iberian daily

BPI
Iberian Daily
2015-02-24
Today's HIGHLIGHTS
IDR has been outperforming since the news of the changes in governance and most of the potential and expectable
positive news seem to be priced-in. Still, we are concerned that not all might be good news with the change in
governance (at least in the short term) which could lead to some expectations mismatch in this set of results. The foggy
outlook, together with a tough context in most of the company footprint and an expensive valuation justify our cut in
recommendation to REDUCE.
https://www.bpiequity.bpi.pt/others/PDF.aspx?id=69702
Our Retail analysts, Jose Rito and Bruno Bessa have released a report on DIA “Sunrise in Iberia” revising the
YE15 Price Target to €7.40 (+3%). Iberia is unveiling signs of recovery on the back of easing deflation, which coupled
with the ongoing remodeling of the company’s stores and the full integration of El Arbol and Eroski, should give room for a
gradual LfL recovery ahead. The new businesses should lead to a 40bps margin dilution in FY15F but represent a growth
driver from 2016 onwards while new FX and higher margins lead us to revise our estimates upwards (EPS15-17F by an
avg. 2%). The company is trading at an attractive valuation (PE15 of 14.8x) and a 15% discount to peers. Buy.
https://www.bpiequity.bpi.pt/others/PDF.aspx?id=69703
Today's News

CAPITAL GOODS & INDUSTRIALS
Portucel/Semapa: positive outlook for UWF paper prices
CAF: Hitachi to acquire Ansaldo STS
Europac: Pro-Gest to raise testliner prices by Eur40-50/tonne

ENERGY
Abengoa: FY14 results details
Enagas: Marginally negative 4Q14 results affected by one-offs across the board

ENGINEERING & INFRASTRUCTURES
Abertis: Closing deal with Wind before launching IPO?
CTT: Subscription of retail bonds reached Eur 1.9bn in January

FINANCIALS
Bankia: Court rules favourably in an IPO lawsuit
BPI: Violas Financials increases stake to 2.5%

FOOD & RETAIL
Viscofan: sale of IAN cancelled
Deoleo: weak 4Q14 results

HEALTHCARE
Almirall: no reassurance from conference call

TELECOMS, MEDIA & TECHNOLOGY
TEF: O2 Germany neutral 4Q results but with a positive outlook
PTC: Minister of Economy meets with PT trade unions

TRAVEL & LEISURE
Amadeus: Travelport 4Q14 results
IAG: Aer Lingus BoD reiterates support to IAG’s bid
Melia Hotels/NH Hotel Group: bidding for Una Hotels in Italy

MACRO & STRATEGY
Portugal: net lending capacity at 2.1% of GDP in 2014
Portugal: public debt ratio fell to 128.7% of GDP in December 2014
Greece: due to deliver reforms list today
Germany: 4Q14 GDP growth confirmed at 0.7% qoq
Germany: business climate improves in February, but less than expected
USA: existing home sales declined in January

KEY CORPORATE EVENTS

CONTACTS & DISCLAIMER
CAPITAL GOODS & INDUSTRIALS
Portucel/Semapa: positive outlook for UWF paper prices
(Buy; PT E4.40) (Buy; PT E16.55)
Mondi released its FY results for the year ended on the 31st December 2014 and reported revenue broadly in line with
the prior year while underlying operating profit reached E767mn (up 10% yoy) driven by cost reduction and currency
benefits. Regarding its UWF paper division, profitability was under pressure in 2014 as a results of lower prices in Europe
and devaluation of the Russian rouble. Regarding UWF paper prices in Europe the company confirmed that price
increases of 5%-8% were announced to take effect from the end of the first quarter of 2015. (Company release)
Comment: Mondi is a relevant UWF paper producer in Europe (15% market share vs. 18% for Portucel) and this price
increase reference set for the paper market indicates that a positive price momentum is around the corner. We note that
pulp prices have been in an upward trend in Europe (also triggered by a stronger USD) and this should pressure non integrated players to raise prices or eventually close operations. We expect a positive paper price momentum ahead
which should help Portucel (76% of revenues) to reap the benefits of its integrated P&P model (produces all its pulp
needs) and see a strong EPS uplift ahead. We are assuming a 1.5% yoy average UWF paper price increase in 2015 after
the 2% yoy decline seen in 2014. Portucel accounts for 81% of our target NAV of Semapa.
CAF: Hitachi to acquire Ansaldo STS
(Buy; PT: €425.00)
Hitachi agreed to buy Finmeccanica SpA’s rail business and a signals affiliate. The Japanese industrial group will pay
Eur773mn in the deal for Ansaldo STS SpA and Eur36mn for AnsaldoBreda SpA. Finmeccanica owned 40% of Ansaldo
as of Dec. 29. (Bloomberg)
Comment: the Eur773mn price paid for Ansaldo STS, implicitly values the company at 13.7x EV/EBITDA14F based on
Bloomberg consensus forecasts. We stress that: (1) Ansaldo STS is focused on the signaling business (CAF’s main
business is rolling stock); and (2) Breda (rolling stock) had Eur486mn EBITDA losses in 2013. This compares to CAF’s
10.0x EV/EBITDA14F. From an industry standpoint, this move should further consolidate the industry (Hitachi is already
present in Europe), contributing for easing competitive pressure. Even though CAF has partnered several times with STS
in bidding processes, we stress that the company should now start looking for other alternative partners (Thales,
Mitsubishi…) while continuing to develop its in-house signaling systems for new bidding processes.
