EUR 100.00 For Business Accounts Only

IBERIAN DAILY 03 APRIL (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, AENA, AMADEUS, APPLUS, ELECTRICITY SECTOR, IAG, IBERDROLA, INSURANCE SECTOR, REPSOL, ROVI, SANTANDER.

MARKETS YESTERDAY AND TODAY

Stock market rally
New rally in most stock markets worldwide although volatility continues to be high. Unemployment is starting to draw the attention as a first indication of the impact from Covid-19 on the economy. In the Euro Stoxx, Energy and Telecoms led gains while Travel & Leisure and Technology were the worst performers. On the macroeconomic level, the ECB announced the postponement of its revision of the strategic plan 6 months due to Covid-19. In Spain, the job market registered the worst date in its history with 834,000 job destruction and an increase in unemployment by 300,000 people. In the US, jobless claims rallied to record high of 6.65 M, the double than expected (in addition to 3.3 M last week), Mester (Fed) suggests an increase in unemployment to 15% and the Congress office of 10%. February’s trade balance fell in line with expectations while February’s factory orders slowed down above expectations.
What we expect for today
A moderately bearish opening, although the session will be highly marked by the release of the US job market data. Currently, S&P futures are down -1.60% (the S&P 500 ended +0.40% higher vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 50.91%). Asian markets are sliding (Japan -0.8% and Hong Kong -0.92%).
Today in the euro zone we will learn February’s retail sales, March’s employment and the final services PMI, in Spain February’s industrial output and March’s services PMI, in Mexico March’s Consumer confidence, in Brazil’s March’s services PMI and in the US March’s non-farm employment data and March’s non-manufacturing ISM.


COMPANY NEWS

AMADEUS. Accelerated capital increase and convertible bond issuance. BUY
At yesterday’s closing bell the company announced a € 750 M capital increase (placed today with a -4.7% discount vs. yesterday’s closing price; 19.2 M new shares, 4.5% of the capital) and the issuance of a convertible bond for the same amount in view of the uncertainty generated by the impact from Covid-19 on the business (it sees drops of -25%/-30% in 1Q’10 sales vs. -21% sales’20 BS(e) in the central-case scenario). This brings the company’s liquidity to above € 4 Bn, which it believes is enough even in an extremely adverse scenario (improbable) in 2020, which extends to the end of the year the current situation brought about by COVID-19. We think these measures are positive, as they dispel the uncertainty surrounding liquidity and help to maintain the company’s investment grade. Against the current backdrop the discount is not very large, and it has a mildly dilutive effect (-1.4% of T.P. of € 59/sh. in our base-case scenario).

AENA. Art. 49 of RD 11/2020 does not apply to AENA. BUY
Yesterday the company announced that article 49 included in RD 11/2020 authorising the Tax Office to seize the liquidity reserves of regional organisations and other institutions of the public sector does not apply to AENA. In this regard, the company outlines that its stance has been confirmed by the State General Administration through the Tax Office. We welcome the fact that the company specifies the State’s view on this issue, which dispels the rumours generated by the news released by the press. We continue to believe that the dividend (currently suspended until the AGM) is the most likely formula to raise funds (from AENA) by the State.

SANTANDER. Cancels dividend’19. BUY
Yesterday the company announced that it is cancelling the final dividend’19 on the ECB’s recommendation (due to impacts from the pandemic) and under the RD 11/2020 that allows dividends to be withdrawn from the AGM to be held today at 9:30. Thus, the company does not need to reformulate its annual statements. Therefore, the € 0.13/sh. (€ 0.10/sh. in cash + rest in scrip) will be capitalised in reserves (+30bps on CET1 and 11.65% fully-phased-in as of Dec’19). The aim is to call an AGM in Oct’20 (deadline currently indicated by the ECB for the moratorium on dividends) in order to set the new shareholder remuneration policy (which would include the final dividend’19 + that associated with Net Profit’20, which had already been cancelled). The current payout range (40-50% of operating Net Profit) is cancelled. Negative news, although to some extent expected since the ECB’s announcement.

ACS, BUY
From our virtual roadshow yesterday with the Company, we highlight the following points related to the potential impact of the Covid-19 crisis on ACS: (i) they do not see liquidity problems ( € ~8 Bn in cash and € ~6 Bn of credit lines unutilized), (ii) they still have little visibility on the economic impact of the crisis, although they would expect an even greater negative impact on working capital than the impact on P&L and (iii) in principle, the payment of the complementary dividend is expected'19 ( and that of Abertis) this year, next year dividend will depend on how the macroeconomic scenario had evolved and the impact of the crisis on ACS. Lastly, it should be mentioned that today in the press it is published that the Company has included in its annual accounts a mention of the possible impact of Covid-19, where it states that no consequence has been produced, and those will depend on the evolution and extent of the pandemic in the coming months. These impacts, in any case, could be mitigated with the different contractual mechanisms available in each case. Furthermore, ACS comments that it has a financial situation to face these contingencies.
We positively value the messages released regarding liquidity and the payment of dividends, although we are not surprised either. As for the economic impact, the messages today are still very qualitative and provisional, and they also do not show anything that we could not be anticipating. However, we would highlight that the impact of the crisis on working capital may be one of the keys to this exercise since, although today the visibility is still very limited, if we would expect a significant worsening of it. The Company accumulates –51% (-20% vs. IBEX) in the year, which, even in a negative scenario, would leave us a potential above 35%.

ROVI, SELL
As for the impact from Covid-19 on its business, the company made yesterday the following comments:
(i) 1Q’20 sales performed in line with its expectations, and thus it keeps its 2020 growth guidance between 0% and 10%, in line with our estimates (+5.2% BS(e)) and those of the consensus (+6.6%).
(ii) The company confirmed that its low molecular weight heparins (around 50% sales’20 BS(e)) are used as a treatment for Covid-19, and this could offset the sales drop expected due to lower surgeries.
(iii) The production remains unchanged for the time being although it does not rule out delays in the registration and approval process of Doria (phase III Risperidone; ~28% of the T.P.), expected in the 1Q’20 (registration) in Europe and the 2H’20 in the US.
(iv) Its low debt (0.26x NFD/EBITDA’19) and high liquidity (€ 113 M; € 43 M in credit lines not used) place it in an advantageous position to face the crisis (€ 9.1 M maturities in 2020).
Positive news, although expected to some extent. We did not foresee a relevant impact on its heparin franchise (around 50% sales), as the sales drop due to the lower number of surgeries should recover in the 2H’20 with the easing of the confinement measures. However, we could see an impact from Covid-19 on its drugs for non-chronic diseases (15% sales. BS(e)) and on gross margins given the industrial stoppage and China swine flu (that already meant an increase in raw material prices of +4% in 2019), although it would be limited. With this in mind, following its good performance in relative terms since the onset of the crisis (-13%; +21% vs. IBEX), the stock is already pricing the targets of its strategic plan will be met (doubling operating revenues and multiplying recurring EBITDA by 2.5x in 2023).