EUR 100.00 For Business Accounts Only

IBERIAN DAILY 12 AUGUST (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, FLUIDRA.

MARKETS YESTERDAY AND TODAY

Session of appetite for risk and cyclical stocks, but with summer volumes
Stock markets posted gains from the beginning of the session, fuelled by positive macro data, a lower number of infections in the US, and increasing expectations on a fiscal stimulus package (Trump promised a capital gains tax cut and an income tax cut if re-elected)... and a Covid-19 vaccine (Putin announced with grand pomp and ceremony a Russian Covid-19 vaccine, despite the fact that clinical trials have not been completed yet). In the European stock markets, peripheral indices (especially the Ibex) and punished cyclical sectors like Banks, Autos, Energy and Leisure led gains, whereas Real Estate and, in general, defensive sectors lagged behind. On the macro side, in Germany, August’s Zew survey did not show an improvement in the current situation index vs. July’s data, but it did show a sharp increase in the expectations component. In the US, July’s production prices climbed above expectations. Separately, J. Biden has chosen senator Kamala Harris as his VP for her capacity to mobilize African-American voters and her credentials to reform the judiciary system and the police forces after the Floyd scandal. In the United Kingdom, June’s ILO unemployment rate fell more than expected. In Mexico, June’s industrial output recovered somewhat more than expected. In Japan, early this morning the M2/M3 money supply accelerated in July, but less than expected. In US business results, no relevant companies released their earnings.
What we expect for today
The European stock market would see some profit-taking after yesterday’s rally.
Currently, S&P futures are trading flat (the S&P 500 ended -1.12% lower vs. its price at the closing bell in Europe, unable to hit February’s highs). Volatility in the US increased (VIX 24%). Asian markets are trading with mixed results (Hong Kong -0.2%, Japan +0.35%).
Today we will learn in the US July’s CPI data, in the Euro zone, June’s industrial output, in the UK the preliminary 2Q’20 GDP data and June’s industrial output, in Brazil June’s retail sales. In US business results, Cisco will release its earnings. In debt auctions, Italy will issue 12M T-bills, and Germany 10Y bonds.


BANKING SECTOR
The Spanish banks’ stocks have risen by 19.5% on average in August (vs. +6% Ibex and +11% Euro Stoxx Banks), fuelled by speculative moves in anticipation of a possible round of consolidation. Within our coverage universe specifically, Liberbank and Unicaja have risen by +45% and +30%, respectively, clearly outperforming Caixabank (+13%), Bankia (+14%) or Bankinter (+10%), despite the fact that no consolidation moves have been confirmed or echoed by the press.
Liberbank’s and Unicaja’s current share prices imply a P/E multiple of ~0.3x (for an expected RoTE’21 of ~2.5%/3% for both), vs. ~0.5x on average for Spanish banks (for a RoTE’21 of ~6%). Based on their expected profit, the stocks would be trading with a slight premium vs. the rest of the Spanish banks, which, in addition to both stock’s low liquidity levels, might mean volatility in the short-term.
We reiterate our view that the consolidation process is a clear path to improving the banks’ profitability, especially after Covid-19. That said, we believe that this consolidation will not materialise until 2021, as it would also be necessary to know the level of NPAs linked to Covid-19 in each bank, which is still uncertain. We also think that the consolidation process should begin with domestic mergers and here in Spain we believe that the most likely options would be a merger between Liberbank and Unicaja or a merger between Bankia and another institution. We hold a positive view on all three stocks.