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IBERIAN DAILY 28 OCTOBER + 3Q’20 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: AENA, BANKIA, CAF, CAIXABANK, CIE AUTOMOTIVE, ENAGÁS, ENCE, INDRA, REIT SECTOR, TALGO, UNICAJA.

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’20 results to be released over the coming days in Spain.

MARKETS YESTERDAY AND TODAY

Restrictions aggravate losses
The restrictions implemented in euro zone countries and the lack of news on the fiscal agreement in the US continued to weigh on stock markets. Thus, the Ibex led losses, falling below 6,700pp (first support at 6,400) despite Banco Santander’s good results, whereas the German Dax was the best performer, driven by the Industrial and Technological sectors. Within the Euro STOXX, only Consumer and Household Goods ended in the black, with Energy and Banks posting the biggest losses. In Spain, the 3Q’20 unemployment rate disappointed, rising to 16,2% (vs. 15.3% previously), meaning that it could hit levels of 18% in 2021 and furloughs might have to be extended beyond January 2021. Separately, the 2021 budget includes tax increases aimed at high incomes and rises in corporate, wealth and diesel taxes, as well as limits on rental prices. The US market opened flat and fell gradually as the session progressed despite the positive durable goods orders data for September and the Richmond Fed’s index for October. In US business results, Caterpillar, Merck&Co and Xerox came in better, while Pfizer disappointed.
What we expect for today
The European stock indices would open with losses (the IBEX and ES50 indices to support levels of 6,400pp and 3,000pp) dragged down by expectations of more restrictive lockdowns in France and Germany that could be announced today. Currently, S&P futures are down by -0.5% (the S&P 500 closed unchanged vs. its price at the closing bell in Europe). Volatility in the US increased (VIX 33.35). Asian markets are mixed (Hong Kong +0.1%, Japan -0.2%).
Today we will learn in Spain, September’s retail sales, in the US whole inventories. In Brazil, the BoB will hold its meeting. In US business results, Caterpillar, Invesco and Pfizer, among others, will release their earnings. In debt auctions: Italy (€ 6.5 Bn in 6M T-bills) and Germany (€ 2 Bn in bonds due 2035).


COMPANY NEWS

INDRA. Results came in below expectations in sales but better in EBIT/order backlog and cash. BUY.
The 3Q’20 sales fell -9.8%, below expectations due to the lower sales of Minsait and air traffic (delays). The 3Q’20 EBIT totalled € 69 M (+48.7% vs. 3Q’19), marked by the capital gains from the sale of Metrocall (€ 36 M, already assumed in our estimates). The 3Q’20 cash reached € 51 M (€ 14 M excluding the sale of Metrocall vs. € +1 M BS(e)), above that seen in 3Q’19 (€ -1 M and our estimates) and NFD € 626 M (vs. € 670 M in 2Q’20). The uncertainties that could arise as a result of the worse sales performance should be widely offset by the better figures in cash/margins/order backlog and by the poor share price performance in 2020 (-44% and -14% vs. IBEX).

ENCE. 3Q’20 results in line with expectations and sales at higher prices guaranteed. BUY.
The company released at yesterday’s closing bell poor 3Q’20 results that were very much in line with expectations in EBITDA (-60% vs. 3Q’19) and slightly above in debt (€ 556 M vs. € 569 M BS(e)). We highlight a good performance in cashcost (€ 373/T vs. € 372/T BS(e) for the full year), which is lower than in 3Q’19 and 3Q’20 despite a maintenance stoppage on the quarter. We also welcome the fact that for 2021 the sale of 18% of our estimated sales volume has been ensured at a price +13% higher than the current one. We expect a neutral or slightly positive share price reaction, as these numbers were expected, save for the announcement of guaranteed sales for 2021, especially after the stock has underperformed the IBEX by -12% since February’s highs.

AENA. 9 months'20 Results better than expected, good cost savings level in Q3. BUY
9 months'20 Results better than expected due to a higher accounting record of the MAG and good cost containment, which makes the drop in EBITDA compared to 9 months'19 less than expected (-75.8% vs -78 , 7% BS (e) and -81% consensus). They do not provide a guidance of traffic for 2020 and state that in the current environment (second wave in Europe) they do not see it possible to provide an estimate of when there will be a recovery. All in all, Results of limited impact where we value favorably the containment of costs as well as the fact that they are negotiating waivers for the debt covenants, which will allow them to maintain stability even in a scenario as demanding as the current one.

BANKIA, BUY
The company has released 3Q’20 results showing NII in line with our estimates but above those of the consensus, whereas fee revenues continue to grow at healthy rates (>10%). Thus, it was the rest of headlines (not affecting clients) that led the company to release worse results than expected. As usual, performance in costs was very positive, although this was insufficient, meaning that the jaws continue to be negative. However, the biggest snag came in CoR, as it hints at a structural increase to 35bps in 9M’20 vs. 27bps in the 1H’20, whereas Covid-19 provisions came in at 46bps (as in the 1H’2020). Therefore, total CoR reached levels of ~88bps, very close to the high end of the guidance (90bps) and vs. 78bps BS(e)). The lower revenues not linked to clients and the slightly increased provisions have led to a lower Net Profit than expected. As for capital, we stress a positive performance, with the ratio standing at 15.77% pro forma, that is considering organic growth (23bps) and all regulatory/accounting adjustments (+129bps from the approval of the mortgage portfolio behavioural model, +41bps from IFRS 9 first application, +19bps from software and unrealised adjustments).
We would expect a neutral/slightly positive share price reaction.