IBERIAN DAILY 07 OCTOBER (ANÁLISIS BANCO SABADELL)
NEWS SUMMARY: ACCIONA, ACERINOX, CAF, CHANGES IBEX, MAPFRE, TALGO.MARKETS YESTERDAY AND TODAY
Powell calls for fiscal agreement
The strong opening on US markets encouraged their European counterparts even further after J. Powell warned that recovery would be faster and stronger if the country’s fiscal policy were more coordinated with monetary policy. Value clearly beat growth, and cyclical sectors beat defensive ones on both sides of the Atlantic, but in the end the US markets closed in the red after Trump ordered negotiations on the stimulus package be halted. In the Euro STOXX we saw a rotation towards the hardest-hit sectors since the pandemic began, with the best performers being Banks (this time without a rise in interest rates) and Travel & Leisure, whereas the worst performers were Pharma and Retail. In Germany, August’s factory orders rose more than expected and continue to confirm recovery in the manufacturing sector. Separately, the EU has ruled out making concessions to the UK, and thus negotiations would be pushed back until November, despite the 15 October deadline. In Spain, today the Govt. will present its recovery plan, whereas yesterday the Cabinet approved the spending ceiling for 2021 (€ 196 Bn, which would include € 27 Bn from the European fund, +54% vs. 2020), with a GDP’20 of -11.2%, and 7.2% for 2021.
What we expect for today
European markets would open with slight drops that should not worsen, as Trump stated he is in favour of approving aid packages for airlines, SMEs (Paycheck Protection Programme) and household stimulus checks, whereas his Democrat opponent continues to widen the gap in the polls. Currently, S&P futures are up +0.16% (the S&P 500 was down -1.1% vs. its price at the closing bell in Europe). Volatility in the US increased (VIX 29.48). Asian markets are trading with mixed results (Japan -0.2%, Hong Kong +0.6%).
Today in Germany and Spain we will learn August’s industrial output and in the US the Fed meeting minutes (from the meeting on 16/09). Debt auctions: Germany (€ 3 Bn in bonds due 2030) and Greece (€ 625 M in 3M t-bills).
COMPANY NEWS
CHANGES IBEX 35
Today there will be an extraordinary meeting of the IBEX 35 Technical Advisory Committee to decide what company will replace MásMóvil (which was excluded from the index on 14 September). In our opinion, the main candidates for inclusion are, in this order: Solaria, Sacyr and Logista.
CAF/TALGO, both BUY
According to the press, a senator from the PNV party would have rebuked the industry minister before the senate due to CAF being excluded from Renfe’s tender to supply 211 commuter trains (worth €~2.7 Bn). According to the information, it could be possible that only Alstom and Stadler would have been shortlisted, with the Spanish companies CAF and TLGO being excluded. As we have stated, the news is not based on an official announcement from any of the aforementioned manufacturers nor by Renfe.
Note that the tender is divided into two packages: one including 76 trains worth €~1.7 Bn and a second including 44 trains worth €~1 Bn.
If the news is confirmed, it would be negative for CAF and TLGO, as despite the fact that the tender was still under way, even the smaller of the packages would be a large contract for either of the companies (11% and 28% of their backlogs, respectively).
For CAF, although this is a relevant contract and we thought the company had real options to win one of the lots, its loss is part of the company’s normal activity, as it participates in a high number of tenders every year. Our valuation of the company assumes awarding totalling €~900 M in 2020 (vs. € 850 M announced until now), and of € 2.45 Bn in 2021 (vs. € 2.7 Bn on average in the past 10 years).
In the case of TLGO, although the probability for winning one of lots was lower (as it does not have commuter trains currently in operation, but only a prototype), if it had been awarded one of these lots, aside from the significant economic impact, this would have meant a relevant milestone for the roll-out of its new commuter segment. However, our valuation of the company did not include this contract specifically, but €~1 Bn of order intake between 2020 and 2021, of which the company would have already been awarded € 460 M.
Acciona is the parent company of a construction group. Co. is engaged in general construction activities in the areas of civil engineering and buildings, including railways, marine and hydraulic works, motorways and airports, town planning, conduits, pavements, parking lots, and industrial and urban buildings. In addition, Co. is engaged in the provision of real estate services, the operation of parking lots, telecommunications, services, ecology and alternative means of energy. Co.'s operations are organized in six business divisions: Infrastructures, Real Estate, Energy, Water, Environmental & Urban Services and Logistic & Transport Services.
Acerinox is the parent company of a group engaged in the manufacture and sale of flat and long stainless steel products, and stainless steel wires. Co.'s major products include slabs, billets, black coils, plates, hot-rolled coils, hot-rolled sheets, flat bars, hot-rolled re-bars, hot-rolled black bars, engraved sheets, cold-rolled coils, cold-rolled sheets and circles. Co. also provides long stainless steel products, such as wire rods, angles, hot rolled flat bars, hot rolled re-bars, reinforced bars in coils, cold rolled re-bars, hot rolled black bars, cold drawn bars, and smooth turned bars. In addition, Co. offers wires, welding wire bars, and bars for electrodes.
Mapfre is an insurance company based in Spain. Co. is the parent company of a group engaged in the underwriting and provision of insurance in Spain and abroad. Insurance policies provided include: life, non-life, accident, home-owner, general and health. Through its subsidiaries, Co. is also engaged in the provision of reinsurance, the management of investment funds, pension funds and pension plans, real estate and related services. On the domestic market, Co.'s activities include managing investment funds, pension funds and pension plans, real estate and other service businesses.
Talgo is engaged in designing, manufacturing, repairing and maintaining the railway rolling stock, as well as the manufacturing, assembling, repairing and maintaining the engines, machinery and parts of the railway systems. Co. has an industrial presence in seven countries: Spain, Germany, Kazakhstan, Uzbekistan, Russia, Saudi Arabia and U.S.A. Co. has an active fleet in Europe, Asia and North America that comprises of 94 high-speed trains and more than 1,400 Talgo tilting passenger cars. Also, Co. purchases, redesigns, constructs, leases and sells all types of real estate.
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