EUR 100.00 For Business Accounts Only

IBERIAN DAILY 02 JULY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ENDESA, GREENING, OHLA.

Market satisfied with France result... for now
European stock markets welcomed the confirmation of the polls from the first round of legislative elections in France, which show a blurry picture of how the country will be ruled, but far from extreme scenarios. In the STOXX 600 there were widespread gains (16/20 sectors ending with gains), led by Banks and Utilities, with Media and Technology the worst performers. On the macro side, in the euro zone June’s final manufacturing PMI was raised slightly thanks to the improvement in Germany and France, although far from a growth zone (>50). In Germany, inflation fell more than expected to 2.2% YoY in June (vs. 2.4% previously), although the core figure “only” fell to 2.9% (from the previous 3.0%). In France, around 160 left-wing candidates that ranked 3rd would have withdrawn their candidacy. In the US, June’s manufacturing ISM deteriorated unexpectedly, with sharp drops in the price and employment headings, but with orders increasing. Separately, construction spending fell unexpectedly in May. From the Fed, J. Williams was confident inflation will be reeled in to the 2% target. As for the US presidential election, the Supreme Court gave Trump limited immunity for his actions as President, which will mean a lengthy legal process. In China, vice PM He Lifeng announced limits on foreign investments will be made more flexible, broadening access to the market.
What we expect for today
Stock markets would open with slight gains against an uncertain political backdrop in France. Currently, S&P futures are down -0.22% (the S&P 500 ended up +0.17% vs. the European closing bell). Asian stock markets are mixed (China’s CSI 300 -0.05%, Japan’s Nikkei +1.02%).
Today in the euro zone we will learn June’s inflation and May’s unemployment rate and in the US May’s JOLTS. The Central Bank forum in Sintra will kick off.

COMPANY NEWS

OHLA, OVERWEIGHT
According to the press, the bid submitted by Atitlan to enter OHLA’s capital would have 2 conditions, the first one is a € 0.24/sh. price (-34% discount vs. yesterday’s close) and the second one is the appointment of a new CEO. Note that Atitlan’s bid (announced on 28/06) would include a € 75 M capital increase without pre-emptive rights (~35% market cap) and an additional € 75 M capital increase with pre-emptive rights, where Atitlan would subscribe to its percentage. The deadline of this bid is the 5th of July.
Negative news. A contribution of € 75 M by Atitlán at € 0.24/sh. would mean the company would reach a ~35% stake, when OHLA announced on Friday that none of the offers received would necessitate a TOB. Under this scenario, either the price is higher than what the article states (at least € 0.30/sh.) or the injection from Atitlán would be less, that is some € 60 M instead of the € 75 M announced. As a last option (very unusual), the obligation to launch a TOB after exceeding a 30% stake could be avoided if Atitlán obtains express exemption from the Spanish market watchdog in accordance with article 8d of the TOB law, which stipulates this possibility if control is taken through a deal stemming from credit capitalisation or if the financial viability of the listed group is in grave and imminent danger (even if it is not in bankruptcy proceedings), and that the deal is drawn up in order to guarantee the company’s long-term financial recovery.
In both scenarios the stake would remain just below the 30% threshold that would force a TOB. As an illustration, if the contribution from Atitlán were € 60 M at € 0.24/sh., our T.P. (€ 0.75/sh.) would stand at € 0.60/sh. post-capital increase (-20% vs. the previous), which would leave +83% upside over the TERP (€ 0.33/sh.). Note that Atitlán’s offer would include a second capital increase with preemptive rights totaling € 75 M, and thus the final dilutive impact could be higher. As for the naming of a new CEO, this would be a natural consequence of the new shareholding structure in which Atitlán would have a 29.9% stake and the Amodio family would see its stake reduced to ~19% vs. the previous 26.96%.