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Who owns the value of the Ibex 35 companies?


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El Confidencial

Germán López Espinosa

Full Professor of Accounting at the University of Navarra and IESE Business School

The current macroeconomic status derived from the increase in interest rates and an inflation level still above the European Central Bank's (ECB 's ) 2% inflation target goal has negatively affected households by reducing their income available, savings and financing capacity and companies by reducing their business margins. The latest ECB Economic bulletin published on November 9, 2023 explains that the labor market in the European Union is weakening and fewer jobs are being created issue . All this implies an increased risk of credit of the European Economics that would be triggered if unemployment were to rise significantly. Household and corporate creditors are taking into account the negative macroeconomic expectations and the financial sustainability of debt in the current status .

Companies always belong to their shareholders, but in times of economic recession in highly indebted companies more conflicts arise between shareholders and creditors that reduce the value of business and generate a negative impact on society. Table 1 shows sample the current status of the Ibex 35 companies, excluding banks and insurance companies as they are very differentiated sectors, with respect to the Net Financial Debt to EBITDA ratio (hereinafter, NFD/E), the latest Altman Z-score, the value of each business (Total Enterprise Value) and its decomposition into shareholder value (market capitalization) and creditor value (value of net debt taking into account financial and operating indebtedness).

If we were to add up the value of the companies in Table 1, we would have an aggregate value of 720,791 million euros, with 64.70% going to shareholders and 35.30% to creditors. Therefore, at an aggregate level, it seems a good status that, in a certain way, we could say that we would be far from the conflict zone between shareholders and creditors. It should be borne in mind that a status in which a large part of the value of the business is for the creditors usually generates tension between shareholders and creditors, given the different interests and objectives.

If we look at Inditex, we can see that all the value of the business is for shareholders, as it has no net debt, since its Bursar's Office is higher than the level of its debt. Its Altman Z-score is 5.95, which places it in a very comfortable zone in terms of solvency. It is necessary to remember that values above 2.6 are related to safe companies and values below 1.81 are the dangerous zone in terms of corporate solvency. The only problem for Inditex would come exclusively from the exhibition to the economic cycle that companies in the fashion sector have, but there is no doubt that it is currently in a very comfortable status to meet the challenges of 2024, in fact, it is the Spanish company that has no vulnerability with respect to debt.

The market uses, among other measures, the DFN/E ratio to assess whether debt is sustainable. High values of the ratio correspond to debt sustainability problems and low values indicate high operating capacity to repay the net financial debt. This ratio depends on the sector given the different optimal capital Structures at sector level, but in bank loan contracts, in average terms, it is usually used as a commitment (covenant) that the business or the group to which it belongs does not exceed 4, and if it does, the creditor can apply for the early repayment. This is a mechanism for the creditor to discipline the debtor.

Despite the health, in general terms, of the Ibex 35 companies, in Table 1 we have other cyclical companies in the Ibex 35 such as Inmobiliaria Colonial, Merlin Properties, Melia Hotels and Sacyr. In the case of Inmobiliaria Colonial we have a Net Financial Debt to EBITDA (hereinafter, NFD/E) ratio value of 16.47 with a value for shareholders of 33.93% of the total value of business. Merlin Properties has a high ratio, 10.43, but much lower than Inmobiliaria Colonial. As for Melia Hotels, it has a ratio of 5.92 and only 31.27% of the total value of the business would be for shareholders, with an Altman Z-score of 0.38, being in the danger zone.

On the other hand, Grifols is a company specializing in the healthcare sector that has a high DFN/E ratio, 9.98, and an Altman Z-score of 0.86 (danger zone).

A very particular case is that of Telefónica, which has a payout in the last 12 months of 100.8% compared to a average of 37.59% and a median of 31.09% for the rest of the companies in Table 1. The dividend payout, in the case of Telefónica, represents the entire profit for the last 12 months. If the profit does not grow, the commitment to an annual dividend of at least 0.30 euros per share during the period 2023-2026, assumed by Telefónica on November 8, 2023, implies an obligation to distribute practically all of the profit to shareholders. The scientific literature related to dividend payments has shown us that mature companies without investment opportunities pay high dividends to make the investment attractive to their shareholders and that companies with investment opportunities pay lower dividends, as they retain part of the profit for self-financing of future investments. The telecommunications sector in the European Union is heavily affected by regulation and consumer protection, which has contributed to, among other factors, a drastic decrease in shareholder value. Currently, only 32.54% of Telefónica's value is for its shareholders, although in the case of Telefónica we have to take into account that its relevant shareholders include two large banking institutions. On the other hand, the sector is calling for deregulation, which would increase its attractiveness to investors, but if this does not happen or takes too long, Telefónica faces the problem of how to finance its future investments in technology.

In an indebted world it is important to analyze what part of the value of the business will go to creditors because this will be taken into account by them to defend their interests and this is more important in countries where there is greater creditor protection. In the case of the Ibex 35, almost two thirds of the value of Ibex 35 companies is for their shareholders and one third is for their creditors, but there is heterogeneity, so there are companies about which managers must be extremely prudent taking into account current macroeconomic expectations and how creditors analyze companies in economic downturns and how they defend their interests.