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IBERIAN DAILY 11 SEPTEMBER (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: CHANGES IBEX, IAG, INDITEX, MASMOVIL.

MARKETS YESTERDAY AND TODAY

The ECB boosts the euro once again
C. Lagarde’s more upbeat message on the economic recovery of the EU left the euro trading at levels of 1.1900 against the dollar, which led stock markets to fall slightly. Within the Euro STOXX, the best-performing sectors were Travel & Leisure and Autos vs. Construction and Insurance, which saw the biggest losses. On the macro side, in the ECB meeting, the monetary policy was left unchanged, although C. Lagarde claimed that stimulus measures will remain in place for quite a long time. In the revised forecast, the growth expected for 2020 was raised (-8.0% YoY vs. -8.7% previously), although it was in subsequent years (5.0% vs. 5.2% previous and 3.2% vs. 3.3% previous for 2021-22), with inflation far from its target. In the US, production prices increased more than expected in August, but mainly the core component, weekly jobless claims were disappointing, remaining at the previous week’s levels and July’s final wholesale inventories contracted more than expected. On another note, as expected, the Democrats blocked the additional stimulus package due to Covid-19 worth € 500 Bn proposed by the Republics although an agreement is still expected before Nov’20 elections.
What we expect for today
Stock markets would see a slightly bearish opening following the US drops, however, S&P futures are currently up +0.7% (the S&P 500 was down -1.7% vs. its price at the closing bell in Europe). Volatility in the US dropped (VIX 29.71%). Asian markets are rising (Japan +0.54% and Hong Kong +0.47%).
Today in Germany and Spain we will learn August’s final inflation, in the euro zone the Ecofin meeting, in the UK July’s industrial output and in the US August’s inflation. In ratings, S&P will review that of Portugal (currently BBB, stable).


COMPANY NEWS

IAG. Announced € 2.74 Bn rights issue (subscription price € 0.92/sh.). BUY.
The company announced yesterday a fully subscribed rights issue worth € 2.741 Bn (~63% market cap) at € 0.92/sh. (-35.9% vs. TERP, € 1.44/sh.). 2,979 M of new shares will be issued (vs. ~1,990 M currently) and 2 rights will be necessary to subscribe 3 new shares. Qatar Airways (~25.1% of the capital) has pledged to subscribe it fully. The rights issue is aimed at strengthening its balance sheet and its liquidity, (the rights issue means a buffer of ~20 months BS(e)). After including the rights issue (see calendar for details), our T.P. (currently Under Revision and vs. € 3.50/sh. previously) would exceed € 1.80/sh. post money, which would still yield an interesting upside >+25% vs. TERP (€ 1.44/sh.).

INDITEX. 2Q’20 Results Preview. We expect a poor set of 2Q’20 results against a very weak macroeconomic and sector backdrop.
The company will release its 2Q’20 results (including May, June and July) on 16 September. Sales could fall by-32% in the 2Q’20 on a standalone basis, EBIT by -82% and Net Profit by -85%. We expect a poor set of results due to effects from Covid-19, although better than those seen in Q1 (when April was hit hard by store closures). Taking the comments made in June, we know that sales at constant currency in May fell -51%, whereas over 02-08 June they fell -34%. Assuming that the rest of June and July showed a -17% drop, we come to a -32% drop in LfL sales on the quarter.

CHANGES IBEX. Ence is replaced with Pharmamar.
The IBEX 35 Technical Advisory Committee yesterday decided the exclusion of Ence from the index, which will be replaced with Pharmamar (with a 100% weighting of its capital) from the 21st of September (adjustment on 18 September closing). We did not expect changes at this meeting although the inclusion of Pharmamar is not a surprise (it was expected to replace MásMóvil from the 14th of October) and ENC was already among the candidates to be removed from the index at the meeting held in June. MásMóvil is still expected to be removed from the index after the takeover bid and the index would be left with 34 stocks until the 7th of October where an extraordinary meeting will propose its replacement.

MÁSMÓVIL. The TOB has already been accepted by 50% of shares. We change our recommendation to ACCEPT THE TOB.
In a communiqué sent yesterday, MAS notified that the TOB from the investment funds KKR, Cinven and Providence, which was launched in June 2020 at a price of € 22.50/sh., has been accepted by shareholders representing more than 50% of the share capital. As a result, and except in the event of a last-minute revocation before the end of the acceptance period (today 11 Sep), the “Minimum Acceptance Condition” has been met, which was the last condition remaining. Although we maintain our view that MAS is worth more than the TOB price (our T.P. stands at € 26.00/sh.), we change our recommendation to ACCEPT THE TOB, as the odds of seeing a price increase are almost non-existent and the investment funds’ objective is to exclude the company from trading at the same price, for which calling an AGM and a simple majority would be necessary, which in any case we expect to occur very soon (and thus, we do not see risk for its shareholders even if they do not accept the takeover bid).