Europac: Pro-Gest to raise testliner prices by Eur40-50/tonne
(Neutral; PT: €4.55)
Pro-Gest Group will increase its containerboard prices by Eur40-50/ton for all its containerboard products depending on
grade and customer. This price increase will take place on all deliveries starting on March 1st and is driven by a solid and
increasing demand and low inventories. (RISI)
Comment: a Eur40/tonne kraftliner price hike had already been announced to be effective in the industry from March’15
onwards. Still, this is the first price hike initiative for testliner grades in 2015. Testliner prices have been performing flat
YTD with the current spot standing at Eur454/tonne. We are assuming average testliner prices to stand at Eur465/tonne
in 2015 and therefore the effectiveness of this price hike would be positive news for Europac. Improving GDP conditions
in Europe should lend some room for the new price to be partially passed-through (historically only c. 2/3 of the amount of
each price hike is effectively implemented). Should we assume a Eur25/tonne price increase against the current spot
(+Eur15/tonne to our current 2015 estimates), our EBITDA estimates for Europac would be impacted by c. 3%, all else
held constant. Testliner accounts for 18% of our 2015 estimated EBITDA for Europac.
José Rito / Alexandre Leroy / Bruno Bessa
▲ BACK TO INDEX
ENERGY
Abengoa: FY14 results details
(Neutral; PT € 2.75)
Abengoa had already released its preliminary FY14 results. FY14 reported results excluded ABY and reflected the
NRDP reduction from APW1. FY14 revenues reached € 7151mn down 1% yoy, impac ted by E&C (-7% yoy). FY EBITDA
came at € 1408mn, up 11% yoy, driven by a 50% increase in concessions and a 12% increase in Biofuels. Net Profit
came at € 125mn, roughly in line with our forecasts as items below EBITDA (mainly financials, taxes) eroded the positive
deviation at the EBITDA line. E&C EBITDA mg reached 21% in Q4 (BPIF 16.6%) and 17.9% in FY14. For FY15,
Abengoa expects E&C EBITDA mg to return to normal levels of 15-16% and topline to grow at 7-8% organically. Backlog
reached € 7.95bn by the end of 2014 and € 9.8bn currently after adding several contracts in the beginning of 2015.
EBITDA from concessions ex-ABY reached E 330mn in FY14 (E 91mn in Q4) implying an EBITDA mg of 66%, with solar
at 70% driven by the ramp up of new concessions and the contribution from ROFO1 assets (64%F), transmission at 70%
(60%F) and water at 63% (64%F). In the FY, biofuels EBITDA mg reached 13% driven by strong crush spread and a good
performance of Brazilian plants. Biofuels Q4 EBITDA reached € 107mn, implying a 19% margin which came 14pp above our
estimate. For 2015, Abengoa expects a decline in biofuels margins due to the ongoing volatility in oil prices (mostly impacti ng
US and European operations).
Corporate NWC deterioration reached € 532mn leading to a YE14 Corporate Net of € 2353mn (already reported). In
its preliminary results disclosure, Abengoa had already said that it failed to reach its flat NWC guidance flat NWC.
Abengoa said that it is witnessing a recovery in the first months of the year and expects a recovery during Q1 and Q2.
However, the group has maintained its flat NWC guidance for FY15, claiming it is a conservative estimate. At the
consolidated level, NWC deterioration reached € 524mn and consolidated ND ex -ABY and APW1 reached € 7225mn.
Corporate liquidity at the end of 2014 reached € 2851mn, which excluding confirming (€ 1.2bn) and cash needed to run
the business (€ 1bn) would put available liquidity before debt redemption at € 625mn. Adding up the transactions already
announced (€ 500mn undrawn syndicated Tranche A; sale of ABY; redemption of CB2017 and HY2015 expected for this
month; ROFO2 and EIG), available liquidity before additional debt redemption would stand at € 1.5bn.
Guidance for 2015 had already been announced: Abengoa targets a FY14 EBITDA of € 1.4-1.45bn vs our € 1.2bn
forecast ex-ABY whilst the Corporate EBITDA target reaches € 920-935mn vs BPIF € 854mn. Net profit is targeted at €
280-320mn or € 175mn ex-capital gains, vs BPIF € 168mn. Corporate FCF is targeted to reach € 1.4bn, assuming a
corporate EBITDA of € 930mn, financials and taxes of € 470mn, flat NWC, corporate capex ex -concessions of € 135mn
and equity recycled after equity invested in concessions of € 1bn. Taking into account the feedback provided in this
conference call, equity invested in concessions could reach € 400mn implying a roughly flat organic Corporate FCF
(BPIF –€ 166mnF). Consolidated ND/EBITDA is targeted at 3.9x and Corporate ND+NRDP/EBITDA is targeted at 3.2x.
