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1、,Analyst,regulations,Company report,Nat Resources&EnergyOil&GasEquity ItalyENI(ENI IM),abcGlobal Research,Neutral,N:Attractive yield backed by strong balance sheet,Target priceShare price,(EUR)(EUR),19.0017.41,Project delays to slow down growth delivery over 2012-15,Potential return(%)9.1Note:Potent
2、ial return equals the percentagedifference between the current share price andthe target price,Attractive dividend well backed by free cash flow and strongbalance sheet,DecHSBC EPS,2011 a 2012 e1.91 2.01,2013 e2.01,Maintain Neutral rating with a target price of EUR19,HSBC PEPerformance,9.11M,8.73M,8
3、.712M,Absolute(%)Relative(%),0.73.4,-2.5-5.4,10.913.4,Slow-down in growth delivery.Factoring in project delays announced at the Upstream,Note:(V)=volatile(please see disclosure appendix)13 November 2012Paul Spedding*AnalystHSBC Bank plc+44 20 7991 Kirtan Mehta*,CFAAnalystHSBC Bank plc+91 80 3001 377
4、9kirtanmehtahsbc.co.inPeter Hitchens*,Seminar Day in October 2012,we cut our forecast for production growth in 2013 to 2.6%y-o-y growth(from 6.8%).For 2014e,we cut our growth forecast to 5.0%(from 6.7%).Overall,we continue to see growth in the medium term(2011-15)of 3%annually.New challenges ahead.E
5、NI has clawed back much of 2011s underperformance relativeto the sector thanks to exploration successes in Mozambique and the strengthening of itsbalance sheet following the deconsolidation of Snam.The next challenge is to monetise itsexploration success in Mozambique.Lower gearing and attractive fr
6、ee cash flow.We expect Enis gearing to fall to thelower end of its target range of 20-25%of shareholders funds once it completes the selldown of its stake in Galp Energia.Eni offers a yield of 6.2%(annualising the 2011 finaldividend),one of the highest yields in the European integrated oil sector.Th
7、e yield isbacked by a FCF yield of more than 7%for 2014/15 and a strong balance sheet.Lowered forecasts for 2013 and 2014.Although we raise our 2012e EPS forecast by7.6%following the third quarter results(30 October 2012),we cut our 2013e and 2014e,EPS by 3.4%and 6.8%respectively due to our lowered
8、production forecast.HSBC Bank plc,+44 20 7991 View HSBC Global Research at:http:/*Employed by a non-US affiliate ofHSBC Securities(USA)Inc,and is notregistered/qualified pursuant to FINRA,Neutral with a target price of EUR19.Our multiples-based target price is unchanged atEUR19 despite our lowered f
9、orecasts due to rounding.Our target price is set on the basisof target multiples for 2013,which are based on USD90/bbl Brent.Our target priceincludes the benefit of the current market value of its stake in Galp Energia and a lowerednet debt forecast assuming that the remaining Snam stake is an asset
10、 held for sale.Catalysts and risks.We believe the key catalyst for the stock should come from moving,Issuer of report:,HSBC Bank plc,ahead on project sanctions and achieving its targeted upstream production growth.The,Disclaimer&DisclosuresThis report must be readwith the disclosures and,generic ups
11、ide and downside risks are that oil and gas realisations and the US dollar proveto be materially different than our long-term assumptions.,the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,IndexIndex levelRICBloombergSource:HSBC,BCI ALL-SHARE IDX817E
12、NI.MIENI IM,Enterprise value(EURm)Free float(%)Market cap(USDm)Market cap(EURm)Source:HSBC,7070210080,42363,271,ENI,ENI(ENI IM)Oil&Gas13 November 2012Financials&valuationFinancial statements,Key forecast drivers,abc,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Year to,12/2011a,12/2012e,12/2013e,12/20
13、14e,Profit&loss summary(EURm),Brent(US$/b),111.3,106.6,90.0,91.0,RevenueEBITDADepreciation&amortisation,108,93225,569-8,808,123,32828,903-10,873,106,35027,963-9,868,111,62829,705-10,338,Euro/dollarEuropean refining margin(US$/European gas price(US$/mcf),0.723.110.6,0.795.112.2,0.804.011.5,0.804.010.
