E - Eni: Mattei Plan Is The Key To Success Strong Buy

2023-10-17 11:25:35 ET

Summary

• Eni has achieved a double-digit return but remains significantly below its target price by over 35%.
• Eni stands to benefit from the Italian "Mattei Plan," which aims to create economic ties with African countries for energy resources.
• While exact growth figures from the Mattei Plan are uncertain, I think it will further establish Eni as an industry leader.

Since my last article on Eni S.p.A. (E) titled " Eni : 3 Reasons Why This Stock Is A Strong Buy" the company has achieved a return of +13.20%. However, at the current price, it remains significantly below its target price.

As I previously explained, the primary factors contributing to its potential long-term outperformance are not solely tied to the reduction in crude oil production by OPEC+. This has led to a short-term price increase, but there's also a more fundamental and substantial reduction in long-term investments within the oil sector. A progressively diminishing supply and an anticipated increase in demand over the long term would undoubtedly be advantageous for Eni and in general oil companies.

Moreover, I emphasized how Eni, unlike its competitors, is a pioneer in all matters related to the "green" aspect of the energy sector, alongside demonstrating exceptional managerial efficiency.

However, in this article, I won't delve extensively into the aforementioned topics. Instead, I would like to briefly explain, thanks to recent developments, how the company, despite possessing a substantial public stake (32.4% of the capital), stands to gain significant advantages for long-term growth from this.

The "Mattei Plan" and how Eni will benefit from it

Following the conflict in Ukraine and the consequent increase in oil and gas prices, many European nations, including Italy, found themselves faced with managing an emergency situation regarding price control and filling storages. This has meant that many countries no longer look to the East for energy supplies, but to strategic partners to the south, in Africa. However, this poses many limitations: in addition to a very unstable geopolitical scenario, there is also the problem of a lack of infrastructure and stability in the area to guarantee a long-lasting partnership.

In 2022, Mario Draghi, former Prime Minister of Italy, had already signed agreements with Algeria to become the first Italian energy supplier, taking advantage of Eni's logistics and production capacity.

With the arrival of the current Italian Prime Minister, Giorgia Meloni, this process continued thanks to talks and agreements with Tunisia, Libya, and Morocco. This need to find new energy suppliers, along with the policy of stabilizing the Saharan and Sub-Saharan regions to slow down migratory flows, led to the creation of a non-aggressive strategic plan called the " Mattei Plan ". The objective of the Italian plan is to provide structural investments and guarantee growth to African states by creating economic ties in order to then benefit from the energy resources of these countries.

In summary, Eni is the second-largest energy multinational in Africa, where it produces over 60% of its global production, and it is also the only company capable of providing the logistics capacity to Italy to guarantee stable flows of crude oil and gas towards southern Europe. Furthermore, Eni is also bonded to the Italian Ministry of Economy and, without Eni, a Mattei Plan would not be possible. That's why Eni could become the biggest beneficiary in terms of profits.

Ironically, to underline this, the Mattei Plan created by the Italian government takes its name from the founder of Eni, Enrico Mattei, who in the 1960s, thanks to structural investments in Africa and agreements with countries, brought the company to be a giant in the energy industry within just a few years.

The visit of the Italian Prime Minister to Mozambique and Congo appears to solidify the plan even further.

Another highly positive signal arises from the visit on October 13th of Italian Prime Minister Giorgia Meloni to Mozambique and Congo. During talks with Mozambican President Filipe Nyusi, the Italian government announced its intention to allocate approximately €3 billion from the Climate Fund (70% of the €4.2 billion fund) to the Mattei Plan for structural investments in Africa. This gives a more precise estimate of the scope of the investment. Furthermore, the Prime Minister encouraged other European Union countries to follow a similar path.

This meeting was significant not only for establishing the groundwork for long-term political cooperation between Italy and Mozambique and Nigeria, but also for stating strategic interests in the energy sector. Indeed, in 2022, Nigeria produced 1.5 million barrels per day, while Mozambique boasts an estimated annual gas production capacity of 43 million tonnes.

Another noteworthy aspect of these discussions was the presence of Eni's CEO, Claudio Descalzi, alongside the Italian Prime Minister.

Therefore, while the Italian government will oversee the infrastructural investment and the political aspects, and presumably, in a short time, other European countries will also become involved, Eni's role will involve utilizing its existing logistical capabilities and investments in the pursuit of new oil fields (an area in which Eni excels). This will ensure the company gains significant benefits, with minimal investment and without the "risks" associated with operating in unstable countries.

In conclusion

Regarding the rating, I haven't made any significant changes since the last update. The recent issues in Israel had no adverse effects on Eni. In fact, all of the company's oil and gas fields are located at sea in the area, so I haven't factored in any negative impacts from this.

Regarding the Mattei Plan, I personally anticipate that more precise figures regarding the investments and implications for Eni may only emerge starting from January 2024. This is the date to which the Italy-Africa conference has been postponed, and it's expected that more detailed points will be discussed with the countries of the continent.

Therefore, due to this uncertainty, I have chosen not to include these projections in the DCF model.

Nevertheless, my rating remains a "Strong Buy". I consider Eni to be a forward-thinking company from various perspectives, and I believe it will play an even more pivotal role in Africa in the future. Finally, the target price remains confirmed at $44.20 (€20.20 for shares traded on the Milan stock exchange), with a potential upside of 35.25%.

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