IBERIAN DAILY 10 MARCH (ANÃLISIS BANCO SABADELL)
NEWS SUMMARY: ACCIONA, ACS, CATALANA OCCIDENTE, MERLIN, METROVACESA, TALGO.MARKETS YESTERDAY AND TODAY
Panic aggravates
Coronavirus fears and the collapse of crude oil prices led to another session of sharp drops in global markets. In Europe most indices closed with losses of more than -7%, with Italy’s shedding more than -11%. Within the Euro Stoxx, once again all sectors closed in the red, with Energy and Banks leading the drops, whereas Retail and Travel & Leisure fell the least. On the macro side, in the euro zone, March’s Sentix index fell more than expected. In Germany, January’s industrial output fell more than expected. In the US, D. Trump outlined that the government it its studying a package of fiscal measures ranging from aid to companies to tax cuts to families. In China, February’s inflation eased, in line with expectations while production prices slowed down more than expected. In Japan, the Finance Minister warned that a new aid package will be launched to alleviate the impact from the virus with financial subsidies to companies and families.
What we expect for today
Some calm would return to the markets today that will rises of up to +3.0%. Currently, S&P futures are up +3.47% (the S&P 500 ended -2.89% lower vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 54.46%). Asian markets are climbing (Japan +0.85% and Hong Kong 1.87%).
Today in the euro zone we will learn the final 4Q’19 GDP, in Spain INE housing prices for 4Q’19 and in France, Italy and Brazil January’s industrial output. In debt auctions: Spain (€ 2 Bn in 3M and 9M t-bills) and Netherlands (€ 6 Bn in bonds due 2030).
COMPANY NEWS
CATALANA OCCIDENTE, BUY
According to Bloomberg, Goldman Sachs would, starting today, be carrying out an accelerated bookbuild of a package of 1.8 M shares (1.5% of the total) within a range of € 21.30/sh. and € 22.00/sh., which would mean a discount of between -9% and -12% to yesterday’s closing price. Main shareholders besides Serra Family are Invesco Ltd. (2.10%), Schroders Plc (1.97%), Banco Santander (1.37%), Norges Bank (1.34%), and Dimensional Fund Advisors LP (1.08%). Negative news that would support the stock’s bearish performance over the past few months. So far this year it has fallen -22.31% (practically in line with the sector). That said, we wish to point out the company’s solid fundamentals, with more leeway in view of an economic downturn. In the Traditional business it has a combined ratio of ~90% vs. ~95% for the sector, and in Credit insurance its CR is at lows. For the time being there are no signs of a sudden worsening in the short term (also bearing in mind the strong geographical diversification and low concertation of risk). To this we would have to add the high Solvency II levels (>200%).
OIL SECTOR. Crude below break-even. BUYING opportunity in Repsol.
Brent crude is trading at US$ 36/barrel after falling -20% yesterday. At this level, the point the sector has signalled as break-even, US$ 45-55/barrel, has been completely broken. According to our calculations, ± US$ 1 in the price of crude oil has an impact of ±2.1% on the valuation of REP (-1.9% in adjusted EBIT / -2.4% in EPS), -2.4% on ENI (-2.1% in adjusted EBIT / -3.4% in EPS) and -2.2% on TOT (-1.3% in adjusted EBIT / -2.1% in EPS). And following yesterday’s rout, REP is pricing in a crude oil price of US$ 39/barrel in perpetuity (vs. US$ 45 for ENI and US$ 46 for TOT). Our forecast is that Brent crude prices will return to what we consider a reasonable level (US$ 55-60) towards the end of the year, while we could expect coronavirus cases to be reduced in the short term. A production cut from OPEC and/or the imminent announcement of fiscal policies in the US and Europe could lead to a much stronger, short-term rally in the price of crude. We do not revise our valuation due to the lack of visibility, although we admit that upside potentials now seem to be out-of-step. We maintain our recommendations and see a BUYING opportunity in REP.
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.
ACS Actividades de Construccion y Servicios is a holding company. Through its subsidiaries, Co.'s activities are divided into the following areas: Construction, engaged in the construction of civil works, and residential and non-residential building construction; industrial services, engaged in the development of applied engineering services, installations and the maintenance of industrial infrastructures in the energy, communications and control systems sectors; services, groups together environmental services, the outsourcing of building maintenance services, logistics and transport services; and concessions, mainly engaged in transport infrastructure concessions.
Grupo Catalana Occidente is an insurance group based in Spain. Co. is engaged in insurance and reinsurance activities, including commercial, life, disability, and automobile insurance. Co. is also engaged in the sale of annuities and pension funds. Co.'s operations are organized along two businesses: Traditional business (insurance) and Credit Insurance business. Co.'s main markets are located in Spain, Germany, United Kingdom, France and the Netherlands. Co. maintains a presence in more than 40 countries.
Merlin Properties SOCIMI SA is a Spain-based company engaged in the operation of a real estate investment trust (REIT). The Company focuses on the acquisition, management and rental of commercial properties located in the Iberian Peninsula, primarily in Spain. The Company's activities are divided into the following segments: Office buildings, operating a portfolio of office space; High-street retail, engaged in leasing retail stores; Shopping centers, engaged in managing department stores; Logistics, operating logistics warehouses and distribution centers, and Others. The Company's other activities include property management services rendered to third parties.
Metrovacesa SA, formerly Metrovacesa Suelo y Promocion SA, is a Spain-based real estate developer. The Company specializes in construction and sale of sustainable housing, both single-family and multi-family residential properties. Its activities also include promotion, urbanization and parceling of real estate in general, as well as real estate management for own benefit or on behalf of third parties. Its asset portfolio includes more than 6 million square meters of building land across Spain, as well as already developed properties in cities, such as Malaga, Almeria, Cordoba, Barcelona and Madrid, among others.
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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