EUR 100.00 For Business Accounts Only

IBERIAN DAILY 17 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, ACCIONA ENERGÍA, MERLIN, OHLA, REPSOL, TALGO.

IBEX near 2023 high
It was a mixed bag in Europe (only the IBEX and DAX ended with gains), consolidating levels following the gains from the past few days and with interest rates on debt remaining volatile. In the STOXX 600, almost all the sectors closed with losses, led by Energy and Retail, with Utilities and Media the only sectors closing with gains. In Spain, P. Sanchez was re-elected as PM by an absolute majority with support from nationalist and separatist parties. In the US, October’s industrial output contracted more than expected and weekly jobless claims rose more than expected and the confidence in the residential construction sector (NAHB) dropped more than expected to 2022 and Covid lows. On the contrary, the Philadelphia Fed index for November recovered more than expected. In US business results, Walmart released earnings in line with expectations, but warning of a sharp drop in sales over the past few days and for the coming quarter, as well as deflationary symptoms.
What we expect for today
European stock markets would open with gains of around +0.3%, with the ES50 looking to beat its November high of 4,326 points. Currently, S&P futures are up +0.08% (the S&P 500 ended unchanged vs. the European closing bell). Volatility in the US rose (VIX 14.32). Asian stock markets are mixed (China’s CSI 300 -0.29%, Japan’s Nikkei +0.48%), with China dragged down by the drop in Alibaba after the Cloud Intelligence Group spin-off was suspended.
Today in the euro zone we will learn October’s final inflation, in the US October’s housing starts and in Brazil September’s economic activity index.


COMPANY NEWS

ACCIONA. 9M’23 Trading Statement: No relevant surprises in the rest of divisions. BUY.
Highlights from ANA’s 9M’23 trading statement, released after yesterday’s closing bell: (i) Energy (~80% of EV; 83% stake ANE): We highlight the increase in the leverage target to 3x NFD/EBITDA’23 (vs. 2.5x previously), which adds pressure to some extent on ANE’s investment grade status. (ii) Infrastructure (~9% of EV): The company pointed out that the level of activity would have increased significantly vs. 9M’22, keeping similar growth rates to those seen in the 1H’23 (+37%; +9% BS(e) for FY2023), driven mainly by Construction and Concessions (mainly thanks to the line 6 project in Brazil). It did not comment on operating margins (we expect a +10bps increase on the year vs. 2022), although the improvement in EBITDA margin was +80bps as of 1H’23. Regarding order intake, the backlog came in -2% below YE2022 levels (although it would have grown by +4% if equity method accounted projects are included). (iii) Real Estate (~6% of EV): The company reiterated its objective of delivering ~800 units in 2023 (vs. 75 units delivered in 1Q’23), noting that most of them will take place before the end of 2023 with a possible deviation of 48 units in Mexico as a result of Otis hurricane. The pre-sales backlog increased by +27% vs. Dec’22. GAV of the assets increased by +18% vs. 2022 (€~+280 M vs. 2022). (iv) Bestinver (~2% of EV): The managed funds increased by +12% vs. YE2022, mainly thanks to the funds’ performance. (v) Nordex (~6% of EV; results already released): Sequential improvement of results, with revenues growing +16% in 9M’23, with the EBITDA margin improving to -1.5% vs. -5.2% in 9M’22, +2.8% on the quarter on a standalone basis. Orders rose by +11% in 9M’23, meaning a +4% increase in the backlog. The company reiterated its 2023 prospects. (vi) Guidance’23: With the aforementioned nuance by ANE, the company maintains the rest of its guidance’23, which points to “robust double-digit growth” for the rest of the group (+12% BS(e)), CAPEX for the rest of the group above € 700 M (vs. between € 800 M and € 900 M previously and € 820 M BS(e)). Since ~80% of ANA’s valuation (EV) is derived from the Energy division and there are no surprises in the other divisions, we would expect the impact from the trading statement to be similar to that on its subsidiary ANE, which could have a slightly negative slant given the expected increase in leverage in the subsidiary. The stock has underperformed the IBEX by -40% YTD (in line with ANE), trading at a -9% discount vs. its theoretical market value assuming ANE’s and Nordex’ trading levels (in line with the average 12-month discount).

