IBERIAN DAILY 15 NOVEMBER (ANÃLISIS BANCO SABADELL)
NEWS SUMMARY: ELECTRICITY SECTOR, EUSKALTEL, MERLIN PROPERTIES, METROVACESA, OHL, TALGO.MARKETS YESTERDAY AND TODAY
Without signs of reaction
The slowdown of October’s industrial production data in China and the doubts surrounding the trade talks weighed again on European stock markets. In the Euro STOXX, the gains of Real Estate and Retail stood out vs. cyclical sectors more correlated with the external segment, such as Basic Resources and Automobiles, which saw the biggest drops. On the macroeconomic level, in Germany, the preliminary 3Q’19 GDP came in better than expected, avoiding the technical recession (-0.1% QoQ vs. -0.1% previously). In this regard, the German Finance Minister, O. Scholz, expects the economy to recover next year. In Spain, inflation was disappointing, remaining at September’s levels. In the euro zone, the 3Q’19 GDP grew 1.2% vs. 1.1% expected with lower job creation than expected on the quarter. From the ECB, F. Villeroy did not rule out to raise rates although L. de Guindos rejected this until inflation converges towards the target. In the US, J. Powell repeated his testimony before the Senate, making it clear there are no overheating signs in the economy. October’s production prices came in better than expected and weekly jobless claims rose more than expected. In Brazil, September’s economic activity index came in better than expected. In Japan, September’s final industrial production was raised slightly. In China, the Ministry of Commerce, Gao Fent, stated that the progress of Phase I is subject to the cancellation of the additional tariffs. On another note, the rise in home prices moderated in October to 8.0% YoY from 8.6% previously. In US Results Walmart and NVIDIA came in better and Viacom in line.
What we expect for today
European stock markets would open with gains of +0.5% amid more optimistic comments from Kudlow on the US-China trade talks. Currently, S&P futures are up +0.44% (the S&P 500 was 0.35% higher vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 13.05%). The Asian markets that are open are climbing (Hong Kong +0.17% and Japan +0.70%).
Today, we will learn: in the Euro zone, October’s final inflation; in the US, November’s Empire manufacturing index, October’s retail sales and industrial output. In US business results, there will be no relevant earnings releases. In ratings, Moody’s will revise Spain’s (currently at Baa1 stable).
COMPANY NEWS
OHL. Better results, but not reflected in cash, which came in below expectations. We raise our T.P. but reiterate our SELL recommendation.
Despite the better operating performance (€ 17.4 M EBITDA vs. € 14.6 M BS(e)), as a negative we highlight the cash burned (€ 78 M vs. € 20 M BS(e)) and lower visibility on this point, which could lead to a negative reaction. Better margins in Construction (85% EBITDA) mean our estimates change drastically (from € -75 M of EBITDA’19 to € 52 M, and in the long term from € 50 M to € 90 M after the margin rose +150bps to ~3.5%), with a +58% impact on our T.P., which rises to € 0.95/sh. (-6% potential). Our main doubt continues to be the delivery of positive FCF generation (which we do not expect until 2022) and the progressive elimination of risks linked to legacy projects. Separately, we do not expect the agreement with Amodio (which will take up to a ~29% syake by subscribing a 20% increase and buying shares from GVM) to benefit minority interests, and thus we reiterate our SELL recommendation.
METROVACESA. Announces profit warning in home deliveries, although FCF targets are maintained. BUY
The company is abandoning its delivery targets in order to focus on cash generation, which does not change in quantity, but rather in the mix (land sales taking on a bigger role). MVC chalks up this decision to the worse market conditions (in price and delivery timeframes). It has also announced a € 50 M share buyback (4% of market cap). The previous targets seemed to be impossible to meet and were already pricing in a profit warning in our opinion, with the stock trading at a -56% discount to NAV (with hardly any debt), but even so we expect a negative reaction today. We place our T.P. Under Revision (previously € 15.18/sh.). We expect to cut our T.P. to a range of € 11-13/sh. due to the lower number of deliveries and terminal value.
TALGO. 9M’19 Results above our expectations and those of the consensus at all levels. BUY.
