EUR 100.00 For Business Accounts Only

IBERIAN DAILY 26 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, ENDESA, IAG, IBERDROLA, LIBERBANK, ROVI, SIEMENS GAMESA, UNICAJA.

MARKETS YESTERDAY AND TODAY

IFO stabilises as expectations improve
The better-than-expected IFO data and a few rumours (yet in the right direction) on the trade talks fuelled once again stock markets. Thus, within the Euro STOXX, all sectors rose, led by Pharma and Basic Resources, whereas Insurance and Energy saw the smallest gains. On the macro side, in Germany, November’s IFO index climbed as expected, hinting at GDP growth below expectations (0.4%). In the Euro zone, R. Holzmann admitted that the ECB’s strategy will be placed under revision in January and that everything is open to debate. In the US, the Chicago Fed Index recovered more than expected in October, yet remained in negative territory. Separately, J. Powell expressed his satisfaction with the performance of the US economy. In Mexico, the 3Q’19 GDP stagnated YoY (vs. 0.1% expected), but September’s IGAE economic index came in better than expected. In China, the BoC Governor pointed out in his monthly report on financial stability that he will maintain a prudent monetary policy. In Brazil, the government will raise the tax on dividends to 20% vs. 15% previously. In US business results, Hewlett Packard came in better than expected.
What we expect for today
The main European indices would open lacking a clear direction. Currently, S&P futures are up +0.36% (the S&P 500 closed +0.13% higher vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 11.87%). The Asian markets that are open are rising (Hong Kong +0.11% and Japan +0.35%).
Today we will learn: in the US, October’s preliminary wholesale inventories, the Richmond Fed manufacturing index for November, October’s new home sales and November’s consumer confidence. In US business results, Best buy and Autodesk, among others, will release their earnings. In debt auctions: Italy (€ 2.5 Bn in CTZ bonds due 2021 and I/L bonds at 2.55% due 2041).

COMPANY NEWS

ROVI. Unsurprising 2023 Strategic Plan. SELL.
From the Investor Day held yesterday, we stress its target of doubling operating revenues and multiplying recurrent EBITDA by 2.5x in 2023 vs. 2018 (€>600 M in sales and € 160 M in EBITDA), which, if we included Doria in our estimates (Risperidone-ISM phase III, €~350 M of peak sales; with 95% chances of success and a valuation of € 358 M; € 6.40/sh.), would leave our estimates -2% and -8% below ROVI’s, although, in our view, very much in line with those of the consensus. We believe that the company’s excellent prospects is already priced in at the current trading levels after the stock’s recent good performance (+17% vs. IBEX in the last month) and our T.P. does not yield any upside (-8%) even including Doria, and thus, we maintain our SELL recommendation.

UNICAJA - BUY /LIBERBANK - BUY
UNI’s and LBK’s shareholders would have begun talks to resume the merger projects. The press states that the two banks would be close to reaching an agreement on an exchange ratio that would only need to be approved by the Boards of Directors and later by the respective AGMs. The shareholders’ plan would include an issuance of € 500 M of AT1 bonds and € 300 M in subordinated debt. Note that the main shareholders in UNI are Fundación Unicaja (49.7%), Indumenta Pueri (5%) and Santander AM (4.95%). In LBK, the main shareholders are Fundaciones Caja Asturias, Caja Extremadura and Caja Cantabria (23.4%), Oceanwood (17.5%), Aivilo Spain (7.1%) and Corporación Masaveu (5.8%).
The breakdown of the merger process in May was because an agreement could not be reached on the exchange ratio and the expected need for a capital increase in order to avoid a dilution in the CET1 ratio. Since then, both banks have improved their balance sheets, reducing NPAs by around € -1.4 Bn (-20% of the combined base) and improving the capital ratios to 13.8% in UNI (+30bps on the year) and 13% in LBK (+90bps). UNI has also issued € 200 M in Tier2 debt. In this regard, we think a merger would not necessitate a capital increase, bearing in mind the plans to issue AT1 instruments (~1.2% of the combined bank’s RWAs) and the upcoming approval of the internal models in LBK (+150bps in CET1 BS(e)).
Current share prices imply a swap of 61% UNI/39% LBK (vs. ~55%/45% at the time of the breakdown), and thus we think it is possible that there could be an agreement in the range we see as appropriate (~57%/43%), which would mean +20% upside for LBK. We continue to believe that the merger of the banks is one of the clearest value generators, and we do not rule out the possibility that now, as the press is stating, or later on, negotiations will resume.