EUR 100.00 For Business Accounts Only

IBERIAN DAILY 10 JUNE (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, CHANGES IBEX, LAR ESPAÑA, SIEMENS GAMESA, TELECOM SECTOR.

MARKETS YESTERDAY AND TODAY

Mixed markets awaiting the ECB
The European stock markets traded sideways during the entire session, unaffected by the bullish opening in the US, which in the end closed with slight losses. With the US 10Y bond below 1.5%, the more defensive sectors led the gains, and in the Euro STOXX, Pharma and Travel & Leisure (for the second consecutive day) stood out vs. Retail and Autos (which was also the worst performer for the second consecutive day). In Mexico and Brazil, inflation climbed above expectations in May. As for Covid-19, the G7 expects to have 80% of the population vaccinated by the end of 2022 and has pledged to distribute a billion doses to emerging nations over the next 12 months (500 million doses from the US), whereas the UK reported 7,540 new cases, its highest number since February, with the spread of the Delta variant.
What we expect for today
European stock exchanges would open with some bullish bias in a session where higher volatility is expected and where growth could continue to lead gains, with the ECB showing a continuation trend despite its expected higher GDP and inflation forecasts. Currently, S&P futures are up +0.01% (the S&P 500 ended down -0.28% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 17.89). Asian markets are rising (China’s CSI +1.1% and Japan’s Nikkei +0.3%).
Today in the Euro zone, the ECB will hold its meeting. Also we will learn in the US May’s inflation data and the weekly jobless claims. In debt auctions: Italy (€ 7.75 Bn in bonds due 2024, 2028 and 2041) and Ireland (€ 1.25 Bn in bonds due 2029, 2037 and 2045).

COMPANY NEWS

LAR ESPAÑA, BUY
LAR announced yesterday with the markets in session the novation of its investment management agreement (IMA) with Grupo Lar, which includes a cut in the management fee that the latter receives from the vehicle. According to this novation, the IMAG (which was to expire in Jan 2022) will have a 5-year duration until 31 Dec 2026. Highlights from the new contract:
(i) Management or base fee. Starting in 2022, the base fee to be paid to the Managing Company will be 0.62% of EPRA/NAV. Previously, the base fee was calculated as the higher of these two amounts: (i) € 2 M or (ii) the amount resulting from adding both (a) 1.0% of the EPRA NAV (excl. net cash) as of 31 Dec of the previous year to an amount lower than or equal to € 1 Bn, and (b) 0.75% of the EPRA NAV (excl. net cash) as of Dec of the previous year for amounts exceeding € 1 Bn.
(ii) Performance fee. Starting in 2022, the amount to be paid to the Managing Company depending on the annual variation of the EPRA NAV and the Company’s market cap will decrease. Thus, the share that the Managing Company will receive over excess NAV (exceeding 10% in a year) will be 8%, instead of 16%. As regards market cap, the share goes from 4% to 2% on this excess 10%. Additionally, there is a limit equivalent to 1.5x the base fee (meaning that the limit would be ~0.9% of NAV vs. 3% previously).
(iii) Others. There are also changes for the early termination of the contract (with reduced compensations to be paid) and a new fee is included for the execution of works in greenfield projects.
We believe that these changes are positive, as they will reduce the vehicle’s management costs for shareholders, which now seems efficient, although it is true that some investors would have chosen to terminate the IMA to internalise the management of the REIT. Although the accurate quantification of the impact from the new incentive scheme (as it depends on many variables) is complicated, we believe that the reduction of the base fee alone could have a positive impact on the recurring EPS’22 of around +6%.