Page 1 of 17 All prices are those of the end of the trading session unless otherwise indicated. For important Disclosure and Disclaimer go to the second last page. António Seladas, CFA Equity Analyst +351 21 003 7826 [email protected]Top Story BPI went up 8.6% in the week that it disclosed its 2Q14 earnings that brought no surprises. In the earnings CC, BPI stated that following the total repayment of Cocos, its current main focus is to improve domestic activities profitability and to strengthen its activities in Angola (page 7). Out This week Earnings Comment – BPI, Iberdrola, Portucel Snapshots/Company Reports – Model Portfolio, PT & TEF, JM Price Target / Recommendation Changes – CTT, BPI, EDP, EDPR, REN Other News – Telecom Sector, PT, Sonaecom, CTT Week Ahead Monday – Galp Energia’s 2Q14 Earnings; BCP’s 2Q14 Earnings; Inditex 5-for-1 stock split Tuesday – Jerónimo Martins’ 2Q14 Earnings; Retail sales in Spain (June) Wednesday – BES’ 2Q14 Earnings, Indra’s 2Q14 Earnings; CTT’s 2Q14 Earnings; Sonae Industria’s 2Q14 Earnings, Novabase’s 2Q14 Earnings, EDPR’ 2Q14 Earnings; Retail sales in Portugal (June) Thursday – Sonae Capital’s 2Q14 Earnings, NOS’ 2Q14 Earnings, REN’s 2Q14 Earnings, Telefónica’s 2Q14 Earnings, EDP’s 2Q14 Earnings, Glintt’s 2Q14 Earnings, Altri’s 2Q14 Earnings Friday - New car sales in Iberia (July) Portfolios This week, Mib Aggressive Portfolio went up 3.28%, underperforming the PSI20 by 0.75pp. Excluding Sonaecom, all stocks contributed for this underperformance (page 13). This week, Mib Liquidity Portfolio went up 3.70%, underperforming the PSI20 by 0.33pp. Excluding Sonaecom, all stocks contributed for this underperformance (page 14). Stock Market Last 1W YTD 2013 Daily Vol. (€mn) 1W 1M 6M 2013 PSI 20 6,450 4.0% -1.66% 15.98% PSI 20 139 222 167 108 IBEX 35 10,888 3.4% 9.80% 21.42% IBEX 35 2,948 3,628 3,130 2,570 Euro Stoxx 50 3,175 0.3% 2.12% 17.95% Euro Stoxx 50 7,242 8,043 8,623 7,456 Forex Rates Last 1W YTD 2013 Interest Rates Last 1W Chg YE13 EUR/USD 1.34 -0.6% -2.55% 4.46% Euribor 6m 0.31% 0.30% 0bp 0.38% EUR/GBP 0.79 -0.1% -5.10% 2.49% 10Y Bond PT 3.64% 3.67% -3bp 5.66% EUR/BRL 2.99 -0.9% -8.04% 20.33% 10Y Bond SP 2.54% 2.60% -5bp 3.90% -43.7 -31.9 -18.2 -16.7 -7.1 28.0 35.2 35.4 37.5 45.7 -75 -50 -25 0 25 50 Portugal Telecom Sonaecom Jerónimo Martins NOS Altri Novabase EDP Semapa CTT EDP Renováveis Best & Worse Performers - YTD (%) -2.3 -1.0 0.1 0.3 0.4 4.1 6.1 6.3 8.6 10.0 -5 0 5 10 NOS Altri Indra Novabase Portucel EDP Renováveis EDP CTT BPI Sonaecom Best & Worse Performers -1 Week (%) IBERIA July 25 2014 WEEKLY EQUITY RESEARCH
Transcript
Page 1 of 17
All prices are those of the end of the trading session unless otherwise indicated. For important Disclosure and Disclaimer go to the second last page.
BPI went up 8.6% in the week that it disclosed its 2Q14 earnings that brought no surprises. In the earnings CC, BPI stated that following the total repayment of Cocos, its current main focus is to improve domestic activities profitability and to strengthen its activities in Angola (page 7).
Out This week Earnings Comment – BPI, Iberdrola, Portucel
Snapshots/Company Reports – Model Portfolio, PT & TEF, JM
Portfolios This week, Mib Aggressive Portfolio went up 3.28%, underperforming the PSI20 by 0.75pp. Excluding Sonaecom, all stocks contributed for this underperformance (page 13). This week, Mib Liquidity Portfolio went up 3.70%, underperforming the PSI20 by 0.33pp. Excluding Sonaecom, all stocks contributed for this underperformance (page 14).
