Finance arm seen underpinning Italy's postal privatisation

Tue Jan 28, 2014 8:03am EST

* Italy aims for 4.0-4.8 bln euros from postal privatisation

* Values Poste Italiane at 10-12 billion euros

* Analysts say valuation underpinned by financial business

* But wary of government influence after Alitalia deal

By Francesca Landini

MILAN, Jan 28 (Reuters) - Poste Italiane's fast-growing financial services business should underpin the Italian government's goal of raising over 4 billion euros ($5.5 billion) from the privatisation of the postal firm, despite concerns about ongoing state interference, analysts say.

The government, which only last month persuaded Poste Italiane to invest 75 million euros ($103 million) in struggling airline Alitalia, said on Friday it planned to sell 40 percent of the postal operator, hoping to replicate the successful flotations of similar groups in Britain and Belgium last year.

The sale is the cornerstone of a privatisation drive aimed at raising 8-10 billion euros over the next two years to rein in Italy's public debt, which is expected to come in just below 133 percent of gross domestic product this year.

Analysts said Poste Italiane's strength in financial services would be a key attraction for investors.

While its delivery business has shrunk in the face of competition from electronic communications, Poste Italiane has taken advantage of the public's loss of confidence in banks since the financial crisis to expand in financial services.

The group, which is wholly state owned and launched financial arm BancaPosta in 1998, now makes about 80 percent of its revenue from financial and insurance products. With almost six million current accounts and 48.7 billion euros in deposits, it is Italy's sixth largest bank and its third largest insurer.

"It's different from other post offices in the world because it's much more diversified," said Andrea Majoli, a partner at consultancy firm A.T. Kearney in Italy. "Investors can benefit from the fact that the various businesses run by Poste make the group more resilient through economic times."

However, Poste Italiane hasn't been immune to an austerity drive during Italy's longest recession since the second world war, and its financial business is likely to become more closely regulated outside the protection of full state ownership.

"Cost cuts have made the mail service less efficient and they are going to face tougher competition from banks when the company goes public," said Roberto Lottici, fund manager at Banca Ifigest.

"If I buy it, I want to see it at a discount or with sweeteners," he added, referring to Poste Italiane's valuation compared with peers and to potential incentives such as bonus shares for investors that hold stock for a given period.

VALUATION

Italian Economy Minister Fabrizio Saccomanni said on Friday the government aimed to raise 4.0-4.8 billion euros from selling a 40 percent stake in Poste Italiane.

That values the entire group at 10-12 billion euros, or an enterprise value (EV) of about 7 times forecast earnings before interest, tax, depreciation and amortisation (EBITDA) based on the midpoint, according to A.T. Kearney's Majoli, who thought an 11 billion-euro price tag was fair.

Poste Italiane's mix of businesses makes direct comparisons difficult. But Britain's Royal Mail is currently trading at an EV/EBITDA of about 8.2 times, according to Thomson Reuters data, following a sharp rise in its shares since a privatisation which critics say short-changed the taxpayer.

Italian insurer Generali, meanwhile, is trading at an EV/EBITDA of around 6.5 times and Italian bank UniCredit at about 7.1 times.

Analysts said the government's valuation of Poste Italiane seemed fair. In 2010, Deutsche Bank priced the business at 9.4 billion euros when it advised the state on its purchase of a 35 percent stake to become the company's sole owner.

Since then, revenues in Poste Italiane's insurance and financial services business have risen about 35 percent, and the firm made a net profit of 1 billion euros in 2012.

THE STATE AND SMALL INVESTORS

Some analysts, though, are concerned the government's continued influence in Poste Italiane may deter investors, particularly in the wake of the Alitalia deal.

"The challenge will be to convince potential investors that their capital will generate dividend returns to them - not leak out into loss-making airline rescues," said Damian Brewer, transport and logistic analyst at Royal Bank of Canada.

Carlo Stagnaro, chief economist with the Istituto Bruno Leoni think tank, said the state needed to make clear its influence on Poste Italiane - which is also the second largest holder of Italian government bonds after Intesa Sanpaolo - would reduce.

"The government should gradually exit from Poste, and allow the group to grow autonomously," he said.

While wooing institutional investors, the government also hopes Poste Italiane's role in everyday life will encourage individual Italians to buy into the stock market listing.

With 14,000 yellow and blue branches dotting even the most remote corners of the euro zone's third largest economy, Poste Italiane has nearly three times as many outlets as Intesa Sanpaolo, Italy's biggest retail bank.

It is the country's biggest employer with 146,000 workers, and aside from traditional postal services and pension payments, it offers customers a wide range of services from buying postal bonds and life insurance, to signing up for a mobile phone contract, buying a mortgage and even trading securities online.

To increase the appeal to small savers, the government is expected to set the minimum order for Poste Italiane shares at 500 euros - much lower than in previous privatisations.

"The post office is present in every village in Italy. It's a transaction that will not remain in financial circles alone," Saccomanni told Reuters TV in an interview in Davos last week.

($1 = 0.7313 euros) (Additional reporting by Stephen Jewkes in Milan and Neil Maidment in London; Editing by Silvia Aloisi and Mark Potter)

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