As already announced, Abengoa aims to close the deal with EIG before March, 2015. Abengoa has detailed the projects that
will be included in the JV with EIG - in solar: Atacama I-II and Ashalim; in Power: A3T, A4T and Norte III; in Transmission:
Brazilian TD lines and ATN3; in Water: SAWS and in Wind: Nicefield. As of YE14, EBV of assets in operation reached €
1483mn and EBV of assets under construction stood at € 874mn.
A new structure... Strategic Presentation on the 7 th of April in NY and 9th of April in London: Abengoa rebounded
significantly since the trough levels of November (E 1.274/sh). Since then, Abengoa (i) reduced the stake in ABY, which
should be reduced further to 40-49% during 1H15; (ii) announced a second ROFO and negotiations for a third one and
(iii) made a deal with EIG (55%) which should be closed by the end of May. NWC evolution and organic FCF generation
will remain under close scrutiny, although we reckon that leverage ratios have improved significantly following the deals
undertaken. We will revise our model to incorporate the all the changes in the consolidation perimeter and update our
valuation.
Abengoa P&L
(€ mn)
FY14
FY13
YoY
FY14F adj
Revenues
7 151
7 244
-1%
7 151
0%
EBITDA
1 408
1 267
11%
1 219
15%
20%
17%
2.2pp
17%
2.6pp
-475
-571
-17%
126.8
-1%
EBITDA mg
D&A
EBIT
EBIT mg
Financials
933
696
34%
13%
10%
36%
-855
-722
18%
Equity accounted
EBT
Taxes
7
-5
ns
85.4
-31.0
ns
59
44
33%
Results cont. operations
144.1
13.0
ns
Results discont. operations
-22
-1
ns
3
-9
ns
125
3.5
ns
Minorities
Net Incom e
Dev
Note: We have removed ABY from our estimates to reflect the new consolidation perimeter
Source: Abengoa, BPI Equity Research (F, Dev)
Breakdown - Revenues and EBITDA
(€ mn)
FY14
FY13
YoY
FY14F
adj
Dev
4Q14
Revenues
7 151
7 246
-1%
7 151
0%
2 112
E&C
4 514
4 832
-7%
4 578
-1%
1 424
499
384
30%
483
3%
129
Concessions
Solar
335
259
29%
317
6%
69
Transmission
91
47
94%
72
26%
40
Water
41
40
2%
40
3%
10
Cogen and others
32
38
-16%
54
-41%
10
Industrial Production
2 137
2 029
5%
2 091
2%
559
EBITDA
1 408
1 267
11%
1 219
15%
499
E&C
806
806
0%
751
7%
302
Concessions
330
220
50%
278
19%
91
236
157
50%
202
17%
54
Transmission
64
28
129%
43
47%
31
Water
26
28
-7%
26
2%
6
Cogen and others
4
7
-43%
7
-44%
0
Industrial Production
271
241
12%
190
42%
107
EBITDA m g
20%
17%
2.2pp
17%
2.6pp
24%
17.9%
17%
1.2pp
16%
1.5pp
21%
66%
57%
8.8pp
58%
8.5pp
71%
Solar
70%
61%
9.8pp
64%
6.6pp
78%
Transmission
70%
60%
10.8pp
60%
10.0pp
78%
Water
63%
70%
-6.6pp
64%
-0.6pp
60%
Cogen and others
13%
18%
-5.9pp
13%
-0.7pp
0%
Industrial Production
13%
12%
0.8pp
9%
3.6pp
19%
Solar
E&C
Concessions
Note: We have removed ABY from our estimates to reflect the new consolidation perimeter
Source: Abengoa, BPI Equity Research (F, Dev)
4Q13
YoY
4Q14F
adj
Dev
1 579
-10%
1 488
-4%
462
21%
513
9%
283
7%
247
22%
160
-33%
26
308%
18%
3.3pp
16.6%
4.6pp
35%
-15pp
5%
14pp
Enagas: Marginally negative 4Q14 results affected by one-offs across the board
(Buy; PT € 28.60)
(Conference call & Strategic Update 2015-17 at 09:00CET)
Opex one-offs dragging EBITDA; earnings broadly in line despite several non -cash extraordinary hits: Enagas
reported 4Q14 net profit of Eur 98mn, decreasing 1% yoy and coming slightly above consensus (Eur 96mn, Bloomberg)
and missed our own figure by 5% (Eur 104mn); quarterly results came well behind the initial +2.4% target the company
had for FY14 due to July’s regulatory review (c. Eur 14mn cut in revenues in 4Q14 alone), and FY14 net profit barely
advanced 0.8%. Earnings broadly in line were affected by several one-offs at all levels; excluding the impacts described
below results would have come marginally above estimates.
