Lead
UBS has moved Snam to a Buy recommendation from Neutral, pointing to a share-price drop that has pushed the Italian gas-transmission and related-services company to trade at a valuation discount the broker regards as unjustified. The firm kept its growth outlook intact while modestly trimming its 12-month target to €6.60 from €6.70.
Price action and broker rationale
Snam shares have fallen 10% over the past three months, reversing earlier gains tied to a well-received business plan. UBS noted the stock has lagged not only direct peers but also the broader sector and the Italian market. The broker traces this underperformance mainly to rising bond yields and heightened regulatory uncertainty - specifically consultations and proposals affecting the post-2028 regulatory framework and gas distribution rules that some market participants interpret as foreshadowing a harsh post-2028 regulatory reset.
UBS argues the market has overreacted to those concerns and that recent positives have been underappreciated. The broker points to Snam's consecutive earnings beats in the first and second quarters and to structural metrics it regards as supportive of valuation.
Valuation and growth profile
On a price-to-earnings basis the stock is trading at roughly a 15% discount to peers, a gap UBS describes as unwarranted given Snam's projected underlying growth. UBS quantifies Snam's asset-base compound annual growth rate at 5.6% for the 2025-2030 window, and a normalized earnings-per-share compound annual growth rate of 4.1% over the same period. The broker also highlights a dividend yield it expects to start at about 5.6% in 2026 and to rise to around 6.5% by 2030.
Additional upside potential is identified from a roughly €3 billion asset-rotation program, together with optionality tied to carbon capture and storage and to hydrogen initiatives.
Regulatory calendar and specific items
UBS outlined three specific regulatory items investors should watch in the coming months. First, a November decision is expected on the regulated 2027 weighted average cost of capital (WACC), with the observation period for parameter inputs ending in late September. Second, the broker expects a second consultation on the 2028-2031 regulatory period, following an initial consultation in May that concentrated on procedures and efficiency measures. Third, Snam faces a mandated sale of its biomethane business. UBS places a value on that business at €455 million, while noting press reports have suggested a range of €0.4 billion to €0.5 billion.
Forecast adjustments and risk considerations
UBS modestly reduced its adjusted net income forecasts for 2026-2030 by 1% to reflect a more conservative stance on allowed operating expenditure after 2028 and to factor in a higher cost of debt consistent with elevated yields. Otherwise, the broker said its projections remain broadly aligned with Snam's guidance and with consensus through 2030.
The firm emphasized that regulatory outcomes represent the principal risk. UBS quantified one downside scenario: if a distribution-sector approach to operating expenditure similar to its base case were adopted alongside a reduction in the 2027 cost of capital, earnings per share could decline by 3% to 4% versus UBS's base case.
Conclusion
UBS's upgrade to Buy rests on the view that the market has overstated regulatory risk and undervalued Snam's visible growth, dividends and asset-rotation potential. The near-term outlook will be shaped by the forthcoming WACC decision, further regulatory consultation on the 2028-31 period and the mandated disposal of the biomethane unit, all of which the broker has flagged as key catalysts and risk points.
Quick facts recapped
- UBS moved Snam to Buy from Neutral and set a 12-month price target of €6.60 (previously €6.70).
- Snam shares fell about 10% in the past three months and trade at roughly a 15% P/E discount to peers.
- UBS projects a 5.6% asset-base CAGR and a 4.1% normalized EPS CAGR for 2025-2030; dividend yield seen at 5.6% in 2026 rising to 6.5% by 2030.