EUR 100.00 For Business Accounts Only

IBERIAN DAILY 02 JUNE (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, ENAGÁS, FCC, GREENING GROUP, REPSOL, UNICAJA.

Gains return to stock markets, but no strong rally
The European stock markets recovered after the debt ceiling agreement was passed by the House of Representatives and fuelled by the sharp drop in the price index of the manufacturing ISM for May. After three consecutive days of losses, the Ibex led gains in the Euro zone, driven by the banking sector. Thus, within the Euro STOXX, almost all sectors ended with gains, led by Media and Banks, vs. the worse relative performance of Consumer Goods and Real Estate. On the macro side, the ECB minutes did not add much new, ratifying the intention of several members to implement an even more restrictive monetary policy, leaving the door open to additional rate hikes. In this regard, C. Lagarde and L. de Guindos suggested rises of +25bps in June up to 4% whereas F. Panetta confirmed we are near the end of the rate rise cycle. In the Euro zone, May’s inflation slowed more than expected to 6.1% YoY, February 2002’s lows, and the core data also moderated to 5.3%. The final manufacturing PMI was raised to 44.8 thanks to Germany, whereas in Spain/Italy, it fell to 48.4 and 45.9, respectively. In the US, May’s manufacturing ISM fell more than expected, with orders at 42.6, as did prices, from 53.2 to 44.2 (drop in goods prices). Weekly jobless claims increased, but according to May’s ADP survey, private payrolls climbed above expectations. From the Fed, P, Harker was in favour of halting rate hikes for some time given the performance of inflation.
What we expect for today
The European stock markets would open with gains, confident that the Fed will pause rate hikes in June on a slowdown in the US employment figures, and backed by the rally of technology stocks in Asia. Currently, S&P futures are up +0.23% (the S&P 500 ended unchanged yesterday vs. the European closing bell). Volatility in the US fell (VIX 15.66). Asian stock markets are climbing (China’s CSI 300 +1.20%, Japan’s Nikkei +1.10%).
Today we will learn in Spain May’s unemployment data, in the US May’s non-farm employment and in Mexico April’s unemployment rate.


COMPANY NEWS

FCC, BUY.
The company announced yesterday that it has reached an agreement with CPP Investments over the sale of a 24.99% stake in its Environmental Services division (44% of EBITDA’23e; 40% EV) for € 965 M (~28% market cap; 28% NFD). The proceeds will be earmarked for funding strategic opportunities and the group’s corporate needs.
Positive news. The deal implicitly values the division at some € 5.15 Bn EV (below the €~6 Bn mentioned by the press), meaning a 8.3x EV/EBITDA’23e, which in any case stands above our valuation of € 4.19 Bn (6.7x EV/EBITDA’23e). If we were to assume this multiple implied, our T.P. would increase by +16%, although it could increase even higher if we take into account that this is a minority stake without any associated control premium. As for the use of the funds, we see no need to reduce debt given the company’s comfortable position (2.5x NFD/EBITDA as of 1Q’23), meaning that we do not rule out that they can be used to fund M&A moves, especially in the real estate segment (18% EV).

GREENING. We initiate coverage with a valuation range of between € 5.11/sh. and € 11.43/sh.
Greening is a vertically-integrated business group focused on the international market specializing in photovoltaic renewable energy and with a clear approach on industrial self-consumption although it is also present in utility scale projects (with a backlog of 4.2GW). Assuming 500MW of installed capacity in 2025e, EBITDA would grow at a +107% CAGR’22-25. Our valuation of the company, based on installed capacity and the sale price of the RtB backlog, ranges between € 5.11/sh. and € 11.43/sh. The implicit multiples at current trading levels would set EV/EBITDA’23e and P/E’23e at ~23x and 56x, respectively (vs. 13x and 20x on average for its generation peers).

UNICAJA, BUY.
The bank yesterday confirmed the resignation of Manuel Menéndez as CEO and member of the Board of Directors effective as his substitute is appointed. The group also confirmed in its communiqué that it has initiated the process to search a new CEO.
On another note, the press speculates with the possible candidates, reiterating two internal options, Isidro Rubiales (deputy managing director to the Chairman, with responsibilities in Control, Strategy and Supervisor Relations) and Pablo Gonzalez (current CFO of UNI) and two external candidates: Jose Sevilla (Bankia’s former CEO) and Juan Antonio Alcaraz (Caixabank’s former managing director of business).
Expected news that did not have an impact on the share price yesterday (+1.7%, in line with the sector, but below the ~+3% for the rest of Spanish banks). The key will be the appointment of the new CEO and the recomposition of the board of directors with the appointment of 4 independent directors.