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Spain TodayToday's best ideas in Spanish Equities

Friday, April 27, 2012

Disclosures are available on www.cheuvreux.com

Upcoming Conferences

General news

www.cheuvreux.com

For further info on the events below:[email protected] your usual CA Cheuvreux contact.Spain - Sovereign rating hammered two notches by S&P

, +34 91 495 16 29)Iigo Vega, Research Analyst ([email protected] 21-23 May : Pan-Europe Forum (London)19-21 September :Autumn Conference(Paris)

Company updates Upcoming corporate Roadshows overnext 2 weeks

Antena 3 3/Underperform TP EUR4 (+1%) For further info on the events below:Highlights from conference call [email protected]

or your usual CA Cheuvreux contact.Adrian Zunzunegui, Head of Research ([email protected], 34 91 495 16 28)

02 May : Skandinaviska Enskilda Banken(England, Uk)Ebro Foods- 1/Selected List TP EUR17 (+27%)

Sells Nomen for EUR30.1m 03 May : Seche Environnement (England,Uk)Iigo Egusquiza, Research Analyst ([email protected], +34 91 495 16 33)08 May : Lvmh (United States)08 May : Stora Enso (United States)Ence 2/Outperform TP EUR2.3 (+38%)08 May : Total Sa (United States)

Good Q1 results, very positive message - BUY 09 May : Rautaruukki (England, Uk)Adrian Zunzunegui, Head of Research ([email protected], 34 91 495 16 28) 09 May : Sanoma (England, Uk)

10 May : Ericsson Telecom Ab (England, Uk)10 May : Sodexo (England, Uk)Gas Natural (n/r)11 May : Ericsson Telecom Ab (France)

Noise on a possible merger with Repsol

Jos Porta, Sector Head , +34 91 495 16 71)([email protected]

Viscofan - 3/Underperform - TP EUR34.7 (+1%)

Q1-12 results overall in line

Iigo Egusquiza, Research Analyst ([email protected], +34 91 495 16 33)


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Spain TodayFriday, 27 April 2012

General newsSpain- Sovereign rating hammered two notches by S&PIigo Vega, Research Analyst ([email protected], +34 91 495 16 29)

S&P has cut Spain's credit rating from A to BBB+ with a negative outlook. The report mentions the likely inability to meet

budget deficit targets (they estimate -6.2% in 2012 and -4.4% in 2013) in a context of private deleveraging and GDP

contraction (-1.5% in 2012 and -0.3% in 2013). S&P believes that the delay in adopting the 2012 budget will make targets

more challenging. Following almost EUR90bn capital outflows over Mar-11-Jan12 (and we still need to add those in Feb-

Apr of this year- not disclosed yet), the downgrade will hardly be a surprise to many investors. But it represents a threat

to the new government's plan A, which was based on taking the hard measures and gradually gaining credibility on the

back of these steps. This is clearly not happening (the market is not now a great believer in orthodox deleveraging and

austerity yielding results). Let's see what plan B is. Also, it will be interesting to see the reaction of some of the Spanish

banks playing the carry trade, although we do not expect any changes to regulatory capital consumption of holdingSpanish sovereign debt (only in CCPs haircuts could rise further, but the usage of CCPs has came down as a result of

LTROs.).

Company updates

Antena 3 3/Underperform TP EUR4 (+1%) Highlights from conference callAdrian Zunzunegui, Research Analyst ([email protected], +34 91 495 16 28)

Antena 3 Q1 results came out slightly better than expected (EUR14.1m EBITDA vs. our EUR10m estimate, consensus at

EUR11m) as A3TV is doing better than TL5 in terms of revenue share, which allows them a pricing premium (c/GRP down

just 11% in Q1, when the average market price is down more than 15%, and revenue share at 34.3% in Q1 are obviously

the net positives). We nevertheless believe this is not enough within such a weak TV ad market, and opex management

will increasingly become the name of the game further into the year. A3TV opex is down just 1.5% despite top-line

declines of c.a. 9% y-o-y, hence the EBITDA margin stands at 7.5%. TL5 will deliver a far weaker top line (lower share,

weaker prices) but better opex, which will result in a higher EBITDA margin.

