December 1, 2016 / 3:21 PM / a year ago

SCENARIOS -Beyond banks, investors seek other Italian referendum plays

MILAN, Dec 1 (Reuters) - With only three days to go before Italians vote in a referendum that could tip their country into political chaos, investors are trying to work out how to play the ballot on the stock market.

The prospect that Prime Minister Matteo Renzi could step down if, as polls suggest, his constitutional reform is rejected have already triggered a sell-off in banking stocks, considered as most vulnerable to political turmoil.

But domestic and overseas analysts alike are looking beyond banks to other industries and individual companies that could be at the sharp end of the fallout from Sunday’s vote, no matter which way it goes.

Heightened country risk and higher sovereign bond yields in the event of a “No” vote could undermine capital-intensive utilities and telecom companies with high debts, while those companies that make most of their money overseas could be safer havens.

Here are the top non-bank stocks and sectors to watch out for on Monday when the market opens and possible implications if the “No” vote wins the day:


The luxury sports car maker is among global players likely to suffer little impact from a marginal “No” vote, according to analysts. Spun off from Fiat Chrysler at the start of the year, Ferrari has reported record earnings this year. The United States remains the largest single market for Ferrari, with only a small portion of sales made in home market Italy. Ferrari - and other luxury names - is cushioned by its exclusive status, a growing number of customers from among the super rich, especially from Asia, and a waiting list for its top models of more than a year.

Among other companies with leading brands and limited exposure to Italy, analysts mentioned fashion houses Moncler and Ferragamo and also cable maker Prysmian , packaging firm IMA and hearing aid maker Amplifon. “We would increase the exposure to high quality Italian equities on weakness but one should be prepared to take some short term pain,” broker Mainfirst said.


Italy’s biggest utility Enel, saddled with 36.8 billion euros ($39.00 billion) of net debt, is sensitive to rising sovereign bond yields that prompt higher refinancing costs and make dividend yields less attractive. HSBC analysts said a “No” vote could also fuel worries about tougher regulation and even windfall taxes like the 2008 ‘Robin Hood Tax’ that battered the sector before being declared unconstitutional last year. More exposed to such risks are pure regulated utilities like grid players Snam, Terna and Italgas which juggle with high debt but which, unlike Enel (that gets more than half its earnings abroad), have nearly all their business in Italy.

State-controlled Enel could also face top management uncertainty should any new government opt to replace current CEO Francesco Starace and could face challenges to plans to roll out an ultrafast broadband network nationally. Political uncertainty could also derail Rome’s plans to make the fragmented local utility sector more efficient by encouraging larger regional players like A2A, Acea, Hera and Iren to buy out smaller rivals. “The Renzi government has long been a supporter of the need for consolidation in the local public services sector ... and a no vote would be bad news on this front,” broker Intermonte said.


Italy’s biggest phone group, burdened with 26.7 billion euros of net debt, could also be hit by rising bond yields and macroeconomic uncertainty but to a lesser extent than utilities. Its high leverage puts it among the most exposed if there is a “No” victory. Some analysts expect Italy to stick with plans to roll out an ultrafast Internet network across the country. This has favoured a rival project launched by utility Enel, heightening competition for the former phone monopoly, which is also betting on broadband for growth. But other analysts believe a leadership change in Rome could help Telecom Italia and its broadband joint venture partner, Swisscom unit Fastweb. “For Telecom Italia the negative impact from macro could be partly offset by a reduced threat from Enel,” Deutsche Bank said. Any reduced support for Enel’s broadband ambitions could also impact Vodafone and VimpelCom’s Wind, which have committed to using Enel’s fibre network.


Italy’s biggest listed company is seen as a resilient play since it has most of its business outside Italy and responds first and foremost to the vagaries of the oil price, boosted this week by OPEC’s agreement to curb oil output. “Energy is likely to be resilient to a ”No“ vote given its global nature,” HSBC said.

But a redrawing of political lines in Rome could threaten CEO Claudio Descalzi whose strategy to focus the state-controlled oil company on upstream work has been welcomed by the market. His position comes up for reappointment next April-May. State-controlled oil service company Saipem has problems of its own from the tough conditions in its industry. But it could also find higher sovereign bond yields a headache as it presses ahead with refinancing debt after its divorce from former controlling investor Eni. ($1 = 0.9436 euros)

Reporting by Danilo Masoni, Stephen Jewkes and Agnieszka Flak; Editing by Jamie McGeever and Jane Merriman

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