Take 5 and come back tomorrow (18/4/24) Markets Taxes NTGY ACS Investor survey

None of what follows is investment advice.

Market environment: Up - (Asia-Pacific markets rose with futures for Europe and the US pointing upMarket environment: Up - (Asia-Pacific markets rose with futures for Europe and the US pointing up) – Asia-Pacific markets rose on a weakening of the dollar vs. Asian currencies with hopes of coordinated intervention. Futures for Europe and the US point up.

Response to the crisis: True to form - (The tax pressure of the four large taxes (personal income tax, corporate tax, VAT and excise duties) accelerates during the mandate of PM Sanchez and is close to its highs (Expansion p24) – The current government has followed a strategy of expanding both expenditure and taxation, leading to the still remaining need for adjustments in order to comply with European fiscal rules, despite the aid of inflation. Given past form, it seems that any adjustments would be carried out more on the revenue than the expenditure side of public finances.

Naturgy: You pay for what you get - (Taqa negotiates with CVC and GIP a bid for 100% of Naturgy, including a cooperation agreement with CriteriaCaixa, at a price which market sources place at €25-28/share, with a view to maintain together with CriteriaCaixa a stake of at least 60% and place the rest in the market (Expansion p3)/The Government questions the potential bid by the UAE’s Taqa for Naturgy with the Minister for the Treasury calling for the new investor to be clear, transparent and if possible Spanish and the Minister for the Economy opening the door to the entry of government funds in the shareholding (El Economista p5)/Criteria and Abu Dhabi negotiate an equal stake in Naturgy which would stop the entry of the Government (Vozpopuli) – It looks like the idea that a potential bid is a way to allow the exit of CVC and GIP is confirmed. The problem here is that the new investor will face many restrictions, having to reassure CriteriaCaixa and the Government, that could prevent changes to try to improve returns. The CVC/GIP desire to sell and the restrictions on the buyer/reassurance of CriteriaCaixa may be reflected in the transaction price.

ACS: Ticking all the right boxes - (ACS aspires to double profits via its new strategic plan to €1bn in 2026, as well as increasing the value of its equity to €14bn, paying €2bn in dividends in the next 3 years, based on a new structure composed of international civil works, Abertis and the new areas linked to energy transition, digital business and services to mining (Expansion p7) – The new strategic plan includes ambitious targets as well as a business structure that ticks all the boxes (energy transition, data centres and other digital business etc.), with a message of current undervaluation and future value creation. All that ACS needs now is to deliver.

Investor survey: Inflated expectations - (According to the Bank of America investor survey large investors are switching from bonds to equities, with inflation and geopolitics seen as the highest risks (Expansion p20) – Switching from bonds to equities and commodities would seem to make sense in a context where renewed inflation pressures are seen as the main risk. The main question mark is to what an extent equity valuation would remain unaffected by pressure on bonds.