EUR 100.00 For Business Accounts Only

IBERIAN DAILY 22 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ATRESMEDIA, ENAGÁS, MEDIASET ESPAÑA, RED ELÉCTRICA, TALGO, TELEFÓNICA, VISCOFAN.

MARKETS YESTERDAY AND TODAY

The same drivers remain present
Global markets fell slightly, with the same drivers present: the delay of the US-China trade agreement. In a divided Euro Stoxx the biggest gains were made by Banks and Pharma, whereas Basic Materials and Financial Services closed with losses of more than -1.0%. On the macro side, in the euro zone the OECD cut its forecasts in line with the IMF in October, expecting weak growth of 1.1% for 2020 and 1.2% for 2021 with 1.6% growth for Spain for both years. In this regard, it once again called for the use of a fiscal lever to take advantage of negative long-term interest rates and the lack of infrastructures. Separately, the IMF warned that the trade war lasting until 2020 will mean a loss of 0.8% in global GDP. Lastly, the ECB meeting minutes showed the members are willing to take more time to assess the inflation prospects and the impact from the measures taken. In the US, the Philadelphia Fed index for November rose more than expected, weekly jobless claims rose slightly and unexpectedly and second-hand home sales rose in line with the consensus. Along these lines, N. Kashkari admitted that real estate has reacted to the rate cuts. In Japan, October’s inflation rose more than expected in the core component. Meanwhile, the manufacturing PMI rose slightly to 48.6 vs. 48.4, and services to 50.4. In US business results, Macy’s released disappointing earnings.
What we expect for today
European markets would open flat, but with a slightly bullish slant. Currently, S&P futures are unchanged (the S&P 500 was flat vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 13.13%). The Asian markets that are open are rising (Hong Kong +0.14% and Japan +0.32%).
Today in Germany we will learn the final reading of the 3Q’19 GDP, in the euro zone November’s preliminary manufacturing and services PMI and in the US November’s final University of Michigan consumer confidence. In US business results, Hewlett Packard and PVH, among others, will release their earnings.


COMPANY NEWS

ENAGÁS. Already prices in a -50% softening of the CNMC’s initial cuts. We change to SELL.
Our T.P. (€ 23.63/sh.) barely yields upside after the softening of the cuts announced on 06/11. From here on out, we are awaiting the decision of the Council of State and the final approval at the CNMC before 31/12. The process will be quick, in the absence of government formation the current CNMC would approve it. However, if a government were to be formed, a new CNMC could reconsider it all and postpone it, which could lead ENAG to price in scenarios of zero cuts, yielding a maximum upside of +12%, which is not offset by the risks, and following a +17% rally from lows we change our recommendation to SELL.

TELEFÓNICA, BUY
TEF has reached an agreement with AT&T in Mexico, whereby the latter will provide wholesale access services to the last wireless mile to TEF Mexico for a minimum duration of 8 years. TEF Mexico will gradually migrate its traffic to AT&T’s access network and will continue to operate as an independent player (OMV in the last mile), maintaining its core network (network infrastructure and platforms). AT&M Mexico will provide TEF with capacity in its access network in 3G, 4G and any future technology on the domestic level.
As for the financial impact, this new operation model will generate operating and financial efficiencies with a positive annual impact on FCF of around € 230 M (~5% previously of spectrum) from the third year (during the first year the impact will be negative). Similarly, the agreement will mean a NFD reduction of around € 500 M (1.3% of the total) in the first year).
This is a reactive move to the poor data of the division (9M’19 organic sales +0.6%, organic EBITDA -90% and negative EBITDA less CAPEX excluding the sale of data centres) in view of the difficulty to compete with América Móvil (around 63% market share vs. 21.5% TEF) and AT&T (15% market share) and the negative hurdle of the payment for the use of frequencies (around € 100 M in P&L plus around € 80 M in cash). Similarly, the impact will be negative in the first year given the migration and spectrum costs until its last mile network is definitely closed. On the positive side, with this agreement the Company will have a lighter structure and reduces its NFD slightly by around -1.3%. TEF Mexico accounts for 2% of the EBITDA and