We have initiated coverage on Eni SpA ADRs (E) with a Neutral recommendation and a $53 target price, as we believe that it will perform in line with the industry. Based in Rome, Italy, Eni SpA with its consolidated subsidiaries is engaged in the oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries. The company conducts its major exploration and production 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.
A key part of Eni’s long-term business strategy relates to its focus on playing a leading role in the natural gas market of Europe. Management confirmed the company’s objective of strengthening its leading position in the European gas market, where it holds a unique competitive position, given the availability of gas from several long-term supply contracts as well as access to a wide infrastructure system.
However, we are concerned about the company’s significant exposure in politically-unstable OPEC countries, a weak operational backdrop, a declining dividend yield trend and cyclical low returns.
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