EUR 100.00 For Business Accounts Only

IBERIAN DAILY 19 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKINTER, CAF, ELECTRICITY AND GAS SECTOR, TELEFÓNICA, PROSEGUR.

MARKETS YESTERDAY AND TODAY


The Fed comes to the rescue once again
European indices posted gains ahead of the Fed, which in the end adhered to the script and cut rates (the fed funds by -0.25bps to a range of 1.75%-2.0% and the excess reserves rate by –0.30bps to 1.75%), leaving the door open to further cuts despite discrepancies among members on the path to follow (with E. George and E. Rosengren against the cut and Bullard in favour of a deeper cut). Within the Euro STOXX, Utilities and Real Estate were the best performers, whereas Basic Resources and Banks saw the biggest drops. On the macro side, in the Euro zone, August’s core inflation confirmed the preliminary figure (0.9% YoY). From the ECB, L. de Guindos spoke in favour of a common fiscal policy to boost the economy. In Italy, the Government lowered 2019 and 2020 GDP growth to 0.1% and 0.4%, respectively, raising public deficit to -2.3% in 2020 vs. -2.04% in 2019. In the United Kingdom, August’s inflation slowed sharply, with general inflation falling to 1.7% YoY and core inflation to 1.5%. In the US, President Trump asked the treasury to raise sanctions on Iran. In Brazil, as expected, the Central Bank cut the Selic rate by 50bps to 5.5%. In Japan, the BoJ maintained the monetary policy unchanged, and will revise its growth and inflation estimates in October.
What we expect for today
Stock markets would see a slight bearish opening due to the lack of catalysts.
Currently, S&P futures are sliding -0.16% (the S&P 500 closed +0.15% higher vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 16.70%). The Asian markets that are open are mixed (Hong Kong -1.34% and Japan +0.63%).
Today we will learn in the UK, the BoE rates meeting, in the US the Philadelphia Fed index for September, weekly jobless claims and August’s second-hand home sales. In debt auctions: Spain (€ 4.5 Bn in bonds due 2021, 2029, 2032 and 2035) and France (€ 10.75 Bn in bonds due 2023/2025/2026 and I/L due 2028/2029/2036).


COMPANY NEWS

ELECTRICITY AND GAS SECTOR
According to Bloomberg’s leaks made public yesterday (outlined today by all the press), some member of the Cooperation Commission (debate table between the CNMC and the Industry Minister where the cuts proposed to the gas and electricity remuneration are discussed) suggested at the end of the first meeting that a possible change/softening of the cuts proposed by the CNMC at the beginning of July cannot be ruled out.
While this would mean technical changes for the electricity sector (electricity companies are requesting time periods for consumers 70%.
Meanwhile, a scenario where the cuts are fully kept would have a negative impact on trading prices, especially in Enagas, Red Eléctrica and Endesa (-8%, -11% and -7%, respectively). In Iberdrola and Naturgy, the impact would be very limited at current levels.


TEF, BUY
According to Reuters, the Brazilian player Oi (3rd largest player in Fixed Broadband and 4th largest mobile operator in Brazil, with a market share of ~18% and ~16%, respectively) would be in talks over the sale of its mobile business. According to this news, the company would be seeking to obtain more than BRL 10 Bn (€~2.2 Bn), with TEF, TIM (Telecom Italia) AT&T and a Chinese operator (unspecified) among the possible candidates.
In our view, the sale of Oi’s mobile business (or even the entire company) to players that are already present in the country would be very positive to consolidate the market. We understand that, the offers that may be submitted by TEF/TIM (even if América Móvil took part in the process) would be higher than those submitted from other participants (AT&T or the Chinese player) thanks to the synergies that could be generated, although the transaction would still be pending regulatory approval (and the possible remedies that could be proposed). In the event of TEF getting hold of 100% of the mobile asset (which we would rule out for competition reasons), at the valuation levels that have been mentioned (€ 2.2 Bn, which would mean an EV/EBITDA ratio of ~6.6x BS(e) vs. ~5.9x TEF and vs. ~7x our implied valuation for TEF Brazil), this would mean increasing NFD by around +6%, but would have an impact of >+5% on our T.P. (due to the synergies).
TEF’s business in Brazil accounts for 23% of the company’s EBITDA and 21% of its EV.