EUR 100.00 For Business Accounts Only

IBERIAN DAILY 18 OCTOBER + 3Q’23 RESULTS. PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, CAF, ELECTRICITY SECTOR, FERROVIAL, TALGO, VIDRALA.

At the end of today’s report, and during the entire results season, we will include a presentation with positive and negative results highlights and previews for the 3Q’23 results to be released over the coming days in Spain.

IBEX on the cusp of 9,300 points
European stock markets weathered the rate hike and closed with slight gains despite the threats by Iran if Israel does not stop its attacks in Gaza. Thus, in the STOXX 600 almost all the sectors closed with losses, led by Construction and Basic Materials, while Energy and Retail were the best relative performers. On the macro side, in Germany October’s ZEW index recovered much more than expected (despite the fact that the current conditions index remained very weak) and suggests a marginal improvement in the IFO. In the euro zone, the 27 member states agreed on the electricity reform, which will foster long-term contracts and seeks to incentivise green energies. In the US, September’s retail sales rose more than expected, suggesting private consumption growing at 2.2% YoY in Q3 (vs. 1.8% in Q2) and September’s industrial output rose more than expected (although the previous data was lowered and the YoY figure remains stagnant). Meanwhile, residential construction sector confidence fell more than expected, returning to Jan’23 lows and suggesting that the sector contraction will continue. In China, the 3Q’23 GDP saw its growth slow less than expected, while retail sales and industrial output for September grew more than expected. On the geopolitical side, the Govt. of Jordan suspended the meeting among the leaders of Palestine, Egypt and the US following the attack on a Palestinian hospital. In US business results, Bank of America and Bank of NY beat expectations, Goldman Sachs was in line.
What we expect for today
European stock markets would open with losses of up to -0.4% in view of the heightened geopolitical risk, but with oil companies performing well in view of rising crude prices. Currently, S&P futures are down -0.14% (the S&P 500 ended down -0.27% vs. the European closing bell). Volatility in the US rose (VIX 17.88). Asian stock markets are falling (China’s CSI 300 -0.64%, Japan’s Nikkei -0.10%).
Today in the euro zone and UK we will learn September’s final inflation, in the US September’s housing starts and in Brazil August’s retail sales. Debt auctions: Germany (€ 4 Bn in bonds due 2033). In US business results, Procter&Gamble, Netflix, Morgan Stanley and Tesla, among others, will release their earnings.


COMPANY NEWS

VIDRALA, BUY
The company released a solid set of results, beating expectations in EBITDA thanks to an easy comparison, with price increases to clients, a drop in energy costs and efficiency improvements. 3Q’23 sales (standalone) € 399 M (+9% vs. +10% BS(e)); EBITDA € 100 M (+114% vs. +102% BS(e)); Net Profit € 51 M (+131%).
The 3Q’23 EBITDA margin on a standalone basis came in at 25.1%, beating our estimate (23.5% BS(e)), although worsening against an excellent 2Q’23 (27.5%). In 3Q’22 the margin was only 12.8%, hit hard by the rising energy costs that the company was not able to offset with price hikes.
NFD ended at € 209 M, +26% vs. Sep’22, due to the rise in working capital and the acquisitions made, but -27% vs. June’23.
Our initial impression is that the results are slightly better than expected. In the conference call (10:00 CET) we will pay close attention to any comments made on how demand is trending (volumes) and the company’s ability to maintain selling prices.

ACS, BUY
At yesterday’s closing bell, the company announced that its subsidiary Abertis (44% ACS after minority items; ~20% of ACS’s T.P.) has been awarded the privatisation process of 192km of toll roads in Puerto Rico (PR-52, PR-66, PR-20 and PR-53) for US$ 2.85 Bn (€ 2.69 Bn, 10% of Abertis’s EV). The deal is expected to be closed before the end of 2023 and no relevant details were unveiled to draw conclusions in terms of valuation beyond the fact that the revenues reported totalled US$ 153 M in 2022 (~3% of Abertis’s sales) and that these grew by +8% in 1H’23.
Simultaneously, ACS announced that the partners of Abertis (ACS and Mundys) will carry out a € 1.3 Bn capital increase in the company (~5% of Abertis’s EV), and thus ACS should provide € 650 M (5% of ACS’s EV). The capital increase will be earmarked not only to face the deal of Puerto Rico (that will also entail bank debt) but also to carry out the acquisition of 56.8% of the SH-288 from ACS (already known) that will be conducted in the end for US$ 1.532 Bn (€ 1.445 Bn, 12% of ACS’s EV), a price not known thus far. According to this information, the capital increase would be also aimed at reinforce the balance sheet to keep the current credit rating (investment grade).
As regards the acquisition of toll roads in Puerto Rico, the fact that Abertis had submitted a bid was already known, and we believe that the deal makes strategic sense, as it contributes to replacing the cashflow from concessions already expired or that will expire over the coming years and in a developed market where Abertis is already present through Metropistas, and thus it already knows it and some synergies could be generated. From a financial and valuation standpoint, no relevant details were unveiled to draw accurate conclusions although we would expect Abertis’s leverage to increase above 7.5x NFD/EBITDA BS(e) (vs. 7.2x previously), whereas that of ACS will not be affected by the acquisition as Abertis is consolidated by the equity method.
As for the announcement of the sale price of 56.8% of the SH-288 to Abertis, even though it was expected to exceed ACS’s acquisition price, note that the price is +35% above the valuation recently used for ACS in the acquisition of 78% (= our valuation), and thus, if we were to assume this price in our model, the T.P. for ACS would rise by +6%.
After the completion of both deals (we assume before the end of 2023), ACS’s NFD/EBITDA’23e would stand at 0.6x (vs. 0.9x BS(e) previously).