In sterling terms, since hitting a lockdown low almost exactly three years ago, the shares have clocked up a 200pc total return. Better-than-expected third-quarter results at the end of last month are cause for further optimism, even as rivals such as BP have disappointed.
Industry trends also look supportive. The American oil and gas “supermajors” ExxonMobil and Chevron, rated AAA and AA respectively by Citywire Elite Companies, both announced major deals last month. ExxonMobil is buying the shale group Pioneer Natural Resources for $60bn (£49bn) while Chevron has struck a $53bn deal to acquire the oil producer Hess. This may prove just the start of a long-anticipated wave of consolidation that could spread to Europe.
Eni’s acquisition record is less extravagant; the Italian government’s 30pc stake is a limiting factor. But a $4.9bn deal announced in June to buy Neptune Energy looks strategically sound. The takeover, which should complete early next year, will help Eni achieve a target of producing 60pc of output from gas by 2030. As gas produces fewer carbon emissions than oil, the European Commission has designated it a transition fuel, which will help underpin long-term demand.
Increasing gas production will also mean that Eni’s liquified natural gas (LNG) business becomes less reliant on third-party supplies, the risk of which has been brought home by Russia’s invasion of Ukraine.
Another opportunity for investors lies in potential divestments and in particular the mooted flotation of its green energy arm, Plenitude. Original plans for a listing were delayed last year as investors turned from hot to cold on renewable energy companies. Now Eni is considering selling a stake in the division before potentially floating it next year.
If successful, this could prove particularly beneficial for shareholders. That’s because one explanation for Eni’s low valuation is investors’ preference for oil companies that stick to their fossil-fuel roots and hand back excess cash to shareholders via dividends and share buybacks rather than spending it on expensive renewable energy projects.
Eni’s valuation of Plenitude suggests the bar is set low for the flotation to deliver value for shareholders. Outside investors could put a higher price on the business, which is working towards ambitious targets. Eni aims to increase renewable energy production from 2.2 gigawatts last year to 15 gigawatts by 2030 and 60 by 2050 and treble Plenitude’s earnings on the “Ebitda” (earnings before interest, tax, depreciation and amortisation) measure by €1.8bn by 2026.
While Eni is increasing spending, raising a four-year investment plan from €28bn to €37bn this year, those commitments are unlikely to threaten returns to shareholders. Net debt remains comfortably inside the target range of 10pc to 20pc of net assets, while Eni is committed to annual dividend increases and will continue to buy back shares with spare cash. Buybacks reduced the share count by 6pc in the 12 months to the end of September.
These cash returns should help support the shares, while Eni’s low valuation should mean it won’t take much to send them higher.
Questor says: buy
Ticker: MTA:ENI
Share price at close: $15.37
Algy Hall is investment editor of Citywire Elite Companies
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