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IBERIAN DAILY 25 FEBRUARY + 4Q’20 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, ENCE, INDRA, MEDIASET, NEINOR, NH HOTELES, FERROVIAL, PROSEGUR, RED ELÉCTRICA, TELEFÓNICA.

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 4Q’20 results to be released over the coming days in Spain.

MARKETS YESTERDAY AND TODAY

The widening of US debt yield increases volatility
It was a mixed session in European stock markets with a new widening in US debt yield to 1.40%, at highs from the past 12 months. Value outperformed growth again. Thus, in the Euro STOXX, Basic Resources and Travel&Leisure were the best relative performers vs. the drops of Media and Household. On the macroeconomic level, in Germany, the final reading of the 4Q’20 GDP improved two tenths the falls to -3.7% YoY. In Spain, the government will approve an additional € 11 Bn aid package to companies aimed at reinforcing solvency and cleaning up balance sheets. In the US, January’s new home sales climbed above expectations. The Fed members reiterated once more the need of keeping the current bond purchase pace until the job and inflation targets are met (reaching the 2% inflation persistently could take more than 3 years). In this regard, from the ECB (Schnabel) warned about the risk of an abrupt rise in real interest rates on the global economy. As for the pandemic, J&J’s vaccine shows high effectiveness against Covid-19 and the South African strain (around 82%). Around 4 M doses are expected immediately in the US. In Japan, December’s final leading indicator improved the preliminary data. In US Results Lowe’s, Nvidia, Booking and Entergy came in better than expected, while Pinnacle were worse.
What we expect for today
We expect stock markets to see a bullish opening, driven by the same catalysts of the past few days and the flattening of the curve of infections. The rise in debt curves continues to back a better performance of Financial and cyclical stocks. Currently, S&P futures are up +0.20% (the S&P 500 closed up +0.3% vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 21.34). Asian markets are climbing (CSI 300 +0.7%, Japan +1.6%).
Today in the euro zone we will learn February’s final economic climate indicator and consumer confidence, in the US weekly jobless claims, the second reading of the 4Q’20 GDP, January’s durable goods data and January’s pending home sales, in Mexico the 4Q’20 GDP and IGAE economic activity index. In US business results, Dominos Pizza, American Tower, Norwegian and HP, among others, will release their earnings. In debt auctions: Italy (€ 6.25 Bn in floating bonds due 2023 and fixed bonds due 2026).


COMPANY NEWS

INDRA. Results above expectations in sales and cash. Backlog hits all-time record. BUY.
From this set of results we highlight: (i) good order intake (+8.4%) and backlog data (€ 5.22 Bn, 1.72x sales); (ii) good cash performance (€ 83 M in FY2020 vs. € 75 M BS(e)) and in debt (€ 481 M vs. € 552 M in 2019 and vs. € 518 M BS(e)); (iii) better sales data, and EBIT in line with BS(e), meaning that the company has met its guidance’20; and (iv) dividend payments are resumed in 2021 (to be specified; vs. our estimate of € 0.11/sh.; 1.5% yield and 25% payout). We expect a positive share price reaction, as despite its recent performance (+49% in absolute terms since October’20 lows and +9% thus far in 2021), it still stands far from pre Covid-19 levels (-28%), and the long-term outlook is positive.

MEDIASET ESPAÑA. Results above expectations in all business lines. BUY.
4Q’20 sales grew +1.6% (vs. -0.8% BS(e) and -1.7% consensus), with costs in 4Q’20 totalling € 187.4 M (-8.8%), bringing 4Q’20 EBITDA to € 102.6 M (+28.1% vs. +4% BS(e)), with the margin coming in at 35.4% (vs. 28% in 4Q’20). Operating CF’20 came in at € 200.9 M (+14.2%). The company announced it will cancel Treasury stock (4.3%), but has not announced dividend payments for the time being (we believe there will be none in 2021-22). Despite the stock’s good recent performance (+9% in absolute terms in 2021 and +61% since October’20 lows and +42% vs. IBEX), we expect a positive market reaction. We will raise our estimates to include the improvement we expect to see in the advertising market in 2021 (despite a weak start to the year).

NH HOTELES. Better results than expected in costs. No guidance provided for 2021. SELL.
The results came in above expectations in EBITDA (€+15.6 M vs. €-7.6 M expected). Sales came in below (-82% vs. -79% expected), but costs were above expectations, with rent savings standing out (€ 33.8 M in 4Q’20 vs. € 12 M BS(e)), which has some accounting effect (non-cash). NH claims to see some improvement in occupancy levels, which went from ~20% in December to ~25% in February, but has not provided a guidance’21 in view of the lack of visibility. This set of results has a positive slant, but the share price has risen by +35% in the last month (+30% vs. IBEX) and our estimates already assume strong recovery (EBITDA’23 in line with 2019), despite which we see no upside. We expect the company to provide further details on the outlook and possible asset sales in today’s conference call (13:00 CET).

RED ELÉCTRICA, SELL
The company disappointed the market yesterday with a plan including a €~660 M investment annually in networks vs. €~900 M BS(e) and consensus, which has an impact of -3% on our T.P. Despite the lower level of investment, the company also cuts dividends from 2023 onwards, setting a floor dividend of € 1.00/sh. (7% yield) over the 2021-22 period, and cutting that for the 2023-25 period to € 0.80/sh. (5.6% yield/-20% vs. our estimate and that of the consensus). We do not like the fact that the company did not provide a guidance for Net Profit. Although the current valuation and dividend levels (€ 1.00/sh. DPS’20/~7%) are attractive in Red Eléctrica, we believe they are better in Enagás (10% yield and >30% upside), and thus, the latter remains our top pick.

TELEFÓNICA, BUY
Results came in above our expectations and those of the consensus (greater difference vs. consensus) at all levels. 4Q’20 Sales dropped -12% (-2% organic) with Spain falling -2.9%, Germany +2.7%, the UK -9.5% (-5.2% organic), Brazil -30.1% (-1.6% organic), Infra +4.7% (+11% organic) and Hispam -20.4% (-2.5% organic). The 4Q’20 EBITDA grew +2.2% (-2.8% organic). FCF’20 totalled € 4.794 Bn, with € 1.993 Bn in the 4Q’20 (+13.2%), enabling a debt reduction of € 2.516 Bn in 2020 (-6.6% and € 1.449 Bn reduction in 4Q’20) to € 35.228 Bn (2.79x NFD/EBITDA). Including other inorganic initiatives (sale of Telxius and merger in the UK), NFD would be cut by additional € 9 Bn (to € 26 Bn). As for the 2021 guidance, the company expects sales and revenues stability (vs. -1.5% and -0.7% BS(e) respectively) and around 15% CAPEX/Sales (vs. 14.8% BS(e)). The group announced a € 0.30/sh. DPS’21 (-25% vs. 2020 and vs. € 0.40/sh. BS(e) and 0.314 consensus) in voluntary scrip in addition to the cancellation of 1.5% of treasury stock. We expect a positive impact. The company continues to reduce its debt, and we see drivers (asset sales) that it could use to dispel the market’s worries once and for all.