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IBERIAN DAILY 30 OCTOBER + 3Q’20 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BBVA, CAIXABANK, CAF, FERROVIAL, GRUPO CATALANA OCCIDENTE, IBERPAPEL, METROVACESA, TALGO, VISCOFAN.

At the end of today’s report, and during the entire results season, we will include a presentation with positive and negative results highlights and previews for the 3Q’20 results to be released over the coming days in Spain.

MARKETS YESTERDAY AND TODAY

The ECB prepares more stimulus
The ECB meeting where C. Lagarde left the door open to the announcement of changes at the next meeting to be held in December due to the downward risks on expected growth as a result of the new lockdown was a short-lived relief for European markets that finally ended with drops. Thus, in the Euro STOXX, Travel&Leisure and Real Estate were the best relative performers vs. Utilities and Telecommunications (hit by Nokia and Telefónica after their earnings release) that saw the biggest drops. In the euro zone, October’s economic climate indicator dropped less than expected while in Germany October’s unemployment provided a positive surprise. In the US, the 3Q’20 GDP climbed more than expected. In US Results Kellog, Twitter (disappointing subscriptions data), Facebook, Alphabet (Google warns on regulatory risks) came in better, Comcast, Moody’s, and Apple (disappointing iPhone sales) in line.
What we expect for today
The European stock markets would open with drops of around -1.0%, dragged down by US indices, doubts on Technology companies and uncertainty regarding the outcome of the US election. Currently, S&P futures are down -2% (the S&P 500 closed +0.3% higher vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 37.6). Asian markets are falling (Hong Kong -2.2%, Japan -1.4%).
Today, in the Euro zone, Spain, Germany and Mexico we will learn the 3Q’20 GDP, in the euro zone inflation and in the US personal income/outlays and the 3Q cost of employment. In US business results, Aon, Under Armour, Colgate and Exxon, among others, will release their earnings.


COMPANY NEWS

GRUPO CATALANA OCCIDENTE, BUY.
The company released at yesterday’s closing bell very good 9M’20 results that came in slightly worse only in premiums (due to Credit, which has been gradually reduced risk exposure), and better than expected in all activity margins thanks to the positive performances of the Traditional and Credit businesses. Thus, this set of results evidences a balanced portfolio mix, with margin improvement in the former (with CRs at their lows) that allows the company to mitigate the rise in the claim rate in the latter. Specifically, in the Traditional business (61% of premiums as of 9M’20), premium growth was +6.2% vs. 9M’19 and vs. +5.8% BS(e), although the trend slows vs. the 1H’20 (+8.1%), and the Combined Ratio (CR) stood at its lows of the past few years (88.3% vs. 89.1% BS(e) and 90.2% in the 1H’20) due to the lower claim rate in Health and Autos as a result of the current Covid-19 crisis. Thus, the recurring result totalled € 194 M, +10% vs. 9M’19 (+8% BS(e) and +11% in the 1H’20). The best reading, however, comes from the Credit business. We highlight the -5% drop in premiums vs. -4% BS(e) stemming from management actions (reduction of TPE or risk accumulation) to offset the rise in the claim ratio (due to the current scenario), yet only to levels of 58.4%, very far from levels of ~90% hit in the previous 2008-09 crisis. This has allowed the company to release a profitable Technical results, with a gross CR of 93.4% (vs. 94.3% in the 1H’20 and 94.6% BS(e)) thanks to the agreements reached with a number of European governments. This fact offsets the negative result in Reinsurance. However, the recurring result of the Credit business came in at € 42.5 M (-76% vs. 9M’19, slightly better than the -77% figure we expected). Net Profit totalled € 225.1 M, -27% vs. 9M’19 and vs -28% BS(e).
We expect a positive share price reaction, as the claim ratio seems to be under control and the company’s good management has been made clear. Conference call on 2 November at 11:30 (CET).

BBVA, SELL.
The bank has obtained € 1.141 Bn of Net Profit (-7% vs. 3Q’19), around 28% above expectations thanks to lower provisions (-36% vs. consensus; CoR 97bps vs. 151bps in 2Q’20) and the good performance of costs (-13% vs. 3Q’19; in line with BS(e); ~3% better than the consensus). In revenues (-7.5% vs. 3Q’19 and vs. -9% expected), good performance in fee revenues (-10%; ~+4% vs. expectations), while the NII (-8% vs. 3Q’19) performed in line, showing the expected weakness. By countries, very good performance of Mexico and Turkey, in both cases thanks to the better operating evolution and lower provisions. The US saw a slight recovery in revenues that was offset by higher provisions due to a strong pick-up in the NPL ratio. In Spain, the operating performance did not improve, with a greater than expected drop in NIM (-1.8% vs. 3Q’19) and without recovery in fee revenues.
In terms of capital, the bank reached a CET1 of 11.52% (+30bps vs. 2Q’20 and vs. +15bps expected) thanks to better organic generation, already above its guidance’20 (10.84%-11.34%).
Lastly, it unveiled its 2021 guidance, forecasting stability in revenues (excluding FX impact), cost control and CoR reduction. Note that its 2020 guidance assumes a 150-160bs CoR (169bps through 9M’20 and around 161bps BS(e) for 2020e).
We expect a positive share price reaction, underpinned by the better results released and the robust capital performance.

