EUR 100.00 For Business Accounts Only

IBERIAN DAILY 30 APRIL (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACS, BANKING SECTOR, BBVA, CAIXABANK, CIE AUTOMOTIVE, ENCE, TELEFONICA, UNICAJA.

MARKETS YESTERDAY AND TODAY

Stock markets cheer the results of remdesivir
It was the third consecutive session of gains at both sides of the Atlantic. In Europe, the Ibex 35 saw the biggest gains. In the Euro STOXX, all sectors with the exception of Pharma ended in positive territory with Automobiles and Banks leading gains. On the macroeconomic level, in the euro zone, March’s M3 climbed more than expected while April’s economic climate indicator fell more than expected to lows of 2009 series. In Spain, retail sales dropped more than expected to -14% YoY. In Germany, April’s inflation rose less than expected, although we expect it to fall once again in the coming months. In the US, the 1Q’20 GDP fell more than expected to -4.8% QoQ and March’s pending home sales saw the biggest drops in the past 10 years. The Fed did not announce anything new, but J. Powell announced that they are still working on an aid programme for businesses and SMEs, and he warned on the bearish risks in medium-term growth, suggesting that the Fed will maintain its current policy for some time. In Japan, industrial output for March fell less than expected. In China, the manufacturing PMI fell slightly more than expected, with a sharp drop in external orders (the Caixin PMI came in below 50 once again), whereas the non-manufacturing PMI once again rose unexpectedly to 53.2%, which in any event suggests significant recovery in 2Q’20. In US Results, Facebook, General Electric and Hasbro released worse earnings than expected, Boeing, eBay and Mastercard were in line and Microsoft beat expectations.
What we expect for today
European markets would open with gains of up to +1.0%, encouraged by the results of Gilead’s remdesivir (which speeds up recovery and lowers mortality of Covid-19, although the results are still not statistically conclusive). Currently, S&P futures are up +0.32% (the S&P 500 was up +0.38% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 31.23%). Asian markets are climbing (Japan +2.89% and Hong Kong +0.28%). Today in the euro zone the ECB will meet, we will learn the 1Q’20 GDP and April’s inflation, in Spain, April’s inflation and the 1Q’20 GDP, in Germany April’s number of unemployed and in the US March’s personal outlays and weekly jobless claims. Debt auctions: Germany (€ 4 Bn in 0% bonds due 2030). In US business results, ACNB Corp, Cigna, Village Bank, Comcast and Twitter, among others, will release their earnings.

COMPANY NEWS

ACS. Additional upside. BUY.
We cut our estimates due to Covid-19 and thus, in a scenario of V-shaped recovery, we cut Net Profit’20e by -56% (-50% vs. 2019; -52% consensus) and by -7% on average for the 2021-22 period, which means a CAGR’19-22e of -5% (-8% in a scenario of U-shaped recovery), not returning to 2019 levels until 2024. Based on this scenario, we set a T.P. of € 29.19/sh. (-27% vs. previously; € 25.80/sh. in a scenario of U-shaped recovery), which means an EV/EBITDA ratio’21e of 5.7x (3.8x ex factoring, with minority items at BV vs. historical average of 5.7x) and a P/E’21e of 11.0x (vs. historical average of 11.8x). Despite having beaten the IBEX 35 by +9% from the index highs on 19 Feb, the upside potential is +24% (+10% in a scenario of U-shaped recovery) and therefore, we maintain our BUY recommendation.

BBVA. Mixed 1Q’20 Results, with better performance in Operating Profit but with higher Covid-19 provisions and DPS’20 cancellation. SELL.
Net losses totalled € -1.792 Bn ( vs. € 1.077 Bn BS(e ) and € 939 M consensus) due to higher Covid-19 provisions (€ 1.45 Bn vs. around € 400 M BS(e) and consensus) and goodwill impairment in the US (€ 2.084 Bn). The extrapolated provisions figure means around € 10 Bn in 2020, 40% above our estimates (CoR’20 BS(e) 150bps vs. around 230 implicit), which we believe is excessive, and we assume that BBVA has moved forward most of its impact to 1Q’20. This factor should be specified at the presentation. Recurring Net Profit came in at € 292 M with a better performance of Operating Profit (+14.1% vs. +2.5% BS(e)) and -2% consensus) thanks to NII (+4% vs. around +2% expected), higher trading revenues and cost control. By countries, we see a positive performance in Operating Profit in Spain (+10% vs. 1Q’19) and Turkey (+33%), in line in Mexico (+5%) on higher trading revenues and weak in the US (-5%). CET1 came in at 10.84%, -90bps vs. Dec’19 due to market risks and provisions. The bank cancelled the DPS’20. We expect a mixed reaction, with the message to be unveiled at the presentation being key. We will cut Net Profit/EPS’20 by -40% and our T.P. proportionally to around € 3.60/sh., yielding +13% upside, lower than in other banks in our coverage universe with better risk/return balance. We reiterate our SELL recommendation.

CAIXABANK. 1Q’20 results in line on the NII level, above expectations in fee revenues and costs. € 400 M provision for Covid-19. BUY.
The 1Q’20 results came in totally in line with the consensus estimates on the NII level (-3% vs. 1Q’19), but above expectations in fee revenues (+7.5% vs. 1Q’19, in line BS(e) but +4% vs. the consensus). On the negative side, we stress lower revenues from investees. Good performance in cost control. The company has accounted a provision of € 400 M for Covid-19 (CoR of 84bps), which doubles expectations in 1Q’20, but is in line with the estimates for the full year 8that is € 1.5 Bn; CoR of 70bps and within CABK’s guidance’20 of between 60bps and 90bps). The company abandons the current plan, and gives a single target of costs’20