EUR 100.00 For Business Accounts Only

IBERIAN DAILY 01 JUNE (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, BANKIA, FERROVIAL, HOTEL SECTOR, MÁSMÓVIL, NATURGY, SIEMENS GAMESA.

MARKETS YESTERDAY AND TODAY

A week of consolidation... or drops
Following the latest increases, stock markets saw profit-taking on Friday awaiting D. Trump’s announcement of retaliation measures over Hong Kong. In this regard, the EU governments expressed their “deep concern” about China’s security legislation for Hong Kong. Within the Euro STOXX, Banks and Autos were the worst relative performers vs. Telecoms and Utilities, which were the best-performing sectors in relative terms. The EC would be working on a tax on large corporations (up to 70,000) for their access to the community market in order to raise funds for the European Reconstruction Plan. On the macro side, in the Euro zone, April’s M3 increased more than expected, whereas May’s inflation slowed to 0.1% YoY, in line with expectations. In France, the final 1Q’20 GDP was raised by +0.5% to -5.3% YoY. In Germany, April’s retail sales fell far less than expected. In the US, the Chicago PMI fell unexpectedly in May and the University of Michigan’s consumer confidence index for May was lowered. Personal outlays fell more than expected in April, while personal income rose thanks to the containment measures. Separately, for the time being the US Govt. will only impose sanctions on certain Chinese entities and will restrict visas to Hong Kong citizens until new measures are studied. In Brazil, the 1Q’20 GDP fell slightly less than expected (-0.3% YoY). In China, May’s Caixin manufacturing PMI recovered unexpectedly.
What we expect for today
European markets would open with gains of around +1.0%. Currently, S&P futures are down -0.12% (the S&P 500 was up +0.93% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 27.51%). Asian markets are rising (Japan +0.52% and Hong Kong +3.40%).
Today in the US we will learn April’s construction expenditure and May’s ISM manufacturing index and in Spain and Italy May’s manufacturing PMI.

COMPANY NEWS

MÁSMOVIL. Venture Capital Funds KKR and Cinven would be readying friendly TOB at € 23.00/sh. (+22.8%). BUY.
KKR and Cinven (Blackstone and Providence might join in; the latter already has a 9.1% stake) would be readying a friendly TOB on the company at € 23.00/sh. (+22.8% and -8% vs. our T.P.). They would also be studying the possibility of raising the offer to € 26.00/sh. (+38.8% vs. Friday’s closing price and +4% vs. our T.P.). This is positive news that emphasizes: (i) the undervaluation of MAS, which is trading below peer levels (EV/EBITDA’21e of 6.1x and EV/Op. CF’22e of 10.9x vs. 6.8x and 12.73x for peers, respectively) despite offering a unique growth proposal above the sector: CAGR’19-22e of +15.8% in EBITDA vs. around +3% sector, and (ii) the bet on the consolidation of the sector in Spain. At a price of € 23.00/sh., we would not rule out higher offer (as rumoured) or even a counter-bid (from Orange or Vodafone) awaiting the approval from the regulator.

BANKIA, SELL
At Friday’s closing bell BKIA announced the sale of its fund depositary business to Cecabank, S.A. (current volume of around € 26 Bn) for around € 170 M (without considering the reception of additional subsequent payments subject to certain volume targets being met). The deal is subject to regulatory approval.
Positive news of little impact. The business being sold accounted for €~16 M of Operating Income (i.e. around 2% of Net Profit’19). Thus, and considering taxes, the selling price would mean ~20% of BKIA’s Net Profit’19, as well as paying a P/E ratio of 10.6x. The deal would fit within the company’s target of separating the business from its asset management, and the price it is receiving includes no penalty given the current market circumstances. Given the impossibility of paying out dividends until October (ECB’s orders) and during all of 2020 (according to our estimates), we understand that BKIA could earmark the funds received from the sale for increasing the impairment of NPAs and partly offsetting the negative effect stemming from Covid-19 (note that the CoR’20 guidance of 70bps is in line with our estimate). If this were the case, the bank would manage to mitigate around 14% of total provisions BS(e), including those from Covid-19. By contrast, if all the funds were to be capitalised, the impact on FL CET1 would be another +16bps (12-95% in March’20).

SPANISH MARKET: The Govt. would be working with the Spanish market regulator to strengthen the “social shield” created for companies operating in strategic sectors during the Covid-19 crisis, which will be maintained after the pandemic has ended. If, as indicated in the press, the EC legislation is adapted, this would mean an indefinite extension to the control on possible TOBs.