EBITDA reached Eur 207mn for Q4 alone (-22% yoy), 12% below consensus (Eur 236mn) and 13% short of our forecast
(Eur 238mn) driven by a slightly worse than expected top line evolution (revenues 4% lower than anticipated) and,
especially, by opex one-offs booked during the quarter. Excluding one-offs EBITDA in Q4 would have come 4% below our
figure. Regulated revenues were 9% down yoy in Q4 due to deconsolidation of assets under IFRS 11 (BBG and Altamira)
and, more importantly, the c. Eur 14mn regulatory cut. Opex showed a 38% increase yoy due to non -recurring
maintenance costs and provisions booked during the quarter, with a 12% yoy decrease in personnel expenses more than
offset by a 62% increase in SG&A; overall opex came 27% higher than our forecast, leading to the abovementioned 13%
EBITDA underperformance. D&A charges were affected by extraordinaries too, coming 80% or Eur 40m higher than
anticipated due to write-downs of Eur 18mn and Eur 22mn related with technical facilities and land acquired for a new
headquarters, respectively. Excluding this effect D&A charges and provisions would have been in line. Financial
expenses surprised us on the positive side, coming 11% higher yoy but 15% or Eur 7mn lower than expected despite an
increase in cost of debt to 3.2% in FY14 vs 3.0% in FY13. This effect was more than offset by a negative Eur 6mn
contribution from equity investments due to one-offs at several subsidiaries in construction stage. Finally, the new
corporate tax rate in Spain led to a Eur 58mn positive impact from deferred tax assets/liabilities revaluation, resulting in an
overall net income broadly in line with estimates as a result.
Negative debt evolution on dividends and tax payments: ENG reported Eur 4,059mn net debt at the end of
December (1% ahead of our estimate), implying a net negative cash generation of Eur 149mn in the quarter due to a
combination of better organic cash flow generation offset by dividend payments (Eur 124mn), capex (Eur 79mn, the main
source of deviation) and tax payments (Eur 134mn). Capex in the quarter alone reached Eur 79mn, with investments
figure just 3% lower yoy but well ahead of our estimate. The company’s Eur 350mn invest ment target for 2014 (equity)
was widely surpassed as a result of TgP acquisition in Peru during 1Q14, reaching Eur 625mn cumulative investments in
FY14 (+18% yoy), of which 76% abroad.
DPS 2.4% higher yoy, in line with guidance: The board set a total DPS of Eur 1.30/sh. related with FY14 earnings,
+2.4% yoy in line with management guidance. DPS represents a 4.7% DY on yesterday’s closing price, and comes fully in
line with consensus and BPI estimate.
Broadly neutral results for investment case; focus on strategic presentation : With results excluding one-offs just
marginally below estimates and bottom line affected by several extraordinary hit s, both positive and negative, we would
only expect a minor consensus adjustments as a result. Later today the company will be presenting its 2015 -17 Strategic
Update. This should be the main trigger for short term consensus changes, and focus should be on (i) international capex
and (ii) the updated dividend policy. We currently forecast a 3% CAGR 14-17F (in line with consensus) under a 75% payout assumption, and we do not anticipate any material changes in the policy.
Still appealing but with a shrinking valuation gap: ENG stock price has shown a very positive evolution since the
latest regulatory measures in Spain were announced (+1% since 4Jul14), outperforming both Ibex (flat) and Stoxx Utilities
(-3%). This has led to a material shrinking in valuation gap (11% 12M total return), although we still see the merits of a
story that offers (1) undemanding 16.1x P/E and 9.8x EV/EBITDA multiples (Euro peers at 17.8 x and 11.0x) in light of
higher growth post-regulatory cuts (3% EPS CAGR 13-16F vs. -1% for peers); (2) above-average returns (8.1% ROCE
15F vs. 6.9%); and (3) CF generation supportive of shareholder remuneration (4.7% DY 15F). ENG enjoys a stable
regulatory environment that is protective of revenues even with falling Net RAB (through supply -linked revenues), and
international expansion remains a wild-card offering optionality, gaining increasing relevance. All in all we continue to like
the story but we warn that upside is becoming tighter by the day.
Bruno Silva, CFA / Flora Trindade, CFA / Gonzalo Sánchez-Bordona
▲ BACK TO INDEX
ENGINEERING & INFRASTRUCTURES
Abertis: Closing deal with Wind before launching IPO?
