Energy-ESG stock: An Italian challenge
Two elements that are growing in importance with time are the attention to ESG dynamics and the supply of energy and gas, in particular this last factor has influenced the geopolitical and macroeconomic dynamics that have characterized the last months. For this reason we decided to analyze 3 Italian stocks operating in the gas and energy sector and belonging to the MIB ESG index, which combines the measurement of economic performance with ESG assessments in line with the principles of the UN Global Compact. It is composed of 40 companies, among the 60 most liquid Italian companies in the market, weighted by capitalization. The three stocks we are going to analyze are Saipem, Snam and Terna, companies included in the Dow Jones sustainability index with a very high rating. After a general screening of the individual companies, we are going to present a comparison of the main financial ratios and then we are going to analyze the pre and post pandemic stock market performance also analyzing the target prices obtained by averaging those elaborated by leading analysts1.
Saipem (Current Price: 1.948, Target Price: 2.190)
Saipem is an Italian company operating in the energy and infrastructure services sector. Its order book is 76% related to projects in the gas, renewables and energy transition sectors. It is listed on the Italian Stock Exchange and is part of the blue chip sector, i.e. the most highly capitalised stocks. Saipem is primarily engaged in hydrocarbon, oil and gas activities, particularly in remote areas and deepwater. It is a leading provider of engineering, procurement, project management and construction services.
Snam (Current Price: 5.230, Target Price: 5.148)
Snam is one of the world's leading energy infrastructure companies and one of the largest Italian listed companies by capitalisation. In addition to Italy, it operates through subsidiaries in many other countries around the world. First in Europe for the extension of its transportation network (over 41,000 km, including international activities) and natural gas storage capacity. In recent years, Snam has positioned itself to play a role as a facilitator of the energy transition through several channels:
Infrastructure that will be crucial to achieving decarbonization goals;
Achieving carbon neutrality by 2040, investing €8.1 billion to build new infrastructure to use new energy sources such as hydrogen and biomethane.
Achieving zero net GHG emissions by 2040 by also acting on subsidiaries and the supply chain;
Terna (Current Price: 6.880, Target Price: 6.881)
The Terna Group owns the national transmission grid (NTG) for high and extra-high voltage electricity in Italy and is the largest independent electricity transmission system operator (TSO) in Europe. It provides public electricity transmission and dispatching service in Italy. The Group's mission is to play a leading role in the sustainable energy transition, leveraging innovation, skills, and distinctive technologies to the benefit of all stakeholders. The company operates as a monopoly according to the rules defined by the Regulatory Authority for Energy, Networks and Environment (ARERA) and in the implementation of the guidelines of the Ministry of Economic Development (MiSE).
Below we will compare the main financial ratios with the aim of assessing how companies have performed in recent years, analyzing in table 12 all their profitability and their current prices.
Although Saipem shows the best situation by analyzing the solvency and liquidity of the companies and invoice more than the two competitors, emerges how has problems of profitability, mainly due to operating costs that the company must support and that in recent years have led the company to be often in the loss. Snam and Terna, on the other hand, seem to perform extremely like one another, with mirror margins in profitability that are also reflected when analyzing liquidity and share prices. Looking to the future, Terna and Snam seem to be able to self-finance new projects and make debt sustainable despite being higher than that of Saipem, which, even with its financial solidity, seems to have great difficulty in generating profits.
Saipem's operational difficulty seems to have led to investor reluctance in the company's ability to implement new investments, especially in periods of stress such as during the pandemic as can be analyzed in Figure 1. This is evident by analyzing the performance in the pre and post-pandemic of the stocks, with the divergence in the post-pandemic between the stocks.
Analyzing specifically the post-pandemic period by breaking down the graphs, we can see how Snam and Terna (figure 2 and figure 3), show very similar trends between them. The correlation of Saipem with the other two stocks decreases a lot in the post-pandemic period, with the stock that does not seem to be able to return to a growth phase (figure 4).
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Sources:
- Financial Ratios taken on: https://www.morningstar.it/it/; https://www.investing.com/; https://it.finance.yahoo.com/
- https://www.snam.it
- https://www.terna.it
- https://www.saipem.com
- https://www.soldionline.it
- https://m.marketscreener.com
- https://www.borsaitaliana.it
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The information in this document does not constitute any form of advice or recommendation and is not intended to be relied upon by users in making any investment decisions.
The average target price is obtained by analyzing those available on the site of the companies in discussion and also the targets identified on: https://www.soldionline.it/ and https://m.marketscreener.com/
The ratios in question were taken by analyzing those identified by Investing, Morningstar and Yahoo Finance