EUR 100.00 For Business Accounts Only

IBERIAN DAILY 05 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACERINOX, ARCELOR MITTAL, IAG, IBERPAPEL, MERLIN PROPERTIES, RED ELÉCTRICA, SANTANDER, SIEMENS GAMESA, TELEFÓNICA.

MARKETS YESTERDAY AND TODAY

The trade dispute continues to drive the markets
European equity markets rose more than +1.0% to 4-year highs amid the improved tone on the trade war and the possibility that tariffs will not be imposed on the Auto sector. Thus, within the Euro Stoxx the biggest gains came in cyclical sectors linked to international trade, such as Basic Materials and Autos, compared to Food and Utilities, which were among the few sectors posting losses. On the macro side, in Spain car sales rose +6.3% in October despite the drop in diesel vehicle sales. In the euro zone, October’s final manufacturing PMI improved slightly upon the preliminary data due to the positive surprises in Germany and France. In this regard, November’s SENTIX index improved more than expected. In the UK, Boris Johnson’s government announced that the Brexit transition period will not be extended (although the EU has already warned it will have to be extended). In the US, September’s factory orders contracted more than expected, and September’s final durable goods orders came in slightly worse than the preliminary figures. Separately, the US Govt. would be considering the possibility of making the 1% tariff hikes on China (on US$ 112 Bn of goods) retroactive to 1 September. In China, October’s Caixin services PMI fell to 51.1, as expected, whereas in India it rose more than expected to 49.2. In China, the PBoC cut the reference interest rate on 1Y loans by a symbolic -5.0bps. In US business results, Under Armour beat expectations and Sysco was in line.
What we expect for today
European markets would open with new gains of up to +0.3%. Currently, S&P futures are up +0.20% (the S&P 500 was unchanged vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 12.53%). The Asian markets that are open are rising (Hong Kong +0.50% and Japan +1.73%).
Today in Brazil we will learn the minutes from the meeting on 30 October and in the US September’s trade balance and October’s non-manufacturing ISM. In US business results, Arconic, Emerson Electric, PPL and Devon Energy, among others, will release their earnings. Debt auctions: Germany (€ 500 M in I/L bonds due 2030).


COMPANY NEWS

ACERINOX: 3Q'19 Results and T.P. cut. We maintain our BUY recommendation.
Even though the 3Q'19 Results were slightly better than expected (+4% in EBITDA), we cut our estimates for EBITDA’19 by -7% and by -10% on average for 2020/21 due to a weaker price scenario than expected in Europe. Our figures are -8.5% below those of the consensus, which we believe will have to be cut further. We cut our T.P. by -14% to € 9.80/sh. The upside potential stands at +14%, and thus we maintain our BUY recommendation, with the main drivers being a US-China trade agreement and, especially, more robust protectionist measures in Europe (which must no be ruled out, even if they do not appear imminent).

IBERPAPEL. Poor 3Q’19 results, although slightly above expectations in EBITDA. SELL.
The company released mixed 3Q’19 results, where sales were slightly below expectations (-10.6% vs. -9.7% BS(e)), but EBITDA came in above (-11.2% vs. -15.2% BS(e)) thanks to better margins (16.2% vs. 15.1% BS(e) and 16.3% in 3Q’18). The EBITDA growth IBG should present in 4Q’19 in order to meet our current estimates would be +13%, which we see as quite demanding. Thus, we will wait to see the messages given on paper prices and the Hernani project in the conference call (10:00 CET) in order to see how much we will have to cut our estimates (it could be up to -5% in EBITDA’19e / -4% on the T.P.) and whether or not we will change our recommendation. Despite the risk of a change, we expect a slightly positive reception by the market following the -16% underperformance vs. the IBEX over the past 3 months.

TELEFÓNICA. Below consensus estimates due to a large provision in Spain. Solid sales and debt. BUY.
The results were in line with our estimates and slightly below the consensus in EBITDA, due mainly to the performance in Spain (larger provision). FCF as of 9M’19 totals € 4.15 Bn (+40.3% vs. 9M’18), allowing NFD to be reduced to € 38.29 Bn (better than expected), which would stand at € 37.6 Bn including the asset sales that have not yet been finalised. The company has reiterated its guidance’19. In these results we highlight the solid performance in sales (accelerating in Spain, Germany and Brazil) and the larger debt reduction than expected. On the negative side would be the EBITDA generation below the consensus, leaving the achievement of the EBITDA guidance in the hands of a strong improvement in 4Q’19 (which we think is possible, but which could increase doubts).

SIEMENS GAMESA, SELL
The 4Q’19 results came in below expectations in sales (+12.4% vs. 4Q’18; +15.2% BS(e) and +14.2% consensus), leaving the year’s sales at € 10.22 Bn, at the low end of the guidance (between € 10 Bn and € 11 Bn). Adjusted EBIT pre PPA and restructuring costs were +7% above our estimate (+1% vs. consensus), although resulting in a margin of 7.1% for the full year, also at the low end of the guidance (between 7.0% and 8.5%). Cash net as of YE came in at € 863 M, above expectations (vs. € 606 M BS(e) and € 570 M consensus).
For 2020, SIE expects sales between € 10.2 Bn and € 10.6 Bn, an EBIT margin of between 5.5% and 7%. These numbers compare with our estimates and those of the consensus, which stand at € 11 Bn and € 10.63 Bn in sales, respectively, with margin levels of 7.9% and 7.5%, respectively.
MARKET IMPACT
Even if these results are positive in that they are within the company’s guidance range, above our adjusted EBIT estimate and clearly better in cash generation, the guidance given is negative, and given that the company has accumulated a +6% outperformance vs. the IBEX over the past month (+7% so far this year), we expect a negative reception.