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IBERIAN DAILY 26 JULY + 2Q'21 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ALMIRALL, BANKING SECTOR, EBRO FOODS, ENCE, INDRA, TOURISM SECTOR.

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 2Q’20 results to be released over the coming days in Spain.

MARKETS YESTERDAY AND TODAY

A week of gains backed by a good results season
The European stock markets rallied last week, driven by the dovish message from the ECB, which adapted its forward guidance to the new monetary policy strategy, a good results reason and July’s strong PMIs in Europe. Thus, within the Euro STOXX, the best-performing sectors were Basic Resources and Travel & Leisure, whereas Telecoms and Food were the worst relative performers. On the macro side, in the euro zone July’s preliminary manufacturing PMI climbed slightly above expectations, whereas the services PMI came in much better than expected. Good leading indicators for the 3Q’21, suggesting that the economy would be growing above 2.7 YoY expected by the market. In the US July’s manufacturing PMI climbed above expectations whereas the services PMI fell unexpectedly. In China, tensions with the US increase after the beginning of talks between both countries. In US business results, American Express and Honeywell came in better than expected, and Kimberly Clark, among others, worse.
What we expect for today
We expect a bearish opening bell in Europe following the drops seen in the technology sector in China as a result of more demanding regulations education companies that prevents them from raising capital or trading on the stock markets. Currently, S&P futures are down -0.4% (the S&P 500 ended up +0.24% vs. its price at the closing bell in Europe). Volatility in the US decreased (VIX 17.20). Asian markets are trading with mixed results (China’s CSI -3.8% and Japan’s Nikkei +1%).
Today we will learn in Germany July’s IFO, and in the US June’s new home sales. In debt auctions: Germany (€ 4 Bn in 12M T-bills) and France (€ 5.4 Bn in 3M, 6M & 12M T-bills). In US business results, Tesla, Coca Cola, First Bank, among others, will release their earnings.


COMPANY NEWS

ALMIRALL. Better 2Q’21 Results on the operating level. The company raised its 2021 guidance. BUY.
Better 2Q’21 Results on the operating level (EBITDA € 65 M vs. € 56 M consensus) thanks to higher sales (+14% vs. +7.4% consensus) and margins (30.7% vs. 28.2% consensus). Worse performance of Net Profit (e -83 M vs. € 18 M consensus) due to a € -101 M impairment (Seysara € 69 M and Legacy US € 22 M) without impact on cash and good news in terms of NFD, which fell by -4% to € 247 M (vs. € 228 M BS(e); 1x NFD/EBITDA ex Pension Plans). The company raised its core EBITDA guidance’21, equivalent to an EBITDA range of between € 220-240 M (vs € 215/235 M previously vs. € 225 M BS(e) and € 235 M consensus). We expect a limited positive reaction following the good share price performance (+16% since 1Q’21 Results; +20% vs. IBEX).

BANKING SECTOR The ECB lifts the dividend payment restriction
The ECB released a communiqué last Friday eliminating in the end, as expected, the dividend payment restriction in the banking sector starting on the 1/10, and thus banks could resume their usual payout policies. Note that with the onset of Covid-19 the ECB firstly imposed a restriction and then limited the dividend payment (in general to 15% of the accumulated Net Profit’19-20), With this in mind, the regulator requests maximum caution, and to take into account the capital needs once the support measures are withdrawn. Thus, the results of the stress test to be made public on 30/07 will be taken into consideration to approve or curb dividend policies. Positive news although expected, as it is already taken for granted that the ECB will lift the payment restriction depending on the stress test results to be made public on the 30th of July. We continue to believe that the ECB could adopt a more cautious stance with those groups that could show higher capital pressure against an adverse scenario. We rule out this situation for the banks in our coverage universe. Thus, if the dividend payment limitation is lifted, the main beneficiaries in our coverage universe would be ING and Intesa (both with yields close to 8%) and BBBA would have greenlight to initiate it share buyback programme (around 9% market cap). Lastly, in this regard we recall that all the banks in our coverage universe are already reserving in their capital the “usual” payout range prior to Covid-19 (i.e. 50% in general).

EBRO FOODS. Sells part of Panzani for € 550 M EV to CVC. SELL
Ebro has announced early this morning that it has received a binding offer from CVC for its dry pasta, semolina, couscous and Panzani sauces businesses. The brands included are Panzani, Ferrero, Regia, Zakia and Le Renard, the Vitrolles, La Montre and Nanterre plants and the Gennevilliers, St. Just and Littoral mills. The total amount is € 550 M EV (20.5% of the market cap and 61% of its NFD as of 1Q’21) and Ebro estimates € 91 M in gross capital gains. The business sold in 2020 generated € 470 M in sales (31% of the pasta division’s total) and € 57 M of EBITDA (26.7% of the total, with a 12% margin vs. 14.2% for the pasta division). Before the sale, the rest of businesses (fresh and rice, mainly) will be excluded from Panzani, thus remaining under the group’s control. As usual, this transaction is subject to information and consultation with the workers’ representatives in France, all due regulatory authorisations and the approval at Ebro Foods’ AGM. Bearing this in mind, the transaction is expected to be closed before the 31st of December 2021.
The Transaction makes strategic sense because it allows Ebro to focus on its higher added-value products in a sector where margins are historically low. As regards the price, it means ~9.6x EV/EBITDA, in line with EBRO’s current trading levels (10x), which we welcome. On the other hand, this divestiture will allow the company to reduce its ND significantly (>1x EBITDA; incl. €~165 M puts with minority items) meaning that an extraordinary dividend could be paid out (of up to € 3.57/sh.; 20.5% yield, assuming that there is no debt), as the company did recently, or the company could have between € 700 M and € 1.00 Bn (limit of 2.5x-3x ND/EBITDA, excl. puts with minority items) to make new acquisitions.