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IBERIAN DAILY 04 NOVEMBER + 3Q’22 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, BANKING SECTOR, CELLNEX, ELECTRICITY SECTOR, MELIÁ HOTELS, ROVI, TELEFÓNICA.

At the end of today’s report, and during the entire results season, we will include a presentation with positive and negative results highlights and previews for the 3Q’22 results to be released over the coming days in Spain.

The Feed cools expectations
Stock markets posted bigger losses yesterday following the Fed meeting. The Ibex fell below 8,000 points after rallying by 8% in October. Thus, within the Euro STOXX, Banks and Energy led gains, whereas Real Estate and Auto were the worst relative performers. On the macro side, in the Euro zone, September’s unemployment rate fell to 6.6%, as expected. In the United Kingdom, the BoE raised interest rates by 75bps without unanimity (the highest increase in 33 years) to 3%, warning about a very complicated scenario for the economy. In Spain, the number of unemployed fell by 0.9% to 2.9 M, and the Govt. closed a € 10 Bn agreement with Maersk for a green fuel macro-project. In the US, October’s Services PMI climbed unexpectedly, whereas the Services ISM fell more than expected. In US business results, Kellogg’s, Zoetis and Moderna came in worse, Marriot in line and Royal Caribbean Cruises better.
What we expect for today
The European stock markets would open with gains of +0.5%, with a good performance of technology companies. Currently, S&P futures are up +0.50% (the S&P 500 ended -0.76% lower vs. the European closing bell). Volatility in the US dropped (VIX 25.30). Asian markets are mixed (China’s CSI 300 +3.4% and Japan’s Nikkei-1.7%).
Today we will learn in the US the employment data, and in Spain October’s services PMI and September’s industrial production. In US business results, Cboe, Berkshire and Evergy, among others, will release their earnings.


COMPANY NEWS

MELIÁ. 3Q’22 Results above expectations in the main headlines. BUY.
The 3Q’22 Results showed significant business recovery (+3% in sales vs. 3Q’19), coming in above expectations in all the main headings: (i) sales (+82.9% vs. +76.6% BS(e) and +79.7% consensus); (ii) EBITDA (+161.8% vs. +150.4% BS(e) and +154.8% consensus); and (iii) margins (31.1% reported vs. 30.8% BS(e) and consensus), and beating 2019 levels (+82bps). This performance is explained by the 3Q’22 Revpar that rose by +14% vs. 3Q’19 due mainly to prices (+29% vs. 3Q’19). We expect a positive market reaction especially after the recent share price performance (-42% in absolute terms, -37% vs. Ibex and -38% sector since 2022 highs).

ROVI. 3Q’22 Results in line on the operating level. 2023 guidance below expectations. BUY.
The 3Q’22 Results are in line with expectations on the operating level (EBITDA € 58 M vs. € 56 M BS(e) and € 55 M consensus) with slightly higher margins (29.8% vs. 29% BS(e) and consensus) and sales in line (12% vs. +12% BS(e) and +10% consensus). Net cash fell by € -61 M to € 26 M, below our estimate (€ 60 M BS(e)). The company expects to reach the high end of its 2022 guidance of between +15% and +20% revenue growth (vs. +24% BS(e) and +22% consensus), announcing a drop in revenues of between -10% and -20% in its 2023 guidance (vs. +0% BS(e) and +2% consensus), meaning between +5% and +10% vs. 2021, and which would lead to a -10% cut BS(e) in the consensus’ revenue estimate, which we believe would be due to lower Covid vaccine sales (-60% BS(e)) and the delay in the approval of Okedi in the US. The figures provided for 2023 do not imply a significant change in valuation and the stock’s drop yesterday and since its 2Q’22 results (-28% and -26% vs. BIEX) could mitigate the impact.

BANKING SECTOR
Yesterday, the ECB made public its non-binding view on the tax to the banking sector that the government plans to approve before the end of the year. The main conclusions are as follows:
(i) It could affect earnings and capital generation for banks as it is set on revenues and excludes operating costs and NPL provisions, which particularly increase with rate rises. In addition to the financial stability risk, a weak financial system does not enable an efficient transfer of the monetary policy, hitting credit granting in the end
(ii) The fiscal support measures must be addressed to the most vulnerable parties and shall not be used with general budget purposes.
(iii) The implementation to a limited number of companies (those with fee revenues and NII in 2019 > € 800 M) harms competition not only on a domestic level but within the Banking Union.
(iv) The document has some gaps that should be amended as the definition of revenues in the scope of banks does not exactly coincide with the taxable base.
(v) In terms of prices, the ECB recommends banks to pass on all the costs inherent to credit, including fiscal costs. The express prohibition of passing on this tax on customers would be in opposition to the good banking practices.
For all these reasons, it recommends that the Govt. carry out a thorough analysis of any possible negative consequences for the sector in order to prevent it from posing a risk to financial stability, this being particularly necessary in the current situation of economic uncertainty.
The ECB’s conclusions are not surprising, as they are in line with all the arguments against the tax put forward by banks and banking associations. That said, and although it is not binding, we believe that the forcefulness of the report could imply changes in its calculation to take into account not only revenues but also the increase in provisions that the rate hike is expected to entail. We also think that the Govt. will comply with the ECB and will prepare an impact report, which could lead to a delay in the processing of its reform, making it difficult for it to be approved before the end of the year. In any event, share prices already factor in the application of the tax in its current version, meaning that the market reaction should be positive. That said, the tax is moving forward. The Govt. maintains its plans intact, as its position is clear: the report does not propose either the suspension of the tax or that it should not be promoted, but rather puts forward general recommendations that are usual in this type of opinions. Moreover, it defends that the ECB’s request is based exclusively on prudence when assessing the consequences.


TELEFÓNICA. 3Q’22 Results above expectations, good cash generation and 2022 guidance unchanged. BUY.
The 3Q’22 Results came in above expectations in sales (+11.2% vs. 6.8% BS(e) and +7.6% consensus) and EBITDA (-13% vs. -15.1% BS(e) and -14.8% consensus), thanks to T. Germany and Brazil (that already released results), and to HispAm once again. On the domestic market, sales beat our expectations, being in line with the consensus, with +0.2% growth (vs. -0.1% BS(e) and +0.1% consensus), and with EBITDA in line (€ 1.15 Bn). The 3Q’22 FCF also came in above expectations (€ 1.125 Bn vs. € 835 M consensus). With this in mind, we expect a neutral/positive market reaction today thanks to the good cash generation and the confirmation of its 2022 guidance after the -14% share price correction vs. IBEX in the past 3 months (+1% in 2022).