Magic Sixes – Quick Check Iren SpA (ISIN IT0003027817)

One of the companies which recently appeared in the Magic Sixes Screening (P/B < 0.6, P/E 6%) is another Italian Company named Iren Spa.

Based on “simple” criteria, the Share seems to be really cheap:

P/B 0.58
P/E 4.59
Div. Yield 9,15% (!!)

The description of the business in Bloomberg reads as follows:

IREN S.p.A. generates, distributes, and sells electricity and district heating. The Company manages natural gas distribution networks, markets and sells natural gas and electricity, and manages water services.

Based on available data, the bulk of the business seems to be energy distribution, geographically 100% of the business is done in Italy.

Market Cap is around ~ 1bn EUR– There doesn’t seem to be a single majority shareholder.

The company was IPOed almost exactly 11 years ago at 2,70 EUR. Even taking into account dividends, the performance from the initial IPO was around -6% p.a., which is better than the Italian BM index (9% p.a.).

However, the first thing I usually check is the debt load and free cashflows.

Currently, they have around 2.14 EUR per share net debt per share, which results in an enterprise value of ~3,50 EUR per Share. Based on trailing 12M EBITDA of 0,43 EUR, this results in 12M trailing EV/EBITDA of 8,8x, which for a Italian utility seems to be quite rich.

Based on Bloomberg, free cashflow has been negative for every single year since IPO.

Last but not least, only 0,42 EUR of the 1.42 EUR book value is “tangible”. One would have to check, if certain infrastructure licenses are included in the intangible part.

However at this point I can already stop summarize:

For me, the combination of a large debt pile, negative free cashflows and a significant portion of non-tangible book value makes Iren SpA more or less uninvestible. Based on the pure financials without any further analysis there doens’t seem to exist any Margin of Safety despite qualifying as “Magic Sixes” stock. For the time being, Iren will not be analyzed further as there seem to be more attractive “targets”.


  • IREN Group: the Board
    of Directors approves
    the results at 31 March 2013.

    Gross Operating Profit (Ebitda)
    of 243.7 million euros (+27.9%)

    Operating Profit (Ebit) of
    173.3 million euros (+38.9%)

    Net Profit of 81.1 m
    illion euros (+47.4%)

    Net financial debt of 2,504 million eu
    ros, confirming the trend in debt
    reduction for the fourth consecutive quarter.

  • Licences, trademarks and similar rights: 1,116,160,000 €

    This item is primarily composed of:
    – assets recognised in application of IFRIC 12, related to the business segments of
    natural gas distribution, the Integrated Water Service and, marginally, district heating;
    – the right of use of aqueduct networks by virtue of the concessions granted by the
    municipality of Genoa and other neighbouring municipalities;

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