Take 5 and come back tomorrow
First of all, let’s be clear. The following is not investment research/advice. And, as such, it involves no investment recommendations. These are my thoughts on Spanish equity issues, which I find relevant. I share them freely (and not just as regards price). As always, I am only trying to help. Please read the rest of the “discomplainer (*)” at the end of the article.
Market environment: Forced mistakes - (Asia-Pacific markets were mixed with futures for Europe slightly lower and those for the US down) – Asia-Pacific markets were mixed with some pressure from forced selling by Archegos and US-China tensions remaining high. European vaccine worries continue to feature as a factor. European futures point mildly down with US futures also down.
Response to the Covid-19 crisis: Time is money - (The German Constitutional Tribunal threatens to slow approval of the EU funds while reviewing the legality of the framework) – The decision of the German Constitutional Tribunal to paralyse the launch of the European Recovery Fund while analysing its legality is not a positive development, as it could get in the way of funds staring to flow in July. The Spanish government has already penciled-in €27bn of funds to be collected in the 2021 budget and any significant delay could result in only partial collection/execution (which is the Bank of Spain scenario in any event). Given that the Constitutional Tribunal already accepted the legality of the bailout fund and the ECB’s bond buying, the expectation is that it will also clear the creation of the recovery fund. So, it is mostly a matter of time. But time is money.
Euskaltel: And then there were four - (MasMovil, via Kaiko Telecom, presents a bid for 100% of Euskaltel at €11.17/share (€1.995bn total) a 25.1%, 25.8%, 26.8% and 16.5% premium relative to the average price of the last month, 3 months, 6 months and the prior day respectively, conditioned on acceptance by at least 75% of shares and the necessary authorisations. 52.32% of shares have signed an irrevocable commitment to sell their shares, including Zegona, Kutxabank and Corporación Financiera Alba) – That Euskaltel was going to eventually be part of an M&A transaction has been clear for some time. Given the irrevocable commitment to accept the MasMovil bid by the core shareholders of Euskaltel, hopes of competing bids should be slim, so even if the premium offered is not princely, chances are that the transaction will be successful. From the wider sector perspective, even though the deal will prevent Euskaltel from emerging as a fifth operator, it should result in a stronger fourth operator, although with the consolation that it might take time for it to digest the acquisition debt.
Cellnex: Move along, nothing to see here - (The Benetton family sells 27% of its stake in Cellnex (17m shares sold) lowering it to 9% and will use the proceeds to take up their part in the upcoming capital increase) – That the Benetton family would not take up its part of the upcoming rights increase was known for some time, given the other demands on its cash. Carrying out a sale ahead of the €7bn capital increase is a way of avoiding putting pressure on the rights and endangering the transaction. Placing the shares with a limited number of long-term shareholders (notably GIC) should also prevent flowback. The above transaction would not seem to imply any significant change in the nature of the shareholding or the company’s strategy, so it should not have a major impact on the share price.
Macro: No gifts in Christmas - (4Q20 GDP was flat QoQ, -8.9% YoY) – The flat performance of 4Q20 GDP is not positive, especially as it is based on the rise in public sector consumption, with the external sector cancelling the +0.4% in domestic demand, and with the YoY comparison worsening to -8.9% in 4Q20 from -8.6% in 3Q20. The above is not good, as 4Q20 features a certain relaxation of Covid-related restrictions ahead of Christmas, which were reintroduced in 1Q21 due to the rebound in cases.
*The above information has been read/understood/summarised/evaluated/copied as well as I could to provide a guide to Spanish equities, given available timing/intellectual constraints, and I accept no liability for misreading and/or mistranslating the original copy as set out in my previous article (which I urge you to check, as I am only trying to point you in the right direction, I hope). As for what you may decide to do, after reading the above, please contact your legally approved provider of investment advice on Spanish equities.