CAIXABANK. 3Q’20 results far above expectations, except for NII. BUY.
The company has released its 3Q’20 results, which came in with a snag, the slight drop in NII vs. 2Q’20 vs. the gradual recovery that the consensus and we expected. Thus, performance was better in the rest of headlines (higher fee revenues, insuranca revenues and lower costs), which explains the progress made towards positive jaws. We highlight the CoR after bringing forward Covid-19 provisions to the 1H’20, which now stands at 30bps in annualised terms, ~60bps BS(e), which is compatible with its guidance for the year (60bps and 90bps). The NPL ratio remained stable at 3.5%, with a rise in coverage levels (65%) and very good performance in lending after the end of moratoriums. The CET1 ratio pro forma hit levels of 12.7% (vs. 12.2% in 2Q’20), including the sale of eComercia. We expect a positive share price reaction. Conference call at 11:30 (CET).

IBERPAPEL. Poor 3Q’20 Results that would entail estimates cuts. BUY.
The company released at the closing bell poor 3Q’20 Results, hit by Covid-19 and the scheduled stoppage of 50 days for the installation of new pulp capacity. Sales were in line with our estimate (-39% vs. 3Q’19) and even though EBITDA came in better it was in negative territory (€ -2.5 M vs. -3.2 BS(e) and 8 in 3Q’19). We believe that the market could react negatively as this would entail a cut to our EBITDA estimate’20e >-10% and especially as the share price has performed in line with the IBEX since February’s highs (prior to Covid-19). However, as the impact on T.P. could be lower than -8%, the current upside would exceed +50%, and thus we would keep our BUY recommendation.

METROVACESA. The 3Q’20 results show strong growth in presales. BUY.
The company has just released its 3Q’20 results, and our first impression is that they are solid, and better than expected in presales, which in Q3 on a standalone basis reached 5050 units (290 units BS(e)). On the negative side, deliveries over the period are below forecasts: 63 units vs. 78 BS(e)). MVC also announced its intention of paying out an annual dividend of at least € 0.26/sh. starting in 1H’21 (4.3% yield vs. € 0.10/sh. BS(e)).

FERROVIAL. Slow traffic recovery in Toll Roads. Interim dividend’20 cut -53%. BUY.
The 3Q’20 results were better than expected in Construction (€ 73 M EBITDA vs. € 30 M consensus) and below expectations in Toll Roads (€ 45 M vs. € 81 M) due to a regimen change in the Autema toll road (traffic risk vs. availability payment) and showing traffic recovery that it still slow. Cash ex infra increased by +2% to €~1.7 Bn and liquidity levels remained stable at € 7.54 Bn (2.8x NFD), despite which the company announced a -53% cut to the interim dividend’20 (€ 0.20/sh.; 1% yield vs. our estimate of zero), which might lead to a negative market reaction, although limited considering the stock’s recent performance (-15% in absolute terms since the 2Q’20 results; -6% vs. IBEX35).

VISCOFAN, SELL
The 3Q’20 EBITDA grew above expectations (+17% vs. +6% BS(e) y consensus) thanks mainly to better margins (+260bps vs. 3Q’20 to 26.1% vs. 24% BS(e) and consensus vs. 24.5% BS(e) for 2020) and higher sales (+4.2% vs. +2.6% consensus and +6.4% comparable). Net Profit growth also beat expectations (+13% vs. -0.4% consensus) while NFD ex IFRS16 fell by -66% to € 14.7 M (~0.1x NFD/EBITDA; -0.1x vs. 2Q’20).
The company kept its 2020 guidance unchanged although we believe it will be able to beat the targets even against a highly unfavourable exchange rate backdrop in the 4Q’20. Note that its guidance’20 assumed a sales target of between 903 and 921 (vs. € +902 M BS(e) and consensus), EBITDA between € 215 and 220 M (vs. € 221 M BS(e) and € 218 M consensus) and Net Profit between € 112 and115 M (vs. € 115 M BS(e) and 118 M consensus), underpinned by € 54 M of capex (-13% vs. 2019; vs. € 45 M BS(e)). As for capex, we stress that the investment level in 9M’20 came in at € -27 M (50% of its 2020 target), and if not materialized this year, investments will be carried out in 2021.
Robust 3Q’20 Results and better than expected where we expect a positive market reaction given its recent lacklustre performance(-7% since 2Q’20 Results; +1% vs. IBEX).