The Dawn Patrol – 30.07.12 – On the ECB. The JPM View, GS on the ECB, MS on the Fed, JPM UW Cyclicals Europe. Results and more…

Aloha,

Markets should continue on the uptrend as expectations are building up ahead of the ECB meeting (and the Fed). The Spanish auction on Thursday will be important to watch too. On today’s menu, we have some Italian aucitons,  Spain Q2 GDP, Euro Zone consumer confidence and Dallas manufacturer survey. I don’t know what the highlights are for the Olympics.

MS and Barcap reiterate OW on RNO, Barcap like BT and keep UW rating on BELG and PSO, ING d/g SYNN to Sell, JPM reiterate OW on Sanofi and Compass, GS pushing Outotec and Saft, CS keep UW stance on STL, Atos raised to Buy at UBS.

AB Inbev is the focus of two notes:. One by Citi: Mexico? Way to go worth looking at (PT €63 to €77). And one by MS: Commodities unlikely to ba anissue in 2013.

RESULTS

Air France-KLM 2Q loss narrower than est.; 2Q Rev EU6.5b vs. est. EU6.45b; 2Q operating loss Eu66m vs. est loss Eu163m ; takes 2Q restructuring charge of EU368m, derivatives charge of EU372m; Outlook: Bookings for the summer season are positive; 2H should benefit from Transform 2015 restructure plan; Aims to generate 2H operating result above yr-earlier EU195m, on track to reduce debt y/y

Air Liquide 1h Rev EU7.53m vs est. EU7.55b ; 1h Recurring Ebit EU1.24b vs est. EU1.27b ; 1h net income Eu790m vs. Est. Eu792m ; Engineering & construction rev. EU365m ; Americas EU1.52b (+6.9%) ; Asia-Pacific EU1.68b (+1.2%) ; ME & Africa EU173m (+19.9%) ; Reiterates aims for growth in net profit in 2012 “barring a major downturn in the economic situation”

JCDecaux says that 2Q organic growth is slightlyl than expected; 1H rev. up 6% to EU1.24b vs Berenberg, Deutsche Bank est. EU1.22b; 1H Ebit down 2.3% to EU133.3m; 1H net income falls 13.4% to EU82.4m vs Berenberg est. EU88.8m; says 2Q organic growth was “slightly lower than expected” with most European markets down; Asia-Pacific, rest of the world continued to post double- digit growth.; Sees 3Q organic rev. growth “broadly in line” with 2Q, amid rev. decline affecting Germany, other northern/eastern countries

Reckitt Benckiser 2Q Lfl Ex-Pharma In-Line ; 2Q Lfl sales ex-pharma +4% vs est. +4% ; 2Q rev. GBP2.31b vs est. GBP2.39b ; 1h Net 779m Pnds vs.Est. 770m Pnds; 1H adj. EPS 111.1p vs est. 111p; Reiterates 2012 target of lfl growth 200bps above market growth rate of 1-2%; Div 56p-shr; BDVD forecast 57p

CURRENT THEMES

On the ECB
Read below for what GS expects. Otherwise, the goal of any measure to be announced Thursday is to help lower the yields on Spain and Italy. The press expects Draghi to announce that the EFSF will be able to buy govt bonds. Apparently Merkel and Monti would back Mr Draghi to do anything to save the Eurozone. And Juncker said: “I don’t want to fuel expectations but I have to say we have reached a decisive point.”

STRATEGY

JPM (Loeys) The J.P. Morgan View
Why so low?

Good question… Why are economic growth, trading volumes and market volatility so low? On growth, the explanation may have been explained by Reinhard and Rogoff (ie we’re still in the B/S reconstruction). The rest is due to uncertainty.

