The gas sector is not having its best moment in the Spanish stock market. It has experienced very high depreciations in a seemingly calm business segment, to the point that its shares acted as safe havens in the most unfavorable scenarios for the stock markets. However, since the beginning of January, this is no longer the case. On the contrary, volatility in price formation has become one of its most significant common denominators, much to the surprise of small and medium-sized investors.
Two of the sector's most heavily weighted stocks, Enagás and Gas Natural, have become two of the worst performers on the Ibex 35, registering significant declines of 9% and 5%, respectively. The reason for this unprecedented scenario in the financial markets lies in a decision the Spanish government is set to make in the coming weeks. It is preparing a new cut to the regulated revenues of electricity companies, and gas companies will be the hardest hit.
One of the main effects of this measure is that financial intermediaries will likely revise their estimates downwards in the coming days. Consequently, their target prices will fall substantially from this point forward. This is undoubtedly bad news for investors holding positions in these two important stocks of the benchmark index of Spanish equities, with the possibility that their respective dividend yields may even be reduced.
Enagás: dividend cut
If you're an investor in these companies, you should know that dividend yields could decrease starting in 2019. Currently, they are among the most generous companies in terms of shareholder payouts, with a fixed annual interest rate of around 6% . This is one of the highest in the Ibex 35 and could make them less attractive for new purchases. It's certain that this will be reviewed in accordance with the new measures implemented by the government.
This is a very hard blow for these companies and could mean that selling will prevail over buying in the coming trading sessions. It's a new factor you'll need to consider this year, and one that might make you reconsider including these energy and gas companies in your investment portfolio in the coming years. This certainly wasn't the news investors were hoping for to take positions in either of these two Spanish stocks.
Objective of this measure
This plan designed by the government aims to alleviate the energy bill paid by Spanish users. But with a very negative impact on gas companies since the cuts would be quantified at no less than 700 million euros. Gas Natural and Enagás being the major victims of this significant budget cut. To the point that Banco Sabadell estimates that for Enagás it would mean a drop of 80 million in its gross operating results. While for Gas Natural the impact would be 90 million euros.
As a consequence of this scenario, it cannot be ruled out that in the coming months both values will adjust their prices with the new reality. This in practice means that they could experience a significant correction in their price. Although it remains to be seen what the intensity of these depreciations will be. In any case, there are more financial analysts who think that it is time to abandon their positions in these Ibex 35 companies. Because they can enter a downtrend with a certain path, at least in the short term.
Bad start to the year
The effects of this measure have not taken long to be noticed in the prices of Gas Natural and Enagás. With very significant drops during the first month of the year. Because in effect, in both cases they are the worst values of the Spanish selective so far this year. With regard to the latter, the fall is 10% while Gas Natural has left almost 8% of its price. In what is constituted as one of the worst operations carried out in the equity markets. Not surprisingly, analysts warn that its shares may fall further in the markets.
This performance of these values in the energy sector contrasts substantially with the start of the Spanish stock market. After a disappointing December where the traditional Christmas rally was missed. But of course what few investors thought is that these two stocks had a terrible start to the year. Where, if you were positioned, there is no doubt that you will have lost a lot of money. Although perhaps the worst is still missing for the first two trimesters of the year. In any case, a tremendous disappointment for all small and medium investors.
Target price of your shares
Before the government announced its measures, the outlook for both companies was quite positive. In fact, the Reuters consensus of analysts recommended holding Enagás shares , assigning a target price of €25,8 per share. They had the same recommendation for Gas Natural, also advising investors to hold their positions. This suggests a potential upside to €20,69 per share, meaning you could potentially earn up to 13% on your investment.
However, we will need to pay close attention to the revisions that will be formalized in the coming days, because it is almost certain that the forecasts will be lowered , to the point that it could definitively tip the balance between selling and buying. In any case, this is not the best time to open positions in Gas Natural and Enagás. On the contrary, if you already have open positions, now is the time to consider whether it is advisable to sell your shares, given the potentially more unfavorable scenario that these Spanish stocks may develop.
Considered as a refuge value
One of the surprises of these events stems from the fact that both Gas Natural and Enagás were considered the ultimate safe-haven assets. Their prices enjoyed a very stable situation, with violent fluctuations being extremely rare . This stability has been shattered by the implementation of these energy measures. Indeed, they are now the antithesis of safe-haven assets, a radical shift that has become increasingly apparent in recent days. Their behavior now resembles that of speculative stocks.
On the other hand, it's important to remember that dividend yields could be cut, potentially falling to around 4% or 5% , which would reduce profitability by almost three percentage points. This is more bad news for small and medium-sized investors who will see their returns reduced year after year. However, there's a possibility that these effects will only be short-term. This is a factor that will need to be monitored in the coming months to develop an investment strategy.
Other alternatives on the stock market
Within the energy sector, several other stocks will remain unaffected by this significant restructuring plan. Companies like Endesa, Iberdrola, and Red Eléctrica will benefit from these measures, to the point that many investors will turn their attention to these stocks. Moreover, they also offer a substantial dividend yield, with annual payments of between 4% and 6%, distributed through two interim payments each year.
These stocks are considered stable investments with recurring business lines , a factor that adds value to these companies listed on the selective index of Spanish equities. In any case, they are two good options for redirecting positions recently taken in Gas Natural and Enagás, due to the similarities between these businesses, given that they are all part of the same stock market sector. They share a number of common characteristics.
In any case, one thing is clear at the beginning of the year: Gas Natural and Enagás have been protagonists of the financial markets. In a way, unexpectedly since it has caught a good part of the small and medium investors by surprise. Something to which we were not accustomed to this class of so special values due to their own characteristics in the formation of their prices.
Now it only remains to check how far these movements can go in two of the most relevant values of Spanish equities. We will not have to wait long to find out what its real effects will be on the markets. Because in effect, there is the possibility that they will lose more value on the stock market in their current conditions.