(Reduce; PT Eur 16.80)
The expected debut on the floor of looking runway. Before launching the IPO of Abertis Telecom Terrestre (ATT) was
expected the closing of the acquisition of the Italian 6000 telco towers from Wind which is taking longer to conclude. The
purchase is being negotiated in exclusive terms since earlier this month and is in the final stage. Wind will then rent the
towers from Abertis Telecom but the details on the rental price are allegedly not agreed yet. Wind’s towers are valued
between E700 and E800mn. (cinco dias)
Comment: Neutral. The deal is known and should be relevant to add critical size to Abertis Telecom and consequently
the IPO. Valuation wise, in 2013 ABE acquired 4227 towers in Spain from TEF and Yoigo for Eur 385mn - an implicit
multiple of Eur 91k/tower and in May14 acquired 306 telecom towers in Italy from Atlantia for Eur 94.6mn - an implicit
multiple of Eur 309k/tower. The latter’s higher multiple is due to higher tower’s co-hosting and higher generated EBITDA Eur 42k/tower vs. the Eur 14k/tower generated by the towers acquired to TEF and Yoigo. The valuation mentioned by the
press for Wind’s towers points to a Eur 117k/tower multiple and more aligned with TEF/Yoigo deal made in 2013. We are
currently valuing ATT at an EV of Eur 3.6bn, implying an 18.0x EBITDA15F.
CTT: Subscription of retail bonds reached Eur 1.9bn in January
(CoRe Buy; PT: Eur 9.45)
In January, the IGCP (Portuguese Treasury & Government Agency) registered Eur 470mn net subscriptions of the regular
savings certificates (Certificados de Aforro) vs. Eur 168mn average in each month in 2014. The treasury certificates
(Certificados do Tesouro) registered Eur 1471mn net subscriptions vs. Eur 252mn average in each month in 2014.
(IGCP)
Comment: We recall that CTT is the exclusive third-party "broker" of IGCP for the placement of these retail products in
addition to IGCP itself. The Eur 1.9bn subscription made until now compares wit h an average c.Eur 420mn monthly
subscription of these products over 2014. In FY14, the net subscription of Treasury and savings certificates (Eur 5bn)
stood 26% (or Eur 1bn) above that budgeted by the government while for 2015, the Portuguese Government´s initial
expectation (included in the 2015 budget) is to achieve a Eur 2.5bn subscription from these products (77% already
achieved). We recall that this huge increase in the retail bond subscription was related with the Government
announcement (made in the beginning of January) that it would revise downwards the interest rate remuneration from
February. In our estimates for FY15 we are assuming a 10% drop in CTT´s fees from these savings products. Savings &
Insurance revenues (which include, among others, the fees received from IGCP retail debt) represent 11% of our FY14F
revenues for CTT.
Bruno Silva, CFA / Flora Trindade, CFA / Filipe Leite, CFA / José Rito / Bruno Bessa
▲ BACK TO INDEX
FINANCIALS
Bankia: Court rules favourably in an IPO lawsuit
(Reduce; PT €1.30)
The Spanish Court ruled in Bankia favour in lawsuit presented by a group of 2570 shareholders.
on the argument of product miss-selling with the claim that not all information was made available
lawsuit did not take into analysis whether Bankia’s accounts at the ti me were flawed, which
separate lawsuit/hearing and which may generate the basis for compensations related with
Confidencial)
The lawsuit was based
to these investors. This
is being analysed in a
the IPO process. (El
Comment: As aforementioned this lawsuit is not related with the eventual ruling on whether the bank presented flawed
accounts in the IPO prospectus, which is the lawsuit/investigation that may drive the creation of an arbitrage mechanism
for retail shareholders.
On this matter the press has reported that the FROB and Bankia are expected t o reach this week burden sharing
agreement regarding the distribution of litigation costs arising from Bankia´s IPO. The Spanish government estimates that
the maximum amount of compensations related with Bankia’s IPO would stand at Eur 0.6bn, o.w. Bankia would assume
c. Eur 0.25bn, implying a 62-38% burden sharing with its parent company BFA.
Assuming retail litigation costs of Eur 250mn for Bankia, it would have a negative impact of c. 28bps in the bank´s capital
ratios (fully loaded CT1 ratio was at 10.4% in Sept14). Nevertheless, this burden sharing agreement scenario is solely
focused on the retail tranche of the IPO (Eur 1.8bn), on which there should be an arbitrage mechanism. Further litigation
risks may arise from the institutional side (which amounted to c. Eur 1.3bn).
BPI: Violas Financials increases stake to 2.5%
(Not rated)
Violas Ferreira Financial has increased its stake in BPI from 1.96% to 2.52% of the bank’s share capital. The stake
increase took place during the 17th and 20th of February at an average price of Eur 1.315 per share (price of range of Eur
1.311-1.321). Violas Ferreira Financial is a subsidiary of HVF-SGPS. (BPI Release)
Carlos Peixoto
▲ BACK TO INDEX
FOOD & RETAIL
Viscofan: sale of IAN cancelled
(Neutral, PT €47.70)
Viscofan announced the end of exclusive talks with the Spanish private Equity firm Portobello Capital without reaching an
agreement for the sale of its vegetable food unit IAN. Viscofan does not discard that new offers may appear for IAN.
(Company release)
Comment: Neutral to negative. This comes as a surprise after the initial announcement made last November,
comprising a €55.5m deal. Although from a valuation point of view this is not very significant - IAN is a relatively small
operation, representing just 5% of Viscofan’s EBITDA – from a strategic perspective, we view it as more negative as it will
not allow Viscofan to monetize a non-core business nor focus on its core operations, as planned. Also, we believe that
Viscofan should not receive any kind of compensation from Portobello Capital. Still, IAN could receive other offers in the
future and it will be presented as discontinued operation on FY14 results, next Friday. Viscofan is trading at double digit
multiples at 12.9x EV/EBITDA, 22.6x P/E 2015F (more than 30% premium to its historical average) and therefore more
vulnerable to negative surprises, in our view.
