EUR 100.00 For Business Accounts Only

IBERIAN DAILY 30 OCTOBER + 3Q’24 RESULTS. PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: AENA, ENCE, ENDESA, FERROVIAL, GREENING, INDRA, METROVACESA, PUIG BRANDS, REDEIA, 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’24 results to be released over the coming days in Spain.

Market moved by earnings releases
European stock markets closed with slight drops, highly conditioned by the business results calendar and penalised by the new rise in debt yields and the confirmation that today the Chinese EV levies will go into effect. In the STOXX 600, of the few sectors closing in green numbers we highlight Basic Materials and Banks. By contrast, other cyclical sectors like Travel & Leisure and Autos ended with the biggest drops. On the macro side, in Germany November’s Gfk consumer confidence recovered more than expected, and although still in negative territory, it is at its highest level since March’22. In France, the 3Q’24 GDP grew more than expected (effect from the Olympics). In the US, Conference Board consumer confidence rose more than expected in October, with the largest monthly increase since March’21. As for JOLTS job openings, they fell unexpectedly in September. Lastly, housing prices rose more than expected in August. In US business results, Alphabet (Google), Pfizer, Paypal, Visa, Mondelez beat expectations, McDonald’s and Chipotle were in line and American Tower released disappointing earnings.
What we expect for today
Stock markets would open with slight drops that should turn into gains throughout the session with defensive stocks/bond proxies benefiting from the drop in sovereign rates. Currently, S&P futures are up +0.2% (the S&P 500 ended -0.1% lower vs. the European closing bell). Asian markets are mixed (China’s CSI 300 -1.2%, Japan’s Nikkei +1%).
Today in Spain we will learn the first reading of the 3Q’24 GDP and October’s inflation, in Germany October’s number of unemployed, in the euro zone October’s economic confidence index, in Mexico the first reading of the 3Q’24 GDP and in the US October’s ADP job creation and September’s pending home sales. In US business results, Microsoft, Meta (Facebook), Caterpillar, Booking and Kraft Heinz, among others, will release their earnings.


COMPANY NEWS

ENCE. 3Q’24 Results slightly above expectations. OVERWEIGHT
Results came in slightly above expectations thanks to the better performance of the renewable division and clearly better in cash generation whereas despite the significant improvement of the the pulp business vs. the 3Q’23 it is hit by the higher discounts (46% in 3Q’24 vs. 42% in 2Q’24), the (periodic) effect of the interruption of the Pontevedra plant and the cost overrun in the Navia plant (€ 2 M). Thus, 3Q’24 sales grew +28.6% (vs. +26.2% BS(e)) with the 3Q’24 EBITDA totalling € 51.6 M (slightly above our estimate), which provides a positive comparison vs. 3Q’23 (€ -1.8 M), although below the € 65.5 M reported in 2Q’24. On the positive side, we stress the positive cash generation of € 56.2 M seen in 3Q’24 (€ 22.2 in 9M’14), fuelled by a working capital improvement (thanks to lower pulp prices), leaving NFD at € 278 M (in line with the 2Q’24 and 2023) and meaning 1.2x NFD/EBITDA. Results with a mixed reading given the positive performance of the renewable business, cash generation and good comparison in general vs. 3Q’23, tarnished by a negative QoQ comparison given the higher discounts (interruption of the Pontevedra factory, higher spot sales), the negative impact from Navia’s turbine and cash cost hit by higher wood prices. We will cut our estimates assuming lower pulp prices and including the effect of lower cogeneration in Navia although the valuation will continue to yield an appealing upside vs. current levels (>45%), and thus we maintain our OVERWEIGHT recommendation.

ENDESA. 9M’24 results in line. OVERWEIGHT
The 9M’24 results were very much in line with expectations, which would allow the company to meet its annual guidance, which it reiterated (EBITDA of € 4.9-5.2 Bn and Net Profit of € 1.6-1.7 Bn, in line with our estimates and the consensus). Thus, 9M’24 EBITDA came in at € 3.88 Bn (+16% vs. 9M’23, vs. +14.5% BS(e) and +12.7% consensus) and ordinary Net Profit in 9M’24 at € 1.38 Bn (30% vs. 9M’23 and +29% BS(e) and +25% consensus) due to the improvement in the Financial Result. NFD reached € 10.4 Bn in 9M’24 vs. € 10.8 Bn in 1H’24 and the NFD/EBITDA ratio at 2.4x vs. 2.9x in 1H’24. By businesses, we highlight the solid performance in renewables and energy supply within Gx&Cx, as well as the improvement in distribution vs. 9M’23. We would expect a small impact from these results. In the conference call (10:00 CET) the company will reiterate what it has stated regarding meeting its annual guidance, and following the positive Supreme Court ruling on the collection of the compensation from the electricity social tariff (€~150 M), it could come in at the high end of the range. The focus will also be on the new regulation for Networks Spain (and potential new investments) in view of the speculations that financial remuneration could be slightly below 7%. It will also be on the potential extension of the 1.2% tax on sales and the position towards future investments. The company should comment on the possibility of a new increase to the sale of the renewable portfolio to Masdar (400-500 MW), as has been rumoured in the press, or other M&A moves such as an acquisition of Acciona’s hydro assets.

FERROVIAL 3Q’24 results above expectations on the operating level thanks to Construction. Highways slightly below OVERWEIGHT
The 3Q’24 results beat expectations on the operating level (€ 405 M EBITDA vs. € 380 M BS(e) and € 376 M consensus) due to better performance in Construction (€ 140 M EBITDA vs. € 106 M consensus), where margins came in above 5% EBIT in 3Q’24 (vs. 4% BS(e)). Highways came in slightly below expectations (€ 245 M EBITDA vs. € 249 M consensus; +13% vs. 3Q’23) and continues to reflect the impact from construction works in significant assets (NTE and LBJ). Net debt ex infra rose by € 453 M to € 418 M (vs. € 331 M BS(e)) thanks to the greater progress made in the buyback plan. We expect a neutral/negative impact, despite the lacklustre recent performance (-1% since 1H’24 results; -6% vs. IBEX).

