The lightest and heaviest values ​​to climb the mountain of interest rates

Good footwear, food and plenty of water is the bare minimum to face a day in the mountains. However, some mountaineers face it with much more luggage to cover any eventual needs that may arise. Many times the best recommendation is take only what is necessary and not having to carry extra weight to weigh down the climb, especially when the ground conditions are not the best.

In the last decade, companies have walked on a flat terrain of types 0 in Europe that has minimized its financing costs regardless of the weight of debt that each one carried on their backs. But now the terrain is going to change and Lagarde herself has already warned of it. The market is already discounting several rate hikes by the ECB this year, thus raising the height of the mountain of interest that companies are going to find in the short term.

That is why it is more important than ever to arrive at this situation with the right weight, something in which, in general, the companies on the Spanish stock market have not been exemplary. In fact, the consensus of analysts collected by FactSet anticipates that the Ibex will close 2022 with a leverage of 2.1 times. It is true that this indebtedness is lower than the selective average since 2008, which is 2.44 times.

However, it is above other neighboring stock markets such as the French (0.7 times) and the German (1.3 times). Also that the American, where the S&P 500 carries a debt similar to its 2022 ebitda and the Nasdaq 100 even has net cashdespite the strong punishment he is suffering at the beginning of the course.

Differentiate the type of debt

“If we remove the financial ones, you are left with a debt that is not low, but it is not bad and what you have to do is differentiate between those in which the leverage is structural and those in which it is situation after the pandemicas is the case, for example, of firms linked to tourism,” explains Mario Lafuente, managing partner of Atl Capital.

“We must remember that the part of the Ibex debt that matures in the next 12 months is approximately 20%, with an average life of about 5 years, so they should not have trouble refinancing that debtalthough it has a somewhat higher cost, above all because I believe that they will be able to pass on that cost to their clients”, adds the expert. From Singular Bank, Nicolás López points out that “now Spanish companies are, in general, well prepared to face a cycle of gradual rate hikes of up to 1%, unlike the years prior to the 2008 crisis, when indebtedness was much higher due to the real estate bubble”.

“There may be some companies that have maxed out their level of debt and may find themselves in trouble, but it would not be a general scenario that could have serious consequences for the market or the Spanish economy as a whole,” he concludes.

However, not all Spanish companies are in the same situation of indebtedness and there are activities -and, therefore, sectors- where it is common for the liabilities of companies to be very bulky. In the same way, it is worth emphasizing that a company without debt, but with excess cash, is not a guarantee that the company “is healthy”. If a company has an asset that does not produce any return (this asset is also the money that the company has available) it may be missing opportunities to take return on borrowed money, unless items are being reserved in capex processes. “In any case, I think that for the Spanish stock market it will have a positive effect because the rate hike comes in a context in which there will also be growth, which will no longer be a scarce commodity on our parquet,” adds Lafuente.

the lightest

Logista is positioned as the best prepared company when it comes to having to face the payment of its debt given that its EBITDA in 2022 (and the high cash expected for the company in that year) will exceed its debt by four times. The CEO of the group, Ignacio Meirás, boasted that Logista will be without debt in an interview to this medium, which was going to allow him to focus on last-mile trading and opening up to other markets.

Mediaset and ArcelorMittal are other examples of companies with a net box that has barely diminished. The television network was favored by the increase in advertising during the pandemic and the reduction to almost half of investment in capex if the data of the first nine months of 2019 are compared to those of 2022. But if any can putting on a medal when it comes to reducing your debt is ArcelorMittal.

Analysts estimate that at the end of this year it will have a box of more than 1,400 million euros and would remain no net debt for the first time since its merger in 2006. On the other hand, the companies with the most net cash at the end of this year would be Inditex and Airbus, according to the market consensus collected by FactSet.

With the right ‘charge’

Without qualifying by companies or sectors, those companies that face the rise in rates with more weight on their shoulders – but with ease to comply with their creditors – would be those whose net debt does not exceed their forecast EBITDA for the fiscal year by more than twice of 2022. At this point Acerinox would enter, which in 2023 would already generate cashor Amadeus, which has reduced its debt ratio from the 20 times it registered in 2020 to less than once in 2022 due to the recovery of its EBITDA.

Indra and ACS also have their more controlled debt than in 2020. The construction company closed last year the sale of Cobra for about 5,000 million euros. It is one of the examples that ACS has followed in recent months to contain its debt thanks to the divestment of non-strategic assets.

Repsol has used divestments in recent years to reduce its net debt, although in 2022 it is estimated that it will remain above 6,000 million euros, according to market consensus.

Those who are ‘overweight’

Although several companies have already come with a lot of baggage in recent years, the gradual arrival of the rate hike has only added a drag to their results, as in the case of Iberdrola. Its hefty debt has already been amplified by the rate hike in brazilwhere it has a large part of its business, which increased the average cost of its debt.

This, with the Fed’s starting signal and the possible interest rate advance in Europe, may increase the overweight of the Spanish utility, which would close 2022 with a debt greater than 46,000 million euros, according to the market consensus, and a debt/ebitda ratio of almost 4 times.

For the analysis department of Banco Sabadell, Ferrovial’s main risk “continues to be rate hikes in the US given the sensitivity that its main assets show to this variable”, although they believe that has already been punished for it in the stock market. Ferrovial has reduced its expected ratio for this year while experts predict that for this fiscal year its net debt will exceed 3,000 million.

Acciona’s load grows as it continues to win projects. Recently, the company has won the tender to develop a photovoltaic park in the United States that would involve a total investment of more than 400 million euros, according to Bloomberg. “We are struck by the high Capex compared to the Mw of the park, which is located clearly above standard around half a million euros per Mw”, they pointed out.

It will also be necessary to see how it affects the 12,800 million debt that the market gives to Naturgy at the end of the year after the announcement of its separation into two business lines, while Aena, which shot up its ratio due to the decrease in income resulting from the drop in air traffic due to the pandemic, will rebalance in 2022. Inmobiliaria Colonial and Merlin Properties will be the companies with the highest debt/ebitda ratio of the year, 17 and 13 times, respectively.