The Dawn Patrol – 05.09.12 – LCM’s strategist on H2. Chinese PMI. GS: buy S&P puts. A look at global PMIs. SAP, COLT, ANDRITZ. And other stuff.


European futures indicated flat. US markets finished higher on the confirmation that despite the global crisis, millions of people will be able to get a new iPhone on the 12th of September (and maybe an iPad mini) and also on Bill Gross’ tweet (”Gross: Draghi appears willing to write 2-3 year “checks” to peripherals. Very reflationary. Buy gold, TIPS, real assets.”. Today, we’ll monitor PMI services in Germany and Grance and Europe (10:00), EU retail sales (11:00); Schaeuble’s speech at a banking conference in Munich.

Ups/Downs : Debenhams cut to EW from OW at Barclays whereas Legrand and Asos raised to OW – E.ON moved to Key Pick List at DB – BHP and XTA rated O/P at Bernstein – STM cut to Sell at UBS – MS has a tactical Buy on SAP – Citi initiate Buy on Colt and reiterate Buy on ABB ahead CMD – JPM on Telecoms : upgrade BT and Telia from N to OW, and downgrade KPN, TKA and PT to UW.

Check below in the European Equities section for some stocks recommendations that make (or still make sense): SAP, COLT, Andritz

Pour les francophones: regardez le documentaire passé hier sur Arte:


LCM REPORT. H2 Outlook.
Political Cliff (elections, debt) Global markets will get hit with 3 major US political events in Q4; US Presidential elections, debt ceiling and fiscal cliff.
Fiscal cliff is expiration of major tax cuts and start of large Govt budget cuts by year-end that cuts 4.5% from 2013 GDP; risking recession next year. Consensus expects DC to strike deal before year-end to thwart fiscal cliff but we believe Congress may not be able to.
Aggregate polls tell us Obama most likely to get reelected but Republicans win majority in Congress. If so, Republicans can use that majority next year to coerce Obama into more favorable deal with debt ceiling as bargaining tool. US hits debt ceiling in December but can postpone default until March,meaning three months political brinkmanship until last minute deal on Fiscal Cliff in March. Treasury issuance thus slows down to trickle by year end. Accordingly rates will contract across curve (ETF: TLT, IEF) and combined with expiring “Operation Twist” and FDIC insurance may even push s/t rates into negative (ETF: SHV).This is positive for gold (GLD) but negative for financials (XLF). Risk of expiring tax cuts may weigh on high dividend stocks (ETF: SDY).
Lots of events in Europe as well: Sept 12 one of most important days; Dutch elections and German Constitutional Court decision on ESM. While approval is likely , it could attach stringent conditionality to German participation in ESM, thereby complicating ECB bond market intervention.

On China
The HSBC Services PMI drops to 52 for August from 53.1. It’s a 12m low for new orders.


(had to copy paste…)

GS (Kaiser) US Equity Views
Policymakers face hard work post Labour Day

Market expectations are high ahead of key ECB and FOMC events in September. Our conversations with clients suggest investors anticipate decisive ECB action such as target yield and/or spread levels for Europe sovereigns and announcement by the FOMC of another round of asset purchases (QE3). Both outcomes are more positive than our base-case for those events, suggesting risk following a strong rally since June. Short-dated options provide clues to market pricing of upcoming events. We recommend buying S&P 500 puts expiring 14-Sep to cover key policy dates.

JPM (Hensley) J.P.Morgan Global Manufacturing PMI
Down again in August
Our global manufacturing PMI fell for a fourth straight month in August, losing 0.3 points to 48.1. The best that can be said about this month’s survey is that the rate of deterioration slowed. The PMI production index dropped 1.4 points to 47.4, consistent with a significant contraction in output of about 4% annualized. The index of employment was little changed at 49.6.

GS (Wilson) Global Leading Indicator
August Final GLI – In Recovery, but only just

Our August Final GLI Headline is –0.2%yoy, down from last month’s revised reading of –0.1%yoy. Momentum increased fractionally to -0.24% mom from July’s revised reading of -0.25%mom. This increase in Momentum reverses the deterioration in recent months, and is a tentative indication of a positive turn in the global cycle. The Final GLI showed a similar move to our more US-focused Advanced reading for August. However, the increase in Momentum is muted in comparison, suggesting that much of the recent uptick is related to a slight bounce in US data.


SAP (MS, Adam Wood)
Big Data opportunity drives EUR75 bull case

OW, PT €60 to €61 | Added to MS BEST IDEA | Positive RTI
We expect SAP to benefit from accelerating growth in data technology spend. HANA & Sybase drive our above-consensus base case EPS forecasts, and we set a new €75 bull case. We see a ‘blue sky’ HANA scenario that could drive >20% EPS growth for SAP, which we believe would see the shares over €80.

European telecoms (JPM, Akhil Dattani)
Cash flow and credit rating considerations remain key to relative stock performance

Telcos have underperformed 7% YTD: In-line with the conclusions of our Sept 2011 “Safe Haven or Siren?” report, negative forecast revisions (sector EPS -6% YTD) and credit rating pressures have driven 8 out of 16 incumbents to cut dividends. The sector yield has fallen from 9% (2011) to 6% (2013E). Even on rebased 2012 estimates the sector’s valuation seems attractive; however, we see risk to future FCF and dividend assumptions. Within the framework of relative forecast, credit rating and dividend risks and a FCF/EV focused valuation comparison; we upgrade BT and Telia from N to OW, and downgrade KPN, TKA and PT to UW.

Colt Group SA (Citi, Simon Weeden) Foundations for growth
Initiate with Buy

Colt’s repositioning is showing increasing success. We see the name as likely to deliver improving growth and margins and representing an interesting take-out play with a well developed and differentiated position in a rare growth category in the sector. We initiate with a Buy rating and a £1.50 target price.

Andritz AG (Citi, Alex Atienza) — Industrial Excellence and Sustainable
Growth – Initiate with Buy

Andritz as a leading global supplier of equipment for the hydropower, pulp, wastewater treatment, autos and metals & mining sectors. It has an impressive track record with EPS growing at a 20.3% CAGR in 2001-11 (half of which organic), and we expect EPS CAGR of 11.3% over 2011-14E (2/3rds organic). We believe its 9% EV/EBITDA premium to the sector is justified on its superior growth, balance sheet strength and market positioning and initiate coverage with a Buy and a target price of €47.6/share.

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

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


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