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July 2021

04. Heathy fundamental and long-term visibility underpin share price performance
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Since the beginning of the year, global equity markets have made double-digit progress, supported by expectations of economic recovery that have taken shape with the progress of vaccination campaigns.
Italgas shares have recorded a good rise since the beginning of the year (up 8.5% as of July 13), clearly outperforming the European utilities index (down 2%). In addition to an appreciated defensive profile, in these months of 2021 Italgas leveraged on consistently solid fundamentals and a convincing strategy for the years to come.



Expectations of post-pandemic economic recovery led stock market indices to reach new highs

During 2021, stock markets continued the upward trend that began with the March 2020 lows, reaching new highs. Underlying this movement was the progress of vaccination campaigns at a faster pace than had been expected at the beginning of the year, since the prospect of widespread immunization of the population has made a rapid reopening of all economic activities more visible.

Moreover, within a framework of expansionary economic policies, there was a widespread expectation that the growth in demand could easily translate into an increase in earnings per share of listed companies. First-quarter 2021 corporate results have largely confirmed that expectation, especially in those economies in which anti- Covid restrictions were removed earlier.

Moreover, investors have till now assumed that the economic recovery, however strong it may become over time, will not lead to a structural overheating of prices. Signs of accelerating inflation in recent months have therefore been interpreted primarily as transitory so far, as the result of the contingent situation caused by the pandemic.

Indexes continued to rise, also leveraging on a broad rotation of stocks in portfolios

The rise of stock market indexes also continued thanks to a broad rotation of asset managers’ portfolios, both at the sector level and in terms of investment styles. After a long phase in which investors privileged the “reflation trade” through the purchase of “growth” stocks, from spring 2021 onwards asset managers have included in their portfolios several “value” stories, with low multiples against solid business models. A discriminating criterion in the selection of individual stocks was the ability of the individual company to pass on any increases in raw materials and energy costs in the final customer price.

Regulated utilities were among the favoured sectors in the face of more moderate inflation expectations, while real yields on Eurozone bonds returned to more contained levels after the surge last February.

Since mid-June, with the prospect of monetary normalization, in the face of uncertainties regarding the nature of inflation and the spread of virus variants, asset managers’ strategies have become even more defensive

From mid-June onwards, following the Fed’s announcement of the start of a gradual normalization of monetary policy, with two rate hikes planned by 2023, investors began to adopt even more widespread defensive strategies, in order to minimize the impact on managed portfolios of volatility due to possible negative news.

Their attention is especially focused on two different fronts: on the one hand, possible acceleration of consumer prices due to factors that cannot be ascribed to the pandemic – a phenomenon that could anticipate the timing of the reduction of bond purchases by central banks; on the other hand, possible increases in infections due to new variants of the virus, which could move a complete reopening of the economy forward in time and require further support from monetary policy.

Italgas share price has risen by 8.5% since the beginning of the year and is strongly outperforming the reference sector

Against this backdrop, at the close of 13 July the Italgas share price gained 8.5%, outperforming the European sector index, i.e., the Stoxx Euro 600 Utilities, which has lost two percentage points since the beginning of the year.

Despite its defensive characteristics, the utilities sector has been recently penalized by the presence of some large capitalization stocks that have a strong exposure to the Spanish market: the government has in fact raised the taxation on renewable energy plants, with the aim to contain the extra-profits generated by production costs close to zero, against the surge in electricity prices recorded with CO2 quotas at maximum levels.

On the other hand, Italgas performance was slightly lower than that of the FTSE MIB, which benefited from the large weight in terms of capitalization of banking sector stocks, which rose sharply.

The presentation of the new Strategic Plan, with a significant amount of investments, has led to an improvement in the valuations of brokers covering Italgas

In these months of 2021, Italgas could therefore leverage the favorable scenario as well as its defensive profile. The Company could also benefit from solid fundamentals, as proven by the FY2020 and Q1 2021 financials. In addition, shareholders were rewarded on May 26, 2021 with a dividend of €0.277 per share, up 8.2% from the previous dividend.

Finally, a further factor that played a supporting role was the Strategic Plan 2021-27, presented to the financial community on 15 June 2021 and welcome especially for the significant amount of planned investments, which are close to 8 billion euro overall and show an increase compared to the Plan presented last October.

The 20 analysts covering Italgas shares today have an average target price of 6.0 euros. Among these, 11 have target prices equal to or higher than 6 euros. Following the presentation of the new Plan, more than a third of the brokers have revised their target price upwards.

As of 13 July 2021, brokers’ recommendations are positive (10 among Buy, Outperform or Accumulate) or neutral (10 among Hold, Market performer or Equal Weight). No broker suggests selling Italgas stock at current prices.