Enel (OTCPK:ENLAY) shares plunged 6% this morning in Milan after management announced a 9% dividend cut from € 0.28 per share to €0.26. I took advantage of the market reaction, sold some of my Gazprom (OTCPK:OGZPY) shares, which have risen almost 20% since I recommended them , and bought almost $10,000 worth in Enel shares at € 2.85 per share, after touching €2.79, the lowest price on record.
Enel, founded in Rome in 1962, is Italy's largest electricity provider, Europe's second listed utility by installed capacity and one of the largest in the world.
The Enel Group has a presence in 40 countries over 4 continents, has about 97,000 MW of net installed capacity and sells power and gas to about 61 million customers.
In 2010, revenue grew to 101 billion dollars (+5% compared with 2010) and net income amounted to 6 billion dollars.
It is also a world leader in renewables, with a capacity of nearly 34,000 MW from hydro, geothermal, wind, solar and biomass plants in Europe and the Americas. It floated 30% of its renewable energy subsidiary Enel Green Power (OTC:ELPSY) in November 2010, raising $3.4 billion.
Enel has power plants in Europe (Bulgaria, France, Greece, Italy, Romania, Russia, Slovakia, and Spain), in North America (Canada, and the United States) and in Latin America (Brazil, Chile, Costa Rica, El Salvador, Guatemala, Mexico, and Panama).
It owns 90% of Endesa (OTC:ELEZF), Spain's largest utility with growing operations in Latin America. With Endesa, Enel's international presence is extended to Argentina, Colombia, Morocco, Peru, and Portugal.
After today's price drop, the company is in my opinion a compelling value play:
- Share Price: € 2.86 ($ 3.76)
- EPS: € 0.47 ($ 0.62)
- Price / Earnings: 6.1
- Price / Sales: 0.35
- Price / Book: 0.7
- Return on Equity: 14%
- Revenues (2011): $101 Bil.
- Net income (2011): $6 Bil.
- 3 yr CAGR Revenues: 19%
- Dividend per share: € 0.26 ($ 0.34)
- Current Dividend Yield: 9%
- Payout Ratio: 55%
On the negative side, one has to take into account the fact that Enel is Europe's most indebted utility, but the dividend cut is one of the measures management has taken to tackle a debt reduction to 30 billion euros in 2016 from last year's 44.6 billion euros. Management also plans net income to grow 16% to $7 billion by 2016 and investments for $35 billion in the next years. As a result of this debt reduction plan, shareholders are bashing the stock on the market, quite an irrational move.
The current 9% dividend yield, supported by a manageable 55% payout ratio is what has attracted me the most. Also the shares are trading at an historical low, and although I am not calling this a bottom, I see more upside from here than downside, comforted by my fat dividend while I wait.
Enel is traded in the U.S. on the Pink Sheets, but exchange volumes are above $100K a day, so individual investors should encounter no liquidity problems.
Disclosure: I am long OTCPK:ENLAY.