The Dawn Patrol – 19.07.12 – On US Earnings, Bernanke round 2. GS new model, ML Survey. JPM on Metals and Mining…

Bonjour,

European markets should open on the bright side this morning as earnings (mainly Tech) are somewhat better (not as bad as feared) than expected. Watch the IT servicestoday (Capgem). In terms of Macro, we’ll watch the jobless claims, the Philly fed, existinghome sales and the Spanish debt auctions (5y and 7y). Spain needs to sell at least more than €2.5bn.

ALSTOM said first-quarter sales rose 6 percent to 4.78 billion euros; booked €6 billion orders, up 20% compared to the first quarter last year
AKZO NOBEL Q2 rev. up 8% to EU4.41b vs est. EU4.3b, mainly driven by pricing actions and by favorable currency effects; 2Q adj. EbitdaEU593m vs est. EU568.5m.; Net income from continuing operations €197 million; Adj. EPS EU1.12 vs est. EU1.05; Performance improvement program ontrack; The economic environment remains the principal sensitivity in 2012; Continues to expect increased avg. cost for year due to raw materials inflation
NOVARTIS is seen reporting lower 2Q earnings than a year earlier, Bloomberg reports; 2Q rev. $14.3b vs est. $14.3b; 2Q Core EPS $1.38 vs. est. $1.33; Keeps 2012 Sales Forecast; says it is on track to deliver 2012 outlook; sues Sun Pharma as Sun Pharma’s applications to sell generic Zometa, Reclast (zoldedronic acid) infringe U.S. patent no. 7,932,241
SAAB 2Q Net and Sales Beat Est.; 2Q sales SK6.23b vs est. SK6.03b.; 2Q net income SK552m vs est. SK335m; 2Q order bookings SK7.64b vs SK5.43b; Sees 2012 sales to increase slightly vs 2011; 2012 op margin seen in line with 2011 at 7.5%
TELE2 2Q Net Misses, Sales Match Est.; 2Q sales SK11.04b vs est. SK11b ; 2Q net SK850m vs est. SK1.09b.; 2Q Ebitda SEK2.72b vs est. SK2.80b; EPS SK1.9 vs est. SK2.49; Adjusts 2012 Guidance; Swedish mobile rev. grew by 6% in 1Q vs 17% growth Y/y; Sees 2012 Swedish mobile rev. up 3%-4%;
SANDVIK 2Q Net, Sales Beat Ests.; 2Q sales SK25.9b vsest. SK25.2b; 2Q net SK2.78b vs est. SK2.53b.; 2QOp. Profit Sk4.21b vs. Est. Sk3.96b; 2Q order intake SK26.2b; Deutsche Bank est. SK26.5b; CEO says co. enters 3Q with increased caution amid uncertain macroeconomic conditions

AFTER HOURS

EBAY +7% after mkt. Sales/EPS of $3.40bn/56c vs estimates of $3.36bn/55c. Better on Paypal revenues but guidance is weaker than expected.

QCOM +2.2% after market. Q2 Sales/EPS $4.63bn/85c vs estimates of $4.67bn/86c. Sees Q4 EPS of 78-84c vs estimates of 89c. Disappointing numbers despite positive comments on China.

AXP American Express -1.2% after mkt. 2Q EPS Beats, Rev. Misses Est. AmEx 2Q EPS $1.15 vs est. $1.10 (range $1.00-$1.14); total rev. net of interest expense $7.97b vs est. $8.05b.

IBM +4% aft mkt Boosts 2012 Adj. EPS Forecast; 2Q Operating EPS $3.51, Est. $3.43; Boosts Yr EPS Forecast. Sees 2012 adj. EPS “at least” $15.10, saw “at least” $15, est. $15.06.

YUM Brands Misses 2Q. Adj. Q2 Sales/EPS of $3.17bn/67c vs estimates of $3.11bn/70c. Chinese costs are increasing and eating margins.

XLNX Sees 2Q Rev. BelowEst., Shares Fall 2.3%.

