The Dawn Patrol 03.07.12 – On the markets, China. MS upgrade of EU equities.

Bonjour,

Markets to open up (again) with Asian markets strong this morning and European futures up too. The expected ECB cut on Thursday and some strategists (see below) upgrades halp the markets despite the weak US ISM. Macro eyes on the UK PMI construciton, M4, on Euro zone PPI and US factory orders and vehicle sales. Some European leaders meet and speak…

VIVENDI is one stock to focus on. We should hear about further assets sales and cost cutting program at SFR.
Vedanta Resumed Overweight At Morgan Stanley
Buy AstraZeneca as it raises 2018 EPS 7% on Amylin Deal, UBS Says
ELECTROLUX and PHILIPS raised to OW at Nomura… Interesting… Havent’ looked at these for a looong time.

AFTER HOURS

During the day, the S&P 500 and Nasdaq finished up near the highs of the day on some M&A action (Best Buy, Lincare and Micron).
MSFT slipped after the close as it announced a noncash, non tax deductible goodwill asset impairment of $6.2bn due to the aQuantive acquisition.

CURRENT THEMES

On the Markets
Follow the trend… The market is in a positive mood, all is forgotten, the ECB will save us and QE 3 is on its way. There is no inflation and the Fed’s focus on jobs growth will push the to act and inject liquidity…. Yields on Spain and Italy are still high but less so… Economic data suggest it’s really bad, but who cares, liquidity is coming in…

On China
Some more data from China with the non manufacturing PMI out at 56.7 vs 55.2 in May. This goes against this Week end’s data.

STRATEGY

MS (Sanderse) Metals and Mining
Still growth and Excess return on offer – Attractive.

Menno Sanderse is a great analyst. Previously in charge of industrials and transportation companies

Copied/pasted:
China can still deliver enough demand growth to supp ort reasonable industry returns, we argue, while share prices are discounting a more bearish view. Returns will be lower and demand more volatile, but this could lead ‘Big Mining’ to lift payout ratios, making valuations attractive.

RIO TINTO; Assuming at OW, PT: 4,180p
BHP;, OW, PT: 2320p
ANGLO AMERICAN: EW, PT: 2620p

MS (Secker) European Strategy
Europe’s valuation discount to narrow – ipgrading to Neutral.

You probably have see this report which came out yesterday. This is avery good piece. They clearly don’t go long yet, but the argument for valuation is strong. They stay underweight the cyclicals, as EPS forecasts are already high, valuations not that cheap and given recent economic data, it doesn’t bode well for sales increase. And as we have already noticed thanks to RCUBE, the Earnings Revisions are really poor and from the chart below not in the right direction.
In terms of sectors, they raise insurance to OW (and buy Allianz) because it’s cheap vs history (now Neutral financials) and they downgrade consumer staples to UW on valuation grounds (switching out of Danon to Nestlé). Also OW on Telcos with an addition of Deutsche Tel.

All in all, this is a very sensible call. There are X reasons to be UW European equities, but valuations are now compelling…

EUROPEAN EQUITIES

FINANCIALS
Dutch Central Bankmodifies interest rate curve for insurers; Dutch banks expect to add EU3.8 billion of profits to capital buffers in 2012
Insurance regulators create international rules for the industry, FT says
– Barclays’ CEO resisted pressure to quit after the bank was fined for rigging interest rates, saying he has the “full support” of directors; CEO and other senior executives may have played a role in the bank’s past attempts to manipulate key interest rates as part of an effort to increase profit, the NYT reported
– Credit Suisse is selling 80.4 million Aberdeen shares, Bloomberg says; Credit Suisse believes the process for Libor rate submissions is likely to change, given the regulatory and legal challenges associated with its setting
– Swiss Re’s private equity partners unit is to be bought by BlackRock
– SEB Raised to Overweight VS Equalweight at Barclays
– Swedbank Cut To Equalweight VS Overweight at Barclays

