Take 5 and come back tomorrow (17/6/24) Markets Taxes FER Hotels IAG ACS

None of what follows is investment advice.

Market environment: Taking a rest in Europe - (Asia-Pacific markets decline with futures for Europe mildly up and those for the US flat) – Asia-Pacific markets declined led by Japan after a week in which developments in European politics pressured markets. Futures for Europe point to a mild rise with those for the US being little changed.

Response to the crisis: Silent taxation - (According to Bank of Spain inflation is responsible for 50% of the rise in personal income tax collection (Expansion Sat p24) – The Government has made much of the introduction of new taxes on corporates/the rich, although in the end a larger part of the increase in tax collection is due to not offsetting the impact on inflation (via application of higher tranche rates and loss of impact of benefits) on the personal income tax. As long as wage growth is in line with inflation this is likely to continue being the case.

Ferrovial: Better than nothing - (Reaches an agreement to sell 19.75% of Heathrow (out of its 25% stake) for €2bn as part of a deal that will see the sale of 37.62% to Ardian and PIF by Ferrovial, CDPQ and USS for €3.866bn, an 8.5% reduction in valuation since the November agreement (Expansion Sat p5) – The new agreement is still not applicable as a number of conditions need to be fulfilled, but it represents progress in being able to divest at least part of Ferrovial’s stake. Along the way, Ferrovial has seen a decline in the overall valuation of the asset (c.8.5% since November) as well as a reduction in the stake that Ferrovial would be selling (from 25% to 19.75%) in order to accommodate the fact that the execution of tag-along rights required finding a buyer for a higher overall stake. The terms may not be ideal, but they are better than nothing.

Hotels/IAG: Running out of cash - (BBVA Research expects tourism to no longer be the motor of economic growth in Spain in 2025 (Cinco Dias Sat p26) – The tourism sector has been one of the driving forces of the Spanish economy over recent years, but may start to run out of steam in the near terms due to the impact of inflation and exhaustion of savings on clients. There has also been a lot of talk of the increasing saturation of key locations, especially during the high season, with hopes for further growth being pinned on increasing the value-added component of the industry. However, a worsening of the financial situation of consumers should impact both on tourist numbers and their spending.

ACS: Time to sow - (Abertis seeks new concessions due to the maturing of 8 concessions with revenues of €1bn in the next five years (Expansion p3) – It is in the nature of motorway concession companies to be on the lookout for new concessions in order to replace those that near their maturity. The key is to do so not only in terms of replacing lost revenues but also in terms of the IRRs embedded in the portfolio. Generally it is best to do it at a time of high interest rates, when high IRR on projects might be the norm and when the granting authorities might be pressed for cash. Thus, the next 5 years will be key.