EUR 100.00 For Business Accounts Only

IBERIAN DAILY 18 MAY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: INSUR, OHL.

MARKETS YESTERDAY AND TODAY

A rally but with volatility
European stock markets managed to end the session with slight gains with the exception of the Ibex and the Mib. In the Euro Stoxx, mixed performance between cyclical and defensive sectors, where Media and Automobiles led the gains while Telecoms and Utilities saw the biggest drops. On the macro side, in Germany, the 1Q’20 GDP slowed down more than expected to -2.3% YoY. Meanwhile, industrial production in Italy slowed down to -25.2% YoY in March. In the euro zone, the 1Q’20 GDP was slightly raised to -3.2% from -3.3% YoY. Meanwhile, C. Lagarde answered the European Parliament that the ECB is prepared to raise and adjust the composition of purchases for the necessary period of time. In the US, April’s retail sales slowed down more than expected as opposed to industrial production, which fell less than expected and than the Empire index and May’s University of Michigan consumer confidence that recovered more than expected. The Fed chairman warned that the recovery of the economy will take more than 1 year even though it starts in the 2H’20 and bet on the extension of the fiscal aid measures for additional 6 months, as the unemployment rate could climb to 20% and 25%. In Brazil, the economic activity index slowed down in March less than expected. On another note, the Health Minister resigned one month after his appointment due to discrepancies with Bolsonaro and the light isolation measures while Brazil is the fourth country with more people infected and increasing. In Japan, the 1Q’20 GDP slowed down less than expected to -3.4% quarterly annualised.
What we expect for today
Stock markets would open with gains >+1.0% amid deconfinement plans, with Italy planning to open its borders on the 3rd of June and Spain seeking to extend the state of emergency for 1 month. Currently, S&P futures are up +1.20% (the S&P 500 ended up +1.08% vs. its price at the closing bell in Europe). Volatility in the US fell (VIX 31.89%). Asian markets are rising (Japan +0.52% and Hong Kong +0.36%).
Today no relevant macroeconomic references will be released. Debt auctions: France (€ 9 Bn in 3, 6 & 9M t-bills).

COMPANY NEWS

INSUR. We place our T.P. Under Revision following the 1Q’20 results. BUY.
The results showed a -10% drop in revenues, with EBITDA growing +12%. The improved margin is due to the greater weight of higher-margin businesses. Net Profit grew +46% thanks to lower financial costs. NFD reached € 208 M (vs. € 196 M in Dec’19), with LTV at 39% (+2pp vs. Dec’19). The economic crisis will undoubtedly have an impact on home sales (looking at data from other developers, we see that pre-sales in April would stand at between 10-30% of their normal levels). Insur is reviewing its business plan in order to adapt it to the new reality. We place our T.P. Under Revision (previously € 15.10/sh.), which we will update once we have the company’s new, revised targets.

OHL, SELL
According to the press, the talks over the merger between OHL and Caabsa would have cooled off and might be suspended or modified due to the impact from Covid-19 on both companies. We recall that the deal includes the integration of Caabsa’s construction business (100% owned by the Amodio family) by OHL via a merger through absorption, which would give the Mexican company a stake of between 31% and 35% in OHL. Moreover, Caabsa will make a € 50 M contribution (~29% of OHL’s market cap) in cash. At the time, there were market speculations of a possible TOB, which we did not expect, and in fact, the deal was subject to Caabsa being exempted by the CNMV from launching this TOB on 100% of OHL.
This news should not be surprising considering the current exceptional situation caused by Covid-19. We understand that OHL’s priority is to optimise its liquidity position (€ 55 M of net cash and €~850 M of cash BS(e)) and to minimise the impact from Covid-19 on its business. We recall that, prior to Covid-19, the Caabsa group generated € 30 M of recurring EBITDA (with double-digit margins vs. 4% for OHL), which would mean ~27% of the merged company’s total EBITDA and that Villar Mir would reduce its stake to levels of 21%-23% (vs. 30.6% previously).
In qualitative terms, we would welcome the integration of assets which would allow the company to expand and complement its business, also improving its liquidity position. From February highs, right before the impact from Covid-19, OHL has fallen -44% (-8% vs. Ibex).