Millennium investment banking Weekly Ju ly 25, 2014
Changes
Earnings
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Millennium investment banking Weekly Ju ly 25, 2014
Dividends
Next Week Results
Telefónica Buy – Medium Risk (Target YE14: €14.40)
2Q14 Earnings Preview Alexandra Delgado, CFA
Equity Analyst
Sales YoY OIBDA YoY Op. Income YoY Net Profit YoY
12,933 -10.3% 4,321 -11.0% 2,028 -9.8% 983 -14.8%
Telefónica will disclose its 2Q14 Earnings next Thursday, July 31st 2014, before the market opening. A conference call will be held that day, at 1.00 pm (GMT). We estimate €12,933 mn revenues in the quarter, -10.3% vs. 2Q13. We’re expecting a better trend in Spain’s revenue (-6.2% YoY in 2Q14 vs. -8.2% in 1Q14), but growth in Brazil and rest of Latin America should be dented by FX movements. We estimate OIBDA in the quarter of €4,321 mn (-11.0% YoY), which stands for a 33.4% OIBDA margin in the quarter, 0.3pp lower than in 2Q13. Finally, we estimate net profit to reach €983 mn in the quarter.
NOS Buy – Medium Risk (Target YE14: €5.65)
2Q14 Earnings Preview Alexandra Delgado, CFA
Equity Analyst
Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
350.0 -3.1% 136.4 -2.8% 47.4 -17.3% 26.9 -12%
NOS will release 2Q14 Earnings next Thursday, July 31st, before the market opening. For 2Q14 we estimate revenues to drop 3.1% YoY to €350.0 mn. Telco business should show a similar trend to the previous quarter (-3.3% YoY in 2Q14 vs. -3.9% YoY in 1Q14), on the back of continuing pressure on triple play prices. We’re estimating Audiovisuals & Cinema to grow 1.0% vs. 2Q13,benefiting from the Easter effect and recovering from a very negative 1Q14 (-6.7% YoY). We estimate EBITDA to decline 2.8% YoY to €136.4 mn, which reflects the weaker topline. We expect EBITDA margin to grow 0.2pp YoY to 39.0% and restructuring costs of €4 mn in the quarter (€25 mn booked in FY13 and €3 mn in 1Q14). We forecast net profit (of €27 mn) to decline YoY due to lower EBITDA and higher integration expenses.
Indra Buy – High Risk (TargetYE14: €14.10
2Q14 Earnings Preview Alexandra Delgado, CFA
Equity Analyst
Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
770.4 1.0% 75.5 2.8% 61.0 1.1% 30.9 48.0%
Indra will disclose its 2Q14 Earnings next Wednesday, July 30th 2014, after the market close. We estimate revenues of €770.4 mn in the quarter, growing 1.0% YoY on the back of growth in solutions
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Millennium investment banking Weekly Ju ly 25, 2014
(+2.5%) offsetting some weakness in services (-1.3%). In terms of geographies, we expect performance in Spain to improve but to remain weak (-6.3% YoY); and growth to be assured by the rest of geographies, but mainly AMEA (+22% YoY). In what vertical markets is concerned, we expect Energy & Industry, Transport & Traffic and Security & Defense to deliver the strongest performances, in line with our expectations for the full-year. We expect EBIT margin in 2Q14 to remain flat YoY at 7.9%, and net profit to improve (to €30.9 mn) thanks to lower extraordinary (restructuring) costs.
Novabase Buy – High Risk (TargetYE14: €4.65)
2Q14 Earnings Preview Alexandra Delgado, CFA
Equity Analyst
Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
57.3 -3% 4.1 -2% 2.6 -4% 1.5 -5%
Novabase will disclose its 2Q14 Earnings next Wednesday, July 30th 2014, after the market close. We forecast 2Q14 will show revenue of €57.3 mn, declining 3.3% YoY. This stems from Business Solutions growing 6.0%, IMS growing 2.0% and Venture Capital declining to less than half following last year’s sale of the Digital TV business. We forecast EBITDA to decline only 1.7% YoY, with EBITDA margin growing 0.1pp YoY to 7.1% in the quarter. We highlight that 1Q was weaker than we expected (revenue down 5.3% YoY), due to a negative performance in the domestic market (-13.8% YoY); without a major change in the domestic trend, our 2Q estimates might be too optimistic. We remind that both our revenue and EBITDA FY14 estimates are in line with company guidance. Finally, we estimate Net Profit to reach €1.5 mn in the quarter.
EDP Sell – Low Risk (Target YE14: €3.10)
2Q14 Earnings Preview Vanda Mesquita,
Equity Analyst
Gross Profit YoY EBITDA YoY EBIT YoY Net Profit YoY
1,359 -3% 856 -3% 501 -1% 209 -22%
EDP will release its 2Q14 earnings on July 31st after the market closes. According to our expectations, EBITDA 2Q14 should decline by 3% YoY to €856mn. By business, we would like to highlight that EBITDA from wind activities should be hampered by the new regulation in Spain for renewable energy that is applied since July 2013.
