EUR 100.00 For Business Accounts Only

IBERIAN DAILY 01 AUGUST + 2Q'22 RESULTS PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: CAF, GRIFOLS, GRUPO C. OCCIDENTE, IBERDROLA, REDEIA.

At the end of today’s report, and during the entire results season, we will include a presentation with previews for the 2Q’22 results to be released over the coming days in Spain.

The US GDP raises a red flag
The European stock markets rallied in a week marked by the poor GDP data in the US and the Fed meeting. Thus, stock markets ended the week with gains amid expectations of a less aggressive monetary policy by the Fed. Within the Euro STOXX, the best-performing sectors were Basic Resources and Utilities, whereas Retail and Travel & Leisure were the week’s worst relative performers. On the macro side, in the Euro zone, the 2Q’22 GDP (first reading) increased above expectations (0.7% QoQ vs. 0.5% previously; lowered from 0.6%) and above the consensus (0.2% expected), whereas July’s inflation came in higher than expected (8.9% vs. 8.6% previously and 8.1% expected by the consensus). In Spain, the GDP grew by 1.1% in the second quarter of the year (beating expectations), while YoY inflation sped up to its highest level since 1984. By contrast, in Germany, the 2Q’22 GDP came in below expectations (1.5% vs. 1.8%). Separately, Russia cut off the gas supply to Latvia for not paying in roubles, while Ukrainian President V. Zelenski announced the mandatory evacuation of the Donetsk region. In China, the manufacturing and services PMIs contracted unexpectedly in July (with manufacturing PMI hitting 3-month lows below 50) after having recovered the previous month with the easing of Covid-19 restrictions. In Japan, the manufacturing PMI contracted in July, with reductions in production and orders. In US business results, Aon and Colgate came in as expected, Exxon Mobile better, and Procter & Gamble, worse.
What we expect for today
European stock markets would see a bearish opening following the poor readings of leading activity indicators. Currently, S&P futures are down -0.45% (the S&P 500 ended -0.3% lower vs. the European closing bell). Volatility in the US was stable (VIX 21.23x). Asian markets are climbing (China’s CSI 300 +0.27% and Japan’s Nikkei +0.56%).
Today we will learn in Spain July’s manufacturing PMI, and in the US June’s construction spending and July’s ISM manufacturing index. In US business results, On Semiconductor, Loews and Devon Energy, among others, will release their earnings.

COMPANY NEWS

CAF. Better in sales but worse in margins due to Solaris. BUY
At Friday’s closing bell, the company released 1H’22 Results above expectations in sales (+4% vs. BS(e) and +2% vs. consensus) and slightly below in EBITDA (-2% vs. BS(e) and -6% vs. consensus) due to worse-than-expected margins (-50bps vs. BS(e) and -70bps vs. consensus) on account of Solaris. Order intake provided a positive surprise (€ 3.243 Bn including the projects to be signed vs. >€ 2.5 Bn BS(e) and € 2.9 Bn BS(e) in FY2022). Presentation of the new strategic plan in the 4Q’22. We do not rule out a negative market reaction although we believe it would only mean some estimate cut with an irrelevant impact on valuation (as it is a temporary situation in Solaris), which in any event would be already priced in following its -15% YtD correction vs. IBEX.

GRUPO C. OCCIDENTE. And the expected driver materialized. BUY!
At Friday’s closing bell, GCO announced it has reached an agreement to acquire 100% of Grupo Mémora (139 funeral parlours, 39 crematoriums and 18 cemeteries) in Spain and Portugal. The valuation totals € 600 M EV and € 387.5 M Equity Value. This means pre-synergies at around 13x EV/EBITDA and -20pp in S-II BS(e) (220% in December’21). In a very cautious scenario of synergies BS(e) the multiple to pay would be 10x BS(e), with an upgrade to T.P. of ~+9% (€ 46.00/sh. currently), which is totally appealing with a recurring floor EBITDA margin/Sales of 28% “without risk”. We welcome the deal, as it will enable to generate value in the demise business with an immediate accretive impact for shareholders (+6.5% BS(e)) given the cash payment. This also dispels the pressure of share price to materialize/distribute its excess capital. We reiterate our BUY recommendation.