EUR 100.00 For Business Accounts Only

IBERIAN DAILY 14 APRIL (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, ACS, IAG, IBERDROLA, INDITEX, INSURANCE SECTOR, SACYR, SANTANDER.

MARKETS YESTERDAY AND TODAY

Movement on the markets
European stock markets rallied before the Eurogroup decided to make available to member states funds totaling 2% of their GDP through the ESM without conditions, at least for matters directly or indirectly related to the public health crisis. Added to this will be the € 100 Bn from the EC for unemployment and the € 200 Bn from the EIB for SMEs. The Eurogroup will continue negotiating to create an economic reconstruction fund. The agreement has led to a political crisis in Italy, where the M5E and the Liga demand the resignation of the PS finance minister. In the Euro Stoxx, the best-performing sectors were Construction and Travel & Leisure vs. the worst performers, Telecoms and Energy. On the macro side, in the UK February’s industrial output fell, but somewhat less than expected. In Germany, the trade balance saw the surplus grow sharply in February. From the ECB, C. Lagarde was concerned about the low inflation levels, although there are rumours that the members would be more in favour of using QE or OMT instead of a new plan. In the US, weekly jobless claims continued to rise, although slightly below last week’s figures. March’s production prices slowed less than expected, but U. of Michigan consumer confidence worsened more than expected. From the Fed, J. Powell expects solid recovery following the initial impact of COVID-19. In China, exports and imports contracted less than expected in March.
What we expect for today
We expect a bullish opening on European markets. Currently, S&P futures are up +1.62% (the S&P 500 ended -1.45% lower vs. its price at the closing bell in Europe last Thursday). Volatility in the US fell (VIX 41.17%). Asian markets are climbing (Japan +2.62% and Hong Kong +0.73 %).
Today, the IMF will release the update of its economic forecasts. Debt auctions: Netherlands (€ 1.75 Bn in bonds due 2030).

COMPANY NEWS

ACCIONA, BUY
The company announced last Friday it had acquired along AXA the 33% stake held by KKR in Acciona Energía Internacional (AEI; 66% ANA before the acquisition; 23% of our T.P. and 29% of its total consolidated installed capacity) for € 445 M (equity value). AXA acquires 20% and ANA 13% (around € 175 M, ~1.5% of ANA’s EV). The deal is expected to be completed at the end of 2020 (and the payment in January’21), meanwhile ANA plans to sell 5%, and thus with its former stake it would hold 75% of the capital, which would allow it to consolidate it from a fiscal point of view. Note that the fact that KKR had put up for sale its stake long ago was already known and that ANA was one of the possible buyers had not been ruled out.
News of limited impact, as the deal is no surprise (speculations hinted at this possibility for a long period of time) and the amount is not highly relevant (~1.5% of ANA’s EV). On the positive side, we value the 33% stake at around € 550 M (after the dividend of the present year) vs. the € 445 M deal. In our view, the price difference in favour of ANA is AXA would be explained by (i) the fact that it is a minority stake; (ii) the existence of the shareholders agreement that reduced the possible buyer’s additional flexibility; and (iii) the current Covid-19 crisis. In this regard, keeping our valuation of the asset, the deal would add ~+1% to ANA’s T.P., in addition to the advantages derived from setting up a fiscal group in Spain (due to the lower tax rate), even though we cannot quantify it for the time being, we believe it will not be highly relevant either. Additionally, the transaction would allow ANA, in principle, to have a partner to develop its expansion plans (5,000 MW in 5 years; 49% of its total installed capacity at the end of 2019). Note that ANA already consolidated its stake in AEI, and thus, it would have no impact on EBITDA but on Net Profit (~+3% in 2021 BS(e); irrelevant in 2020, as the deal will be completed at the end of 2020) due to lower minority items, taxes and financial costs. On the negative side, the NFD/EBITDA ratio’21e would rise to 4.5x (vs. 4.3x previously BS(e)) before the divestiture of 5%. As a reference, if we were to extrapolate the price paid for the remaining 67% stake already held by ANA, instead of keeping our valuation of the asset, the impact on T.P. would be ~–2.5% (assuming a discount for the minority -10% stake). In any event, for the time being, we maintain our initial valuation of the asset.

SACYR, BUY
With the release of the company’s 2019 annual accounts, it has made a comment on the impact from COVID-19 on the business. SCYR estimates the biggest impact has come on the Construction business, which has had to halt some of its works. According to the company, these halts could have an effect on working capital. The effects of the pandemic are not felt as strongly in other areas like Concessions, Services and Industrial, except the Multiservices activity, which has seen some of its business suspended.
As for debt maturities, SCYR states that “cash forecasts for 2020 show available liquidity, as part of the financing has long-term maturities“.
Separately, according to the press SCYR’s chairman, Manuel Manrique, has purchased 125,000 shares (0.02% of the capital) on the market over the past few weeks.
MARKET IMPACT
The comments are in line with forecasts. It is important to stress that SCYR’s concession revenues (80% of group EBITDA) are well protected against an exceptional situation such as the present one. We estimate that a deterioration of working capital in the Construction division is manageable and could be some € 10-15 M each month with the current business situation (around 70% of the business). Here we should point out that in Spain some of the works should resume after Easter Weekend, which is positive.
We think the company will be able to refinance of cover its commitments with the cash available in the different business units, financing lines (new ones already signed and old ones) and the pending payment to be received from asset sales (such as the € 110 M from Guadalcesa) and other cashflows from the businesses.