Gross Profit YoY EBITDA YoY EBIT YoY Net Profit YoY
340 0% 237 2% 109 -8% 21 -46%
EDPR will release its 2Q14 earnings on July 30th before the market opens. We would like to highlight that EBITDA for 2Q14 should be hampered by the new regulation in Spain for renewable energy that is applied since July 2013. In Spain, we expect price per MWh to drop to €72.2 per MWh in 2Q14 from €85.7 per MWh achieved the same period the previous year.
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Millennium investment banking Weekly Ju ly 25, 2014
REN Neutral – Low Risk (Target YE14: €2.90)
2Q14 Earnings Preview Vanda Mesquita
Equity Analyst
Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
185.1 0.2% 129.8 -2.0% 80.7 -2.2% 30.4 -12.9%
REN will release its 2Q14 on July 31 after the market closes. EBITDA for 2Q14 should be €129.8mn (-2% YoY), €94.2mn of which should come from electricity activities and €37mn from gas activities. REN should report a net profit of €30.4mn.
Sonae Capital Buy – High Risk (Target YE14: €0.48)
2Q14 Earnings Preview António Seladas, CFA;
Equity Analyst
Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
45 42% 5.7 nm 2.4 nm -1.1 nm
Sonae Capital should release 2Q14 results Thursday after the market closing. Top line should increase by 42%YoY, to €45Mn mainly due to Real Estate sales, as we are expecting 99 deeds in Troia for the entire year and 21 were done in the 1Q14. Concerning Operating results before depreciations we expect €5.7Mn, however they are still not negatively impacted by the provision created last quarter to face the remuneration of the apartments sold, over a period of 5years. Last quarter the provisions was €1.65Mn, so our estimates could be inflated by roughly €1.65Mn, meanwhile the time period over which the remuneration was guaranteed was reduced from 5 year to 3 years. Concerning the Hotel business we expect slightly negative operating results (€0.7Mn), however since tourism has been stronger than expected in Portugal, we could missed the figures by being too conservative.
Jerónimo Martins Buy – Medium Risk (Target YE15: €16.40)
2Q14 Earnings Preview João Flores,
Equity Analyst
Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
3155 10.0% 190 4.0% 121.0 -1.0% 86.0 -4.0%
JM will disclose 2Q14 Earnings on July 29th, after the market close. We highlight company sales will have a favorable comparison basis (Easter calendar effect) while EBITDA margin will face an unfavorable comparison basis (Biedronka`s started prices campaign from 2H13). We estimate consolidated sales will grow by 9.9% YoY while consolidated EBITDA margin is expected to reach 6.0% (from 6.4% in 2Q13). Overall, numbers are expected to show unchanged tough environment in Polish Food Retail market (strong competition, low/negative basket inflation) since consumers are increasingly price oriented (focused on prices campaigns).
CTT Buy – Medium Risk (Target YE15: €8.60)
2Q14 Earnings Preview João Flores
Equity Analyst
Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
177.1 2.0% 33.6 -6.6% 26.1 12.5% 15.2 11.7%
2Q14 Earnings Preview: CTT will disclose 2Q14 Earnings on July 30th before market opens. We expect sales will rose by 2.0% YoY to €177.1Mn. Recall CTT will have a more favourable comparison basis in
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2Q14: customers anticipated purchases in 1Q13 before the price increase for the Universal Postal Service came into force on 1 April 2013; one-off mailing campaigns: tax authorities campaigns and retail sector campaigns happened on 1Q13). Consolidated EBITDA margin is expected to reach 19.0% vs 20.3% in 2Q13 (recall we estimate Mail EBITDA margin to reach 15.0% in 2Q14 vs 18.6% in 2Q13 and 12.8% recurring EBITDA in 2Q13). Below operational numbers, we do not expect surprises from D&A and Financials, thus net income is expected to reach €15.2mn.
Altri Reduce – High Risk (Target YE14: €1.95)
2Q14 Earnings Preview António Seladas, CFA
Equity Analyst
Sales YoY EBITDA YoY EBIT YoY Net Profit YoY
129.0 -14.0% 24.0 -35% 11.2 -53.0% 5.3 -67%
Altri should release 2Q14 earnings Thursday after the market closing. Top line should contract 14%YoY to €129Mn, while EBITDA should come down by 35%YoY to €24Mn and margin should reach the level of 18.4% one of the lowest levels for the last 5 years. It is mainly due to gross margin as pulp prices are under pressure while input prices have been pressured upwards. So prices and gross margin are the main variables to monitor.
Galp Energia Buy – High Risk (Target YE14: €15.60)
2Q14 Earnings Preview Vanda Mesquita,
Equity Analyst
Adj. EBITDA YoY Adj. EBIT YoY EBT YoY Adj. Net inc. YoY
277 -9% 136 -10% 117 -19% 59 -31%
Galp will disclose its 2Q14 earnings on July, 28th. We estimate adjusted EBITDA to stand at €277mn. Adjusted EBITDA from E&P business should rise by 33% YoY to €113mn mainly due to higher net entitlement production (21.9 kbbl/d in 2Q14 vis-à 19.4 kbbl/d in 2Q13). Bearing in mind Galp’s benchmark refining margin disclosed in its trading update (July 14), we acknowledge that our estimates for R&M are optimistic. Having said this, we would not be surprised if Adjusted EBITDA for R&M came out lower than our estimates. Adjusted EBITDA from Gas & Power may drop by 3% to €90mn. Galp should report a net profit for 2Q14 of €59mn.
