EUR 100.00 For Business Accounts Only

IBERIAN DAILY 22 APRIL (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, RESULTS HIGHLIGHTS, SIEMENS GAMESA.

MARKETS YESTERDAY AND TODAY

Oil taking its toll
The new plunge in oil prices (Brent -26%) dragged down the main European markets, which ended up falling more than -3%. In the Euro Stoxx, all the sectors ended in the red, with Technology and Construction performing the worst, whereas Pharma and Travel & Leisure fell the least. On the macro side, in the UK February’s ILO unemployment rate rose to 4.0%. In Germany, April’s ZEW index returned unexpectedly to positive territory in its expectations component, whereas the current situation component fell more than expected. In Italy, the Govt. announced that the progressive withdrawal of confinement measures will begin on 4 May, whereas in Spain it could be delayed until 9 May. In the US, second-hand home sales for March fell slightly less than expected. Yesterday the Senate approved an additional aid package wirth US$ 484 Bn (US$ 380 Bn for SMEs, US$ 75 Bn for hospitals and US$ 25 Bn for tests). In China, Harbin, a city in the north of the country with 10 million inhabitants, has restricted access to the city in view of an outbreak of COVID-19. In US business results, PACCAR and Snap-On released worse earnings than expected, whereas Coca-Cola, Netflix and Philip Morris beat expectations.
What we expect for today
Following the sharp drops yesterday, the markets would open with gains of around +0.5% ahead of the Eurogroup’s meeting tomorrow and the proposal for a € 1.5 Tn ESM fund. Currently, S&P futures are up +0.24% (the S&P 500 was down -0.16% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 45.41%). Asian markets are falling (Japan -1.24% and Hong Kong -0.23%).
Today in the UK we will learn March’s inflation. In US business results, AT&T, Nasdaq and Alcoa, among others, will release their earnings. Debt auctions: Portugal (€ 1 Bn in bonds due 2026 and 2030).

COMPANY NEWS

Results highlights next week.
Of the companies releasing 1Q’20 results in Spain next week, we expect to see a negative impact in Naturgy, where we do not rule out a disappointment in the guidance for the rest of the year. The opposite might be the case in Iberdrola, which could beat expectations and give a positive surprise with respect to the guidance. In CIE, we expect the results to have a positive slant, showing resilience in sales vs. peers after being severely punished on the stock market. Lastly, we would also highlight Santander, not so much because its results will be particularly good, but because they should fuel the stock to a greater extent than those of the rest of the sector after it has underperformed its peers in the last month.

SIEMENS GAMESA. Withdraws 2020 guidance. SELL.
At the closing bell the company announced that it is withdrawing its guidance for 2020 (sales of €10.2-10.6 Bn vs. € 10.52 Bn BS(e) and € 10.26 Bn consensus and an adjusted EBIT margin of between 4.5% and 5.5% vs. 5.1% BS(e) and 5.0% consensus). Currently SGRE cannot reasonably quantify how big the impact from COVID-19 will be. We expect a negative reaction, especially considering the +18% outperformance vs. the IBEX since February highs, and since then the consensus has only cut adjusted EBIT’20 estimates by -10% (remaining within the guidance). In our base-case scenario we expect a -22% cut to EBIT’20 (4.1% margin) and around -5% to our T.P., down to around € 12.40/sh. (which lacks enough upside).

ACS, BUY
The AGM of Abertis (40% ACS and ~15% of our T.P.) agreed yesterday to approve the expected dividend of € 875 M, yet divided it into two tranches: (i) A first tranche corresponding to 50% of the total amount (€ 437 M; € 218 M for ACS), to be paid on 28 April. (ii) A second tranche for the remaining 50%, to be paid in late 2020, which would be subject to assessment by the Board of Directors of the impact from COVID-19 before the end of November through a RES (Rating Evaluation Service) from S&P that at least confirms the company’s current rating (BBB- with a negative outlook).
Unexpected news with a negative slant, although of limited impact for ACS. The AGM’s original proposal included the full payment of the dividend and the messages conveyed by the company (ACS) went in the same direction, meaning that we are surprised at this news. However, the measure adopted (a conditional delay) seems reasonable in view of the recent negative performance of traffic volumes in Abertis in Spain (34% of Abertis’s EBITDA’19), France (34%) and Italy (6%), which have accumulated drops of around -80% in the past two weeks. As for the impact for ACS if 50% of the dividend was not paid at the end of the year, considering that the cash corresponding to the dividend would remain in the subsidiary, (i) it would not have a significant impact on valuation and, (ii) the lower cash inflow in ACS would represent 1.6% of its EV (at the current share price) and 1.7% of gross debt’19 (including factoring and IFRS’16), meaning that the impact would be insignificant in terms of the company’s solvency. In fact, we recall that as of the end of 2019, ACS’ liquidity totalled €~15.2 Bn between cash and unused credit lines vs. debt maturities worth €~5.1 Bn in 2020 (if we are to assume the non renewal of €~2.3 Bn of client factoring in a worst-case scenario). As for Abertis, the company had a liquidity position of €~8.25 Bn vs. debt maturities totalling €~1.8 Bn in 2020.