EUR 100.00 For Business Accounts Only

IBERIAN DAILY 20 MARCH (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: AENA, APPLUS, BANKING SECTOR, CAF, CAIXABANK, HOME BUILDERS SECTOR, IAG, INDITEX, REPSOL.

MARKETS YESTERDAY AND TODAY

Signs of stability
European stock markets saw some rally, welcoming to a greater extent the ECB’s asset purchase announcement with a more stabilised debt market. Both Lagarde and Guindos stressed that the ECB is ready to do more if necessary. In this regard, Daly from the Fed outlined that the liquidity injected is starting to provide results. In the Euro STOXX, generalised gains, led by the Real Estate sector vs. Retail (the only industry in negative territory) and Automobiles that ended flat. On the macroeconomic level, in the US weekly jobless claims climbed slightly and Philadelphia Fed index deteriorated more than expected, slowing down to negative territory. The cases of coronavirus in the US rose sharply (+40% in one day), while Italy beat China in the number of deaths due to the virus.
What we expect for today
We expect a bullish opening in European markets. Currently, S&P futures are up +0.78% (the S&P 500 was down -0.35% vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 72%). The Asian markets that are open are rising (Hong Kong +3.96%).
Today in the US we will learn February’s existing home sales.


COMPANY NEWS

CHANGES TO OUR EUROPEAN AND SPANISH RECOMMENDED PORTFOLIOS.
On the back of the recent fluctuations on stock markets, we have made some changes to our portfolios. We have included a combination of defensive and cyclical stocks in our portfolios, as we believe that it is too late to take a completely defensive position and too soon to go fully cyclical. Thus, in the European Recommended Portfolio, we include Essilor, Deutsche Post, Munich Re, Philips and Orange. In the European HY Portfolio, we replace AXA with Allianz. In the Spanish Recommended Portfolio, we include Aena, Amadeus and Enagás, remove Merlin and raise the weight of Grifols, Iberdrola and Inditex. We have not made any changes to the 5-Stock Recommended Portfolio, whereas in the 5 High Yield Stock Portfolio, we include Aena and remove Merlin. Lastly, in the Mid&Small Recommended Portfolio, we replace Applus with Enagás. See more details on our Recommended Portfolio report released yesterday.

AENA. The RD measure curbs cash outflows against a backdrop of closed skies. We change our recommendation to BUY.
Although we believe that the impact from the RD (allowing AENA to suspend contracts with suppliers) is not significant, it curbs AENA’s cash outflow against a backdrop of closed skies. In this regard, we belive that in an unfavourable scenario every month without operations would entail losses of between € 100-150 M (cash outflows). Thus, we think that if the situation gets back to normal in the summer, the total impact from Covid-19 could be easily assumed given its current liquidity and low debt levels (2.3x ND/EBITDA). In the light of the prospects that its main shareholder (the State through Enaire; 51% AENA) might need additional funds going forward, we remain confident that the dividend (7.2% yield’20e) will remain stable. All of this, along with the strong share price correction (-40% from February’s highs, -2% vs. IBEX) leads us to change our recommendation from SELL to BUY.

CAF, BUY
According to the press, CAF has reached an agreement with the company committee whereby it will resume operations in its Spanish factories (Irún, Beasain and Zaragoza; of a total of 8 globally) on the 20th of April and avoiding a temporary layoff plan. The hours lost over the days the factories have been closed will be recovered throughout the year (including weekends if necessary or even during 1Q’21), with the company also expected to hire temporary personnel (up to 100 workers) for 4-6 months. Additionally, the Board of Directors and the Executive Committee will receive a -5% reduction to their salaries. Note that on Monday the company announced it would close these factories, as it cannot currently ensure the required safety distances (from COVID-19 protocols) for employees working there. In this regard, the news does not explain why the appropriate conditions for workers in the facilities are now present against the current backdrop of COVID-19 restrictions.
Positive news, although of little impact for the time being. The company’s plan is positive in our view, as if it is able to be carried out, the expected impact on production would be very small (80% upside). We place our T.P. Under Revision vs. € 18.40/sh. previously.

BANKING SECTOR
The banks are awaiting the Cabinet meeting to be held on 25 March in which they would decide on the percentage of the new loans to be granted to bail out companies dragged down by coronavirus will have Govt. backing. However, the decision will not be taken into account by the Govt. alone, given that it will need a green light from the ECB and the EC within the framework of coordination of EU countries affected by COVID-19.
Thus, the Government’s plan to grant € 100 Bn in guarantees with which to face the coronavirus crisis is being negotiated with banks, which would be requesting that this percentage of guarantees be at least 80% of new loans granted.
Positive news if approved, as initially lower percentages were considered (i.e. between 65-70%). That said, if 80% of new loans are granted as a guarantee, this would mean 20% of the loans could enter NPL. If this were so (that this 20% enters NPL status), NPLs in the corporate segment could rise from the current 6.5% to 10%, below the 15% reached in the 2008-09 crisis. Thus, we expect the guarantee scheme on new loans to lower pressure on the sector. Therefore, we expect this scheme to be put into place with the percentage set at 80%, which would be very good news for the sector, eliminating part of the pressure on the share price.