EUR 100.00 For Business Accounts Only

IBERIAN DAILY 13 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ALMIRALL, BANKINTER, CAF, MEDIA SECTOR, PROSEGUR, TÉCNICAS REUNIDAS.

MARKETS YESTERDAY AND TODAY

IBEX pricing in the political risk
The news of a coalition government between the PSOE and UP erased the gains on the Spanish stock market, which closed as the worst performer in Europe (IBEX 35 -0.9% vs. Euro Stoxx +0.5%). In the Euro Stoxx, Industrials and Chemicals led the gains vs. Real Estate and Consumer Goods, which were the only sectors with losses. On the macro side, in Germany November’s ZEW recovered more than expected, suggesting a floor has been hit in the IFO. From the ECB, L. de Guindos stressed the harmful effects of the accommodative policy, ruling out risks of a recession in the short term. In the UK, September’s unemployment rate unexpectedly fell -0.1% to 3.8%. In the US, from the Fed, Harker, Barkin and Kashkari were in favour of the current monetary policy, characterising it as between neutral and accommodative. Separately, Trump threatened to raise tariffs if an agreement is not reached with China (although he was confident it will be reached), and Kudlow stated that tariffs will not be lowered until an agreement is signed. In Brazil, September’s economic activity index recovered more than expected. In US business results, Dr. Horton and Linde beat expectations, with Tyson Foods releasing disappointing earnings.
What we expect for today
European bourses would open with drops of around -0.5%. Currently, S&P futures are down -0.21% (the S&P 500 was -0.15% lower vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 12.68%). The Asian markets that are open are sliding (Hong Kong -2.03% and Japan -0.85%)
Today in the US Powell will appear before the Congress and we will learn October’s inflation, in Germany we will learn October’s final inflation figure, in the UK October’s inflation, in the euro zone September’s industrial output and in Brazil September’s retail sales. In US business results, Cisco Systems and NetApp, among others, will release their earnings. Debt auctions: Italy (up to € 7.5 Bn in 3Y, 7Y and 30Y bonds), Portugal (€ 500 M in 10Y bonds) and Germany (€ 3 Bn in 10Y bonds).


COMPANY NEWS

ALMIRALL. Accelerated bookbuild of 6.3% of the capital. BUY.
The company’s majority shareholders, Jorge and Antonio Gallardo (66% ALM), have carried out an accelerated bookbuild of up to 11 million shares (6.3% of the capital) among qualified investors at € 15.25/sh. (-10% vs. yesterday’s close). The deal includes a 180-day lock-up period. Negative news given the significant discount and the fact it is a divestiture from the main shareholders (justifying their decision by their interest in increasing the stock’s liquidity), who still hold around 60% of ALM, and which could generate doubts in the medium-term. On another note, the fundamentals remain unchanged and we would take advantage of the discount to BUY.

CAF. Results in line with our estimates but worse than those expected by the consensus in EBITDA. BUY.
The company’s 9M’19 Results were in line with our estimates (slightly above in adjusted Net Profit) although below the consensus in EBITDA (-1.9% YTD and -5.7% on the quarter). The disappointment vs. the consensus is explained by expectations +50bps higher than 9.2% of adjusted EBITDA margin released for the quarter. Despite the fact that results were very much in line with our estimates and the positive performance of the order backlog (+18% vs. Dec’18), the worse margins than expected by the consensus could mean a slightly negative market reaction. CAF has climbed +2% vs. IBEX in the past month (3.5% YTD).

MEDIA SECTOR
According to the press, yesterday the CNMC (antitrust body) approved the resolution on the file open on Atresmedia and Mediaset España for having breached antitrust laws in the TV advertising segment. In this regard, in the end the body could hand down a sanction of between € 36-40 M on each group (the amount has not been confirmed) for “abuse of their dominant position and taking measures to hinder third-party competition”. In addition to the economic sanction, the regulator would seek for both companies to change their marketing practices: prohibiting joint or bundled sales on their channels (single bundling), minimum advertising quotas and premium payments to media agencies.
Negative news. As regards the fine (still pending confirmation), we understand that the companies will appeal, and thus the process will take time. In this regard, Atresmedia (as commented in a breakfast with investors in October’19) believes that there are no solid arguments, and thus the appeal will most likely fail (in principle the fine will not be provisioned), and the company stresses that it will be a long process that could take another 5 months (from the CNMC’s announcement).
The amount, between € 36-40 M per company, would mean ~20% of Net Profit and ~2.1% of TL5’s market cap and ~31% and ~4.4% for A3M. As for the marketing restrictions, a change would be required, as well as new alternatives to maximise the power ratio (currently at ~1.5x, a high figure thanks to the audience concentration, which is still far above the levels of the rest of the channels). However, both companies continue to lead in audience figures (26.5% for A3M and 28.8% for TL5 in 2019) with strong main channels (A3, la Sexta, Cuatro and TL5) to be able to offer high penetration levels in the target market.

TÉCNICAS REUNIDAS, SELL
The company announced at yesterday’s closing bell it has been awarded two new contracts worth € ~400 M, which increases the YTD order intake to € 4.73 Bn (~1x sales) vs. our € 3.5 Bn recurring estimate.
(i) The first project, Tuban, includes the engineering development of a large refining and petrochemical facility in Indonesia for the JV between PT Pertamina (55%) and Russia’s PJSC Rosneft Oil Company (45%)
(ii) The second is a project for the reduction of emissions in Canada for Suncor.
Positive news although of limited impact given the size. In any event, our recurring order intake estimate could be increasingly conservative, and thus we will have to raise it: additional € ±250 M have an impact of valuation of ±4.4%. Even if it is overly optimistic, if we were to assume the amount obtained in 2019 (exceptionally good), we would see an upside of +13% in recurrent terms. On the contrary, if we were to assume a level more in line with the average seen over the last few years in recurrent terms ( around € 4 Bn vs. € 3.5 Bn BS(e)), the upside would be only +2.
The key, as always, will lie in margins (that will be released today with its 3Q’19 Results): higher order intake in the absence of an improvement could be seen as a negative input.