EUR 100.00 For Business Accounts Only

IBERIAN DAILY 15 JANUARY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, ALMIRALL, ELECTRICITY AND TELECOMMUNICATIONS SECTOR, IBERDROLA, LAR ESPAÑA, SIEMENS GAMESA.

MARKETS YESTERDAY AND TODAY

The results campaign kicks off in the US
Stock markets ended with slight losses before the signing of Phase I of the US-China trade agreement, which according to Reuters would include an increase in Chinese imports over the next 2 years (an additional US$ 80 Bn in manufacturing, US$ 50 Bn in energy, US$ 32 Bn in agriculture and US$ 35 Bn in services). In the Euro Stoxx, the best-performing sectors were Consumer Goods and Industrials vs. Basic Materials and Insurance, which closed with the biggest losses. On the macro side, in the euro zone Y. Mersch admitted there are signs that the economy is stabilising. In the UK, Boris Johnson expects a full trade agreement with the EU by the end of the year and ruled out a new Scottish independence referendum. In the US, general inflation rose less than expected in December, in line with the core figure of 2.3% YoY. As for the trade agreement, China would pledge to raise acquisitions by US$ 200 Bn over the next 2 years (additional US$ 80 Bn in manufacturing, US$ 50 Bn in energy, € 32 Bn in farm products and € 35 Bn in services), while the US would keep tariffs on around US$ 370 Bn (250 Bn at 25% and 120 Bn at 7.5% vs. 15.0% prior to the agreement) until after the elections (10 months minimum until the completion of Phase 2 and the demonstration that China has met the commitments assumed). In US business results, Citigroup and JP Morgan beat expectations, with West Fargo coming in below expectations.
What we expect for today
Stock markets would see a slightly bearish opening on the doubts surrounding the trade agreement. Currently, S&P futures are down -0.16% (the S&P 500 closed -0.16% lower vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 12.39%). Asian markets are sliding (Japan -0.45% and Hong Kong -0.51%).
Today in Spain we will learn December’s final inflation, in the UK December’s inflation, in the euro zone November’s industrial output and in the US the signing of Phase I of the US-China trade agreement, January’s Empire index and the Beige Book. In US Results Bancorp, BlackRock, Bank of America and Goldman Sachs, among others, will release their earnings. In debt auctions, Italy will issue syndicated 30Y bonds, Germany € 1.5 Bn of 30Y bonds and Portugal € 1.15 Bn of 6M and 12M T-bills.

COMPANY NEWS

ALMIRALL. Appealing pipeline and M&A capacity. We reiterate BUY.
ALM has a positive growth profile in the short and medium term thanks to the ramp-up of its psoriasis and acne businesses in Europe and the US, respectively, but also in the long term thanks to the performance of the pipeline (23% of our T.P.). We cut our estimates by -3.6% in EBITDA and by -6.7% in Net Profit for 2019-21 to show lower milestones in A. Zéneca (4% of our T.P.), setting a new T.P. of € 20.00/sh. (+33% upside; vs. range of € 19-21/sh. previously). Following the latest drops (-7% vs. Ibex in the past 3 months due to the accelerated bookbuild by its largest shareholder of 6.3% of the share capital in November 2019), the stock is trading at 9.3x EV/EBITDA, meaning a discount of -22% vs. peers that we believe will narrow on better growth expectations (CAGR’19-22 of +8.6% in EBITDA vs. +6% sector).

ELECTRICITY AND TELECOMS SECTOR
According to media sources, the government of Catalonia prepares new taxes of at least €145M per year that could reach €500m for the energy and telecommunications sectors. In the electricity sector it is intended to tax: (i) Energy production due to its environmental impact without excluding the hydro that does not emit CO2. It would affect CCGP of NTGY, nuclear ELE and IBE. Specifically, it involves taxing nuclear plants, which could pay up to 120 M euros per year in the worst case scenario. (ii) And the transport and distribution networks affecting REE and ELE, although the alleged impact would be significantly lower for the networks (4 M euros for REE)
In the telecoms sector it would affect the towers of CLNX and the assets of TEF.
Negative news and in principle difficult to quantify company to company. What does seem clear is that most of these taxes could fall on the production of energy that emits CO2 and here the company with the greatest exposure is ELE (assuming that it paid ~ 80 M euros it would already account for 2% of its EBITDA with a similar negative impact on valuation). Regarding the environmental impact of energy transport / distribution towers and telecommunications towers, unit taxes should be less significant, up to 80% lower depending on the source.
Given the lack of clarity, we believe that the fact that these taxes clearly affect Endesa should motivate a negative reception in the share. In the rest, however, the impact should be more neutral.