ACCIONA ENERGÍA. 9M’23 trading statement: Guidance’23 maintained, with higher CAPEX and net debt. Possible asset rotation under way. BUY.
Highlights from the 9M’23 trading statement released by ANE at the closing bell: (i) General backdrop/sector outlook: The company remains optimistic towards the sector due to the strong support from energy policies, the high energy prices, growing PPA demand and the drop in PV installation costs, although it reiterates that the scenario of high interest rates forces it to continue to be selective with investment opportunities. (ii) Installed capacity: In 9M’23 the company installed 1,126 MW (in Australia, the US, Peru and Spain) which, as of the end of October, rises to ~1.4 GW vs. 1.8 GW target’23, which the company confirmed. This raises total installed capacity to 12.9 GW (vs. 11.4 GW in Sep’22). Total capacity under construction totaled 1.6 GW as of the end of September (vs. 2.2 GW in Dec’22), mainly in Australia, the US and Canada. Lastly, ANE indicated that it expects capacity under construction at the year end to once again come in at 1.6 GW, which will make it possible to once again reach a similar growth rate to 2023 in 2024, as expected. (iii) Production and prices: Consolidated production grew +6% vs. 9M’22 (vs. +26% BS(e) for the full year), with a slight deterioration in load factors (26.1% vs. 26.8% in 9M’22), due mainly to the capacity additions. Without them, production is flat on the international level and falls slightly in Spain. Lastly, the average capture price fell -22% vs. 9M’22 (vs. -27% BS(e) for the full year), with Spin (46% of production’23 BS(e)) falling -31% and the international segment -2%. (iv) ANE maintains its guidance’23, but with higher CAPEX and leverage: The main component of ANE’s guidance’23 (apart from the capacity target mentioned above) is EBITDA, with a target range of € 1.2-1.3 Bn depending on the pool price in Spain (vs. € 1.28 Bn BS(e) and € 1.29 Bn consensus). In this regard, the company mentions that currently it will keep the guidance unchanged. However, it has raised the CAPEX guidance, which is now at €~2.5 Bn (vs. € 1.9-2.0 Bn previously; € 1.83 Bn BS(e)) as a result of the rising investments, the share buyback programme (€ 40 M to date vs. € 150 M total programme) and the delayed monetisation of 30% of the MacIntyre wind farm until 2024, although this is unsurprising. This increase to CAPEX has led the company to have to raise its NFD/EBITDA target to ~3x (vs. previous 2.5x; 2.5x BS(e) and 2.5x consensus). (v) Exposure to offshore wind power and lack of design problems in wind turbines: The company highlights that currently it is not exposed to the offshore wind generation business (we understand this refers to significant investments in specific projects), and it does not foresee any significant deterioration in the asset portfolio for any of the technologies it uses. Likewise, ANE has stated that it is not seeing any problems regarding design faults in wind turbines, with Nordex being its main supplier. (vi) Possible asset sales: The company indicates that it has initiated processes for possible asset sales during 2024 with the aim of preserving its investment grade rating, although it has not specified the type of assets or if they would be full assets or minority stakes. On the positive side we would highlight the messages regarding the EBITDA’23 and capacity installation targets for 2023 and 2024 being maintained, in addition to the comments made on the solid performance in the sector, apart from interest rates. However, the increase to the leverage target (which is not surprising) would put pressure on the company’s investment grade rating, and although it has asset rotation as a resource, it could be perceived with a slightly negative slant. With all this in mind, following the -40% underperformance vs. the IBEX YtD, we understand that the possible disappointment should, in any event, be limited.

MERLIN: Solid 3Q’23 results in line with expectations. BUY
The results are solid and completely in line with expectations: 3Q’23 gross rental revenues € 119 M (+5.7% vs. +5.4% BS(e)); FFO € 69 M (+3.6% vs. +3.7% BS(e)). As of 9M’23 LfL rents grew +8% (+8% as of 1H’23) thanks to the updating of rents with CPI and the rising occupancy rates. FFO rose slightly less due to higher financial costs (average rate in Sep’23 2.37% vs. 1.98% in Dec’22). No asset appraisal in Q3. LTV remained stable at 34%. The company has announced a payment of 0.20/sh. (+0%, vs. € 0.20 BS(e), yield 2.3%) as an interim dividend’23. The stock is inexpensive, trading at a -44% discount to NTA, although its performance will be strongly linked to interest rate expectations.

OHL. 3Q’23 Results in line on the operating level and better in cash. BUY
3Q’23 Results were in line on the operating level (EBITDA € 33 M; in line BS(e)) and above expectations in Net Profit (€ 14 M vs. € 2.3 M BS(e)) thanks to the better performance of results by the equity method. Cash saw a positive performance, with € 37 M of cash generation (vs. € 3 M BS(e))thanks to working capital (€ +21 M vs. € +3 M BS(e)). We expect a positive market reaction, particularly following the poor share price performance (-9% in 2023; -18% vs. IBEX). With this in mind, the key in the short-term will lie in the execution of the divestitures of non-core assets (Services, Chum Hospital and Canalejas project; around € 230 M BS(e) that we should see over the coming months (Services and Chum Hospital will be the first sales), necessary to refinance its bonds (around € 415 M; 90% debt).