Equity Markets Equity Markets
Model Portfolio July 2013 - US market still not expensive enough... António Seladas, CFA;
Equity Analyst
All in all on one side the US earnings season shouldn’t disappoint actually it could surprise on the upside taking in consideration the strength of the qualitative macroeconomic indicators released recently and on the other side S&P500 valuation, 16x earnings and roughly 10% growth over the next 12 months, means that stocks aren’t yet expensive enough to be vulnerable to a major correction.
(For further details, please refer to our report out this week)
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Millennium investment banking Weekly Ju ly 25, 2014
Financials BPI Neutral – High Risk (Target YE14: €1.60)
2Q14 Earnings Comment – No surprises Vanda Mesquita
Equity Analyst BPI disclosed its 2Q14 earnings this week. Broadly speaking, earnings came as no surprise. Net
income stood at -€1.8mn, broadly in line with our estimates of -€2.3mn and NII amounted to €127.5mn beating our estimates by 3%. Main deviations comparing to our estimates are due to lower than expected commissions (9% below our estimates) and lower than estimated provisions (€53.3mn lower than our estimates of €67.4mn). Trading was positive (€34.4mn vis-à-vis our estimates of €32mn) and operating costs remained stable YoY (3% above our estimates). Following the disclosure of 2Q14 earnings, we still feel comfortable with our estimates.
Basel III CET1 fully implemented stood at 8.6% (above the 7% minimum threshold) and CET1 phasing in stood at 12.5% (above the 8% capital benchmark demanded by ECB under the asset quality review). Including the deferred tax assets (DTA) impact, CET1 fully implemented would rise to 9.9% and CET1 phasing-in would rise to 12.8%. As far as DTAs are concerned, following the final approval of the law (it has been approved by the parliament, but it is awaiting approval from the president), banks have a 10-day period to decide whether to use this possibility. Bank’s CEO stated that BPI’s board of directors has not taken a decision about this topic.
NII for consolidated activities came out 3% above our estimates because of a higher than expected NII for international activities (8% above our estimates), as NII for domestic activities came out broadly in line. This quarter, NII for domestic activities benefited from the drop of the costs related to Cocos, but was hampered by the drop of interest rates of Tbills and Tbonds.
This year, loan impairments should continue to be high, but lower than the figures recorded in 2012 and 2013. We estimate loan impairments in 2014 to amount to €229mn (a figure that is more similar to the amount of loans impairments recognised in 2011), €100mn of which were already recognised in the first two quarters of the year.
Following the payment of Cocos, BPI’s main focus is to improve domestic activities profitability (increase of the loan book, lower cost of deposits, lower impairments and lower costs should help BPI to reach positive results – net profit for domestic activities has been negative over the last five quarters) and to strengthen its activities in Angola.
(For further details, please refer to our snapshot out this week)
Telecoms Telecom Sector
Vodafone announces second quarter 2014 results – figures in Portugal & Spain
Alexandra Delgado, CFA Equity Analyst
Vodafone group disclosed today first quarter 2014/2015 results, which stands for the second quarter of 2014 (calendar year).
Vodafone lost 165k mobile clients in Portugal in 2Q14 (ended with 5,404k) and lost 236k in Spain (ended with 13,230k). ARPU (average revenue per mobile user) trend in Portugal has improved this quarter (+1.7% YoY in 2Q vs. -3.4% YoY in 1Q). ARPU in Spain registered a worse trend than in the previous quarter (-10.9% YoY in 1Q vs. -5.1% YoY in 1Q). Vodafone registered in 2Q an ARPU of €11.9 in Portugal and €18 in Spain.
Vodafone had 245k fixed broadband clients in Portugal by the end of the quarter, adding 33k in the period (+40k in 1Q). In Spain it had 1,074k fixed broadband clients, adding 48k (+73k in 1Q).
Vodafone’s service revenue in Portugal (in Euros) dropped only 3.6% YoY in 2Q14, improving vs. previous quarter (-8.5% in 1Q). The company does not disclose the mix between wireline and mobile revenues, but we know growth of fixed revenues is partially offsetting significant pressure on mobile revenues. Vodafone’s service revenue in Spain (in Euros) dropped 15.4% YoY in 2Q14, which is worse than the the -12.5% registered in 1Q. Fixed line service revenues (Euros) in Spain
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grew 7% YoY in 2Q14.
