Eni to IPO or Sell Stake in Renewables Unit

Italy's Eni is creating a new business unit to house its renewable power generation and its retail gas and power activities. It is also looking at ways to monetize some part of the new unit next year through a private sale or a public listing. The planned move is a first among European oil majors that have built up sizable positions in areas such as renewable power generation as part of their energy transition strategies. For now, the board of directors is studying the best way to monetize a minority stake in the new business unit. The options include an "initial public offering (IPO), or the sale or exchange of a minority stake in the new entity." A decision on which path to pursue is expected next year. Eni did not disclose what percentage of the business it planned to sell, beyond saying it would be a minority stake. Size and Scope Eni currently has 1 gigawatt of renewable power generation capacity either in service or under construction. It plans to have 5 GW of renewable generation by 2025, on its way to a 15 GW portfolio by 2030. The company also has retail gas and power sales operations in Italy, Spain and Greece, which serve around 10 million customers today, with a goal of 15 million customers by 2030. Eni's management team estimates that the new business unit would have earnings of around €600 million this year and €1 billion ($1.2 billion) by 2025. Analysts at investment bank JPMorgan Chase estimated that the unit could have an enterprise value of €9 billion, based on a multiple of nine times its estimated 2025 earnings. Lower Cost of Capital Executives said on Friday that there is no similar company combining both generation and retail energy sales in its markets, and argued that there is value to be reaped by bringing the two together. The business will primarily target mature markets in OECD countries. Eni executives hope to achieve a range of benefits from an IPO or the sale of a stake in the new entity, which they believe will help create "the right vehicle" to grow these businesses. They added that it was too early to decide how Eni might use the money raised by such a transaction. But management said the creation of the new unit could help it to secure a lower cost of capital to fund its growth and relieve Eni of some of the financial burden of supporting its expansion. Higher Multiples Executives also see the move as a way to gain more credit from investors for Eni's energy transition efforts, pointing out that renewables companies trade at earnings multiples that can be up to three times higher than oil and gas companies. If it goes ahead with the plan, Eni would be the first in its peer group of large integrated oil companies to spin off one of its energy transition businesses. Analysts generally agree that these businesses are undervalued as part of a traditional oil and gas company, but there is no consensus on the best remedy. For example, French oil major Total has said it plans to retain full ownership of its renewable energy and power activities -- which are the largest and most mature among European oil companies -- for at least the next five years. Noah Brenner, London Eni Q1'21 Earnings Results (€ million) Q1'21 Q1'20 %Chg. Q4'20 Revenue €14,799 €14,086 5% €11,937 Operating Cash Flow 1,376 975 41 988 Net Income 856 -2,929 NA -797 Adjusted Income 270 59 NA 50 E&P 1,378 1,037 33 802 Global Gas & LNG Portfolio -30 233 NA -101 R&M and Chemicals -120 16 NA -104 Eni gas e luce, Power & Renewables €202 €191 6 €132 Liquids Production ('000 b/d) 814 892 -9 809 Gas Production (MMcf/d) 4,726 4,768 -1 4,800 Oil and Gas Output ('000 boe/d) 1,704 1,790 -5 1,713 Crude Refining Throughput ('000 tons) 6,400 6,030 6 6,410 Product Sales in Europe ('000 tons) 3,190 3,720 -14% 3,740 Source: Eni