· Asset Allocation –– Stay long better yielding bonds and defensive equities.
· Economics –– Activity data support a bottoming in global growth, but show so far little sign yet of the expected lift in H2.
· Fixed Income –– Any ECB bond buying likely a temporary respite.
· Equities –– Still widespread skepticism and negativity suggest short covering has further to go in equities. Europe benefits the most from this short covering.
· Credit –– Taxable US munis offer spread pick-up amid the dash-from-cash.
· Foreign exchange –– Moderate USD strength in Q3.
· Commodities –– The poor outlook for agriculture production across the globe raises the risk of a reversal in the recent downtrend in EM inflation.

JPM reiterates its strategy with a focus on mid-risk assets, trying to get something between cash/govies and cyclical equities. So still focusing on high yield bonds, EM bonds and defensive high dividend equities.

GS (Pill) European Views
We Forecast that the ECB will permit NCB purchases of private sector Assets.
This is something to read, better than my summary:

– If Spain asks for EFSF support ahead of Thursday’s meeting, GS believes the ECB could buy gov. debt via the SMP which would clearly accelerate the processus. BUT Spain is funded until October, and it will require many conditions.
– The ECB may therefore disappoint… We could then see further easing of collateral eligibility, longer LTROs… but this is anticipated and may diappoint as well and may not be that effective…
– Given Draghi’s tone on Friday, GS thinks there could be something different: measures to enable the NCBs to purchase private secor assets to implement credit easing (under some conditions, obviously).

MS (Hornbach) US Interest Rate Strategist
Fed to Disappoint.

Hornbach is focused on financial conditions. You can read a summary on the link below.
We assign a 20% probability to FOMC action on August 1. Our Financial Conditions Index (FCI) shows only slightly tighter levels relative to the June 19-20 FOMC meeting. We expect the FOMC will require much tighter financial conditions relative to the June 19-20 FOMC meeting before deciding to implement another “substantive” program.

Read more: http://www.businessinsider.com/morgan-stanley-ben-bernanke-financial-conditions-2012-7#ixzz2259pKR6F

JPM (Matejka) European Equity Strategy
Stay the Course – Key call remains Underweight Cyclicals.
Equities keep oscillating between the poor macro/earnings reality and the hope that the next policy delivery will finally mark a sustainable turning point. Our view remains that ESM getting a banking license would be a crucial positive, but that most other initiatives would likely fall short. We advised closing shorts on Europe vs the US two weeks ago, but unless we see a decisive policy action soon we fear this bounce will again become a great opportunity to put on new shorts.

OTHER STUFF

Blackrock : WhatsAhead Predictions for 2012 http://t.co/12Hj65QZ

Medals Count:

EUROPEAN EQUITIES

FINANCIALS

News

– European banks are reducing their €1tn of impaired loans, with a record volume of debt sales to other financial institutions and funds this year. A PwC report says European banks sold loans with a face value of about €27bn in the first six months of 2012, while last year’s total of €36bn had itself been a record year, the FT reports

– U.K. Chancellor Osborne orders a fast review of Libor issues; he wants the order to be completed within weeks, which would clear the way for reforms to the setting of interbank rates, FT reports.

Royal Bank of Scotland is warning that it faces a further hit to its reputation – and a huge fine – from the Libor scandal, Bloomberg reports

AVIVA is preparing to sell its U.S. life insurance Unit after receiving offers from financial companies and private-equity buyers, Bloomberg reports

Credit Suisse issues solicitation for N.Y. office space, WSJ reports; The company says that the balance of CHF64m Mandatory and Contingent Convertible Securities purchased by strategic investors.

