EUR 100.00 For Business Accounts Only

IBERIAN DAILY 16 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: CELLNEX, TELEFÓNICA.

MARKETS YESTERDAY AND TODAY


Calm digestion of the ECB speech
European markets continued to gain ground after the ECB speech, confirming the sector rotation from the past weeks. Thus, in the Euro STOXX, Banks (with Caixabank and Sabadell climbing >7%) and Basic Resources led gains while defensive sectors such as Food and Utilities ended with the biggest losses. On the macroeconomic level, in Spain, August’s final inflation confirmed the preliminary data (0.3% general and 0.9% core). In Europe, J. Weidmann from the ECB stated that rate rises will not be excessively postponed while O. Rehn bet on the stimulus programme in view of the drop in inflation. In the US, August’s retail sales grew more than expected although with disappointing results excluding the most volatile components. All of this suggests private consumption levels in the 3Q’19 above 4.0% q/qa vs. 2.8% consensus. Meanwhile, September’s University of Michigan consumer confidence climbed above the consensus. In Brazil, July’s economic activity index came in better than expected. In China, the increase in industrial production, retail sales and investments in fixed assets slowed down unexpectedly in August.
What we expect for today
Stock exchanges would open with corrections >-0.5%, dragged down by the rise in Brent crude >+10.0% following the attack with drones to oil facilities in Saudi Arabia (affecting 50% of the country’s output; 5.0% of the global supply), where the good performance of energy companies would not enable to offset the correction in consumption sectors.
Currently, S&P futures are down -0.43% (the S&P 500 closed -0.12% lower vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 15.15%). The Asian markets that are open are falling (Hong Kong -1.03%).
Today we will learn in the US the Empire manufacturing index for September. In debt auctions: France (€ 4.4 Bn in 3M, 6M and 12M T-bills) and the Netherlands (€ 4 Bn in 3M and 6M T-bills).


COMPANY NEWS

TELEFÓNICA, BUY
According to El Confidencial, TEF would be studying the acquisition of Oi (the 4th largest mobile player in the Brazilian market, with fixed assets), although no details have been given. Oi’s market cap totals €~6 Bn (around 15% of TEF’s NFD and 8% of its EV). TEF’s Brazilian business represents 23% of its EBITDA and 21% of its EV.
We would welcome the possible consolidation of the Brazilian telecommunications market. We believe that, for competition reasons, TEF could not acquire 100% of Oi (which would limit the debt risks), and that the main alternative for consolidating this market would be dividing Oi up among the rest of the players (TEF, TIM and Claro), which would be very positive for the market and would have a positive impact on TEF that would be difficult to quantify until the final details of the transactions are revealed. Oi is trading at 4.9x EV/EBITDA’19e vs. TEF’s levels of 5.9x.