EUR 100.00 For Business Accounts Only

IBERIAN DAILY 28 MAY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: IAG, MELIÁ HOTELS, MERLIN PROPERTIES, PRISA.

MARKETS YESTERDAY AND TODAY

European Reconstruction Plan spurs stock markets
It was another session of gains after the European Commission announced a € 750 Bn plan, where 500 Bn would be subsidies financed through joint loans and 250 Bn in loans. Spain and Italy, the countries hit hardest by the pandemic, would receive € 313 Bn in non-repayable transfers and loan (approx. 45% of the total for Spain). Thus, the IBEX 35 once again led the gains in Europe. In the Euro STOXX, almost all the sectors closed in positive numbers, with Banks and Autos leading the way, compared to Technology and Pharma, which were the only sectors along with Travel & Leisure to post losses. On the macro side, from the ECB C. Lagarde lowered the organisation’s forecasts, stating that the euro zone economy will fall between -8% and -12% this year (initially it was expected to fall -5%) and worse for Spain and Italy. In the US, and May’s Richmond manufacturing index slowed its drop more than expected. As expected, the beige book stressed the sharp drop in activity in all districts, describing a deflationist scenario beyond specific price rises due to disruptions or higher costs due to security protocols as a result of the virus. On another note, M. Pompeo warned that Hong Kong will be declared non-autonomous from China, opening the door to sanctions to Chinese leaders and to the loss of Hong Kong’s special status in commercial and financial terms.
What we expect for today
Today European stock markets would continue with gains of as much as +1.0%. Currently, S&P futures are up practically unchanged (the S&P 500 was up +1.31% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 27.61%). Asian markets are trading with mixed results (Japan +1.57% and Hong Kong -1.81%).
Today in the euro zone we will learn May’s economic sentiment index, in Spain April’s retail sales and May’s inflation, in Germany May’s inflation and in the US the 2nd reading of the 1Q’20 GDP, April’s durable goods orders and weekly jobless claims.

COMPANY NEWS

PRISA. Weak results hit by Covid-19 and adverse exchange rate although in line. We cut our estimates. SELL.
The 1Q’20 EBITDA came in at € 55.8 M (-18.8%), falling in all the business lines and to a greater extent in Press and Radio (>-90%). The 1Q’20 FCF came in at € -6 M, leaving the NFD at € 1.067 Bn (€ 1.206 Bn including IFRS16 impact) and the NFD/EBITDA ratio at 5.3x (7.3x in 2020 BS(e)). In our scenario of V-shaped recovery we cut our estimates: sales’20 by -12.5% and EBITDA’20 by -43.5% and over the 2021-22 period sales and EBITDA by -5% and -24% on average. Thus, the valuation stands at € 0.70/sh. (-56% vs. € 1.70/sh. previously, +20% upside). In our more pessimistic scenario of U-shaped recovery the additional cut would be around -15%, which would leave our valuation lacking upside. We reiterate our cautious message on the share price given the high debt level (7.4x and 5.1x NFD/EBITDA’20e and ‘21e excluding the IFRS16 impact) and low cash generation (€ -31 M FCF’20e BS(e)).