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IBERIAN DAILY 04 FEBRUARY + 4Q’20 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: AEDAS, ALMIRALL, CAF, CELLNEX, ENCE, MELIÁ HOTELS.

At the end of today’s report, and during the entire results season, we will include a presentation with positive and negative results highlights and previews for the 4Q’20 results to be released over the coming days in Spain.

MARKETS YESTERDAY AND TODAY

Stock markets ended once again with gains that should be softened today
The European stock markets ended in the black once again, although gains were softened throughout the second half of yesterday’s session. Thus, the Euro STOXX rose by +0.6%, nearing key levels of 410, with Italian assets standing out (on the arrival of Mario Draghi), and with Autos and Utilities being the best performers vs. the -0.5% drops in Real Estate and Household Goods. On the macro side, in the Euro zone, January’s Services PMI was raised slightly, although Spain’s contracted more than expected, returning to Nov 2020’s levels. Separately, January’s inflation increased far above expectations, both general and core inflation. In the US, the ADP private employment survey doubled the expected job creation figure in January and the ISM non-manufacturing index climbed unexpectedly, hinting at higher GDP growth in 1Q’21 than estimated by the consensus (2.3% QoQ annualised). In US business results, Biogen and QUALCOMM released disappointing results, whereas eBay and PayPal beat expectations.
What we expect for today
The European stock markets would pause for a break following the latest increases and would see a slightly bearish opening, trying to digest the recent rise in interest rates. Currently, S&P futures are down -0.16% (the S&P 500 closed down -0.2% vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 22.91). Asian markets are falling (CSI 300 -0.4%, Japan -1.0%), amid concerns about the short segment of the rate curve in China. .
Today in the Euro zone we will learn December’s retail sales, in the UK the BoE will meet and in the US we will learn weekly jobless claims and December’s final durable goods orders. In US business results, Merck&Co, Snap-on, Philip Morris and T-Mobile, among others, will release their earnings. Debt auctions: Spain (€ 6.75 Bn in bonds due 2026, 2031 and I/L 2033) and France (€ 11 Bn in bonds due 2030, 2036, 2039 and 2052).


COMPANY NEWS

ENCE. Sale of Renewables and rising pulp... only Pontevedra is left. BUY
Following the divestitures in the renewable energy business and given the weakness of the USD, we cut our EBITDA21-23 estimate by -14% on average (+5.6% CAGR’19-23e vs. +17% previously and +9% consensus) and we assume a net recurring pulp price -2% lower than before. NFD’20e improved to € 212 M (vs. € 605 M previously; 3.4x NFD/EBITDA’20e and 1.7x in 2021). Thus, we raise our T.P. by +13% to € 4.31/sh. (+28% upside), as the impact from the divestitures exceeds the cut to pulp. As for the Pontevedra factory, ruling out a scenario of an immediate closure (which we see as unlikely), an unfavourable ruling would have a small impact on our T.P. (around -1%), whereas a favourable ruling would mean +7%, leaving +38% upside.

CELLNEX. Acquisition of SFR’s towers and € 7 Bn capital increase. BUY.
The company initially acquires 10,500 towers for € 5.2 Bn EV and a BTS programme of 2,500 towers for € 900 M. The impact from this deal on year 1 (2022) will be € 320 M of EBITDA IFRS16 (15.2% of CLNX’s total) and € 460 M in 2029. The implicit multiple of the transaction is 13.26x EV/EBITDA (IFRS16 runrate), above 11.6x seen in the latest deals and below the company’s trading multiples of around 23x and ~25x for its US peers. Moreover, the company announced a € 7 Bn capital increase (28.9% market cap). A new pipeline of € 18 Bn was made public (including Holland and this deal). With this capital increase, NFD/EBITDA will be reduced to 5.4x (from ~6.8x previously). With this acquisition, CLNX underscores once more: (i) its ability to carry out deals, and (ii) the existence of many growth options in Europe (new € 11 Bn pipeline after discounting the recent transactions of France and Holland).

AEDAS, BUY.
The results are basically in line with expectations on the commercial front (397 pre-sales in 3Q vs. 405 BS(e)) and above the P&L statement thanks to a higher delivery volume and higher prices. The 3Q’20 deliveries on a stand alone basis totalled 607 units, equivalent to € 211 M (vs. € 186 M BS(e)), with a 28% gross margin. Deliveries through Dec’20 total 920 units while 901 units are completed with first occupation licence awarded, and thus the company should be able to meet its delivery targets (around 1,900 units) in a year with an increasing performance (note that AEDAS changed the end of its fiscal year to March).
As for commercial activities, 99% and 63% of the deliveries expected for the years closed in March’21 and March’22 have already been pre sold, which gives high visibility into the short-term. AEDAS reiterates its delivery guidance for the next few years, although we see that the percentage of deliveries expected for the next two years (2022 and 2023) currently are under construction is 57%, this level stand below what would be lower than desirable.
The share price has risen by +96% from lows but we believe it still has upside. We raise our T.P. by +18% to € 25.10/sh. (+21% upside) after revising the estimated deliveries. We highlight that the company will pay a dividend of € 1.00/sh. at the closing of the year (March 21), equivalent to a 4.8% yield, which we believe is sustainable, based on the company’s prospects for cash generation over the next few years. It is trading at a P/E (12-month) of 9.6x and at a discount of -38% to NAV (vs. -33% for HOME and -63% for MVC).

CAF, BUY
According to the press, Alstom would have brought an appeal before Paris Administrative Court (25/01) and later (01/02) a mediation request asking for the revision of the contract awarded to CAF and Bombardier to supply 146 commuter trains in Paris for € 2.56 Bn (the allocation of the amount is unknown), thus, putting on hold the signature that was expected at the end of January. However, in principle, the RATP (Paris transport administration) would have outlined that it plans that the contract will be executed as it has been awarded and that the regulation does not enable to renegotiate it after being awarded.
Note that prior to the award, Alstom had already appealed the award process and since the 29th of January Alstom already owns Bombardier’s rolling stock manufacturing division. We understand that Alstom prefers CAF is excluded from the contract, as CAF’s increasing presence in contracts in France represents a threat for one of its reference markets.
This news would be negative, in principle, although the client would be apparently in favour of signing the contract under the current terms, this adds uncertainty to the final signing. Note that although the amount for CAF has not been made public, we believe it would be a relevant contract for the company (assuming 50% of the total value of the contract it would mean around 15% of its total backlog). Since the announcement of the contract (13 Jan’21), the share price has fallen -6% (-2% vs. IBEX).