EUR 100.00 For Business Accounts Only

IBERIAN DAILY 30 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: AEDAS HOMES, BANKING SECTOR, BBVA, ENDESA, ENAGÁS, MERLIN PROPERTIES, NEINOR HOMES, PRISA.

MARKETS YESTERDAY AND TODAY


Awaiting new catalysts
European markets ended the week with gains amid reduced fears of a trade war after, although the political uncertainty in the US and the possibility of limits being put on US investments in Chinese companies dragged down the S&P 500 at the end of the session. In the Euro Stoxx, the best-performing sectors were Basic Materials and Autos, whereas Pharma and Utilities ended with the worst relative performance. On the macro side, in the euro zone the economic climate indicator fell more than expected in September. In the US, August’s consumer spending slowed (hardly rising) and July’s data was cut slightly, whereas personal income rose above the previous month’s data, with August’s preliminary durable goods orders coming in better than expected (rising), although below the previous month. September’s final University of Michigan consumer confidence rose more than expected (93.2 vs. 92 expected and 89.8 previously). In China, the manufacturing PMI recovered more than expected in September thanks to the large companies (the orders index rose to positive for the first time since April), although it continues to contract, whereas the non-manufacturing index fell slightly more than expected, but remaining at high levels. In Japan, industrial output contracted more than expected in August, whereas retail sales rose more than expected ahead of the rise in VAT.
What we expect for today
The markets would open with a slightly bearish slant amid rumours of possible limitations on US investments in Chinese companies. Currently, S&P futures are up +0.38% (the S&P 500 closed practically unchanged vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 17.22%). The Asian markets that are open are mixed (Hong Kong +0.73% and Japan -0.81%).
Today in Germany we will learn September’s number of unemployed and inflation and in the UK the final 2Q’19 GDP. In debt auctions: France (up to € 4.7 Bn in 3M, 6M and 12M t-bills).


COMPANY NEWS

ENAGÁS. The Council of State does not accept the retribution cuts of CNMC. We change to BUY
According to the press, the Council of State has not admitted the first three circulars of CNMC for processing and asks that it should be the ministry (provisional) who requests such processing for what will have to agree with a CNMC that will be renewed with a new government... In our opinion this will complicate the process and delay the approval of regulatory changes that, affecting the entire sector, is especially positive for ENAG. While Red Eléctrica, Endesa and Iberdrola discount a scenario close to zero cuts and in Naturgy the potential would be +7%. In the case of ENAG, discounting a zero cuts scenario offers a potential of +17% and given the delay we expect in the final regulation we change to BUY. In the most pessimistic scenario of cuts ENAG offers a dividend yield of 8% 2020, 7.4% 2021 and 6.3% 2022.

ENDESA. Coal shutdown pending quantification. SELL
At Friday’s closing bell the company announced its decision to close all its coal plants on the Iberian peninsula (10% capacity / ~5% production). According to the press, ELE could announce an alternative plan of up to € 12 Bn of investments (~38% EV) in renewable energy, which in our opinion could be delayed. Despite the fact that ELE will specify all the impacts on 9M’19 results (05/11/2019), at first glance it should not be more than an accounting adjustment for impairments (€ 1.3 Bn / 87% of Net Profit’19e) with no impact on the dividend (6.3% yield), as it is a one-off. We do not expect an impact on future EBITDA (coal does not contribute). Our only doubt is the level of additional provisions for decommissioning/restructuring: +/- € 100 M would mean +/- 0.4% on the T.P.