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IBERIAN DAILY 29 AUGUST (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BBVA, EBRO FOODS, ENAGÁS.

MARKETS YESTERDAY AND TODAY

Market gains slow
Despite European indices falling by around -1% during a large part of the session, the good market opening in the US and the last-minute increase in the crude oil price led stock markets to end flat. Within the Euro STOXX, there was a mixed performance among sectors, with Energy and Telecoms being the best-performing sectors and Insurance and Financial Services seeing the biggest drops. On the macro side, in the Euro zone, money supply M3 accelerated more than expected in July. Separately, Nowotny, in tune with De Guindos a few days ago, warned that the ECB should be ready to disappoint markets, making decisions only subject to the macroeconomic environment. In the United Kingdom, Queen Elizabeth II consented to B. Johnson’s request to suspend Parliament for one month from the second week of September, which would make it difficult for the House to prevent a no-deal Brexit on 31 October. In Italy, waiting to know further details on the composition of the government, the left coalition between the 5-Star Movement and the Democratic Party appears to be ensured. In the US, D. Trump once again criticized the Fed over its monetary policy and the spread of the cost of debt vs. Germany. On another note, Mnuchin confirmed that the government is studying issuing ultra short-term bonds (with a 50Y and 100Y duration). In Argentina, the peso depreciated again yesterday, and the government announced a debt restructuring plan.
What we expect for today
Awaiting new catalysts, the stock markets would see a slightly bearish opening, where defensive sectors should perform better in relative terms.
Currently, S&P futures are down -0.22% (the S&P 500 closed largely unchanged vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 19.35%). The Asian markets that are open are trading with mixed results (Hong Kong +0.15% and Japan -0.12%).
Today, we will learn: in Spain, August’s preliminary inflation; in Germany, August’s unemployment and preliminary inflation data; in the Euro zone, the Economic climate index for August; in the US, weekly jobless claims, the second reading of the 2Q’19 GDP, preliminary wholesale inventories for July and pending home sales for July; in Brazil, the 2Q’19 GDP. In debt auctions: Italy (€ 7.25 Bn in bonds due 2024, 2030 and CCT due 2025).


COMPANY NEWS

ENAGÁS, SELL
According to the press, Blackstone Infrastructure Partners (25% ENAG) would have launched a non-binding offer to raise its stake in the US firm Tallgrass from 44% to 100%, which would mean that ENAG’s indirect stake would go from 12.5% to 25% should it participate, which has not been decided yet. According to the press, the offer values Tallgrass at US$ 3.5 Bn/€ 3.158 Bn (+36% premium vs. last closing price but -17% below the price paid by ENAG when it entered the shareholding).
Awaiting confirmation by ENAG, the next step would be knowing the extent of its contribution to the holding firm to carry out the acquisition. In this regard, when ENAG entered the shareholding, it agreed to provide up to US$ 300 M/€ 270 M (6% NFD) for future investments, meaning that we would expect similar cash outflow levels.
News with a slightly negative slant, since, although S&P already downgraded ENAG’s rating when it entered the shareholding, the impact from increasing its position could negatively affect its rating as well.
Although there is little information available, we believe that the acquisition has a strategic fit (Tallgrass has 11,000 Km of gas transportation pipelines, 2,400 Km of gas extraction pipelines and an oil pipeline of 1,300 Km), but is demanding on the value-enhancing level. When it first entered the shareholding, we concluded that, to obtain an IRR higher than 10% (ENAG’s requirement for this type of investment), Tallgrass will need a FCFE of more than US$ 900 M / € 800 M, a figure that is in line with Tallgrass’ EBITDA’19e, but we would have to subtract investments. That is, the positives of the deal on the quantitative level will depend on the growth delivery in Tallgrass.