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IBERIAN DAILY 23 FEBRUARY + 4Q’21 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ELECTRICITY SECTOR, ENDESA, RED ELÉCTRICA, ROVI, SIEMENS GAMESA.

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 4Q’21 results to be released over the coming days in Spain.

From some panic to optimism
Following yesterday’s advance by Russian troops into Ukrainian territory, European stock markets would open today with sharp drops that should be reeled in throughout the day, ending flat (with the IBEX even in positive territory) after the solid macro data and the announcement of sanctions by the EU (Germany vetoes Nord Stream2 gas pipeline) and the US (to local banks, the closer group to Putin and bans the negotiation of the Russian debt), which will be followed by Japan, Australia and Canada. In the Euro STOXX, Technology and Autos led the gains, with Retail and Construction being the worst performers. On the macro side, in Germany February’s IFO rose more than expected due mainly to the expectations component. In the US, consumer confidence slowed less than expected and manufacturing and services PMIs rose more than expected, where the cost component in the manufacturing index fell to a 9-month low, with services prices rising. In US business results, CenterPoint and Expeditors beat expectations, Home Depot was in line (but warning of the deteriorating margins as a result of labour and transport costs).
What we expect for today
European stock markets would see slight gains despite the fact that talks between the US and Russia are on a standstill. Currently, S&P futures are up + 0.5% (the S&P 500 was -0.36% vs. the European closing bell). Volatility in the US increased (VIX 28.8). Asian markets are rising (China’s CSI 300 +1%, and Japan’s Nikkei closed).
Today in the euro zone we will learn January’s final inflation. In US business results, Lowe’s, Booking and Ebay, among others, will release their earnings. Debt auctions: Greece (€ 625 M in 3M t-bills), Italy (€ 3 Bn in bonds due 2023) and Germany (€ 1.5 Bn in bonds due 2036).

COMPANY NEWS

4Q’21 Results previews.
Of the stocks releasing their earnings over the coming days, on the positive side, we stress Colonial (28/02), where we foresee positive trends in occupancy levels in the operating portfolio and the marketing of the portfolio under development.

RED ELÉCTRICA. 4Q'21 results in line with expectations. We lower our T.P.
The FY2021 results were in line with expectations, where EBITDA’21 came in at € 1.5 Bn, -4.5% vs. 2020 (vs. € 1.5 Bn BS(e) and € 1.53 Bn consensus) and € 680 M of Net Profit’21, +9.6% vs. 2020 (€ 686 M BS(e) and € 691 M consensus). NFD as of YE2021 stands at € 5.65 Bn (-7.6% vs. 2020). Investments rose (+10.6%) and the DPS’21 is in line with expectations: € 1/sh. (0%; 6% yield). We take the opportunity to roll our model over to 2022, placing our T.P. at € 16.71/sh. (-6% vs. previous and -1% potential). We reiterate our SELL recommendation.

ELECTRICITY SECTOR.
The European Commission is preparing a powerful set of measures to tackle the increase in energy prices that will be presented to the European Council next March. Among some of the proposals would be the temporary intervention of the market with a system very similar to the one adopted by Spain in the RD 17/2021 (gas clawback). The measure, in this case, would be a fiscal charge on the benefits caused by higher gas prices for infra-marginal technologies. The proposal considers that a levy can be imposed with a limited duration, not affecting price formation or long-term energy prices. In addition, it is recommended that the measure should not distinguish between technologies and that it should be applied in the same way to generators to avoid any type of litigation. These revenues should be fully earmarked for smoothing the bills of vulnerable consumers.
Other measures proposed would include reinforcing the security of gas supply with incentives and storage obligations for countries, launching a pilot project for joint gas purchasing and broadening the diversity of countries from which gas is received. The Commission also advocates increasing transparency in the emission rights market and urges accelerating permits for renewables and hydrogen deployment.
Negative news awaiting to know the details of the regulatory interference, although apparently some of the potential measures would be in line with those already implemented in Spain. A system similar to the existing one in Spain (where production subject to some kind of hedging is excluded) would not be so negative for generators. Furthermore, the positive aspect of the news is that, for the time being, the measures do not aim to modify the current marginalist price formation market and there is still a call to accelerate renewable development. For this reason, we continue to prefer stocks with higher exposure to renewables, such as Iberdrola, Acciona, Acciona Energía and Solaria.