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IBERIAN DAILY 27 JULY + 2Q’22 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, ACCIONA ENERGÍA, ADIDAS, AENA, EBRO, ENAGÁS, ENCE, FERROVIAL, MELIÁ, NH HOTELES, ROVI, TALGO, UNICAJA.

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.

IMF cuts growth forecasts again
Drops on both sides of the Atlantic ahead of the Fed. In Europe, the EU reached an agreement to cut the use of gas by -15% (-7% for Spain). Thus, in the Euro STOXX, most sectors closed with losses, led by Retail and Household Goods, vs. the better performance by Food and Pharma. On the macro side, the IMF warned of the possibility of a recession, cutting global growth forecasts to 3.2% this year (from 3.6% in April) and 2.9% in 2023 (previously +3.6%), for Spain to +4.0% in 2022 (vs. previous +4.8%) and +2% in 2023 (vs. +3.3% previously), with the Spanish government keeping its forecasts at 4.3% and cutting 2023 growth from 3.5% to 2.7%. In the US, both June’s consumer confidence and new home sales were disappointing in June. By contrast, the Richmond manufacturing index rose unexpectedly. In 2Q’22 US business results, General Motors and Moody’s released disappointing earnings, McDonald’s was in line, Coca Cola and General Electric beat expectations, Microsoft and Alphabet came in below the guidance disclosed although with a positive market reaction.
What we expect for today
The European stock markets would open with slight gains ahead of the Fed meeting. Currently, S&P futures are up +0.9% (the S&P 500 ended +0.1% higher vs. the European closing bell). Volatility in the US increased (VIX 24.69). Asian markets are mixed (China’s CSI 300 -0.5% and Japan’s Nikkei +0.3%).
Today in the US the Fed will meet and we will learn durable goods orders and wholesale inventories. In US business results, Waste Management, Kraft Heinz, Otis, Invesco and T-Mobile, among others, will release their earnings. As for auctions, Germany will issue € 4 Bn in bonds due 2032.


COMPANY NEWS

EBRO FOODS, SELL
The 1H’22 results came in above expectations in EBITDA, although somewhat below our estimates (+14.3% vs. +15.1% BS(e) and +12.3% consensus) thanks to a better performance in sales (+25.9% vs. +24.0% BS(e) and +21.3% consensus). However, the margin came in below expectations (11.59% vs. 11.85% BS(e) and 11.81% consensus), which means a -118bps drop vs. the 1H’21. By divisions, in terms of profit: (i) the rice division performed better than expected (12.91% reported vs. 12.54% BS(e) and 12.74% consensus), whereas (ii) pasta came in below expectations (8.87% reported vs. 10.44% BS(e) and 10.45% consensus). As for debt, it increased by around €+164 M vs. the end of 1Q’22 mainly as a result of the higher raw material prices and higher stock positions to guarantee the service. Highlights from the conference call: (i) The company sees a slight decline in demand due to both distributors and consumers using the large stocks accumulated (ii) The company does not expect the situation to return to normal in the short term, although it believes the worst is already over, (iii) possible pressure in rice prices, which would lead to new selective tariff rises although EBRO is provisioned (depending on the variety until March 2023). In short, bearing in mind the current context, we believe that the results were positive (+1.6% vs. Ibex). However, considering the lack of visibility on the duration of high inflation, we do not expect the stock to gain momentum, and thus, we reiterate our SELL recommendation. T.P. € 17.58/sh. (+9.46% upside).
ENAGAS, SELL
The 1H’22 results were slightly better than we and the consensus expected in Net Profit (€ 164 M vs. € 155 M BS(e) and consensus), whereas if we include the Tallgrass impairment (€ 133.8 M), 1H’22 Net Profit would stand at € 30 M, slightly above our estimate and that of the consensus (€ 25 M). With all this in mind, we expect ENAG to meet its Net Profit’22 guidance of € 380-390 M (in line with BS(e) and consensus), which includes capital gains (sale of stake in Quintero LNG and Morelos, as well as the sale of 30% of Hy24 in the Renewables division) and the Tallgrass impairment. 1H’22 EBITDA came in at € 392 M, slightly above our estimate (€ 380 M) and the consensus (€ 376 M), meaning a -13% drop vs. 1H’21, although the drop is expected due to the current gas remuneration framework.
Separately, ENAG has reached an agreement with Pontegadea to sell it a 5% stake in ENAG’s renewables division. We expect the details of the deal to be given in the conference call.
We expect a slightly positive reception in view of the 1H’22 results being slightly above expectations. So far this year the stock has fallen -2.1% in absolute terms (+2.7% vs. IBEX and -5.6% vs. Redeia), with the worst performance coming in the past month, -4% vs. IBEX and -11% vs. Redeia due to the doubts on the 2022-30 Strategic Plan.


NH HOTELES, BUY.
The 2Q’22 results benefited from one-offs (€ 5 M in govt. aid). Adjusted for this effect, sales were in line with expectations, with EBITDA coming in below due to lower margins (34.2% vs. 36.5% BS(e) and 36.3% consensus, although not far from the 37% seen in 2Q’19), hit by the savings obtained in 2Q’21 in rents that do not apply in 2Q’22. As for debt (pre-IFRS16), it fell by € -136 M vs. 1Q’22, underpinned by the operating recovery, low capex and asset sales. According to NHH, the solid pace of bookings in the business segment for September and October, the return of large events and long-distance international travellers could offset any possible slowdown in leisure demand. With all this in mind, NHH continues to forecast a solid operating trend for the autumn.
Positive results that exceed the figures reached in 2Q’19, with strong cash generation, to which we would have to add a strong outlook for the rest of the year and that, for the time being, has not deteriorated. Thus, we expect a positive reaction, especially given the recent performance (-2% vs. IBEX since 2022 high).

