IBERIAN DAILY 22 SEPTEMBER (ANÁLISIS BANCO SABADELL)
NEWS SUMMARY: ACS, AENA, GRIFOLS, IBERDROLA, OHL.MARKETS YESTERDAY AND TODAY
Europe remains strong in spite of China
The sell-off on European stock markets did not last long, with a strong rally in a session with no big news coming from China. Against a backdrop of sharp rises, in the Euro STOXX Consumer Goods and Financial Services led the gains, with only Media and Basic Materials ending with losses. On the macro side, in its new economic estimates the OECD raised the figures for all large economies like the US, with a GDP of 6.9% in 2021 (+0.4pp vs. May’s forecast) and the euro zone (+0.4pp in 2021 to 4.3% and +0.6pp in 2022 to 4.4%). We highlight the improvement seen in Spain (+0.9pp in 2021 to 6.8% and +0.3pp in 2022 to 6.6%) thanks to the vaccination level reached (almost 90% of the population) and the contribution from European recovery funds, pointing to rising inflation as a risk. In this regard, the BoS also raised its forecast to 6.2% in 2021 (+0.2pp) and 5.8% in 2022 (+0.5pp), and the ministry of Economy, N. Calviño, expects the GDP to return to pre-pandemic levels this year (6 months earlier than expected). In the US, real estate market data beat expectations in August, as did both building permits and housing starts. From the political front, the House of Representatives reached an agreement to suspend the debt ceiling until Dec’22 but the Republican Senators blocked the measure. In China, Evergrande announced that it would pay coupons on 23 September (US$ 84 M pledged), although it has not provided specific payment dates or amounts. Separately, the PBoC carried out significant liquidity injections. In Japan, the BoJ voted 8 to 1 to keep interest rates unchanged at -0.1% and an IRR target of 0% in the 10Y bond yield.
What we expect for today
European stock markets would open flat, awaiting the Fed meeting where the tapering will be announced and that will be made public with the market closed and with slightly more calm regarding China. Currently, S&P futures are up +0.2% (the S&P 500 ended unchanged vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 24.36). Asian markets are sliding (China’s CSI -0.9% and Japan’s Nikkei -0.55%).
Today the Fed will meet. In the US we will learn September’s consumer confidence and August’s second-hand home sales. In debt auctions: Germany (€ 2.5 Bn in bonds due 2036).
COMPANY NEWS
AENA, SELL.
According to the press, a Senate amendment that will be discussed in Congress and will modify Law 16/1987 might change the regulations of the rents of AENA’s commercial spaces. The same sources point out that the objective is to encourage reductions in MAGs in line with the drops in traffic vs. 2019 (-38.9% in August vs. August’19 and -67.8% in cumulative terms in 2021 vs. 2019), although, in order to do so, the motion should be approved by Congress by simple majority. The impact suggested by these sources for AENA varies significantly from € 1 Bn to € 3 Bn depending on whether the rents pending collection are considered (currently in a legal process) since the state of alarm and/or going forward (as well as different traffic considerations).
We recall that AENA’s proposal meant a -50% cut for its tenants until September’21, as well as the suppression of MAG payments in the first state of alarm and that such proposal was rejected by AENA’s large operators (which belong mainly to large business groups that account for 90% of AENA’s commercial rents) given that, among other things, they believe that paying 100% of the tariffs once again after Sep’21 could be excessive.
Negative news that will continue to generate noise on the company and is expected to continue in the short term, especially considering that MAGs payments are in many cases in court.
For our part, beyond the fact that the legal articulation could be debatable (it is not usual for a draft bill to introduce an element that is not addressed in the original text of the Law/1987) and that it is still pending approval by Congress, in practice, if it was approved, it could mean a one-off of over € 200 M in 2021 (~1% of the market cap and 7% of EBITDA’19), meaning that the impact would be small. In the future, if traffic continues to recover at the current pace (-35% vs. 2019 in August, vs. -41% in July and -60.5% in June), the result of these measures would be also limited but it would inevitably change the negotiation of AENA’s contracts with its lessees to offset the lower security in the payment of guaranteed rents, which would balance revenues.
ACS Actividades de Construccion y Servicios is a holding company. Through its subsidiaries, Co.'s activities are divided into the following areas: Construction, engaged in the construction of civil works, and residential and non-residential building construction; industrial services, engaged in the development of applied engineering services, installations and the maintenance of industrial infrastructures in the energy, communications and control systems sectors; services, groups together environmental services, the outsourcing of building maintenance services, logistics and transport services; and concessions, mainly engaged in transport infrastructure concessions.
Aena SME SA, formerly Aena SA, is a Spain-based company primarily engaged in the airports operation. Its activities are divided into four segments: Airports, which comprises Aeronautical subdivision, responsible for the management of airports, jetways, security, handling, cargo and fuel services, among others, as well as Commercial subdivision, including duty-free and specialty stores, restaurant services, car rental, as well as banking services and advertising; Services outside the terminal, which manages real estate assets, such as parking lots, warehouses and lands; International, which comprises operations of Company's subsidiary, Aena Desarrollo Internacional SA, that invests in other airport owners principally in Mexico, Colombia and the United Kingdom; and Others, encompassing corporate activities. It manages tourism, hub and regional airports, as well as heliports and general aviation areas. Furthermore, its destination range comprises Europe, the Americas, Asia and Africa.
Iberdrola is a holding company. Through its subsidiaries, Co. operates in four segments: network business, which includes all the energy transmission and distribution activities, and other regulated activity originated in Spain, the U.K., the U.S. and Brazil; deregulated business, which includes electricity generation and sales businesses as well as gas trading and storage businesses carried on by Co. in Spain, Portugal, the U.K. and North America; renewable business, with activities related to renewable energies in Spain, the U.K., the U.S. and the rest of the world; and other businesses, including the engineering and construction businesses and the non-power businesses.
Obrascon Huarte Lain is an international concession and construction groups based in Spain. Co. maintains significant operations in 30 countries across all five continents. Co. is engaged in hospital and railway construction, transport infrastructure concessions, oil and gas, energy, solids handling and fire protection systems and international contracts. Co.'s operations are organized along four divisions: OHL Concesiones, OHL Construccion, OHL Industrial y OHL Desarrollos. Co. is also engaged in real state project developments of mixed use managed by the international hotel chains.
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