EUR 100.00 For Business Accounts Only

IBERIAN DAILY 13 JANUARY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, GRIFOLS, IAG, INSURANCE SECTOR, NEINOR HOMES, REPSOL, TELEFÓNICA.


MARKETS YESTERDAY AND TODAY

Mixed markets in the absence of relevant news
As most European leaders mull how long the restrictions due to the rise in Covid-19 cases should be in place, political uncertainty continues in the US. Thus, the European core country indices closed with slight gains, whereas peripheral ones posted small losses. Within the Euro STOXX, value stocks were the best performers, with Autos and Banks leading, vs. Real Estate and Utilities, which saw the biggest losses. In the US, the members of the Fed Bullard, Rosengren, Mester and George warned that it is too early to discuss a possible tapering, whereas Kaplan was confident in recovery, which means the future of the QE will be rethought.
What we expect for today
European markets would open flat. Currently, S&P futures are up +0.13% (the S&P 500 closed largely unchanged vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 23.33%). Asian markets are trading with mixed results (CSI 300 -0.8%, Japan +1%).
Today we will learn in the Euro zone November’s industrial output data, in the US December’s inflation data and the Beige Book. In Italy, Renzi will announce whether he will remain in the coalition Govt. In debt auctions: Germany (€ 5 Bn in bonds due 2026) and Portugal (€ 1.25 Bn in bonds due 2030 and 2035).


COMPANY NEWS

TELEFÓNICA, BUY
TEF has just announced the sale of Telxius’ towers (held 50.01% by TEF, 40% by KKR and 9.99% by Pontegadea) to American Tower for € 7.7 Bn in cash. A total of 30,722 towers will be sold in two transactions: Europe (towers in Spain and Germany) and LatAm (Brazil, Peru, Chile and Argentina). TEF’s operators will retain their current lease contracts with Telxius and the conditions of renewal do not include any additional all-or-nothing clauses. The multiple implied in the transaction (adjusted for the towers sold in June’20 in Germany) is 30.5x, which stands far above the tower sales in Germany (EV/EBITDA of 23x) and Cellnex’ acquisition multiples (~11.6x in the acquisitions made in 2019 and 2020) as well as the sector’s trading multiples (~25x for the American companies).
TEF will generate capital gains of €~3.5 Bn (vs. €~2 Bn Net Profit’21e) and will reduce its NFD by € 4.6 Bn (-12.5%) and its gearing ratio by 0.3x (we recall that as of the end of 9M’20, the ratio stood at 2.77x, and we expect it to fall to 2.5x by 2021, meaning that it would stand at ~2.2x).
Very positive news due both to the debt reduction (one of the main worries weighing on the stock) and the valuation obtained, which is much higher than TEF’s trading multiples (~5.2x EV/EBITDA) and those of the towers themselves, as well as our own valuation: our valuation of Telxius was € 8 Bn for 100%, and thus the positive impact on the valuation would be around +3.1%.
The sale of the towers is something that breaks with the strategy followed to date, which consisted of continuing to strengthen the business, but recently the tone had changed, given that the inorganic growth options within the TEF group were beginning to run out (the UK would remain) due to the towers’ valuations and the financial capacity needed to continue to grow (along with the non-neutral character of Telxius at present). In this case we have always stated that the towers were not a strategic asset for TEF and that that the value generation from selling towers to third parties was greater, and thus we see this deal as a very positive one.
As for Cellnex, we believe this news would be negative due to the arrival of American Tower in Europe after acquiring Telxius’ assets and considering the high multiples paid (this might increase competition in the processes). However, in Europe, there is still a wide range of opportunities for Cellnex to grow. On the positive side, we continue to think that Cellnex might become the target of an US player (including American Tower) and these multiples would support this idea