Portugal Telecom Buy – Medium Risk (Target YE14: €3.00)
Portugal Telecom and Vodafone announce agreement to share 900k homes with FTTH
Alexandra Delgado, CFAEquity Analyst
Portugal Telecom and Vodafone announced an agreement to share dark fibre in circa 900k homes, in which each party shares approximately 450k homes. The contract sets Indefeasible Rights of Use (IRU) for the next 25 years.
This agreement is positive, since it allows PT to access an extra 450k homes with FTTH (fibre-to-the-home) at no cost, increasing the number of homes served with this technology to 2.1 million, getting closer to NOS network coverage (3.2 million homes covered with hybrid fibre – coaxial network). PT says in the release that it will continue to focus on a convergence strategy for the consumer segment, through the M4O offer.
Vodafone announced in November 2013 it would invest €240 million until 2015 in order to pass 1.5 million houses with FTTH. Vodafone’s bet on FTTH and in convergent offers has the objective to stop mobile clients’ losses. In the end of March 2014 Vodafone had 160k Pay TV clients vs. circa 45k in March 2013.
Value of PT call on Oi shares
Our price target for PT is now €3.00/ share (YE14), following last week’s new merger terms announced. This price target results from: an exchange ratio of 2.1 CorpCo shares per PT share (€2.50/ share), plus a repayment of 10% of RioForte debt (€0.10/ share), plus a call option on Oi shares worth €350 million (€0.40/ share).
Given the importance of the value of call attributed to PT, to both our price target and PT market price, we’ve updating the value of this option: at current prices (OIBR3 at R$1.61 and OIBR4 at R$1.55, prices as of July 24th closing) and current EUR-BRL (2.99), the call is worth €328 mn (last week it was €335 mn).
We highlight the call is valued using the assumptions in the table below, namely a volatility of Oi shares of 70% (historic value) and a dividend yield of 3%.
In first table below, we show that happens to the call value if we consider a lower volatility, or if Oi share prices go up or down by 10%. Then, in the second table, we show the impact of these changes on PT share price.
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Millennium investment banking Weekly Ju ly 25, 2014
Brazilian Mobile Market MoM – Slow month Alexandra Delgado, CFA
Equity Analyst
The Brazilian regulator released June mobile subscribers’ numbers.
The Brazilian mobile market reached 275.7 million clients in June 2014, which stands for 136.1% penetration of the population. Net additions during the month were 255k, which compares to 212k in June 2013 (+20%).
Net adds in June were weak, impacted by negative net adds by TIM, but still better than June last year. Net adds YTD are 18% above same period last year (4.37 mn vs. 3.71 mn).
Post-paid net adds in June (+589k) were 9% below June 2013 and 18% below last year’s monthly average (715k). Post-paid subscribers were 23.0% of total subscribers by the end of June, up from 20.6% in June 2013.
Telefónica added 169k subscribers during the month, which allowed it to increase its market share by 0.03pp to 28.78%. Better still, TEF added 0.17pp post-paid market share in June, ending the month with 41.25% (+3.40pp YoY).
Oi added 227k subscribers during the month, gaining 0.07pp market share to 18.53%. It lost only 0.01pp post-paid market share in June to 13.80%, a clear improvement vs. previous months. We remind that the company has shifted focus to the pre-paid segment in order to gain control of bad debt provisions (-1.50pp post-paid share in last 12 months).
(For further details, please refer to our snapshot out this week)
Sonaecom Buy – High Risk (Target YE14: €2.80)
Sonae buys Sonaecom shares and now has 89.97% of capital Alexandra Delgado; CFA
Equity AnalystSonaecom disclosed that Sonae has acquired 200k Sonaecom shares on July 14th (price of €1.59). Following these acquisitions, Sonae holds 275.1 million Sonaecom shares which stands for 89.97% of voting rights (excluding 5.6 million own shares held by Sonaecom).
Sonae needs to buy 106k shares in order to reach the 90% threshold. We remind that in order for Sonae to be able to delist Sonaecom it needs shareholders representing more than 90% of capital to approve that resolution in a shareholders’ meeting. Sonae must then buy shares (in the following 3 months) from shareholders that vote against this resolution in the meeting. It could pay between €2.06 (average price in the last 6 months) and €2.45 (price of Sonaecom’s tender over minorities).
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Iberdrola disclosed its 2Q14 earnings. Gross profit for 2Q14 went down by 3% yoy to €2,785mn (2% below our estimates). Operating costs (including levies) for 2Q14 dropped by 7% YoY and came out better than expected (8% below our estimates). This positive evolution was basically due to a favourable high court ruling on CO2 allowances in Spain that reduced levies (+€111mn). Excluding this non-recurrent event, operating costs (including levies) came out broadly in line with our estimates. EBITDA for 2Q14 remained flat YoY at €1,618mn, 3% ahead of our estimates. By business, EBITDA was lifted by the strong performance from liberalized business (+32% YoY; earnings benefited from the aforesaid one-off), but was dampened by the weak performance from renewable (-11% YoY; in Spain earnings dropped due to the new remuneration and also due to low pool prices) and regulated business (-7% YoY; essentially due to lower revenues in Spain following the announcement of the Energy reform last July and also due to the effects of the drought in Brazil that led to a decrease of gross margin). Net income for 2Q14 stood at €551mn (3% below our estimates). Below EBITDA line, main deviations vis-à-vis our estimates are essentially due to better than expected income from group and associated companies, despite higher than expected income taxes.
