Eni: Political Risks Priced In
Summary
- Russia continues to cut gas supplies to Europe. The spot gas price is just over €280 per MWh.
- Higher extra tax for Eni now accounts for almost €1.5 billion.
- Ongoing buyback but uncertainties over the Italian government weigh on Eni's shares.
J2R/iStock Editorial via Getty Images
After reducing the flows towards the old continent following the Western sanctions against Moscow, Gazprom interrupted gas supplies to Europe through the Nord Stream 1 gas pipeline, due to maintenance work which will last until 3:00 am on the 3rd of September.
The block is the second after the one already tested from 11 to 21 July. In addition, the Russian energy giant announced that 42.1 million cubic meters of natural gas would be sent to Europe on 31 August through Ukraine, via the Sudzha entry point, against 42.2 million cubic meters sent the previous day. Thus, the price of gas on the TTF market in Amsterdam rose again (+5.9%) to €281 per megawatt hour.
After the stop at Nord Stream 1, Eni (NYSE:E) announced that Gazprom will cut gas deliveries by approximately 35%.
All eyes are now on the 9th of September when the next European summit will meet in Prague, where the ministers of the 27 country members will have to find an agreement on the gas price ceiling. The president of the EU Commission, Ursula Von der Leyen specified earlier this week that ministers will also discuss a new market model for electricity. The intention is to untie the price of electricity from that of gas.
"Energy prices are beating record after record. The consequences for households and businesses are not sustainable. We must tackle this problem together and urgently" recalled the President of the European Commission on August 30th on Twitter. As part of her speech, she also announced that Europe has on "average filled 80% of its storage capacity, the amount we have agreed for this year".
Extra tax for Eni
According to our calculation, in late June, Eni was supposed to pay an extra tax of about €550 million. In the meantime, the price of gas has risen again, and doing the calculation, the total amount of the extra contribution is not at €1.4 billion. Eni already paid the first extra tax installment in advance for a total consideration of approximately €340 million. As a result today, Eni's stock in Piazza Affari fell by 5% to 11.62.
As always, there is some confusion at Italian Government level and there are rumors of new taxation that should be based on a percentage of the production value. Companies that have already paid the tax in June would see the payment safeguarded, which would be considered as a payment made under the new tax. The revision of the tax on extra-profits would be the prerequisite for financing new measures to support businesses and households against the increase in energy costs.
Even if the percentage to be applied to the value of production has not yet been disclosed, our internal team believes that the new tax, if approved, could result in a greater outlay for energy companies with Enel and Eni, and the multi-utilities that would be the most affected.
Conclusion and Valuation
Since the beginning of the year, Eni has lost approximately 4% value net of dividends paid. Even if the Wall Street sentiment is pretty bullish on the Italian company and Eni is currently moving on with a generous buyback (between 22 and 26 August Eni purchased 11.6 million of its own shares) and since the start of the program, it has purchased 1.59% of the share capital, we are still neutral preferring other name Total (TTE) in particular. We reaffirm what we said last time: "We know that Eni is undervalued, compared to its closest EU peers. This is not a piece of news, it has always been".
Previous coverage on the European gas situation:
- Uniper: Transaction Details Versus Market Expectations;
- Fortum: A clear no-go;
- Engie: Strong Results But Politics Is The Risk;
- E.ON: Downside Already Priced In.
This article was written by
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