Tuesday, February 05, 2013

Enel Looks for Place to Hide Its Brussels Sprouts

Enel, SpA of Italy is also a member of the Test Center Network, a recently formed alliance to accelerate development of technologies to capture and store harmful carbon dioxide emissions.  Like Southern Co. (SO:  NSYE), the U.S. based utility profiled in the last post, Enel has a vested interest in securing a place to hide away the carbon dioxide emissions spewing out of its fossil fuel driven power plants.  

Governments around the world are moving forward with mandates to increase renewable power generation and reduce emissions.  Unfortunately, renewable energy sources have been slow to come on line. Staying in compliance with emissions standards means CO2 from coal- and oil-fire power plants will have to be hidden away like a child hides Brussels sprouts under the table as Mom looks for clean plates around the dinner table.

Enel is a fully integrated power utility serving over 60 million customers in forty countries.  Its power generating capacity exceeds 97,000 megawatts.  Its operations in the U.S. and Canada, Enel Green Power (EGP),  rely exclusively renewable energy technologies -  hydroelectric, geothermal, wind and biomass.  EGP owns and operates over 70 plants in North America with an installed capacity of around 1.2 gigawatts.

Enel is developing a small-scale pilot project at its Brindisi test facility to prove out a post-combustion capture and storage approach to reducing CO2 emissions.  Then a demonstration plant will be built at Enel’s Porto Tolle clean coal power station.  Norway's Aker Clean Carbon has been chosen to provide the carbon-capture technology.

The European Commission is making funding for the projects available through the European Economic Plan for Recovery.  When plans for the pilot were announced Enel announced the price tag for the demonstration plant could reach $1.4 billion.  The company cited competitive advantage as the driving force behind project despite the seemingly high capital requirement.  It is seen as the only way to lift the environmental credentials of coal-fired power plants.

The company’s stock trades on the Milan exchange under the symbol ENEL. The stock trades about 30.2 million shares a day.  For U.S. investors with no palate for tracking down stocks on foreign exchanges can grab a few shares through a quotation on the U.S. Over-the-Counter Quotation Service under the symbol ESOCF.  However, trading is considerably more shallow  -  36,000 shares a day.  Shares of Enel Green Power also trade on three exchanges in Germany under the symbol ENZ.  Unfortunately, trading volumes are “by appointment,” making it difficult to build a position of size.

Based on trailing earnings, Enel shares trade at a multiple of 8.0 times.  Other electric utility companies trade at considerably higher multiples near 16.0 to 18.0 times trailing earnings.  A heavy debt load might give some investors a pause before taking a long position in ENEL.MI.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


No comments: