EUR 100.00 For Business Accounts Only

IBERIAN DAILY 16 DECEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ALMIRALL, BANKING SECTOR, ELECTRICITY/GAS SECTOR, IBERDROLA, OIL SECTOR.


MARKETS YESTERDAY AND TODAY

The ECB cools the banks’ expectations
The solid opening in the US spurred European markets after the Electoral College recognised Joe Biden’s victory in the presidential election and in view of the growing expectations of an agreement on a fiscal stimulus package before the end of the year (the Republican Senate majority leader stated that he would not let anyone go on vacation until the fiscal package is passed). As for Brexit, an agreement was reached on the commercial retaliation mechanism in cases of unfair competition, one of the main stumbling blocks along with fishing rights. Thus, within the Euro STOXX, most sectors ended in the black, led by Basic Resources and Autos, vs. Pharma and Retail, which were the worst relative performers. On the macro side, in the UK, October’s ILO unemployment rate climbed less than expected, although it beat September’s data. In the US, December’s Empire manufacturing index slowed more than expected.
What we expect for today
With Brexit negotiations and the fiscal stimulus package in the US on track, as well as the EU’s decision to speed up the approval of Pfizer’s vaccine to 21 December, the indices would open with modest gains awaiting the Fed meeting. The ECB’s decision to limit bank dividend payments to 15% of profits over the past 2 years or 0.2% of CT1, as well as the EC’s threats to break up the large tech firms in view of repeated violations of European antitrust rules could drag down banks and technology and generate some tension with the US. Currently, S&P futures are down -0.1% (the S&P 500 closed +0.5% higher vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 22.89). Asian markets are rising (CSI 300 +0.5%, Japan +0.25%).
Today we will learn in the Euro zone December’s PMIs, and in the UK, November’s inflation data. In the US, the Fed will hold its meeting. Also we will learn November’s retail sales data and the NAHB index for December.



COMPANY NEWS

BANKING SECTOR. ECB lifts ban on dividends, but with limits
Yesterday the ECB announced it will lift the ban on dividends for the entire sector, but limiting DPS in cash/buybacks to the lesser of: (i) 15% of accumulated Net Profit’19-20 and (ii) 20bps of capital. This criteria will be held in place until 30/09/21, and the banks will not be able to pay a DPS against 2021 results until then. We expect a neutral/negative reception to the news, as the criteria are slightly stricter than expected and the implied yield BS(e) is not appealing enough (~1.6% on average, with a range of 0.9%-3.3% in our coverage universe) to maintain the outperformance (+20% vs. EuroSTOXX over the past month) in a sector that we think is already fairly priced by fundamentals. By banks, the most positive reading (maximum yield and DPS vs. consensus) would be for Unicaja and Liberbank, whereas on the negative side we would highlight Bankinter. In the rest of the banks we do not expect a significant impact.

ELECTRICITY AND GAS SECTOR
OIL SECTOR
The Govt. announced yesterday its aim to reduce the electricity bill by -13% within five years, withdrawing € 7.14 Bn of renewable premiums from the bill (~40% of costs in the electricity system and ~13% of the electricity bill). Specifically, from now on, these premiums will be funded not only by electricity consumers (who currently finance 100% of them), but also by electricity, fuel and gas consumers (Repsol, Endesa, Iberdrola y Naturgy) with the creation (already approved at a Cabinet Meeting) of the National Fund for the Sustainability of the Electricity System (abbreviated as FNSSE in Spanish). The FNSSE will be financed by electricity marketers (30%), as well as oil (45%) and gas (25%) products and according to the CNMC’s calculations, REP will assume 20% of this fund (€ 1.42 Bn), ELE 13% (€ 928 M), NTGY 12.5% (€ 892 M), and IBE 8% (€ 571 M). This measure will allow for a reduction in the electricity bill without generating a tariff deficit. At the same time, it will probably lead to an increase in oil and gas prices for final consumers (if marketers choose to totally or partially pass on this cost to consumers). The daily El Economonista outlines today that oil groups will raise fuel prices by € 0.07 cents/litre to set up the fund, i.e. consumers will assume this reform, for which the Govt. plans to implement discounts that will not penalise competition, especially in industrial consumption. The regulation is expected to be approved in an urgent procedure, and should come into force in the 2H’21.
Despite yesterday’s negative market reaction, we believe that the impact will be small, as it is reasonable to think that the electricity, gas and fuel marketers will pass the cost onto consumers. While it is true that some players might not do this, which might increase competition levels, this is not new territory for them, as, up to now, price competition was possible, as this is a liberalised market. We do not expect a significant impact on results. Although the nominal contributions to the fund seem substantial, in relative terms, they only represent less than 2pp of the marketers’ sales, which actually seek a brokerage margin. Also, the commercialisation of these products represent ~25% of REP’s EV, ~8% of ELE’s and IBE’s and