14、9,Operating profit/EBITNet interestPBTHSBC PBT,16,761-1,05717,73917,349,18,030-1,08320,02919,206,18,094-59118,65818,658,19,367-60819,94419,944,Taxation,-9,905,-11,205,-10,851,-11,475,Valuation data,Net profitHSBC net profit,6,8596,937,8,0337,270,7,2857,285,7,8487,848,Year to,12/2011a,12/2012e,12/201
15、3e,12/2014e,Cash flow summary(EURm),EV/salesEV/EBITDA,0.83.3,0.62.4,0.72.5,0.62.4,Cash flow from operationsCapexCash flow from investmentDividendsChange in net debt,16,753-12,566-13,630-4,3301,913,16,703-12,700-10,979-4,042-12,537,18,076-13,900-13,598-4,435-43,19,207-14,400-14,993-4,612398,EV/ICPE*P
16、/Book valueFCF yield(%)Dividend yield(%),1.09.11.10.36.0,1.08.71.03.56.2,0.98.71.04.86.3,0.98.00.96.06.5,FCF equity,162,1,914,2,621,3,221,Note:*=Based on HSBC EPS(fully diluted),Balance sheet summary(EURm),Intangible fixed assets,10,950,6,102,6,102,6,102,Price relative,Tangible fixed assetsCurrent a
17、ssetsCash&othersTotal assetsOperating liabilitiesGross debtNet debtShareholders fundsInvested capital,76,17527,0551,565120,42230,43229,59728,03255,47282,183,67,03039,68910,087120,88629,56525,58215,49560,56373,169,70,66238,85310,130124,25829,56525,58215,45263,93675,922,74,32438,4559,732128,11529,5652
18、5,58215,85067,79379,584,282624222018161412,282624222018161412,10,10,Ratio,growth and per share analysis,2010,2011Rel to BCI ALL-SHARE INDEX,2012,2013,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Source:HSBC,Y-o-y%changeNote:price at close of 12 Nov 2012,RevenueEBITDAOperating profitPBTHSBC EPS,9.7-0.
19、54.07.21.0,13.213.07.612.94.8,-13.8-3.30.4-6.80.2,5.06.27.06.97.7,Ratios(%),Revenue/IC(x)ROICROEROAEBITDA marginOperating profit marginEBITDA/net interest(x)Net debt/equityNet debt/EBITDA(x)CF from operations/net debt,1.49.413.07.123.515.424.246.41.159.8,1.610.212.57.723.414.626.723.60.5107.8,1.410.
20、211.76.626.317.047.322.40.6117.0,1.410.611.96.926.617.348.821.70.5121.2,Per share data(EUR),EPS reported(fully diluted)HSBC EPS(fully diluted)DPSBook value,1.891.911.0415.31,2.222.011.0816.72,2.012.011.1017.65,2.172.171.1218.71,2,ENI(ENI IM)Oil&Gas13 November 2012ENI Project delays may slow down gro
21、wth delivery over 2012-15 Long-dated nature of its Mozambique resource base limits thebenefit of incremental discoveries Neutral with a target price of EUR19,abc,Investment thesisAccording to Bloomberg,consensus ratings onENI have a positive bias with 63%buy ratings(orequivalent)and 29%hold ratings.
22、ENI has clawed back much of 2011sunderperformance relative to the sector followingexploration successes in Mozambique and thedeconsolidation of Snam(SRG,MI,price EUR3.6,TP:EUR4.0,OW).Although it continues to haveincremental success in Mozambique,the verylong reserve life means incremental discoverie
23、s,25%.The free cash flow and strong balance sheetshould enable ENI to continue to increase itsdividend distributions.Forecasts cut due to delaysWhilst Eni highlighted that its overall 2011-15target remains unchanged at 3%annual growth,project delays are likely to mean the delivery isback-end loaded.
24、It also seems that there will be aslower ramp-up in Elgin/Franklin production thanwe previously assumed.Cut in production forecasts,have progressively less value.Eni now needs toprogress towards monetising these resources.As itis in competition with other players in the region,New forecasts(m bbloe/
25、d)Growth y-o-y,2011 2012 2013 2014 2015 20161.58 1.72 1.76 1.85 1.98 2.048.7%2.6%5.0%7.0%3.0%,moving forward to the development stage couldbe a challenge,especially in a country with,Growth ex-Libya y-o-yOld forecasts(m bbloe/d)Growth y-o-y,0.3%1.58 1.707.5%,1.0%1.816.8%,5.9%1.946.7%,8.2%1.992.5%,3.
