EUR 100.00 For Business Accounts Only

IBERIAN DAILY 13 OCTOBER + 3Q’21 RESULTS. PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ENCE, IBERDROLA.

MARKETS YESTERDAY AND TODAY

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 3Q’21 results to be released over the coming days in Spain.

Awaiting more clues on what the Fed will do
European stock markets saw moderate losses throughout the session, awaiting new key macro releases today (inflation and Fed meeting minutes in the US) that could help us get a feeling of the Fed’s next steps. Only the IBEX managed to post gains thanks to Banks and Utilities. In the Euro STOXX, the best-performing sector was Utilities vs. the biggest drops in Basic Resources (dragged down by the investigations by antitrust authorities into the paper sector) and Retail. On the macro side, the main release was August’s ZEW index in Germany and the euro zone, which fell more than expected (both the expectations and current situation components). The IMF cut its global growth forecast for 2021 by -0.1pp to 5.9%, dragged down by the developed economies, whereas Spain’s growth forecast was cut to 5.7% for 2021 (vs. 6.2%) and raised to 6.4% for 2022 (+0.6pp vs. previously), and the Euro zone’s was raised by +0.4pp in 2021 to 5.0%, and kept unchanged at 4.3% for 2022 . In Mexico, August’s industrial output grew more than expected. Early this morning in China, exports grew more than expected, while imports came in below expectations. In Japan, machinery orders contracted unexpectedly. Lastly, the IEA warned that green energy investment should triple to tackle long-term energy supply problems and climate change.
What we expect for today
The European stock markets would see a slightly bullish opening amid fears of lower growth. Currently, S&P futures are down -0.15% (the S&P 500 ended -0.12% below its price at the closing bell in Europe). Volatility in the US fell (VIX 19.85). Asian markets are trading with mixed results (China’s CSI 300 +0.94% and Japan’s Nikkei -0.20%).
Today, in the US we will learn September’s inflation and Fed meeting minutes (with the European session closed), in the euro zone and UK August’s industrial output and in Germany September’s final inflation figure. In debt auctions: Netherlands (€ 6.5 Bn in bonds due 2024, 2028, 2051) and Germany (€ 1 Bn in 0% bonds due 2052).

COMPANY NEWS

ENCE, BUY
According to the press, ENC would have hired PwC to begin the process of selling the 373 MW of photovoltaic energy in its pipeline (which would be ready to start construction in the coming months) in Spain. According to the article, the sale could reach € 75 M (~7% of EV). Note that ENC holds 51% of the group that owns the renewable energy assets not related to pulp production (including the PV pipeline).
News of little impact for the time being, as this is only the start of the process, without any decision on the final sale of the assets having been made, nor de we know the price. Our valuation does not give any value to the PV pipeline, and thus if the sale comes at the mentioned price, the impact on our T.P. would be +4% (bearing in mind ENC’s 51% stake in the group holding the renewable assets), which would leave +63% upside. However, the mentioned price (which represents €~0.2 M/MW) may not be easy to obtain, especially against the current backdrop of the measures implemented by the Govt. to cut revenues on some technologies (including renewables) due to the rising gas and CO2 prices.
Assuming the € 75 M price for the possible sale, ENC’s debt would be reduced by -34% for the end of 2021e, leaving the NFD/EBITDA’21e ratio at 1.6x (including factoring). However, as ENC only holds 51% of the group holding the assets, we understand that the pulp business would only benefit from the cash paid out to shareholders through dividends.