October 2019

Following July’s high, stock price has corrected. Currently, it is in line with consensus target price.

Growth perspectives that reflect Company’s fundamentals, limited exposure to the risks of the economic cycle, and the search for premium dividend yields over bonds support the investment case for the Italgas stock.

Italgas stock price shows a sizeable increase (+17.5%) since the beginning of the year. Such performance reflects a mix of drivers that are Company-specific: healthy fundamentals, once again proven by the 2019 Half-Year Report, visible growth perspectives presented in the 2019-2025 Strategic Plan as well as the attractive level of remuneration offered to shareholders, with a 2018 dividend of 23.4 cents that provides a premium yield over the 10-year Treasury bonds (BTP).

After peaking at 6.21 euro at the close of 12 July 2019, the stock price has retraced, while realigning its level to the consensus target price. Over the last few weeks, the performance of the Italgas stock price – as that of the entire utility sector – was affected by a sector rotation in the portfolios of institutional investors. Stock performance also seemed to be “capped” by the peak PE (Price Earnings) ratios reached between June and July 2019, which went well beyond their 12-year highs, ie since the financial crisis.

Looking ahead, both the expected growth for Company’s financials and the stock market sentiment towards the utility sector remain favourable, even though the latest might change in the medium term.

Currently, strong market volatility still prevails, fuelled by the uncertainty around Brexit, trade tensions between USA and China, and the economic cycle slowdown, with investors looking for defensive companies. Similarly, interest rates pushed down by easing policies of Central Banks make the dividend yields provided by healthy utilities, such as Italgas, attractive alternatives to bond investments. Such a scenario might be put in jeopardy by the adoption of expansionary fiscal policies that also the ECB has wished; such policies might lead to a considerable increase in sovereign yields. In that case, utility companies might result in being penalized, with investors switching their style from dividend-yield to growth.

The stock boasts a broad coverage, made of 21 brokers, four of which have buying recommendations, while the vast majority (15) keeps neutral stance. Following the presentation of the new Plan, on 12 June 2019, most analysts revised their earnings estimates, in order to take into account the returns on the investments presented in the plan, so increasing their stock valuations. The average target price, which at the end of April was 5.4 euro, therefore gradually moved to the current 5.84-euro level.