EUR 100.00 For Business Accounts Only

IBERIAN DAILY 16 DECEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: CAIXABANK, CHANGES IBEX MEDIUM/SMALL, FERROVIAL, MAPFRE

MARKETS YESTERDAY AND TODAY

Solid performance on the markets continues
Stock markets welcomed the imminent signing of Phase I of the US-China trade agreement and the result of the UK election, although the gains were reduced following the opening bell in the US. In the Euro Stoxx, the best-performing sectors were Travel & Leisure and Retail, with Real Estate and Food falling the most. On the macro side, in the euro zone, from the ECB Lagarde once again reiterated the need for a fiscal boost and advances in monetary union, whereas Luis de Guindos hinted that the ECB still has leeway to act, although he is not fully in agreement with the measures approved by Mario Draghi. In the US, real retail sales for November were disappointing, rising less than expected, jeopardising the 2.1% QoQ expected by the market. In Brazil, the economic activity index rose slightly more than expected. In China, the vice-minister of finance, Liao Min, announced a trade agreement with the US that includes a gradual withdrawal of tariffs, but a less ambitious plan than what was announced by Trump and which would not be signed until the end of January. As for macro data, both industrial output and November’s retail sales rose more than expected, whereas fixed asset investments retained the previous month’s growth level (expected). Lastly, new home prices slowed to 7.3% YoY vs. the previous 8.0% (rising in 44 of 70 cities vs. 50 in October). In Japan, the manufacturing and services PMIs remained at practically the same levels as October (48.8 and 50.6, respectively).
What we expect for today
The markets would open with gains of up to +0.5%. Currently, S&P futures are up +0.27% (the S&P 500 closed unchanged vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 12.63%). Asian markets are falling (Japan -0.29% and Hong Kong -0.38%).
Today in the euro zone we will learn December’s preliminary services and manufacturing PMI and in the US the Empire manufacturing and NAHB indices, both for December.


COMPANY NEWS

FERROVIAL, BUY
According to the press, the British fund Apax Partners would have withdrawn its offer on Ferrovial Services’ Spanish and International (US, Chile, Canada, Portugal and Qatar) businesses due to their high labour costs. Separately, Apollo would maintain its firm offer for Broadspectrum (Australia and New Zealand), whereas the sale of Amey (United Kingdom) would still be at an early stage of development.
Negative news if confirmed. Although we do not think that the sale of Services is at stake (given the interest that this operation has generated), we do believe that this move could push the final price down and delay the closing of the transaction (expected for 1Q’20). We value the Services at some € 2.5 Bn (~6x EV/EBITDA’20) and we continue to think that this move would be a main driver for the share price, not so much for the selling price as for its strategic fit, as it will allow FER to cut debt (to ~3.5x NFD/EBITDA BS(e) from 4.7x 2019 BS(e) pro forma) and focus on its infrastructure divisions (Motorways and Airports; 85% of our T.P.).

CHANGES IBEX Medium CAP and Small Cap.
The IBEX 35’s Technical Advisory Committee decided to include Euskaltel and Neinor Homes in the IBEX Medium and remove FCC and Vidrala. In the IBEX Small, Azkoyen, Biosearch, Correa and Reig Jofre have been included, with Euskaltel, Neinor Homes, Lingotes Especiales and Vocento being removed. All these changes will be effective as of 23 June.

CAIXABANK, BUY
Highlights from last Friday’s meeting with analysts:
(i) Outlook 2020: The company has not provided a guidance for next year, although it reiterates that it will focus on stabilising Operating Income (and vs. an expected drop of -6.5% BS(e) as of FY2019 and -6% consensus), given that it believes that the negative jaws seen in 2019 are a one-off on the bank’s track record. In terms of revenues, the main challenge will be performance in NII, due to both the management/investment of the excess liquidity and the negative impact from the repricing of the Euribor rate (every -10bps have an impact of around -1% on NII). As for the outlook for lending, the company believes that the economic sentiment is affecting the demand for lending, and it expects growth to slow somewhat. It is optimistic regarding fee revenues, savings management in the long-term and the insurance business, where the reversion of the trend initiated in the 3Q’19 continues (with new clients in asset management and accelerating sales in the insurance business). In costs, the company does not plan any more restructurings in 2020, but is focused on cutting management costs in order to improve the cost guidance’19-21 by +3% (and vs. +3% BS(e) and +2.2% consensus). In credit quality, the company does not see a deterioration of the NPL ratio, but it expects the CoR to increase slightly (by around 15bps as of 9M’19) due to the cut to the macro variables in its incurred-loss model IFRS9. In any event, the company expects it to remain far below the guidance in its Strategic plan (