EUR 100.00 For Business Accounts Only

IBERIAN DAILY 07 MARCH (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: BANKING SECTOR, INDITEX, ROVI, TALGO.

The Ibex near 10,200 points
European stock markets saw new gains, with J. Powell still seeing rate cuts appropriate in 2024 (even if they will materialize later than what the market is expecting). Thus, the STOXX 600 climbed, fuelled by cyclical sectors, with Technology (offsetting part of yesterday’s sales) and Chemicals being the best performers whereas Media and Autos ended with the biggest drops, around -0.5%. On the macro side, in the euro zone, January’s retail sales climbed although slightly below expectations. In the US, February’s ADP private employment survey rose slightly less than expected although with wage dynamics speeding up to some extent. On another note, job vacancies (JOLTS) slowed slightly less than expected in January. The Fed’s Beige Book showed an economy with a slight rise in activity, but with companies having difficulties passing cost increases on to customers. Separately, the NYCB received an eleventh-hour capital injection of US$ 1 Bn, which reversed the -45% drop from yesterday. In China, February’s trade surplus grew much more than expected due to a strong recovery of exports in the first 2 months of the year.
What we expect for today
European stock markets would open with slight drops awaiting the ECB meeting and Lagarde’s speech on salaries. Currently, S&P futures are down -0.13% (the S&P 500 ended -0.28% lower vs. the European closing bell). Asian stock markets are falling (China’s CSI 300 -0.40%, Japan’s Nikkei -1.23%).
Today in the euro zone the ECB will hold its meeting, in the US Powell will speak before the Senate and in Mexico we will learn February’s inflation.

COMPANY NEWS

CHANGES IBEX 35. Today the Technical Advisory Committee will meet.
At today’s closing bell the Technical Advisory Committee of the Ibex 35 will hold its first follow-up meeting (the other being in June). We do not expect any changes.

INDITEX. Solid performance in the 4Q’23 results and good indications from the trading update. BUY
We expect positive performance in LfL sales (results to be released on 13/03), with around +13% growth (strong start to Q4 and solid demand) and around +8% on the reported level due to the negative FX effect. The gross margin will improve around +75bps to 53.6% in 4Q’23 (due to lower procurement levels), whereas the rest of the costs will remain under control, although growing at a slightly higher pace than sales (EBIT margin around +30bps vs. 4Q’22 to 15.1%). We expect good indications for 1Q’24 (Feb/~12 March), with sales slowing (below double-digit growth due to the demanding comparison), a target’24 of a stable gross margin (+/-50bps) and a DPS’23 of € 1.41/sh. (around +18%; 3.4% yield), which should maintain the stock’s positive momentum (it has risen around +3% YtD vs. IBEX 35 and around +15% vs. peers).

TALGO. The government could oppose the TOB for TLGO. SELL.
According to the press, in the framework of his closing speech at the II Smart Mobility and Sustainability Congress, the Minister for Transport and Sustainable Mobility would have stated that the government will work on vetoing the TOB for TLGO. More than opposing the industrial project, the Spanish veto stems from the mutual dislike between the government and Hungary’s Viktor Orbán, along with the alleged connections of the Hungarian investors with Russia. Negative news, as the green light from the government would be necessary for the takeover bid to go through, which according to the press could be launched throughout the week (despite the government’s position). Note that the takeover bid would be for 100% of TLGO at € 5.00/sh. (~21% premium vs. yesterday’s close) and it would have the green light from TLGO’s main shareholders: Pegaso T. 40% and Torrblas 5%.

ROVI, SELL
According to the press, ROVI would have hired Lazard to study strategic alternatives for its third-party manufacturing business (CDMO; ~51% sales’23). Specifically, it would be analysing the incorporation of a partner with a relevant stake. According to the same source, several private equity funds could be interested in this business and the valuation could stand at around € 1.5 Bn (~37% market cap; between 13x and 15x EV/EBITDA).
In the absence of confirmation (ROVI has announced today that the analysis has not ended or that no decision has been made), the deal would make sense from a strategic point of view as the incorporation of a partner would allow it to finance the business growth with new investments to increase capacity (in addition to that reserved for Moderna). Note that this segment has high margins and significant growth is expected (the company itself announced that global demand in CDMO will exceed supply over the coming years), and thus the timing should benefit high valuations for this business. Note that ROVI will end 2024 with a pre-filled syringe capacity of between 450 and 500 M (vs. 215 M in 2022) and 120 M vials, bolstered by its collaboration agreement with Moderna.