EUR 100.00 For Business Accounts Only

IBERIAN DAILY 18 MARCH (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, ANTI-TOB MEASURES, BANKING SECTOR, CONSTRUCTION SECTOR, IAG, INDITEX, SANTANDER, TELECOM SECTOR.

MARKETS YESTERDAY AND TODAY

Fiscal measures give markets a breather
It was a session of gains on both sides of the Atlantic. The fiscal measures called for by the markets are being put into place and the indices rallied in a session of high volatility. In the Euro Stoxx, Telecoms (+10.9%) and Retail led the gains, whereas Real Estate and Travel & Leisure fell the most. On the macro side, in Spain, PM Pedro Sánchez announced a series of economic measures that will mobilise € 200 Bn (approx. 17% of GDP) and the IBEX 35 rose +6.41% (the index that rose the most in the euro zone). Most of this will be public resources, a total of € 117 Bn (10% of GDP), added to the € 18 Bn approved on Thursday. Most of the measures package will not affect budgets, as they are liquidity lines to companies through guarantees and loans in order to prevent a credit crisis, which will total € 100 Bn. The ECB announced that it has lent European banks € 109 Bn to guarantee liquidity to the banking system in view of the coronavirus impact. Thus, the EC has sent a proposal to member states to make regulations on State Aid more flexible to offset the adverse effects of COVID-19. France announced an aid plan worth € 300 Bn including the suspension of basic service payments, social security payments and taxes, rents in some cases and assumption of bank credit, and the finance minister, B. Le Maire, stated that the country will do everything in its power to save the economy, even nationalising companies. The Fed announced, after leaving interest rates at zero and injecting US$ 700 Bn of liquidity into the market through t-bills and mortgage loans, that it will resume its corporate debt purchase programme, readying an aid plan worth US$ 850 Bn. Trump announced a fiscal plan worth US$ 1.2 Tn in tax cuts, possibly a check for all citizens and aids to airlines, as well as moratoriums on mortgage enforcements, and the Secretary of the Treasury warned that unemployment could rise to 20% without government intervention. In the euro zone, March’s ZEW index fell more than expected. In the UK, the ILO unemployment rate beat expectations. In the US, February’s industrial output grew more than expected, retail sales fell more than expected and NAHB real estate confidence fell slightly, as expected. S&P warned on a possible global recession and widespread rating downgrades.
What we expect for today
Stock markets would see a bearish opening following yesterday’s rally, although we cannot rule out that they turn around as the session progresses and fiscal stimulus plans being to sink in. Currently, S&P futures are down -1.54% (the S&P 500 ended +1.76% higher vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 75.91%). Asian markets are falling (Japan -1.68% and Hong Kong -2.94%).
Today in the euro zone we will learn final and core inflation and in the US the Fed will meet, after which J. Powell will speak, and we will also learn February’s building permits.


COMPANY NEWS

BANKING SECTOR. Positive reading of the government’s economic measures due to the public liquidity injection and accounting exception.
The package of economic measures will raise € 200 Bn, 37% of the corporate loan outstanding, of which € 100 Bn would correspond to collateral for corporate loans, € 17 Bn to direct subsidies, and € 83 Bn of private investment. It also includes a moratorium in the payment of mortgage loans (for first homes) for households/businesses/self-employed whose income has been reduced. The moratorium would last as long as the situation of vulnerability. The amount seems to be enough if compared with that announced in Germany (~45% of the corporate loan), France (~27%) or Italy, which should back the banks’ share prices. Thus, the most positive reading is the introduction of the accounting exception: loans in moratorium will not be accounted as NPLs, and therefore they will not necessitate an increase in provisions.

SANTANDER. No noteworthy impact from Covid-19 on 1Q-20 and limited in early 2020 in the base-case scenario
SAN confirmed yesterday that it does not expect a significant impact from COVID-19 in 1Q’20. In 2020, the company believes that it is still too soon to assess the extent of this impact, although if we were to assume V-shaped recovery, we would see a reduction of -5% in Net Profit’20. According to our current estimates, this would mean a drop of around -3% in Net Profit’20 vs. FY2019 (-5% consensus). SAN also confirmed it expects CET1 to come in at the high end of the 11-12% range (and vs. 11.65% in 2019). We welcome these messages, as they should at least bring some calm to the capital situation, the market’s main source of concern on the company. The key, however, will lie in a V-shaped recovery.

ANTI-TOB MEASURES. Govt. shields against opportunistic TOBs stemming from the routs on the stock market
This measure is taken to prevent investors from outside the EU and the European Free Trade Association from being able to take control of Spanish companies in strategic sectors, taking advantage of the current drop on the markets. Specifically, new stakes from these investors of 10% or more of capital are prohibited. Protected sectors are named as infrastructures in energy, transport, water, healthcare, communications, media, data storage or treatment, aerospace, defense, electoral and financial. Furthermore, the Govt. does not rule out the possibility of extending this veto to other sectors. Following these changes, any investment will need the express authorisation of the Spanish Govt.

ACS, BUY
ACS fell yesterday by -3.5% (whereas the IBEX rose by +6.5%), having accumulated a drop of -60% thus far this year (-33% vs. IBEX) and -58% since 20 January, when the disruption from the coronavirus outbreak started. The most significant events from the past few days do not justify this correction:
(i) The announcement of discontinued operations in Middle East (BICC), which meant a reduction of €-400 M in Net Profit and an estimated cash outflow of €-400 M (net of taxes) in 2020, which represents 10% of the current market cap (-4% at the time of the announcement).
(ii) The drop in Dragados’ margins in its FY2019 results, whose impact on the valuation would be small (