INDRA. 3Q’24 results above expectations. OVERWEIGHT
3Q’24 sales grew +9.2% (vs. +7.1% BS(e) and +7.4% consensus), with all divisions reporting growth (ATM +39%; Mobility +24%; Defence: +16% and Minsait +2%). 3Q’24 EBIT totalled € 11 M (+24.2% vs. +13.0% BS(e) and +13.6% consensus) with a 10.2% margin (vs. 8.9% in 3Q’24), leaving the 9M’24 margin at 8.5% (vs. 7.6% in 9M’23). 3Q’24 FCF came in at € 25 M (vs. € 35 M BS(e)) leaving the 3Q’24 NFD at € 70 M (0.1x NFD/EBITDA). The company reiterated its guidance’24. We expect a positive market reaction following the poor share price performance in the past 3 months (-11% in absolute terms and -16% vs. IBEX).

METROVACESA. Poor results, with the guidance’24 reiterated. OVERWEIGHT
The results are poor on the P&L level (as there are few deliveries in 3Q’24 standalone), and they are also below expectations in presales, although the figure is acceptable. 9M’24 sales reached € 279 M (-8% vs. +13% BS(e)), EBITDA € 11 M (-61%). In any event, the company has confirmed its targets for the full year, which is highly biased in deliveries (and thus P&L) to Q4. MVC has announced a first DPS’24 of € 0.33/sh. (+0% vs. 2023, 3.8% yield, in line with BS(e)). The results are poor, but given that (i) the guidance has been maintained and (ii) the company has mentioned it had >1,000 homes sold, completed but not delivered as of Sep’24 (which along with the 793 units already delivered would allow it to meet the target’24 of >1,675 units), we do not foresee a significant impact.

PUIG BRANDS. Better 3Q’24 sales with increased LfL. OVERWEIGHT
The 3Q’24 sales beat expectations, with LfL growth speeding up to +11.6% (vs. +7.2% in 2Q’24), driven (as expected) by the solid performance in the Fragrance segment (~73% of sales; +11.1% comparable growth in 3Q’24) and EMEA (~53% sales; +12.6% comparable). Make-up (~16% sales) performed well (+7.3% comparable in 3Q’24), with the improvement in the America business and the reduction to the sell-in/sell-out gap in Charlotte Tilbury standing out, where the company also indicated that sell-out continues to grow at a double-digit pace. Puig has confirmed its LfL targets of high-single-digit growth in sales (vs. +8.6% BS(e) and +9.6% in 9M’24) and a stable adjusted EBITDA margin (in line with our estimate). We expect a positive reaction, due both to the acceleration shown on the quarter and the strength the company continues to show in the Fragrance segment, with double-digit growth, an increased market share and positive comments for 4Q’24 (the most important quarter seasonally).

REDEIA. 9M’24 results in line with expectations. OVERWEIGHT
The 9M’24 EBITDA came in at € 1.02 Bn (-13.4% vs. 9M’23, vs. -13.5% BS(e) and -12.3% consensus) and Net Profit at € 408.8 M (-23.6% vs. 9M’23, vs. -24% BS(e) and consensus), due mainly to the impact from the end of the regulatory lifespan of the pre-1998 assets. Everything is in line to meet the 2024 guidance, which RED reiterated: EBITDA above € 1.3 Bn and Net Profit of €~500 M (in line with BS(e) and consensus). NFD rose to € 5.43 Bn vs. € 5.7 Bn from the annual guidance (due to capex, dividend and working capital). The company has approved the first interim dividend’24 of € 0.20/sh. (1.2% yield, -20% vs. 2023 and as expected) with a payment date of 07 Jan’25. We do not expect an impact from these results. There will be no conference call. We maintain our OVERWEIGHT recommendation (T.P. € 19.50/sh.).

UNICAJA. 3Q’24 Results apparently better than expected. UNDERWEIGHT
3Q’24 Results came in better than expected in NII (+3% vs. expectations), with the rest of headings very much in line. However, on the negative side, the 3Q’24 customer spread falls significantly to 2.75% vs. 2.83% in 2Q’24 with the deposit cost remaining unchanged (vs. 0.72% in 2Q’24), with the credit profitability sliding 7bps to 3.48%. The drop in lending slows down to some extent although it continues to be significant: falling -2.7% vs. 2Q’24 and -5.8% vs. 3Q’23 (-6.6% in 2Q’24). ROTE came in at 6.8% vs. 6.5% in 2Q’24, if adjusted for a 12.5% CET1 it would stand at 8% vs. guidance’24>10%. In our view, this target is complicated to be met. The cost of risk came in at 23bps in 3Q’24 (in line with the 2Q’24) and the NPL ratio at 2.8% vs. 2.9% in 2Q’24. We do not rule out the possibility of an initial positive reaction (that should not last long) but the results are weak and we continue to reiterate our UNDERWEIGHT recommendation. UNI share price has been severely hit (-21% in 3 months vs. +0% sector and -9% Spanish banks), having seen a significant derating that leads it to widen the discounted Ke >200bps in the past 3 months to 15.2% (vs. 14.3% sector). We believe that this underscores the lack of confidence in its earnings delivery in the medium-term, which we see as a burden rather than as a rerating opportunity. Even though the stock could be trading at apparently appealing multiples in absolute terms (0.45x P/TE 2024 and 5x P/E), we and the market foresee a >200bps cut in ROTE in 2024 vs. the already low levels of 2024.