Report
Research Department
EUR 100.00 For Business Accounts Only

IBERIAN DAILY 17 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ELECTRICITY SECTOR, GRIFOLS, NATURGY, OHLA.

MARKETS YESTERDAY AND TODAY

Europe rallies with no new drivers
European stock markets saw another session of gains despite the regulatory risk in Spanish utilities. In the Euro STOXX, almost all the sectors closed in positive numbers, with Travel & Leisure and Industrials performing the best, compared to the drops in Autos and Basic Materials. On the macro side, in the euro zone August’s vehicle registrations slowed more than expected. As for the ECB, according to the press an internal report suggests that the inflation target of >2% in 2025 will be reached, which would mean raising interest rates in 2 years, at least 1 year before the market forecasts. These forecasts would be in line with the latest comments made by chief economist P. Lane to German bankers, although afterwards they were denied by the organisation. In the US, August’s retail sales rose more than expected and weekly jobless claims rose in line with expectations. In politics, negotiation continue regarding Biden’s fiscal package, with the increase on corporation tax from the current 21% up to 26.5% and capital gains from 20% to 25%. Separately, the Democrats are looking to raise the spending ceiling to the 3rd of December. In China, the PBoC injected US$ 13.9 Bn in 7D and 14D repo transactions, the highest level since Feb’20, to reduce liquidity tensions.
What we expect for today
The accumulated overpurchasing could be corrected, although momentum in equity remains positive. Currently, S&P futures are up +0.12% (the S&P 500 ended +0.42% higher vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 18.69). Asian markets are climbing (China’s CSI +0.25% and Japan’s Nikkei +0.5%).
Today in the euro zone we will learn August’s final inflation data.


COMPANY NEWS

GRIFOLS, BUY
The company has just announced an agreement to acquire 89.88% of ordinary shares and 1.08% of preferred stock in Biotest AG, a German hemoderivative company. The deal will mean a cash payment of € 1.1 Bn, broken down into: (i) 17.7 million ordinary shares at a price of € 43/sh. (+23% vs. yesterday’s closing price), (ii) 0.2 million preferred shares at € 37/sh. and (iii) a loan granted to Biotest for € 313 M. GRF plans to go to financial debt markets to seek some € 2 Bn. Furthermore, it pledges not to pay out dividends until it has brought debt below 4x NFD/EBITDA. The deal is expected to be finalised at the end of 1H’22.
At first glance, in our opinion the deal has a strong strategic fit, as it would allow GRF to scale (the company has 26 plasma centres; ~9% GRF) and complement its Bioscience business (~80% of sales; it will increase GRF’s footprint in Europe, the Middle East and Africa), eliminating a competitor in the sector (which is an oligopoly). On the negative side, the acquisition multiple is high (37x EV/EBITDA’22 vs. ~16x for GRF) and the €~1.1 Bn cash outflow will, according to our calculations, raise debt to 5.4x NFD/EBITDA (vs. 4.7x as of 2Q’21), which will also limit the dividend payment in the short term. Today there will be a conference call at 11:00 (CET) with investors and analysts.

ELECTRICITY SECTOR
In view of the reaction of renewable associations (and the market with strong corrections during part of yesterday’s session for these stocks), press speculations suggest that the government could add a correction of the measure to clarity the situation of long-term bilateral contracts for renewable companies after the Minister Rivera hinted at this direction in an interview yesterday. According to APPA Renovables, for the RDL 17/2021 measures, the impact from the remuneration cut affecting some of these installations (around 19% wind and PV) could be very serious if the government does not clearly specify that those installations with PPA and financial hedging are excluded from this cut. On the contrary, these may generate electricity at a loss during the months of this measure, and the guarantors of these contracts could decide to halt production to avoid incurring losses.
Positive news but of limited impact, awaiting the release of the corrections of the measure. Although it is true that discriminating again by technology or hedging structure (PPA/bilateral contract or financial hedging) will be complicated, the reality is that a change in this regard for renewable companies would question the implementation of the measure for the entire sector, bearing in mind that the integrated groups also show a higher percentage of PPA/bilateral contracts or hedging.
Thus, Iberdrola would only show a 5% merchant risk and Endesa would have 97% of its production covered.
For renewable groups, this change would mean an impact for Solaria for the 6 months of implementation minimum (50% of unregulated production in Spain for the next 6 months could be covered with the pool price. Depending on how the possible modification to the RD is drawn up (including coverage apart from PPAs or not), our estimate of € -96 M impact on each until the end of March’22 (~1% of Acciona’s market cap) would be reduced to a greater or lesser extent.
In any event, beyond the impact the measure could have on the company’s accounts in the short term, we think the rectification would be positive for the renewable energy sector in that it would dispel possible doubts surrounding future growth in Spain, and it should speed up negotiations on the cut from gas for hydro and nuclear as well, which we continue to think would be legally questionable (the utilities will sue, as will minority stakeholders, and Iberdrola and Endesa have already warned that nuclear power plants will be unviable starting in 2024.
Underlyings
Obrascon Huarte Lain SA

Obrascon Huarte Lain is an international concession and construction groups based in Spain. Co. maintains significant operations in 30 countries across all five continents. Co. is engaged in hospital and railway construction, transport infrastructure concessions, oil and gas, energy, solids handling and fire protection systems and international contracts. Co.'s operations are organized along four divisions: OHL Concesiones, OHL Construccion, OHL Industrial y OHL Desarrollos. Co. is also engaged in real state project developments of mixed use managed by the international hotel chains.

Provider
Sabadell
Sabadell

Analysts
Research Department

Other Reports on these Companies
Other Reports from Sabadell

ResearchPool Subscriptions

Get the most out of your insights

Get in touch