Net debt at 2Q14 remained stable QoQ at €25.7bn and dropped by €2.2bn YoY. Capex for 1H14 amounted to €1,199mn (87% of the capex was channeled to regulated and renewable activities), accounting for 38% of our YE14 figure.
To sum up, earnings were affected by the regulatory measures in Spain and also by the drought in Brazil, but were lifted by a non recurrent event related to a favorable court decision. Following the disclosure of 2Q14 earnings, we still feel comfortable with our estimates.
(For further details, please refer to our snapshot out this week)
Retail
Jerónimo Martins Buy – Medium Risk (Target YE15: €16.40)
Polish June retail sales penalized by deflation: neutral to our Biedronka`s estimates
João Flores,Equity Analyst
Overall, declining June Polish Food Retail sales numbers (disclosed today at 09.00 am UK/Lisbon Time) reflected increasing Food deflation in Poland (-0.9% YoY in June).
Based on Biedronka`s LfL underperformance (-5.1%) to Polish food retail sales in 1Q14, Biedronka`s LfL sales in 2Q14 would reach c2.0% vs 2.5% embedded in our JM`s quarterly estimates
Retail sales rose 1.2% YoY on an annual basis in June (below 4.0% YoY consensus), lower than the 3.8% YoY increase seen in May. On a monthly basis, retail sales declined 1.1% MoM (+1.8% MoM consensus), following a 2.7% MoM decline in May. There was a 2.4% YoY increase in Food retail sales (from +3.0% YoY in May).
We highlight Unemployment rate declined to 12.0% in June from 12.5% in May (12.1% estimated).
Recall new car sales in Poland rose 1.3% YoY in June to 29.090 registrations, following a 9.0% YoY increase in May
Recall JM will disclose 2Q14 Earnings on July 29th, after the market close.
We estimate Biedronka`s sales will grow by 13.4% YoY, reflecting: i) slight positive Fx effect from Euro/Zloty (+0.8%); ii) expected positive LfL sales number (+2.5% YoY), reflecting a favorable comparison basis (+2% 2Q13); iii) estimated deflation in Biedronka`s basket (-1% to -2%), reflecting
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strong competition in Polish Food retail market and food deflation in Poland (-0.8% in May). Recall Biedronka`s basket deflation reached -1.0% in 1Q14 (1.5% 1Q14 food inflation in Poland); iv) positive Easter calendar effect c. 2.0% (Easter was on 1Q13 in 2013). EBITDA margin is expected to reach 6.0% (from 6.4% in 1Q13). Recall Biedronka`s price promotions started on July 2013, thus company will have an unfavorable comparison basis in 1H14.
(For further details, please refer to our company news out this week)
Industrials
CTT Buy – Medium Risk (Target YE15: €8.60)
Leveraging on financial unit João Flores
Equity Analyst
Based on updated Portuguese 10yr Government Bond to 4% (from 5%) and latest news flow, we updated our CTT`s valuation. Furthermore we moved reference year to YE15 from YE14. Our price target was revised upwards to €8.60 YE15 from €7.95 YE14 (Buy recommendation, Medium Risk), meaning a 15% upside vs current price.
Breakdown of changes in price target: i) updated estimates (€0.15 negative effect on CTT`s price target); ii) changes in WACC (€0.30 positive effect on CTT`s price target), reflected updated Portuguese 10-year Government yield bond to 4.0% from 5.0%; iii) Year-end Rollover to YE15 from YE14 had a €0.50 positive effect on CTT`s price target.
Overall, in order to reflect latest trends, financial unit valuation was upwards revised while mail unit was downwards revised. We believe CTT benefits from a solid strategy while keeps costs under control and shows a strong B/S. Furthermore, CTT shows an aggressive dividend pay-out (minimum 90%). Overall, the dividend and the possibility of setting up a postal bank are working as attractiveness, despite declining postage volumes and a dependency on the Portuguese economy.
Government approved on June 26th the conditions for the sale of the 31.5% stake of the Portuguese State in CTT, held by Parpública. Privatization details (calendar, price,…) will be disclosed by the Government in a near future.
The sale will probably happen on September / early 4Q14 (Parpública 30% stake lock-up period ends on August 30th, thus we believe Government will not anticipate lock-up period to sell the stake). Apparently sale will be carried out through direct institutional sale (according to the Government, privatization via direct institutional sales is Government`s best option to raise money while benefits Company and stock market) which we believe will not penalize stock. CTT is a company with an interesting restructuring business plan, thus we believe there are Institutional investors (strategic partners,...) willing to build a relevant stake.
