EUR 100.00 For Business Accounts Only

IBERIAN DAILY 03 JUNE (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: AMADEUS, MÁSMÓVIL, REPSOL, UTILITIES SECTOR.

MARKETS YESTERDAY AND TODAY

Rally continues with +2% gains
The main European stock markets continued to rally despite renewed US-China trade risk and the unrest in the US. In the Euro STOXX, for the second straight day all the sectors rose, led by Insurance and Real Estate, whereas the smallest gains came in Food and Pharma. On the macro side, in Spain, May’s unemployment rose less than expected (26,600 unemployed vs. 232,000 expected) and is already up 25.3% YoY, whereas Social Security registration rose by 187,800 people on the month (first time since the Covid-19 crisis began), although the YoY contraction deepened to -4.6%. In France, the Govt. estimates a € 220 Bn deficit (€ 50 Bn more than expected) and Finland estimates that its debt/GDP ratio will stabilise by the end of the decade. In the US the racial protests continue, spreading to more than 100 cities. Meanwhile, car sales recovered more than expected in May. In Japan, the services sector PMI rose to 26.5 in May from 21.5 in April. In China, the Caixin services sector PMI rose more than expected in May to a high since Oct’10 at 55.0 vs. the previous 44.4.
What we expect for today
European markets would open with gains of around +0.5%, underpinned by Energy thanks to the rally in crude prices and consumer sectors following the solid PMI data in China. Currently, S&P futures are up +0.22% (the S&P 500 was up +0.78% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 26.84%). Asian markets are rising (Japan +1.09% and Hong Kong +1.26%).
Today in Germany we will learn May’s unemployment and in the US May’s ADP private employment survey, April’s final durable goods orders, May’s non-manufacturing ISM and April’s factory orders. Debt auctions: Germany (€ 4 Bn in bonds due 2025).

COMPANY NEWS

UTILITIES SECTOR REPORT. ELE, IBE and ENAG are our top picks.
Today we are releasing our annual report on the utilities sector. Following a widespread market correction, the sector’s multiples continue to be demanding with respect to the market in general (13-15x P/E). However, in absolute terms, the stocks have fallen by as much as -25%, meaning that, even being selective, we continue to find long-term bets on the sector. In ELE, despite its good relative performance (+11% vs. IBEX since highs/-23% in absolute terms), we changed our recommendation to BUY, setting a T.P. of € 26.07/sh. (+27% upside/+6% increase). In IBE, we change our T.P. very slightly (T.P. € 10.70/sh.; +10% upside), but we believe that the stock’s underperformance in the last few weeks (-5%/-10% vs. peers) is unjustified and thus, we reiterate our bet. Lastly, in ENAG, our T.P. remains the same. Although the upside potential is slightly reduced (T.P. € 23.38/sh./+12% upside), its dividend yield remains highly attractive (>8% yield), we prefer it to REE, where there is little visibility on Hispasat and a lower dividend (5.4% yield). Although the catalysts are the same for all of the companies within the sector (immunity to Covid-19, liquidity levels and dividend), we are selective and exclude NTGY from our top picks (T.P. € 17.82/sh.; +8% upside/-26% in T.P.), from which we would demand a higher upside potential in view of the results risk, as well as REE (T.P. € 17.79/sh. +11% upside/-4% in T.P.), which we find less appealing than ENAG, and ANA (T.P. € 90.30/sh.; -3% potential/-7% in T.P.), which would be penalised by merchant renewable assets in Spain. Risks: (i) Tax increases: +/-100 p. in the tax rate has an average impact of +/-1.5% in EPS and +/-1.1% in T.P.; and (ii) Increased risk premium: +/- 10bps in the 10Y bond yield means +/-1.8% on the sectors’ stock prices on average.