European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Enhanced Limits to Investments in Spanish Companies

Naturgy - IFM: Consideration Adjustment, New TP, Attractive Spread

Event-Driven

ACS, Actividades de Construcción y Servicios / Event-Driven

ACS, Actividades de Construcción y Servicios (ACS SM)

ACS, Actividades de Construcción y Servicios

Daily El Confidencial <a href="https://www.elconfidencial.com/empresas/2020-05-20/acs-desinversiones-deuda-ataque-bajista-coronavirus_2602047/" target="_blank" rel="noopener">published</a> on 20 May that <a href="https://www.smartkarma.com/entities/acs-actividades-de-construccio" target="_blank" data-smartkarma-citation="entities:21242:1" rel="noopener">Acs Actividades De Construccio (ACS SM)</a> (ACS) is exploring the sale of assets as a result of "concerns about its debt" and the "effect of the short sellers on its share price".
ACS controls CIMIC through a holding chain. ACS has a 50.4% stake in German construction group <a href="https://www.smartkarma.com/entities/hochtief-ag" target="_blank" data-smartkarma-citation="entities:21652:1" rel="noopener">Hochtief AG (HOT GR)</a> , which in turn has a 72.683% stake in <a href="https://www.smartkarma.com/entities/cimic-group-ltd" target="_blank" data-smartkarma-citation="entities:20030:1" rel="noopener">CIMIC Group Ltd (CIM AU)</a>.  This means that ACS controls CIMIC with an 36.6% economic interest, whose valuation at current market prices is EUR 1,693 mn. 
El Confidencial says that ACS is exploring the sale of all or part of the majority stake that Hochtief holds in CIMIC. The daily mentions that a Chinese company approached ACS at the end of 2019 regarding the purchase of that majority stake of CIMIC.
From my estimations, ACS is trading at a 29% discount to NAV.
A sale of the CIMIC stake would allow the upstreaming of that cash to ACS, which would not be penalised by a holding discount and would allow to reduce debt or pay an extraordinary dividend. At current market prices, the economic interest of ACS in CIMIC would be worth €1,693 mn, or  €5.7 per share of ACS (pre-tax), and would imply a reduction of 5% in the discount to NAV of ACS, and probably north of that figure, given the perceived business risk of CIMIC and the conglomerate discount of ACS.
While ACS is not in urgent need for cash, there is no doubt that its leverage has steeply increased in Q1 2020. Other assets that ACS could earmark for sale could be Cobra or Clece (the services company). Equally, ACS  is buying back stock, which creates value as it trades at a discount to NAV.
In September 2019, <a href="https://www.afr.com/street-talk/cimic-taps-jpmorgan-for-mining-services-review-potential-sale-20190925-p52uof" target="_blank" rel="noopener">CIMIC hired JP Morgan to explore strategic options</a> for its mining services carried out under the Thiess and Sedgman brands.
To profit from hypothetical (and highly probable) asset sales, I recommend long ACS, short Hochtief, on a proportion of 0.3486 shares of Hochtief per share of ACS.

Daily El Confidencial published on 20 May that Acs Actividades De Construccio (ACS SM) (ACS) is exploring the sale of assets as a result of "concerns about its debt" and the "effect of the short sellers on its share price".
ACS controls CIMIC through a holding chain. ACS has a 50.4% stake in German construction group Hochtief AG (HOT GR) , which in turn has a 72.683% stake in CIMIC Group Ltd (CIM AU).  This means that ACS controls CIMIC with an 36.6% economic interest, whose valuation at current market prices is EUR 1,693 mn. 
El Confidencial says that ACS is exploring the sale of all or part of the majority stake that Hochtief holds in CIMIC. The daily mentions that a Chinese company approached ACS at the end of 2019 regarding the purchase of that majority stake of CIMIC.
From my estimations, ACS is trading at a 29% discount to NAV.
A sale of the CIMIC stake would allow the upstreaming of that cash to ACS, which would not be penalised by a holding discount and would allow to reduce debt or pay an extraordinary dividend. At current market prices, the economic interest of ACS in CIMIC would be worth €1,693 mn, or  €5.7 per share of ACS (pre-tax), and would imply a reduction of 5% in the discount to NAV of ACS, and probably north of that figure, given the perceived business risk of CIMIC and the conglomerate discount of ACS.
While ACS is not in urgent need for cash, there is no doubt that its leverage has steeply increased in Q1 2020. Other assets that ACS could earmark for sale could be Cobra or Clece (the services company). Equally, ACS  is buying back stock, which creates value as it trades at a discount to NAV.
In September 2019, CIMIC hired JP Morgan to explore strategic options for its mining services carried out under the Thiess and Sedgman brands.
To profit from hypothetical (and highly probable) asset sales, I recommend long ACS, short Hochtief, on a proportion of 0.3486 shares of Hochtief per share of ACS.

ACS, Actividades de Construcción y Servicios

ACS: Analysis of a CIMIC Divestment