(For further details, please refer to our company report out this today)
CTT: Government certificates issued by IGCP kept positive trend in June According to IGCP monthly bulletin, government certificates kept positive trend in June. Overall, we believe June numbers from Portuguese Treasury and Debt Management Agency (IGCP) are potentially positive to CTT Financial unit revenues.
Saving Certificates issued in June reached €202mn (vs €203mn in May)
Treasury Certificates issued in June reached €211mn (vs €208mn in May)
The outstanding of Saving Certificates (CA) and Treasury Certificates (CT) maintained a positive contribution, increasing by €150mn and €210mn, respectively.
Recall CTT Financial Services unit includes all the products and services offered to the retail clients which are not included in the mail and express & parcels activities. The business model is based on agreements with third parties to sell its financial products/services where CTT receives a fee without
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Millennium investment banking Weekly Ju ly 25, 2014
incurring in any risks.
CTT offer in saving products are Public Debt (it’s the sole retail distributor of public savings certificates via an agreement with government agency which manages public debt IGCP) and investment funds.
(For further details, please refer to our company news out this week)
Portucel released 2Q14 Earning this week. Top line was pretty much as expected, €382Mn vs. €381Mn expected and -4%YoY, Ebitdap lower than our estimates €80.2Mn vs. €88.8Mn, minus 11%YoY and an Ebitda Mg of 21%, pretty much similar with the 1Q14 and one of the lowest levels, at least, since 2009. Ebit, €60.4Mn vs. €62.8Mn expected, minus 9%YoY was positively influenced by a provision reversion of roughly €6Mn. Below the operating line, interest charges were €8.8Mn vs. €6.5Mn expected mainly due to higher borrowing costs and lower remuneration of cash surplus, while effective tax rate remained at very low level, €1.8Mn of taxes vs. €12.4Mn expected. All in all net income was €49.8Mn vs. €43.9Mn expected and minus 6%YoY;
Paper sales volumes, according to our figures went down by roughly 5%YoY, plus 3% sequentially and prices at the end of the quarter were minus 2.8%YoY, even that almost flat sequentially, so the price increase announced in April was effective however not enough to recover the levels seen one year ago. Concerning pulp, sales volumes went down 4%YoY, up 25% sequentially while prices at the end of June were -9%YoY. Regarding the Outlook, the press release is moderately positive, concerning the UWF market mentioned “the Order’s book remain healthy (second best level ever recorded) despite signs that the growth observed since the start of the year may be slowing”, while pulp the resilience of the market in the 2Q14 surprised, however new capacity in 2015 and 2016 and the evolution of exchange rates are factors, which may have an impact on the balance of supply and demand;
Concerning Cash flow, as the company measured and before dividends paid (€200.8Mn), it was €62.3Mn vs. €57.8Mn in the 1Q14 and roughly €120.1Mn in the 1H14 vs. our estimate for the year of €228Mn (before dividends) so pretty much in line and a strong quarter;
All in all, figures lower than our estimates mainly in terms of margins however cash flow generation as usual continues to be quite strong.
(For further details, please refer to our snapshot out this week)
Aggressive Portfolio This week, Mib Aggressive Portfolio went up 3.28%, underperforming the PSI20 by 0.75pp.
Excluding Sonaecom, all stocks contributed for this underperformance.
We highlight that the portfolio is composed by the five stocks with the highest upside potential of our coverage universe. It is equal weighted and rebalanced on a weekly basis.
Liquidity Portfolio This week, Mib Liquidity Portfolio went up 3.70%, underperforming the PSI20 by 0.33pp.
Excluding Sonaecom, all stocks contributed for this underperformance.
We highlight that the portfolio is composed by the five stocks with the highest upside potential of our coverage universe, excluding the less liquid stocks. It is equal weighted and rebalanced on a weekly basis.
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Millennium investment banking Weekly July 25, 2014
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Millennium investment banking Weekly July 25, 2014
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Millennium investment banking Weekly July 25, 2014
Risk Trnvr (€mn) M Cap EPS P / E EV / Sales P/BVRating 3m 6m (€ mn) Week 1M 3M 12M YTD 2013 2014E 2015E 2013 2014E 2015E 2013 2014E 2015E 2013 2014E 2015E 2013 2014E 2014E
(1) We do not have a recommendation on BCP, as Mib is a registered trademark of BCP; (2) Not Covered; (3) Restricted; (4) Target YE15; (5) Under Revision
Change (%) EV / EBITDA Div Yield2014-07-25
Latest Pr (€)
Target YE14
RatingUpsd
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Millennium investment banking Weekly Ju ly 25, 2014
DISCLOSURES This report has been prepared on behalf of Millennium investment banking (Mib), a registered trademark of Banco Comercial Português,
S.A. (Millennium BCP). Millennium BCP is regulated and supervised by Comissão do Mercado de Valores Mobiliários (CMVM). Recommendations:
Buy means more than 10% absolute return; Neutral means between 0% and +10% absolute return; Reduce means between -10% and 0% absolute return; Sell means less than -10% absolute return.
