Italgas Values Gas Natural’s Italian Assets At €500-600 Mn

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The CEO of Italgas Paolo Gallo has said it is interested in acquiring Gas Natural’s distribution business in Italy. This operation would reflect the consolidation trend expected in the Italian gas market, allowing Italgas to raise its domestic market to 40% from the current 30%.

It’s expected that binding offers will be presented from September onwards. Italgas’ CEO values Gas Natural’s assets in Italy at between 500 and 600 million euros. According to Link Securities’ analysts:

This is in line with our valuation of 575 million euros. This means valuing the assets at 8,5x EV/EBITDA, well below the latest price paid for similar assets in Spain, which was around 15x. So we understand that the sale price, which will include some kind of premium, will be higher than the valuation made by the CEO of Italgas.

We will see if this deal finally takes place, but fits in with Gas Natural’s idea of focusing on its core businesses and unlocking their value. The share price has increased by 39% since December, reacting to the arrival of new partner GIP and the latest distribution assets’ sales in Spain, where substantial premiums were paid. We are reviewing our target price (formerly 18,75 euros/share), and have a Hold recommendation on the stock.

“We are going to participate and hope to win”, Gallo said during a press conference to present the company’s industrial plan for 2017-2023.

The Italian government is immersed in the process of reorganising the gas distribution sector, which now has 6,500 concessions and over 200 different operators. In order to optimise the business, the government is aiming to streamline the distribution market to 177 concessions, each one managed by a single operator.

Gallo also made it clear that Italgas will only bid for Gas Natural’s distribution business in Italy. So it is not interested in other areas like marketing or regasification.

Gas Natural Fenosa confirmed in February that it had hired the investment bank Rothschild to analyse various strategic options for its business in Italy. These included an eventual disposal, against the backdrop of changes which are taking place in that country’s energy sector. Gas Natural has been active in Italy since 2002 and currently operates there through separate subsidiaries.

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