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IBERIAN DAILY 03 MARCH (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BBVA, FCC.

Stock markets ignore the risks
Despite the doubts surrounding how long Central Banks will continue to tighten their policies, European stock markets managed to recover and close in positive numbers. In the Euro STOXX, the best-performing sectors were Construction, Food and Energy, whereas Travel & Leisure and Retail ended with the biggest drops on the day. On the macro side, in Spain the number of unemployed continued to fall in February (-6.4%), whereas Social Security registrations (job creation proxy) stabilised at 2.5% for the year. In the euro zone, February’s preliminary inflation fell less than expected (8.5% YoY vs. previous 8.6%), while the core figure rose unexpectedly to 5.6%, backing the ECB’s rate hike roadmap with the Dec’23 Euribor futures already at 4%. In this regard, C. Lagarde warned that interest rates may continue to be raised following a +50bps hike in March. In the ECB’s meeting minutes, we highlight that the euro’s appreciation means less inflationary pressure later on, and most members believe that worries on tightening of financial conditions are excessive. In the US, weekly jobless claims fell unexpectedly, while final 4Q’22 non-farm productivity rose less than expected, which contributed to labour costs rising much more than expected. In Japan, January’s unemployment rate fell unexpectedly, the services PMI rose to 54 and Tokyo inflation for February fell in line with expectations. In China, February’s Caixin services PMI rose to 55 from the previous 52.9.
What we expect for today
The European stock markets would open with gains of up to +0.5% that could be erased after the publication of the US ISM data. Currently, S&P futures are down -0.12% (the S&P 500 ended +0.96% higher vs. the European closing bell). Volatility in the US decreased (VIX 19.59). Asian markets are rising (China’s CSI 300 +0.33% and Japan’s Nikkei +1.56%).
Today in the euro zone we will learn February’s services and composite PMIs as well as January’s production prices, and in the US February’s non-manufacturing ISM.


COMPANY NEWS

FCC, BUY
According to the press, FCC would be negotiating with CPPIB to sell between 20% and 30% of its Environmental Services division (45% EBITDA; 40% EV), which according to the same article could be valued (EV) at around € 6 Bn.
In the absence of the deal’s confirmation and selling price, the news is surprising, bearing in mind that FCC now has a solid financial position (~2.4x NFD/EBITDA). With all this in mind, the impact on the valuation will depend on the selling price. Note that our T.P. values Environmental Services at € 4.19 Bn (40% EV; 7.1x EV/EBITDA’22), and thus if it were to be sold at € 6 Bn (~10x EV/EBITDA) we would have a positive impact of more than +20% on our valuation.