EUR 100.00 For Business Accounts Only

IBERIAN DAILY 28 OCTOBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKIA, COLONIAL, ELECTRICITY & GAS SECTOR, ENDESA, FERROVIAL, IAG, LAR ESPAÑA, LIBERBANK, MELIÁ, MERLIN PROPERTIES, OHL

MARKETS YESTERDAY AND TODAY

Anheuser shakes the Food sector
European stock markets consolidated highs from the 1Q’18. The Euro STOXX showed a mixed performance, with Retail and Basic Resources being the best performers vs. the drops of Food (Anheuser-Busch shed -10.7% after its results) and Technology. On the macroeconomic level, in Germany October’s IFO came in slightly above expectations although suggesting slowdown in the 4Q’19 GDP vs. 0.4% y/y expected by the consensus. From the ECB, F. Villeroy was comprehensive with critics to negative rates although he outlined that the uncertainty still calls for accommodative policies. On another note, C. Lagarde hinted at a revision of the monetary policies, which could mean a less proactive ECB than the market is forecasting. As for Brexit, the EU postponed the deadline again although a new date was not set, but rumours suggest the option of extending it to31/01/20 with the alternative of an anticipated exit on 1/12/19. In the US, October’s final University of Michigan consumer confidence came in below expectations. As for trade issues, a new round of talks will be held on 1/11 where China will request a reduction of tariffs (to US$ 250 Bn) in exchange for increasing the purchase of farm products. In Argentina, Fernández finally won the presidential elections (also gaining the control of Buenos Aires government), obtaining the mayority of the Senate and close in the Chamber of Deputies. From now on, the FX restriction is limited to the purchase of $ 200 per month. In China, the slowdowown in industrial gains deteriorated in September to -5.3% annually. In US Results Phillips 66 came in better, Verizon very much in line and VF Corp showed disappointing figures.
What we expect for today
In a week when we highlight the Fed meeting and the US GDP and employment data, stock markets would open lacking a clear direction. Currently, S&P futures are up +0.12% (the S&P 500 was down -0.14% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 12.65%). The Asian markets that are open are rising (Hong Kong +0.86% and Japan +0.30%).
Today in the euro zone we will learn September’s M3. In the UK, the British Parliament will have a vote on whether to call a snap election. Also we will learn, In Mexico September’s trade balance, in the US Chicago Fed index and estimated wholesale inventories (both for September). In US Results, AT&T, Loews and Alphabet (Google), among others, will release their earnings. As for auctions, France will issue € 5.4 Bn in 3, 6 & 12M T-bills.

COMPANY NEWS

BANKIA, SELL
The company has released results fully in line in core results (NII+fee revenues-operating expenses). Thus, the higher trading revenues offset the higher provisions (lending and generic). In this regard, note that the better impairment in NPL that set the CoR at 21bps. With this in mind, in Net Profit results were once more fully in line with the consensus (slightly better than BS(e)). The capital generation came in at +10bps on the quarter (leaving the LF CET at 13% as of 9M’19 vs. 12.91% in 1H’19). The most positive Reading lies in non-doubtful lending growth, which rose +0.2% vs. 3Q’18 and vs. -0.4% BS(e), and thus with the NIM squeeze to 1.72% (vs. 1.75% as of 1H'19) hitting NII by -2.7%, in line with expectations and slightly worse than forecasted by the consensus.
In conclusion, weak results in revenue generation that should not have a positive reading.

SPANISH REIT SECTOR REPORT. In a sweet spot.
The sector is in a sweet spot: rising rents along with ultra-low interest rates, or in other words, the best of both worlds. We release a sector report in which we reiterate our BUY recommendation in MRL (T.P. € 15.79/sh., +9% vs. previous T.P.) and LRE (T.P. € 9.82/sh., -10%), whereas in COL, following the strong performance in 2019 (+42%) we downgrade our recommendation from BUY to SELL (T.P. € 12.35/sh., +11%). We expect +13% NAV growth (2018-21) in COL, +7% in MRL and -1% in LRE. These figures, reflecting the different growth outlooks in the office and retail segments, are trading with a -26% discount to NAV in LRE, -13% in MRL and +9% in COL. Our top pick in the sector is MRL, thanks to its risk/reward ratio.

IAG, BUY
The company released the tri-annual valuation of British Airways’s NAPS pension fund, which would have reduced its deficit from £ 2.8 Bn to £ 2.4 Bn, according to the information made public. On another note, and in the framework of this valuation agreement, British Airways has increased its flexibility to carry out dividend payments to IAG from 35% of Net Profit to 50%.
Positive news. With all things remaining equal, the reduction of the pension deficit outlined (regarded as debt in our valuation) would have a positive impact on our valuation of approx. +4%. Additionally, this news adds visibility to one issue that usually generates uncertainty on the share price.

MELIA: 3Q’19 Results preview and cut to estimates. We maintain our BUY recommendation
We forecast weak 3Q’19 results (to be released on 07/11), affected by the poor performance in LatAm (~40% of EBITDA), which will mar the solid performance in the Urban business (~32%) and to a certain extent in the Spanish resort business (~23%) thanks to the strong domestic demand. Thus, group EBITDA (excl. capital gains) would go from +1.3% growth in 2Q’19 to -2.3% in 3Q’19. Added to the weakness in LatAm (problems in the Dominican Republic) are the doubts surrounding Thomas Cook and Catalonia, leading us to cut EBITDA’19 by -4% and by -9% in 2019-21. We cut our T.P. to € 8.70/sh. (-21% vs. previous; +19% upside). After falling -24% YtD in 2019 (-15% vs. the sector), MEL is trading at a -35% discount to its historical average in EV/EBITDA (not seen since 2008, despite the fact that debt is now -40% lower).

UNICAJA, BUY
In its 3Q’19 results, UNI has generated € 43 M of Net Profit (-19% vs. 2Q’18), in line with the consensus estimates and slightly above our estimates. Performance in Operating Income has been substantially better (€ 139 M, +58% vs. € 75 M BS(e) and € 83 M consensus), explained exclusively by higher trading revenues (€ 43 M vs. €~2 M BS(e)). The bank has taken advantage of it this additional growth to make a provision of € 40 M for restructuring costs pending and to increase its provisions for NPLs in anticipation for the portfolio sales announced in the 2Q’19.
Excluding this factor, core performance was in line with expectations, although with lower NII (€ 144 M, -2.7% vs. 2Q’19 and vs. -1.4% expected), impacted by the smaller contribution from the ALCO portfolio (due to portfolio sales) and lower growth in volumes due to seasonality. Commissions (+4.8% vs. 3Q’18) came in as expected, and remain underpinned by transactional commissions (+13.5% vs. 3Q’18). Operating costs (-4%) were in line and the CoR (15bps vs. 10bps BS(e)) includes one-off impairments, excluding which they would have come in as expected. Lastly, the CET1 ratio (13.3%) improved by 40bps above our estimates.
We expect a neutral market impact, given that the core performance shows some weakness that we were already expecting.