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IBERIAN DAILY 14 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: IBERDROLA, INDITEX, UTILITIES/ENERGY SECTOR.

Inflation remains strong
European stock markets saw drops after the surprise of inflation data, which remained at higher levels than expected. Thus, within the Euro STOXX, Utilities was the only sector remaining in positive territory, followed by Household, with the lowest losses. However, Real Estate (hit by the more expensive financing curve) and Technology were the worst performers. On the macro side, in Germany, August’s final inflation confirmed the preliminary data (7.9%), whereas in Spain, it was raised by one tenth (10.5%) and the core data remained at 6.4%. As for leading indicators, September’s ZEW dropped more than expected (due mainly to the deterioration of the current situation component), suggesting a drop in IFO to 80. In the UK, July’s ILO unemployment rate dropped more than expected, getting closer to record lows since 1974. In the euro zone, the EC will present a legislative proposal so that EU countries reduce their average electricity consumption by 10% and to obtain at least 5% savings at peak times, also curbing the revenues electricity companies through a cap of between € 180 and € 200 M/Mwh for renewable, nuclear and lignite generation. Lastly, a 33% tax on windfall profits will be set for fossil fuel companies (oil, gas, coal and refinery sector). In the US, August’s inflation moderated less than expected, with the core data rising due to the performance of services, where housing costs continue to rally, which suggests a lower level of inflation at the end of the year but a high core data at least until the 2H’23. Meanwhile, the market is pricing in rises of up to at least 4.25% in the 1Q’23. In Japan, machinery orders rose in July more than expected whereas the final industrial output was cut slightly.
What we expect for today
European stock markets would open with drops of -1.0%. Currently, S&P futures are up +0.1% (the S&P 500 ended -1.2% lower vs. the European closing bell). Volatility in the US rose (VIX 27.3). Asian markets are falling (China’s CSI 300 -1.35% and Japan’s Nikkei -2.65%).
Today in the UK we will learn August’s inflation, in the euro zone July’s industrial output and in the US August’s production prices. As for auctions, Germany will issue € 1 Bn in bonds due 2044.



COMPANY NEWS

INDITEX. Better 2Q’22 results in sales, strong start to 3Q’22 and guidance’22 confirmed. BUY.
The 2Q’22 results beat expectations in sales (+15.9% vs. +10.8% BS(e) and +12.4% consensus), meaning the strong pace from the start of the quarter has basically continued. The gross margin fell around -40bps to 56% (-40bps vs. 2Q’21; in line with BS(e) and vs. around -35bps consensus), but EBIT continues to grow sharply (+25.2% vs. +12.4% BS(e) and +17.6% consensus) thanks to the solid operating cost control (around +1% over sales growth) and stable amortisations. The 3Q’22 guidance (1 Aug/11 Sept) is positive, with +11% sales growth (vs. 2021 record period) and the company kept its guidance’22 of +/-50pbs in gross margin vs. 2021. These latest indications, along with the strength still seen in sales, should lead to a positive market reaction even more when the share price has slid -23% YtD.