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IBERIAN DAILY 11 NOVEMBER + 3Q’21 RESULTS. PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ARCELOR MITTAL, NATURGY, REPSOL, TÉCNICAS REUNIDAS, TELEFÓNICA, UNICAJA.

MARKETS YESTERDAY AND TODAY

At the end of today’s report, and during the entire results season, we will include a presentation with previews for the 3Q’21 results to be released over the coming days in Spain.

IBEX shines in a flat session in Europe
European stock markets, and especially peripheral ones, benefitted from the rise in debt curves after the surprise increase in US inflation. Within the Euro STOXX, the best-performing sectors were Media and Household Goods, whereas growth sectors like Technology and Consumer Goods fell the most. On the macro side, in the US October’s general (and core) inflation rose more than expected, reaching its highest level since 1990 due to the high demand, global supply chain problems and high energy prices. In this regard, we continue to expect inflation to remain high until 1Q’22. In the euro zone, the EC will lower Spain’s 2021-22 GDP to 4.6% and 5.5% from the previous 6.2% and 6.3% and the 6.5% and 7.0% expected by the Govt. In China, total financing fell (as expected) in October, although the M2 sped up unexpectedly. Separately, in the end Evergrande made the payment on its expired coupon. In US business results, Walt Disney released worse earnings than expected.
What we expect for today
European stock markets would open slight gains, with the better performance of financials and basic resources in view of the rise in interest rates. Currently, S&P futures are up +0.2% (the S&P 500 ended down -0.88% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 18.73). Asian markets are rising (China’s CSI 300 +1.35% and Japan’s Nikkei +0.6%).
Today in the UK we will learn the 3Q’21 GDP, in the euro zone the ECB monthly report. In Mexico, the BoM will hold its interest rate meeting. In US business results, Tapestry and Organon, among others, will release their earnings. As for auctions, Italy will issue € 5.75 Bn in bonds due 2024 and 2029 and Ireland € 1 Bn in bonds due 2028 and 2031.

COMPANY NEWS

TÉCNICAS REUNIDAS. Margins continue to be key. We change our recommendation to SELL.
Following the 1H’21 results on 30/07, when the company announced it had requested financial aid totalling € 290 M from the SEPI, the stock has underperformed the IBEX by -13% but has rallied +28% since August lows. Our doubts on margins are structural, as in addition to the high pressure from competition on margins, production costs are increasing due to rising raw material prices. Thus, we cut the adjusted EBIT’21e margin to 1.9% vs. TRE’s target of 3% and for the 2022-25e period to 2.3% (vs. 2.7% previously, 2.6% consensus and TRE’s target of 3%). We set our new T.P. at € 9.00/sh. (+5.4% upside).

ARCELOR MITTAL. Results below expectations, with the announcement of a new buyback programme. BUY.
Results came in below expectations in EBITDA (US$ 6.058 Bn vs. US$ 6.103 Bn BS(e) and US$ 6.151 Bn consensus) in view of the lower deliveries, production restrictions and order cancellations linked to the automotive sector (on semiconductors), although the company stressed that it foresees a reversion of part of this effect in the 4Q. Notwithstanding, the 3Q’21 grew +20% vs. 2Q’21, being the strongest quarter since 2008. Additionally, the prospects (no numbers given) continue to be positive although the company confirmed the lower demand expected in China (on real estate). MTS also announced a new buyback programme worth US$ 1 Bn (3.2% market cap) with no timetable, and which would increase the yield’21e to 9.4%. We expect a negative reception (even more so considering the stock has outperformed the IBEX by +29% in 2021).