EUR 100.00 For Business Accounts Only

IBERIAN DAILY 17 APRIL (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, ENAGÁS, TELEFÓNICA, UNICAJA.

MARKETS YESTERDAY AND TODAY

Rally attempt that would gel in today’s session
Slight gains both in the US and Europe in a session where macro data was once more the highlight after the weekly jobless claims data that brought the total number of unemployed in the last month above 22 M. The Spanish index was the only one in Europe not ending in positive territory. In the Euro STOXX, Technology and Pharma saw the highest gains while Media and Energy saw the worst relative performance. From the ECB, C. Lagarde outlined they are open to all options and contingencies to support the economy. On another note, N. Kashkari from the Fed warned that large US banks should raise US$ 200 Bn in capital now and cease dividend payments in view of the serious economic crisis due to the pandemic. In the UK, the number of people affected by Covid-19 already exceeded 100,000. On the macroeconomic level, in the euro zone, February’s industrial production slowed down in line with expectations. In Germany, March’s final inflation remained unchanged, confirming the preliminary data. Meanwhile, car sales in March fell -38% YoY vs. 72% in France and 85% in Italy. In the US, construction licences climbed above expectations while housing starts grew less than expected; Philadelphia Fed index dropped far below expectations, although the 6-month expectations index rose to a high level. Weekly jobless claims rose less than expected. In China, the 1Q’20 GDP fell more than expected to -6.8% YoY with a strong contraction in industrial output and March’s retail sales, but with a smaller drop compared to Jan/Feb. In Japan, February’s industrial output fell to -3.2% YoY from the previous 2.2%. In US Results, Bank of NY, BlackRock, Insteel Industries and Sonoco came in better than expected while Keycorp came in worse.
What we expect for today
Stock markets would open with gains of as much as +3.0%, fuelled by the guide presented by Trump for a gradual deconfinement in 3 phases and in view of the good results shown by Covid-19 patients treated with remdesivir. Currently, S&P futures are up +3.20% (the S&P 500 ended practically unchanged vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 40.20%). Asian markets are climbing (Japan 2.96% and Hong Kong 2.38%).
Today in the euro zone we will learn both March’s inflation and the final core data.

COMPANY NEWS

TELEFÓNICA, BUY
According to the press, the difficulty in divesting from assets deemed non-strategic would have led the Board of Directors (which is to meet today) to study a possible inclusion of a shareholder to provide the stock with equity and stability. In this regard, it is mentioned that the Chairman has been negotiating for months with venture capital funds, such as CVC Capital Partners, KKR, Temasek and other sovereign funds backed by the UAE. There would be advanced-stage talks with one of these, and it is inly a question of price.
Another solution being considered is to carry out a capital increase, and according to the source of this news, the shareholders BBVA (6.7%) and Caixabank (5.8%) would be in agreement. Rest of main shareholders BlackRock 4.96% and Norges 1.7%.
We lend little credence to this news, which arose a few weeks ago. We think that, given the current solvency level, it does not make sense to seek out new capital, either by capital increase (due to the low prices) or by bringing in new partners, and both measures would be negative for current shareholders (which would see their stakes diluted). Note that NFD was lowered by -8.1% in 2019 to € 37.744 Bn (€ 37 Bn including asset sales, 2.43x NFD/EBITDA), and that the average maturity was lengthened to 10.5 years. The company’s cash position would cover 2020 and 2021 maturities.
We think that before reaching this extreme, the company has another tool it could use, that of cutting the dividend, which even though it is sustainable (€ 0.40/sh.; 9.3% yield; 66% payout), could be in jeopardy if the pressure on the market increases (TEF is the worst-performing telecom) due to the need to reduce debt against a backdrop in which asset sales are very difficult to carry out. Another option, which in our opinion could make sense, is for TEF to seek out partners in some of its assets, but never in the parent company, as rumoured.