EUR 850.00 For Business Accounts Only

Morningstar | Eni on Track for Full Year Targets After First Quarter; Fair Value Estimate Unchanged

Our fair value estimate and moat rating for Eni is unchanged after first-quarter results were largely in line with our expectations and management reiterated its previous full-year guidance items. We continue to appreciate the improvements management has driven across the portfolio, particularly in the upstream and gas and power segments, as demonstrated during the quarter. However, we view this improvement along with the expectation of continued progress is largely already reflected in the share price. As such we prefer other global integrateds with cheaper valuations and more aggressive capital return potential.

Adjusted net profits rose slightly to EUR 992 million from EUR 978 million last year. The E&P segment was the primary driver of the improvement with adjusted operating profit rising to EUR 2.3 billion from EUR 2.1 billion last year thanks to the addition of higher margin barrels, the impact of IFRS 16, and the appreciation of the USD/EUR rate that offset lower Brent prices. Production volumes slipped 1.9% from the same period last year largely as a result of the termination of the Intisar contract in Libya late last year. Full-year production growth guidance of 2.5%, however, remains unchanged thanks to the continued ramp-up of 2018 startups and the planned startup of new projects. While growth should be tepid again in the second quarter due to maintenance, it should accelerate beginning in the third quarter as new projects begin production.

The refining and chemical segment faced another challenging quarter despite a year-over-year improvement in the standard refining margin as heavy sour crude differentials remained narrow during the quarter, hurting refining results. Chemical results, meanwhile, suffered from an unplanned shutdown and continued weak industry margins.

As a result, the segment’s adjusted operating profit swung to a loss of EUR 55 million from EUR 77 million profit last year. Management continues to expect operating profit of about EUR 700 million for the year, however.

Positively, the gas and power segment continued its multi-year turnaround with adjusted operating profit of EUR 372 million during the quarter compared with EUR 322 million last year, lending confidence to management’s full-year operating profit target of EUR 500 million.

Operating cash flow fell slightly to EUR 2.1 billion from EUR 2.2 billion last year largely due to an increase in working capital associated with seasonal trends in the gas and power segment. Eni remains able to cover capital spending and the dividend at $55/bbl Brent with capital spending guidance of EUR 8 billion unchanged. Outside the impact of IFRS 16, leverage remained unchanged.