EUR 100.00 For Business Accounts Only

IBERIAN DAILY 23 JANUARY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, BANKINTER, BBVA, ENDESA, IBERDROLA, NEINOR HOMES, REPSOL, TRAIN SECTOR.

MARKETS YESTERDAY AND TODAY

A mixed bag in global markets
European markets continued to fall (with the exception of Switzerland); by contrast, the US got back on the right track. In the Euro Stoxx, the gains were led by Financial Services and Utilities, whereas Energy and Autos posted the biggest losses, with 15 sectors in negative numbers. On the macro side, in the euro zone, the ECB plans to revise the inflation estimate in order to include climate change. In Italy, L. Di Maio, leader of the Five Star Movement, handed in his resignation and threatened to destabilise PM G. Conte’s Govt. In Spain, the government agreed to raise the minimum wage by 5.5% to € 950, and announced that it will repeal the latest labour reform in two phases. In the US, second-hand home sales rose more than expected in December. In China, the government has isolated Wuhan to contain the coronavirus, which has caused 17 deaths and infected 500 people. In Japan, both exports and imports fell less than expected in December. In US business results, Abbott Industries and Johnson & Johnson beat expectations.
What we expect for today
Stock markets would fall by around -0.5%. Currently, S&P futures are down -0.06% (the S&P 500 was down -0.24% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 12.91%). Asian markets are falling (Japan -0.98% and Hong Kong -2.18%).
Today in the euro zone the ECB will meet and we will learn consumer confidence. Debt auctions: Spain (€ 5.5 Bn in 0% bonds due 2023, 2.15% 2025 and 2.7% 2048) and France (€ 10.25 Bn in bonds due 2023, 2025 and 2027, and I/L bonds due 2028, 2029 and 2047). In US business results, Procter & Gamble, Intel and American Airlines, among others, will release their earnings.

COMPANY NEWS

REPSOL: 4Q’19 Trading statement with refining margin below expectations: US$ 5.60 vs. >US$ 6 BS(e)
We understand that the margin has stagnated at 3Q’19 levels (US$ 5.50) and has not improved due to the lower distillation capacity (85.7% on the quarter vs. 89.5% in 3Q’19) stemming from the longer stoppages (in order to take advantage of the higher margins in 2020). As a result, this would mean expecting adjusted consolidated Net Profit’19 of € 2.23 Bn, which is -5% below our estimate and -3.5% below the consensus. We believe that following the stock’s strong correction (-10% vs. the IBEX and -7% vs. the sector in 3 months), this lower Net Profit level is more than priced in, as the 2020 outlook changes radically with the IMO coming into effect. We expect Net Profit’20 to grow +8% vs. +16% consensus (significantly more optimistic than we are).

BANKINTER. 4Q’19 results above expectations due mainly to core revenues. SELL.
Has released better 4Q’19 results than expected thanks to core revenues (NII + fee revenues), with lending growth excl. Evo of >5% vs. 3Q’19 and a very slight drop in the client spread. Good performance in costs and slight increase in provisions already expected (due to greater commercial dynamism mainly). The FL CET1 ratio, as expected, remains at levels of 9M’19 (11.6% FL). It has met its guidance’19. We expect a positive market reception. Conference call at 9:00 (CET).

NEINOR HOMES, BUY
According to the press, HOME is studying the possibility of creating its own rental business unit to take advantage of a portfolio of some 1,000 homes that to date were marketed as build-to-rent with third parties. The task of finding a buyer for these homes is still ongoing while the Board of Directors of Orion (29% HOME) is, by request (according to the press) studying the possibility of doing so itself.
We welcome HOME entering the rental business on its own, because: (i) we understand that the returns that it could obtain would cover its cost of capital, and looking at rough numbers we estimate that it could build at a yield-on-cost of 5-6% in order to sell on the market at 3-4%, (ii) now there is bank financing for the build-to-rent business, which two years ago was not the case, and thus the equity invested in HOME would be limited to putting up its own land, (iii) there is strong demand for rental homes, a shortage of full-building home portfolios and buyers (insurance companies, investment funds) willing to buy finished homes, and thus we understand that HOME would have no problem selling these assets once they are built.
In any event, we are talking about some 600-1,000 units of a total portfolio of 12,500 as of Sep’19, and thus it is not a decision that will radically change the company’s profile, and it would not affect the business plan already in place (the homes built for rental would not replace those set out in the business plan to be sold directly to consumers).