Why is a project such as LH necessary?
Lighthouse was created to deal with a serious weakness of the Spanish market: its high level of orphan stocks.
The problem of orphan stocks is universal. All markets have a certain percentage of stocks without coverage. On average (globally) it is estimated that 30-40% of listed stocks are not followed at all by the Sell Side.
In Spain the problem is bigger. On the Continuous Market (approximately 135 companies) there are 40/45 stocks not covered at present (ex LH). In addition, there are those of the BME Growth Market. The non-coverage ratio of the total Spanish market is c. 40% (ex stocks covered by LH).
The impact of Mifid II. Mifid II requires the unbundling of research and execution costs. Managers must choose between absorbing the cost on their P/L or passing this on transparently to their clients. This has affected the coverage of Mid-Small Caps.
Spain is no exception. The Spanish market has also been affected by this situation. Depending on their size and liquidity, we estimate that c.15 companies on the Continuous Market, currently without coverage problems, could have them in the future.
LH is necessary: An absence of analysis causes a lack of liquidity, undervaluation (stocks that are not covered trade below their benchmark multiples) and impedes access to the primary market as a source of funding. LH is necessary because the Spanish market already has a serious problem of lack of coverage that could be made worse by Mifid II.