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Southern European private companies healthier than public peers, says S&P Capital IQ

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Privately-held businesses in debt crisis-stricken Portugal, Spain and Italy are in many respects in better financial health than their publicly-listed peers, according to analysis from S&P Capital IQ.

While recent investor concerns over the ability of Portugal, Spain and Italy to service their sovereign debt have helped to depress local equity markets, S&P Capital IQ’s analysis shows that – in the aggregate – private companies in those three countries enjoy better short-term liquidity profiles and revenue growth reports while maintaining lower leverage rates than their public counterparts.
“These findings highlight that, while many public companies in Southern Europe are in distress on account of what are perceived to be troubled markets and heightened country risk, their private counterparts may be in position to fare better over the coming months. This divergence may yet provide an opportunity for market participants, as long as they possess sufficient transparency into the fundamental balance-sheet items of all these private entities,” says Silvina Aldeco-Martinez, managing director of S&P Capital IQ. “With access to such data, opportunities may exist for investors, lenders and acquirers”.
From January 2008 to September 2012, Spain’s IBEX 35 contracted by 47.9 per cent, Portugal’s Psi-20 by 58.9 per cent and Italy’s FTSE MIB by 59.2 per cent, according to S&P Capital IQ, indicating that publicly-listed firms in Southern Europe’s flagship indices have lost appeal for equity investors.
Yet private companies across all three countries tended to show a more efficient operating cycle with a better ability to turn products into cash, according to their current ratios – a measure of current assets against current liabilities. According to S&P Capital IQ’s analysis, this measure appears particularly strong for the Portuguese private energy sector with an average current ratio of 2.03 and Spanish private industrials with 2.15 over the last year, versus 0.9 and 1.13 for publicly-traded firms across those respective sectors.
The analysis also reveals that the latest annual growth figures are generally better for private companies. For instance, public Portuguese industrials reported revenue contraction of 4.8 per cent, while private firms in the same category generally reported revenue growth.
Leverage rates also appear to be higher in public versus private firms. For example, private companies in Spain’s materials sector have a liabilities to total assets ratio of 42.3 per cent, while public businesses in the same sector have a liabilities to total assets ratio of 55.9 per cent, indicating that the public companies have a higher dependency on debt to fund their operations.
That said, the analysis does reveal some negative signals for privately-held firms. For example, private Italian and Portuguese materials companies reported a worse average Days Sales Outstanding (DSO) figure compared to publicly-traded firms in the same sectors.
“This could be a consequence of large public companies using their size to bring in receivables at a faster rate,” says Pavle Sabic, solutions architect at S&P Capital IQ. “It highlights the need for greater transparency into private fundamentals in volatile markets, where positive and negative signals can be difficult to identify.”

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