EUR 100.00 For Business Accounts Only

IBERIAN DAILY 02 JANUARY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ELECTRICITY SECTOR, FERROVIAL, GRIFOLS, IBERDROLA.


2024 apparently kicks off to a good start in Europe
2023 was a positive year for stock markets despite the tightening of the financial conditions at both sides of the Atlantic. In Europe, the Euro STOXX50 climbed +23.5%, where the peripheral segment saw the best performance; led by the Ibex (+28.5%) and Italy’s MIB (+34.7%) vs. the core markets, where the CAC and DAX reported gains slightly above +20.0%. In the US, the S&P500 rose near +27.0%. In the STOXX 600 all sectors, with the exception of Food and Basic Resources, ended the year in positive territory, led by Retail, Technology and Construction, all of them climbing >+30%. On the macro in Spain, December’s inflation moderated more than expected to 3.1% YoY, with the core data at 3.8% YoY. In the US, December’s Chicago PMI dropped more than expected, far from levels consistent with growth. In Brazil, November’s unemployment rate fell to 7.5%, as expected. In China, December’s manufacturing PMI dropped unexpectedly to 6-month lows, whereas the non-manufacturing PMI recovered less than expected. Caixin manufacturing PMI provided a positive surprise after recovering slightly to 50.9. Lastly, a report from China Real State Information Corp. (CRIC) depicted a new drop in new home sales of -16.5% and a price drop of -34.6% in 2023. On the geopolitical front, Iran sent a warship to the Red Sea whereas Maersk has suspended transits through the Red Sea.
What we expect for today
European stock markets would open with gains of +0.5% with the good performance of cyclical companies. Currently, S&P futures are flat (the S&P 500 ended +0.2% higher vs. the European closing bell). Volatility in the US dropped slightly (VIX 12.45). Asian stock markets are mixed (China’s CSI 300 -1.1%, Japan’s Nikkei is closed).
Today in Spain we will learn December’s manufacturing PMI and in Europe December’s final PMI .


COMPANY NEWS

IBERDROLA, BUY
Avandgrid (81.5% IBE) has decided to terminate the merger contract subscribed with PNM Resources, Inc. on 20/10/2020 as the conditions expected to complete the deal have not been met in the period considered. Avandgrid plans to continue focusing on organic investments in the US with more than US$ 9 Bn (around € 8.15 Bn). Furthermore, the company reiterated its EPS estimate for 2023. Negative news although of limited impact bearing in mind that despite the merger setback with PNM, IBE will continue to carry out organic investments in the US for a similar amount than that initially planned and our estimates (and those of the consensus) did not assume the merger with PNM.

FERROVIAL, BUY
Last Friday, the ETR407 toll road (43.23% FER; 43% T.P.) announced a toll rate update that will come into force on the 1st of February’24 after freezing toll rates over the past 4 years. The rise in the ETR407 toll rates before the end of the force majeure event generated by the pandemic (i.e. before recovering pre-Covid traffic levels) means that the toll road will have to face the penalisations set in the “Schedule 22” of the concession contract for failing to meet the minimum traffic levels (reduced traffic congestion) that will be paid starting in 2026e. The new toll rate scheme for 2024 (as usual) applies a different rate depending on the section of the toll road, the traffic direction, the hour, the day of the week and the type (weight) of the vehicle. Thus, depending on the weight of peak hours in terms of traffic, we estimate that on average the rise would range between at least +12% and+13% BS(e), which makes sense after the 4-year freeze and the high inflation levels (CPI came in at 3.4% and 6.9% BS(e) in Canada , respectively). The key lies in offsetting the payment of penalisations that will be carried out over several years starting in 2026e (depending on the 2025e traffic levels) through the positive impact from the rise in toll rates to be implemented over the coming years. We welcome this decision, not only due to the timing but also to the fact that we believe that is properly calibrated by the management team. With this in mind, we will revise our estimates and T.P. (currently Under Revision) to reflect the new ETR 407 toll rates and an estimate for the penalisation payment, foreseeing a limited positive impact on valuation (