EUR 100.00 For Business Accounts Only

IBERIAN DAILY 23 APRIL (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, CELLNEX, EUSKALTEL, GRUPO CATALANA OCCIDENTE, INSURANCE SECTOR, METROVACESA, PRISA.

COMPANY NEWS

GRUPO CATALANA OCCIDENTE. Cuts final dividend’19 by -50% vs. guidance. BUY.
The company announced yesterday it cuts the final dividend’19 by -50% to € 0.20285/sh. (1.1% yield), to be paid on 13 May. The decision follows the guidelines given by the EIOPA in March’20, which are now backed by the Directorate-General for Insurance and Pension Funds (abbreviated as DGSFP in Spanish), to protect policy holders during the current pandemic. Thus, the total dividend’19 is € 0.67925/sh. (3.7% yield; -15.3% vs. 2018) and vs. € 0.8821/sh. announced initially (in line with our estimate). We had forecast that GCO would maintain the DPS, given that it has a considerable amount of own resources and high unrealised capital gains from its portfolio, that is, we do not expect problems on the S-II level, where GCO has a comfortable position (213% currently). In a scenario of maximum stress, the ratio would stand at levels of ~180%. For the time being, for 2020 we expect the dividend to be maintained with a 30% payout in recurrence, in line with the rest of the sector. That is, we maintain the usual 50% payout in the case of Munich Re and Allianz.

EUSKALTEL. Results in line, good performance in costs and cash. Confirms little impact from COVID-19. We change our recommendation to BUY.
1Q’20 EBITDA came in at € 87.7 M (+8.1% vs. +6.3% BS(e)), with a margin of 51.1% (vs. 47.3% in 1Q’19) thanks mainly to efficiency measures. The company confirms the 2020 guidance and maintains the dividend’19 (€ 0.31/sh., 4.8% yield), of which a payment of € 0.17/sh. still remains (scheduled for July’20; 2.6%yield). Given the stock’s poor performance from February highs right before the COVID-19 crisis (-25% in absolute terms) and considering its stable top line, better debt levels and increased EBITDA, as well as the fact that we expect no impact from COVID-19 (with a very slight revision of estimates in our scenario of V-shaped recovery; and around -5% in EBITDA’20-22e and -9% in our T.P. in our scenario of U-shaped recovery), we change our recommendation to BUY, with +34.3% upside (T.P. € 8.5/sh.).

GRUPO CATALANA OCCIDENTE, BUY
INSURANCE SECTOR
According to the press, the CCS (Insurance Compensation Consortium) would have accepted Unespa’s request to reinsure credit insurance, a business in which GCO has a 50% market share in Spain.
This means CCS would act as a stop-loss reinsurance, and thus GCO would only have to assume part of the default. The Consortium will set the economic conditions of its coverage, which will have to offset its management costs. The reinsurance will be retroactive from 1 January’20 and will be in force for a minimum of 2 years or as long as the crisis lasts, according to the new regulation. The measure comes as part of the package the German Govt. would have accepted in order to protect German credit insurance companies (with Allianz benefiting most, through Euler Hermes). Thus, credit insurance companies would concede 65% of the premium in exchange for government backing.
Very positive news if confirmed, and it would eliminate part of the pressure that has weighed on GCO’s share price lately. Everything seems to suggest CCS’s talks are at late stages, and this goes perfectly with the message of a dividend cut GCO has undertaken and announced at yesterday’s closing bell. With this decision, the company would be following the DGS and EIOPA guidelines, and in exchange it could be backed by the CCS in the case of heavy defaults in credit insurance. Thus, all signs point to the possibility that if the combined ratio of the credit business exceeds 100%, it will be regularised to levels of profitability in the very short term with these state-backed aid measures (German and Spanish).