EUR 100.00 For Business Accounts Only

IBERIAN DAILY 24 APRIL (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, ACS, ATRESMEDIA, ELECTRICITY AND TELECOM SECTOR, FERROVIAL, METROVACESA, NATURGY, PROSEGUR, TELEFÓNICA.

MARKETS YESTERDAY AND TODAY

Trusting in the agreement
Despite starting off with losses, the expectations of an agreement in the European Council led to a rally on European stock markets. In the absence of an agreement, Italy and Spain are seeking to approve a plan to mobilise more than € 1.5 Tn. In the Euro Stoxx, almost all the sectors posted gains, led by Banks and Energy vs. Retail and Consumer Goods, which were the only sectors with losses. On the macro side, in the euro zone April’s preliminary services and manufacturing PMIs once again fell more than expected, suggesting a -7.5% drop in the 2Q’20 GDP (close to -11.0% YoY). In this regard, C. Lagarde warned that the contraction in the euro zone could reach -15% if measures are not taken. Along the same line, Funcas expects a -7% drop in 2020 for Spain, which will not recover until 2023. In the US, weekly jobless claims rose less than expected, and March’s new home sales fell slightly less than expected, but in double digits. The European Council agreed on a reconstruction fund that could be in place by 1 June, but it will fall within the EU’s budget, and awaiting specifics of the final amount and financing, it would be around € 1.5 tTn. In Japan, March’s inflation fell in line with expectations and would be negative over the coming months. The Japanese press warns that the BoJ in its upcoming meeting could announce unlimited purchases of sovereign bonds and double the purchase of corporate bonds and commercial paper to an annual 15 Bn yen. In US business results, Blackstone came in below expectations, whereas Citrix, Domino’s Pizza and Union Pacific easily beat expectations.
What we expect for today
European markets would open with losses of up to -2.0%, dragged down by the leak of a report from the WHO warning of the ineffectiveness of Gilead’s remdesivir antiviral treatment of COVID-19 (although the company announced that the results are inconclusive). Currently, S&P futures are down -0.59% (the S&P 500 was down -1.12% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 41.38%). Asian markets are falling (Japan -1.19% and Hong Kong -0.62%).
Today in Germany we will learn April’s IFO, in the US March’s durable goods orders and April’s final University of Michigan confidence, and in Mexico February’s IGAE economic activity index. In US business results, Yelp, Texas Pacific and Verizon, among others, will release their earnings. As for ratings, S&P will revise that of Italy (BBB, negative outlook), with a possible downgrade one day after the ECB announced the temporary acceptance of HY collateral.

COMPANY NEWS

FERROVIAL. ETR407’s 1Q’20 results. Traffic down -13%. Quarterly dividend payment cancelled. BUY.
ETR407 motorway (43.23% FER; 53% of our T.P.) has just released its 1Q’20 results, which show a drop in sales and EBITDA of -7% and -9%, respectively, in local currency. Traffic slid by -13.4%, whereas tariffs (average revenues per trip) grew +7.6%. Net Profit, however, managed to increase by +5.6% thanks to a sharp reduction in financial items (-48%). Separately, the company has decided not to distribute the quarterly dividend, confirming that it will revise this decision in the second quarter. Negative news although expected and in line with the data disclosed by FER in late March, which hinted at a drop in traffic of more than -70% from the second half of March onwards. Based on our base-case scenario of V-shaped recovery (two quarters of sharp recession followed by moderate recovery in the third quarter, strong recovery in the fourth and very strong next year), we will cut our EBITDA estimates by -25% for 2020, which would have an impact of -2% on our T.P. As regards the cancellation of the dividend, although this would only affect one quarter, we would like to highlight the importance of this decision, as the ETR407’s dividends (€~150 M in 2020 BS(e); -50% vs. 2019) represent ~45% of the dividends that FER receives from its infrastructure assets and might condition the payment of the dividend in FER, especially considering that the chance of FER not receiving the dividends from other assets like Heathrow (€~100 M; ~0.6% of the market cap) is very high.

METROVACESA, BUY
Yesterday the company announced the impact it is seeing from COVID-19 on the business, as well as some measures to mitigate it.
The company has seen a drop in the pace of home sales and contact with clients since the public health crisis and state of alarm began in March. There have also been delays in construction works due to the shutdown ordered by the Govt. from 30 March to 10 April. Additionally, the timeframes for processing by public administrations have been suspended during the state of alarm. This could have a temporary effect on timeframes for municipal licenses being granted or urban land management.
Although MVC has stressed that its financial position is very robust, with hardly any debt (LTV 3%) and enough liquidity to face its investments in development, it believes that, for the sake of caution, it must delay the decision to pay out a dividend against 2019 results. Note that with the release of its FY2019 results the company had announced the payment of a € 70 M dividend (equivalent to a yield of 9% at current prices). The company will maintain the share buyback programme worth € 50 M.
The impact from COVID and the delay or cancellation of the dividend payment is not surprising, given the exceptional situation. The share is trading at a -71% discount to NAV as of Dec’19, a discount that is higher than that of AEDAS (-60%) and HOME (-50%). We understand that the market is penalising the company for its greater dependence on land sales to meet its business plan, with land being a less liquid asset and more vulnerable in a scenario of falling prices and recession.

TELEFÓNICA, BUY
According to Expansión, TEF Germany is in advanced talks with Telxius over the sale of ~10,000 towers (of the ~19,000 owned by TEF Germany). According to the news article, the agreement might be closed in the coming weeks (May or June) at a price of between € 1.2 Bn and € 1.5 Bn.
The creation of value through these telecommunications towers is positive news for TEF, as their trading multiples or those multiples seen in other deals (>15x EV/EBITDA) are far above TEF’s trading levels (