MLNX (Mellanox, listed on the TASE) up 48% on better numbers. It’s a leading supplier of end-to-end interconnect solutions for servers and storage systems.

Earnings were the main spark behind the climb, in particular numbers from APH, GWW, EMC, INTC, and HON.The Beige Book (out at 2pmET Wed) didn‘t change the market narrative a whole lot (the growth language moderated a bit but the more cautious tone wasn‘t too dissimilar from the latest eco figures)

CURRENT THEMES

On US Earnings
Figures for Q2 so far have been more better-than-feared than outright strong but given how depressed sentiment and estimates had become as of last week, companies don‘t have a very high bar to climb over this Q (as evidenced by the moves in EMC and SWK – both companies technically ―missed‖ the St print forecasts but ended up ~10% and ~5%, respectively).
The pain trade feels higher and the reaction to earnings so far (since the big reports started to hit Fri, earnings reports have generally been tailwinds for stocks) is scaring bears. Broader macro sentiment is cautious but shorts/sellers are nervous. However, this market still feels like it will have a hard time sustaining a big >1400 move for the time being.

On Bernanke Round 2
Chairman didn‘t really have anything too incremental to say Wed that he didn‘t already express Tues before the Senate. Bernanke did discuss the limitations of QE about 2.5hrs into the Wed testimony (these were probably the most interesting remarks of the whole House appearance): “there is a theoretical limit to QE…the Fed can only buy TSYs and agencies….and QE typically involves buying longer-term TSYs and agencies and there is a finite amount of both of those….and at a certain point if the Fed owned too much of either of those assets it could harm market functioning….

STRATEGY

GS (Weisberger) Tradewinds: Risk appetite or data appetite?
In this paper, GS looks at the performance of defensive vs cyclicals over the last few years. Defensives outperformed and this explains why GS’ wavegrowth basket didn’t perform as well as expected.
GS now presents a new model that tries to play 3 themes:
– Leverage to Growth
– Balance Sheet Quality
– Dividend Yields
It may be very surprising to some readers as these are the themes that moststrategists have been pushing this year.

ML Fund Manager Survey
Sentiment continues to deteriorate since the June survey as investor hopes for more easing have been pushed back to Q4 and growth expectations are down again.
Allocators remain UW equities and Commos and OW cash. Positioning in Energydropped to its lowest since Jan 2009.
In terms of regions, EM is the largest OW, EU a big UW and US allocation isdown too.

EUROPEAN EQUITIES

JPM European Metals & Mining (Fraser Jamieson)
Implications of negative Chinese steel margins; near-term pressure on iron ore plays
Iron ore prices have been remarkably resilient in recent months, trading in a range of $130-150/t (62% fines CFR China) despite obvious macro concerns.With our China spot steel margin calculator suggesting many small mills have recently slipped into the red, however, we are nervous around the near-termoutlook for prices. RIO is most exposed to this trend, with >85% of FY12E earnings from iron ore. However, we expect the downturn to be relatively mild and short-lived and therefore see any underperformance as an opportunity tobuild positions in RIO, which remains our key LT pick.

BARCLAYS Raised To Neutral VS Sell at Goldman on Valuation
MICHELIN PT Raised to Eu68 VS Eu64 at JPMorgan
BMW PT Cut to Eu87 VS Eu90 at JPMorgan
DAIMLER PT Cut to Eu46 From Eu49 at JPMorgan
PEUGEOT PT Cut to Eu7.9 From Eu14 at JPMorgan
PORSCHE PT Cut to Eu46 From Eu55 at HSBC, Stays Neutral
VOLKSWAGEN Prefs. PT Raised to Eu213 VS Eu206 at JPMorgan

FINANCIALS
Traders at DEUTSCHE BANK, HSBC, SOCIETE GENERALE and CREDIT AGRICOLE are under investigation for interest-rate manipulation in a global probe that led to more than $450 million in fines for Barclays last month, a person with knowledge of the matter said.
– DEUTSCHE BANK pressured to bolster capital after Credit Suisse; to cut 1,000 investment banking jobs
– STANDARD CHARTERED’s Korea unit confirms visit by regulator
– BARCLAYS Raised To Neutral VS Sell at Goldman on Valuation
– SWEDBANK CutTo Sell From Hold at SocGen

