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Markets hesitate between gains and losses
The European stock markets fell by around -10% as the US-China geopolitical risk increased once again. Within the Euro STOXX most sectors posted losses, with Technology and Banks being the worst performers vs. Travel&Leisure and Retail, which saw the biggest increases. On the macro side, in the Euro zone, May’s preliminary PMIs recovered more than expected, hinting at GDP growth in 2Q’20 somewhat above the -14.2% YoY expected by the consensus. In Spain, the Employers Organisation (CEOE) abandoned the talks with the Govt. due to the latter’s agreement to repeal the labour reform from 2012. The minister of Economy N. Calviño demanded that this agreement between PSOE, Unidas Podemos and Bildu be rectified. Separately, the rating agencies claimed at the time that maintaining the credit rating would be conditional on these regulations remaining in force. In the UK, the Services and Manufacturing PMIs came in above expectations, although far from the recovery seen in China, with the manufacturing sector performing better than the service sector.
In the US, the Philadelphia Fed manufacturing confidence for May worsened unexpectedly, whereas the manufacturing PMI climbed above expectations to 39.8 and the services PMI to 36.9. Weekly jobless claims increased more than expected, although at a lower rate than in the previous week. The real estate sector remains at a standstill and April’s second-hand home sales contracted almost by -20% on a monthly basis. In Japan, April’s inflation came in worse than expected and the BoJ announced new suppor measures to SMEs, in line with the Fed’s programme. In China, the government studies implementing a law of national security in Hong Kong, which has increased tensions in the country and might bring retaliatory actions from the US.
What we expect for today
Stock markets would open with drops of as much as -1.0% against a tarnished geopolitical backdrop. Currently, S&P futures are down -0.77% (the S&P 500 ended practically unchanged vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 29.53%). Asian markets are sliding (Japan -0.75% and Hong Kong -4.61%).
Today no relevant data will be released.


According to the press, the major steel producers in the US announced yesterday a price increase of US$~40.00/T (around +8%). The US market represents ~25% of MTS’ EBITDA.
Positive news that would come after the announcement of a US$ 50 increase in May. These increases should back the 2Q/3Q’20 results, although their impact could be limited as a result of rising raw material prices.

The company announced yesterday that Grupo Villar Mir (30.6% OHL) has subscribed an agreement with Amodio family (100% Caabsa) to sell the latter 16% of its capital at € 1.10/sh. (~2x yesterday’s close; € 50.4 M). On another note, Grupo Villar Mir has offered a call option of up to additional 9% at € 1.20/sh. (~2.2 x yesterday’s close) until the 22nd of November, 2020.
Although we welcome the willingness of the Amodio family to pay a price that doubles the latest share price, this deal would have no impact on our fundamental valuation post Covid-19 that will be ~ € 0.60/sh. Furthermore, this would mean the sale of a stake lower than 30% (the Amodio family would reach 25% maximum), and thus, it would not benefit the rest of minority shareholders with a takeover bid (given the change of control, the CNMV could force it to launch the bid and even though this is not our central-case scenario, if materialized, this could undermine the deal, as the condition imposed by the Amodio family was not launching a takeover bid). Separately, the reduction to the stake in GVM (to between 14.6% and 5.6% depending on whether the Amodios exercise their option on the additional 9%) could increase and improve the company’s bank financing, as for some time the banks have been requesting the stake in GVM be lowered. Lastly, we welcome the cash inflow towards Grupo Villar Mir (€~50 M for the 16% and € 81 M if it is 25% in the end), which could be used to face debt repayments, of which €~120 M would be in OHL’s favour (Pacadar debt). Currently the stock is rising +48% (+49% vs. IBEX), which is logical due to the acquisition price being much higher than the market price, but as we have stated, this does not change our opinion on the stock.

According to Cinco Días, TEF and Telecom Italia are making progress in the joint acquisition of the assets of the Brazilian company Oi (4th largest player in the country), claiming that the due-diligence process would already be underway. We recall that in its 1Q’20 results presentation TEF mentioned that the process was open, although it admitted that there were still some uncertainties.
We welcome the sale of Oi’s mobile asset (or even the entire company) to other players that are already present in the country in order to consolidate the market, which would bring about less competition and lower investments (frequencies, etc.). In this regard, we understand that any possible offers from players that are present in the country (TEF/TIM/América Móvil) would be higher than those from a new player (AT&T or others) thanks to the synergies that could be created, although the deal would be pending regulatory approval (and any possible remedies).
Now the key will be the price. Up to now, the press has mentioned an amount of €~4 Bn, which would mean an EV/EBITDA ratio of >8x BS(e) vs. around


Bankia is a financial institution based in Spain. Co. is primarily engaged in operations in the banking sector. Co.'s business operations are structured into seven areas: Retail Banking, Business Banking, Private Banking, Asset Management and Bancassurance, Capital Markets and Holdings. Co. offers financial products and services to various customer segments, such as individuals, small and medium enterprises, large corporations, as well as public and private institutions. As of Dec 31 2014, Co. had total assets and total customer deposits of Euro233,648,603,000 and Euro106,806,698,000 respectively.

Obrascon Huarte Lain S.A.

Obrascon Huarte Lain is an international concession and construction groups based in Spain. Co. maintains significant operations in 30 countries across all five continents. Co. is engaged in hospital and railway construction, transport infrastructure concessions, oil and gas, energy, solids handling and fire protection systems and international contracts. Co.'s operations are organized along four divisions: OHL Concesiones, OHL Construccion, OHL Industrial y OHL Desarrollos. Co. is also engaged in real state project developments of mixed use managed by the international hotel chains.

Telefonica S.A.

Telefonica is engaged in the provision of public or private telecommunications services, including ancillary or complementary telecommunications services or related services. Co.'s fixed business includes: traditional fixed telecommunication services, Internet and broadband multimedia services, data and business-aplications services, and wholesale services for telecommunication operators. Co. also provides a range of mobile and related services and products to consumer and business customers, including mobile voice services, value added services, mobile data and Internet services, wholesale services, corporate services, roaming, fixed wireless, and, trunking and paging.


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