ENCE, BUY.
At yesterday’s session the company released good 2Q’22 Results, marked by one one-off (stemming from regulatory provisions in the renewables division without impact on cash generation) that came in slightly above our expectations in comparable EBITDA (+4% vs. BS(e)) and better in cash generation (€ -10 M of net cash vs. € 22 M of NFD BS(e)) due largely to the better working capital and lower CAPEX. In pulp, EBITDA came in +6% above expectations and in renewables very much in line due to higher production offset by higher operation costs (+12% vs. our estimate due to higher biomass and gas costs).
As for the ruling on the extension of the Pontevedra factory, the company announced that the Supreme Court will make a decision on 04/10 and we assume it will be made public a few days later.
Lastly, the company announced the distribution of a second interim dividend worth € 0.13/sh. (no dividends were paid out in 2021, 4.2% yield), and thus the accumulated dividend totals € 0.184/sh. (5.9% yield). The payment of a third final dividend would be pending. We foresee € 0.32/sh. in FY’22 (10% yield).
Following the +45% rise vs. IBEX in 2022, we foresee a moderately positive or neutral market reaction, as despite the better than expected results, the increase in operation costs in the renewable division is not good news and the estimated duration of the stoppage in the Pontevedra factory due to the lower flow of the Lérez river has not been specified (the share price yesterday slid -1.6% although it had already fell ahead of the earnings release). Conference call at 16:00 (CET).

MELIÁ. 2Q’22 Results in line in EBITDA (ex one-offs) but below in margins. BUY.
2Q’22 Results benefited from one-offs (€ 32 M in government aid). Adjusted for this effect, sales would be above expectations (+10% vs. consensus) with EBITDA in line due to lower margins than expected (25.1% vs. 26% BS(e) and 27.1% consensus), although near 2Q’19 levels (25.9%). Debt fell slightly (pre IFRS16) to € -3.5 M vs. 1Q’22, hit by the dollar’s appreciation. 3Q’22 bookings for resort hotels improved by double-digit levels vs. 2019, with an improvement in the MICE segment for the 4Q’22. In short, we expect a good market reaction specially after the recent performance (-25% vs. Ibex since 2022 highs).

ROVI, BUY.
The 2Q'22 Results were in line with expectations on the operating level (EBITDA € 42 M vs. € 39 M BS(e) and € 38 M consensus) with slightly higher margins (23.7% vs 22.4% BS(e) and 22.2% consensus) and sales growth very much in line (+9.6% vs +9% BS(e) and +8% consensus). The significant slowdown in growth in the quarter (+9.6% vs 2Q'21 vs +58% in 1Q'22) and the sequential EBITDA margins pressure (-1,240 bp vs 1Q'22) was the most remarkable part, and is due to lower filling and packaging activity of Moderna's vaccine and the expenses incurred in the launch of Okedi ISM in Europe (2Q'22). In any case, the lower activity related to Moderna’s vaccine is due to a delay in vaccine shipments from Q2 to Q3 and ROVI maintains its growth guidance for the third-party manufacturing activity (+30%/+40% in 2022 vs +38% BS(e)). ROVI also maintains its guidance'22 (operating income between +15% and +20% (vs +24% BS(e) and +22% consensus)). Better than expected performance of the net cash position that improved by +56 M euros in the quarter to 87 M euros, improving our 58 M euros BS(e)) estimate.
Thus, poor 2Q’22 results and with guidance’22 unchanged for which we do not expect relevant impact despite its poor performance (-17% in 2022; -10% vs IBEX). We maintain a positive stance and expect catalysts to materialize in the short/medium term such as the advance of the development phase of Letrozol ISM, the signing of new manufacturing contracts for third parties and the possibility of new M&A, given its solid financial position (net cash of ~87 M euros).

TALGO, BUY.
According to the press, Renfe’s Board of Directors decided yesterday to claim € 116 M from TLGO (~30% of TLGO’s EV and 15% of the initial contract amount) due to the accumulated delays in Avril deliveries.
Note that on 6 July Renfe announced it was studying the amount of these penalisations and that TLGO announced that the delays were mainly caused by force majeure, among them drops in production and disruptions in the supply chain due to Covid-19 and other geopolitical events, as well as causes outside TLGO’s contrl that are leading to delays in the testing and standardisation processes.
Negative news, given that it confirms Renfe’s intentaion of claiming penalisations, with the amount being quite significant (15% of the contract’s total). Despite the fact that we understand that TLGO will try to avoid the penalisations (or at least reduce them) with the arguments mentioned in the latest communiqué, and thus the amount cannot yet be considered firm, we should point out that the most negative case of the Company having to face the penalisations claimed, the impact on our valuation would be -14% (-25% of current market cap), which would still leave +45% upside. Since Renfe announced its intention of claiming the penalisations, the company has shed -8% vs. the IBEX (-40% this year).

UNICAJA. Results above expectations. We expect positive share price reaction (stock is down -18% from 2022 highs). 5.5% RoTE vs. 0.4x P/TE. BUY.
The company has obtained € 105 M of Net Profit (+191% vs. 2Q’21), around +30% above expectations thanks to better performance in all headlines. Revenues improved by +10.6% vs. 2Q’21 (vs. +8% vs. consensus) thanks to better NII performance (+0.4% vs. 2Q’21 and +13.8% vs. 1Q’22 and vs. +9% consensus and +0.5% BS(e)) on both the greater contribution from the ALCO portfolio (already known) and the improved customer spread. Costs continue the expected trend (-9.5% vs. 2Q’21). CoR was reduced to 27bps (vs. ~35bps expected, in line with 1Q’22), and the CET1 ratio improved 20bps on the quarter to 12.76%.