EUR 100.00 For Business Accounts Only

IBERIAN DAILY 17 MARCH (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BAN ON SHORT POSITIONS, BANKING SECTOR, CAF, ELECTRICITY/GAS SECTOR, MELIÁ HOTELS, NATURGY, IAG, INDITEX, INSURANCE SECTOR, OHL, PRISA, SANTANDER, SIEMENS GAMESA.

MARKETS YESTERDAY AND TODAY

Drops continue in spite of central banks
Despite the measures taken by central banks, economic fears after D. Trump warned that the disruption caused by the coronavirus could last until summer and lead to a recession dragged down US and European stock markets. In the Euro Stoxx, it was another session with all sectors in the red, where Banks and Real Estate led the losses, while Healthcare was the only sector that fell by less than -1%. Following the package of measures adopted by CBs, a series of fiscal stimuli has been announced, as well as new restrictions to prevent the expansion of the coronavirus, but the problem is that these are not joint measures in Europe, which is closing land borders in general. The IMF will mobilise some € 890 Bn to aid affected countries. In Spain, there could be a € 20 Bn package approved, which could be extended to € 100 Bn (10% GDP) of guarantees for loans to companies managed through ICO (this package would be similar to the € 500 Bn, 15% GDP, already announced by Germany) speeding up of layoff plans, suspension of social benefits and access to unemployment even for workers not meeting the minimum period. On the macro side, the ECB has stated that it will not tolerate the high risk premiums brought about by the coronavirus, as they would hurt the transmission mechanism for monetary policy. The EC believes the euro zone economy could contract around -1% in 2020. In the US, the Empire manufacturing index fell far more than expected in its lowest reading since 2009.
What we expect for today
Stock markets would open lacking a clear direction ahead of the US session. Currently, S&P futures are up +3.4% (the S&P 500 ended -4.00% lower vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 82.69%). Asian markets are flat (Japan +0.06% and Hong Kong +0.08%).
Today in the euro zone we will learn March’s ZEW index, in the UK January’s ILO unemployment rate and in the US NAHB real estate sector confidence, February’s retail sales and industrial output.


COMPANY NEWS

IAG: Measures and implications from Covid-19. BUY.
We think IAG’s financial situation, with € 9.3 Bn of cash, allows it to make decisions relatively calmly. The key now will be the negotiations with unions and cash outflows, although we believe the final DPS’19 will be cancelled. We will revise our estimates, but we think that even in a scenario of -25% lower capacity (assuming global air traffic will fall by -75% is not reasonable), IAG would be able to pay out a dividend as early as 2021 (when we believe it could generate €~5 Bn of EBITDA vs. no more than € 3 Bn in 2020, which can be assumed by the cash position). Against this backdrop, our T.P. would not fall below € 4.50/sh. (+55% vs. the current share price and -45% vs. our current T.P., which we place Under Revision). The current share price would be pricing in normalised EBIT of €~2 Bn (-41% vs. 2019 and assumed to date in our valuation).

INDITEX. 4Q'19 Results Preview: the attention will be drawn to the impact from Covid-19 on 2020 sales.
The company will release its 4Q results on 18 March. We estimate that the 4Q figures will be in line with expectations and will not have a significant impact. We believe that the market’s attention is focused on the beginning of 1Q. ITX has an exposure to the regions that were disrupted by the coronavirus in February, such as China (~10%), and of course in March (Spain, Italy and Portugal; ~20% of sales BS(e)) due to the closure of stores. It is difficult to estimate how much sales could grow at the beginning of the 1Q (all February and first two weeks of March). Assuming that countries representing >40% of sales (southern Europe, including France, and China) close for 3 months, the impact on 2020 sales could be around -10% for the full year and the impact on T.P. could be -15%/-20%.

The CNMV bans short positions for one month, from today until 17 April 2020
This measure could be extended by additional periods of less than 3 months if the circumstances that prompted it continue or could be lifted any time before the period ends. It affects all transactions on shares or indices, including cash transactions, derivatives in organised and OTC markets, that involve creating a net short position or increasing an existing one, even on an intra-day basis. These positions include short sales, even if covered by securities lending. The ban does not include: (i) market creation activities; (ii) neutralisation of shares and convertible bonds; (iii) when the short position is covered by an equivalent acquisition in terms of subscription rights. Separately, the ESMA will make it mandatory to communicate any short positions held when they exceed the threshold of 0.1% of the capital (vs. 0.2% previously).

BANKING SECTOR
The Spanish banks would be waiting for a whole series of economic measures that the Government will announce today, to alleviate the impact of the coronavirus. Among them, the moratorium on the payment of mortgages (in Italy already granted for 18 months) is being considered. However, the banks would be requesting that said moratorium be accompanied by a guarantee scheme (ICO or similar) as has happened in Italy. Thus, according to Bloomberg, the Italian Executive would have already approved some € 5Bn of State guarantees that it would be offered to banks in the event of new NPLs stemming from the Coronavirus economic impact. Vis à vis the current NPL stock, (about 150,000 M euros of NPLs), still somewhat below 10% and vs.