EUR 100.00 For Business Accounts Only

IBERIAN DAILY 01 JULY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, CELLNEX, GRUPO CATALANA OCCIDENTE, GRIFOLS, REPSOL.

Stock markets end a very negative half-year performance
It was a negative session for global stock markets, with the S&P 500 closing its worst first half of the year since 1970 (-21%), in Europe (-21%) we highlight Spain (-7%), which performed better in relative terms. Share prices continue to be hit by the persistent recession fears, with lower liquidity levels and inflation at its highs. Thus, within the Euro STOXX all sectors posted losses, led by Basic Resources and Banks, vs. the better relative performance of Media and Telecom. On the macro side, in the Euro zone, May’s unemployment rate fell more than expected to 6.6%. In Germany, June’s unemployment rate increased unexpectedly. In the United Kingdom, the final 1Q’22 GDP confirmed the preliminary +8.7% YoY figure. In the Euro zone, the free trade agreement with New Zealand ended, which will allow for a € -140 M reduction in tariffs annually for EU countries. From the ECB, Holzmann (hawkish) bet on rate hikes sooner rather than later, and although he does not expect a recession, he believes that if there is one it would be temporary. In the US, weekly jobless claims climbed as expected. The OPEC+ will increase production by +648,000 barrels/day, in line with expectations. In Japan, the Tankan index did not detariorate more in 2Q’22, whereas Tokyo inflation in June slowed unexpectedly. In China, Xi Jinping defended the repression of the democratic movement in Hong Kong and bet on fostering economic development.
What we expect for today
European stock markets would open with losses, with value underperforming after the Treasury fell below 3%. Currently, S&P futures are down -0.1% (the S&P 500 ended -0.2% lower vs. the European closing bell). Volatility in the US increased (VIX 28.71). Asian markets are falling (China’s CSI 300 -0.4% and Japan’s Nikkei -1.9%).
Today we will learn in the Euro zone June’s inflation, in Spain the manufacturing PMI and in the US June’s ISM manufacturing index.


COMPANY NEWS

GRIFOLS. Investor Day’22: Capital increase ruled out, but long-term targets pushed back one year. BUY
In its ID, GRF confirmed the recovery on the operating level with a guidance of +5% sales growth in 1H’22 (-1% LfL) and an EBITDA margin of between 20% and 22%, although it pushed the long-term targets of its guidance back by one year, which in any case are in line with our estimates (GRF expected €~2.2 Bn of EBITDA’24 vs. € 2.23 Bn for 2025 BS(e)). The company ruled out a capital increase, but if we were to assume €~2 Bn (19% market cap) with a -15% discount, the impact on the T.P. would be -7% (+38% upside). This would reduce debt (to 5x NFD/EBITDA) and would curb uncertainty (the market is pricing in double the capital increase with a -30% discount) in a stock trading -46% below pre-pandemic levels (-43% vs. its closest peer, CSL).

BANKING SECTOR
The ECB would be requesting financial institutions recalculate their financial projections and capital needs for an adverse scenario that includes a recession or embargo on Russian gas and to evaluate their dividend plans. Note that the ECB’s base-case scenario is that the eurozone GDP will grow +2.8% this year and +2.1% in 2023, although the risks are clearly bearish, and thus if there is an adverse scenario the figures would drop to +1.3% and -1.7% in 2023. We understand that this would be the scenario the banks will have to use to recalculate their capital needs. That said, the ECB indicates that it does not expect to again ban shareholder remuneration plans.
Negative news, although it should come as no surprise, and we will have to monitor the situation, but for the time being it would have no adverse consequences for the sector, given the high capital levels (around +450bps on average over the regulatory ratio). Note here that the EBA’s latest stress tests on 2020 balance sheets (hit by Covid-19) reflected a GDP over the 2021-23 period in negative territory, around -2% the first two years and with zero growth in 2023. In this test, performed on 50 banks (70% of total bank assets in Europe), we saw an erosion in the adverse scenario of FL CET1’23 of -485bps from the average in 2020 of ~15%. In our entire coverage universe, Bankinter and Santander are the best performers (-104bps and -258bps, respectively, and vs. -450bps on average for the rest of the banks in our coverage). Moreover, Bankinter released the highest final FL CET1’23 benchmark (11.25%) followed by ING Grope (10.99%) and Intesa Sanpaolo (9.38%). The rest ranged from 9.31% for Santander to 7.54% for Société Générale. Thus, in our view, the ordinary distribution plans would not be in question (average ~50% payout in all banks, 40% in Santander and 70% in Intesa) and the surplus share buyback plans could be more in question. This would affect mainly ING and Unicredit over the 2023-24 period (5% buyback yield on average annualised BS(e)).