Eni SpA Remains Neutral – Analyst Blog

The performance of Eni SpA (E) has been gaining traction since the beginning of this month. Management is confident about the company’s long-term upstream delivery potential as new fields are continuously coming online across its footprint.

 

We believe that the favorable outlook on the company’s exploration & production (E&P) business segment is confirmed by its second quarter results. Eni is showing encouraging signs of improvement in the E&P segment. Though production volumes were flat in the second quarter, an improved margin scenario was noticed.

 

The company conducts its major E&P activities for hydrocarbons in Italy, Croatia, North Africa, West Africa, the North Sea, the Gulf of Mexico, the Middle and Far East, the Caspian Sea, Australia and Latin America.

 

Recently, Eni acquired a 55% interest in the Ndunda Block in Africa to strengthen its position in that country. The company has a healthy balance sheet and strong operating cash flow generating capacity. However, its Gas and Power segment is experiencing some softness as LNG imports continue to put pressure on the domestic markets.

 

Though second quarter profitability showed some weakness, the long-term fundamentals of the Gas and Power division remain strongly attributable to the company’s initiatives toward international expansion. This will enable Eni to offset margin squeeze in the domestic business.

 

However, we are concerned about the company’s challenging downstream businesses. Our long term Neutral recommendation − supported by the Zacks #3 Rank (short-term Hold) − remains unchanged at this stage.