The Dawn Patrol – 06.09.12 – On the ECB plan. Citi Quant: what works. Many recommendation changes…


European markets to open up this morning as we await the details of Mr Draghi’s plan. We’ll watch the EZ 2Q GDP (11:00), the German factory orders (12:00), the BoE MPC rates (13:00), the US ISM non manufacturing (16:00) and the jobless claims. Spain and France are to sell bonds around 10:30 and 11:50 respectively.

Moody’s adjusts Portugal’s country ceilings to Baa3

MS cuts L’Oréal from N to UW and restart coverage of GDF Suez with UW. HSBC upgrades Yara to OW, cuts PhosAgro and raises Verbund. JPM raises Derwent to OW (yesterday?), cuts Lanxess to N from OW and Johnson Matthey to N from OW. Citi cuts Geberit to S from N, Italcementi to S from N. Deutsche cuts Nokia to sell (now?). Barclays likes Coloplast (me too) and initiates Nobel Biocare at UW. Exane cuts Iberdrola to UW from N, raises Fortum from UW to OW, cuts GDF Suez to UW from N. Exane also cuts Infineon.

A point on Gold…


On the ECB plan
We’ll finally have the detail today of this much awaited plan. A lot has been leaked recently so no major news to be expected except maybe on the timing of the first intervention and some details on the collateral.
There is a(nother) very good article in the FT this morning on the subject highlighting that the ECB won’t publish any bond yield cap above which the ECB will intervene. It also highlights that it will be difficult for the countries who will benefit from the program to maintain their strict commitments to the budget controls. (ECB holds back from bond yield cap –

According to JPM, the first country to benefit could Portugal and this could be as soon as today. And here is a summary of what they say we know:
(i) the ECB will refrain from publicising any initial formal yield cap,
(ii) that bond purchases will be sterilised,
(iii) any official bond purchases will rank pari passu with private sector bond holdings,
(iv) no rate cut today.

More here: Thursday ECB Preview: Wall Street Economists Predict Bond-Buying Details – Business Insider


Citi (Montagu) Europe Quantitative Analysis
What Works in Equity Markets — Momentum – Rising Risk, To Buy or Not To Buy?
With relatively light volumes, the market move and relative sector performance indicated that investors were increasing risk, perhaps in anticipation of favourable news in September. Strong style reversals in August saw Valuation metrics lead the way (5.3%) at the expense of Price Momentum (-7.3%). Our style rotation model turned negative on Price Momentum and positive on Price/Book, Quality and Growth with a continued positive stance on Estimates Momentum.


L’Oreal (MS, Erik Sjogren) EW to UW, PT €95 to €91
Markets slowing, competition rising, valuation rich; cut to UW
Operationally, life is getting tougher for L’Oreal: end-markets (Luxury) are softening while competition (es p ecially from P&G) is set to harden, which is bad news for key growth drivers and margin progression. Add in a rich valuation, and we suggest taking profits after the stock’s strong run.

Chemicals (JPM, Neil Tyler).
H2 to see more caution after strong run – with consensus for ’13 ambitious. Downgrading Lanxess and Johnson Matthey to N, reiterate Akzo Nobel UW

September will herald the start of a spate of investor days which will focus on an optimistic mid term horizon and future secular growth trends. The risk, however is that much of the optimism is already priced-in given sector +18% ytd, outperforming other cyclical sectors such as basic materials by +37% ytd. As a result the seasonally quieter third quarter results in October and November may well inject a dose of caution ahead of a potentially weaker year-end as the focus shifts to 2013. JPM’s aggregate chemicals EPS growth for 2013E is 5%, while our forecasts are on average 5% below consensus which is assuming a 60bp margin increase in 2013 (JPMe +20bps). Consensus forecasts sector average 2013 margins to be 15.4%, around 300bps (25%) above the long-term (10-year) average (12.3%), while sector average multiples EV/EBITDA (8.5x 2012E) stand around 12% above their long-term (10-year) average (7.6x). Given strong ytd performances we downgrade both Johnson Matthey and Lanxess to N from OW. We reiterate Akzo Nobel as UW given the possibility that its much vaunted investor day in October could lack substantial detail on a new strategy. Await opportunities on market-led dips to buy preferred names Croda, Yara, and Arkema – all OW.



GENERALI renegotiates deal after partner Eliahu failed to get regulatory approval, Generali to sell 69% of Migdal at lower price, stake to be sold at EU705m, Breakup fee EU125m

SBERBANK has acquired 70% of BNP’s consumer-finance unit; BNP will continue to hold the other 30%, Les Echos

RBS Shareholder Case Dismissed by U.S. District Court, Independent

UBS Said to Seek Brazil CEO as Lywal Salles Prepares to Retire

NOMURA plans to derive almost half of $1b in savings from Europe, where it will cut jobs for managing directors, back-office staff, two people with direct knowledge of the matter said.

