“Eni S.p.A. (E – yield 4.00%) is an Italian diversified oil major with vertically integrated businesses. The group is active in exploration and production (E&P), refining and marketing, natural gas distribution, petrochemicals and oilfield services. Eni does face geopolitical risks as it has operations located within some of the Middle Eastern and African locations that are currently dominating the global news because of social unrest. However, Eni is widely respected for its deep global diplomatic ties and its rich, relatively low-cost E&P pipeline of projects in those turbulent areas.
“The near-term geopolitical risk, while critical, is offset in part by Eni’s gas and power business, which adds a measure of stability to earnings as it is somewhat less sensitive to volatile commodity prices. Planned non-key asset divestitures and solid free-cash-flow generation should allow management to continue to strengthen the balance sheet via expedited debt reduction. We are also encouraged by the company’s recently announced agreement with PetroChina/CNPC to pursue multiple projects within the Middle Kingdom and on an international level. Shares of Eni currently carry a 4% (net of tax) yield and trade at a material discount to its peer group’s average multiples for earnings, book value and EV/EBIDTA.”
John Buckingham, The Prudent Speculator, 3/2/11