In overall terms, the message from management at A3TV's conference call was a cautious one. According to A3TV

management, it is now clear that Spain's TV ad spending will come down by between 7% and 10% a (us at -10%, we

feel that, if anything, there is still downside risk to our number). Q2 has started weaker than Q1 (according to

management April is worse than Q1, despite an easing comp base, and there is no visibility at all on May, though due to a

better comparison base A3TV's CEO believes it should be less bad than the first four months of the year). We believe

May might be again down by double digits, and the outlook on June (the EuroCup is seen as this year's last hope) is less

and less clear.

Furthermore, our belief (contrary to management) is that the 34% revenue share is not easily sustainable (we got the

feeling that in April TL5 is doing better in terms of revenue share, hence A3TV is no longer taking all the share lost by

regional TVs and smaller DTT players). Pricing pressure keeps hitting new highs (average market prices in April are down

by more than 20% y-o-y...). In other words, new cuts to the top line are to come (at least -10% for the FY market), the

share will not be as good, and pricing pressure is on the rise. In the medium term we see no room for improvement from

here, and the recent relative outperformance of A3TV to TL5, though justified, is hard to sustain.

Highlights:

TV ad market: according to the company, it is very difficult to know what is going to happen in the ad marketover the full year. Q1-12 was weak and April was in line (or slightly weaker) with the first quarter. Even though

there is no visibility, they do not expect FY-12 to be as bad as Q1 and they find it difficult to believe that the FY

market could fall by as much as the 18% annual decline seen YTD. In their view, a more reasonable estimate for

the FY could be a drop of 7-10%. We are at -10%, and believe that May/June may again disappoint.

Revenue share: they expect their revenue share to stand at c.a. 43-44% in FY-12E (following the merger with LaSexta, which they expect the anti-trust authority to approve by June). There could be some commercial changesat La Sexta (cheaper than CUATRO but with similar profiles). We believe the 34% share of A3TV standalone is

not easy to sustain

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Audience share: There is no limit, and with good programming there is room for growth (we would say, at whatcost?). What A3TV is not going to do is change its policy in order to compete with the Euro Cup.

Opex should grow due to Formula One TV rights. Working capital: Negative working capital in Q1-12 because of the Formula One rights (two payments, the first

being in March) and the acquisition of treasury stock (7% in accordance with the merger agreement).

Net debt could stand at around EUR220m-240m after the merger. We look for EUR250m net debt by 2012E.Ebro Foods- 1/Selected List TP EUR17 (+27%) Sells Nomen for EUR30.1mIigo Egusquiza, Research Analyst ( , +34 91 495 16 33)[email protected]

Ebro Foods has just sent a statement to the Spanish National Securities Market Commission (CNMV) confirming that they

have reached an agreement with the Catalan group Arrossaires for the sale of the rice brand Nomen for EUR30.1m. The

operation consists of an initial payment of EUR1.5m plus 13 annual payments of EUR2.9m, so the final price including

deferred interest will be EUR39.2m, which is in line with expectations. The agreement is pending the authorisation of the

Spanish competition authorities (expected in September 2012).Ebro acquired SOS Rice from Deoleo for EUR195m and the Spanish competition authorities forced Ebro to sell some of

the rice brands under SOS Rice, including Nomen.

We see this agreement as good news for Ebro as it would represent a reduction in the price paid by Ebro for SOS Rice

and it would also bring down debt, which is already very limited.

Ence 2/Outperform TP EUR2.3 (+38%) Good Q1 results, very positive message - BUYAdrian Zunzunegui, Research Analyst ([email protected], +34 91 495 16 28)

Ence's Q1 results came out yesterday in line with expectations at both the top-line and EBITDA levels. We nevertheless

read positively q-o-q trends, since volumes are starting to perform and price increases implemented in recent months

should start feeding in as of Q2. This, coupled with good cash costs, suggests a very positive outlook for the next few

months. Operating profits should show increased growth in the upcoming quarters, and our FY EBITDA estimate of

EUR147m now seems easy to achieve (estimates risk on the upside).