INDUSTRIAL/MINERS/SERVICES
Greece gets 8 bids for hydrocarbon exploration in Western Region; the country expects to earn $15 billion in revenue over the next 10 years from existing oil and natural gas reserves
– Air France-KLM and Etihad plan a joint company, says Le Figaro
– Airbus’ decision to build its first U.S. plant in Alabama causes problems with U.S. labour groups as it is effectively impossible to form a powerful union in this region
– Peugeot Citroen will announce an austerity plan July 12th; it plans to eliminate more jobs in 2012 than it previously announced, cutting as much as 10% of French workforce, Bloomberg reports
– Thales is to move radar production to Singapore, Tribune says
– Rio TINTO plans to cut support and service expense by 10% globally, Bloomberg reports
– Syngenta says U.S. EPA granted registration for 2 refuge-in-a-bag trait sacks, both to be available for 2013 planting season
– AP Moller-Maersk drilling to hire 3,000 workers;Rated New Buy at Berenberg; PT DKK 57,000
– Meggitt Raised to Buy VS Neutral at UBS, as it may be a take-over candidate
– Electrolux Rated New Buy at Nomura; PT SEK170

UTILITIES/OIL/HEALTHCARE/CHEMICALS
Drugmakers have invested 1.1 billion euros ($1.4 billion) to buy German biotech cos. since beginning of 2012
– BHP BILLITON coal workers in Australia have started discussions to resolve an 18-mo.-old dispute over an enterprise agreement for the BHP Billiton Mitsubishi Alliance in Queensland
– SUBSEA 7 wins a $400 million SURF contract from BG Norge for Knarr Field for engineering, procurement, construction, installation of 4.5km flowline bundle
Buy AstraZeneca as it raises 2018 EPS 7% on Amylin Deal, UBS Says
– Statoil Reinstated Neutral at BofAML

TMT
– Bouygues Telecom is considering cutting‘several hundred’ jobs, Les Echos reports
– Vivendi’s French wireless unit SFR is bracing for a “difficult period,” says Bloomberg
– Philips Rated New Buy at Nomura; PT EU18
– Axel Springer Raised To Buy From Hold at Berenberg

RETAIL/CONSUMER/LUXURY
– Tesco seeks to buy a majority stake in Turkish food retailer Uyum Gida

SMALL/MIDCAPS
– Grenkeleasing’s new business rises by 20% in the first half of 2012; it reiterates 2012 forecast of new business of about 15%
– CSM sees significant progress in divestment process by early ’13
– Fondiaria makes downward 1Q restatement on failure of 2 debtors
– Wincor Nixdorf faces €20 million restructuring costs as €40 million overhaul charge for 2011/2012 year won’t suffice
– Leica Camera is delisting from Germany and considers listing in Hong Kong
– Bumi unit’s early repayment of $231m investment by group Recapital were not met, reports FT
– Premafin will go ahead with 4-way merger plan with Unipol proceeding with planned capital increase
– Swiss Life considers changing the name of its AWD Unit
– Mr Bricolage buys Le Jardin De Catherine for EU11.25m
Buy Chemring, as itis an attractive target, added to M&A watchlist at UBS
– Italcementi Rated New Sell at UBS; PT EU3.4
– IVS Group Rated New Overweight at JPMorgan; PT EU11.8
– Lonmin Rated New Hold At Deutsche Bank, PT 130 Rand
– MAN Group Cut to Neutral VS Outperform at Credit Suisse
– Melrose Cut To Neutral VS Outperform at Credit Suisse
Sell Regus, ‘Concerned Space Growth Cannibalises,’ UBS Says
– Vedanta Resumed Overweight At Morgan Stanley
– Yule Catto & Co. Cut to Neutral From Overeight at JPMorgan

Max Kamir

Louis Capital Markets UK,LLP
Authorised and regulated by the FSA and Banque de France
39-41 rue Cambon
75001 Paris

T +33 (0)1 53 45 10 74
E mkamir
I http://www.louiscapital.com

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