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: At least there is consistency - (Asia-Pacific markets declined as do futures for Europe and the US) – Asia-Pacific markets declined due to worsened sentiment with respect to China and fears that higher central bank rates may slow the US/Europe. Futures for Europe and the US point down.

Response to the crisis: We’ve reached the top and had to stop… - (The Secretary of State for the Economy says that corporate margins have returned to pre-crisis levels and now have to be maintained, calling on corporates to moderate profits in order to help control inflation and preserve the purchasing power of wages (Expansion p28)/The Ministry of the Economy hides that corporate margins are below those of 2019 (El Economista p23) – When the creation of the observatory of margins was announced I already stated that there was no real need for it as Bank of Spain already produced a similar product. This has created the potential for discrepancies to appear that could be interpreted as being politically motivated. There is an incentive to state that corporate margins have already recovered. And blame them for inflation as well as using this for justification for measures that negatively impact them. Calling for moderation of profits in a free market does not make much sense, as competition should erase any extraordinary margins. Maybe that is where the ministry should focus.

Hotels: Higher but slower - (Spain received over 8.2m international tourists in May +17.6% YoY, with spending of €9.723bn +20.8% (National Statistics Institute) – The May tourism figures are positive, although they continue the slowing YoY comparison trend seen since the start of the year. From the point of view of expenditure, the significantly higher increase in non-packaged tour (+22.3%) than packaged tour expenses (+14%) should be positive for margins, although partly offset by the fact that the highest increase is shown by international transport (+35.3%).

Iberdrola: With a little help from my friends - (Will sell to Masdar 49% of a 476MW offshore wind project in the Baltic (Expansion p3) – Selling minority stakes in large renewable projects to pension funds/sovereign wealth funds makes sense from the point of view of maximizing funds for investment and obtaining some protection against regulatory changes. The drawback is that it introduces distortions in valuations/financial flexibility as a result of the presence of significant minorities.

Macro: Slowing to the top - (Registered unemployment fell by 50,268 workers and affiliation to Social Security rose by 54,541 in June (Expansion p32) – The decline in registered unemployment and the increase in Social Security affiliations are obvious positives, although clearly influenced by seasonality, representing a slowdown with respect to previous years (the 10-year average for unemployment reduction for the month of June is -92,000 and for Social Security affiliations +88,770). Although it is logical for the improvements to moderate once the recovery from the pandemic is complete, it seems clear that there is a loss of momentum.

*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.?