EUR 100.00 For Business Accounts Only

IBERIAN DAILY 27 JULY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ALMIRALL, IAG, MÁSMÓVIL, MELIÁ HOTELS, NH HOTELES.

MARKETS YESTERDAY AND TODAY

The IBEX falls in the week of the Restructuring Fund
It was a session of losses on both sides of the Atlantic due to the geopolitical tensions between China and the US, where the spread of Covid-19 has reinforced the halt in Europe despite the positive PMI surprise. In the Euro STOXX, all the sectors closed in the red, with Energy and Real Estate falling the least, whereas Technology and Pharma were the worst relative performers. On the macro side, in Europe the manufacturing and services PMIs rose more than expected into the growth zone (>50), in Germany and the UK as well. In Spain, for the second straight day new Covid-19 cases exceeded 1,000, and France has recommended its citizens not to travel to Catalonia, while the UK will require a 14-day quarantine for travelers from Spain, although they are currently negotiating the possibility of the Canary and Balearic Islands not being included in the measure. From the ECB, Luis de Guindos reiterated that banks are strong enough to face the impact of the virus. In the US, June’s monthly new home sales grew more than expected. In Japan, the final leading indicator for May was disappointing, whereas in Chins July’s industrial profits beat expectations. In US business results, American Express and Schlumberger beat expectations, while Verizon was in line.
What we expect for today
We expect a slightly bullish opening. Despite doubts on the performance of Covid-19 (increasing number of cases in China) or trade tensions, the expectations of a greater dovish bias by the Fed and of a tax agreement in the US will start to weigh on markets (in view of the weakness of the dollar). We will pay close attention to stocks linked to tourism in Spain. Currently, S&P futures are up +0.39% (the S&P 500 was up +0.20% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 25.84%). Asian markets are falling (Japan -0.15% and Hong Kong -0.1%).
Today in Europe we will learn June’s M3, in Germany July’s IFO and in the US durable good orders Book. In debt auctions: France (€ 7.5 Bn in 3, 6 & 12M T-bills), Holland (€ 4 Bn in 6 & 12M T-bills), Germany (€ 4 Bn in 12M T-bills) and Belgium (5 & 9Y bonds). In US business results, National Oilwell, Universal Health, and F5 Networks, among others, will release their earnings.

COMPANY NEWS

ALMIRALL. 2Q’20 Results in line on the operating level and better in cash. 2020 guidance cut. BUY.
The 2Q’20 Results were in line with the consensus on the operating level (EBITDA -43% vs. –44% consensus) and above our expectations (–55% BS(e)), with sales very much in line (-9% vs.–10% consensus) although lower in Net Profit (€ -6 M vs. € 12 M consensus) due to a € -17 M deterioration (legacy portfolio in the US) without impact on cash. Good performance of net debt, which was lowered by -4% to € 371 M ex pension plans (1.3x NFD/EBITDA vs. € 411 M BS(e)). Its 2020 guidance was cut by -11% on average to between € 230-250 M of EBITDA (vs. € 260-280 M vs. € 231 M BS(e) and € 255 M consensus). Although the revision was expected, we would foresee a negative reaction as the consensus expectations were higher, although limited following its recent performance: -16% vs. IBEX and -17% vs. sector in one month (+4% vs. IBEX since the beginning of the pandemic).

IAG, BUY
The Group announced on Friday that it is studying the advantages of a rights issue with subscription rights totalling up to € 2.75 Bn (~63% of the current market cap), which would “further strengthen IAG’s balance sheet”. Also, the company mentioned that it has not taken a decision on whether to carry out or not this rights issue, or when it would be executed, and that a new announcement will be made when the company deems it appropriate.
Negative news. It was already known that the company is looking for new sources of liquidity (like the Amex deal, which we describe below), and rumours about a rights issue or a convertibles issue have been going on for months. Some media claim that this would not take place before the summer, while others argue that this would be a measure of pressure by the company to receive more support/aid from the Spanish and British governments (new liquidity lines, tax reductions, etc. have been mentioned). We recall that as of the end of April, IAG’s liquidity position totalled € 10 Bn, which allows the company to face the rest of the year with some degree of calm. It should be noted, however, that the company’s current operating situation seems to be worse than expected, as passengers are reluctant to fly and the situation of key activities, such as the resumption of transatlantic flights (~50% of capacity) remains uncertain (press speculations suggest that the company’s operations would not be back to “normal” until May/June 2021). Thus, we do not rule out that IAG may revise its forecast in its results presentation on 31 July, and we believe we will have to cut our estimates. As for the possible impact of a rights issue on our T.P., assuming the amount mentioned (€ 2.75 Bn) at an issue price of € 1.53/sh. (30% discount to Friday’s closing price), all things being equal, our T.P. would stand at €~2.50/sh. (+14% vs. Friday’s closing price). Thus, we believe that the possible rights issue would already be priced in at the current trading levels (the stock fell -5% on Friday).
HOTEL SECTOR
The UK government would have imposed a 14-day quarantine on all travellers coming from Spain. In this regard, TUI would have cancelled all its flights to peninsular Spain until the 9th of August.
Negative news (especially for MEL), which follows the already existing operating uncertainty. Note that UK tourists accounted for ~22% of all travellers visiting Spain in 2019. On another note, the Spanish government would be trying to exclude the Canary and Balearic Islands from the quarantine period proposed by the UK government, which if met would offset the setback for the sector to some extent, where we continue to recommend significant caution.