EUR 100.00 For Business Accounts Only

IBERIAN DAILY 01 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, IBERDROLA, REPSOL.

A tough August for the markets
August ended with drops in practically all global stock markets, except in Brazil and Japan. The IBEX, despite falling -2.9%, weathered the storm better than most European indices (Euro STOXX -5.1%, -7.3% since August highs) and the US (S&P500 -4%, -8.13% since August highs), with inflation refusing to let up. Thus, in the Euro STOXX, Travel & Leisure (which along with Basic Materials was the best sector this past month) and Real Estate (the worst, along with Retail) were the best performers, with Energy and Retail posting the biggest losses. In the euro zone, August’s inflation rose more than expected to 9.1% YoY (due mainly to the numbers in Germany and Italy), increasing the possibility of a +75bps rate hike in the ECB’s upcoming meeting. In Germany, the number of unemployed fell more than expected. The Minister of Economy warned that the industry is halting production due to the lack of gas (gas reserves are estimated to be able to last 2 months in Europe) and that we must still assume increased costs with the corresponding loss in competitiveness. In the US, the ADP private employment survey for August slowed unexpectedly. In China, the Caixin PMI for August fell more than expected, below the growth zone (>50). Moreover, the Govt. has confined the city of Chengdu (21 million inhabitants) due to Covid-19 outbreaks.
What we expect for today
European stock markets would open with losses after the Asian session and the growing likelihood of a +75bps rate hike next week from the ECB, with all eyes on luxury and retail companies due to the new closures from Covid in China. Currently, S&P futures are down -0.5% (the S&P 500 ended down an additional -0.97% after the European closing bell). Volatility in the US fell (VIX 25.87). Asian markets are falling (China’s CSI 300 -0.25% and Japan’s Nikkei -1.55%).
Today in the euro zone we will learn August’s final manufacturing PMIs and July’s unemployment rate and in the US August’s manufacturing ISM and weekly jobless claims. Debt auctions: Spain (€ 5 Bn in bonds due 2025, 2032 and 2052).


COMPANY NEWS

ACS, BUY
At yesterday’s closing bell the company announced that it has reached an agreement to acquire 44.65% of the US company Blueridge Transportation Group (BTG), the concessionaire of a 17km segment of the SH-288 highway in Houston (US), which includes two toll lanes per direction, with a duration of 52 years (awarded in 2015). The price is €~900 M (~14% of ACS’s current EV and ~10% of our EV). After the acquisition, the percentage held by ACS totals 66.27%, as previously it held 21.65% (accounted by equity method with a book value of €~70 M). The definitive closing of the deal is subject to meeting certain normal conditions. No financial details of the concessionaire have been given apart from the fact that after traffic was opened in 2020 for the two additional lanes, currently ~14,000 vehicles use them daily of the 160,000 that use the motorway.
Despite the fact that the lack of delivery in executing the strategy of increasing its footprint in transport concessions (following the sale of Cobra) may have been weighing on the stock, and that the deal is of a significant size, the fact that ACS had already anticipated in its results the imminent deal in the US and that, separately, no financial information has been given on the asset (still in a ramp-up phase), and therefore it is impossible to assess the acquisition’s price and impact on P&L and debt (which we understand will now be fully consolidated), this could limit the market impact. Nevertheless, we should point out ACS’s extensive knowledge of the asset (the company is charged with operating and maintaining it at present, in addition to being the company that built it) would help the valuation not to be excessive. Likewise, we should point out that following the sale of Cobra, ACS has a comfortable financial situation (€ -1.21 Bn of net cash as of YE2022 BS(e) before this deal), and thus the acquisition would not mean excessive debt levels for the company. Lastly, we should mention that once the concession has reached maturity, we do not rule out the possibility of it being transferred to Abertis (41% ACS net of minority interests).