EUR 100.00 For Business Accounts Only

IBERIAN DAILY 15 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ELECTRICITY SECTOR, FLUIDRA, INDITEX, NATURGY, SACYR, SOLARIA.

MARKETS YESTERDAY AND TODAY

US inflation begins to slow
August’s inflation in the US slowed (especially the core figure), leading to a rally in US bonds and the bearish opening of the US stock markets, dragging down most European indices. Thus, within the Euro STOXX, most sectors ended in negative territory, where Technology and Pharma were the best relative performers vs. the drops of Basic Resources and Retail (for the second consecutive session). On the macro side, in Spain, August’s final inflation confirmed the 3.3% YoY data. In the UK, July’s ILO unemployment rate slowed down to 4.6% YoY, as expected. In the US, regarding the CPI data mentioned previously, the base effect from energy prices has begin to shrink, accounting for a +1.8pp rise. In China, August’s industrial output and retail sales fell more than expected. Separately, political tensions are rising due to North Korea’s ballistic tests, while the possibility of a Jinping-Biden summit is now slim.
What we expect for today
China’s poor real data for August given the delta cases could take its toll on the European opening bell. Currently, S&P futures are up +0.2% (the S&P 500 ended -0.43% lower vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 19.46). Asian markets are sliding (China’s CSI -0.75% and Japan’s Nikkei -0.48%).
Today in the euro zone we will learn July’s industrial output, in the UK August’s inflation, in the US September’s Empire Manufacturing, industrial output and August’s retail sales. In debt auctions: Portugal (€ 1.25 Bn in 3 & 12M T-bills).


COMPANY NEWS

SOLARIA. The delays of the strategic plan are already priced in. We initiate coverage with a € 21.70/sh. T.P., yielding +42.7% upside and BUY recommendation.
SLR is a renewable player and developer, vertically integrated and with a single technology (solar PV), with 807 MW in operation (1Q’21) and a target of 6,200 MW through 2025 (and 18,000 MW through 2030). Its strategy of being present in the phases with higher value added and its in-house profile result in a profitable growth story (~12% IRR, in a normal farm) in an industry with positive prospects. Our estimates assume 100% of SLR’s targets in 2027, meaning 63% of the delivery of SLR’s plan through 2025. With this in mind, we estimate a +24% CAGR’20-30 in EBITDA, with the company no longer burning cash in 2028 BS(e) after the completion of the expansion plan. Our T.P. assume implicit ratios of 22.9x EV/EBTIDA’22 and 36x P/E (vs. 16.6x and 42.4x for its peers and vs. 18.3x and 23.8x currently).

INDITEX. 2Q’21 Results slightly below expectations although with a strong start to the 3Q. SELL.
Our first impression is that the results released are good, growing vs. 2Q’19, although below our forecasts: Sales € 6.994 Bn (+1% vs. 2Q’19 vs. +3% BS(e) and +2% consensus); EBIT: € 1.116 Bn (+5% vs. 2Q’19 vs. +14% BS(e) and +11% consensus). Sales were hit by an adverse FX while operating costs grew +4.5% vs. 2Q’19 (vs. +1% BS(e)). On the positive side, we stress the strong start to 3Q with +22% sales growth at constant exchange rate vs. the same period in 2020 and +9% vs. 2019. With this in mind, we believe that the share price already factors in a strong recovery, and thus we do not see upside.

ELECTRICITY SECTOR. New cuts confirmed, with the sense of legal insecurity the worst aspect.
Yesterday the Govt. approved an action plan to lower the monthly electricity and gas bills, and by contrast to what we expected, there will be an additional cut to sector revenues. Thus, among the measures announced we highlight the new temporary reduction of windfall profits in nuclear and hydro plants due to the rise in gas costs. The Govt. calculates that this measure will have an impact of € -2.6 Bn, to be applied immediately after its approval in the official state bulletin until 31 March’22. Yesterday the utility stocks that fell the most were Endesa, Acciona Energía and Iberdrola (-5.2%, -2.6% and -1.7% vs. -0.4% IBEX), as they are the stocks concentrating 80% of annual hydro and nuclear generation. We estimate an impact of €~1.1 Bn on Iberdrola (42% of what is expected to be collected), € 868 M in Endesa (33% of the total), € 238 M in Naturgy (9%) and € 121 M in Acciona parent company (5% if we assume it affects all unregulated wind energy) which, considering 3 months this year, would mean an impact on the EBITDA/Net Profit level of -11%/-19% for Endesa, -5%/-11% for Iberdrola, -4%/-11% for Acciona parent company (we believe the impact is not limited to farms before 2003 like with CO2, but rather that it affects all of them) and -3%/-7% for Naturgy. As it is a one-off, the measure’s impact on market cap would be -4% in Endesa, -1.7% in Iberdrola, -1.2% in Acciona and -1.1% in Naturgy. We do expect this measure to spur a legal backlash in the sector (which did not occur with CO2, as the amounts were smaller).

FLUIDRA, SELL
Rhône Capital carried out at yesterday’s closing bell an accelerated bookbuild of 5.1% of FDR’s capital at € 35.50/sh. (-4.0% discount vs. yesterday’s close). After this move, Rhône Capital’ stake would total 11.5%, in clear minority vs. the total combination of the founding families (~34% capital) with 54% of free float.
Fully expected news. Note that Rhône Capital’s previous placement (4.9% capital in May’21) was conducted at a similar discount (-4%) but at € 31.30/sh., and the share price has climbed +13% since that move. The increase in free float is positive news and we foresee additional placements by this shareholder in the future (beyond possible lock-up periods that would not exceed 6 months, in any case).