Eni/Plenitude: more gas than greenery in Italy’s eco-float

Eni of Italy plans to float a stake in its renewable business Plenitude. But a mooted valuation of up to €7.5bn is lower than initial estimates. Growing investor scepticism on environmental claims could make forthcoming green demergers less lucrative for industrial owners.

Bankers have been talking up the eco-friendly credentials of forthcoming initial public offerings to counteract tough markets. Deals in the same mould as Plenitude include Italy’s De Nora and Nucera from Thyssenkrupp of Germany, which both have a hydrogen angle.

Eni, a state-backed energy giant, set ambitious net zero goals after being slapped on the wrist by Italian regulators for “greenwashing” in 2019. Plenitude is central to its energy transition plans. The company corrals together Eni’s existing 1.4GW of wind and solar assets, which are expected to grow to 6GW by 2025. Another component is a network of 7,300 electric vehicle charging points, expected to increase to 30,000 by the same year.

As with most partial demergers, the idea is that the two companies will be worth more as separately-listed entities. Spinning Plenitude off from Eni’s fossil fuel rump should be rewarded with a higher multiple and a lower cost of capital, bosses hope. 

The problem is that Plenitude’s main green businesses are not expected to produce meaningful earnings until 2025. Even then, they will be around half of the total. Ebitda of €600mn last year came almost exclusively from the group’s retail gas supply business, the largest in Italy.

There is nothing wrong with using cash flows from fossil fuels to fund green investments. But investors should be clear what they are paying for. Plenitude’s rumoured valuation equates to 12 times trailing ebitda. That is suspiciously close to green energy darlings such as wind generator Orsted on 16 times or EDP on 14 times.

Comparable retailing operations in traditional generating groups trade on multiples closer to seven times. Only on 2025 earnings — valued at five times expected ebitda — does Plenitude’s multiple make sense. Valuations based on forecasts for a few years from now are fast losing their appeal with investors.