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IBERIAN DAILY 18 JANUARY + 4Q’20 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: AENA, ELECTRICITY SECTOR, FERROVIAL, GRUPO C. OCCIDENTE, PRISA, PROSEGUR CASH.

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

Poor US macro data drags down Europe
It was a session of losses in European stock markets, which were worried by the rapid spread of Covid-19 in China and saw the losses grow following disappointing macro releases in the US. December’s retail sales fell more than expected, the Empire manufacturing index and U. of Michigan consumer confidence index for January rose less than expected, whereas December’s industrial output rose more than expected. In the Euro STOXX, all the sectors closed in the red, with Energy and Autos showing the biggest drops compared to Travel & Leisure and Media, which were the best relative performers. In Spain, the election in Catalonia was pushed back, with 30 May the new possible date. In China, the 4Q’20 GDP rose more than expected YoY, with industrial output growing more than expected in December, but retail sales still somewhat weak. In US business results, Wells Fargo was in line, with PNC Financial Services, JP Morgan and Citigroup beating expectations.
What we expect for today
European indices would open with slight drops, but with cyclical stocks exposed to China underpinned by the solid macro data (Arcelor, ACS, Inditex, CIE in Spain, Nokia, SAP, Siemens, Total, ENI, Air Liquide, LVMH, Loreal, Daimler, Volkswagen, BMW and Linde in Europe, among others). Currently, S&P futures are down -0.2% (the S&P 500 closed practically unchanged vs. its price at the closing bell in Europe). Volatility in the US increased (VIX 24.34%). Asian markets are trading with mixed results (CSI 300 +1.1%, Japan -0.9%).
Today in the euro zone the Eurogroup will hold a videoconference and in Brazil we will learn the economic activity index. In Italy there will be a vote of confidence on PM G. Conte in the Senate. Debt auctions: Netherlands (€ 2 Bn in 3M and 6M t-bills) and Germany (€ 6 Bn in 3M and 9M t-bills). In US business results, Charles Schwab, among others, will release its earnings.


COMPANY NEWS

GRUPO CATALANA OCCIDENTE, BUY
According to the press, GCO would have agreed the acquisition of Funeraria Aranguren, which owns 4 funeral parlours in northern Spain (3 in the Basque country and 1 in Burgos), and according to a report from the Funeral Sector developed by the Basque country it would have a market share of around 10%. With this acquisition, it would control 29 funeral parlours, a business where note that the most recent real carried out by GCO was in 2016 with the acquisition of Grupo Previsora Bilbaina for around € 125 M.
Awaiting information on the amount of the purchase, the news would be very positive if confirmed, as it is one of the segments offering higher profitability and, as it has been usual, we assume that GCO will pay a very moderate premium. Premiums in the funeral business in GCO currently total around 15% of those in the Life segment, 5% of the total in the Traditional Business and a symbolic level within the Group although with a CR of around 81% (vs. 95% on average for Non-Life insurance). In this regard we recall that GCO has been carrying out this type of acquisitions to continue increasing its recurring Net Profit by +8/+10% annually, and according to our calculations, it would have around € 400 M for acquisitions, consistent with the dividend payment of around 30% of normalised pay-out and a S-II level that would remain at all times above 200% (213% currently).

FERROVIAL, BUY
According to the press, the Government of Ontario (Canada) would have resumed study on the project to build Highway 413 (GTA West Corridor), a beltway in Toronto that would be an alternative to the 407 ETR (43.23% FER; 57% of the T.P.) and to the 401 (closer to the urban centre). This project, which we recall was initially proposed in 2005, would now be in a study phase pending the initiation of a new reevaluation of its environmental impact (which in principle is not expected before 2022).
If this goes forward, Highway 413 would have a negative effect on traffic flow on the 407 ETR, and it could especially limit its capacity to continue raising tariffs (we expect +2% annually in the medium term). In any event, we highlight that this project would face difficulties due to environmental issues (Highway 413 would go through a protected natural area), and this is why it was rejected in 2015 and has been extremely unpopular. Separately, the project would have a very high cost (which would necessitate financing through tolls), to which we would have to add the doubts surrounding the economic soundness of the project bearing in mind that the existing roads (the 401, but especially the 407 ETR) still have capacity to absorb more traffic. In any case, if the project were to be approved in the end, it would not become a reality for at least 10 years.