RBC Capital downgrades Snam stock rating to Sector Perform on slower growth

RBC Capital has downgraded Snam SpA to Sector Perform from Outperform, reducing its price target to EUR5.15 from EUR5.30. The downgrade reflects concerns over Snam's anticipated EPS CAGR of only 2% from 2025-2030, which trails Italian network peers, alongside poor returns from biomethane and OGE investments, and a fading post-energy-crisis regulatory asset base growth boost. While acknowledging an estimated 14% EPS growth for 2025, RBC notes that the projected dividend yield of over 6% for 2026 is the primary support for the revised Sector Perform rating, indicating a tempered growth outlook for the utility.

Analysis

RBC Capital has downgraded Snam SpA (SRG) to Sector Perform from Outperform and reduced its price target to EUR5.15, signaling a more cautious outlook on the utility's growth trajectory. The primary driver for the downgrade is Snam's projected long-term EPS Compound Annual Growth Rate (CAGR) of only 2% between 2025 and 2030, which lags behind its Italian network peers. This muted outlook is compounded by poor returns and heightened uncertainty from its investments in biomethane and OGE, alongside the dissipation of the growth boost from the post-energy-crisis Regulatory Asset Base (RAB). Despite these long-term concerns, the analysis acknowledges a strong near-term forecast, with RBC estimating a robust 14% EPS growth for 2025. The revised Sector Perform rating is substantially supported by the stock's income potential, specifically a projected dividend yield exceeding 6% for 2026, which is viewed as a key valuation floor.

Key Decisions for Investors

• Income-focused investors may find the projected dividend yield of over 6% for 2026 attractive, providing a rationale to hold the position despite limited growth prospects.
• Growth-oriented investors should be cautious, as the forecasted 2% long-term EPS CAGR from 2025-2030 suggests Snam may underperform its peers in capital appreciation.
• Monitor the performance of Snam's biomethane and OGE investments, as any improvement in returns from these ventures could signal a potential catalyst for a revised, more positive outlook.