Goldman Vends Prysmian Stake – Analyst Blog

In a bid to contract the size of its private property holdings in Italy, on March 5, Goldman Sachs Group Inc. (GS) sold its remaining 16.8% share in Prysmian SpA, an Italy-based cable maker, through Goldman International. Accordingly, about 31.9 million shares were sold at a price of €12.75 per share for a deal worth approximately €396 million ($538 million). Goldman had acquired Prysmian in 2005 through a private equity deal.

 

While 1.5 million shares were acquired by Prysmian’s CEO Valerio Battista, the rest were sold to institutional investors. Goldman had already sold a 14.3% stake in Prysmian in Nov 2009. The decision to sell follows Goldman’s policies since last year, when the company along with other U.S. giants such as Morgan Stanley (MS) and Citigroup Inc. (C), started diluting their non-profitable international private equity investments due to declining returns and operational hassles in the backdrop of a sluggish global economic recovery.

 

Alongside, many other U.S. banks are also de-leveraging and restructuring portfolios after the global financial crisis that led to weakness across businesses. We believe the sale is expected to benefit both Goldman and Prysmian. While Goldman can utilize the proceeds for better investment opportunities or to enhance its operating leverage, new investors can help Prysmian gear up its capital position, providing more scope once the economy rebounds.

 

 

Over the last 30 days, one of the 17 analysts covering the stock has lowered the estimate for the first quarter of 2010, while no upward revisions were witnessed. Currently, the Zacks Consensus Estimate for the first quarter is operating earnings of $4.22 per share, which would be up by 24.5% from the year-ago quarter.

 

The absence of upward estimate revisions for the first quarter indicates a likelihood of downward pressure on the performance of the stock in the near term.

 

With respect to earnings surprises, the stock has been very steady over the last four quarters, with all positive surprises. The average remained positive at 41.8%. This implies that Goldman has surpassed the Zacks Consensus Estimate by 41.8% over that period.

 

The downside potential for the estimate for the first quarter, essentially a proxy for future earnings surprises, currently stands at 26.5%.

 

Goldman has a well-diversified investment portfolio although real estate losses are likely to weigh on the results in the near term. We think that Goldman’s sturdy capital and liquidity will lead to increased profitability from newer opportunities once the economy recovers.

 

On Friday, the shares of Goldman closed at $167.18, up 2.2%, on the New York Stock Exchange.