EUR 100.00 For Business Accounts Only

IBERIAN DAILY 11 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACERINOX, ALMIRALL, IAG.

MARKETS YESTERDAY AND TODAY

Awaiting the trade agreement between China and the US again
The new doubts on the trade agreement between China and the US following D. Trump’s statement outlining that reverting tariffs to China has not been agreed “yet” led indices to partially erase the gains from the past sessions. In the Euro STOXX, Utilities and Food were the best-performing sectors vs. Banks and Retail that ended with the worst performance. On the macroeconomic level, in Germany September’s trade deficit and exports came in better than expected. In Spain, the socialist party (PSOE) won the presidential elections as a first minority but the political blockade aggravates. Even though the PSOE party manages to rule in minority (with a left-wing coalition), the weakness of this government could result in new elections over a 12/14-month period. In the US, the University of Michigan consumer confidence data rose slightly, still suggesting robust private consumption. In Japan, machinery orders slowed down more than expected in September. In China, October’s inflation rose more than expected (food) while production prices slowed down more than expected YoY. In US Results Ameren was in line and Duke Energy above expectations, among others.
What we expect for today
Stock markets show profit taking of +0.3%. Currently, S&P futures are down -0.28% (the S&P 500 was up +0.22% vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 12.07%). The Asian markets that are open are sliding (Hong Kong -2.93% and Japan -0.26%).
Today is a holiday in the US. In the UK we will learn the 3Q’19 GDP and September’s industrial output and in Mexico September’s industrial output. In US business results, DXC Technology, among others, will release its earnings.


COMPANY NEWS

ALMIRALL. Better 3Q’19 results on the operating level. Guidance maintained. We change our recommendation to BUY.
The 3Q’19 results beat expectations on the operating level (EBITDA +60% vs. +55% consensus and +40% BS(e)) and in Net Profit (-14% vs. -48.9% BS(e) and -32.8% consensus), with debt under control (€~470 M excl. pension plans; 1.6x NFD/EBITDA). The company has left its guidance’19 unchanged. We expect a positive reaction following the stock’s recent performance (-5% vs. IBEX over the past 3 months). We raise our estimates (+3% in sales and +10% in EBITDA) for the 2020-21 period and upgrade our recommendation to BUY. We set a T.P. range of between € 19-21/sh. (+15.4% upside at the midpoint of the range) based on the positive growth profile of its dermatology portfolio (with products in a ramp-up phase) and the incorporation into the T.P. (adjusted for the probability of success) of the main products in the pipeline, Lebrikizumab and KX2-391.

IAG. CMD focused on cash generation. BUY.
In our view, the cut made to some operating targets (growth in ASKs of +3.4% YoY in 2020/23 vs. +6% previously; annual growth in EPS of +10% vs. +12% previously) is in line with market expectations and our estimates. Moreover, the company maintains a message that we believe is appropriate, as it focuses on cash generation. Specifically, the company’s estimated cash outflows 2020/23 are now lower (€-500 M due to lower Capex; as a result of lower capacity levels) and below estimates in terms of contribution to the pension plan (€~500 M annually vs. € 600 M BS(e)), which underpins cash generation (average LFCF target of € 2.1 Bn for 2020-22; ~11% yield) and our valuation. Additionally, it will allow IAG to participate in the consolidation of the sector, while maintaining an attractive shareholder remuneration policy (>6% average yield over the period).

ACERINOX, BUY
Highlights from the conference call on the acquisition of VDM Metals: (i) Rationale behind the deal: The transaction would increase the company’s diversification both on product and regional levels, allowing it to enter a niche market (~0.3 M T vs. ~40 M T of stainless steel) with high stable margins (11% vs. 7.6% in ACS), in which VDM is a leading firm, with a global market share of ~14%. Thus, the weight of the US on the group will be reduced somewhat given that ~73% of VDM’s sales comes from Europe. It would also help in reducing volatility in the business, as it is less dependent on the cycle. (ii) Integration and Synergies: The company believes the integration will be very easy to execute and do not expect any competition issues as it does not have similar products. VDM will account for ~20% of the Group’s EBITDA. ACX believes that synergies will total, at least, € 14 M (~14% of VDM’s EBITDA; with a focus on acquisitions and commercial networks). However, it thinks that the cross-selling of products could generate additional synergies. Therefore, synergies levels of € 14 M are minimal and can be achieved quickly. (iii) Debt: According to the company, the NFD/EBITDA ratio (excl. pensions) will go from € 1.2x to 5%.