Citigroup to Open Commodity Trade Finance Unit in Europe: FT

– SCOR says operational performance consistent with 3-yr strategic plan objectives in statement for annual investor day held today.


BARCLAYS cut to neutral from outperform at Credit Suisse



GLENCORE XSTRATA Still At Impasse Over Price, WSJ. Qatar is in profit on the ~282m Xstrata shares acquired since publicly announcing its investment under the terms of Glencore’s offer it currently opposes, according to data compiled by Bloomberg.

– RIO TINTO’s Soral, St-Jean Assets Under Review, JPMorgan Says, The two aluminum assets under review as Rio estimates 25% of smelting capacity outside China is loss- making at current prices, input costs, JPMorgan says in note dated yesterday, citing analyst briefing with Rio Tinto Alcan CEO Phillip Strachan.

MAERSK Wants Higher Asia-Europe Freight Rates, Borsen Reports, rates should increase by $500 per 20-ft container, Lars Mikael Jensen, head of Asia-Europe route for Maersk, says according to Borsen.


ARCELORMITTAL PT Cut 14% to Eu12 at Exane; Kept at Neutral

ASSA ABLOY Raised To Buy From Neutral at UBS

ABB Raised to Buy From Neutral at UBS

SKF Raised to Buy From Neutral at UBS

– Southern Cement Cut To Sell VS Neutral at Goldman

OUTOTEC Cut To Sell From Neutral at UBS

METSO Cut To Sell From Neutral at UBS

ALSTOM Cut To Neutral From Buy at UBS

Italcementi Cut To Sell VS Neutral at Citi

Geberit Cut To Sell VS Neutral at Citi

RANDGOLD RESSOURCES Raised to Overweight at JPMorgan

BHP Billiton PT Cut 5% to 1,800p at Exane; Kept at Neutral



SOLVAY to invest more than 10 million euros to double capacity for specialty fluorinated alipatic derivatives at its plant in Salindres, France.

– Hit Gas Plant Profitability Will Suffer Underestimated, Consensus largely underestimates hit taken by European gas plants as result of surge in renewables, weak trends in electricity consumption, Exane says.

MERCK KGaA Buys Global Rights to Phase 2 Oncology Drug Candidate, treatment is for patients with advanced KRAS wild-type metastatic colorectal cancer who have previously progressed with standard chemotherapy and anti-EGFR monoclonal antibody


GDF Suez Cut to Underperform From Neutral at Exane

GDF Suez Restarted Underweight at Morgan Stanley, PT Eu18.5

– Nobel Biocare Rated New Underweight At Barclays; PT Chf7.30

– A2A Raised to Neutral From Underperform at Exane

– FORTUM Raised To Outperform From Underperform at Exane

-IBERDROLA Cut To Underperform From Neutral at Exane

– Johnson Matthey Cut To Neutral From Overweight at JPMorgan

– LANXESSCut To Neutral From Overweight at JPMorgan

– Novo Nordisk Raised To Neutral From Reduce at Nomura

Verbund Raised To Neutral From Underweight at HSBC

YARA Raised To Overweight From Neutral at HSBC



– FRANCE TELECOM, Orange Spain Hints Interest in Buying Yoigo, Economista Reports

– PROSIEBENSAT plans to expand its digital business by forming a joint venture called Covus Ventures, Handelsblatt says. Digital sales at ProSieben grew 40% to more than EU140m in 1H, business is highly profitable


NOKIA, Cut to Sell from Hold at Deutsche Bank, Cites slow smartphone recovery, rising mobile phone risks, PT lowered to EU1.6 vs EU1.7

NOKIA Cut To Sell VS Hold at SocGen

INFINEON Cut to Neutral from Outperform at Exane



NUTRECO Extends EU500m Loan Facility From May 2014 to Sept 2017

LUFTHANSA to Cancel a Majority of Flights on Sept. 7 on Strike

AER LINGUS Says August Passenger Numbers Rise 2.2%

– IAG Seeking New Partner As BA-Qantas Deal Ends, Telegraph, British Airways, part of the International Consolidated Airlines Group, is talking to prospective new partners as its 17-year alliance with Qantas ends, the Daily Telegraph reported, citing CEO Willie Walsh.


L’OREAL Cut To Underweight VS Equalweight at Morgan Stanley

H&M PT Cut to SK245-Shr at Deutsche; Reduces 3Q EPS by 2%, Cuts 3Q eps to SK2.29 vs est. SK2.59 on lower gross margin LFL sales.

– Citigroup Keeps Positive View on Luxottica; Shrs Structural Buy

Dairy Crest Raised To Neutral From Underperform, Credit Suisse

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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