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Deeply Undervalued And Well Positioned

May 03, 2018 2:24 PM ETEni S.p.A. (E)BP, LUKOY, SHEL, XOM, TTE, PCCYF19 Comments
Reid Schaworski profile picture
Reid Schaworski


  • Eni trades at a 60-70% discount from its peers based on an EV/EBIT valuation. Multiple expansion would help close the gap.
  • Cash Flow from Operations increased 22%, while Adjusted EBIT increased 47% year over year in Q1.
  • Eni has a portfolio of projects planned for the 2018-2021 year period with a break-even below $30/bbl and production growth of 3.5%.
  • Eni's high sensitivity to Brent pricing and refining efficiencies outweigh the potential negative impact of exchange rate risk.

Eni SPA (NYSE:E) the energy giant remains a buy after reporting strong Q1 results on April 27th. The company posted solid operational results and remains an excellent buying opportunity even with the price running up from $34 to $39 per share.

Eni's share price has muddled along for since oil retreated in late 2014, their ADR shares on the NYSE have mostly traded in the low 30s and occasionally dropping below 30. I expect the recent price run-up to continue as oil prices inch higher and the company continues to execute.

Income Valuation

Eni is cheap. The stock is trading at a low valuation. It is one of few excellent opportunities in the market. By EV to EBIT (TTM), Eni is barely the second cheapest of the world's largest oil producers. Only Lukoil (OTC:LUKOY) has a lower EV to EBIT. Over half of Eni's hydrocarbon production comes from Egypt, North Africa, Kazakhstan, and the Rest of Asia. If OPEC decides to turn the taps on, or if higher oil prices cause discontent and greed among members, Eni will be competing geographically against both the Middle East and Russia; not a pretty scenario. It is against OPEC's collective interest to tank oil markets, but the risk is very real.

I prefer using EV to EBIT as it values not just the company's equity but represents the price of the business as a whole. EBIT considers depreciation, a major real business expense for Eni. EV to EBIT is a great valuation metric when companies that do not have the same capital structure. It is amazing how little investors value Eni. The company trades at a 60% discount to Royal Dutch Shell (RDS.A) and a 69% discount to BP (BP) and an even greater discount when compared with Exxon Mobil (XOM).

ChartE EV

This article was written by

Reid Schaworski profile picture
My investing career started at age 18 and since then over the 8 year period my compound annual growth rate is 13.24% after costs. I focus on finding deep value and long picks. I never hold more than 15 positions at a time. I am Canadian investor with an eye on North American markets and occasionally international companies. Follow me and you will be exposed to some of the cheapest stocks in the market. Always looking for the next opportunity, whatever it may be.

Analyst’s Disclosure: I am/we are long E. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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