EUR 100.00 For Business Accounts Only

IBERIAN DAILY 29 MAY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BBVA, CHANGES IBEX, IAG, METROVACESA.

MARKETS YESTERDAY AND TODAY

Europe and the IBEX continue their streak
It was another session of gains on European stock markets, boosted by the European stimulus plan. In the Euro STOXX, Autos and Insurance were the only two sectors not to record gains, vs. Consumer Goods and Retail, which were the best performers. On the macro side, in the euro zone May’s economic sentiment index was slightly disappointing after improving very slightly, with a substantial drop in the services component. In Spain, April’s retail sales fell, as expected, to -31.6% YoY vs. -14.2% previously, while May’s inflation fell to -1.0% from the previous -0.7%. In Germany, May’s inflation fell to 0.6% from the previous 0.9%. In the US, the second reading of the 1Q’20 GDP was cut to -5.0% QoQ from the previous -4.8%. April’s durable goods orders saw their drop widen less than expected in April, whereas weekly jobless claims rose more than expected. Trump ordered that the law (Section 230) protecting social networks’ responsibilities be reviewed, a process that could take as long as 2 years (and could be abondoned). In Japan, April’s industrial output and retail sales fell more than expected.
What we expect for today
European stock markets would see profit taking following the recent rises and increased political rumours between the US and China, where Trump is expected to discuss today this issue. Currently, S&P futures are down -0.43% (the S&P 500 was down -0.73% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 28.59%). Asian markets are falling (Japan -1.09% and Hong Kong -1.58%).
Today in the euro zone we will learn the M3 index and inflation for May, in the US, Trump will announce retaliations with Hong Kong, Chicago’s PMI index, the University of Michigan consumer confidence, personal outlays and April’s trade balance, and in Brazil the 1Q’20 GDP.

COMPANY NEWS

CHANGES IBEX. On 11 June the Technical Advisory Committee will hold its bi-annual meeting, where no changes are expected.
The IBEX 35 Technical Advisory Committee will hold its bi-annual meeting at the closing bell on 11 June (the meetings are held in early March and September). If changes are decided, the best candidate to be added to the index would be Sacyr and Mediaset to be removed (that has seen the sharpest fall in trading volume awaiting the outcome of its merger with the Italian parent company).

METROVACESA, BUY
MVC’s CEO, Jorge Pérez de Leza, yesterday outlined at an investor conference they do not plan to cut home sale prices and that they do not expect a significant drop in new home prices (falls could be seen in existing homes), as most developers show robust balance sheet that allow them to wait for the recovery of demand. Pérez de Leza also considers that MVC’s valuation is very low, as the implicit price per square meter in the share price is around € 140.00/sqm. He also added with the current volatility that investors are unable to assess the company’s value.
The comments made by the CEO are no surprise, as this was the company’s message in its recent 1Q’20 earnings release.
We also believe that the share price is already very inexpensive, trading at a -64% discount to NAV and practically without debt, but the truth is that we do not see drivers either in the short and medium-term, and thus it could remain inexpensive for a longer period of time (yesterday it climbed +14%). The land market, relevant for MVC, as its business plans includes significant land sales, is frozen and the housing market will not show a positive performance either in the short-term. What is the market pricing in? As MVC has practically no debt, the market would be assuming that their land assets are worth -61% less than the appraisal valuation. In terms of square meter, the implicit value would be € 140.00, which is impossible to find in the real world, even in this recession period, for a mostly finalist land portfolio.
As for new home prices, we do not foresee a sharp drop in prices in this bearish cycle, even though the economic slowdown brought by Covid-19 will have a significant impact on home demand (as job generation is key in this regard), in terms of supply, and as opposed to the previous crisis, there is apparently no excess in new products for sale (with the exception of some specific locations maybe). We do not see either excessive leverage in the system, as it was the case in the previous crisis or in developers or households, and which is more relevant, the situation prior to the beginning of the crisis was not a price bubble (as in 2008).