Unless otherwise specified, the time frame for price targets included in this report is current year-end or next year-end. Risk is defined by the analyst’s view in a qualitative way (High, Medium, Low). Usually we update our models and price targets in between 3 and 9 months. Millennium BCP prohibits its analysts and members of their households to own any shares of the companies covered by them. BCP group may have business relationships with the companies mentioned in this report. Millennium BCP expects to receive or intends to seek compensations for investment banking services from the companies mentioned in
this report. The views expressed above, accurately reflect personal views of the authors. They have not and will not receive any compensation for
providing a specific recommendation or view in this report. There were not any agreements between the companies covered and the analysts regarding the recommendation. This report did not have any specific recipient.
Millennium BCP Analysts do not participate in meetings to prepare BCP’s involvement in placing or assisting in public offers of securities issued by the company that is subject of the recommendation, except when disclosed in the report.
Analysts are paid in part based on the profitability of BCP group, which includes investment banking revenues. BCP group has more than 2% of EDP. BCP group was chosen to evaluate EDP regarding the 8th stage of the privatization process. BCP group was chosen to evaluate REN regarding the 2nd stage of the privatization process. A member of the Executive Board of Directors of Millennium BCP is member of the General and Supervisory Board of EDP - Energias de
Portugal, SA. Millennium BCP through its investment banking department is providing investment banking services to Tagus Holdings S.a.r.l. (“Offeror”
in the launch of a tender offer over Brisa - Autoestradas de Portugal, S.A. shares). Banco Comercial Português, S.A. (also known as Millennium BCP) was chosen as a Co-leader of the Initial Public Offering of CTT that
took place on December 2013. The Board of directors of Mota Engil has appointed Banco Comercial Português as joint-book runner concerning the offering of 34 300
000 ordinary shares of Mota Engil through an accelerated book building according to the announcement released on 25th of February 2014.
Banco Comercial Português, S.A. (also known as Millennium BCP) was chosen as a Co-leader of the Initial Public Offering of ES Saúde, that took place on February 2014.
Millennium investment banking acted as Joint Bookrunner in the private offering, launched by José de Mello SA, through an accelerated bookbuilding, concerning the sale of 94 787 697 EDP shares, according to the announcement released on the 3rd of April 2014.
According to the announcement released on the 8th April 2014, Millennium BCP acted as Joint Bookrunner in the Eurobond “EDP Finance BV 5-year” in the total amount of €650,000,000.
Millennium BCP is involved in Sonae Industria capital increase announced at the beginning of May 2014. Millennium investment banking a registered trademark of Banco Comercial Português, S.A. was chosen as Joint Bookrunner of the
Preferential Offer and Co-Lead Manager of the Institutional Offer of Mota-Engil Africa that is taking place. Banco Comercial Português, S.A. (also known as Millennium BCP) was chosen as a Co-leader of the Public Offering of REN that took
place in June 2014. Banco Comercial Português, S.A. (also known as Millennium BCP) was chosen as one of the Bookrunners & Mandated Lead Arrangers on
the 5-year revolving credit facility in the amount of €3,150,000,000 that was granted to EDP-Energias de Portugal (June 2014). Banco Comercial Português, S.A. (also known as Millennium BCP) was chosen as one of the Joint-Bookrunners on the issuance of Euro
Medium Term amounting to €500,000,000 (maturing in January 2021) by Galp Energia (July 2014). Recommendations on Millennium BCP covered companies (%)
PSI 20 6,802 7,608 6,559 5,954 5,557 5,655 5,494 7,588 8,464 6,341 13,019 11,198 8,619 7,600 The Politics of Conflict of Interests Millennium BCP is available at www.millenniumbcp.pt or sent to customers when requested.
DISCLAIMER This information is not an offer to sell or a solicitation to enter into any particular deal or contract. It consists of data compiled by or of opinions or estimates from Banco Comercial Português, S.A. and no representation or warranty is made as to its accuracy or completeness. This information is merely an auxiliary means of analysis to be used by its recipients, who will be solely responsible for its use, including for any losses or damages that may, directly or indirectly, derive from it. Its reproduction is not allowed without permission from the BCP group. The data herein disclosed are merely indicative and reflect the market conditions prevailing on the date they have been collected. Thus, its accuracy and timing must absolutely be confirmed before its usage. Any alteration in the market conditions shall imply the introduction of changes in this report. This information / these opinions may be altered without prior notice and may differ or be contrary to opinions expressed by other business areas of BCP group as a result of using different assumptions and criteria. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results.
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