EUR 100.00 For Business Accounts Only

IBERIAN DAILY 09 OCTOBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, IBERDROLA, LIBERBANK, PRISA, REPSOL, TELEFÓNICA, UNICAJA.

MARKETS YESTERDAY AND TODAY

Value stocks recover thanks to banks
Global stock markets saw new rises after D. Trump outlined that the agreement among groups is closer (Pelosi continues to demand a wider fiscal plan) and in view of the expectations of J. Biden’s victory in both the Congress and the Senate (blue wave), and amid renewed expectations as regards Kuna’s Covid-19 vaccine. Thus, value stocks outperformed growth and cyclicals defensive companies at both sides of the Atlantic. By sectors, the Euro STOXX saw gains, led by Banks and Energy, while Basic Resources and Retail were among the few industries in the red. In the euro zone, the ECB minutes showed a less positive message than that conveyed at C. Lagarde’s conference, focused on the weakness of inflation. From the Fed, Kaplan and Rosengren demanded further fiscal stimuli. In China, September’s Caixin Services PMI climbed above expectations once again.
What we expect for today
European future hint at a slightly bullish opening, with index nearing resistance levels despite new mobility restriction measures and selective confinements in some French cities and waiting for the decisions to be taken in Madrid (with the possibility of the State of Emergency being declared once again). Currently, S&P futures are up +0.45% (the S&P 500 was up +0.39% vs. its price at the closing bell in Europe). Volatility in the US decreased (VIX 26.36). Asian markets are falling (Japan -0.4%, Hong Kong -0.05%), with China reopening after the Golden Week and banks in Hong Kong showing a relatively poor performance
Today no relevant references will be released. Debt auctions: Italy (€ 7 Bn in 12M T-bills).


COMPANY NEWS

ACS, BUY
CIMIC (77% Hochtief (50.4% ACS) and 44% ACS EBITDA) released at yesterday’s session its 9M’20 Results, hit by the impact from Covid-19. Sales decreased by -13% vs. 9M’19 (in local currency; in line with our estimates), although this represents + 8% vs. 2Q'20. The EBITDA margin increased by +140 bps vs. 9M'19 to reach 16.0% (vs. 15.8% in 1H'20), so that EBITDA fell -4.6% vs. 9M'19 (vs. -9% BS (e); -20% BS (e) for the entire 2020). Net Profit fell -17% vs. 9M’19 (vs. -22% BS(e))..
Operating cash flow before factoring (which has been reduced by € 134 M), leases and CAPEX (which has decreased by -15% vs. 9M’19) fell to AUD 9 M vs. AUD 794 in 9M’19 (AUD 67 M in 1H’20), which we understand would be due, to a great extent, to a worsening working capital position (no breakdown has been given) that would be partially due to an increase in debtors. This implies some deterioration vs. 1H’19, which we estimate at some AUD~400 M. Separately, cash outflows totalled AUD 1.38 Bn (slightly above the 2Q’20 figure) due to the payment of guarantees (already known and included in our estimates) by BICC. Thus, NFD came in at AUD 1.67 Bn vs. AUD-831 M as of the end of 2019, after AUD-177 M in Treasury stock.
On the order intake side, the new awarded contracts are reduced -52% (as a result of the Covid-19 crisis), leaving the backlog at A$ 35.15 Bn (-5% vs. 9M’19; 4.3x sales’20e), a drop partly offset by the incorporation of A$ 3.1 Bn stemming from the acquisition by Ventia (stake below 50%, and thus it does not consolidate, although the proportional part of the backlog does) of Broadspectrum in 2Q’20. However, the company has announced that the operating conditions have improved, providing momentum for Q4.
Lastly, CIMIC has announced that the due diligence to include a partner for the mining subsidiary Thiess has ended, and negotiations are expected to be finalised over the coming days.
On the sales side, the results are not surprising (although they continue to show a slowdown in activity levels due to Covid-19), and we welcome the resilience of margins, which even improve vs. 9M’19 and imply a drop that is still significantly lower than our estimate for the full year. On the cash generation level, we stress the drop in operating cash flow and worsening capital levels vs. 2Q’20, which, under normal conditions, would have remained more stable vs. the previous quarter, although we are not surprised by this. We already expected ACS’ working capital for the full year to worsen, and awaiting the results to be released by the rest of the group, we estimate that working capital levels would still stand below our estimate (€-700 M BS(e) for ACS in 2020). However, the key will lie in the company’s capacity to recover working capital levels in 4Q. As in 1H’20, the effects of the Covid-19 crisis are being felt also in order intake, which has fallen by -52% vs. 9M’19, although a sharp drop in order intake could be expected due to the delay in tenders due to Covid-19. However, we welcome the positive outlook conveyed as regards performance in 4Q. CIMIC ended up +9% in yesterday’s session.