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: interesting times - (Asia-Pacific markets rose with European and US futures mildly up) – Asia-Pacific markets rose on hopes for China stimulus and a pause in Fed rate rises. Futures for Europe and the US are moderately up.

Response to the crisis: Progressives are there to make mistakes, conservatives are there to prevent them being corrected - (Labour unions and employers defend the agreement on labour market reform saying that what is signed is signed (Cinco Dias p4) – Although labour market reform was not as radical as feared, it still had negative effects in terms of labour flexibility. Given the potential for a change in government (according to the polls), it is understandable that the labour unions would state opposition to any of the reforms being rolled back. The employers also have an incentive to not back changes given the risk that the current government could remain in place and a wish to avoid strife. Unfortunately, a new PP government might also prove reluctant to make many changes, especially to avoid a rise in labour strife (the unions have been very quiet under the Socialists). It took a major economic crisis for the PP to carry out significant labour market reform. We are not there yet.

Sacyr: At your service - (Sells its Valoriza services subsidiary to a fund managed by Morgan Stanley for €734m and will use the cash to reduce debt (Expansion p5) – The sale of the environmental services division for €734m EV (c.9x EBITDA) had a positive impact on the share price, with the price being considered better than the initial estimates but somewhat lower than the most recent ones. Using the proceeds to reduce recourse debt is positive in an environment where interest rates are expected to remain high and reduces uncertainty regarding their use. With the sales of the facilities management and water supply assets pending, there could be further good news ahead.

Macro: The poor spend, the rich invest - (Bank of Spain says that the accumulated savings during Covid will no longer fund additional consumption (Cinco Dias p25) – The “forced” decline in consumption during the pandemic period resulted in an increase in savings.?Once the pandemic was over the extraordinary reservoir of savings were partly channeled to consumption, but mostly for lower income households (higher income ones continued to invest), with the effect on real consumption undermined by rising inflation. Going forward, the excess savings are less likely to boost consumption, given that households with a greater propensity to save have exhausted a large part of the savings and many will need to devote part to facing the tighter financial environment.

Macro: Homing out - (The number of registered housing transactions in April fell 8.1% YoY (National Statistics Institute) – The decline in the number of housing transactions registered in April is not positive, as it represents an acceleration on previous figures (YTD is -3.4%), representing the lowest level in two year. The transactions do not necessarily reflect those that took place in April, as they may include those carried out earlier but registered in that month. But there is little to indicate that things have been improving (especially interest rates).

*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.?