Management stated at the AGM they plan to raise the dividend payment over the medium-term. The company plans to

raise EUR300m via divestments, 50% of these funds to be handed back to shareholders via a dividend over the next

three years. This amounts to 35% of Ence's current market cap (and comes on top of the current ordinary dividend). This

plan is to be funded through the sale of its forestry assets, starting with those in Uruguay (that have a EUR50m BV, and

could be sold for between EUR75m and EUR100m (apparently, there are 20 interested parties), or between 1.5x and 2x

BV, Ence is now trading at 0.6x P/BV), followed by other forestry assets in 2013/14. The company also plans to buy own

shares (from the current 5% to the 10% legal maximum, an estimated impact of EUR20m at current prices), which might

come from the stake hold by troubled "caja" Liberbank.

We reiterate our very positive view on Ence: the stock trades at 0.6 P/BV, when volumes and pricing indicate it should be

trading at least at a through-the-cycle average of 0.8x / 0.9x (and on top of this cash costs are doing slightly better). Our

target price of EUR2.30 offers more than 40% upside from current prices. The raised dividend is also very positive news,

and once they start to deliver it will be seen that trading at a 40% discount to BV makes no sense.

Q1 highlights:

Consolidated sales came down by 8% y-o-y to EUR201.5m (fully in line with street expectations of EUR201.1m), a 2%

increase from Q4. Pulp sales dropped by 10% to EUR143.1m, +2% on the previous quarter on good volumes (+7% y-o-

y) and better utilisation ratios of 97%. The impact of price increases is to come next: another USD40/t price hike is

expected as of May. Electricity sales +17% to EUR50.1m (above expectations on better than anticipated pricing, +12%,

and an improved generation mix). Forestry sales down 49% y-o-y to EUR8.3m (slightly worse than expected).

The above led to a decline in EBITDA of 22% y-o-y to EUR30.7m (consensus at EUR30.2m), an increase of 26% from

Q4-11. This evidences the good cash-cost performance in the quarter (cash cost at EUR338 per tonne, down 4% from

previous quarter and -11% y-o-y. Our EUR335/t estimate, which implies an 8% annual reduction for the FY, might be

considered conservative now).

At the bottom line, net profit stood at EUR6.6m, also in line with the street at EUR6m.

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Gas Natural (n/r) - Noise on a possible merger with RepsolJos Porta, Sector Head ([email protected], +34 91 495 16 71)

A Spanish paper (5 Das) suggests La Caixa is contemplating merging Repsol and Gas Natural (La Caixa owns 13% of

Repsol, and 35% of Gas Natural) as a way to protect Repsol from a hostile bid.

Comment: This has been an alternative for many years, and now it resurfaces as a result of the recent expropriation of

YPF. Our view is that it would be rather negative for Gas Natural's minorities (free float 40%), which would lose the

attractiveness of being exposed to a gas value chain-biased story. We doubt very much that the terms of such a merger

would be favourable to Gas Natural shareholders. Plus, the attractiveness for a utility investor in Gas Natural (with 65% of

its EBITDA regulated) of becoming a holder of an oil company would be very limited, we believe.

Viscofan - 3/Underperform - TP EUR34.7 (+1%) - Q1-12 results overall in lineIigo Egusquiza, Research Analyst ( , +34 91 495 16 33)[email protected]

Q1-12 sales amounted to EUR177.9m (+13% y-o-y, slightly better than our estimate of EUR172m and consensus of

EUR173m) as a consequence of higher volumes in the casing business (+15.1%). The geographical breakdown is thefollowing: Europe & Asia +17.7%, North America +14.5%, and LatAm +8.8%.

Q1-12 EBITDA totalled EUR42.8m (+9.5% y-o-y, in line with our estimate of EUR43.8m and fully in line with consensus),

with the EBITDA margin decreasing from 24.9% in Q1-11 to 24.1% in Q1-12 due to the increase in raw material and

energy prices. The casing business also reported lower margins (from 28.2% to 26.9%).

EBIT stood at EUR31.6m in Q1-12 (+8% y-o-y, in line with our estimate of EUR32m and fully in line with consensus) and

net profit at EUR23.3m (+6% y-o-y, again in line with our estimate of EUR23m and consensus of EUR23.4m).

Although we like the company and think that the strategy makes a lot of sense, we believe it is now time to start taking

some profits as we see limited upside to our target price.

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BEST REGARDS,CHEUVREUX

Copyright Crdit Agricole Cheuvreux, 2012. All rights reserved

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