EUR 100.00 For Business Accounts Only

IBERIAN DAILY 29 JUNE (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ANNUAL SPANISH MARKET UPDATE, BBVA, FERROVIAL, GRIFOLS, TÉCNICAS REUNIDAS.

The ECB fuels the European stock markets
The European stock markets closed in positive numbers after Lagarde cooled fragmentation risks by announcing that as from the 1st of July the reinvestment of the maturities in the PEPP portfolio will begin, totalling € 1.7 Tn. Moreover, the ECB continues to work on the new anticrisis tool, and it could give details on the size and duration of the new purchases, although setting some conditions on Member States. Separately, the ECB reiterated a +25bps rate hike in July, leaving the door open to a +50bps rise in September if inflation is not kept in check. Thus, within the Euro STOXX, except for Technology and Travel&Leisure, almost all sectors posted gains, with Utilities and Insurance leading the way. On the macro side, poor data in the US, where consumer confidence slowed more than expected in June (in line with the latest drops in the S&P500) and the Richmond Fed index fell more than expected. From the Fed, J. Williams and M. Daly cooled recession risks, suggesting a soft landing for the US economy, although admitting that it must still act against inflation. In the United Kingdom, the Scottish Govt. has announced its intention to hold a consultative referendum on independence in October 2023. In China, Covid-19 restrictions continued to be eased, making the quarantine period more flexible for travelers. In the G7 Summit there were talks with China and India on the cap on oil prices. In the NATO Summit, Turkey withdrew its veto on the inclusion of Finland and Sweden.
What we expect for today
The European stock markets would open with slight losses due to a weaker performance of the cyclical stocks with a greater exposure to Asia, such as Basic Resource. Currently, S&P futures are up +0.23% (the S&P 500 ended down -0.88% vs. the European closing bell). Volatility in the US increased (VIX 28.36). Asian markets are falling (China’s CSI 300 -0.9% and Japan’s Nikkei -1.13%).
Today in the Euro zone NATO will hold its second-day meeting. Also we will learn June’s economic climate indicator, in Spain and Germany June’s inflation and May’s retail sales, and in the US the final reading of the 1Q’22 GDP.


COMPANY NEWS

ANNUAL SPANISH MARKET UPDATE
Today we are releasing our report on the Spanish market, in which we review our estimates and T.P. for all the stocks in our coverage universe and we highlight the top picks of our portfolios (model, 5-stock, high yield and Mid&Small cap). Throughout 2022, we have been increasing the cyclical profile of our portfolios to the detriment of the most defensive stocks, given that our macro scenario for the 2H’22 assumes a lower risk of an imminent recession. Of the total stocks within our coverage universe (58 vs. 57 in the last edition of this report in June’21), 86% have a BUY recommendation (vs. 75% previously) and 14% have a SELL recommendation (vs. 25% previously). In this report, we change from BUY to SELL: Acciona, due to a low valuation and because we prefer to play renewables through its subsidiary; Ebro Foods, since we believe that its exposure to inflation will continue to affect its margins; and Solaria, due to the lack of catalysts and low valuation. We change from SELL to BUY: Fluidra, as we believe that the correction (-42% from highs) has been exaggerated, and which we now include in our Mid&Small Portfolio replacing G. Catalana Occidente, and Técnicas Reunidas, where we see a lower financial risk and a better outlook for margins in the long-term. Additionally, we raise our target prices by +5% on average, with the most significant changes being: Arcelor Mittal (+52%), Repsol (+26%), Acciona Energía (+24%), Rovi (+16%), Acerinox (+14%), Bankinter (+14%). On the negative side, we lower the target prices for 14 stocks, with the most significant changes being those of Talgo and Ebro Foods (-12% both). Our Top-Down valuation of the IBEX as of Dec’21 stands at 9,250 points, with an implied P/E as of Dec’22 of 12.9x vs. the 12-month forward rate’s current trading levels of 11.5x and vs. 13.5x average expected for the 2010-2022 period. Our Bottom-Up valuation of the 12M forward stands at 11,186 points.

BBVA. Adjustment for hyperinflation in 2Q’22. BUY
After yesterday’s closing bell the company confirmed that it will begin to account for hyperinflation in Turkey in 2Q’22 (effective 01 January), with an impact of +0.7% on TE, +19bps on CET1 (to 12.89%) and -19% on reformulated Net Profit in 1Q’22. For the full year BBVA expects a marginal contribution from Turkey’s Net Profit, which we estimate would mean an impact of around -1.5pp on RoTE’22 (to 10.5%) and -14% on Net Profit’22, with a similar impact on DPS (bringing the yield’22 to 7%). We do not expect a significant impact on the share price today, as the move was expected and fully priced in (P/E’22 adjusted for hyperinflation ~6.6x vs. 7.7x peers). That said, we do not expect BBVA to outperform the market until the Turkish economy stabilises, and we continue to prefer Santander.

GRIFOLS, BUY.
According to the press, GRF would be mulling a capital increase of up to € 2 Bn (18% of market cap and 30% of gross debt) to reduce debt and improve its leverage ratios (NFD/EBITDA of 7.5x in 2021 and 6.8x in 2022e). To this end, and after terminating its agreement with the fund Hellman & Friedman last year, the company would be sounding out several investment banks, and the transaction would be well underway.
Negative unexpected news that we expect to have a negative impact on the share price today. The capital increase would allow the company to reduce its NFD/EBITDA ratio to ~3.6x BS(e), although this would have a significant dilutive impact. In this regard, assuming a -30% discount in the price of the potential TOB, the theoretical ex rights price (TERP would be reduced to €~15.80/sh., and we estimate an impact of ~-10% on our T.P., which would fall to levels of € 24.50/sh., still yielding >25% upside. Bearing in mind the incipient operating recovery, the lack of covenants on its debt and significant maturities until 2025, we were not expecting a capital increase. We recall that GRF is holding an Investor Day tomorrow, where we expect it to clarify this information.