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IBERIAN DAILY 25 OCTOBER + 3Q'23 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: AENA, BANKING SECTOR, ELECTRICITY SECTOR, FCC, IAG, METROVACESA, NATURGY, NEINOR HOMES, SANTANDER.

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 3Q’23 results to be released over the coming days in Spain.

Stock markets benefit from higher appetite
European stock markets recovered, driven by the ease in debt yields, the peace efforts in the Middle East and the results of large US technology groups. Thus, in the STOXX 600, Basic Resources led gains (>+2.0%), followed by Consumer Goods and Technology (>+1%), whereas Automobiles and Banks saw the bigger drops. On the macro side, in the UK, August’s job destruction was lower than expected although September’s number of unemployed rose significantly. In Spain, August’s home sales fell -14%. On the political front, a government agreement was reached between the political parties PSOE and Sumar including a 37.5-hour workday, a rise in minimum wage, the extension of paternity leave to 20 weeks (vs. 16 currently), the continuation of taxes in the banking sector and large electricity groups, an increase in public housing. In the euro zone, October’s preliminary manufacturing and services PMI fell again unexpectedly, standing near lows from the past 3 years and suggesting the slowdown in the euro zone in the 4Q’23. However, in the US, October’s manufacturing and services PMI rose unexpectedly, returning to levels consistent with business expansion. In US 3Q’23 Results, General Electric, General Motors, PACCAR, Alphabet (Google), 3M, Microsoft and Coca-Cola came in better than expected, VISA in line.
What we expect for today
European stock markets would open with slight drops, where the macroeconomic data and business results do not act as a driver. Currently, S&P futures are down -0.21% (the S&P 500 ended unchanged vs. the European closing bell). Volatility in the US dropped (VIX 18.97). Asian stock markets are climbing (China’s CSI 300 +0.57%, Japan’s Nikkei +1.14%).
Today in Germany we will learn October’s IFO and in the US September’s new home sales. In US business results, Meta, T-Mobile, IBM, Boeing, O’Reilly and Heineken, among others, will release their earnings. As for auctions, Italy will issue € 4 Bn in bonds due 2025 and I/L bonds due 2029.


COMPANY NEWS

BANKING/ELECTRICITY SECTOR
The agreement between the left-wing parties PSOE and Sumar will review the taxes on the banking sector and utilities with the aim of readapting them and permanently maintaining them once the current application period expires in 2024. According to the press, for the banking sector the agreement could include a modification (currently 4.8% of NII plus bank fees), although this has not been confirmed. All the banks have already accounted in their 1Q’23 accounts the impact’23 from this new tax, which totaled € 373 M for Caixabank, €~220 M for Santander and BBVA, € 156 M for Sabadell, € 77 M for Bankinter and € 67 M for Unicaja. Although our estimates and those of the consensus in general do not include an extension beyond 2024, the truth is that in view of the uncertainty, little by little there has been an increasing likelihood of the worst-case scenario of the tax being extended, which in quantitative terms means around -15% on domestic banks’ profits and around -5% on Santander and BBVA. Yesterday the banks reacted negatively to the news, with drops from -3% in Caixabank to -1.2% in Santander, with a total joint loss of market cap of € -3 Bn. According to our calculations, yesterday’s drops account for ~30% of the impact from extending the tax in perpetuity, which leads us to conclude that the market already considered a probability of ~70%.
The agreement between the left-wing parties PSOE and Sumar will review the taxes on the banking sector and utilities with the aim of readapting them and maintaining them once the current application period expires. Furthermore, the agreement also considers reviving the National Energy Commission (CNE), reviewing climate targets for 2030 and going more in depth in the wholesale electricity market reform in order to resolve the current harmful elements of the current marginal cost pricing system. Negative news that once again raises regulatory uncertainty on the sector. Note that the current tax on utilities would apply during 2023 and 2024 (1.2% of billing obtained by companies with revenues of more than € 1 Bn, excluding the regulated businesses and activities outside Spain, as well as non-mainland) and would be appealed by the main sector players. In any event, we would have to see the readaptation a potential govt. would carry out and the capacity it would have to extend the measure in perpetuity without infringing on European directives. Note that the annual impact on EBITDA for the companies in our coverage universe would be €~200 M in Iberdrola (~1% of EBITDA’23), € 300 M in Endesa (7% of EBITDA’23e), € 300 M in Naturgy (6% of EBITDA’23e) and €~450 M in Repsol (6% of EBIT’23e). Acciona Energía (and its parent company, Acciona), Solaria and Ecoener are unaffected by this tax.
As for the rest of the measures included, they would not be very relevant, as the draft for the update to the National Energy and Climate Plan would already include renewable targets through 2030, whereas the electricity market reform is under way on the European level (expected by 2024) and the room to maneuver on the domestic level would be quite limited.

METROVACESA, BUY
As expected, 9M’23 Results show a drop in revenues given the fall in deliveries in 2023 vs. 2022. 9M’23 deliveries: 982 units (vs. 1,327 in 9M’22). Sales were in line but margins exceeded our expectations. Sales: € 302 M (-14.1% vs. -13.2% BS(e)); EBITDA: € 29 M (-15.0% vs. -28.9% BS(e)). In this trading update, no details on the bottom line of the P&L were given. The company reiterates its FY2023 targets and based on the pipeline of finished homes not yet delivered as of Sept’23 (>800 units) we do not foresee any problems (with around 518 already delivered it would meet the bottom end of the range expected). The performance of 3Q’23 pre-sales on a standalone basis was good and better than we expected: 494 units (vs. 400 units BS(e)), with an absorption rate in line with the average level from the past 4 years. The company also announced a dividend payment of € 0.33/sh. (-20% vs. € 0.40 BS(e), 4.6% yield) and an interim dividend’23 in December (date to be confirmed), and the request by FCC for a spot on the Board. The results are good in our view and reinforce the idea that MVC is outperforming the market on the commercial level, with presales rising over the previous year.

SANTANDER. Slightly better 3Q’23 Results in revenues. The bank keeps its guidance unchanged. BUY.
Results came in slightly better in revenues (+2.1% vs. consensus) and trading revenues (+25.3%), with the 3Q’23 Net Profit exceeding expectations by +2.6%. As of 9M’23 costs grow more than expected (+10% vs. +7.1% BS(e) and +7.7% consensus) due to LatAm. The COR came in at 113bps vs. 108 as of 2Q’23 and 15%). As expected, the CET1 was flat (12.3% vs. 12.2% 1H’23), as dividends and buyback plans absorb the entire organic generation. After its 28% YTD performance, we foresee a very neutral or even slightly negative reaction today given the absence of positive newsflow. Conference Call at 10:00 (CET).