EUR 100.00 For Business Accounts Only

IBERIAN DAILY 20 DECEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BBVA, CAIXABANK, ENAGAS, LOGISTA, PROSEGUR, SIEMENS-GAMESA.

MARKETS YESTERDAY AND TODAY

Little movement on stock markets despite Central Banks
With Central Banks sticking to the script, stock markets erased some of the gains from previous days. Within the Euro STOXX, the best-performing sectors were Energy and Real Estate, whereas Autos and Construction saw the biggest drops. On the macro side, in the United Kingdom, the BoE maintained rates unchanged as expected at 0.75% (7 votes in favour and 2 votes against), leaving the door open to stimulating growth if uncertainties persist. In this sense, November’s retail sales slowed more than expected. In the US, the Philadelphia Fed index disappointed, and second-hand home sales contracted more than expected in November. From the Fed, J. Bullard sees no reason to change reference rates in 2020. On another note, Congress passed the new NAFTA (USMCA), which will now be brought to the Senate, which passed the spending bill to avoid a possible shutdown on Saturday. In Japan, core inflation climbed above expectations in November (general inflation came in as expected). In Mexico, the Central Bank cut by 25bps the reference interest rate to 7.25%, as expected. In China, the government announced new tariff exemptions on certain US imports from 26 December. Separately, the PBoC left the interest rate for 1Y and 5Y loans unchanged at 4.15% (it was expected to be cut to 4.10%) and 4.85%, respectively. In US business results, Nike beat expectations, but sales in the US were disappointing.
What we expect for today
The markets would open with gains of +0.2%. Currently, S&P futures are trading unchanged (the S&P 500 closed up +0.14% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 12.50%). Asian markets are trading with mixed results (Japan -0.20% and Hong Kong +0.09%).
Today we will learn in the UK the 3Q’19 GDP (final), in Mexico October’s retail sales, in the US the 3Q’19 GDP (final), November’s personal income and outlays, and the University of Michigan confidence (December).

COMPANY NEWS

BBVA – Goodwill impairment in the US. SELL
At yesterday’s closing bell the bank announced an impairment of its US subsidiary’s goodwill totaling US$ 1.5 Bn (€~1.35 Bn) in 4Q’19. This represents ~26% of goodwill in the US and 28% of Net Profit’19 BS(e), but it has no impact on CET1, and BBVA has confirmed that it will not affect the dividend (€ 0.26/sh. BS(e); 5% yield). Although the news is negative, it should not have a significant impact on the share price, as the worsening results in BBVA Compass as a result of the macro backdrop and the change in the interest rate cycle, the reasons behind the adjustment, are already expected. Our estimates for the US assume a drop in accumulated Net Profit’19-21e of -7% (+5% consensus), compared to a CAGR’15-17 of around +11%.

ENAGÁS, SELL
Before yesterday’s opening bell, the company communicated the 4.3% discount (vs. previous day’s close) at which the € 500 M capital increase without rights was conducted (through accelerated bookbuild) to finance the acquisition of Tallgrass (35% of €~1.4 Bn).
In our view, the acquisition of Tallgrass has a neutral contribution to valuation if the success of future investments are not assumed (we recall that the company pays 15x P/E vs. current trading levels of 12x). That said, the rights issue with the -4.3% discount vs. the previous day’s close (-9% vs. our T.P.) has a negative impact on our valuation of -1%, and thus, we fine-fine our T.P. to € 23.39/sh. The transaction is therefore negative for the current shareholders, as it might cut the EPS by as much as -9% (impact of up to 65bps on the DVD yield to 6.9%), but it has a positive effect, as ENAG would maintain its rating (BBB+ according to S&P), as its NFD/EBITDA ratio would remain at levels of 3.8x vs. 4.2x without rights issue.