EUR 100.00 For Business Accounts Only

IBERIAN DAILY 09 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ELECTRICITY AND GAS SECTOR, INDITEX, LAR ESPAÑA, MAPRE, SANTANDER, VOCENTO

MARKETS YESTERDAY AND TODAY

All eyes on the ECB
After the gains and the drop in volatility over the past sessions, on Friday European markets took a breather. In the Euro Stoxx we highlight the rise in Basic Materials and Industrials compared to the drops in Travel & Leisure and Energy. On the macro side, in Germany July’s industrial output fell more than expected, although the previous data was raised. In the euro zone, the final 2Q’19 GDP came in +0.1% above expectations (+1.2% vs. +1.1% YoY). In Italy, on Friday Moody’s postponed its decision on the country’s rating (Baa3, stable), awaiting the first decisions from the new government. In the US, non-farm job creation was below expectations (and the previous data), salary gains rose more than expected and the unemployment rate remained at 3.7% (in line). In Japan, the final GDP was lowered slightly, as expected. In China, the central bank announced that starting on 16 September it will lower the reserve requirements for all banks to 0.5% (which would free up as much as US$ 126 Bn), to offset the trade war with the US. Separately, exports (in dollars) fell more than expected in August. Lastly, the Govt. would be willing to purchase agricultural products from the US, but in exchange for the latter delaying the tariffs to be imposed in October, as well as the restrictions on Huawei. In Mexico, June’s fixed investment fell less than expected.
What we expect for today
The opening of the session would be slightly bullish, with energy stocks aided by the rally in Brent crude prices. Currently, S&P futures are up +0.27% (the S&P 500 closed practically flat vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 15.00%). The Asian markets that are open are climbing (Hong Kong +0.23% and Japan +0.65%).
Today in Germany we will learn July’s current account balance, in the euro zone Sentix business confidence (September), in the UK trade balance and industrial output (July), in Mexico August’s inflation, in Brazil July’s retail sales and in the US July’s consumer credit. In debt auctions: Germany (€ 2 Bn in 6M t-bills) and France (€ 4.7 Bn in 3M, 6M and 12M t-bills).


COMPANY NEWS

INDITEX. 2Q’19 Estimates: we expect good results. BUY.
The company will release its 2Q’19 results on 11 September at 8:00 (CET). We expect a solid quarter, after a relatively poor Q1 in sales, and with a slightly positive FX effect, which should help growth in operating profit reach double digits. Despite the strong performance in 2019, ITX has beaten the IBEX by +20%, we think the stock is inexpensive against the current backdrop of ultra-low interest rates, and trading below the historical valuation range (23x vs. 25x-30x P/E) due to fears of falling sales and long-term margins as a result of the stiffer online competition. That said, there is a risk of profit taking if the company does not meet expectations when its results are released on Wednesday.

LAR ESPAÑA. Possible TOB on the company. BUY.
According to the press, Castellana Properties (YCPS, controlled by Vukile) would be readying a takeover bid on LRE for more than € 700 M (+14% vs. LRE’s market cap). This is positive news, in principle, as it stresses how inexpensive LRE is at present, although many details have yet to be disclosed, among them the price and whether the bid is made with shares (which we see as most likely) or in cash (which we believe the market would prefer). YCPS is trading with no discount to NAV (LRE is trading at a -37% discount), but as it is an illiquid stock, we do not think the market price is its valuation reference. The two asset portfolios have a solid geographical fit (CPS is mostly present in the south and west of Spain, and LRE in the north and east, except in Seville, where both companies are present), and the strategic fit would also be good. CPS holds assets worth €~1 Bn (vs. €~1.5 Bn LRE).

SANTANDER, BUY
At Friday’s closing bell SAN issued a significant event communiqué in which it explained that in the end it will raise its stake in its Mexican subsidiary from 74.96% to 91.65%. Note that in April the bank announced the offer to acquire the 25% of minority stakes it did not hold, and in the end it has managed to reach a 91.65% stake. The remaining 8.35% will, therefore, continue to be held by minority shareholders or as treasury stock. For this acquisition SAN will carry out a capital increase for around 381 M new shares (2.35% of the total) to 16,618 M shares, and it would obtain around € 1.4 Bn. New shares will take place on 16 September and 17 September. News without impact, although with a slightly negative slant due to the fact that it was not able to reach 100%, which would have meant around +5.5bps on FL CET1 (11.02% currently). At the levels executed, the impact would be zero according to our calculations. Apart from the percent of the stake acquired, we welcome the capital allocation in the acquisition of double-digit RoTE (in LatAm) in order to offset the pressure seen in the euro zone and the acquisition of the Mexican subsidiary at 2012 prices.

VOCENTO, BUY
VOC announced last Friday the acquisition of two marketing agencies linked to the creation, design and execution of campaigns and events. Specifically, it has acquired:
 90% of the capital of Tango Comunicación Estratégica S.L. and Melé Estudio y Producción S.L. y,
 100% of Pro Comunicación Integral 97 S.L..
The price of the acquisitions stands at € 10.3 M (in addition to a € 3.7 M earn-out linked the business performance over the coming year), which would man between 4.9x and 6.7x EV/EBITDA (including earn-out), below VOC’s trading multiple (6.5x). The acquisition will allow the group to increase sales by around 3.2% and adjusted EBITDA by ~4%. This transaction is consistent with the group’s diversification strategy, aimed at reinforcing and bolstering VOC’s business generated through Factor Moka since 2017, the contribution of which is still irrelevant From a financial point of view, the deal will be financed with the ordinary cash generated by the company (that totalled € 14.7 M in 1H’19), NFD will increase by around 20% and the NFD/EBITDA will rise from 1x to 1.2x. As the transaction was made public last Friday with the market open (VOC added +1.5% vs. +0% IBEX), we do not expect a relevant market impact today.