EUR 116.34 For Business Accounts Only

IBERIAN DAILY 05 MARCH (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, ARCELOR MITTAL, BANKING SECTOR, CONSTRUCTION SECTOR, IAG, MELIÁ, METROVACESA, NATURGY, PROSEGUR CASH, SIEMENS GAMESA.

MARKETS YESTERDAY AND TODAY

Will the rally be consolidated?
The world’s stock markets rallied sharply yesterday as the session progressed, but the US closed with gains of +4.0%. Within the Euro STOXX, Utilities and Pharma led gains vs. Travel & Leisure, which saw the biggest drops. On the macro side, in the Euro zone, February’s final Services PMI was cut slightly, without suffering a significant impact from the coronavirus. Separately, January’s retail sales climbed in line with expectations, whereas the previous data was raised. The Eurogroup committed to taking stimulus measures if needed in order to offset the loss of activity caused by the pandemic and will allow countries fiscal slippage due to the impact from the virus. In the US, February’s ADP private employment survey beat expectations, but the previous data was significantly lowered. Separately, February’s ISM non-manufacturing skyrocketed unexpectedly to 57.3, which hints at GDP growth above the 1.5% expected by the consensus in 1Q’20. The Fed Beige Book showed the economy is growing by moderate rates, with some pressure on prices in most districts and a significant impact from the coronavirus on traveling and tourism. On another note, J. Bullard does not expect big news on rates in March’s Fed meeting, although the market is already pricing in another -50bps cut. Lastly, the Govt. has set aside US$ 8 Bn to face the impact from COVID-19.
What we expect for today
Stock markets would open once again with gains of +1.0%. Currently, S&P futures are down -0.54% (the S&P 500 closed up +2.57% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 31.99%). The Asian markets are rising (Japan +1.09% and Hong Kong +2.09%).
Today in Mexico we will learn February’s consumer confidence, and in the US, non-farm productivity, weekly jobless claims and January’s final durable goods orders. In debt auctions: Spain (€ 5 Bn in bonds due 2023, 2025, 2030 and 2033) and France (€ 9.5 Bn in bonds due 2029, 2034 and 2052).


COMPANY NEWS

BANKING SECTOR. Supreme Court ruling on revolving cards
In the long-awaited ruling on revolving credit cards the Supreme Court has stated that any interest above 20% is predatory, meaning all interest charged must be returned. Despite being a negative ruling that sets a legal precedent, our initial reading is positive, as it ruled out the most pessimistic scenario of setting the predatory loan threshold at traditional consumer loan rates (8%/9%). The impacts from this ruling are difficult to calculate, as we do not know the percentage of credit withdrawn from each bank with an interest rate above 20% and the average rate applied. In our central-case scenario we assume that only 30% exceed predatory limits, with an average rate of 25% BS(e) (based on the 26.82% APR from the ruling and that new loan production could be at 24%). We believe there is a strong likelihood of interest being returned (70%), given the probability of the courts ruling against the banks in theoretical lawsuits. Our hypotheses mean small impacts, -1.5% and -2% on the market cap of CABK and BKT, which are the two banks with the most exposure (which is irrelevant in the rest of the banks). Both banks shed around -5% yesterday after the ruling was announced, and thus we think the punishment was overly harsh and should be corrected in the short term. The share prices have factored in that all credit withdrawn was above the predatory limit, a scenario we see as unlikely.

METROVACESA, BUY.
The company announced yesterday the sale of 34,800 sqm of buildable land of commercial property use in the Valdebebas district (North East Madrid). The selling price is € 47.7 M (equivalent to € 1,371 sqm). We welcome the agreement, although taking into account that the sale only represents 1.7% of the value of the portfolio as of December 2019 we do not expect a significant impact on the share price. As for the price of the transaction, it seems slightly above the appraisal made public during the IPO process (€ 1,329/m2 two years ago). We recall that MVC has set itself a target’20-23 of obtaining € 1.1/1.4 Bn of FCF in cumulative terms (equivalent to 85%/108% of its current market cap). To meet this target, the company expects to carry out land sales, and in this regard, as of Feb 2020, it had identified land plots worth €~600 M that could be sold in the medium term (of which two thirds would be tertiary land, as that sold in Valdebebas).