Deoleo: weak 4Q14 results
(Buy; PT €0.52)
Results below our expectations: 4Q14 EBITDA stood 11% below our estimates and consensus, despite the better than
expected revenues performance (13% deviation) as Deoleo was not able to fully pass on to final prices the continuous
increase in raw materials costs (olive oil), with EBITDA margin declining 3.1pp to 10.2% (vs. 12.8%F). Recurrent net profit
stood at €8.8m vs. ours and consensus estimates of €35.1m, driven also by higher than expected depreciations and taxes
(something to clarify with the company). Deoleo has also booked some extraordinary items during 4Q14, namely: 1) asset
impairments and provisions in the amount of €13.6m; 2) extraordinary taxes of €39.9m due to the negative impact in net
deferred tax assets of the Spanish corporate tax rate revision; and 3) €5.3m in legal and advice expenditures. Net debt
came in at €489m (-1% qoq) , 2% below our estimate of €500m.
Higher raw material prices continuing to hurt EBITDA: consolidated revenues dropped 7% yoy mostly driven by
volume losses as the positive delivery in North America and International markets was not enough to offset the poor
performances in Spain and Italy. In the case of Spain (-19% yoy), Deoleo faced significant hurdles in increasing prices to
reflect the higher raw material costs, losing market share for several players which are selling below costs and
deteriorating margins (-10pp yoy). In the rest of Southern Europe (-9% yoy) despite the generally higher sales under
promotion, Deoleo was able to maintain market share, although losing profitability (-4.9pp yoy margins drop). In the
International Markets division (+3% yoy), several geographies have performed relatively well, supported by new
launchings and marketing campaigns, although not enough to avoid a 3.4pp yoy margin dilution. North America (+2%)
was the major outperformer, benefiting namely from new clients and the USD strength (20% of sales), with margins up
6.4pp yoy. On a consolidated basis, EBITDA declined 28% yoy with margins sliding 3.1pp yoy to 10.2%, mostly reflecting
the c.45% yoy increase in raw material prices.
Uncertain short term outlook: although most price increases have already been undertaken in 4Q14, short term trading
performance should remain subdued due to the continuous increase in raw material prices (c.8% YTD, +50% yoy) and
tough competitive environment, mostly in Spain. Still, Deoleo expects the raw materials environment to normalize at some
point, considering the 2014/15 good harvests in Tunisia, Greece and Turkey (+475k tonnes vs. the previous year,
+c.90%), which should partly offset the lower outcome from Spain (-940k tonnes vs. previous year, -54%) and lead to a
minor 9% inventories decline vs. 2013/14.
Weak results but restructuring potential not priced-in: we continue to see an interesting value proposition on Deoleo’s
investment case. The stock is trading at 25% discount to its historical average, at 9.6x EV/EBITDA and 10.8x P/E 2015F ,
which seems to be underestimating the scope for restructuring benefits (namely expansion to less penetrated/higher
margin markets, capacity optimization and use of tax losses carried forward). Still, we believe that short term tradi ng
headwinds as well as the possibility of a rights issue (CVC announced that could be undertaking a c. €150m capital
increase, committing to subscribe 48-67% of it) may hamper the short term price performance. An improved earnings
delivery through a more favorable outlook or accelerated restructuring efforts would be the main triggers going forward.
José Rito / Manuel Coelho / Bruno Bessa / Guilherme Sampaio, CFA
▲ BACK TO INDEX
HEALTHCARE
Almirall: no reassurance from conference call
(Reduce; YE15 PT €14.60)
Part of guidance deviation explained by AZ accounting…but still disappointing: part of the deviation of ALM’s FY15
guidance to our figures and consensus is explained by the fact that, due to IFRS rules, the company has already
registered in FY14 part of the USD 150mn milestone payment related with the sale of the first unit of Duaklir in Europe,
which became effective in February.
Focus on acquisitions: ALM restated its willingness to become a global dermatology player and stated it has been
looking at acquisition opportunities of either companies, products or portfolio of products in this field. Although not
providing specific targets or hurdles relating potential acquisitions, ALM did advance that (1) the main priority would lie in
the US market followed by Europe; (2) if the right opportunity arises the company could finance an acquisition both
through debt and equity; (3) although not committing to a specific target, 3.5x Net Debt/EBITDA could be a reasonable
leverage for the company following acquisition(s).
35-40% payout as dividend policy: ALM aims to maintain a 35-40% payout of normalised Net Income going forward as
proceeds from the AZ deal should be used to finance business opportunities. In the future and if any of those business
opportunities fails to materialise, the company could address the extra cash in its balance sheet. However, this is not a
scenario ALM is contemplating at this point.
