EUR 100.00 For Business Accounts Only

IBERIAN DAILY 18 MAY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, COLONIAL, NEINOR HOMES, SIEMENS GAMESA.

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 1Q’22 results to be released over the coming days in Spain.

The Ibex ends with gains for the third consecutive session
The European stock markets ended with gains higher than 1%, underpinned by macro data on both sides of the Atlantic and China, where lockdowns have eased after three consecutive days without new cases outside of the confined areas. Thus, within the Euro STOXX, almost all sectors ended in the black, with Banks and Basic Resources leading the way, vs. the drops in Household Goods and Energy. On the macro side, in the Euro zone, the 1Q’22 GDP was raised to 5.1% YoY vs. the preliminary data. In the US, industrial output and core retail sales climbed above expectations in April. Separately, J. Powell again ruled out 75bps rate hikes, although he warned that the Fed is ready to be more aggressive if inflation does not ease and that the Fed is willing to assume a higher unemployment rate to contain inflation. In the United Kingdom, registered unemployment fell to 4.1% in April, whereas wages continued to increase, which is a sign that the economy could be overheating. From the ECB, K. Knot did not rule out a 50bps rate hike if inflation risks get worse. In Japan, the 1Q’22 GDP fell less than expected. In China, housing prices fell more than expected in April (0.7% YoY vs. 1.5% previously). In US business results, Home Depot came in better than expected, whereas Walmart disappointed the market with a guidance cut.
What we expect for today
The European stock markets would see a slightly bullish opening, pausing for a break before rallying in view of the interest rate hike. Currently, S&P futures are down -0.25% (the S&P 500 ended up +0.66% vs. the European closing bell). Volatility in the US fell (VIX 26.10). Asian markets are mixed (China’s CSI 300 -0.41% and Japan’s Nikkei +0.73%).
Today we will learn in the Euro zone April’s final inflation, in the UK April’s inflation data, and in the US construction permits and April’s housing starts. In debt auctions: Germany (€ 1.5 Bn in bonds 2052).

COMPANY NEWS

COLONIAL, BUY
The company released a good set of 1Q’22 results that were in line with expectations in gross rents with Gross Rental Income of € 82 M (+5% vs. +5% BS(e)) and Recurring EBITDA of € 64 M (+14% vs. +9% BS(e)).
The momentum of rents is positive, and in Q1 they grew +5% thanks to the fact assets that were being renovated began operating (83 Marceau, in Paris) and to a positive indexation effect (mainly in Spain; in France it has not been seen yet). LfL rent growth was +2.7% (+1.5% BS(e)) thanks to Barcelona (+8%) and Madrid (+4%). Paris grew +1%. LfL rent growth was well balanced between price and occupancy.
Recurring EBITDA beat our estimates, although this was due to differences in how recurring expenses were treated compared to our forecasts (due to a seasonal effect that was contained to this impact).
The company reiterates its recurring EPS’22 guidance of € 0.28/0.29 (in line with BS(e)). In view of the high inflation (~8% CPI in Spain; >4% ILAT in France), we expect rents to continue increasing significantly in LfL terms due to the indexation effect (although in France this effect is somewhat delayed vs. Spain).
The stock is down -7% YTD (+3% vs. EPRA Europe), which we believe would be due to fears of a recession with higher interest rates. We believe that the stock is inexpensive, trading at a -36% discount to NAV, and thus, we reiterate our BUY recommendation.

SIEMENS GAMESA, SELL
According to the press, Siemens Energy (35.1% SIE) would be planning to launch a delisting tender offer for the 33% of SGRE it does not hold. According to the news, this would be a cash offer with a small premium. The article mentions that the offer could be made in the coming weeks, although it specifies that the decision on the deal would not yet be set in stone. In this regard, note that Siemens Energy has scheduled a Capital Markets Day on 24 May.
We recall that in the past few months there has been a number of rumours placing SGRE in the focus of a possible takeover bid and that in May’21 (with SGRE trading at around € 26/sh.) there were rumours of a possible TOB that were denied by Siemens Energy (through a communiqué), although without ruling out the possibility in the future. These rumours have once again sprung up over the past few months.
Rumours and comments on a possible delisting tender offer for SGRE by its parent company have been recurrent over the last few months and, even though Siemens Energy ruled out the deal in the short-term around a year ago, SGRE is currently trading -42% below the levels seen at that time (-33% YtD), which would increase the appeal of the transaction for Siemens Energy, even more so after SGRE’s poor recent operating performance.
We believe that currently Siemens Energy’s most obvious reason to carry out the move would be to eliminate the value reference from SGRE’s share price, as well as to gain control over the levels of communication with the market. We understand that a possible TOB should come with some premium vs. the share price from the past 3-6 months (€~16.27 and €~18.12/sh., respectively), although we do not think Siemens Energy has a clear incentive to try to maximise the result with an overly generous offer, as it already has control over the Company, and after the TOB it could delist it without holding 100%. In any event, we would expect the price to be at least in line with that paid by Iberdrola (€ 20/sh.) in Feb’20 for its 8% stake, which would mean a +42% premium to the current share price, although SGRE’s operating situation is now worse.