The Dawn Patrol – 13.09.12 – Apple (key takeaways). EADS and BAE. Hilsenrath on the Fed options. MS on chemicals.

Witaj,

European markets flat at the opening, positive sentiment remains following the German court decision and the Dutch election results in favour of the pro European party. Today, we’ll ask our colleagues who is going to buy the new iPhone and we’ll wait for the FOMC rate decision. In the meantime, we’ll glance at the US PPI, jobless claims and new housing price index. Italy is selling some €7bn bonds around 11:00. We’re still missing Xi Jinping…

APPLE (up 0.3% after hours and up 1.4% during market hours). Yes, we all knew exactly what would be announced. Yes, the Samsung offering is great too. Yes, it’s just another iPhone and there is nothing really new about it… BUT if you look at the details, it’s a really well crafted accessory, it really looks much better than the iPhone 4/4s. As Jony reminds us in a short video, think about the time you spend with your phone. Will people upgrade? There is no reason to upgrade every year. It still just makes calls, lets you browse the internet, reply to some mails and kill pigs with birds. It’s not so much about the features and the differences with the iPhone 4s. It’s really about the design, the speed and the camera. Also, it seems that this time Apple has plenty of inventory to flood the market and to supply all that demand. Yesterday I said I wouldn’t get one. Now I will. And I will let you know if I buy the shares again….

ARM seems to be a clear winner from this announcement. MS highlights that the new iPhone has more ARM content and should come with higher ASPs. ARM is good. Buy ARM.
DLG: couldn’t find anything relevant post the event, but looking at analysts iPhone sales forecasts for the Dec quarter to reach between 40 and 58m units versus 22m-25m units in the Sept quarter…

EADS and BAE. Apparently the details of the deal have been discussed over sandwiches (and beer?) at the London Airport. Why? It would give EADS a better access to the US defence market and would give BAE a better balance of civil aeropspace business. There should be some clear cost synergies but will be a nightmare company to run. It’s already hard for Enders to negotiate with his colleagues, adding a layer of politics may rebuff investors. Also, it dilutes the Airbus story.

Ups and Downs
EADS removed from Citi’s focus list and BAE cut to sell at SG… GS raises PORSCHE to Buy from N, cuts VALEO to N from Buy. CS raises EIFFAGE to OW from UW, cuts SEB (bank) and NORDEA.

CURRENT THEMES

On the Fed
In the WSJ, Jon Hilsenrath (Bernanke in disguise) is telling us what to expect from the Fed meeting and the key issues the Fed is facing. Should there be another QE, the haws would want the ability to stop the program as soon as the economy picks up, so 4 months period to buy a certain amonut of bonds could be the solution.
QE Strategy:
More bond buying. Already at $45bn per month in long term treasuries through operation Twist with $267bn remaining for 2012. The Fed could double this size to $90bn. QEII was $75bn. The first round of mortgage and treasury purchases in ’09 represented $140bn a month and the Fed won’t do that much.
What to do with twist
The Fed could replace the Twist with a new bond buying program with fundin from the money printing machine rather than selling short term securities. Or continue with operation Twist and add mortgages which would be funded with newly printed money. Inflation and public backlash are the two risks.
Communication
Target or no taget. As we all know GS wants a target, and the article cites a paper by Michael Woodford which goes into this direction as well.
Whether to lower another rate
The Fed could lower the the excessive reserves rates, but many Fed officials are reluctant to do so… Not clear.

(Four Things to Watch at Fed Meeting – Real Time Economics – WSJ http://on.wsj.com/OIsaJ1)

On the fiscal cliff
A bipartisan group of senators is negotiating a roughly $55 billion debt “down payment” that would temporarily turn off automatic spending cuts and buy Congress at least six months to work out a bigger deal”. The bipartisan group faces several hurdles, most notable whether any tax increases should be included in the $55B package

Congress seems far apart on finding a solution to the “fiscal cliff” according to CNBC House Speaker Boehner echoed that sentiment, saying he was “not confident at all” in the possibility of a deal being struck.

