EUR 100.00 For Business Accounts Only

IBERIAN DAILY 28 JULY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, BANKIA, BANKING SECTOR, GRIFOLS, IAG, MELIÁ HOTELS, NH HOTELES, ROVI, TELEFÓNICA.

MARKETS YESTERDAY AND TODAY

Fears of new outbreaks weigh on Spain
European indices ended with slight drops, except the IBEX 35, which fell -1.7%, where the risk of new outbreaks is the greatest. In the Euro STOXX, the best-performing sectors were high-quality cyclicals like Technology and Retail, whereas Travel & Leisure and Banks once again fell the most. On the macro side, in Germany July’s IFO was better than expected and above what the ZEW suggested last week. In Europe, June’s M3 grew, although less than expected. In the US, July’s capital goods orders rose more than expected, suggesting a slightly smaller drop in investments in capital goods than expected. On another note, the republicans have submitted the tax proposal of US$ 1 Trillion to the democrats (with significant cuts in job subsidies) while the new Covid-19 cases in the hardest hit states (Texas, California or Arizona) start to decrease. Meanwhile, the Moderna vaccine and Pfixer would have initiated large scale tests. In US business results, Hasbro released worse earnings than expected.
What we expect for today
It was a session of mixed performance awaiting the Fed’s decision tomorrow and the fiscal agreement in the US. Currently, S&P futures are unchanged (the S&P 500 was up +0.40% vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 24.74%). Asian markets are mixed (Japan +0.1% and Hong Kong +0.5%).
Today in Spain we will learn the 2Q’20 unemployment rate and in the US consumer confidence and Richmond manufacturing index (both July), as well as pending home sales and preliminary wholesale inventories (both June). In US business results, Pfizer, 3M, McDonald’s, Dr. Horton, Visa and eBay, among others, will release their earnings. In debt auctions: Germany (€ 4 Bn in 7Y bonds) and Italy (€ 4.25 Bn in 2Y & 10Y bonds).

COMPANY NEWS

BANKIA. 2Q’20 Results came in better than expected in PPP. 2Q’20 CoR 93bps>70bps guidance’20.BUY.
The 2Q’20 Results beat the consensus especially in fee revenues, with a positive performance of costs that fell significantly. The 2Q’20 CoR came in at 93bps vs. 87bps BS(e), meaning an implicit CoR of around 50bps over the coming quarters to keep its 2020 guidance (70bps), which will be explained at the Conference call. Good performance of FL CET1, which reached 13.27% (+32%bps vs. 1Q’20; +15bps from organic generation and +17bps regulatory impacts) and vs. practically flat we expected. The bank announced potential adjustments of +41bps due to IFRS9 calendar, +19bps on software and +8bps on valuation adjustment, leaving a proforma level of 13.95%. We expected a good reception.

IAG, BUY
According to the press, IAG could announce the acquisition of Air Europa at some point this week, although it is also stated that there are “important details pending that could hinder an agreement”. According to these sources, the deal could be closed at €500-600 M (14% of IAG’s market cap) and vs. the € 1 Bn for 100% of Air Europa’s equity in the initial agreement. It has also been mentioned that the Spanish Govt. has come out in defense of this M&A move.
We still think a move on Air Europa makes strategic sense. Although we think a better scenario for IAG would be for Air Europa to disappear on its own, we think IAG does not wish to run the risk of another competitor taking the asset. As we mentioned in early July, when the deal was speculated under similar terms to those mentioned today, we think a significant change to the price, like the one mentioned and the Government’s support (although we do not know Air Europa’s real financial conditions), could also be an appealing alternative. In any event, the details of the deal will be key to valuing it, and one fundamental element mentioned in the press is that “a reduction to Air Europa’s workforce that would transfer over to Iberia would have entered the discussion”.