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IBERIAN DAILY 20 JULY + 2Q’22 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, BANKING SECTOR.

At the end of today’s report, and during the entire results season, we will include a presentation with positive and negative results highlights and previews for the 2Q’22 results to be released over the coming days in Spain.

At last good news from Russia
European stock markets recovered significantly after Reuters leaked that Russia will resume gas shipments through Nord Stream1 next Thursday (as expected) but at a very low capacity. In this regard, V. Putin threatened to lower supply if the turbine held up in Canada is not returned due to the international sanctions. In any event, and as a precautionary measure, the EU will present today a proposal to force all member countries to reduce their gas consumption by 15% (including fiscal incentives to industries cutting consumption voluntarily, the reopening of coal power plants, delay in the closure of nuclear power plants...). In the Euro STOXX, all sectors saw gains, led by Banks and Automobiles whereas Consumer Goods and Telecoms posted the lowest rises. On the macro side, in the UK, May’s ILO unemployment rate remained at the previous 3.8%, in line with expectations. In the euro zone, July’s final inflation confirmed the preliminary data. The number of ECB members in favour of a +50bps rise tomorrow will be increasing. In Spain, Funcas joined the wave of downward revisions of GDP and inflation rise. On another note, the press leaked that the ECB will raise rates by +50bps to control inflation. In the US, housing starts and construction permits slowed down in June again. In US business results, Johnson&Johnson were in line, Halliburton, Hasbro and Netflix came in better.
What we expect for today
European stock markets would open with gains, with strong performance from tech stocks, underpinned by the positive surprises from the US results (solid earnings from Netflix) and the lower regulatory risk in China (end of the investigation into Didi). Currently, S&P futures are up +0.37% (the S&P 500 ended +0.69% higher vs. the European closing bell). Volatility in the US dropped (VIX 24.59). Asian markets are climbing (China’s CSI 300 +0.2% and Japan’s Nikkei +2.5%).
Today in the UK we will learn June’s inflation, in the euro zone July’s consumer confidence and in the US June’s existing home sales. In Italy, Draghi will appear before the Parliament. In US business results, Neogen, M&T Bank, Baker Hughes, Abbott Laboratories and Biogen, among others, will release their earnings. Debt auctions: Germany (€ 1.5 Bn in bonds due 2030).


COMPANY NEWS

BANKING SECTOR. INTEREST RATES VS. COST OF RISK, THAT’S THE QUESTION.
We revise the banking sector in the light of the new economic scenario and the duality between the improvement of revenues through rate rises and the hike in NPL provisions. In net terms, we believe that the former will exceed the latter bearing in mind the excess provisions in balance sheet and the strength of capital. The strong corrections in the past quarter mean March’20 valuation levels, pricing in Net Profit’23 ~-40% below expectations or, alternatively, a risk premium, measured through the rate of discount, around +50% vs. BS(e). Although we will see slowdown, we rule out such an adverse scenario, maintaining our BUY recommendation for all the stocks in our coverage universe, yielding >50% upside in all cases. With this in mind, volatility will continue, with stock picking being key. We bet on domestic banks: CABK, BKT and UNI (sensitivity to rates, capital). Among the banks we like the least we stress SAN (after doubts on Banamex are dispelled) and BBVA (risk on Turkey).