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IBERIAN DAILY 04 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKIA, CAIXABANK, CHANGES IBEX, MEDIASET ESPAÑA, REPSOL, TELEFÓNICA, TOURISM SECTOR.


MARKETS YESTERDAY AND TODAY

Wall St drags Europe down
Strong profit-taking in Wall Street, mainly in technology and growth stocks in general, which dragged on the major European indices, which ended in the red. Thus, within the Euro STOXX, virtually all sectors posted losses, with Food and Autos leading the gains and with Financial Services being the worst relative performer. On the macro side, in the Euro zone, July’s retail sales contracted unexpectedly, whereas the final Services PMI was raised slightly. In Spain and Italy, August’s Services PMI fell more than expected (to 47.7 and 47.1, respectively). In the US, August’s ISM Services index fell in line with expectations to high levels of 56.9. From the Fed, R. Bostic claimed that the Fed has all necessary tools to bring inflation back to its desired level and that he would be satisfied with an inflation rate of ~2.4%. In Brazil, July’s industrial output contracted less than expected YoY, while August’s Services PMI increased from 42.5 to 49.5%, hitting levels that are compatible with activity expansion.
What we expect for today
European stock markets would open with slight gains, backed by a better performance of value stocks. Currently, S&P futures are down -0.4% (the S&P 500 ended largely flat vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 33.6%). Asian markets are falling (Japan -1.3% and Hong Kong -1.8%).
Today we will learn in Germany July’s factory orders and in the US the unemployment rate.

COMPANY NEWS

CHANGES IBEX 35
The IBEX 35 Technical Advisory Committee has decided to exclude MásMóvil (MAS) from the index as from 14 Sep. The Index will have 34 stocks until an extraordinary meeting is held on 7 Oct, in which the Committee will decide which stock will replace it (based on the result of the TOB on MAS, which finalises on 11 Sep). Press mentions that the more likely candidate would be Pharmamar, followed by Logista.

CAIXABANK, BANKIA. Announce study of their merger. We keep BUY on both.
Last night CABK and BKIA issued relevant facts explaining that they are studying their merger. The operation, with unknowwn details, would be through a share exchange. Assuming a premium similar to the last M&A in the sector (Intesa SanPaolo + UBI Banca) of + 15% over yesterday's closing price of BKIA would mean increasing capital in CABK for c. 35% (10 shares of CABK for every 15 shares of BKIA). Thus and considering a 30% cost synergies of BKIA (about 380 M euros net of taxes) that can be executed at 75% in 2021, the impact on BPA'21 of CABK would be + 15%. The operation would result in the first national entity by volume of assets and also the FROB (which holds c. 61% of BKIA) would dilute its stake to 15% BS (e) references. We value the operation very favorably, although we believe that the current environment of uncertainty (due to the final level of non-performing loans) would make it less attractive, so that, as has happened in the Italian operation, the market would only price the cost synergies' twenty-one. We would not rule out a counter-takeover from any other entity, especially BBVA. We continue to think that the M&A would emphasize its trend as of January'21 (with greater visibility in delinquencies and clearer guidelines in the treatment of badwill).