EUROPEAN EQUITIES

ARKEMA
I’m still fond of the company. They deliver. The stock rallied on bids speculation, on the successful restructuring story and on the European chemical bull run. Is there still much to go? Certainly, as most analyst find the company to be cheap. However, it’s reaching its previous tops and unless the management delivers some amazing news on the 18th of September, I think the stock is due for a pause.

European Chemicals (MS, Walsh).
What Comes After an 8-Year Bull Run in European Chems
The pan-European chemicals sector is riding high after an 8-year bull run of relative outperformance, the likes of which hasn’t been seen in 4 decades. We think this purple patch may struggle to continue unchecked and suggest equity investors take a more selective approach to the sector.

“We reiterate our OW calls in Lanxess and Solvay. Both can surprise on medium-term growth versus consensus, and valuations remain cheap. We explore why our analysis challenges our UW calls on Syngenta and JM, but continue to highlight DSM as a key UW due to likely pressure on returns from its acquisition strategy.”

FINANCIALS

RESULTS

BNP details 5-Year Plan to Expand U.S. Wealth Management

Reco

NORDEA cut to ‘Neutral’ from ‘OP’ at CS

SEB cut from CS’s focus list

Banks sector valuation reflects tough fundamentals, Nomura

INDUSTRIAL/MINERS/SERVICES

NEWS

EADS: BAE would own 40% of merged company, EADS would own 60%; EADS says potential combination subject to board approval.

BOEING CEO says deal would make EADS ‘a little more like us’ and wouldn’t ‘threaten us fundamentally’

DCNS in which THALES has a stake in pole position for €2b contract, Tribune says

LAGARDERE wants to Ensure All EADS-BAE Consequences Considered

DASSAULT AVIATION to Renegotiate Profit-Sharing Plan: Les Echos

NISSAN sees mediocre Years in Europe, Rules Out ‘Armageddon’. Carlos Ghosn said he expects Europe’s automobile industry to take many years to recover from shrinking demand and excess capacity.

DAIMLER pinning Smart Recovery on Electric at Lowest Price: Cars

ABERTIS plans First Debt Sale Since 2009, Expansion Says

Aluminum Prices Pushed Higher by Investment Bank Speculation: FT

Reco

EADS removed from Citi’s Europe focus list; PT cut to €27 vs €40 at Citi

BAE cut to ‘Sell’ from ‘Hold’ at SG

PORSCHE raised to ‘Buy’ from ‘Neutral’ at GS

UTILITIES/OIL/HEALTHCARE/CHEMICALS

News

GLENCORE: Hermes Equity Advises Clients to Vote Against Glencore Deal: FT

SANOFI wins U.S. Approval for Daily Pill Aubagio to Treat MS

BHP, RIO Profit to Be Little Affected by Queensland Royalty: UBS

France Ready to Open Door to Shale Gas Exploration, Figaro Says

RECO

NOVOZYMES rated ‘New sell’ at Citi, PT Dk 140

TMT

News

SAP’s 60,000 Employees May Get iPhone 5, CIO Says: WSJ

Reco

WPP raised to ‘Hold’ from ‘UP’ at Jefferies

RETAIL/CONSUMER/LUXURY

RESULTS

NEXT 1H Pretax GBP251m, Analyst Est. GBP241.5m

News

NESTLE says slowing Chinese Economy hasn’t Hurt Business

HEINEKEN says It will review THAI BEV and CHAROEN’s Bid ‘Carefully’

Reco

BEIERSDORF PT Raised 2% to Eu63 at Exane; Kept at Outperform

DE MASTER BLENDERS rated New Overweight at HSBC, PT Eu11.30

SMALL/MIDCAPS

NEWS

TALANX cancels IPO after investor feedback missed expectations

Reco

VALEO cut to ‘Neutral’ from ‘Buy’ at GS

EIFFAGE raised to ‘OP’ vs ‘UP’ at CS

VINCI cut to ‘Neutral’ From ‘Buy’ at BofA

ZODIAC raised to ‘Hold’ from ‘Sell’ at SG

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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