Eni S.p.A. (FRA:ENI, Financial) (E, Financial), the Italian global oil and gas producer headquartered in Rome, was down March 20 on both markets, the Borsa Italiana and the New York Stock Exchange after the news that the Italian state Treasury (or Dipartimento del Tesoro) has confirmed Emma Marcegaglia as chairman and Claudio Descalzi as the CEO of the company.
Eni S.p.A. key people are appointed by the Italian state Treasury, a department of the Italian Ministry of Economy and Finance, since the Italian government maintains control over the company with a 30.1% golden share in Eni S.p.A., as of March 16, 2016. Eni S.p.A. was established by the fascist regime as a state enterprise since its founding (the Italian Petroleum Agency Agip) and reorganized by Enrico Mattei after the fascist regime for the purpose of promoting national interest in the field of methane.
People's Bank of China holds another 2.102% of the company’s total number of shares outstanding.
On Borsa Italiana the Italian energy stock lost 0.56% after the news, or down 7 cents, from 14.92 euros ($16.04) on March 17 to 14.85 euros on March 20, with a volume of 14,681,212 shares traded on the Italian stock market versus an average volume of 18.67 million shares traded over the last 10 trading days and versus an average volume of 14.11 million shares traded over the last three months.
Eni S.p.A. opened at 14.93 euros per share March 21 and is currently trading at 15.13 euros, up 27 cents or plus 1.82%.
Eni S.p.A., one of the global supermajors with a market capitalization of 54.2 billion euros on Borsa Italiana and $55.95 on the New York Stock Exchange, has operations in 69 countries, which are categorized in the following segments: Exploration and Production, Gas and Power, Refining and Marketing and Engineering and Construction.
The core business of Eni S.p.A. is oil and gas, a leader in the industry, but the company is also engaged in other industry areas such as exploration and refining activities, liquefied natural gas (LNG) market, power stations, hydrocarbons and renewables.
Eni S.p.A.’s strategy for the coming years is creating sustainable value in a period characterized by low oil and gas prices, shifting Eni S.p.A. into an integrated energy company from a pure oil producer and marketer.
Going through a period characterized by low prices of oil and gas, the company will secure the dividend to its shareholders through:
- A 21% reduction in the Capex of the group: in 2016 the upstream capex was decreased by 18% to 9.2 billion euros from 11.3 billion euros in 2015. Eni Spa’s EBIT will stay “positive and resilient in all its business activities,” the company says.
- The renegotiation of long-term contracts that will bring in 3.5 billion euros in savings by 2019 in the gas and power segment. In terms of cash flow from operations, Eni S.p.A. aims “to cover the CAPEX and dividend coverage with Brent at $60 per barrel in 2017 (compared to <$75 per barrel in the previous plan) and CAPEX and dividend coverage with Brent <$60 per barrel in 2018-19”;
- The enhancement of efficiency at refining operations that will reduce the break-even margin to about $3 per barrel in two years’ time;
- The disposal of Eni S.p.A.’s new bigger discoveries for a total amount of 7 billion euros to be monetized before 2019.
The company will pursue these targets with an eye on the Total Recordable Injury Rate (TRIR) that Eni S.p.A. has reduced from 0.7 in 2014 to 0.35 in 2016 and aims to bring it to zero starting next year and on the environment. The company says that “in the period 2010-14, Eni reduced its greenhouse gas emissions by 27%, from 59 million to 43 million tons of CO2 per year and have set a target for an additional reduction in unit emissions of 43% by 2025.”
The company closed the fiscal year of 2016 with revenue coming in at 55.762 billion euros, a 22.9% decrease from the same figure in 2015, Operating Income of 2.16 billion euros, an adjusted operating profit of 2.315 billion euros, a 48.4% decrease on a year-over-year basis and cash from operating activities of 8.56 billion euros, 20.4% lower than CFO of the prior year.
Claudio Descalzi, the CEO of Eni S.p.A., said the production will grow at an average rate of 3% per year over the next four years’ time. Fiscal 2016 production was at 1.76 million barrels of oil equivalent per day, flat from the production of 2015.
As of the last quarter of 2016, the company has 12.078 billion euros in cash on hand and securities, the total Long-Term Debt amounts to 20.564 billion euros with a LT Debt to Equity (MRQ) ratio of 38.77 versus an industry average of 28.73 and an interest coverage ratio of 2.88 versus an industry average ratio of 1.87.
Eni says it plans to pay a dividend of 80 euro cents per share for the year, exactly as it was last year. Forty euro cents per share has already been paid as an interim dividend.
The energy stock is trading at 1.08 times its book value per share and at 0.98 times its sales on the Italian stock market. The Forward price-earnings (P/E) ratio is 16.80.
The stock has a recommendation rating of 2.3, and the average target price per share is 16.67 euros.
Disclosure: I have no positions in Eni S.p.A.
Start a free seven-day trial of Premium Membership to GuruFocus.
