Following the presentation of the company's 2010-2013 strategic plans, we are downgrading Eni SpA ( 46.53 0.00 0.00%) ADRs to Underperform from Neutral. Our primary concerns for the company are the lack of a clear dividend policy, a declining dividend yield trend, cyclical low returns, doubts over rising competitive threats to its core gas business and quality of the upstream growth profile.
Eni lowered its production growth target to 2.5% from 3.5%. We believe that this growth target also carries a higher degree of delivery risk as the bulk of it comes from risky projects in Iraq, Venezuela and Kazakhstan.
In addition, management also hinted about a lower earnings visibility for its Gas trading business. We now set a target price of $42 per share.
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