EUR 100.00 For Business Accounts Only

IBERIAN DAILY 06 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: IBERPAPEL, INDRA, MEDIASET ESPAÑA, REPSOL.

MARKETS YESTERDAY AND TODAY

Markets in consolidation phase
The good prospects for trade worsened after it was leaked by the Chinese press that the Government is demanding tariffs be lifted before signing Phase I. Thus, within the Euro STOXX, the best-performing sectors were Banks (following the rise in IRRs of the past few days) and Energy (on the increase in crude oil prices) vs. Utilities and Construction, which ended falling. On the macro side, in the US, September’s trade balance saw its deficit decrease, with the headline for crude oil registering a surplus for the first time in 41 years. October’s non-manufacturing ISM recovered more than expected, suggesting growth in 4Q’19 in line with the 1.7% figure expected by the market. From the Fed, Barkin, Kaplan and Daly were satisfied at the current rates and the state of the US economy. In China, president Xi Jinping used a conciliatory tone, promising increased openness for foreign investment, but demanded that tariffs be lifted as a condition to sign a deal with the US in US territory. In Brazil, the Central Bank minutes warned that rates could stand at 5.0% or lower for longer than expected. In Japan, the final Services PMI contracted to 49.7% from 50.3% previously. Separately, the BoJ minutes showed its members would be in favour of greater monetary stimuli as the inflation target will not be reached. In US business results, Arconic and Devon Energy came in better, Emerson Electric in line and PPL disappointed.
What we expect for today
Stock markets would open lacking a clear direction as a result of the uncertainty on trade and waiting for the results presentations.
Currently, S&P futures are trading flat (the S&P 500 was virtually unchanged vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 13.10%). The Asian markets that are open are rising (Hong Kong +0.12% and Japan +0.22%).
Today, we will learn: in Germany, September’s factory orders; in Spain, September’s industrial output; in the Euro zone, October’s final services PMI and September’s retail sales; in the US, non-farm productivity costs for 3Q’19; in Mexico, October’s consumer confidence. In US business results, Perrigo, Expedia, TripAdvisor and Fox Corp, among others, will release their earnings. Today, the Greek Treasury will issue € 375 M in 3M T-bills).


COMPANY NEWS

3Q’19 Results Highlights next week.
Of the companies releasing 3Q’19 results in Spain next week, we expect to see a positive impact in Almirall. We expect a positive reception following the moderate share Price performance in the past 3 months, as we expect results to confirm the good performance of sales and EBITDA margins. Thus, we place our T.P. and recommendation Under Revision (from SELL). On the negative side we would highlight OHL, as the EBITDA recovery should be widely priced in, while the market will pay close attention to the cash performance (working capital and the outcome of legacy projects), where any negative surprise could lead to an unfavourable reaction mainly bearing in mind its YTD performance (+41% vs. Ibex 35).

IBERPAPEL. Uncertainty surrounding sector performance. SELL.
Following the 3Q’19 results we revise our estimates for 2019, as the EBITDA growth necessary to meet our previous estimates in 4Q’19 (+13% vs. 4Q’18) was demanding. Thus, we cut our EBITDA’19e by -7% based on lower sales and a slightly lower margin (-10bps). Separately, in the long term we take a more conservative stance on paper price evolution, which leads us to lower EBITDA’24e by -8%. The impact on our T.P. is -9.5% to € 31.12/sh., leaving +25% upside that, given the uncertainty in the short and medium term, as well as the stock’s low liquidity, is too little in our view to change our recommendation, and thus we maintain our SELL recommendation.

INDRA, BUY
The results were in line with expectations, where the strong growth in the backlog (+8.6%), the growth in sales (driven by Minsait and despite the difficult comparison due to the lower activity in the election business) and the expanding EBIT margins continue (+50bps in 3Q’19). Thus, 3Q’19 sales grew +4.3% in reported terms (vs. +4.1% BS(e) and +3% consensus). 3Q’19 EBIT came in at € 48 M (+12.5% in local currency vs. 2Q’18, in line with BS(e)) with a 6.5% margin vs. 6.0% in 3Q’18.
3Q’19 FCF stood at € -1 M (vs. € -20 M BS(e) and € +15 M in 3Q’18), leaving 9M’19 FCF at € -238 M (vs. € -46 M in 9M’18) due to higher WC consumption in 1H’19. Excluding the WC impact, cash would have totaled € 119 M (and € 93 M also excluding the IFRS 16 effect) vs. € 93 M in 9M’18. NFD reached € 730 M, with2.4x NFD/EBITDA. The company reiterated its guidance’19: low-single-digit sales (vs. +1.9% BS(e) and +5.2% in 9M’19) and +10% EBIT growth (vs. +15.4% BS(e)), stating that in sales the strong trend will continue, despite the fact that EBIT has a more challenging comparison (€ 12 M one-off in 4Q’18). As for cash, IDR expects to end 2019 with similar NFD to 2018 (€ 483 M) +/- € 50 M, which would mean generating FCF of between € 288-188 M in 4Q’19.
The results met our expectations and confirm the robust trends of increasing orders/sales and margin growth. Moreover, the fact that the company has provided a better cash figure than expected in 3Q’19 and that dividend payments might be resumed in 2020 (no additional details were provided) leads us to reiterate our positive view on the stock.