IBERIAN DAILY 30 OCTOBER (ANÃLISIS BANCO SABADELL)
NEWS SUMMARY: AENA, ENCE, IBERDROLA, LOGISTA, SANTANDER.MARKETS YESTERDAY AND TODAY
Awaiting the Fed
Stability in the main European indices in a transition session ahead of the Fed meeting to be held today, where a rate cut of 25bps is expected. In the Euro STOXX, Construction and Pharma were the best-performing sectors vs. the drops of Telecoms (dragged down by Orange) and Basic Resources (dragged down by Stora Enso). On the macroeconomic level, in Spain, the deficit of the public administrations came in at 2.08% through August, above the 2019 target (2%). This deviation is explained by the increased spending of Social Security and autonomous regions. On another note, September’s retail sales rose less than expected. In Europe, J. Weidman claimed that the QE should be only used in extraordinary situations. In the UK, the Labour party will finally support the early elections proposed by B. Johnson, which will be held on the 12th of December and will be seen as a referendum to measure the public support of Johnson’s Brexit deal and the no-Brexit promoted by the labour party (but with a leader in question). In the US, October’s consumer confidence was disappointing, falling to March’s lows although the new highs of the S&P500 suggest recovery in the November if the labour market remains solid. In the real estate sector, pending home sales climbed more than expected in September while the prices in the main cities saw the lowest increase since August’12. In US Results Merck&Co, Pfizer, ConocoPhillips, Kellogg and General Motors came in better than expected, Mastercard in line.
What we expect for today
Stock markets would open without a clear direction although with a bearish bias in the light of the news on a possible delay in the signing of the phase I of the agreement between the US and China. Currently, S&P futures are down -0.11% (the S&P 500 was down -0.25% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 13.20%). The Asian markets that are open are sliding (Hong Kong -0.49% and Japan -0.57%).
Today in the US we stress the Fed interest rate meeting, October’s ADP employment survey and the first reading of the 3Q’19 GDP. In Spain we will learn October’s preliminary inflation, in Germany October’s unemployment, in the euro zone October’s economic climate indicator, and in Brazil we will see the Selic rate meeting. In US business results, Moody’s, General Electric, Garmin, Facebook, Motorola and Apple, among others, will release their earnings. Debt auctions: Italy (€ 6.25 Bn in 5, 10 and floating bonds due 2025), Germany (€ 2.3 Bn in 5Y bonds) and Greece (€ 625 M in 6M t-bills).
COMPANY NEWS
3Q’19 Results Highlights in Spain next week.
Of the companies releasing 3Q’19 results in Spain next week, we expect to see a positive impact in: (i) Indra: we expect confirmation of the recovery in margins and growth in sales, which could have a positive impact on a stock that has performed negatively (-18% vs. IBEX) since 12/06 when the interest in ITP was announced (a deal that has since fallen through); (ii) Logista: we expect results without surprises and in line with the guidance (mid/high-single-digit EBIT growth), which could have a positive impact following the poor performance in 2019 (-19% vs. IBEX). On the negative side we would highlight: (i) Acciona: the results would stress the difficulty in obtaining organic growth in 2019, as well as a more complex business structure (lack of strategic focus).
AENA. 3Q’19 Results above expectations in EBITDA. Guidance for traffic’20 announced. SELL.
The 3Q’19 results came in above expectations in EBITDA (+4.6% vs. +3.0% expected) thanks to increased margins (70.3% vs. 69.6% consensus), where acceleration in the International business (5.6% of sales) was key. Despite this positive performance, we expect traffic growth to continue toning down, in line with the estimates made by AENA, which has announced an improvement of +1.1% for 2020 (vs. +4.8% as of 9M’19 and +2.8% BS(e)). Thus, we believe that this would be a base-case scenario, but there is still room for improvement if Spain’s macro data remain stable. However, these targets are assuming a slowdown in the topline, which, in addition to the lack of potential, leads us to maintain our SELL recommendation.
SANTANDER. Releases 3Q’19 results above the consensus in Operating Income. High organic CET1 generation. BUY.
The results were fully in line with our estimates in Operating Income, but +2.2% above the consensus (due to higher fee and trading revenues that more than offset the greater weakness seen in NII, and a better performance of costs). Provisions (CoR and generic) were in line, and the tax rate came in lower. This fact explains the deviation in Net Profit from our estimates (+13% and vs. +22% vs. consensus). By divisions, Spain performed better (due to trading revenues), United Kingdom worse (greater weakness), Brazil in line, and US somewhat below the consensus estimate. The FL CET1 ratio came in at 11.07% (vs. 11.10% BS(e)), as was the case in the 1H’19 with high organic growth (+19%) that offset the increased regulatory costs (-17bps). We expect a positive market reception.
