Citi downgrades Snam to “sell” on weak EPS growth, rising leverage
Investing.com -- Citi Research has downgraded Italian gas infrastructure operator Snam (BIT:SRG) to “sell,” lowering its price target to €4.30 per share from €4.40.
The downgrade is based on slowing earnings growth and mounting pressure on the company’s balance sheet.
Snam is currently trading at a 17% premium to its forecast 2025 regulated asset base, a level Citi says is difficult to justify given the company’s weaker fundamentals relative to peers.
Citi projects a 2% compound annual growth rate in earnings per share over the next five years, compared with a 6% average across the sector.
This is also below Snam’s internal estimate of around 4.6%. The lower outlook is driven by Citi’s use of a more conservative weighted average cost of capital and the expected impact of higher hybrid bond interest tied to the OGE acquisition.
The brokerage also flagged concerns about leverage, with Snam’s €12.4 billion net capital expenditure plan and the OGE deal adding financial strain.
Funds from operations to net debt are expected to fall from 12.6% in 2024 to 10.8% by 2029, reducing flexibility.
The revised price target implies a 13% premium to 2025 RAB, which Citi sees as more appropriate given Snam’s current fundamentals and a 3.9% nominal yield on 10-year government bonds.
