One of the stock market developments expected this fall is the listing of the oil company CEPSA on the Spanish equity markets. This is an event that many small and medium-sized investors have been anticipating, placing high hopes on this new stock after many years of absence from the trading floor . Now, we simply have to wait to see the terms of its trading to determine whether investing in its shares will be profitable.
In any case, CEPSA's track record isn't very promising, given the companies that have pursued this business strategy in the last four years. It's worth remembering that companies as significant as Metrovacesa, Parques Reunidos, and Telepizza have all returned to the market without success, some even experiencing substantial losses in their current positions. Certainly, these are not the companies that some of the leading financial market analysts would recommend for investment portfolios going forward.
Rumors suggest the national oil group has a valuation of up to €15.000 billion, which of course includes its debt. Judging by the intentions of small and medium-sized investors, their buying activity hasn't surged as expected. Furthermore, it's worth noting that market predictions indicate Cepsa shareholders will receive a dividend yield very close to 6%. This effectively makes it one of the most generous dividends on the Spanish stock exchange.
CEPSA: with a lot of debt
The presentation of this new company, which will go public in the coming weeks, is generating a wide range of reactions in the markets and among investors themselves. Official estimates indicate that it will debut on the stock exchange with a valuation between €7.000 billion and €8.000 billion. The main surprise in these figures is that they are more in line with reality than those initially projected by the company. Furthermore, it has a debt of slightly over €3.200 billion , which would, in any case, give its market capitalization of around €11.000 billion.
However, the main question among small and medium-sized investors is whether or not they should participate in the IPO. In this regard, it's important to remember that an initial public offering (IPO) is a transaction carried out through the stock market, in which an offeror puts a company's financial assets up for sale. It can also be called going public, listing on the stock exchange, or listing on the financial markets. There are a wide range of opinions on this from various financial analysts.
Entry price in the value
Many investors are wondering if the price set for CEPSA's shares in this return to the stock market is fair. Financial analysts don't have a clear consensus on this, although almost all agree that the price won't be a bargain for new shareholders. In other words, it will be necessary to analyze the terms of this new initial public offering on the Spanish stock exchange, considering not only technical aspects but also, and perhaps, fundamental factors.
On the other hand, one of its strengths is the rising price of oil , which is currently approaching levels as significant as $80 per barrel . From this price perspective, it could be a very attractive option for making savings grow from this point forward. Furthermore, this financial asset could appreciate even more in the coming weeks due to the law of supply and demand affecting the price of this important global commodity.
Oil level in the markets
There is no doubt that the potential for its shares to appreciate depends on the performance of oil. Currently, its markets are clearly bullish, although this trend could change at any moment, perhaps even sharply. We cannot forget that oil prices in financial markets have traditionally been highly volatile, with significant fluctuations within a single trading session. This is the main risk of opening positions in this stock, which will be listed again on the Spanish stock exchange. Added to this are the potential price fluctuations when entering positions on the day of its return to trading.
On the other hand, CEPSA's entry into the equity markets is interpreted by financial analysts as very risky for several reasons. One of the most significant is that they consider the valuations to be very demanding. So much so that many may not even participate in this initial public offering, which will close the new trading year. This comes in a general environment that is certainly not very promising, as stock and index declines are prevailing in almost all equity markets.
Opening up to new markets
Another aspect to consider regarding CEPSA's valuation is, of course, the expansion of its business lines worldwide. One of the most striking is its presence in a country as exotic as Thailand , in Southeast Asia. There, it has become one of the companies opening new fields in oil exploration, although it has not yet seen a return on its investment. However, this business strategy is geared towards the medium and long term and could be very attractive to savers who choose such long-term holding periods for their stock market investments.
On the other hand, in the short term, it benefits from the current price of crude oil, which could continue to rise in financial markets worldwide. However, it's unclear how high the initial resistance levels will be . Another advantage is that competition within the Spanish stock market is virtually nonexistent. Only the leading oil company, Repsol, is included in the benchmark Spanish stock index, the Ibex 35.
Therefore, there will be no alternative but to look abroad to acquire shares in some companies of this type, particularly in the British and especially the US stock markets . However, this comes at the cost of higher management fees, almost double those charged on the domestic stock exchange.
Outlook for 2019
Everything seems to indicate that oil companies can celebrate the end of this year with some optimism due to the rebound in oil prices . However, there are still serious unknowns about what might happen next year, especially regarding crude oil. Trend changes are constant, to the point that they confuse many small and medium-sized investors. This is a risk to consider if you are planning to open positions in CEPSA or another company with similar characteristics.
Certainly, one of its incentives will be the dividend it pays annually to its shareholders, which will help you build a fixed-income investment within a variable-income portfolio. Regardless of what happens to its share price on the stock markets, it's a very profitable strategy to implement in the medium and long term, never in the short term. On the other hand, there's a new scenario in international stock markets that is presumed to be bearish. And this factor could seriously jeopardize CEPSA's IPO. This is something you should definitely keep in mind if you don't want to encounter any unpleasant surprises from this point forward.
Valuation of your shares
Another aspect to consider with this company directly linked to oil is its much more limited international exposure compared to others in the sector. This could negatively impact its valuation, even after its imminent IPO. Similarly, the intense competition these types of companies face, particularly from those operating in other, higher-consumption geographic areas, also plays a role.
In any case, there is not excessive joy among investors about the success of this operation and in a certain way everything will depend on the starting price of their exits. It will be the one that decides if the operation is really profitable or not. Something that is still up in the air and recognized by financial analysts.