IBERIAN DAILY 14 NOVEMBER (ANÃLISIS BANCO SABADELL)
NEWS SUMMARY: ACCIONA, ELECTRICITY AND GAS SECTOR, GRIFOLS, MERLIN PROPERTIES, METROVACESA, TALGO, TÉCNICAS REUNIDAS, TELEFÓNICA.MARKETS YESTERDAY AND TODAY
The prospect of a trade agreement deteriorates
The market reacted with drops to L. Kudlow’s message that the current tariffs would not be lowered before signing the phase I of the agreement with China. Thus, the time when investors favoured defensive and/or growth sectors returned to the market, with Banks and Media standing out as the worst performers in the Euro STOXX vs. Food and Real Estate that managed to maintain gains. On the macroeconomic level, October’s final inflation confirmed the preliminary data of 1.1% in Germany while it slowed down more than expected in the UK. In France, the unemployment rate climbed unexpectedly in the 3Q’19 with a slight increase in the number of unemployed. In the euro zone, September’s industrial production slowed down slightly less than expected. In the US, J. Powell’s testimony did not bring surprises and the Fed expects the economy to maintain a sustained expansion, although he left the door open to back the activity in the event of a recession. Meanwhile, inflation climbed in October more than expected to 1.8% YoY while the core data moderated unexpectedly to 2.3%. In Brazil, September’s retail sales grew more than expected. In Japan, the first reading of the 3Q’19 GDP rose less than expected. In China, industrial production and retail sales for October moderated more than expected. In US Results Cisco Systems and NetApp released disappointing figures.
What we expect for today
The markets would open with a slightly bearish slant. Currently, S&P futures are up +0.09% (the S&P 500 was unchanged vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 13.00%). The Asian markets that are open are sliding (Hong Kong -0.83% and Japan -0.81%).
Today in Germany we will learn the preliminary 3Q’19 GDP, in Spain October’s final inflation, in the euro zone, the preliminary 3Q’19 GDP and the quarterly job creation, in the US J. Powell will testify before Senate and October’s production prices and weekly jobless claims will be released. In US business results, Viacom, Walmart and NVIDIA among others, will release their earnings.
COMPANY NEWS
ACCIONA, SELL
According to the press, ANA would be in late-stage talks to with Sao Paulo authorities to resume works and subsequent operation of Line 6 of the Sao Paulo metro (15km). The line was awarded to a consortium led by the Brazilian company Odebrecht in 2013, although 3 years later the works were halted after having advanced 15%. The remaining investment to complete the infrastructure totals more than € 2 Bn (20% of ANA’s current EV and 17% of its infrastructure backlog), although according to the news, it is possible ANA would not have to finance the entire infrastructure (although no further details were given). The deal includes a contract to operate the line for 25 years.
News of little impact until the deal is confirmed (apparently still in talks, although at an advanced stage and exclusive) and more details are given on the potential terms and possible partners for ANA (if there are any). The deal would mean a strong push to the Construction backlog, raising it by +17% in addition to contributing to strengthening the concessions business after the line begins operating. However, depending on the definitive terms of the deal and the possible partnership structure (nothing is mentioned in the news), the company’s leverage could rise (4.2x NFD/EBITDA over the past 12 months as of the end of 9M’19 vs. guidance’19 8x BS(e) vs. ~5.9x TEF and vs. ~7x our implied valuation for TEF Brazil), this would mean increasing NFD by around +10.5% with an impact of >+2% on our T.P. (due to the synergies). Dividing up Oi between TEF/TIM and Claro would mean a smaller investment (positive, given that it would not increase debt by as much), fewer regulatory hurdles and the same benefit of a consolidated market. TEF’s business in Brazil accounts for 23% of the company’s EBITDA and 21% of its EV.
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.
Cellnex Telecom SA is a Spain-based company engaged in the wireless telecommunications (telecom) business. Its activities are divided into three segments: Broadcasting infrastructure, Telecom site rental, as well as Network services and other. The Broadcasting infrastructure division comprises distribution and transmission of television (TV) and frequency modulation (FM) radio signals, operation and maintenance (O&M) of radio broadcasting network, as well as over-the-top (OTT) radio services, among others. The Telecom site rental division provides access to wireless infrastructure, primarily through infrastructure hosting and telecom equipment co-location, mainly for mobile network operators and other wireless and broadband telecom network operators. The Network services and other division offers connectivity services for a variety of telecom operators and radio communication, among others. The Company also develops 5th generation mobile networks (5G) through Alticom BV.
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.
Obrascon Huarte Lain is an international concession and construction groups based in Spain. Co. maintains significant operations in 30 countries across all five continents. Co. is engaged in hospital and railway construction, transport infrastructure concessions, oil and gas, energy, solids handling and fire protection systems and international contracts. Co.'s operations are organized along four divisions: OHL Concesiones, OHL Construccion, OHL Industrial y OHL Desarrollos. Co. is also engaged in real state project developments of mixed use managed by the international hotel chains.
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.
Tecnicas Reunidas is a general contractor company based in Spain. Co. engages in the engineering, design, and construction of industrial facilities for refining and petrochemical, oil and gas, power, and infrastructure and industries sectors worldwide. Co. constructs nuclear plants, conventional thermal plants, and renewable energy and cogeneration facilities for power sector; refineries and facilities for petrochemicals; water treatment, desalination, waste management, air, land, and marine transport facilities; and liquefaction, and storage facilities, as well as oil and gas fields and pipelines. Co. also provides engineering, management and operating services for industrial plants.
Telefonica is engaged in the provision of public or private telecommunications services, including ancillary or complementary telecommunications services or related services. Co.'s fixed business includes: traditional fixed telecommunication services, Internet and broadband multimedia services, data and business-aplications services, and wholesale services for telecommunication operators. Co. also provides a range of mobile and related services and products to consumer and business customers, including mobile voice services, value added services, mobile data and Internet services, wholesale services, corporate services, roaming, fixed wireless, and, trunking and paging.
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