INDUSTRIAL/MINERS/SERVICES
– EDENRED 1H LFL Rev. Rises 7.3%, Up 1.9% Reported to EU511m vs. est. EU513m; 1H LFL issue growth +21.8% in Latam, +1.2% ex-Hungary in Europe, +11.7% rest of world
– BG GROUP Cut to Neutral From Outperform at Credit Suisse
– MICHELIN PT Raised to Eu68 VS Eu64 at JPMorgan
– BMW PT Cut to Eu87 VS Eu90 at JPMorgan
– DAIMLER PT Cut to Eu46 From Eu49 at JPMorgan
– PEUGEOT PT Cut to Eu7.9 From Eu14 at JPMorgan
– PORSCHE PT Cut to Eu46 From Eu55 at HSBC, Stays Neutral
– VOLKSWAGEN Prefs. PT Raised to Eu213 VS Eu206 at JPMorgan
Buy YARA, as bullish fundamentals are not reflected in share price, ING

UTILITIES/OIL/HEALTHCARE/CHEMICALS
– ALSTOM said first-quarter sales rose 6 percent to 4.78 billion euros; booked €6 billion orders, up 20% compared to the first quarter last year
– AKZO NOBEL Q2 rev. up 8% to EU4.41b vs est. EU4.3b, mainly driven by pricing actions and by favorable currency effects; 2Q adj. EbitdaEU593m vs est. EU568.5m.; Net income from continuing operations €197 million; Adj. EPS EU1.12 vs est. EU1.05; Performance improvement program ontrack; The economic environment remains the principal sensitivity in 2012; Continues to expect increased avg. cost for year due to raw materials inflation
– NOVARTIS is seen reporting lower 2Q earnings than a year earlier, Bloomberg reports; 2Q rev. $14.3b vs est. $14.3b; 2Q Core EPS $1.38 vs. est. $1.33; Keeps 2012 Sales Forecast; says it is on track to deliver 2012 outlook; sues Sun Pharma as Sun Pharma’s applications to sell generic Zometa, Reclast (zoldedronic acid) infringe U.S. patent no. 7,932,241
– VEOLIA ENVIRONNEMENT is to sell its US solid waste unit to Highstar Capital for about $1.9 billion infrastructure fund
– BP tomorrow will start a 90-day period of “good faith” negotiations with Alfa Access-Renova, Bloomberg reports
– UNIPETROL 2Q Ebit Will Be CZK550m Lower on Forex; 2Q Ebit to be negative, worse than 1Q Ebit.
– BAYER Raised To Buy VS Add at Commerzbank

TMT
– SAAB 2Q Net and Sales Beat Est.; 2Q sales SK6.23b vs est. SK6.03b.; 2Q net income SK552m vs est. SK335m; 2Q order bookings SK7.64b vs SK5.43b; Sees 2012 sales to increase slightly vs 2011; 2012 op margin seen in line with 2011 at 7.5%
– TELE2 2Q Net Misses, Sales Match Est.; 2Q sales SK11.04b vs est. SK11b ; 2Q net SK850m vs est. SK1.09b.; 2Q Ebitda SEK2.72b vs est. SK2.80b; EPS SK1.9 vs est. SK2.49; Adjusts 2012 Guidance; Swedish mobile rev. grew by 6% in 1Q vs 17% growth Y/y; Sees 2012 Swedish mobile rev. up 3%-4%;
– SANDVIK 2Q Net, Sales Beat Ests.; 2Q sales SK25.9b vsest. SK25.2b; 2Q net SK2.78b vs est. SK2.53b.; 2QOp. Profit Sk4.21b vs. Est. Sk3.96b; 2Q order intake SK26.2b; Deutsche Bank est. SK26.5b; CEO says co. enters 3Q with increased caution amid uncertain macroeconomic conditions
– FRANCE TELECOM outage cost ‘tens of millions’ of Euros, says Figaro
– NOKIA is expected to report a loss, says Bloomberg
– MEDIASET‘s Union calls for strike after cost cuts reach EU400m
– UNIVERSAL MUSIC must sell assets to buy EMI, EC Rules, Bloomberg reports
– ERICSSON Raised To Hold From Sell at SocGen
– TELIASONERA Cut to Buy VS Strong Buy at Swedbank

