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IBERIAN DAILY 26 OCTOBER + 3Q’20 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: CELLNEX, FERROVIAL, GLOBAL DOMINION, LIBERBANK, VISCOFAN.

At the end of today’s report, and during the entire results season, we will include a presentation with positive and negative results highlights and previews for the 3Q’20 results to be released over the coming days in Spain.

MARKETS YESTERDAY AND TODAY

Banks and oil companies fuelled European stock markets
It was a positive session for European stock exchanges that ended with gains of around 1% despite the lack of news on the fiscal agreement in the US and the release of mixed data in the euro zone PMI (the services PMI dropped more than expected due to the Covid-19 outbreaks while the manufacturing PMI climbed unexpectedly). Thus, in the Euro STOXX almost all sectors ended higher, with Banks (the earnings season of which will start next week and where October is about to be the best month in more than one year) and Industrials leading gains, while Retail (dragged down by Kering that was hit by Gucci’s poor results), Household and Technology (hit by Intel in the US) were the worst relative performers. In Spain, the state of emergency will be declared that could be extended until May’21 and will make easier the management of the mobility restrictions for the autonomous regions. In US results, American Express came in worse than expected.
What we expect for today
Stock markets would open with losses of as much as -1.0% amid mixed news (new restrictions in Europe to tackle Covid-19, the standstill over the fiscal stimulus package in the US and good news as regards Oxford’s vaccine on population at risk) and, in Spain, amid doubts on the tourism sector due to the declaration of the state of emergency. Currently, S&P futures are down by -0.7% (the S&P 500 was up +0.45% vs. its price at the closing bell in Europe, where value stocks beat once again growth stocks thanks to the financial and basic resources sectors. Volatility in the US fell (VIX 27.55). Asian markets are falling (Japan -0.1%).
Today in Germany we will learn October’s IFO, in Mexico IGAE’s economic activity and in the US Chicago Fed and September’s new home sales. In US business results, Caterpillar, Invesco, Merck&Co and Pfizer, among others, will release their earnings. In debt auctions, Germany (€ 3 Bn in 12M T-bills) and France (€ 5.3 Bn in 3M, 6M & 12M T-bills).


COMPANY NEWS

VISCOFAN. An unquestionable leader, but priced in. SELL.
VIS is the world’s leading company in the customised meat casings market (with a market share of ~36%), an industry with solid fundamentals that we expect to continue performing well (+4.5% CAGR’20-23 in EBITDA BS(e); ~6% FCF yield’20-23 BS(e) and +4% CAGR’20-23 dividend BS(e)). However, our T.P. of € 58.50/sh. (+5.5% vs. previous) yields no upside (+4% upside potential), and thus, we maintain SELL. Following the stock’s good performance this year (+22% in absolute terms and +50% vs. IBEX), VIS is trading at 11.4x EV/EBITDA’21, in line with its historical average (11.5x EV/EBITDA), with a +60% premium to Devro, which in our view already prices in the business’ brilliant outlook and low downside risk.

CELLNEX, BUY
According to Bloomberg, CLNX would be an advanced stage in the negotiations to acquire Hutchinson’s towers package in Europe. The news story mentions that the transaction would total some € 9 Bn, and that no agreement has been reached yet. The terms of the transaction, including price and structure, have not been defined yet either.
We recall that in July’20 the press mentioned that CLNX was open to negotiate with Hutchison the acquisition of a (possibly minority) stake in the latter’s towers business (~28,500 in Europe) totalling €~10 Bn. According to this news, Hutchison would be studying the possibility of incorporating a minority partner in its towers business to monetise the asset, although these talks would be at an early stage of development.
We are not surprised that CLNX has shown an interest in the asset and is studying its acquisition (even if it is only in talks, although the company does not comment on these type of rumours), as it includes towers in Europe (mainly in the UK, Italy, Ireland) that fit in perfectly with CLNX’ strategy. However, we would rule out the company acquiring a minority stake, as CLNX always aims to control and manage the assets.
As for the deal’s size, given the magnitude of the asset (between € 9 Bn and € 11 Bn, ~39% of CLNX’s market cap), and depending on the deal’s structure, the company would use almost 100% of its current resources following the recent € 4 Bn capital increase and the latest tower acquisition in Poland. To assess the exact impact of this potential transaction, we would have to know some of the details, like the final price, the deal’s structure (and stake), BTS commitments and the towers’ EBITDA. If the deal moves forward, we believe that the company’s gearing ratio would rise to levels of between 6x and 7x NFD/EBITDA (vs. 3x currently) although the final gearing ratio will depend on the stake that will be acquired (controlling stake) and the towers’ EBITDA.

LBK. 3Q’20 results in line, with strong improvement in NII. BUY.
The company’s Net Profit came in at € 18 M, in line with the consensus (and vs. € 14 M BS(e)), with strong improvement in Operating Income (€ 77 M; +28% vs. 3Q’19 and vs. around +25% expected) on NII (+7.4% vs. +4% expected) and costs (-5% vs. -3% expected). Good performance in activity (with loans growing by +2% vs. 2Q’20; +8.4% on the year) and credit quality, with a reduction in the NPLs stock (-2.1% vs. 2Q’20) and a CoR of 55bps, in line with the consensus and the guidance for the year. The company has increased its coverage ratio (54.3%; +4pp vs. 2Q’20) and NPAs ratio (7.5%; -0.4% vs. 2Q’20). The CET1 ratio came in at 14.14% (+14bps vs. 2Q’20), in line with expectations. We expect a neutral/positive market reaction, with the guidance to be provided in the presentation (at 9:30) being key. We reiterate BUY.