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How to traverse the energy transition is the multibillion-dollar question that all of Europe’s oil majors have been grappling with for years. Nobody has cracked it — as the recent strategic revisions from the likes of Shell prove.
But one strategy is starting to show promise: Italian major Eni has taken the approach of setting up satellite businesses, which can independently tap capital markets and operate unencumbered by the rest of the legacy business.
Eni is in talks with KKR to sell a 20 to 25 per cent stake in its biofuels business Enilive. The deal, if agreed, could potentially value the entire satellite, which also owns more than 5,000 fuel stations in Europe, plus cafés and a car-sharing business, at between €11.5bn and €12.5bn, Eni said.
Debt-free, Enilive is expected to generate €1bn in ebitda this year. This would imply a forward enterprise value/ebitda multiple of 11.5 to 12.5 times, well above other biofuels businesses such as Neste, which currently trades on about 7 times.
Granted, pure biofuels companies have been hit in the last year thanks to an oversupplied market. Enilive stands out as it produces some of its own feedstock, points out Bernstein’s Irene Himona.
But even when taking into account a higher multiple for Enilive’s other operations, a deal at that level would be a good outcome. Eni last year also sold a stake in its renewables-focused satellite Plenitude, also at an unexpectedly attractive multiple.
Those should be two wins in a sector that is struggling to convince traditional fossil fuel investors of the value to be had in clean energy businesses. But the market reaction to the KKR talks was almost zero. Eni — at some point — deserves more credit.
In the past year, the Italian group’s shares have underperformed several rivals, including TotalEnergies and Shell. Other factors have been at play, including the hit of weaker gas prices to earnings estimates and negative surprises on net debt, notes UBS’s Joshua Stone.
Oil investors’ preoccupation with just securing more share buybacks also plays its part — despite Eni recently improving its distributions policy to 30 to 35 per cent of cash flow from operations, versus 25 to 30 per cent previously.
Eventually, Eni is likely to float its satellite units. Equity market sentiment towards clean energy businesses clearly is not good enough to support that as yet. For now, it is doing well at making the most of the plentiful private capital on offer to show that, ultimately, there is value there to be had.