EUR 100.00 For Business Accounts Only

IBERIAN DAILY 25 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: AENA, ARCELOR MITTAL, IAG, SANTANDER, TELEFÓNICA.

MARKETS YESTERDAY AND TODAY


Markets close flat
European markets closed relatively stable, consolidating the support levels reached on Monday. In the Euro Stoxx, the worst sectors were cyclical ones like Energy and Autos, with defensive sectors like Utilities and Pharma performing the best. On the macro side, in Spain the BoS lowered its expected growth to 2.0% YoY (-0.4pp) for 2019 and to 1.7% (-0.2pp) in 2020. In Germany, September’s IFO recovered slightly more than expected, suggesting growth in 3Q’19 of -1.0% YoY vs. 0.5% expected. In the ECB, F. Villeroy announced that the current situation does not support a reactivation of the QE. In the UK, the Supreme Court ruled a prorogation of the British Parliament unlawful, meaning sessions will resume tomorrow. In the US, the Conference Board consumer confidence index for September fell more than expected, despite the S&P500 nearing highs. Speaking at the UN, Donald Trump criticised the lack of structural reforms being undertaken by China, accusing the country of state subsidies and stealing intellectual property. Separately, N. Pelosi requested Congress launch a formal impeachment inquiry on President Trump due to the Ukraine case, although the move will not pass through the Senate due to the Republican majority. In the Fed, J. Bullard backed new rate cuts with the curve near inversion, although he stated that the cuts could be reversible. In Japan, the BoJ meeting minutes showed its members are growing more concerned about the macroeconomic downturn, with some beginning to call for greater monetary stimuli. In Brazil, the BoB’s meeting minutes left the door open to more rate cuts (moderate ones).
What we expect for today
The markets would open with slight profit taking in view of Trump taking a harder line in the negotiations with China. Currently, S&P futures are up +0.15% (the S&P 500 was down -0.84% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 17.05%). The Asian markets that are open are falling (Hong Kong -1.07% and Japan -0.36%).
Today in the US we will learn August’s new home sales. In debt auctions: Italy (€ 1.5 Bn in 2Y zero coupon bonds and € 500 M in 20Y I/L bonds) and Germany (up to € 3 Bn in 10Y bonds).


COMPANY NEWS

SANTANDER. UK Goodwill partial impairment, first interim dividend’19 and targets maintained. BUY
Highlights from SAN’s announcement yesterday: (i) the partial impairment of the bank’s UK unit’s goodwill totaling € 1.5 Bn (of a total of € 8.23 Bn in 1H’19), admitting Brexit has taken a toll, which is already known. This has no impact on Operating Net Profit or on CET1, as it is deducted from the calculation; (ii) announcement of the first interim dividend’19 payment, € 0.10/sh. to be paid in cash on 1 November (ex date 30 October; payment yield +2.7%, DPS’19 € 0.24/sh. BS(e), around +5% vs. 2018; yield 6.6% BS(e)), in line with expectations; (iii) reiteration of the bank’s commitment to meeting all its targets, among them the dividend with a payout of between 40-50% and that the proportion paid out in cash will be at least the same amount as last year. With all this in mind, the news regarding the goodwill is negative, although it should have a small impact, since it was largely expected.

AENA, SELL
The company announced at yesterday’s closing bell that it will extend its Duty Free and Duty Paid contracts with World Duty Free Group (DUFRY) for a 5-year period (3 year guaranteed plus an annual renewal of 2 years) that will begin on the expiration date of the current contract (30 October 2020). The economic conditions remain the same, save for an annual increase in remuneration of +1.56% in Guaranteed Minimum Profit (vs. +1.9% BS(e)).
We recall that these contracts represent ~8% of AENA’s sales and ~30% of the commercial division’s.
Positive news, as it eliminates the uncertainty on one of the company’s main commercial contracts and evidences AENA’s relevance as a supplier of commercial surface. Note that AENA had the option to compete for this contract, this factor being, in our view, what has forced DUFRY to accept the old conditions (which, on some occasions, the company claimed should be revised downwards), and despite the company not having achieved breakeven of profit sharing (currently only in the part corresponding to Guaranteed Minimum Profit).