ING becomes first large Dutch bank to process retail equity orders outside NYSE Euronext exchange

Intesa holders study changes as shareholders weigh giving more powers to CEO Enrico Tommaso Cucchiani, Bloomberg reports

Reco

Banco Popolare Cut To Neutral From Buy at BofA

Barclays Raised To Buy VS Hold at SocGen; Nomura keeps Barclays at reduce on potential negative catalysts

SCOR is on track to achieving its targets for full year, says Nomura

INDUSTRIAL/MINERS/SERVICES

Results

Air France-KLM 2Q loss narrower than est.; 2Q Rev EU6.5b vs. est. EU6.45b; 2Q operating loss Eu66m vs. est loss Eu163m ; takes 2Q restructuring charge of EU368m, derivatives charge of EU372m; Outlook: Bookings for the summer season are positive; 2H should benefit from Transform 2015 restructure plan; Aims to generate 2H operating result above yr-earlier EU195m, on track to reduce debt y/y

GEA 2Q Rev. Misses, Net Beats ; 2Q rev. EU1.39b vs. est. EU1.43b ; 2Q order intake EU1.4b ; 2Q Ebit EU111.9m ; 2Q net EU72.8m vs. est. EU71.8m ; 2Q EPS 40c vs. est. 37c ; Reiterates 2012 sales, order growth of at least 5%, oper Ebit margin at least at 2011 level of 9.7%

Ryanair 1Q Profit, Rev. Miss Ests.; 1Q Rev. EU1.28b vs. est EU1.31b ; net Income falls to EU98.8m vs. est. EU106m ; Says fuel costs rose 27%, cut EU40m in profit; offset 6% traffic growth, 4% avg fare rise; Outlook: ‘Cautious;’ reiterates May 21 outlook for FY net EU400m-EU440m; expects positive yields in 2Q

Umicore 1H Ebit Ex-Items Misses ; 1H Adj. Ebit EU192m vs est. EU210.3m ; 1H div. EU0.50-shr vs BDVD forecast EU0.45-shr; sees FY year recurring Ebit in lower half of prev. range of EU370m EU410m.

News

BOEING’s787 Dreamliner was undergoing preflight runway testing yday in North Charleston, S.C., when the engine dropped metal debris on the runway and caused a fire nearby

BHP Billiton will delay a decision on proceeding with its Olympic Dam copper-uranium mine expansion until 2014 because of rising costs and slowing commodity markets

Glencore saysthat the July 30th meeting of holders of Viterra’s outstanding 6.406% Senior Unsecured Notes due February 16, 2021 has been canceled.

Lufthansa’s Austrian Air is to invest €80 million in an airplane revamp, Bloomberg reports

ThyssenKrupp will overcome its difficulties by itself and won’t combine with Siemens as long as Gerhard Cromme is chairman of both companies, Bloomberg reports

Reco

Atos Raised To Buy VS Neutral at UBS

Henkel Cut To Hold VS Buy at SocGen

Saint-gobain PT Cut 9% to Eu31 at Exane; Kept at Neutral

Syngenta Cut To Sell From Hold at ING

UTILITIES/OIL/HEALTHCARE/CHEMICALS

Results

Air Liquide 1h Rev EU7.53m vs est. EU7.55b ; 1h Recurring Ebit EU1.24b vs est. EU1.27b ; 1h net income Eu790m vs. Est. Eu792m ; Engineering & construction rev. EU365m ; Americas EU1.52b (+6.9%) ; Asia-Pacific EU1.68b (+1.2%) ; ME & Africa EU173m (+19.9%) ; Reiterates aims for growth in net profit in 2012 “barring a major downturn in the economic situation”

News

NOVARTIS’ drug afinitor approved by EC to treat breast cancer

SHIRE is seeking to move into Gene Therapy, the WSJ says

Reco

AKZO NOBEL cut to buy vs. hold at ING

EDP PT Cut 5% to Eu1.8 at Exane; Kept at Underperform

Endesa PT Cut 8% to Eu14.4 at Exane; Kept at Neutral

Galp Energia Raised To Outperform VS Underperform at Macquarie

TMT

Results

JCDecaux says that 2Q organic growth is slightlyl than expected; 1H rev. up 6% to EU1.24b vs Berenberg, Deutsche Bank est. EU1.22b; 1H Ebit down 2.3% to EU133.3m; 1H net income falls 13.4% to EU82.4m vs Berenberg est. EU88.8m; says 2Q organic growth was “slightly lower than expected” with most European markets down; Asia-Pacific, rest of the world continued to post double- digit growth.; Sees 3Q organic rev. growth “broadly in line” with 2Q, amid rev. decline affecting Germany, other northern/eastern countries