26、5%2.042.5%,limited oil service infrastructure.Eni still offers one of the highest yields in ourcoverage universe at 6.2%(euro denominated,annualising H2 2011 dividend).The yield is backedby a FCF yield of more than 7%for 2014/15.With the deconsolidation of Snam,Eni lowered itsgearing to 31%of equity
27、 at the end of Q3 2012.With the receipt of proceeds for Snam and sale of,Source:HSBC estimatesWe cut our production forecasts for 2013e and2014e to 2.6%and 5.0%annually.This compareswith our previous forecasts of 6.8%and 6.7%y-o-y growth in 2012e and 2013e.Based on theannouncement at Enis Upstream S
28、eminar Day inOctober 2012,we now incorporate delays to thefollowing projects.,its remaining stake in Galp Energia(GALP.LS,N/R,price EUR12),we estimate gearing shouldreach the lower end of its targeted band of 20-3,Hub,105,100,95,90,85,ENI(ENI IM)Oil&Gas13 November 2012New schedule for delayed projec
29、ts,Lowered forecasts,abc,Project,Country,Net share at New schedulepeak(mboe/d),_ EPS _ _ CFPS _2012e 2013e 2014e 2012e 2013e 2014e,MLEEl MerkJamineAngola LNGGoliat,AlgeriaAlgeriaUKAngolaNorway,c37c15c17c24c58,end 2012end 2012H1 2013end 2012Q3 2014,NewOldChangeConsensusDifference,2.001.867.6%2.06-3.0
30、%,2.012.08-3.4%2.12-5.1%,2.172.32-6.8%2.25-3.7%,4.614.81-4.1%4.89-5.7%,4.994.882.2%5.29-5.7%,5.305.300.0%5.34-0.7%,Block 15/06West HubBlock 15/06 East,AngolaAngola,c20c31,H2 2014FID in 2013,Source:HSBC estimates,consensus from IBES,We cut our 2012e and 2013e EPS by 3.4%and,Source:HSBC estimates,Comp
31、any DataOur forecast of 2.6%y-o-y growth in 2013assumes the ramp-up of MLE,El Merk,AngolaLNG,Kizomba satellites,MBoundi waterinjection,Samburgskoye(other gas trains in Q12013,oil development in H2 2013),Kinnoul,itsLibyan assets and Zubair.We see growth of 5%y-o-y in 2014 with full yearcontributions
32、of projects started in 2013 and start-ups including CAFC,Goliat,Perla,Junin,WestFrankin Phase 2,Block 15/06 West Hub,Ekofisk,Yaro-Yakinskoye and Urengoskoye.Lowered forecastsEnis Q3 net income of EUR1.78bn was 14.6%ahead of the company-supplied consensus.Weattribute the strong quarterly performance
33、tolower effective tax rate,higher income from E&Paffiliates and a lower interest charge.Factoring in,6.8%,respectively.Our 2012e and 2013e CFPSincrease by 2.2%and 0.7%,respectively.Underperformed on earnings growthSince August 2011,Enis forecast relative(year2)has lagged behind its European peers.Du
34、ringthe second half of 2011,this was due competitivepressure in its gas trading division and delays incompleting price renegotiations with gassuppliers.We believe the recent downward trendin earnings relative to the sector is attributable todelays in its upstream projects.ENI:Price relative and fore
35、cast relative(year 2)110,Q3 actuals,we raise 2012e EPS by 7.6%.,Dec-10,Jun-11,Dec-11,Jun-12,However,Q3 cash generation was weak due to an,increase in working capital related to take-or-pay,Forecast relativ e,ENI relative to sector,gas contracts and a significant working capitalbuild at Saipem.This l
36、eads to 4.1%cut in our2012e CFPS despite the increase in earnings.4,Source:Thomson Reuters Datastream,consensus from IBES,ENI(ENI IM)Oil&Gas13 November 2012Exploration success but Eni underperformed the European oil sector in2011,trending down in line with its forecastrelative underperformance.Howev
37、er,in 2012,Enihas clawed back most of this underperformance.We believe that this was largely attributable toexploration successes in Mozambique and theannouncement of steps to deconsolidate Snam.ENI:price(EUR)and price relative,While Eni could monetise the Mozambique blockby a partial sale,it appear
38、s to want to moveforward with a development plan for its current70%stake.To fully monetise a potential 70TCFresource base could mean around 10 LNG trains,each costing up to USD10bn.Anadarkosresource base has a potential to support 6 trains.We doubt the service industry is capable ofdeveloping such a