Overall, ALM’s conference call was not totally reassuring regarding the weakness in 4Q14 results and the operational
guidance going forward, which even acknowledging ALM’s conservativeness, came below expectations. This translated
into the stock price, which remained pressure throughout yesterday’s trading session. We should downwardly revise our
operational estimates. However, in terms of valuation this should be, at least, partially offset by an higher valuation of
potential milestone payments, aligned by the fair value of payment AstraZeneca expects t o deliver ALM.
Tiago Veiga Anjos, CFA
TELECOMS, MEDIA & TECHNOLOGY
TEF: O2 Germany neutral 4Q results but with a positive outlook
(Sell; PT €11.00)
O2 Germany reported numbers somewhat below consensus and BPI on profitability but with a better cash conversion
than expected. The company provided a guidance for 2015 of broadly stable mobile service revenues (departing from Eur
5 528mn), 5% ahead of our estimates (Eur 5 249mn), though not providing any guidance for wireline revenues. For
EBITDA the company expects a 10% growth over Eur 1 461mn (combined group YE14 post -management fees), 8%
ahead of our numbers. On the other hand, capex guidance points to a figure close to Eur 1060, 10% ahead of ou r
numbers. All in all, the guidance is likely to provide some room for upgrades and therefore we do not exclude a positive
reaction to this set of results.
O2 Germany 4Q14
P&L Highlights
(Eur mn)
Revenues
OIBDA
Net income
Reported
Consensus
Dev (%)
BPI adj (1)
Dev (%)
5.522
679
-721
5.424
966
-561
1,8%
-29,7%
28,6%
5.544
777
-
-0,4%
-12,6%
-
-1,8%
-29,8%
730
563
16,4%
-16,9%
Capex
849
865
Net Debt
468
666
(1) BPI estimate deducted of management fees
Source: Bloomberg, and O2 Germany
PTC: Minister of Economy meets with PT trade unions
(Under Review)
Altice said to the Minister of Economy; Pires de Lima; that will respect PT Portugal workers and trade unions. Pires de
Lima met yesterday with the Union of Workers of Portugal Telecom Group (STPT) to inform workers of the decisions
taken on 11 February, in the meeting that the Minister had in Paris with the management of Altice . The French company
told Pires de Lima there will be no collective dismissal in PT Portugal but did not give guarantees to the Portuguese
government regarding the maintenance of all jobs. (Observador)
Pedro Oliveira
▲ BACK TO INDEX
TRAVEL & LEISURE
Amadeus: Travelport 4Q14 results
(Neutral; PT €35.80)
Travelport released its 4Q14 results, reporting a 4% yoy revenue growth (vs. +4% in 3Q14) on its GDS division (Travel
Commerce Platform, representing 95% of consolidated revenues), supported on a 2% increase in the number of
segments sold (+2% in 3Q14) and a 2% rise in revenues per segment (+1% in 3Q14). This comprised a 1) 1% decline in
Air segment sales (+1% in 3Q14), due to the softness of the European market; and 2) 22% rise in Beyond Air turnover
(14% in 3Q14), reflecting a 7% improvement in hospitality attachment rates and a general product enhancement (as a
result of the investments made in hospitality and payments). On regional terms, Asia-Pacific was the major outperformer,
recording a 12% revenue growth (vs. 9% in 3Q14), partially explained by market share gains. LatAm & Canada and US
delivered a 4 and 6% sales growth, respectively (vs. 3% and 4% in 3Q14), while Europe recorded a 2% decline (vs. +2%
in 3Q14), mostly explained by the weak performances in Russia and Ukraine. The Middle East and Africa performance
was stable. Consolidated EBITDA margins were down 0.3pp to 22.2%, with commissions up 5%, driven by 2% higher
volumes, normal rates of inflation and eNett (Travelport’s payments product) rebates. Concerning FY15, Travelport
expects a 5.5-9.4% revenues growth, on an underlying basis, supported on a 2-3% volumes growth and stable
disintermediation trends. Consolidated EBITDA margins should slide 0.3-1.0pp vs. FY14 levels. (Travelport release and
conference call)
Comment: Neutral cross-reading for Amadeus GDS business, considering that Travelport’s softer performance in
Europe should have been driven by market share losses in this region, given the company’s above average exposure to
underperforming markets such as Russia and Ukraine. On the other hand, expectations of a stable disint ermediation
trend are in line with Amadeus recent comments. For 2015, we expect Amadeus to gain market share (driven by its
above-average exposure to higher growth markets), posting a 6.1% rise in bookings, already incorporating the remaining
contribution from Topas and the Orbitz migration, which should drive a 4.7% revenues increase.
IAG: Aer Lingus BoD reiterates support to IAG’s bid
(Buy; PT €8.00)
Aer Lingus presented today its preliminary FY14 results and reiterated the BoD’s support for the financ ial terms of IAG’s
bid. Mr. Colm Barrington, Aer Lingus Chairman, also commented the BoD’s strong belief that the company should now
take the opportunity to combine with IAG. On this front, Aer Lingus noted that this integration has a compelling strategic
rational and could bring significant benefits for Aer Lingus, its current and future employees, its customers and for Ireland .
