Enel, Europe’s most indebted utility, said it expects to bank up to €3.4bn from the listing of Green Power (EGP), which it will use to cut its debts and protect its credit rating.
However, Enel cut its price target on Friday to €1.8-€2.1 a share from a preliminary range of €1.9-€2.4 a share and investors said the new valuation remained ambitious, with one pledging not to apply for shares in the IPO but wait until after the float and buy them more cheaply on the market.
“We have given our views to bankers dealing with the IPO and this pricing is way too high... It will be tough to get institutional investors into this deal at this price,” one European fund manager said, asking not to be named.
The deal comes on the heels of a pick-up in European equity issuance which had seen a sluggish first half of the year, when a run of IPOs were postponed or had their targets cut, but investors continue to drive hard bargains.
Investors have welcomed EGP’s diversified energy mix, strong cash flow and broad geographic footprint but expressed concern about slower growth versus peers and still fragile markets, clamouring for a discount. They worry that cash-strapped states could slash crucial support for green energy.
Selling EPG shares at the top end of the range would value it just about in line with peers, with an enterprise value of just over 10 times core earnings, Thomson Reuters data show.
At €1.8 a share, EPG’s enterprise value would drop to 9 times EBITDA, well below its peers. Enterprise value is the value of a company’s shares plus its net debt. According to Enel the unit’s P/E 2009 multiple at €1.8 a share is 19.9 times compared to 27.7 times for IBR and 31.7 times for EDPR.