EUR 100.00 For Business Accounts Only

IBERIAN DAILY 28 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, ARCELOR MITTAL, INMOBILIARIA DEL SUR, SACYR, UNICAJA.

MARKETS YESTERDAY AND TODAY

Europe closed the worst week since June
Fears that the rapid contagion in the European peripheral segment could put an end to the macroeconomic recovery added new pressure in European stock exchanges, which were not underpinned by the US, where the new fiscal stimulus programme remains highly divided. Thus, in the Euro STOXX, Travel&Leisure (after the rises of Flutter Entertainment last Friday) and Utilities were the only sectors that climbed while cyclical industries such as Energy and Banks saw again the biggest drops. In Mexico, July’s IGAE economic activity index improved slightly more than expected. In the US, Septembers capital goods orders moderated more than expected although capital goods orders/shipments suggest a rally in capital goods investments of 10% in the 3Q’20 that fuelled the industrial sector, which led gains along with the technological and pharmaceutical sectors. On the political front, Trump has nominated a conservative candidate for the vacancy on the Supreme Court, which might cast doubt in the event of a tight result in the US elections. In China, industrial profits slowed to 19.1% YoY vs. 19.6% previously.
What we expect for today
Stock markets would open with gains close to +2.0% underpinned by cyclical and financial sectors, encouraged by Pelosi’s statement that an agreement over a new fiscal stimulus package is still possible in the US. Currently, S&P futures are up +0.46% (the S&P 500 was +1.3% higher vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 26.38%). Asian markets are climbing (Japan +0.63% and Hong Kong +0.86%), with banks in Hong Kong rising sharply.
Today no relevant references will be released. As for auctions, Netherlands will issue € 2 Bn in 6M T-bills, Germany € 4 Bn in 12M T-bills and Franc € 5.9 Bn in3, 6 & 12M T-bills.


COMPANY NEWS

SACYR. Very negative arbitral award on the Panama case. We cut our T.P. and change our recommendation to SELL.
The long-expected arbitral award on the basalt issue has been negative and the worst among the expected scenarios. Not only does the court not rule in favour of the company in most claims, but GUPC (SCYR 41.6%) will also have to return the money it received as a result of previous rulings. Thus, SCYR will have to pay some € 86 M (7% market cap and 1% EV; it had €>300 M in available loan facilities as of June’20). Following this setback, we no longer think that GUPC (which will lodge an appeal) may receive significant amounts for the claims pending, as this arbitral award would lead the way for the rest. Assuming in our estimates € 0 from future claims and the return of the amounts previously received would have an impact of € 0.59/sh. on our T.P. (-23% vs. previous T.P.). Our revised T.P. is € 2.03/sh. (0% upside). We change our recommendation to SELL.
With this change of recommendation, we remove SACYR from our Small & Medium portfolio after the stock has outperformed the IBEX by +22% (-6% in absolute terms) since we included it in October 2018.

ARCELOR, BUY.
MTS has announced an agreement with Cleveland Cliffs (largest iron ore producer in the US, with which it has supply contracts) over the sale of its US assets for US$~1.4 Bn, of which US$ 505 M will be paid in cash and the remainder in shares in Cleveland Cliffs. Moreover, the latter assumes US$~500 M in liabilities, as well as pension obligations totalling US$~1.5 Bn. The EV of the operation would be US$~3.3/3.4 Bn (~12% of MTS’ current EV, including the pension deficit). We do not have details on the financial aspects to assess the operation, but we believe that it makes sense on the strategic level as it would allow for greater concentration in the US market, as well as greater vertical integration thanks to Cleveland Cliffs’ iron ore assets, from which MTS might continue to benefit while reducing its debt levels by one third. We recall that NAFTA (where the US assets are included) accounts for ~25% of MTS’ EBITDA.