ENCE, BUY
The company released at yesterday’s closing bell poor 3Q’19 Results although quite in line with expectations in EBITDA. Thus, sales fell -8.4% vs. 3Q’18, faring slightly better than expected (-11.1% BS(e) and -12.6% consensus) thanks mainly to the higher sales volume. The 3Q’19 EBITDA came in at € 34.2 M, meaning a sharp fall vs. 3Q’18 (-56.7%), which would be in line expectations (-56.3% BS(e) and -55.6% consensus), although margin would be slightly below expectations (17.0% vs 17.7% BS(e) and 18.3% el cons) due to worse margins in the renewable division. We stress the better-than-expected performance of cash cost (€ 376/t on the quarter vs. € 380/t BS(e)), offset by higher discounts (34% vs 33% BS(e)). Net Profit falls -93% vs. 3Q’18 (in line with expectations) to € 2.8 M. Despite the fact that the results were quite in line with expectations and the stock has underperformed the IBEX by -50% thus far in 2019, we do not rule out a negative or slightly negative market reception, as the drop in EBITDA is highly significant (-57% vs. 3Q’18), and the renewables division has performed worse than expected. We will pay close attention to the conference call to be held today at 16:00 (CET) to hear any messages the management may give on renewables and the higher discounts.
Aena SME SA, formerly Aena SA, is a Spain-based company primarily engaged in the airports operation. Its activities are divided into four segments: Airports, which comprises Aeronautical subdivision, responsible for the management of airports, jetways, security, handling, cargo and fuel services, among others, as well as Commercial subdivision, including duty-free and specialty stores, restaurant services, car rental, as well as banking services and advertising; Services outside the terminal, which manages real estate assets, such as parking lots, warehouses and lands; International, which comprises operations of Company's subsidiary, Aena Desarrollo Internacional SA, that invests in other airport owners principally in Mexico, Colombia and the United Kingdom; and Others, encompassing corporate activities. It manages tourism, hub and regional airports, as well as heliports and general aviation areas. Furthermore, its destination range comprises Europe, the Americas, Asia and Africa.
Applus Services SA is a Spain-based company that provides inspection, testing and quality assurance services. The Company's activities are divided into five segments: Applus+ RTD, which provides non-destructive testing services mainly to the oil industry; Applus+ Velosi-Norcontrol, which offers solutions for technical assistance, supervision, inspection, quality control testing, certification and consulting services mainly to industrial, electrical, oil and telecommunications facilities; Applus+ Laboratories, which focuses on laboratory testing, system certification and product development services within aerospace, industrial and consumer goods sectors, among others; Applus+ Automotive, which is responsible for the vehicle roadworthiness testing services, and Applus+ IDIADA, which delivers design, engineering, testing and certification services mainly to car manufacturers. The Company operates in Europe, Africa, Asia and the Americas.
Banco Bilbao Vizcaya Argentaria is an international financial group, engaged primarily on providing banking services and consumer finance to private individuals and businesses in Spain and Portugal; providing real estate activity in Spain; providing services to international companies and investment banking, capital markets and treasury management services to clients; and providing the banking, insurance and pension businesses in Mexico and the U.S., as well as in South America.
Banco Santander is a holding company, providing a range of financial products. Co.'s products and services include: retail banking business that covers all customer banking businesses; wholesale banking business; as well as asset management and insurance business. Co.'s principal operations are in Spain, the U.K., Portugal, Germany, Italy and Latin America. As of Dec 31 2014, Co.'s total assets amounted to Euro1,266,296,000,000 and total customer deposits amounted to Euro647,627,000,000.
Bankinter is the parent company of a group engaged in banking activities. Services provided include: investment banking; capital market services; financial services insurance; international services such as foreign exchange transactions and travelers' checks; wholesale corporate banking; and retail and private banking services. Co. offers its products and services through the following channels of distribution: branch network; telephone banking, interactive (software) banking; agents; and Internet banking. As of Dec 31 2014, Co. had assets totalling Euro57,332,974,000 and deposits totalling Euro29,966,129,000.
Caixabank is an investment company based in Spain. Co. is involved in investment portfolio management activities across two areas: Services and Financial Business and Insurance. In the services area, Co. provides investment solutions for companies involved in the infrastructure, energy, services and entertainment sectors. In the financial business and insurance area, Co. is engaged in the investments for international banks, insurance and specialist financial services. Co. focuses most of its banking investments in India, China, the U.S., and Central and Eastern Europe with a particular interest in retail banking. Co. is also involved in the disinvestments activities.
CIE Automotive is the parent company of an industrial group formed by several companies that are engaged in the design, manufacture and sale of automobile component and sub-units on the world market. In addition, Co. is also engaged in the bio-fuels business which is in the initial stages of development and is made up of various companies devoted to the production and distribution of bio-fuels.
