a good asset located in the eurozone and carries fewer risks than Brazilian Petrobras or Saudi Aramco. Especially, it is worth paying attention to those who need to hold assets in the eurozone, as well as those who believe in the growth of oil.

23 March 2022
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