EUR 100.00 For Business Accounts Only

IBERIAN DAILY 28 NOVEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: COLONIAL, ENDESA, EUSKALTEL, FCC, SIEMENS GAMESA, TALGO, TELEFÓNICA.

MARKETS YESTERDAY AND TODAY

A mixed bag in Europe
European markets rose with the solid US macro data. In the Euro Stoxx, the best-performing sectors were Telecoms and Personal Household Goods, compared to cyclical sectors more linked to raw materials like Basic Materials and Energy, which closed with losses. On the macro side, in the US the second reading of the 3Q’19 GDP was a positive surprise (2.1% QoQ vs. 1.9% previously) due to the larger contribution from private consumption and inventories. Preliminary core durable goods orders recovered strongly, which should stabilise the correction of investments in capital goods. October’s real personal outlays rose more than expected, which hints at strong growth in private consumption in 4Q’19. The Fed’s Beige Book showed the economy is growing by a modest rate, with increasing growth in private consumption and moderate wage returns. On the trade front, Trump again reiterated that the last details of the trade agreement with China are being hammered out. However, the negotiations might be marred, as China threatened to retaliate after Trump signed the Act that backs democracy and human rights in Hong Kong. In Japan, retail sales contracted notably more than expected in October due to the rise in VAT.
What we expect for today
Stock markets would open with slight gains, with a better performance of defensive sectors. Currently, S&P futures are down -0.38% (the S&P 500 closed up +0.18% vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 11.75%). The Asian markets that are open are falling (Hong Kong -0.12% and Japan -0.12%).
Today is a holiday in the US. In Spain we will learn November’s preliminary inflation and October’s retail sales, in the euro zone October’s M3 and November’s economic climate index and in Germany November’s preliminary inflation. In debt auctions: Italy (€ 4.5 Bn in bonds due 2025, 2030 and CCT 2020).

COMPANY NEWS

ENDESA. Strategic Plan through 2022: a bet on renewables. We maintain SELL.
ELE presented a plan that is highly focused on renewable assets (~52% of total investment), which allows the company to raise its EBITDA guidance for 2020 and 2021 by +3% and +2%, respectively, and to set a new target of € 4.3 Bn of EBITDA for 2022. Our estimates (which we raise by +1% on average) are below the company’s (-9% on average over the period and -8% in 2022), as is the case with the consensus (-11% on average and -13% in 2022). The company’s dividend policy will remain unchanged until 2021 (with a payout of 100% through 2020 and of 80% in 2021), but the payout will be lowered from 80% to 70% in 2022, as the company is open to making new acquisitions. We raise our T.P. by +10% to € 24.15/sh., leaving us without upside, which we would only see (+13%) if we were to assume ELE’s full targets from the plan in our estimates.

TELEFÓNICA. The new plan presented should be a driver. BUY.
Yesterday the company announced a new Strategic Plan that clarifies the group’s priorities on the markets, focusing on Spain, Germany and the UK, whereas in LatAm it has spun off all the businesses except Brazil (which would account for 17% of EBITDA). It has also created new Technology and Infrastructure divisions in order to price in the infrastructure put into place (and that yet to be deployed), while redefining the corporate centre model and the organisation of TEF Spain (33% EBITDA). On the qualitative level the news is positive in our view, as it could generate drivers in the short and medium term (possible tower sales, asset sales in LatAm, network coinvestment agreements). On the financial level the impact is small (€ +2 Bn of revenues in 2022, +4% of the current total).