Try as it might to talk itself up, Eni’s low stock market valuation shows that the Italian energy giant is given less respect than peers. Imminent spinouts of its renewables unit and now its Norwegian subsidiary could change that.
On Monday, Eni fired the starting gun for the initial public offering of Var Energi, of which it owns nearly 70 per cent.
The business is active on Norway’s Continental Shelf. The region has had plenty of admirers in recent years, in contrast to the out-of-favour UK North Sea. Var should accordingly be worth about $13bn, according to analysts at Société Générale.
Norway is responsible for well over half of Europe’s oil production and reserves. BP, Equinor and Lundin Energy have all been active there. Last month, Oslo-listed Aker BP gobbled up Sweden’s Lundin, whose main operations are on the NCS, for $13.9bn in shares and cash.
With Brent oil at five-year highs of $87 a barrel, who can blame Eni and buyout partner HitecVision for raising a sale sign? Even considering the oil and gas output from the enlarged Aker BP, Var would be the second largest of foreign-owned exploration groups in Norway.
The owners will sell only part of this relatively mature business. Assuming a fifth goes to new shareholders, one can assume that Eni’s slice might be worth $1.8bn. That would come on top of Eni’s estimated free cash flow of $5.5bn this year. Plenitude, the renewable energy unit, is tentatively valued at $10bn.
Eni should get plenty of extra distributable cash from those three sources. The dividend yield on Eni shares is already a healthy 5 per cent. But the stock is languishing, even though plans to spin off Plenitude and Var have been well trailed. Eni trades on an enterprise value of 3.4 times its forecast ebitda, about a tenth below peers such as Total, BP and Royal Dutch Shell.
Eni is relatively undervalued on a medium-term perspective. Investors not prohibited by ESG rules from venturing into wicked hydrocarbons could do worse than hold its shares.
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