EUR 100.00 For Business Accounts Only

IBERIAN DAILY 21 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: DIA, ELECTRICITY SECTOR, IAG, TELECOM SECTOR.

MARKETS YESTERDAY AND TODAY

Focused on the trade front again
The lack of news on the trade front and another session without relevant newsflow led to the withdrawal of investors. Thus, the Euro STOXX ended with drops, led by Real Estate and Food vs. Basic Resources and Telecoms that were the only sectors ending in positive territory. On the macroeconomic level, in Spain, the EC warned about the deviation risk in the budgets sent for 2020. Separately, the press is stating that Unidas Podemos would control the Ministries of Equality and Housing, where the party’s plans suggest intervening in price matters and ending the REIT regimen, among other measures. In the euro zone, L. de Guindos outlined that the asset purchase programme will not reach the limit in the short-term although he admitted that the effects from the second round are more evident. In the US, the minutes from the Fed meeting showed that its members are comfortable with interest rates following the latest cut made in order to eliminate the risks of an economic downturn. From the Fed, L. Brainard hinted at a halt in rate cuts until the impact on the economy is assessed. In China, according to Bloomberg, Liu He (Vice Premier) was cautiously optimistic on a trade agreement (not necessarily signed in 2019), although he admitted that the country demands more tariff cuts in exchange for granting the US’s main demands. In US Results Loewe’s were in line and Target came in above expectations..
What we expect for today
The main European indices would open with drops of as much as -0.5%, led by cyclical sectors on account of the doubts surrounding the signing of Phase I of the trade agreement. In the IBEX there will be possible doubts regarding Spanish REITs. Currently, S&P futures are down -0.13% (the S&P 500 closed down -0.22% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 12.78%). The Asian markets that are open are falling (Hong Kong -0.48% and Japan -1.59%).
Today in the US we will learn November’s Philadelphia Fed index, weekly jobless claims and October’s existing home sales. In US business results, Macy’s, Ross Stores and Gap, among others, will release their earnings. As for auctions, Spain will issue € 4 Bn in bonds due 2029 and 2066 and France €10 Bn in bonds due . 2023, 2024 and 2025 & I/L due 2028, 2029 and 2047.


COMPANY NEWS

IAG: Cash generation is the key. BUY.
The recent CMD has demonstrated that: (i) IAG has taken a more cautious position (+6% CAGR’18/22e in ASK vs. +3.4% previously) and (ii) that it will continue to generate a lot of cash (€ 2.1 Bn on average in 2019/22 pre-shareholder remuneration IAG(e), vs. ~ € 1.35 Bn BS(e); ~7% yield). With the guidelines unveiled, we cut our estimates (-6% EBIT’19/22), offset by the rollover’20, and keep our T.P. unchanged at € 8.00/sh. We recommend BUY, as we believe the company is undervalued (+25% upside) in a less cyclical sector thanks to concentration, where we also see room for an improvement in shareholder remuneration (the yield could rise from 4.7% currently to ~9% without jeopardising its solvency; 1.3x ND/EBITDA’19e) and inorganic growth.