August 2023

In this first part of 2023, most stock markets posted strong performance, despite the attitude of Central Banks and fears that tightening policies will impact economic growth prospects.

Italgas share price, which also showed a rise during these early months of 2023 that led the price to exceed 6 euro on 21 April, was affected by market volatility and the lack of recent favor in utilities. Furthermore, the prospects indicated by the new 2023-2029 Plan, presented on 15 June, have yet to be deeply analyzed by investors.

The consensus target price of the brokers covering the stock, equal to 6.14 euro, continues to indicate a significant gap between average brokers’ valuations and Italgas recent prices, showing room for potential appreciation.

In the first part of 2023, most stock markets have posted strong performance

The first six months of 2023 saw a rebound in the downward trend that had dominated 2022.

Since the beginning of 2023, both the Eurostoxx 50, the Nikkei, and the S&P500 posted double-digit gains, while the NASDAQ 100 achieved the greatest progress, up more than 35 percent, driven by tech stocks, which are benefiting from the attractive AI prospects.

In the first part of the year, Central Banks remained focused on fighting inflation. Even though price dynamics showed signs of a slowdown, due in part to the fall in energy commodity prices, monetary authorities continued to provide “hawkish” signals, foreshadowing further rate hikes in the coming months while waiting until they can verify that the restrictive policies implemented have produced permanent effects on inflation, beyond some easing signs already appearing.

Equity investors, however, seem to consider the risk of a deep correction in the economy induced by the credit crunch to be low, while they appear more inclined to discount that both the Fed and the ECB are approaching the end of the most severe tightening cycle that moved interest rates to their highest levels in about 20 years. Many portfolio managers have adopted a risk-on mode, deploying the abundant cash on hand considering the resilience of the economy, together with expectations of the near end of the cycle of rate hikes and the confirmations that came from solid quarterly results of listed companies, which were able to defend their earnings despite the rising cost of money and concerns about the resilience of demand.

The FTSE MIB, the blue-chip index of the Italian stock market, has been showing a brilliant return, outperforming even the Eurostoxx 50. Especially in the first quarter, the Italian index was supported by the strong weight of banking stocks, beneficiaries of rising rates.

The European utilities index, the STOXX Euro 600 Utilities, underperformed both the Eurostoxx 50 and the FTSE MIB, mainly due to the inverse correlation to interest rates.

In this context, the Italgas shares showed an overall positive trend, as at 23 June the price was standing at a level 9.4% above the end of 2022 (Total Shareholders’ Return). In the first six months, the share price showed an erratic trend, with wide swings between the high and low of the period. From the low of 2023, marked on 9 March at 5.16 euro, the rally extended until it reached the high of the year, at 6.03 euro, on 21 April. Subsequently, despite the sound quarterly results (released on 4 May), exceeding consensus estimates by 2% in terms of both EBITDA and Net Profit, the shares experienced a correction that brought the price back to test 5.25 euro on 25 May, before recovering to 5.62 euro on 13 June, partly on the back of the news of the preliminary contract signed for the acquisition of Veolia’s water assets in Italy. This is a deal that allows Italgas to rapidly gain a significant market share in a business that is different from gas distribution, but that favors a deployment of the solid know-how it has acquired in digitized network management.

The presentation of the new 2023-2029 Plan, which took place on 15 June, coincided with a moment of market weakness due to a further interest rate increase by the ECB, which confirmed its intransigent stance in fighting inflation. As indicated by Italgas CEO, in the coming weeks investors and analysts will have the opportunity to weigh up the opportunities outlined in the new Plan – which is more complex than its predecessors also due to the expansion of the perimeter after the consolidation of operations in Greece and future expansion in the energy efficiency and water business.

Consensus target price slightly on the rise  

The 15 brokers covering Italgas shares today present a consensus target price of 6.14 euro. Considering the prices of recent stock trading sessions, Italgas’ share price still shows a substantial margin of appreciation. Analysts’ target prices range from a minimum of 5.6 euro to a maximum of 7.0 euro. In view of such a valuation framework, broker recommendations are generally favorable, with seven analysts suggesting buying the stock (between Buy, Outperform or Accumulate) and the remaining eight presenting a neutral opinion (between Hold, Market Performer or Equal Weight).