EUR 100.00 For Business Accounts Only

IBERIAN DAILY 27 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BBVA, EBRO FOODS, REPSOL.


MARKETS YESTERDAY AND TODAY

The Ibex pauses for a break
It was a session with hardly any macro references and little trading volume due to the Thanksgiving holiday in the US in which the Ibex was the worst performing index in the Euro zone, with losses of around -0.7%. Within the Euro STOXX, Travel & Leisure and Pharma led gains, vs. Autos and Energy, which were the worst relative performers. The ECB minutes confirmed the institution’s intention to resume monetary stimulus at its next meeting in December, whereas both the M3 and lending to businesses and households slowed in October. In China, industrial profits grew +28.2% YoY in October vs. +10.1% in September. In Japan November’s Tokyo inflation fell more than expected.
What we expect for today
European indices would open flat with a slightly bearish slant given the doubts on the effectiveness of AztraZeneca-Oxford’s vaccine and with the IBEX dragged down by the banking sector. Currently, S&P futures are unchanged (the S&P 500 was closed for holiday). Volatility in the US stood at 21.25 VIX. Asian markets are rising (CSI 300 +0.4%, Japan +0.25%).
Today, we will learn October’s economic climate index, in Spain October’s retail sales and in Brazil September’s unemployment rate. In debt auctions: Italy (€ 8 Bn in bonds due 2026 and 2031 and floating rate notes due 2026).


COMPANY NEWS

REPSOL. 2021-2025 Strategic Plan: optimistic in renewables but cautious in traditional businesses. BUY.
REP’s plan shows unambitious numbers, with € 1.5 Bn of Net Profit’22 (vs. € 1.79 Bn BS(e) and € 1.75 Bn consensus) and between € 2.3 Bn and € 2.4 Bn in 2025 (vs. € 2.37 Bn BS(e) and € 2.27 Bn consensus) despite a bigger bet on renewables, as there has been a significant cut to the traditional business (refining margin). It cuts its dividend policy by -15%, with the DPS’20 totalling € 0.60/sh. (7.1% yield), and will buy back shares starting in January 2022 (50 M shares annually/additional yield of 3.3%). It will sell non-strategic Upstream assets (for an unspecified amount) as well as renewable assets (to a partner/IPO) totalling € 1.4 Bn EV (13% of NFD). We lower our EBIT and Net Profit estimates for the 2021-25 period by -15% and -13% on average due to refining, and our estimates stand -8%/-4% below the consensus. We also cut our T.P. by -8% to € 9.60/sh. (+14% upside). Since lows the stock has underperformed its sector by -8%.

BBVA – BREAKDOWN OF MERGER TALKS
BBVA has confirmed the breakdown of merger talks with Banco Sabadell without stating the reason, which press sources attribute to a disagreement on the exchange ratio and distribution of power. There is now uncertainty on how to use the excess capital generated with the sale of the US business (€~8.4 Bn; 33% of market cap), with the bank stating that the plan is to make acquisitions in the markets in which it is present and/or for shareholder remuneration. The M&A options are complicated, and thus we see a substantial payout to shareholders as being more likely, which could boost the share price today, although we recall that this will not be carried out until the sale of the US business is completed (expected at the end of 1H’21). As for M&A, we would take a negative stance on acquiring minority stakes in Garanti in Turkey (€ 2 Bn at current prices), as this would mean a bigger risk in emerging markets, and we think a deal in Mexico would be difficult, where Bancomer is the market leader. In this regard, we do not rule out BBVA continuing to seek out M&A moves in Spain.