39、 large number of capitalintensive projects,except over the very long term,abc,2018161412Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12,110105100959085,(probably measured in decades).Hence,webelieve that the monetisation of ENIs resources islikely to be a long drawn out process.Strong balance sheetAt the
40、end of Q3,Enis net debt fell to around31%of its equity versus an end 2011 figure of46%This reflected the deconsolidation of Snam.,ENISource:Thomson Reuters Datastream,Relativ e(RHS),Adjusting for the EUR3.5bn proceeds from thesale of stake in Snam and another EUR1bn of debtrepayment from Snam,the pr
41、oforma Q3 gearing,monetising a challengeENI has discovered total resources of 6bn bbloeover the past four and half years,with nearly halfcoming from the Mamba complex in Mozambique.With successive discoveries in the Mambacomplex in Mozambique,Eni has establishedgross in-place resources of 47-52TCF.E
42、ni plansto drill another five wells by early 2013 toestablish the upside potential of its licence.Eni isseeking a unitisation agreement with neighbouringoperator Anadarko(APC.N,N/R,price USD70.6)and is co-operating on design work for the firstphase of an LNG scheme.While the market has,works out at
43、25%of equity.Enis target for gearing is 20-25%of equity.Thecompletion of sale of remaining 28.34%stake inGalp could release another EUR2.5bn at currentmarket value.We estimate that this could lowerleverage to around 20%of equity.Attractive yieldOn 2013e PE,Eni trades at 1%premium(IBES:3%)to the sect
44、or.However,Eni still offers one ofthe highest yields in our coverage universe at6.2%(euro denominated,annualising H2 2011dividend).The yield is backed by a FCF yield ofmore than 7%for 2014/15.,rewarded Eni for its initial discoveries inMozambique,we believe the projects likelycurrent reserve life of
45、 at least 100 years meansincremental discoveries have little value becauseof their long dated nature.5,ENI(ENI IM)Oil&Gas13 November 2012Summary valuation as on 9 November 2012_ENI _ _Sector _2011 2012e 2013e 2011 2012e 2013e,Maintain Neutral ratingUnder our research model,for stocks without avolati
46、lity indicator,the Neutral band is 5ppts,abc,P/EP/E IBESYield,9.16.0%,8.78.46.2%,8.78.26.3%,8.44.7%,8.48.24.9%,8.67.95.2%,above and below the hurdle rate of 9.0%forEurope ex-UK stocks.As our target price implies,Source:Thomson Reuters Datastream,consensus from IBESValuation and risksWe maintain our
47、Neutral rating with a target priceof EUR19.Multiples based approachOur valuation methodology for Eni is based on aweighted average of two approaches:EV/DACF(25%)and EV/NOPAT(75%)target multiples.We adjust our valuation to account for ourestimate of the companys likely future cost ofcarbon of EUR0.6
48、per share,arrived at by using acost of carbon of USD20/t.All our target pricesare set on a 12-month time frame and rounded offto the nearest EUR1.For a multiple-basedvaluation for the oil majors,we use a targetEV/DACF ratio of 5.0 x and a target EV/NOPATof 9.0 x,which are based on the average ratios
49、 forthe European sector over the past 12 months.Weuse our 2013 estimates,which assume a Brentprice of USD90/bbl.Target price unchanged at EUR19Our EV/DACF and EV/NOPAT target multiplesresult in component valuation of EUR22(unchanged)and EUR18(EUR19 previously),respectively.Our target price,the weigh
50、tedaverage of these valuations,remains unchanged atEUR19 due to rounding.Our target price assumesthe sale of the entire 52.53%stake in Snam andthe sale of its residual stake in Galp Energia atcurrent market value.6,a potential 12-month return of 9.1%,we maintainour Neutral rating on the stock.Potent
