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IBERIAN DAILY 28 DECEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING AND UTILITIES SECTOR, FCC, RENEWABLE SECTOR.


Stock markets manage to remain near highs, underpinned by rate cut expectations
It was a transition session without practically any macroeconomic references or newsflow and with low trading volume. Thus, the optimism from the last few sessions is apparently even higher amid expectations that central banks will end up being much more aggressive than suggested with rate cuts in 2024. Thus, in the STOXX 600, the best-performing sectors were. Technology, thanks to Prosus’s rally amid expectations that China will not be as restrictive with videogames in the end, Energy, given the rally in crude oil explained by sea traffic disruptions in the Red Sea, and Banks, despite rate cut expectations. More defensive sectors were among the worst performers, mainly Telecoms. In Spain, as expected, the government decided to extend until 2024 the tax on one-off profits for the banking and electricity sectors, with the possibility of deducting some green investments in the last case. On the macro side, in the US, Richmond manufacturing index deteriorated significantly vs. a slight improvement expected. In Japan, November’s retail sales and industrial output came in clearly better than expected.
What we expect for today
European stock markets would see a bullish opening, underpinned by the extraordinary optimism about rate cuts in both the US and the euro zone, practically pricing in -175bps in FY2024. Currently, S&P futures are up +0.45% (the S&P 500 ended -0.19% lower vs. the European closing bell). Volatility in the US fell slightly (VIX 11.19). Asian stock markets are mixed (China’s CSI 300 +2.3%, Japan’s Nikkei 0.42%).
Today in the US we will learn weekly jobless claims, in Spain November’s retail sales and in Mexico November’s unemployment rate.


COMPANY NEWS
BANKING/UTILITIES SECTOR. The government extends extraordinary tax on revenues
Among the measures approved yesterday by the Spanish Cabinet, the tax on one-off revenues in the banking and electricity sector was extended for one year, and thus it would also apply to 2024 revenues (to be paid in 2025). In the case of the banking sector, the current conditions remain unchanged (4.8% of NII and fee revenues), whereas for electricity companies (1.2% of the turnover obtained for groups with revenues in Spain > € 1 Bn) fiscal deductions will be included for the investments in decarbonisation, which will soften the tax amount. Additionally, the RD approved yesterday provides that both taxes will be revised to be integrated in the fiscal system, becoming permanent. In 2023, the government has collected € 2.9 Bn through both taxes.
In the case of the banking sector, as it had been already announced and agreed with the sector, a 6-month extension was approved for the elimination of the fee for early mortgage repayment and/or change to fixed rate and extending the reach of the Code of Good Practice to middle income.
The extension of the tax but mainly the announcement of its revision to make it permanent is negative news but to some extent expected, as underscored by the share prices of banks and electricity groups yesterday, sliding -2%/+1% (vs. +0.1% Ibex). In the case of electricity companies, awaiting the final details of the fiscal deductions for 2024, apparently all indications suggest that those groups investing will not be affected by the tax although note that the annual impact on EBITDA of the companies in our coverage universe would be around € 200 M for Iberdrola (~1% of EBITDA’23), € 300 M in Endesa (7% of EBITDA’23e), € 300 M in Naturgy (6% of EBITDA’23e) and €~450 M in Repsol (6% of EBIT’23e). Acciona Energía (and its parent company, Acciona), Solaria and Ecoener are unaffected by this tax. In the case of banks, the tax means around -15% on domestic banks’ profits and around -5% on Santander and BBVA. Note that all companies have appealed the tax, as it entails double taxation, among other factors.