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IBERIAN DAILY 14 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKIA, CAIXABANK, SACYR.

MARKETS YESTERDAY AND TODAY

IBEX unable to reach 7,000 points
It was a calm session with few surprises in Europe after the ECB meeting, and with the IBEX the worst performer of the main European indices. In the Euro STOXX, the best-performing sectors were Consumer Goods and Retail, with Banks and Travel & Leisure the worst performers. On the macro side, August’s final inflation confirmed the preliminary data for both Germany (0% YoY) and Spain (-0.5% YoY, core at 0.4% vs. 0.6% previously). In Spain, the uncertainty about the extension of the temporary redundancy plans (ending at the end of Sep’20) threatens with massive layoffs at the end of the year. In the UK, July’s industrial output recovered more than expected. From the ECB, P. Lane warned that the euro’s appreciation has changed the inflation outlook, which could be in negative territory until the end of the year, stating that more stimuli could be needed. In the US, August’s inflation was higher than expected, coming in at 1.3% YoY. In Japan, July’s final industrial output was slightly raised.
What we expect for today
Stock markets would open with gains of 0.5% driven by Asia and the US and the news that AstraZeneca will resume the phase III tests in the UK that had been suspended. Currently, S&P futures are currently up +1.15% (the S&P 500 was down -0.2% vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 26.87%). Asian markets are rising (Japan +0.6% and Hong Kong +0.5%).
Today in the euro zone we will learn July’s industrial output. Debt auctions: Germany (€ 8 Bn in 3M and 9M t-bills), Netherlands (€ 4 Bn in 6M and 12M t-bills) and France (€ 5.3 Bn in 3M, 6M and 12M t-bills).


COMPANY NEWS

CAIXABANK, BKIA, both BUY
All the press is mentioning the delay by the Boards of Directors in approving the merger which, although it had not been confirmed, seems to have occurred yesterday. Also unconfirmed, the press suggests that it could come on Wednesday. Among the reasons for the possible delay, the most significant would be the negotiation of the exchange ratio, as the FROB requires a premium of at least +20% over BKIA’s share price (meaning a price of € 1.24/sh. vs. the closing price on 03/09), whereas CABK is considering a scenario of a 15% premium (€ 1.19/sh.). In this regard, and according to our numbers, a 20% premium would mean an exchange ratio of 24% BKIA/76% CABK, whereas the current share prices are factoring in a ratio of 26% BKIA/74% CABK (which would mean a 30% premium).
Separately, and also according to the press, the ECB would have given a preliminary go-ahead to the merger and would not require a capital increase in order to strengthen the merged company’s ratios. Likewise, it seems that the restructuring costs would be able to be split into instalments (€~1 Bn BS(e)) over several years.
We do not expect a significant impact from the news, which also coincides with our base-case scenario (premium of 15-20% and merger without the need for a capital increase). In this regard, bearing in mind that the current share prices mean a higher premium for BKIA (~30%), we see more risk of a drop in BKIA and would continue to bet on the deal through CABK. Due both to this and the possibility no agreement is reached (which we see as unlikely), there would be more pressure on BKIA’s share price than on CABK’s, where the current share price does not even reflect the bank’s valuation on its own (+12% upside vs. our T.P. and -11% in BKIA).