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IBERIAN DAILY 07 APRIL (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, ALMIRALL, LÍNEA DIRECTA ASEGURADORA, MERLIN PROPERTIES, REPSOL.


MARKETS YESTERDAY AND TODAY

This market is on fire!
European stock markets saw new gains on Tuesday, renewing their annual highs despite the fact that crude oil fell again due to the increased supply from OPEC+, the rise in Iran’s output and the threat of a new Covid-19 wave. In the Euro STOXX, in general, value outperformed growth given the rise in debt markets. Thus, Travel&Leisure and Food were the best performers while only Telecommunications and Energy (given the sharp drop in crude oil prices) ended with losses. On the macroeconomic level, the IMF raised its forecasts for most of the global economies, expecting a gradual and asymmetric V-shaped recovery. In this regard, it raised its GDP forecast for Spain to 6.4% in 2021 (+0.5pp), keeping that of 2022 at 4.7%, although it will be one of the countries that will take longer to recover. In the rest of countries, we stress the improvement of the US to 6.4% in 2021 (+1.3pp) and to 3.5% in 2022 (+1.0pp) vs. a more stable euro zone, 4.4% in 2021 (+0.2pp) and 3.8% in 2022 (+0.2pp). Lastly, the IMF sees financial vulnerabilities in China. As for data, in the euro zone, the Sentix index rose more than expected in April, while February’s unemployment rate rose to 8.3%. In Mexico, March’s consumer confidence came in better than expected. In Brazil, March’s services PMI fell significantly. In Japan, February’s preliminary leading indicators rose slightly.
What we expect for today
European stock markets would open with slight drops, more focused on the extension of the pandemic despite the fact that J. Biden promised that all adults will be eligible for vaccination on the 19th of April and Europe is expected to speed up the pace so that all countries can vaccinate most of the population in June (in Spain, the president yesterday estimated 70% of the population would be immunised in August). Currently, S&P futures are flat (the S&P 500 ended -0.28% lower vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 18.12). Asian markets are mixed (China’s CSI 300 -0.95% and Japan’s Nikkei +0.1%).
Today in Europe we will learn March’s final services PMI, in the UK March’s final services PMI, in Mexico, January’s fixed investment, in Brazil, March’s inflation, and in the US the Fed minutes and February’s trade balance. Debt auctions: Greece (€ 625 M in 3M t-bills) and Germany (€ 4 Bn in bonds due 2026).


COMPANY NEWS

LÍNEA DIRECTA ASEGURADORA. Capital Markets Day. NO RECOMMENDATION.
LDA has shown the world its DNA, to continue growing more in premiums and more profitably than the sector (>2x technical margin on a recurring basis), which we think is feasible. That said, our estimates already consider a CAGR’20-22 in premiums of +3.8% with a combined ratio of ~86% on average (in the low end of the structural range given of 86-87%). This would leave us with a small change to Net Profit’21-22. One surprise was the payout policy of >70% (>50% BS(e) and sector average), which would mean a yield-21-22 of ~6.5% assuming our Net Profit and valuation reference from the independent expert (€ 1.434 Bn). This reference would be consistent with a S-II target above 180%, and when organic growth normalises (given that inorganic growth is ruled out), all the excess will be paid out. With all this in mind, our preliminary ROE would be ~30% (vs. >25% target floor and vs. ~35% over the past few years), and we would reach a valuation of around +10% above the listing reference at best.

ALMIRALL. A slower recovery. BUY
We cut our estimates for the 2021-23 period by -13% in EBITDA and -25% in Net Profit. As a result, our T.P. falls by -9% to € 15.50/sh. (+23% upside). Thus, we adjust our estimates to ALM’s 2021 guidance (between € 215 M and 235 M of EBITDA), assuming a more conservative scenario in margins going forward (29.1% on average vs. 30.7% previously) due to its operating leverage. Notwithstanding, we maintain our BUY recommendation, as we do not see a structural impact from Covid-19 on the demand for its products, which we expect to recover with the progress of vaccination, or on its pipeline (18% T.P.), to which the market is apparently not assigning full value. Furthermore, its robust financial position (around 1.3x NFD/EBITDA ex pension plans) keeps its M&A capacity unchanged (Bolt-on in dermatology BS(e)).