EUR 100.00 For Business Accounts Only

IBERIAN DAILY 20 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: CAIXABANK, ENDESA, GRIFOLS, POSSIBLE TAX CHANGES, TALGO.

Russia shakes markets
The threat of using nuclear weapons by Russia after Ukraine used its long-range missiles on Russian territory led to corrections in European stock markets that eased throughout the session after the Foreign Minister S. Lavrov stressed that Russia does not wish nor expect a nuclear war. Thus, in the STOXX 600, Real Estate and Pharma were the only sectors ending with gains vs. Banks and Automobiles that were the worst performers. On the macro side, in the euro zone October’s final inflation confirmed the preliminary data of 2.0% YoY for the general data and 2.7% for the core data. In the US October’s housing starts dropped more than expected to the lowest level seen since July due mainly to the hurricane. Building permits climbed in line with expectations. In China, the PBoC kept 1 & 5Y rates unchanged, as expected. In Japan, October’s exports and imports grew more than expected. In US business results Walmart beat expectations.
In fixed income, it was a session of risk aversion after tension between Russia and Ukraine escalated, which led sovereign yields to tighten by around -4bps. Thus, the US 10Y bond yield tightened to 4.36%, and this morning it was at 4.40%. The German benchmark closed at 2.32%, acting as safe haven.
What we expect for today
Stock markets would open with gains of more than +0.5% awaiting Nvidia’s results after the closing bell, which will set the pace for both the technology sector and the US stock market for the next few days (expectations are quite high). Currently, S&P futures are up +0.17% (the S&P 500 ended +0.25% higher vs. the European closing bell). Asian markets are sliding (China’s CSI 300 -0.16%, Japan’s Nikkei -0.26%).
Today in the UK we will learn October’s inflation. In US business results, Nvidia and Palo Alto will release their earnings.


COMPANY NEWS

CAIXABANK: We cut our recommendation to UNDERWEIGHT after the 2027 Strategic Plan.
CMD amid an uncertain sector environment. We believe that the estimate cut will continue over the coming months, which could be overly pessimistic, and thus we should wait for the 4Q’24 Results (end of Jan’25/Feb’25) to ascertain a more certain trend for 2025. Over the coming months CABK could underperform the IBEX, and thus we cut our recommendation to UNDERWEIGHT. With the EURIBOR at 2.5% in recurring terms (vs. 2% CABK from 2027), we cut our NII estimates’25-26 by -6% on average, Total Revenues by -4% and Net Profit by -6%, which leads us to cut our T.P. by -9% to € 6.03/sh. (+10% upside/9.3x P/E’26 and 1.25x P/TE’26). With this change we remove CABK from our 5 stock portfolio (where we include Ferrovial) and lower its weight in the Spanish model portfolio.

TALGO. Results below expectations with guidance cut. We place our T.P. Under Revision. UNDERWEIGHT.
Results came in below expectations in both sales and EBITDA with losses in Net Profit due mainly to higher financial costs (not specified). The company cut its sales guidance’24, foreseeing higher leverage in 2024 (to between 4x and 5x NFD/EBITDA from 3.5x previously). 9M’24 sales grew +5.8% (vs. +11.1% consensus) and 9M’24 EBITDA fell -10.5% to € 57.7 M with a 11.6% margin (vs. 13.3% in 9M’23). Despite the poor YtD share price performance (-21% in absolute terms and -35% vs. IBEX), we expect a negative market reaction. We see higher uncertainties and thus we place our T.P. Under Revision, maintaining our UNDERWEIGHT recommendation.

POSSIBLE TAX CHANGES
According to the press, the final agreement on tax changes to be voted on Thursday would once again include an extension to the tax on energy companies and a tougher tax on banks. That said, a change to the REIT tax regime would not be included. Regarding the bank tax, the change considered would be a new format that would apply a gradual tax rate of 1-7% that grows depending on revenues (NII + fee revenues), compared to the 4.8% tax currently applied to banks with revenues in Spain above € 800 M (this minimum would no longer be applied, and the tax would be applied to all national banks). The scale has not been detailed, only that the maximum rate would apply to revenues of more than € 5 Bn, which would affect Caixabank (impact of €~200 M of addition al taxes / 3.7% Net Profit) and Santander (with an additional €~150 M / 1.3% of Net Profit). Bankinter and Unicaja could be affected very little, as their revenues are below € 3 Bn and below € 2 Bn, respectively (now the tax, with a 4.8% rate, represents 11% and 14% of Net Profit, respectively). For the energy sector the impact would be small, as it would be lessened in companies maintaining their investment pledge for decarbonisation in Spain (which would apply to all the companies in our coverage universe). Note that in 2024e, against 2023 reserves, estimates of the impact from the current tax would be: Iberdrola € 160 M (0.21% market cap; vs. € 216 M previously in 2023, 3% Net Profit’24e), Naturgy € 100 M (0.4% market cap; vs. € 165 M previously, 5% Net Profit’24e), Endesa € 202 M (1% market cap; vs. € 208 M previously, 11% Net Profit’24e) and Repsol € 350 M (2.5% market cap; vs. € 445 M). With all this in mind, if the news is confirmed it would be positive, especially for the REITs (Colonial and Merlin).