Europe has learned the lesson of past crises and knows that maintaining a high debt in turbulent times can cause a catastrophe. The same rule has been applied by the securities within the Ibex 35, as a whole, which, given the rise in interest rates on both sides of the Atlantic and with the words of recession blowing in the wind, will keep their debt under control, although it may become more expensive. The Spanish selective offers a debt ratio (net debt of all Ibex 35 companies divided by operating profit as a whole) 1.9 times at the end of 2021.
A level that will remain almost unchanged from the current year until 2024, according to what is estimated by the market consensus collected by FactSet. Thus, they foresee that at most the debt of the selective companies will reach to double the gross profit (the 2.04 times in 2023 will be the highest value of the next few years) that will be obtained in these marked exercises, in the best of scenarios, in a stagflation due to the end of free money. A level that would continue to be below the average of the last ten years, of 2.44 times taking into account how these ratios skyrocketed in 2020 when the confinements paralyzed the activity of the companies and negatively affected their profits in the majority. of the cases.
However, Spanish companies once again show that they are not as well prepared as their peers in terms of indebtedness. The set of values within the Stoxx Europe 600 start from a ratio of 1.4 times in the year of recovery after the pandemic -2021- and for 2022 go down to 1.2. In other words, the market discounts that the Ibex 35 will be 70% more indebted than the European average, which can play against Spanish companies, despite the attractiveness that the Spanish selective may have, for example, in terms of to the distribution of dividends. And it is that in view of the imminent rate hikes that are coming in the euro zone, a lot of debt does not have to translate into assured growth.
The Ibex 35 is also not better positioned when compared index to index. The selective German, closer to the European average, will reduce its debt ratio by 1.4 times with which it closed last year to place the leverage of the main benchmark of the German stock market at one time by 2024, according to FactSet. Even more surprising will be the evolution of French companies, which start from a leverage of less than one time on average in the securities within the Cac and which It will almost be with an accumulated ebitda that exceeds its total debt.
with homework done
It is appropriate to remember that a company in debt is not necessarily bad or counterproductive, since there are sectors in which investments or purchases of assets are the main form of growth they have. On the other hand, an excess of cash is not synonymous with good management since it is taken for granted that the objective of a company is to obtain a return on its assets and liquidity is also one of them.
Stocks such as Repsol and Fluidra will end 2022 with their homework done, with controlled debt below 2 times and without forecasts that they will rise between now and 2024. And others such as Indra, ArcelorMittal and Acerinox will generate cash with which to make investments without having to borrow money. In the case of steel companies, it is explained by the record profits that will be achieved in the current year thanks to the prices that this raw material is registering in the context of the war in Ukraine and the closure of Russian exports due to sanctions ( both countries are at the top of world steel production). Among the companies that will continue to generate cash are ACS, Inditex and Laboratorios Rovi. The market consensus collected by FactSet raises the textile box at the end of 2022 above 10,000 million euros (and will continue above this level two years later).
On the side of the companies with the least controlled debt are Siemens Gamesa, Inmobiliaria Colonial and Merlin Properties. In the case of real estate companies, their high leverage responds to the fact that its activity focuses on the exploitation and rental of real estate. Siemens Gamesa’s indebtedness by 2022 will be more than 20 times. However, it responds to a specific case due to the adjusted EBITDA that is expected from it this year and from 2023 it will show a normalized ratio.
The companies that have caught the rise in rates in the US -and soon in Europe- with a changed foot have been Iberdrola and Telefnica. The first close the current fiscal year with a debt above 43,500 million euros compared to 33,400 of Telefnica. And despite the fact that Telefónica will cut its debt as the exercises progress, the truth is that the market discounts that its leverage will worsen in both cases. In fact, Iberdrola has already seen how its debt has become more expensive due to the rise in rates in Brazil, where a large part of its business is exposed.