“The potential union of BBVA and Sabadell is the first of many in Europe”

The investment director and president of Panza Capital, Beltrán de la Lastra, is convinced that Banking is heading towards a stage of greater consolidation. “BBVA’s takeover bid for Sabadell is the first of many that will occur in Spain and Europe because the synergies can help alleviate the sector’s high valuations,” he explained. During the presentation of the quarterly letter, the manager recalled its progressive exit from this type of securities in a context of record profits and margins.

Panza Capital had positions in Unicredit, SEB and Commerzbank. In De la Lastra’s opinion, the “very demanding” ratings they currently register make them the “hottest” companies on the market at the moment along with technology and defense companies. “They can only go in one direction and that is down,” he remarks. De la Lastra has appealed to the statements of the vice president of the European Central Bank (ECB) last Monday, in which he warned that “the financial markets are not sufficiently assessing the geopolitical risk.”

Despite this, he is not so concerned that the market is at historical highs or that there risk of an eventual technological bubblebecause its strategy focuses on investing in “ugly values”, that is, companies that are going through a delicate situation, such as automobiles and construction.

Portfolio bets

For all these reasons, Panza Capital’s portfolio mainly includes companies that, according to the firm, “they generate a very good cash flow”, such as the leisure vehicle producer Trigano, the automotive components manufacturer CIE or the British engineering company Renishaw, with which they seek “attractive long-term returns.” De la Lastra emphasizes that these are firms that make money in an environment that is not the most favorable, and are trading at cheap multiples due to the already discounted geopolitical risks.

“When the environment improves, these companies will generate many more profits and it is possible that the multiples rise to their historical levels”he maintains in his letter. The investment director and president of Panza Capital recalls that complicated geopolitics, an uncertain macro and a market polarized in its valuations constitute “a good environment for the long-term investor.”

An unstable macroeconomic environment

De la Lastra also refers to the environment of instability in the Eurozone, with the political and fiscal crisis that France is going through, Germany’s slow progress in its fiscal expansion (which in the future will be positive for growth) or the “highly politically charged” budget that the United Kingdom has projected. Added to this is instability in foreign policy, with war and trade conflicts and uncertainty as a “predominant note.”

However, from his point of view, “the great imbalance, and therefore, the risk for the future evolution of the economy is the level of debt of the majority of states.” A level that is above 100% of GDP in many large economies.