Fauji Cement is engaged in the manufacturing and marketing of cement.
Ferrovial is a transportation company based in Spain. Co. is engaged in operations in the transportation sector. Co. specializes in the design, construction, management, administration and maintenance of transport infrastructures. Co.'s services range also includes the maintenance of parking lots, and land-, sea- and air-based transport networks. Co. is also engaged in the promotion and operation of short-stay parking lots, parking regulation and management services and promotion and sale of residents' parking.
Fomento de Construcciones y Contratas is the parent company of a group engaged in sanitation services, cleaning, maintaining, purification and distribution of water, construction of highways, hydraulic works, marine works, air and rail transport infrastructure, urban developments, housing, non-residential buildings, office buildings, toll highways, parking garages, marinas and water treatment plants. Co. is also engaged in the manufacture and sale of cement and cement infrastructures, such as precast concrete elements; and in the financial markets, and real estate development, leasing and tourism.
Global Dominion Access SA is a Spain-based company primarily engaged in the construction and engineering sector. The Company's activities are divided into two segments: Multi-technological Services, which offers design, implementation and maintenance of fixed and mobile telecommunications networks, manages sales and distribution processes for telecommunications carriers, as well as renders of inspection, maintenance, repair and renovation services for industrial and energy firms, and Solutions and EPCs, which executes turnkey Engineering-Procurement-Construction (EPC) projects, provides construction, repair and renovation of industrial heating installations, as well as develops processes and other technological and business solutions in numerous sectors. Its services are provided in three areas: Technology and Telecommunications (T&T), Industry and Renewable energies. It operates worldwide in Europe, the Americas, Asia and Africa. The Company is a subsidiary of CIE Automotive SA.
Iberdrola is a holding company. Through its subsidiaries, Co. operates in four segments: network business, which includes all the energy transmission and distribution activities, and other regulated activity originated in Spain, the U.K., the U.S. and Brazil; deregulated business, which includes electricity generation and sales businesses as well as gas trading and storage businesses carried on by Co. in Spain, Portugal, the U.K. and North America; renewable business, with activities related to renewable energies in Spain, the U.K., the U.S. and the rest of the world; and other businesses, including the engineering and construction businesses and the non-power businesses.
International Airlines Group is an international scheduled airline and global premium airlines. Co.'s principal place of business is London with significant presence at Heathrow, Gatwick and London City airports.
Masmovil Ibercom SA, formerly World Wide Web Ibercom SA, is a Spain-based company primarily engaged in the telecommunication sector. The Company focuses on the sale and distribution services for Internet, Data Center and Telecommunications. The Company's product and services portfolio comprises Internet access through Asymmetric Digital Subscriber Line (ADSL) and Symmetric Digital Subscriber Line (SDSL) technologies, Internet domains and Domains Management and Registration Service through IberDNS application, Web hosting, virtual servers, dedicated servers, telephony services and routers. The Company also offers collocation services through two Internet Data Centers located in Madrid and San Sebastian. It operates through subsidiaries, such as Embou Nuevas Tecnologias SL and Ebesis Sistemas SL, among others. The Company owns a number of brand names, such as Pepephone, Yoigo and Llamaya.
Gestevision Telecinco is a television network company based in Spain. Co. heads a group of dependent companies, which form the Telecinco Group. Through its subsidiaries, Co. is engaged in the management and commercial exploitation of a television network. Co.'s television network acquires, produces, and distributes audiovisual content. Co. also sells the network advertising airtime, carried out by its subsidiary. In addition, Co. is involved in the sale of other advertising products; production of news programs; the production and sale of audiovisual property rights; and teleshopping.
Prosegur Cash SA, formerly Prosegur Cit Holding SA, is a Spain-based company engaged in the provision of security services. The Company's activities are divided into three business areas: Logistics, Cash management and Outsourcing. The Logistics division focuses on the provision of local and international transport services of cash and other valuable goods. The Cash management division offers counting, processing, custody, preparation and delivery of notes and coins, as well as replenishment of automatic teller machines (ATMs). The Outsourcing division includes a number of support financial services, such as automation of retail operations through self-service cash automatization machines (MAEs), ATMs management, as well as branch forecasting, reconciliation, settlement and credit card support services. The Company operates through own branches and joint ventures in Europe, Central and South America, Africa, Asia and Australia. It operates through Contesta Teleservicios SAU.
Red Electrica is engaged in the transmission of electrical energy, the operation of the system and the management of the transmission network in the Spanish electricity system. In addition, through its subsidiaries, Co. is engaged in the acquisition, holding and management of foreign securities, co-ordination of international exchanges, provision of telecommunications services for third parties, provision of consultancy, engineering and construction services outside the Spanish electricity system, securing of funds, carrying out of financial transactions and provision of financial services.
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