EUR 100.00 For Business Accounts Only

IBERIAN DAILY 29 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, CELLNEX, GAS SECTOR, MEDIASET ESPAÑA, NATURGY, SANTANDER, SIEMENS GAMESA.

MARKETS YESTERDAY AND TODAY

Lost session for European stock markets
With the US stock exchanges closed for the holiday, the European stock markets posted slight losses despite macro data coming in as expected. Within the Euro STOXX, Insurance and Real Estate led gains, whereas Autos and Banks saw the biggest drops. On the macro side, in Spain, November’s preliminary inflation climbed in line with expectations, whereas October’s retail sales slowed to 2.4% YoY vs. 3.6% previously. In Germany, November’s preliminary inflation disappointed, repeating October’s 1.1%. In the Euro zone, October’s M3 remained unchanged vs. September’s data (5.6%; raised), above expectations, with consumer and corporate lending accelerating slightly, whereas the economic climate index rose in November (in line with expectations) thanks to the better performance of the services sector. From the ECB, F. Coeure claimed a fiscal policy to fight against climate change, admitting that central banks can provide some help within their area of competence. In Japan, October’s industrial output contracted more than expected, whereas the unemployment rate remained unchanged at 2.4% and November’s Tokyo inflation climbed above expectations. In China, the government threatened to retaliate after president D. Trump signed the Act that backs the Hong Kong protests.
What we expect for today
Stock markets would open with slight losses of around -0.3%. Currently, S&P futures are down -0.11% (the S&P 500 was closed for the holiday). Volatility in the US rose (VIX 11.75%). The Asian markets that are open are falling (Hong Kong -0.49% and Japan -2.08%).
Today we will learn: in Germany, November’s unemployment data; in Spain, September’s current account balance; in the Euro zone, November’s preliminary inflation.

COMPANY NEWS

CELLNEX, BUY
According to Expansión, ORA would be willing to sell a package of some 1,500 sites (mobile phone towers in suburban or rural areas or radioelectric sites on rooftops in cities), with an estimated value of €~250 M. According to this news, the sale process is already in a mature phase, with CLNX and American Tower being the main candidates.
In principle, the deal would make sense and would be positive for CLNX, as the portfolio would have a strategic fit, given that it would strengthen the company’s footprint in Spain (where it already has some 8,700 towers, the EBITDA of which account for 12% of the group’s) and the prices rumoured (€~250 M) would be within the company’s capacity for new acquisitions without making a rights issue (which according to our estimates would amount to € 2.5 Bn). However, in order to precisely determine whether the deal would be positive for CLNX, we should know if synergies can be generated with the current portolio, as well as the terms of the sale (duration, EBITDA, etc.).

NATURGY, SELL
GAS SECTOR
According to the press, yesterday the CNMC agreed (and next week it is expected to be passed by the board) to move forward with a new proposal on remuneration for gas distribution for the 2021-26 period. The reason for this is that the softening announced in early Nov’19 (vs. the proposal from July’19) includes a substantial change in methodology (from remuneration by assets from the original July’19 proposal to remuneration by activities in the new one), and this will mean a new hearing process that will not have enough time to be completed before 31 December’19, the deadline set for the new regulation to be approved.
According to the source’s interpretation of the law, if this timeframe is not met the current regulation will be extended.
Positive news for NTGY, as the fact that the regulatory process is reopened will mean that the stock will, at some point, price in zero cuts in gas distribution (19% EBITDA and 20% EV). This does not change the fact that a new remuneration scheme with cuts will be released at some point in 2020, as the Govt. will avoid an extension of the current system for another 6 years by simply approving a new deadline in order to approve the new 2021-26 remuneration scheme. Although there is plenty of time, we understand that the new regulation could be approved before the summer of 2020.
With all this in mind, the impact would be small and not only because NGY is already trading at the same level as it was before the new regulation and cuts were announced, after it rallied following the CNMC’s softening of the cuts (-45% in gas distribution vs. the July’19 proposal, with the cut standing at -10% vs. -18% from July). Thus, the impact for NTGY was €~95 M annually (-2.1% EBITDA), and thus a scenario of zero cuts in gas distribution will have a very small impact on the valuation (around +2%).