EUR 100.00 For Business Accounts Only

IBERIAN DAILY 08 APRIL (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ARCELOR MITTAL, CELLNEX, GRUPO CATALANA OCCIDENTE, INSURANCE SECTOR, REPSOL, UNICAJA.

MARKETS YESTERDAY AND TODAY

Europe does not obtain an agreement to support the economy
It was yet another session of gains on stock markets. Although the Eurogroup was unable to reach an agreement on how to fund its stimulus package, the talks will continue (Northern countries continue to oppose coronabonds and France has proposed a specific fund for member states). Meanwhile, the EC is studying the possibility of raising its budget and expand its borrowing capacity to back member states, but this will also require the approval of the EU27. The ECB announced at the closing bell a package of one-off measures that would allow banks to participate in liquidity providing operations using all sort of loans, and has also reduced all of the collateral valuation haircuts. Separately, in the US, the Government continues to propose new aid packages, now a US$ 200 Bn fund that would be specific for SMEs. Within the Euro STOXX, all sectors closed in the black for the second day in a row, led by Basic Resources and Travel and Leisure, whereas Telecoms and Pharma were the worst relative performers. On the macro side, in Germany, February’s industrial output grew more than expected, although still unaffected by the coronavirus outbreak. In Mexico, March’s inflation contracted more than expected. In Brazil, February’s retail sales grew more than expected, still not showing the COVID-19 effect. In Japan, household spending contracted much more than expected.
What we expect for today
A slightly bearish opening awaiting the results of the Eurogroup. Currently, S&P futures are up +0.87% (the S&P 500 ended -2.35% lower vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 46.70%). Asian markets are mixed (Japan +2.43% and Hong Kong -0.69%).
Today we will learn the conclusions of the Eurogruop (10:00 CET). in Mexico we will learn February’s industrial output. In debt auctions, Germany will issue 10Y bonds (€ 4 Bn), and Italy and Greece T-bills.

COMPANY NEWS

GRUPO CATALANA OCCIDENTE, BUY
According to the press, Invesco Ltd. would have reduced its stake in GCO by 1% (from ~2.1%). This sale comes after the recent accelerated placement by Goldman Sachs (on 11 March) of the stake held by another investment fund (1.8 M shares; 1.5% of the total). We recall that the most of the share capital (~62%) is held by Sociedad Patrimonial Inoc, S.A.
Negative news that would increase the uncertainty linked to the rise in the Combined Ratio for Credit (50% of its recurring result). We believe that, although the situation could worsen over the next few months, the effect would be temporary and could be easily handled by the company. An increase in the number of claims and, therefore, the CR to levels of 85% on a sustainable basis (which we believe is unlikely) would mean a reduction of our T.P. to levels of € 30.00/sh. (-30% vs. currently). Also we recall that Unespa and the German government would already be studying the possibility of providing state aid to credit insurers in order to allow commercial activity to continue in a scenario with a high risk of default. If this is the case (and all indications suggest these measures will materialise), insurers would only have to assume claims up to a certain point, when the Insurance Compensation Fund would take responsibility via stop loss reinsurance.


INSURANCE SECTOR
The Spanish regulator, following the line of EIOPA, issued a recommendation last night urging insurers not to pay dividends and buybacks for the duration of the pandemic's impacts. In the case of listed insurers, we recall that Mapfre has already approved at the AGM (March 13) the distribution of the complementary dividend (€ 0.085/share; yield 5.3%), pending to set the date. GCO has confirmed its intention to maintain it (complementary DPS'19 of € 0.4057/share; yield 2.1%) and, according to the AGM agenda (May 5), it is scheduled to be paid on 13 may.
News with a negative slant but that should not have any impact, as we expect the two listed insurers to pay dividend. With this in mind, and as we outlined last Friday, the EIOPA’s recommendation is a negative surprise bearing in mind the excess solvency in the sector and that the impact from Covid on claims is limited (not covered in most segments). The fact that the European watchdog also left the decision to the local regulators is also negative news, creating arbitrary inefficiencies for investors. Thus, for instance, the French and Spanish regulators have aligned with the EIOPA, while the German watchdog has enabled the payment. We believe this is apparently a “political” measure that creates unnecessary and unjustified confusion on the sector’s solvency.


REPSOL. 1Q’20 Trading statement without surprises but with upside vs. sector. BUY.
The 1Q’20 Trading statement (results will be released on 05/05) should not come as a surprise (-21% vs. 4Q’19 in crude oil prices; -3% in output and -16% in refining margin to US 4.70). Against this backdrop, we foresee a -49% decline in the 1Q’20 Net Profit vs. 1Q’19 (vs. our annual estimate of -37% and -42% consensus). Following a -31% correction from Feb’20 highs (in line with the IBEX and -4% vs. sector), the stock is factoring in long-term crude oil prices very much in line with REP’s cash break even (US$ 44.00). From current levels, REP should outperform its sector, as it lags behind in the recovery: crude oil has recovered 25% of the ground lost vs. record lows (to US$ 32.00), the sector +46% and REP only +37%.

UNICAJA: UNICAJA: Cancellation of DPS'19 and Share Buyback
Yesterday UNI announced that: (i) it has cancelled the DPS’19 distribution proposal (€ 0.048/sh.; 10% yield) and the share buyback programme (up to 5% of outstanding shares; to subsequently be cancelled); and (ii) it pledges to call a new AGM before the 31st of October, 2020, to formulate a new DPS’19 distribution proposal and possibly reactivate the share buyback programme. We are not surprised by the move, as UNI had one of the biggest rallies among banks yesterday (+5% vs. around +3% for domestic banks). Considering UNI’s capital level and liquidity position (CET1 ratio of 14% as of Dec’19; LCR liquidity ratio of 319%), we believe that if the COVID-19 crisis has ended by October 2020, UNI will most likely at least resume its share buyback programme.