RETAIL/CONSUMER/LUXURY
– REMY COINTREAU 1Q Organic Sales, Rev. Beat Ests.; 1Q organicsales growth +24.4% vs. median est. 12%; 1Q total rev. EU271.6m vs. est. EU240m; 1Q Cognac organic growth 37.8% vs. median est. 21%; To propose div. of EU1.30-shr, will also propose one-time payment of EU1-shr at July 26 general meeting ; Continues to “closely monitor the evoloution” of global eco. climate, espec. eco. situation in European countries
– HERMES 2Q Rev. Beat Est. ;Rev. EU814.5m vs. Est. EU799m; Confirms FY target for consolidated rev. growth of 10% at constant FX; Sees FY underlying oper. margin between 2010 and all-time high of 2011
– ELECTROLUX sales SK27.7b vs est. SK26.6b.; 2QNetIncome Sk761m vs. Est. Sk604m; 2Q operating profit margin 4.1% vs 3.1% Y/y;Sees 2012 North Am demand flat to up 2%; sees European demand flat to down 2%
– NESTLE buys Accera stake to support Alzheimer’s Management Food
– ADIDAS Cut To Hold VS Add at Commerzbank
– BAT Rated New Overweight at Barclays, PT 3,750p
– IMPERIAL TOBACCO Rated New Equalweight At Barclays, PT 2,725p
– PREMIER FOODS PT Cut to 100p VS 250p at Morgan Stanley

SMALL/MIDCAPS
– MARINE HARVEST 2Q rev. beats est. ; 2Q rev. NK3.96b vs. est. NK3.87b.; 2Q net loss NK131.5m; 2Q operational Ebit NK231m; Raises 2012 net capex level to NK600m; Continues to see challenging mkt, at least in next qtr; Expects to harvest 380k tons in 2012, 90k tons in 3Q
– ACTELION 2Q EPS SF1.46 Vs Est. SF0.60; raises its 2012 forecast to mid single-digit profit growth
– PLASTIC OMNIUM says 1H revenue rises 18.4% to EU2.39b; share of net profit rises to EU94.7m.; Says barring any change in market conditions, co. to continue to generate positive free cash flow in last 6 months of year
– RENEWABLE ENERGY 2Q Sales NK1.987 Bln vs. est. NK1.89 Bln; 2Q EBITDA nk267m; Net debt cut to nk4.1b;
– SLIGRO 1H rev. EU1.21b vs est. EU1.22b. ; 1H Ebitda EU39m vs EU51m Y/y ; 1H organic sales growth +2.1%, 1Q +3% ; Outlook: Expect sustained pressure on sales, profit margin ; Forecast FY net profit ~EU65m vs EU78m FY11
– TOMRA 2Q Net Income NK113.3M vs. est. NK109.1M; 2Q rev nk948m vs nk952m year ago. ; 2Q Pretax Nk160.7m vs. Est. of Nk167.3m
– AVOCET’s Brett Richards Says Has Resigned as Chief Executive
– BANKINTER isto offer as much as EU50 per preferred shr, for total of EU168.2m
– DELTICOM cuts itsFY Rev. growth target to 5% vs 10%
– GIMV says that the unstable markets had negative effect on portfolio
– UBI BANCA is to cut costs by more than EU115m/year from2014
– BARRY CALLEBAUT Rated New Neutral At Goldman, PT Sf960
– DEUTSCHE WOHNEN Cut From Overweight To Equalweight at Morgan Stanley
– GENUS Rated New Buy At Goldman, PT 1,750p
­-TALKTALK Cut To Neutral VS Buy at BofAML
– ULTRA ELECTRONICS Cut To Neutral VS Buy at Goldman

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