This week marks 15 months since STC announced through the CNMV its entry into the capital of Telefónica, a milestone that began a chain reaction that ended with the purchase by Sepi of a 10% stake in the company. telecobecoming the company’s main shareholder. At the same time, Criteria, owner of 9.99% of the shares on the market, also took positions.
This news represented important support for Telefónica’s action but also an earthquake in Spain due to the strategic importance of the largest telecommunications company. Saudi Telecom Company belongs to the public pension fund of Saudi Arabia and, therefore, this corporate movement escalated to the government level, bringing into play the Spanish executive and the possible use of the anti-takeover shield that was designed during the Covid crisis to protect Spanish companies from foreign interference taking advantage of their depression in price due to the pandemic.
However, Arab investors, who maintain 4.9% in direct shares and another 5% through derivatives, have always shown that the interest in this operation was only financial and that, in fact, they did not aim to even ask for a seat on the Board of Directors. The Spanish Government, once the case has been analyzed, has given its approval for STC to increase, through the execution of the derivatives, its participation to 9.9%.
If the Arab investor’s objective was truly purely financial, it can be said that he is achieving it since in these 15 months he has obtained a profitability of more than 15% only due to the revaluation of the price of the shares, which were purchased at approximately 3.75 euros (this is the price at which Telefónica was trading on September 5, 2023). However, to this performance we would have to add the two dividends collected and the one that will be pocketed on the 19th, each of them of 0.15 euros. With this extra, the total return for STC amounts to 27.7%. Although, it is true that the Ibex with dividends in this same period has rebounded 5 more points.
Already this year it was Sepi and Criteria who made a move in the blue board between March and May. The public investment entity has done so in three plays since March 25, when it announced for the first time that it was transferring the 3% to the 4.96% that it added to its portfolio in May. Approximately, weighted between these three purchases, the price paid for the Sepi is close to the 4 euros per shareof which he already gets almost 8.8%return that doubles to 16.3% if we add the dividend collected in June and the one that will be pocketed in a couple of weeks.
In the case of holding company linked to Caixa, purchases focused on the beginning of April, when the firm chaired by José María Álvarez-Pallete was trading at around 3.97 euros. With that closure, The profitability of your investment exceeds 9% and approaches the 17% including the aforementioned payments.
And the last few months for Telefónica have been good on the stock market. So far this year, thanks also to the buying pressure of these large shareholders, 22% has been scored, even exceeding 4.5 euros, the maximum level since July 2022. On the other hand, valuations have not moved as much and remain at 4.31 euros, meaning I would have no further upward pathaccording to the average opinion of analysts.
Its latest results were impacted by an adverse currency effect, especially by the Brazilian real, “and a somewhat more competitive environment in the main markets,” Bankinter pointed out. Experts point out that the objective of debt reduction and maintaining the cash dividend is not in danger and predict that it will close the course with a leverage of 2.8 times. “On the basis of an attractive and sustainable dividend yield over time, it is an attractive investment option,” they add. The 0.30 euros committed per year, at current prices, they touch 7%well above the 10-year Spanish bond.
“The 2023/2026 strategic plan presented a year ago offers moderate typical business growth objectives, but the peak of the investment effort is behind us and allows an acceleration of the generation of free cash flowwhich will be more evident in this second part of the year, thus fulfilling the stability of its dividend,” they conclude in Bankinter.
“The evolution of the business in Spain is fulfilling despite the competitive environment and Brazil and Germany are compensating for the weakness of Latin America,” Barclays points out. “Looking ahead to 2025, however, Germany will become a head wind and we do not expect an acceleration of growth in any other market, so we see little additional potential in the stock market after the good evolution of 2024,” they add.
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