Monday, September 26

Is the IPO of El Corte Inglés interesting for investors?


There are two IPOs that have always been in the imagination of a good number of Spanish investors: those of El Corte Inglés and Real Madrid. For many years that possibility has slipped away, although now it seems that El Corte Inglés is closer.

The point is that the company that will go public has little to do with that of Isidoro Álvarez, for which investors sighed. Now he finds himself at a different crossroads. And although in the end the price that is marked usually marks the success or failure of an IPO, the priorities of investors are different, especially in the new generations, who have other company profiles on their radar, closer to the fourth industrial revolutionl, than to a business as traditional as that of department stores.

The possibility that The English Court going public also leaves a series of doubts about how the operation would be carried out, and when it could be executed.

In this sense, the information published by Expansion set the deadline to jump to the parks in 2028, a maximum time of six years to start trading that will mark the company’s roadmap in the medium term, and that is conditioned by the agreement reached with the insurer Mutual for this to be done with 8 percent of its capital in exchange for 555 million euros.

This IPO, under these conditions, would allow The English court to offer a window of liquidity to your new partner once their strategic alliance is definitively materialized, but in addition, it may involve a chair dance within the company’s board of directors.

The English Court of 5 years ago is not the same as it is now

Dario Garcia, listed broker analyst XTB, explains that “since the entry of Qatari capital in 2015 there was already interest that sooner or later the large-scale company would end up ringing the bell on the floor.” And now that it seems that time is drawing near, the expert does not hesitate to point out what elements can be used to measure the operation.

“As a reference we have the initial and independent valuation that was made at the time of 10,000 million euros, compared to a valuation of 17,000 million euros proposed by the council itself, taking into account the value of the properties,” he indicates. Garcia, adding that “of course, this was in 2015, in 2022 these valuations (of real estate) may even have a higher price.”

The analyst also points out that another vital factor in this IPO scenario is that, unlike 2015, when “the Alvarez sisters had no interest in taking the company public, against the shareholding of Qatar“It seems something has changed.

“In the short term, a movement of these characteristics implies two things. The first is to allow a large shareholder to enter the company, allowing others to leave quickly, or that there is a significant departure of one or more members of the board”, Garcia argues.

That large shareholder who would make his entry, of course, would be Mutual, bill Garcia, “a company that today has an exclusive contract with large stores as the sole provider of insurance and investment funds”.

Price, politics and the passage of time will play a key role

For the analyst XTB, one of the initial risks associated with a IPO of El Corte Ingles it would be that the consensus of investors considers that the IPO price is well above what was initially valued, with a premium that investors are not willing to assume.

Another important point in this operation, in the eyes of Garcia, is that there is a commitment from the most important shareholders “not to sell their shares above a certain limit, with the sole purpose of allowing the entry of other large shareholders who may have a seat on the board of directors”.

The expert adds that the council’s commitment to start trading in a maximum period not exceeding 2028 is a declaration of intent, but warns that things can change a lot by then, a feeling that has been repeated by various financial market sources that have preferred not to pronounce on this possible operation.

The horizon of El Corte Inglés in the short term

While the department store company finishes defining how it can face a future IPO, it must also face an economic recovery after the pandemic in which the credit rating agencies also consider that Mutua’s emergence will help El Corte Inglés.

That’s how he explained it Fitch Ratings in his assessment of the alliance between the two companies, which he considered would help the group speed up its deleveraging plans to depend less on the sale of real estate, increasing the probability that the group’s net leverage “returns to levels in line with our sensitivities for the “BB+” rating in the year to come.” ends in February 2023, instead of 2024″.

Axesor Rating, meanwhile, indicated in its latest update of the company’s profile that “the leadership of El Corte Inglés in Spain is favored by the strategic location of its establishments, located in prime areas of cities with great commercial affluence”.

The agency highlights, however, that despite the fact that the group has a portfolio of high-value assets, around 16,100 million euros, approximately (17,377 million euros, at the end of 2019), its situation “has deteriorated as a result of the impact of the pandemic”.

In this sense, from Axesor Rating It is also recalled that the business model of The English Court has “a high degree of association with the economic cycle”, so “although the consolidation of the economic recovery has had a favorable effect on turnover in recent years, the company is not exempt from the impact of possible adjustment periods that may take place in the economy, and which could be aggravated by their high level of exposure to the domestic market.



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