One of the stock market sectors that may experience the worst performance in this exercise that we have just started is that of electricity. Where companies such as Endesa, Gas Natural, Iberdrola, Red Eléctrica Española or even Enagás are represented. All of them included in the selective index of national equities, the Ibex 35. With a very important weighting compared to the other values of this reference source of one of the most important stock exchanges in the European context. With a very high volume of contracting every day where numerous operations of purchase and sale of shares intersect.
During the past year, the electricity sector was one of the best performing in the Spanish selective. With values that were priced above two digits, as in the specific cases of Endesa, Gas Natural and Iberdrola. With the addition of they are also some of the listed companies that have distributed the best dividends among their shareholders. With a profitability for this remuneration above 5% one of the highest of the Ibex 35. Although for this year it will see a small change in the distribution.
In any case, and as many financial analysts point out, the prices of shares in the electricity sector are a bit expensive after the revaluation during the last twelve months of trading. Exhausting in most cases the upside potential that they presented until a few ago. To the point that some of them are already above them, with the current prices in the equity markets. With this scenario, it is not surprising that a good part of small and medium investors are not tempted to enter their current positions.
Electrical: corrections in sight
Given the revaluation of this class of companies, it is almost certain that they will have serious cuts in their prices from now on. Where the selling pressure can be imposed with some ease on the buyers, as is being shown in the first trading sessions of this new year. Although now the most important thing will be to verify up to what levels can lower their positions in the financial markets. After the values of this electricity sector are in all cases in a clear and diaphanous bullish, promoted especially in the last trading year.
On the other hand, it cannot be forgotten that a good part of these securities are trading with a clear overweight in their prices. This factor in practice means that from now on they have no choice but to go down, go down and keep going down. Unless there is a really exceptional situation in the equity markets. Not only in the national markets, but also in those coming from our borders. Beyond other considerations of a technical nature and even from a fundamental point of view.
Drop in target prices
Another factor that affects these cuts by electricity values is undoubtedly the downward revision generated by the main financial agents. Something that without place will affect these values that we are dealing with in this article and that refers to the important electricity sector of national equities. Therefore, prudence and caution should be one of the common denominators of actions by small and medium investors. Something that is pulling down the law of supply and demand of these companies analyzed.
On the other hand, another aspect that will inevitably have to be assessed from now on is that the route they have ahead in this current year, if it exists, it is very little. To the point that investors in Spanish equities have more to lose than to pay. While another part, it is also noteworthy the fact that
Regulation of the electricity sector
Of course, it is another of the information channels that you should take into account from these precise moments is that the national executive is considering giving a new regulation to the electricity service with the aim of lower the rates of this domestic benefit. In any case, financial analysts fear that this measure will not be well received by the securities of the sector that may adjust their prices and thus depreciate in this new trading year. In particular, given the regulatory change in which new variables are taken into account that certainly do not benefit these listed companies.
In this sense, the outlook for electricity companies is not very promising in the coming months. With the possibility of serious cuts to the sector that could lead to their shares losing around 10% or even more than their current valuation. This scenario, of course, is sighted in the shortest term. Another very different thing is what can happen in the medium and long term where growth prospects are more stable, especially in those companies in the sector that have a lower level of indebtedness.
They serve as a refuge value
Nor should you forget from these moments that, as a positive point, this class of values traditionally exercise the role of refuge values at times of great instability in equity markets. Well, if this were actually the scenario presented by the stock market in 2019, it may be that in the end its evolution will not be entirely negative, as indicated by a large number of financial analysts. For a reason as simple as that these values have a better performance than the rest in these periods of declines in the stock market.
During the last days of last year, you will have been able to see how it was really frequent that when the selective index of the Spanish stock market fell, these electricity values rose in their valuation and vice versa. In movements completely proportional to the intensity of the ups or downs. Not surprisingly, they have gone a bit to against current of what the main equity indices marked. Above other technical considerations and perhaps also from a fundamental point of view. As one of its identity signs, which are very recognizable by small and medium investors.
High dividend yield
Another characteristic of the so-called electricity sector securities is that they offer a very high dividend to their shareholders and above that generated by other sectors of Spanish equities. With an interest that oscillates in a fork that ranges from 4% to 7% which is the one currently offered by the Endesa company. However, other bad news for small and medium investors this year is that dividends will be reduced as a result of the strategies employed by companies. This important factor can deter the entry of new investors to companies.
One of these examples is materialized by the Endesa company, which announced a few months ago that You will only allocate 80% of your profits to this shareholder remuneration. When until now it had been in its entirety, that is, 100%. This can undoubtedly weigh down its assessment during this year and it is foreseeable that it will show this measure to a greater or lesser degree and depending on other variables exogenous to financial markets. In similar magnitude with other companies in the sector such as Red Eléctrica.
Less dividends since 2021
Endesa has announced a containment of its dividend policy for the company starting in 2021 to reinforce its growth policy and take advantage of the opportunities opened up by the company. energy transition to the company. The power company has announced in Milan a reduction of the pay out - the part of the annual profit that it distributes among its shareholders - from the current 100% to 80% in 2021, although it will distribute all its profit in the next two years and a total of 5.900 million in the next four years.
The leading Spanish electricity company by number of clients will thus adjust its dividend policy to the records of comparable companies such as Iberdrola or Naturgy, with a 'pay out' close to 70% in 2017. The company's shares are trading with a decline of more than 2% compared to Tuesday. "I must emphasize that Endesa's dividend policy continues to be one of the most attractive in the sector," said its CEO, José Bogas, in a meeting with analysts.
Endesa expects its net profit to grow by 7% on an annual average in the 2018-2021 period, reaching 1.800 million euros in the last year, according to the update of its strategic plan. However, for 2021 it plans to cut the benefit destined for the dividend from 100% to 80%, according to the information sent to the National Securities Market Commission (CNMV). The power company justifies the new policy in greater support for the “new growth profile of the company”.