EUR 100.00 For Business Accounts Only

IBERIAN DAILY 20 JANUARY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, IAG, TELEFÓNICA.

MARKETS YESTERDAY AND TODAY

New record highs in the US drive European markets
There were widespread gains in Europe, boosted by the new record highs in the US. Within the Euro Stoxx, the best relative performance was in Utilities and Technology, whereas Media and Energy were the worst performers. On the macro side, in the euro zone, December’s final inflation was in line with expectations. In the UK, December’s retail sales were worse than expected. In the US, industrial output fell more than expected in December, whereas housing starts rose more than expected and building permits fell unexpectedly. January’s preliminary U. of Michigan consumer confidence was slightly below expectations (99.1 vs. 99.3 expected). In China, the PBoC left the 1Y loan interest rate unchanged at 4.15% vs. the expected cut to 4.1%. In US business results, CSX Corp. beat expectations.
What we expect for today
European markets would open without a clear direction, with a holiday in the US, along with a rally in Brent crude prices following the attacks on Libyan oil fields. Currently, S&P futures are up +0.04% (the S&P 500 closed +0.16% higher vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 12.10%). Asian markets are trading with mixed results (Japan +0.18% and Hong Kong -0.51%).
Today the IMF will release its World Economic Outlook, and in the US it is a holiday. In Germany we will learn December’s production prices. Debt auctions: Netherlands (€ 2 Bn in 3M and 6M t-bills), Germany (€ 1.5 Bn in 5M t-bills) and France (€ 4 Bn in 3M, 6M and 12M t-bills).

COMPANY NEWS

TELEFÓNICA, BUY
According to El Mundo, a consortium made up of LatAm investors would be considering forming a holding company to acquire 51% of TEF HispAm, with the remaining 49%, according to this proposal, being distributed between smaller shareholders and TEF (20-25%). Thus, according to the news article, TEF would raise at least € 10 Bn selling 80/75% of the company (100% of HispAm valued at € 12.5/13.3 Bn vs. € 12.2 Bn BS(e)). The proposal would have been made to TEF in a first round of talks.
The news is unsurprising as, following the announcement of the new strategic plan (on 27 Nov 2019), the company highlighted its intention to find alternatives to maximise the value of its LatAm assets, which were no longer considered core by the group. We believe that such an M&A move would certainly be a catalyst for a share price that has been punished recently (-18% in absolute terms in the last year and -25% vs. IBEX or -22% vs. sector).
According to our estimates, TEF HispAm (LatAm excl. Brazil) represents 13.3% of the company’s EV or € 12.2 Bn (valued at 4.9x EV/EBITDA), meaning that by selling all of its assets (with a weight of approx. 15% of the Group’s EBITDA), the company would be able to reduce leverage by around -32%, bringing the NFD/EBITDA ratio to