According to the company, the combination would 1) enhance Ireland’s position as a natural hub for Europe on the North
Atlantic; 2) accelerate Aer Lingus’ transatlantic, long haul growth plans; 3) grow employment; 4) enhance short haul
growth; 5) strengthen Ireland’s connectivity; and 6) provide access to a global cargo network. (Aer Lingus release)
Melia Hotels/NH Hotel Group: bidding for Una Hotels in Italy
(Core Buy; PT €11.85) (Reduce; PT €4.30)
According to press sources, a consortium made up of the Italian asset management firm Prelios, Starwood Capital and
Melia Hotels is bidding for the ownership and management of the Italian hotel chain Una Hotels. Prelios and Starwood
Capital are expected to take the ownership of the hotels, while Melia would hold the management contract. NH Hotel
Group is also included in the bidding process, although its proposal only comprises the management of the hotels. A third
bidder comes from an alliance between Tamburi Investment Partners and Alpitour, targeting the management of the
hotels but also a call option on the properties.
The terms of the bids have not been made official but, according to people familiar with the matter, Melia’s venture has
offered c.€200m for 10 Una owned hotels (out of the 17 units held by the group) and its management subsidiary
(comprising 31 hotels). The other seven hotels owned by UNA would continue to be owned by a pool of Italian banks
(including UniCredit and Banca Monte dei Paschi di Siena) or sold to others. A final decision on the deal is expected over
the coming weeks. (mergermarket, WSJ)
Comment: The acquisition of Una hotels could have some strategic fit for either Melia or NHH’s portfolio and would be
consistent with both companies’ aim of increasing the share of managed rooms. Still, we see NHH as better positioned to
extract synergies from this deal considering its greater focus on urban travelling (9% of its revenues) and important
position in Italy (14% of its rooms). This compares with Melia’s greater exposure to resorts (60% of its rooms) and smaller
presence in Italy (c.2% of hotels). Nevertheless, considering the likely objective of assets disposal by the pool of Italian
banks, we see Melia’s venture better positioned in the bidding process.
Manuel Coelho / Guilherme Sampaio, CFA
▲ BACK TO INDEX
MACRO & STRATEGY
Portugal: net lending capacity at 2.1% of GDP in 2014
The Portuguese Current Account plus Capital Balance stood at Eur 3.6bn in 2014, 30% down relative to 2013, mainly due
to a fall in the surplus for the trade balance of goods and services to Eur 2bn from Eur 3bn in the previous year. The
narrowing of the trade balance surplus reflects both an oil production halt related to the Galp’s Sines refinery shutdown in
the first two months of 2014, as well as an increase of imports, due to improving domestic demand.
Portugal: public debt ratio fell to 128.7% of GDP in December 2014
According to the Bank of Portugal, the public debt ratio improved to 128.7% in December 2014 from 131.4% in
September 2014. However, it deteriorated 0.7 pp relative to December 2013. The public deficit stood at 4.2% of GDP.
Greece: due to deliver reforms list today
According to a Greek Government official, Greece will send its economic reform plans to Eurozone Finance Ministers on
Tuesday morning, after missing a Monday deadline for submitting the list, which is a condition to extend the country’s
bailout program. (Reuters)
Germany: 4Q14 GDP growth confirmed at 0.7% qoq
Germany’s 4Q14 GDP growth final estimate was confirmed at 0.7% qoq and 1.4% yoy. Domestic demand improved 0.5%
qoq fuelled by private consumption, +0.8% qoq, with exports also growing 1.3% qoq, above imports’ growth of 1.0%.
(Bloomberg)
Germany: business climate improves in February, but less than expected
The German IFO index rose to 106.8 in February, a 0.1 improvement relative to the previous month, reaching its hi ghest
level since July 2014. This improvement was driven by the evaluation of expectations, whose index rose to 102.5 from
102.0 in January. On the other hand, the evaluation of the current conditions fell 0.4 points to 111.3. The better
assessment of business confidence was driven by the manufacturing sector, whose index rose to 9.5 from 9.3, this while
the services sector indicator fell to 22.7 from 24.06 a month ago. Notwithstanding, IFO’s February reading stood below
consensus expectations of an improvement to 107.7.
USA: existing home sales declined in January
Existing home sales fell 4.9% mom in January to an annual rate of 4.82 million of units. Data released yesterday failed to
meet the market’s forecast, which pointed towards a 1.8% mom fall.
TODAY, WE HIGHLIGHT
Inflation (January F) in the Eurozone; Consumer Confidence (Feb) and PMI Indices (Feb P) in the US.
Tiago Veiga Anjos, CFA / Macro Research Department
▲ BACK TO INDEX
KEY CORPORATE EVENTS
▲ BACK TO INDEX
CONTACTS & DISCLAIMER
Please click here for contacts and important disclaimer.
▲ BACK TO INDEX