EUR 100.00 For Business Accounts Only

IBERIAN DAILY 16 MAY + 1Q’22 RESULTS. HIGHLIGHTS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BBVA, CELLNEX, ELECTRICITY SECTOR, REPSOL.

At the end of today’s report, and during the entire results season, we will include a presentation with positive and negative results highlights and previews for the 1Q’22 results to be released over the coming days in Spain.

Europe saved the week
In a week marked by the growing concern on economic growth in view of the toughening monetary policies and geopolitical tensions, European stock markets ended the week with gains of around +2% thanks to the rally during thr last session and the boost from the US. In the Euro STOXX, almost all the sectors managed to close the week with gains, led by Banks and Travel & Leisure, whereas Basic Resources and Media ended with the biggest losses. On the macro side, in Spain April’s final inflation was lowered to 8.3%. In the euro zone, March’s industrial output fell less than expected. Germany announced that it will stop importing Russian crude oil by the end of the year. In the US, the University of Michigan consumer confidence index for May fell more than expected. In China, industrial output fell unexpectedly in April and retail sales fell more than expected, as did residential investment. Separately, total financing in April came in far below expectations, as did new loans. Lastly, Shanghai announced the reopening of some businesses, whereas Beijing has extended working from home schemes due to the rising Covid-19 cases. In US business results, Tapestry beat expectations.
What we expect for today
European markets would open with slight losses, where stocks exposed to China both directly (consumption) and indirectly (basic materials, energy) would be penalised in view of the poor macro data in April due to the lockdowns. Currently, S&P futures are down -0.5% (the S&P 500 ended up +0.2% vs. the European closing bell). Volatility in the US fell (VIX 28.9). Asian markets are mixed (China’s CSI 300 -0.6% and Japan’s Nikkei +0.6%).
Today in the US we will learn May’s Empire manufacturing index. In debt auctions: Germany (€ 3 Bn in 12M t-bills).

COMPANY NEWS

ELECTRICITY SECTOR
In the end, on Friday in an extraordinary Cabinet meeting the Spanish Govt. approved the measure to intervene on gas prices on the wholesale electricity market. Specifically, the mechanism means:
(i) Limiting the gas price at € 40/MWh over the next 6 months. At that point, the price will begin to rise progressively to an average of € 48.80/MWh within a year, which would translate into an average pool price of € 130/MWh (vs. € 210/MWh average over the past few months).
(ii) It will be applied for 12 months starting the day after the publication of the official state bulletin (on 14 May) and subject to formal approval by the EU (this formal approval could take 7-10 days for administrative or technical reasons). As one of the conditions for approval, the EC would have required the Govt. reform the method by which the voluntary price for small consumers is calculated, incorporating a price component based on a basket of annual, quarterly and monthly products, as well as a daily and intraday market price component, meaning that the new formula could begin to be applied in early 2023.
(iii) It will be funded by all consumers: immediately by consumers with the voluntary price for small consumers (accounting for 38% of clients in Spain and 11% of energy supplied/electricity consumed) and indexed to the pool price and free market with a set price as contracts are renewed. Consumers with long-term contracts without a 12-month renewal will not be affected.
This measure would not have an impact on the integrated utilities, as demand will have to defray the compensation: immediately consumers with the voluntary price for small consumers and indexed to the pool price and free market with a set price as contracts are renewed. For purely renewable companies with higher exposure to the pool, the impact would not be significant, either. Although at first glance the reading could be somewhat more negative as regards higher cap prices than had originally been considered (has cap above € 70/MWh and pool price above € 150/MWh), in reality the average pool price for 2022e will continue to be high (average price until April over € 200/MWh and starting in May € 130/MWh on average), and in any event higher than what we include in our estimates (€~100/MWh).
With all this in mind, in our coverage universe we continue to prefer companies with greater exposure to renewables, where we highlight Iberdrola, Ecoener (with lower upside), Acciona, Acciona Energía and Solaria.

REPSOL, BUY
MAPFRE, BUY
The Peruvian authorities have announced a lawsuit, among others players, against REP for USD 4.5 Bn (c. € 4.3 Bn) for the oil spill that occurred in Peru in January. The claim includes c. € 2.8 Bn for the damages caused and c. € 1.5 Bn for non-material damage to affected consumers, users and third parties. The lawsuit for damages would be against six defendants Repsol (Spain), Mapfre Global Risks (Spain), Mapfre Peru Insurance and Reinsurance Companies (Peru), La Pampilla Refinery (Peru), Transtotal Agencia Marítima (Peru), and Fratelli d 'Amico Armatori (Italy).
On the other hand, REP has issued a statement where it has described the claim as "unfounded and inadmissible" and that the compensation estimate "lacks the slightest basis". In addition, the company believes that the accident that caused the spill was caused by a sudden displacement of the Mare Doricum oil tanker that destroyed the hoses and the unloading system, initiating legal action against the ship's owner and its insurer.
Negative news since the amount of the demand is high (c.20% of REP market cap), but after this announcement of demand we understand that a long judicial process is opened where responsibilities have to be determined (the legal demand would be against six defendants) and where REP is covered by having insurance precisely for this type of contingency. On the other hand, Pampilla in Peru weighs 1.9% of REP's EBIT'21 and its position in the country 7% of total production (in the Camisea deposits, which has no effect due to this problem).
In the case of MAP, the potential impact in the event that Peru's claim succeeds should be limited given that the company has already confirmed that most of the risk of this policy has been reinsured.