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IBERIAN DAILY 07 JULY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: CELLNEX, IBERDROLA, OHL, PRISA.

MARKETS YESTERDAY AND TODAY

Positive prospects and a strong rally
A more than +5% rise in the Chinese stock market spurred European and US markets, which rallied strongly in a session in which the IBEX led the gains in Europe. In the Euro STOXX, all the sectors ended in positive numbers, with Banks and Autos leading the way, compared to Utilities and Telecoms, which were the worst relative performers. On the macro side, in the euro zone, the Sentix investment confidence index for July recovered ground vs. June’s data, although less than expected. May’s retail sales recovered more than expected, although still negative. In Germany, May’s factory orders improved less than expected, as did May’s industrial output in Spain. The EC has once again cut its GDP estimate for Spain to -10.9% in 2020 (vs. -9.4% previously), although it expects a rally of up to 7.1% in 2021 (vs. 7% previously). Meanwhile, in Spain the Government’s aid plan for strategic companies (€ 10 Bn) will not set a limit on stakes in the companies bailed out and it will not force the SEPI to make a TOB if it takes more than a 30% stake. The ECB increased its pandemic purchase programme by +6.8% in June vs. May, also increasing purchases of Spanish debt. In the US, the non-manufacturing ISM for June beat expectations, returning to the expansion zone (>50). In Japan, the leading indicator recovered in line with expectations.
What we expect for today
Following the recent rally, the European stock markets would see some profit-taking at the opening bell. Currently, S&P futures are down -0.22% (the S&P 500 closed flat vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 27.94%). Asian markets are trading with mixed results (Japan -0.65% and Hong Kong +0.12%).
Today the European Commission will present its growth forecast. Also in Germany we will learn May’s industrial output. Debt auctions: Spain (€ 6.885 Bn in 6M and 12M t-bills), Italy (€ 7 Bn in 12M t-bills), Belgium (€ 1.98 Bn in 3M and 6M t-bills), Germany (€ 750 M in I/L bonds due 2030) and Austria (€ 1.05 Bn in 10Y and 30Y bonds).


COMPANY NEWS

CELLNEX, BUY
According to the press, CLNX might carry out a rights issue totalling more than € 3 Bn (~15% of its market cap) to finance its expansion and would have contacted its advisers to explore this possibility. According to the same source, an announcement could be made this month, although a firm decision has not been taken yet and the transaction might be cancelled in the end. The rights issue would finance future acquisitions, lacking a defined objective.
The company’s strategy aims to grow via acquisitions, partially financing them through new equity, meaning that this news, if confirmed, would not be surprising and it would make more sense to us than recent rumours hinting at a rights issue of only € 1 Bn. The company will continue to execute its expansion plan in Europe (which is in CLNX’ DNA and has led it to increase the number of sites to 61,000), where there continue to be great opportunities, as the European market still has to consolidate (>350,000 towers) and players are being more proactive in selling their portfolios. Given the company’s current financial situation (5.7x NFD/EBITDA) and although it could still carry out medium-sized transactions (of up to €~700 M) without facing any liquidity issues, our base-case scenario includes a rights issue of €~4.6 Bn (25% of the market cap), which would give the company financial muscle to carry out transactions totalling € 13 Bn while maintaining its NFD/EBITDA ratio of ~6x. Although it would be better if the rights issue were executed to close the acquisition of a defined objective, last year, CLNX made a rights issue and closed an acquisition one month later.

OHL, SELL
According to the press, OHL would have made a proposal to refinance its bonds (€ 593 M; 68% of its debt) that would include swapping € 180 M (~30% of debt; 100% of OHL’s market cap) for equity. According to this source, bond holders would have demanded that the swap be reduced to € 150 M (25% of debt). We recall that the agreement to refinance its bonds is a necessary condition for OHL to use the € 70 M remaining from the € 140 M loan facility (16% of debt) that the lending banks granted the company in April 2020.
Negative news due to the dilutive effect, although expected. Awaiting to know the details of the agreement, the € 180 M swap stands at the high range of what has been rumoured (between € 120 M and € 180 M) and, at the current trading levels, it would mean a 50% dilution for OHL’s shareholders, although with hardly any impact on our valuation after its conversion in our T.P.