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IBERIAN DAILY 20 OCTOBER + 3Q’21 RESULTS. HIGHLIGHTS AND REST OF PREVIEWS (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: FERROVIAL, INDRA, OHLA, REPSOL.

MARKETS YESTERDAY AND TODAY

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 3Q’21 results to be released over the coming days in Spain.

Stock markets recover
The European stock markets rallied driven by the good prospects for the 3Q’21 results season, especially in the US, where most companies are releasing earnings above expectations. Thus, within the Euro STOXX, the best-performing sectors were Utilities and Financial Services, whereas Food and Household Goods saw the biggest drops. On the macro side, ECB chief economist P. Lane insisted that rates will not be raised until inflation persistently stands at 2.0%, whereas O. Rehn reiterated that price hikes will be temporary. In the US, September’s real estate data disappointed, with building permits contracting more than expected and housing starts falling unexpectedly. In China, home prices stagnated in September and the YoY rate eased to 3.8% from 4.2% previously. On another note, the PBOC kept the benchmark loan rate unchanged at 3.85% and 4.65% and the government announced it will intervene the coal market, dragging down prices at today’s session. In US business results, Bank of New York Mellon and Johnson & Johnson came in above expectations, whereas Procter & Gamble and Philip Morris were in line.
In currencies, the euro/dollar traded within a narrow range over the European session, closing at levels of 1.164 (currently at 1.165). In raw materials, Brent futures further consolidated the increases from the past few sessions, ending at levels of US$ 84.80/barrel (currently at US$ 84.60/barrel). Gold rose to US$ 1,775/oz due to the dollar’s recent weakness (currently flat).
In fixed income, despite generalised drops in raw materials prices, sovereign bond yields continued to widen. In the core segment, the Treasury exceeded again 1.60%, currently at 1.65%, with Germany’s reference nearing its annual highs at -0.10% (BEI at 1.83%). In derivative indices, the Xover and the CDX HY$ tightened -3bps to 254bps and 296bps, respectively.
What we expect for today
European stock markets would open with drops of as much as -0.5% with the better relative performance of consumption vs. energy and basic resources. Currently, S&P futures are down -0.1% (the S&P 500 was up +0.12% vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 15.70). Asian markets are mixed (China’s CSI 300 -0.05% and Japan’s Nikkei +0.2%).
Today we will learn in the UK September’s inflation data, in the Euro zone September’s inflation data, and in the US the Fed’s Beige Book. In debt auctions: Germany (€ 3 Bn in bonds due 2031). In US business results, Abbott Laboratories, Baker Hughes, Nasdaq, Biogen, Verizon and Tesla, among others, will release their earnings.

COMPANY NEWS

INDRA. Recovery is on track. We raise our estimates and T.P., and reiterate BUY.
The continued recovery of the company’s businesses and its solid 2Q’21 results lead us to raise our estimates by +3.2% in sales and +4.9% in EBIT for 2021, and by around +4.0% in sales and +10% in EBIT over the 2022-24e period. As a result, we raise our T.P. up to € 11.80/sh. (+23% upside, +24% vs. our previous valuation). We reiterate our BUY recommendation based on: (i) its appealing multiples with an 8% FCF yield and 9.1x EV/EBIT vs. >11x peers); (ii) a financial situation under control (1.2x NFD/EBITDA’21e), and the fact that we expect the company to resume its shareholder remuneration policy (around 1.2% yield’21e); (iii) a record-high order backlog; and (iv) catalysts such as the awarding of new projects (FCAS, participation in Next Gen projects, etc.).

OHL, BUY.
The company announced at yesterday’s closing bell that it has reached an agreement to sell its 25% stake in the University of Montreal Health Centre (CHUM) for CAD 81.77 M (€ 57.24 M; ~15% of the market cap and ~51% of net cash).
Positive news. Our valuation of the stake in CHUM is €~25 M, meaning that the transaction would have an impact of +5.9% on our T.P.

3Q’21 Results highlights and rest of previews
Of the stocks releasing their earnings next week on the positive side we highlight Santander (27/10), where we expect the underlying trends to remain strong and the key will lie in Operating Net Profit coming in at a quarterly run-rate somewhat above € 2 Bn that may give confidence that the company will meet the € 8.4 Bn target implied in the announcement of its dividend policy for 2021 (that is a DPS’21 of € 0.20/sh) on 28/09. Any comments on achieving a RoTE >10% in 2021 and capital levels near the high end of its 12% guidance will also be welcome.