News

Tele2 may seek access to Hutchison’s network as virtual operators

Telekom Austria says that Slim is satisfied with 214% and that it is still in “trial period” with Slim’s America Movil, CEO Hannes Ametsreiter says

UNIVERSAL MUSIC said that it was to sell EMI Classics, Parlophone parts, to address European antitrust concerns over its takeover.

Reco

Infineon Cut To Hold VS Buy at Jefferies

Mediaset PT Cut 20% to Eu0.8 at Exane, Kept at Underperform

Telenet PT Raised 3% to Eu36 at Exane, Kept at Neutral; Earnings growth are to accelerate, ING Reiterates Buy

RETAIL/CONSUMER/LUXURY

Results

Colruyt Fiscal 1Q Sales Meet Estimates as Retail Growth Slows; 1Q rev. EU2.05b vs est. EU2.05b; Retail unit 1Q rev. EU1.55b vs est. EU1.56b; Wholesale & foodservice 1Q rev. EU348.2m vs est. EU332m; Other activities 1Q rev. EU181.6m

Reckitt Benckiser 2Q Lfl Ex-Pharma In-Line ; 2Q Lfl sales ex-pharma +4% vs est. +4% ; 2Q rev. GBP2.31b vs est. GBP2.39b ; 1h Net 779m Pnds vs.Est. 770m Pnds; 1H adj. EPS 111.1p vs est. 111p; Reiterates 2012 target of lfl growth 200bps above market growth rate of 1-2%; Div 56p-shr; BDVD forecast 57p

Reco

Danone PT Raised 8% to Eu54 at Exane; Kept at Underperform

Imperial Tobacco Removed From UBS’s European Key Calls List

Morrison, Tesco, Sainsbury Cut To Underweight at Santander

SMALL/MIDCAPS

Results

Dufry 1H Rev. in Line, Ebitda Beats; 1H rev. SF1.52b vs. est. SF1.51b. ; 1Q Ebitda SF220.1m vs. est. SF216.5m ; 1H net SF62.3m vs. est. SF66m ; 1H organic growth 7.5%; 1H LFL growth 4.9%; 1H gross margin 58.8%; Sticks to $25m synergy target by 2013 from acquisitions; Sees S/T intl passenger growth at 4%-5%

Eramet 1H Sales EU1.735b ; 1H Ebitda EU204m; 1H Net EU21m; says nickel prices remain particularly low in early 2H; 1H results affected by non-recurring technical incidents in Gabon; Sees alloys inventory reduction by year end

Eiffage 2Q Rev. EU3.58b vs. EU3.62b Y/y ; Rev. excludes concessions construction, which rose to EU55m vs. EU46m Y/y

News

Aer Lingus and Etihad agreed on a code-sharing deal, Bloomberg reports

BANCO COMMERCIAL has a portuguese government debt portfolio of EU4.7 billion; the company says that it will continue to ‘moderately’ buy portuguese government debt

Bank Sarasin said that all the necessary approvals from supervisory authorities have been obtained, clearing the way for Safra Group to acquire a majority stake

Econocom Group Chairman & Chief Executive sold 850,000 shares for €17 apiece in a block trade on July 25

ESPIRITO SANTO says that it plans to issue bonds guaranteed by the state.

Reco

FCC PT Cut 31% to Eu10 at Exane; Kept at Neutral

Homeserve Raised To Neutral VS Sell at Citi

LISI Raised to Buy from Hold at Societe Generale

Lottomatica Cut to Hold from Buy at Fidentiis

Outotec Cut To Neutral VS Buy at Swedbank

Recordati PT Cut 14% to Eu6 at Exane; Kept at Underperform

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