Take 5 and come back tomorrow (10/5/24) Markets Corporate governance BBVA SAB Real Estate TEF

None of what follows is investment advice.

Market environment: Mild rises foreseen - (Asia-Pacific markets rose with European and US futures mildly up) – Asia-Pacific markets rose led by Hong Kong as a result of potential changes in the tax treatment of dividends for individual investors. Futures for Europe and the US point mildly up.

Response to the crisis: The urge to meddle - (According to the Minister for the Economy the state is a shareholder that provides stability to strategic companies and that we should stop being na?ve with respect to the arrival of foreign investors to our strategic companies (Expansion p3) – Taken together with the Government’s opposition to the BBVA bid for Sabadell, the above statements would seem to confirm the view of the head of the opposition regarding the Government having interventionist instincts with respect to corporates. This is not a plus in terms of making Spanish corporate more attractive.

BBVA-Sabadell: Little room for manouver - (BBVA launches a hostile bid for Sabadell and sees a 6,71% fall in its share price (Expansion p37)/The Minister for the Economy criticises the BBVA bid and warns that the Government has the last say (Expansion p39)/Sabadell hires Goldman Sachs and Morgan Stanley to seek a foreign alternative to BBVA (OK Diario) – Launching a hostile bid against the Government’s wishes does not seem like a good idea. Having declared the impossibility of improving the bid BBVA will now have to work extra hard to convince investors of its bid without having the capacity to look closely at the Sabadell books. Sabadell looking for alternative candidates further afield would be in line with normal procedure.

Real Estate: Upward pressure - (Rents rise more than the government limit in the first year of limits tied to inflation (Cinco Dias p23) – The Government set a 2% upward limit to rental reviews but has seen that exceeded in 2002 (+2.7% overall and +2.1% for existing contracts). New rentals, to which the limit does not apply saw a 5.3% rise. But even existing rents rose more than the limit, although this is probably partly due to the fact that it was not imposed for the full year and that it does not apply to small landlords. Altogether the figures point to significant upward pressure on rents.

Telefonica: Comfortable figures - (1Q24 net profit of €532m +78.9% (ex-extraordinaries +7.5%) on revenues of €11.14bn +0.9% and EBITDA of €3.25bn +1.9% (Cinco Dias p14) – The 1Q24 results were slightly above consensus and in line with the strategic plan targets. Although free cash flow was negative this was due to seasonality and should be positive for the full year, where in line with the strategic plan modest operating growth should translate into free cash flow generation as a result of having passed the peak investment period.