EUR 100.00 For Business Accounts Only

IBERIAN DAILY 17 FEBRUARY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: LAR ESPAÑA, OHL, SACYR, REPSOL.

MARKETS YESTERDAY AND TODAY

Stock markets pause for a break
The main European bourses ended in negative territory with the exception of the Ibex and Switzerland. In the Euro STOXX, Real Estate and Utilities led gains while Automobiles and Consumer Goods saw the biggest drops. On the macroeconomic level, in Germany, the 4Q’19 GDP stagnated unexpectedly vs. 0.2% reported in 3Q’19. In the euro zone, the 4Q’19 GDP growth remained at 0.1% quarterly, in line with expectations, leaving the annual rate at 0.9%. In the US, January’s retail sales remained at December’s levels while industrial production fell more than expected, and we do not expect recovery until 2Q’20. Lastly, the University of Michigan consumer confidence climbed more than expected in February. Separately, Trump has hinted at a 10% tax cut for the middle class by September. In Brazil, December’s activity index rose in line with expectations in YoY terms. In China, the PBoC cut the interest rate on 1-year loans by -10bps, which could mean a cut to the loan reference rate. On another note, new home prices saw their pace slow to 6.5% YoY vs. the previous 6.8%. In Japan, the 4Q’19 GDP fell significantly more than expected to -6.3% QoQ vs. the previous 0.5% due to the negative impact from the VAT increase.
What we expect for today
Today the markets would open flat, with a slightly bullish slant. Currently, S&P futures are unchanged (the S&P 500 closed +0.08% higher vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 13.68%). The Asian markets that are open are mixed (Japan -0.69% and Hong Kong +0.74%).
Today no relevant macroeconomic references will be released. As for auctions, Holland will issue 3 & 6M T-bills and Germany € 1.5 Bn in 5M T-bills.


COMPANY NEWS

REPSOL/ SACYR. To provision € 837 M (4.2% market cap and 3.2% T.P.) from the partial negative ruling in Talisman UK. Negative although limited impact on SACYR. Both BUY
This comes from the arbitration Addax and Sinopec initiated in 2015 after acquiring Talisman UK. Addax and Sinopec requested € 5.09 Bn (26% of market cap and 17% T.P. of REP), but REP, believing that it will be a long process (1 of 5 matters has been resolved) that could conclude in 1Q’22, assumes in its provision ~16% of the amount resulting in the worst-case scenario. We cut our T.P. by -3.2% to € 18.40/sh. (+45% upside) to include this provision, and we highlight the risk that REP could cut its dividend by up to -50% in order to absorb the provision. Today we expect the share price to fall up to -4%, but if a 50% likelihood were ascribed, the stock could fall -13%, or -26% if we assume 100%.
For SACYR, negative news although of limited impact, as it is affected by its 8.2% stake in REP (17% of the T.P.) that we value at € 16.26/sh. (50/50 market prices/BS T.P., at similar levels in SACYR’s books). The sensitivity of our valuation of SCYR to this stake from current market prices of the oil company is not linear as it made up of 3 derivatives with 3 different floors (the most relevant above € 13.00), although if we were to assume a -4% cut in our valuation of REP our T.P. of SCYR would fall by a similar percentage (-4.2%). On another note, SCYR share price has soared +26% in the past 6 months, and thus this news could be an excuse to see profit taking. BUY.