The National Markets and Competition Commission (CNMC in its acronym in Spanish) is processing a circular so that all energy companies which supply electricity, gas and hydrocarbons meet six ratios which constrain their level of debt and dividends in relations to the volume of assets, cash flow, EBITDA or financial costs.
Santander | The arrival of the new government in Spain is good news for the gas and electricity markets, given that it is probable that it will respect the regulatory periods; it appears more focused on the spirit of the law (“fair returns”) than on the application of methodologies (differential over 10 year bonds) and it has the intention of reinforcing the role of the CNMC as an independent regulator.
A recent report by Citi attempts to contrast global utilities valuations and highlight key investment opportunities. Summarizing, Asian and LatAm utilities, while growing fastest at 14-16%, trade at dividend yields of 3.5% and 5.3% reflecting risks. Japanese, US and European have dividend yields of 2.4%, 3.5% and 5.5% consistent with their growth profiles of 7%, 6% and 2.7%, respectively.
Carax Alphavalue | Mrs May’s talk of energy price controls sent the UK sector into a downward spin. The Catalan mess also pushed sharply down the Spanish utilities’ share prices. The only surprise is that it took three days for markets to react to the Spanish risks.
While the telecoms sector (mainly represented by Telefónica) is very attractive for investors, “looming pressure on returns” is clouding investor interest in the utilities.
Utilities in Europe have made a sudden stock market comeback since late July, after performing well in May, underpinned by strong Q1 earnings and some speculation about possible further consolidation in the industry. Q2 results have also been solid and fuelled earnings upgrades.
The majority of the population in Spain put the blame for their excessively high electricity bills exclusively on the electricity companies which, in the end, only get paid a third of the bill for generation. This situation has enraged the companies who are more and more daring in their criticisms of the government – the current and previous ones – for their energy policies.
Spain’s main political parties PP, PSOE and Cuidadanos, with the exception of Podemos, have agreed to reform the electricity tariff discount rate, as well prohibit electricity cuts for those consumers considered “very vulnerable.” Analysts at ACF believe it will be important to confirm the final conditions and the net impact for the electricity companies, but a priori they don’t expect this will be significant.
The European Central Bank (ECB) will today begin its corporate debt purchasing programme (CSPP). This means it will acquire, via approximately 12 national central banks, investment grade debt issued by companies. Spain could benefit from this programme to the tune of nearly 60 billion euros.
The main European electricity companies will invest nearly €85 billion over the next four years to speed up their strategic transformation to enable them to deal with the foreseeable drop in coal and gas prices. The companies plan to turn their strategies around, focusing more on renewable energies, networks and regulated activities.