EUR 100.00 For Business Accounts Only

IBERIAN DAILY 16 DECEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, ACS, BANKING SECTOR, CAF, CIE AUTOMOTIVE, IAG.

The Fed’s and the ECB’s hawkish tone halts stock market euphoria
The communiqué issued by the ECB and its more hawkish tone led sovereign bond yields to widen sharply. The Ibex went against the grain once more, falling by -1.40% vs. -3.0% for the rest of European indices. Thus, within the Euro STOXX, all sectors posted losses, led by Technology and Consumer Goods, vs. the better relative performance of Household Goods and Telecoms. The ECB announced a 50bps rate hike in its benchmark rates, making it clear that rates will continue to rise significantly in 2023 until inflation meets the 2.0% target. Furthermore, it announced that as of Apr’23, APP maturities will no longer be reinvested, meaning a € 15 Bn reduction on a monthly basis. According to the press, C. Lagarde would have hinted at three 50bps rate hikes if inflation does not recede as expected. Moreover, the BoE, the Swiss National Bank and the Banxico also raised rates by +50bps to 3.5%, 1.0% and 10.5%, respectively, the highest levels since 2008. On another note, in the United Kingdom, consumer confidence recovered less than expected, remaining near all-time lows. In the Euro zone, new vehicle registrations climbed to 16.3% from 12.2% previously. In the US, November’s retail sales and industrial output contracted unexpectedly, whereas weekly jobless claims fell more than expected. In Japan, December’s manufacturing PMI deteriorated more than expected, whereas the services PMI recovered in line with the Tankan survey. In China, in Jan’23, the border with Hong Kong will be open, whereas Covid-19 infections would be rising in Beijin.
What we expect for today
We expect a more stable opening after yesterday’s drops. Currently, S&P futures are flat (the S&P 500 ended +0.12% higher vs. the European closing bell). Volatility in the US increased (VIX 22.83). Asian markets are falling (China’s CSI 300 -0.3% and Japan’s Nikkei -1.9%).
Today we will learn in the Euro zone December’s PMIs and November’s final inflation data, and in the United Kingdom December’s consumer confidence.

COMPANY NEWS

IAG, BUY.
British Airways (BA) and the administrators of the job pension fund (NAPS) have signed a new agreement on the tri-annual valuation of the fund. Highlights:
The valuation as of 31/12/2021 means a technical provision deficit of £ 1.65 Bn (€ 1.896 Bn), i.e. a reduction of £ 740 M vs. the previous valuation from March’18 (£ 2.4 Bn). The contributions to BA’s fund over the period (£ 1.3 Bn), the increased return of the assets affected and the rate of discount contributed to this reduction.
A more recent valuation (06/12/2022) shows surplus (not quantified) due to the rise in interest rates. For this reason, BA will not carry out additional monthly contributions, if the financing ratio (assets affected/technical provisions) exceeds 100%. If the ratio falls below this level it will resume its contributions to restore the balance with a growing monthly contribution scheme and with a £ 300 M annual cap.
BA will not pay out dividends in 2022 and 2023, and will make a contribution equivalent to 50% to NAPS if any dividends are paid out in 2024; dividends are capped at 50% of profit after taxes before one-offs in 2025, with dividends exceeding this amount requiring additional payments to NAPS if the level of financing is not at least 100%. Moreover, in order to pay dividends, BA must have a minimum cash level of £ 1.6 Bn. All these restrictions cease in October 2025.
Positive news, as the deficit has been cut by around £ 740 M (£ 1.65 Bn as of 31/03/2021 vs. £ 2.4 Bn in 2018), with the fund currently showing surplus (06/12/2022). Furthermore, this puts an end to the uncertainty on this issue with the elimination of the payments unless the financing ratio is below 100% and IAG plans no payments in the foreseeable future. In any event, the deficit is slightly above our estimate (€ 1.896 Bn reported vs. € 15.6 Bn BS(e)) although the impact on our T.P. is irrelevant (