EUR 100.00 For Business Accounts Only

IBERIAN DAILY 23 DECEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: EUROPEAN AND SPANISH RECOMMENDED PORTFOLIOS, EBRO FOODS, FERROVIAL, MEDIASET ESPAÑA, SACYR, SANTANDER, VIDRALA.

MARKETS YESTERDAY AND TODAY

Stock markets rally as UK clears first Brexit hurdle
Stock markets rallied after UK Prime Minister B. Johnson had his Brexit deal passed in Parliament (a first step towards fulfilling his promise to exit the EU on 31 January). Within the Euro STOXX, the best-performing sectors were Financial Services and Household Goods, whereas Autos and Travel & Leisure were the worst relative performers. On the macro side, in Germany, consumer confidence came in slightly better than expected. In the Euro zone, consumer confidence fell more than expected. In the United Kingdom, the 3Q’19 GDP was raised to 0.4% vs. 0.3% expected, leaving annual GDP at 1.1%. In the US, the final 3Q’19 GDP confirmed the 2.1% figure (despite better private consumption data). Additionally, November’s personal outlays and December’s University of Michigan consumer confidence (final) rose in line with expectations. In Mexico, October’s retail sales disappointed. In Japan, the leading indicators also came in slightly below expectations.
What we expect for today
The S&P 500 closed largely unchanged vs. its price at the closing bell in Europe). Volatility in the US remained virtually flat (VIX 12.51%). Asian markets are trading flat (Japan 0.02% and Hong Kong -0.1%).
Today we will learn in the US the Chicago Fed national index, and home sales, in Spain November’s public deficit figure. In debt auctions: Italy (€ 6.4 Bn in 6M T-bills and € 2 Bn in bonds zero coupon due 2021).

COMPANY NEWS

CHANGES TO OUR EUROPEAN AND SPANISH RECOMMENDED PORTFOLIOS
On the back of expectations that cyclical and value stocks will continue to rally in the short term, we have made some adjustments to our Spanish and European recommended portfolios, in which we raise the weight of financials and lower that of bond proxies and other stocks where we see less upside. Thus, in the Spanish recommended portfolio: we raise the weight of Santander by +3% and that of Caixabank by +1%, and include Unicaja, to which we allocate a 1.5% weight. On the other hand, we lower the weight of Inditex and Iberdrola by -2% and -1%, respectively, and remove Acerinox (2.5% weight), where we no longer see upside potential. In the European recommended portfolio: we raise the weight of Santander by +2.5% and include Société Générale (2% weight). On the other hand, we lower the weight of Inditex and Iberdrola by -1.7% and -2.8%, respectively. As a result of these changes, we are overweighted in Banks (in both of our portfolios) and our top picks.

FERROVIAL, BUY
The company has announced the sale of Broadspectrum (Services business in Australia and New Zealand) to a firm owned by Ventia Services. The transaction’s equity value totals AUS 485.5 M (€ 303 M) and the EV is AUS 524.5 M (€ 327 M), whereas the division’s EBITDA as of September’19 were € 33 M. FER expects a negative impact on its P&L statement of e 270 M in the 4Q’19 (85% of Net Profit’19e). FER is committed to selling the remainder of its Services subsidiary, which would have a book value as of 9M’19 of € 1.3 Bn.
We welcome the fact that the company is executing its divestiture plan for the Services business. We value the division at €~2.5 Bn (~6x EV/EBITDA’20) and continue to think that this transaction is the main driver for the stock, not so much for the selling price but rather for its strategic fit, as it will allow FER to cut debt (to ~3.5x NFD/EBITDA BS(e) from 7.4x 2019 BS(e) pro forma), focusing on its infrastructure divisions (toll roads and airports; 85% of our T.P.).