EUR 100.00 For Business Accounts Only

IBERIAN DAILY 09 OCTOBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, AEDAS, BANKIA, CELLNEX, ELECTRICITY AND GAS SECTOR, EUSKALTEL, PROSEGUR, REPSOL, SANTANDER.


MARKETS YESTERDAY AND TODAY


The worse trade expectations lead to drops
Stock exchanges reacted with drops to D. Trump’s decision of vetoing 28 Chinese companies. Within the Euro STOXX, all sectors saw falls, led by Construction and Travel & Leisure, while Telecoms and Real Estate were the best performers. On the macro side, in Spain, industrial production speeded up in August unexpectedly. From the IMF, K. Georgieva requested expansionary fiscal policies to countries with greater room such as Germany, South Korea and the Netherlands while the IMF Head warned about the lower global growth since 2010 due to the trade war. In the US, September’s production prices slowed down unexpectedly, suggesting contained inflation. On another note, the Fed’s chairman, J. Powerll, was confident in the strength of the US economy and stated that the Fed’s balance will be raised although he ruled out a QE such as that seen in the past. On the political front, D. Trump will meet R. Erdogan on 13/11 after threatening his economy.
What we expect for today
Stock markets would open flat with some bullish bias although cautious in view of the lower expectations regarding the trade talks.
Currently, S&P futures are up +0.31% (the S&P 500 was down -0.36% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 20.28%). The Asian markets that are open are sliding (Hong Kong -0.82% Japan -0.7%).
Today in the US we will learn the Fed’s minutes from the meeting held on September 18. As for auctions, Greece will issue € 375 M in 3M T-bills and Portugal € 400 M in bonds due 2034.
and 12M T-bills), Netherlands (€ 2 Bn in bonds due 2075) and Germany (€ 500 M in I/L bonds due 2030).


COMPANY NEWS

CELLNEX. Acquisition of Arquiva and rights issue. The story continues. BUY.
The company yesterday announced the acquisition of Arquiva for £ 2 Bn (around 39% NFD), getting hold of ~8,300 sites in the UK (18.4% of CLNX’s total). Arquiva’s adjusted EBITDA’20 would stand at ~£ 170 M (around 19% of CLNX’s total) and the acquisition EV/EBITDA multiple is ~16x (and 11.8x post IFRS16) vs. CLNX’s ~18x. In order to finance the deal, the company will use a £ 2 Bn syndicated loan and a guaranteed rights issue worth € 2.5 Bn (around 22% of its market cap) with a subscription price of € 28.85/sh. (-19.6% discount vs. TERP and -23.8% vs. yesterday’s close), and thus 86.7 M new shares will be issued (29% total). Rights will start trading on the 11th. The rights issue and from the acquisition of Arquiva would have an impact on our fundamental valuation of +4.5%.

REPSOL. 3Q’19 trading statement: the refining margin recovers, but we expect a small impact. BUY.
From the 3Q’19 trading statement (results to be released on 31 Oct) we highlight the recovery of the refining margin with respect to summer lows (+57% vs. 2Q’19 but -18% vs. 3Q’18), a trend that would be consolidating in the 2H’19. However, the falling crude oil prices will have a negative impact despite the appreciation of the dollar and higher production levels (+3%, 712kboe). This negative impact and the still-incomplete recovery of the refining margin should bring the 3Q’19 Net Profit to levels very much in line with 2Q’19’s (+1%), but -14% lower than 3Q’18’s. We expect no market impact and maintain our estimates for the full year, which will require a strong refining margin in the 4Q to be met (which we expect and should act as a catalyst). The main risk we see is that the refining margin stops recovering in the 4Q’19 (unlikely), which would mean a revision of -3% in the consensus estimate for Net Profit’19.

SANTANDER, BUY
Below we stress the main targets’22 announced at the ID of Santander Brazil held yesterday. Note that these targets are based on Brazil’s GAPP, being thus different from Santander Brazil’s reporting (under IFRS): (i) >10% lending growth in BRL (in line BS(e)) thanks to the +7% increase in the customer base; (ii) Improvement of operating leverage from 39.4% in 1H’19 to around 38% in 2020 (under BR GAPP). Thus, the cost/income ratio would be reduced by around -140bps. This seems reasonable and compares with -90bps under IFRS BS(e) over the 1H’19-21 period; (iii) ROE’22 of ~21%, fully in line vs. 1H’19 and vs. medium-term RoTE announced at the ID on April’19>20% (in line BS(e)).
The messages are in line with those already announced at the ID held on the 3rd of April, supporting that this region is one of the company’s clear growth drivers and it would help offset the weakness of the euro zone and the UK. These targets went unnoticed, the Brazilian share price slid around -0.2% vs. around -0.5% Bovespa. We believe that this should not result in a relevant revision of estimates from the consensus or from us at least.