EUR 100.00 For Business Accounts Only

IBERIAN DAILY 04 AUGUST (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ELECTRICITY SECTOR, GRIFOLS, NATURGY.

MARKETS YESTERDAY AND TODAY

Fears about Covid and China continue
European stock markets continued to trade with low volume within a narrow range at around Monday’s levels. In the Euro STOXX, Energy led the rally (following the announcement of BP’s dividend/share buyback and despite a new drop in crude oil prices) vs. the sharper falls of Leisure (dragged down again by fears about the impact from the Covid-19 delta variant on tourism). The strong corrections of some technology companies also stood out, such as Prosus on fears that China continue to add pressure on the sector. Few references on the macroeconomic level, in the US, June’s durable goods orders rose slightly more than expected. In Brazil, June’s industrial output grew slightly less than expected. In Mexico, July’s consumer confidence dropped slightly. In China, July’s Caixin Services PMI rose far above expectations. In US results, Under Armour, Conoco Phillips, Marriott, DuPont, Discovery, Ralph Lauren, Prudential and Gartner beat expectations,.
What we expect for today
European stock markets would open with slight gains, underpinned by the good business results and macroeconomic data in China. Currently, S&P futures are flat (the S&P 500 ended +0.35% higher vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 18.04). Asian markets are mixed (China’s CSI +0.5% and Japan’s Nikkei -0.2%).
Today in the euro zone we will learn July’s final services PMI and June’s retail sales, in the US ADP private employment survey and July’s services ISM, in Brazil the Central Bank will meet (and is expected to raise the Selic rate by+50bps). As for auctions, Germany will issue € 4 Bn in 5Y bonds and Greece € 625 M in T-bills. In US business results, Kraft Heinz, Fox, General Motors, Metlife, MGM, Electronic Arts and Western Union, among others, will release their earnings.


COMPANY NEWS

ELECTRICITY SECTOR
At the Cabinet meeting held yesterday, the Government approved the Draft Bill on the carbon dividend aimed at reducing the revenues of hydro, nuclear and wind plants prior to 2003. This draft bill would include changes to add the contributions of the agents involved with a cut to the previous remuneration reduction (draft) taking into account the following modifications: (i) A € 20.00 minimum threshold is set for CO2 prices, from this level the reduction would be activated, ensuring the profitability and viability of the plants. Thus, in the mathematical formula to assess the amount of the carbon dividend, as opposed to the draft, these 20.00 per CO2 ton would be now subtracted. (ii) The plants prior to 2003 would be affected by the new draft bill (vs. prior to 2005 previously). With this in mind, with current CO2 prices, the expected annual collection would be -37.5% lower than that proposed at the draft (€ 625 M vs. around € 1 Bn in the draft). An emergency procedure will be used for this regulation to speed up the parliamentary process. This measure would follow those adopted by the government to face the high electricity prices, such as the VAT cut to 10% (from 21%) and the cancellation of the 7% generation tax.
Awaiting the final bill, the news is partially positive (as evidenced in ELE and IBE share prices yesterday, which climbed +2.6% and 1%, respectively). In quantitative terms, this means a -37.5% cut vs. the previous reduction assumed in the previous remuneration. In any event, this news also means that this project goes through although at the expense of its approval by the Congress where the support of 50% of the Chamber is needed. If we take into account the new collection of € 625 M annually, this would mean around -3% of the joint EBITDA of the companies (vs. 5% estimated previously). Based on an approximation of the hydro/nuclear output generated in 2020, the impact would be € 250 M (vs. € 400 M previously) for IBE and ELE, around 2.7% of IBE’s EBITDA’20 (vs. 4% previously), and 6% of ELE’s EBITDA’20 (vs. 10%). This would mean that these two companies would concentrate around 80% of the total impact of the measure proposed by the Government. Lastly, this would also have a limited impact of around € 60 M (vs. € -100 M previously) on ANA (on wind, but very limited), EDP and NTGY. In any event, both ELE and IBE would have seen a poor share price performance in the past 3 months (-4% and -9%, respectively vs. IBEX), losing more than the implications of these measures vs. market cap.