Results came in above expectations from sales (+16% vs. +13% BS(e) and +14% consensus) thanks to 3Q’19 figures +8% better than we expected and a better adjusted EBITDA margin that came in at 18.3% (vs. 17.9% BS(e) and consensus and 18% guidance). Notwithstanding, the company reiterated its 2019 guidance of an 18% margin vs. our 17.7% estimate. The group also maintains its net cash expectations although modifying the “slight increase†with “in line with 2018†vs. our estimate of slight drop. We would expect a positive reaction although limited to some extent after outperforming the IBEX by +8% in the past month (-1% YTD).
Euskaltel SA is a Spain-based company engaged in the provision of integrated telecommunication services. The Company's activities are divided into three segments: Residential, Business, as well as Wholesale and Other. The Residential segment provides fixed and mobile telecommunication services, broadband and wireless Internet, as well as digital television (TV) as a single service and in packages. The Business division primarily offers fixed and mobile telephony, as well as Internet access for enterprises. The Wholesale and Other area serves wholesale customers and is responsible for the delivery of communication services, such as infrastructure leasing, information technology (IT) outsourcing, as well as sell of installation material and electronics. The Company operates in the Basque Country, Spain.
Lar Espana Real Estate SOCIMI SA is a Spain-based company primarily engaged in the operation of retail Real Estate Investment Trusts (REITs). The Company specializes in acquiring, managing and renting real estate assets within the Spanish market. Its business activities are divided into three segments: Shopping Centers, Offices, as well as Logistics. The Shopping Centers area is responsible for operation of a number of shopping malls, namely Txingudi, Las Huertas, Albacenter, Anec Blau, Hiper Albacenter, and Nuevo Alisal, among others. The Offices segment invests in office properties, such as Arturo Soria, Cardenal Marcelo Spinola, Egeo and Eloy Gonzalo. The Logistics division focuses on managing logistics warehouses, including Alovera I and Alovera II. The Company also owns a plot for residential properties development. It is a parent of a number of entities, such as Lar Espana Inversion Logistica SA, Gran Via Centrum Holdings SAU, Global Noctua and Puerta Maritima Ondara.
Merlin Properties SOCIMI SA is a Spain-based company engaged in the operation of a real estate investment trust (REIT). The Company focuses on the acquisition, management and rental of commercial properties located in the Iberian Peninsula, primarily in Spain. The Company's activities are divided into the following segments: Office buildings, operating a portfolio of office space; High-street retail, engaged in leasing retail stores; Shopping centers, engaged in managing department stores; Logistics, operating logistics warehouses and distribution centers, and Others. The Company's other activities include property management services rendered to third parties.
Metrovacesa SA, formerly Metrovacesa Suelo y Promocion SA, is a Spain-based real estate developer. The Company specializes in construction and sale of sustainable housing, both single-family and multi-family residential properties. Its activities also include promotion, urbanization and parceling of real estate in general, as well as real estate management for own benefit or on behalf of third parties. Its asset portfolio includes more than 6 million square meters of building land across Spain, as well as already developed properties in cities, such as Malaga, Almeria, Cordoba, Barcelona and Madrid, among others.
Obrascon Huarte Lain is an international concession and construction groups based in Spain. Co. maintains significant operations in 30 countries across all five continents. Co. is engaged in hospital and railway construction, transport infrastructure concessions, oil and gas, energy, solids handling and fire protection systems and international contracts. Co.'s operations are organized along four divisions: OHL Concesiones, OHL Construccion, OHL Industrial y OHL Desarrollos. Co. is also engaged in real state project developments of mixed use managed by the international hotel chains.
Talgo is engaged in designing, manufacturing, repairing and maintaining the railway rolling stock, as well as the manufacturing, assembling, repairing and maintaining the engines, machinery and parts of the railway systems. Co. has an industrial presence in seven countries: Spain, Germany, Kazakhstan, Uzbekistan, Russia, Saudi Arabia and U.S.A. Co. has an active fleet in Europe, Asia and North America that comprises of 94 high-speed trains and more than 1,400 Talgo tilting passenger cars. Also, Co. purchases, redesigns, constructs, leases and sells all types of real estate.
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