Italgas launched the new business plan 2018-2024which provides total investments (without tenders) for 4 billion euro (an increase of more than 30% compared to the previous plan). Of these, two will be allocated to the development and improvement of the network, approximately 800 million to technological innovation and digitalisation, 450 million to the methanisation of Sardinia and another 420 to M&A operations, for interventions on the newly acquired networks.
The plan then assigns a further 1,6 billion to the acquisition of third-party networks following the area tenders, which at the moment are rather still due to many bureaucratic slowdowns and appeals, but which at the end of the plan "will bring the market on the networks from the current 30% to 40%”, explained the managing director Paolo Gallo speaking to the analysts. Also, “un digitization program of networks and business processes and the launch of the Digital Factory in the fourth quarter of 2018”, reports a note from the group.
In the three-year period, the company intends to distribute a dividend equal to the higher of two values: the amount resulting from the 2017 coupon (€0,208) increased by 4% per annum and the DPS (dividend per share) equivalent to 60% of the consolidated net profit. "We are confident that we will do better than 4% this year already", Gallo said in a conference call, hinting that the growth in profit could already from 2018 guarantee a higher dividend than the base growth of 4%. "The satisfaction of the shareholders will come about not only with the dividend but also through the creation of value within the company", commented the CEO.
About the prospects for this year, Italgas expects "revenues of 1,2 billion, with a gross operating profit of between 810 and 830 million, a return on assets of more than 7% in terms of Ebit/Rab and a consolidated Rab (including acquisitions) of approximately 6,2 billion at the end of the year, against an expected leverage of around 63% thanks to the significant cash generation”. Al 2024, on the other hand, "thanks both to the organic development supported by the planned investment plan and to the completion of the area tenders, the Rab (including M&A and area tenders) is expected to have reached a level of around 8,4 billion euro . EBITDA is expected to be around 1,1 billion euro, while leverage is expected to be less than 60%”.
Immediately after the presentation of the plan, mid-morning the stock of Italgas on the Stock Exchange it managed to lose 1,9%, at 4,772 euros (last April 30 it had reached an all-time high at 5,36 euros). At that time it was the worst performance of the entire Ftse Mib, which in the same minutes was up 0,4%. Subsequently during the day, the stock fluctuated: in the middle of the day it had managed to contain the losses, only to then close again with a loss of more than 1%, below 4,8 euros per share. In the sights of investors, although it is expected to grow, the dividend has ended: Equita had forecast a growth in the dividend per share of 5,4% as a floor to 2024, against the 4% announced by the company. But "although the dividend policy is less generous in the long term, we believe it can support the stock", the analysts specified.
“The industrial plan priorities are organic growth supported by a robust investment plan, M&A transactions, improvement of the competitiveness and quality of the service rendered to customers also thanks to the technological innovation programs – he commented Paolo Gallo, chief executive officer of Italgas – In this context, the plan for the installation of smart meters, which represent the first step in the process of digitalisation of the networks and which we will complete within the first few months of 2020, is of particular importance, as well as the launch by the end of 2018 of the Digital Factory, which will be the engine for the complete digitization of business processes. The solid financial structure will allow us to seize further opportunities to create value while maintaining financial conditions consistent with our creditworthiness".
Speaking of the acquisitions, Gallo then added that “Italgas will invest a further 250 million euros to acquire a further 2019 redelivery points (RdP) by the end of 180, 110 within this year and 70 next. We are currently evaluating the opportunity to acquire an additional 180 redelivery points by the end of 2019, there is still room to increase our M&A. We have demonstrated our ability and we will continue to do so: we want to take over other small operators while always maintaining financial discipline". Between 2017 and 2018 Italgas has already taken over six companies for a total of 70 thousand gas redelivery points, investing around 150 million. For the 110 in 2018, the planned investment is 250 million.
Su Tuscany Energy, the managing director of Italgas added that its consolidation is expected in the coming months. Today the local company is 48,8% owned, but Italgas aims to "rise above 50%, even if it is necessary to find parties willing to sell". The point, according to Gallo, is to exploit the "advantage of Italgas", which owns 34,4% of the meters. "Thanks to the size of the network and our presence everywhere, we can achieve important economies of scale, while in Italy the industry is highly fragmented, with 21,9% of meters in the hands of too many operators".
Although decreasing, there are still many operators: in 2000 they were 730, in 2016 they were 220. In this context, according to Gallo, "consolidation is beneficial for everyone, for operators, shareholders and end customers". Gallo then predicts the conclusion of the 177 area tenders (Atem) by 2023, last year of the Plan”, while there will be a lot focus on Sardinia, a recent acquisition by Italgas, “which has opened the doors for new investments to contribute to the methanisation of the Region. The potential is very high and we want to play a significant role."
The challenge of territorial tenders is divided into three clusters according to the more or less established presence, currently, of Italgas: "The first cluster - explained Gallo - is the one where we have a current share of at least 75-80% , or even 100% as in Val d'Aosta. In those areas we have such a network knowledge which allows us to aspire to win all or almost all the races. Then there is an intermediate cluster, in the areas where we have a much lower share of networks and where we expect to win 30-40% of the tenders, and finally there is the third cluster where we are not present and where we will not participate in the tenders. Also because we remember that participating in tenders has a significant cost, both in terms of human resources and economic resources”.
There are around ten certain area tenders in which Italgas will participate. “Between postponements and more however, there are only three that should go through this year namely the Valle d'Aosta, Massa and central Turin. But we will be able to grow regardless of the races”, concludes Gallo.
Updated at 18 pm on 13 June 2018.
