Since the beginning of the year, the indices of the main equity markets have rallied, driven by the prospects of an economic recovery from the pandemic. Italgas shares also posted a double-digit performance YTD (+11.9% as at 10 December), strongly outperforming the European utilities index (-0.1%). Despite several uncertainties the scenario, and regardless of the ongoing regulatory review, investing in Italgas shares offered the benefits of a clear defensive profile, solid fundamentals – also proven by Q3 results – and new, attractive perspectives of growth acceleration through M&A.
Prospects of a sound economic recovery drove stock markets to new record highs in mid-November
Indices of the main equity markets reached new highs in mid-November, extending the uptrend that started from the lows of March 2020, when massive monetary and fiscal policy measures were announced. The success of the vaccination campaigns gave strength to the hope that economic activity would quickly and fully reopen, with expectations of significant GDP growth. The earnings published by listed companies for the third quarter largely confirmed the tangible benefits of the ongoing recovery.
Despite the correction in the second half of November and the broad volatility, equity markets kept a positive tone
The new surge in COVID-19 infections, together with the discovery of the new omicron variant, triggered a sharp correction in the second half of November, with cyclical stocks being heavily hit.
However, in the most recent sessions, starting on 6 December, markets inverted the route, with indexes rebounding strongly and aiming to quickly regain previous highs, albeit with trading volumes that – as is typical – are relatively limited at the end of the year.
However, the market is still very volatile, with a number of uncertainties continuing to characterize the scenario: first and foremost, inflation, which, especially in the US where it is no longer considered transitory, is making restrictive measures by central banks increasingly likely. Investors are also concerned about disruptions in supply chains, which continue to weigh especially on the tech and automotive sectors.
Although financial markets now expect GDP growth for the fourth quarter of 2021 to be weaker than estimated before the new pandemic wave, markets are visibly maintaining an underlying positive sentiment.
The hope of a full reopening and a continued recovery of the economy is fueled by some early evidence, suggesting that the omicron variant is very easily transmissible but less dangerous than was initially feared. In addition, new antivirals have been announced to be available in early 2022.
Despite the uncertainties, the abundant liquidity in the markets therefore seems to continue to point to equity investment as the best prospective return.
Italgas share has enjoyed double-digit growth since early 2021, significantly outperforming the European industry index
At the closing of 10 December, the Italgas share price increased by 11.9% since the beginning of 2021, strongly outperforming the Stoxx Euro 600 Utilities index (-0,1%) over the same period.
Despite its defensive characteristics, appreciated during periods of uncertainty, the European utilities sector was affected by worries of fiscal or regulatory tightening aimed at containing the cost of energy for households, as commodity prices soared. These fears partly diminished in October, when the Spanish government decided to mitigate regulations aimed at neutralizing gas price increases against profits from renewables and nuclear power. On the other hand, the French government has recently limited its intervention aimed to fight rising electricity bills only through a reduction in indirect taxes.
Although Italgas’ stock price performance was significantly higher than that of the sector index, it did not match that of the FTSE MIB (+19,7%), the index of the Italian blue chips, which was mainly driven by the brilliant performance of the banking sector, which weighs heavyly by capitalization.
Italgas share price has benefited from several driving factors
Also in recent weeks, the stock could count on the support of a number of positive factors.
- Firstly, the news that Italgas has been selected as a ”preferred bidder” in the tender for the acquisition of DEPA Infrastructure: a piece of news that opens up new prospects for growth and earnings accretion, as well as a reduction in the regulatory risk profile via geographical diversification.
- Secondly, in November, Italgas was included – for the first time – in the Dow Jones Sustainability Europe index and was confirmed – for the third time in a row – in the Dow Jones Sustainability World index: a clear opportunity for Italgas shares to enter new portfolios, given the large number of asset managers that use the securities basket that composes these high-profile indexes as a benchmark. Another example of the advantages offered by a serious commitment to sustainability is the fact that in October Italgas was included in the MIB ESG Index, the first Italian blue-chip index dedicated to ESG best practices by Borsa Italiana, part of the Euronext group.
- Thirdly, between late November and early December 2021, Moody’s and Fitch confirmed their respective ratings on Italgas’ debt. In addition to referring to the good fundamentals, also evidenced by the third- quarter 2021 results, both agencies mentioned, among the reasons for maintaining the rating in the solid investment grade area, the good prospects that they expect from the acquisition in Greece.
The 19 analysts that cover Italgas today have a mean target price of 6.04 euro. Of these, 12 have target prices of 6 euro or more. As of 10 December 2021, the majority of brokers’ recommendations are positive (5 among Buy, Add or Accumulate) or neutral (13 among Hold, Market performer or Equal Weight).