The Dawn Patrol – 02.10.12 – My next bike, Alstom (+others) placing, Spain and Gerrmany’s tango, MS EU Strat for Q4, JPM on ENI.

Bonjour

European markets to open down. US rose on better manufacturing data, but ended off after Bernanke defended the latest round of asset purchases. Australia cut its rates by 25bp to 3.25%; AUS reaches 3 week low. Gold at 1777.45. Todday, we’ll watch the EZ PPI, the UK’s PMI construction, the ISM NY. Some may start looking for hints of the iPad mini.

my next bike.

Alstom, Erste and Brenntag placings : i) Alstom launches a €300 million capital increase via a private placement ii) Erste Stiftung sell up to 14mio shares in Erste Bank iii) Brenntag shares being offered at 99 euros apiece
Fiat Italy new car sales fall 24% in Sept (but is that new?!)
Richemont acquires two Swiss parts suppliers : Varin-Etampage & Varinor
EADS CEO Enders reckons with Make-Or-Break week for BAE merger
JPM reports banks facing worst equities trading since 2006 on mkt rally
Technip says it was awarded by Murphy Exploration & Production Company a lump sum contract for the development of the Dalmatian field, located in the Gulf of Mexico.
Samsung Galaxy tablet ban lifted
Woseley is due to announce FY results which should show a downturn in sales. The company has warned of difficult market conditions in continental Europe and Scandinavia, particularly Denmark and Finland, but good progress in the US and Canada. Consensus forecasts sales of GBP13.275bn (-2.1%); PTP of GBP592.9m (+51.7%) and adj EPS of 165.3p (+15.6%).

Biggest tech IPO since Facebook… Workday, a lossmaking US business software company, has paved the way for the biggest technology IPO since the troubled Facebook listing, as it announced plans for a stock sale that would value it at up to $3.85bn.

Ups and Downs
Infineon PT Cut to Eu5.6 VS Eu6.5 at Morgan Stanley, SYNN cut to Neutral at DB, JPM reiterate OW on ENI and EXPN, Garanti raised to Buy at Socgen, DB raise Unibail to Buy, Nomura says FTE’s dvd may be set above expectations (read the note, the analyst is really smart and he just spent a few days with the mgmt).. Bernstein watch closely KPN but still too soon to buy and reiterate OW on HEIA and like to add KGF in the dip

CURRENT STUFF

On Spain
According to Reuters, Madrid will ask for the bailout as early as next week end, but Germany says hold on, as some officials want to be able to to pass all requests for Greece, Cyprus and Spain to the Bundestag in one new law. Moody’s says Spanish banks may face a €105 capital shortfall. You can read all this by clicking on the following links:

Blame the great men for Europe’s crisis FT.com http://on.ft.com/QJ2CyL
There’s A Very Strange Report That Says Spain Is Ready To Do The Bailout, But Germany Is Holding Things Up http://read.bi/R8QTXL
Spanish banks will need up to €105bn, warns Moody’s Telegraph http://bit.ly/UD9XxI

WSJ says Spain’s banking stress tests are flawed http://on.wsj.com/VmqTvA

STRATEGY

Strategy …
CS (Garthwaite) : A consolidation phase
1. Net long positions of hedge funds are now close to a one-year high
2. US corporate and insider selling has accelerated
3. This has been the fourth longest S&P 500 rally without a 5% correction since 2002
4. Worried about event risk in the next six weeks (incl. German backtracking on ESM-funding, Catalonia elections, postponement in Trokia money release for Greece)
5. Credit spreads in Europe look optimistic

MS (Carr) European Equity Strategy
What we’re watching in Q4

MS expects investors focus to shift to the growth outlook and the main areas to focus on are:
1) Valuation & sentiment. Our sense is that positioning remains light and hedge fund leverage in Europe is comfortably below highs, while equity mutual funds still see outflows.
2) Eurozone sovereign risk and policy developments. With EU policymakers appearing less cohesive once again, it seems Europe may be moving back into the Complacency stage or potentially even the Crisis stage of the CRIC cycle (meaning Crisis, Response, Improvement, Complacency). Nevertheless, our economists expect Spain will apply for sovereign support soon, and with the ECB on standby the tail risks appear lower. Sovereign and financial spreads remain the key indicators to watch, given the correlation they show to Europe’s PE multiple.
3) Earnings outlook remains challenging. We continue to see meaningful downside to consensus expectations (we forecast -8% and +2% EPS growth in 2012 and 2013 versus consensus numbers of -2% and +12%).
4) Global growth remains in the ‘twilight zone’ So far the economic indicators remain very weak in Europe – consistent with recession – including depressed business and consumer sentiment and slowing loan growth. Having risen steadily from their June lows, the economic surprise indices have dipped again in recent weeks and the manufacturing PMI appears to have stabilized (but still in contraction territory).

Elsewhere the data suggests anaemic growth at best in the US and EM. Although the improvement in the economic surprise index has stalled, we have seen some signs of stabilization or even some green shoots in the US (regional PMIs, the Morgan Stanley Business Conditions Index, consumer confidence, ECRI, plus an improving trend in housing). We will watch closely for evidence of a more broad-based improvement. The US elections and developments relating to the ‘fiscal cliff’ will also take centre stage this quarter. A sharp tightening of fiscal policy cannot be ruled out, particularly with election indicators pointing to a split Congress once again. There is little sign of tangible re-acceleration in China yet. But there are some green shoots worth monitoring including some property and infrastructure investment indicators that hint at policy stimulus there finally getting some traction.

EUROPEAN EQUITIES

ENI (JPM, Sharma)

Good progress on restructuring agenda; remains a catalyst rich story.
ENI (AFL rated) remains one of our top picks in the European oil sector – YTD 2012, the stock has delivered +13% sector relative. We believe that despite this strong rerating, ENI still offers an attractive valuation and sector leading yield. We see the following 4 catalysts playing out over the next 12/18 months, leading the next leg of rerating for the stock: 1) Snam stake sale – completion of a c.30 % stake sale to CDP (Q4 2012) and offloading of its remaining c.20% stake (H1 2013), 2) Galp stake sale – divestment plans likely to be helped by the relative recovery in Galp’s share price; we see ENI offloading an 18% (of its 28%) stake in Galp in H1 2013, 3) Well results expected from Mozambique, Indonesia, Norway, Angola, etc. (Q4 2012/H1 2013) and 4) partial monetization of stake in Area 4, Mozambique (end 2013).

Max Kamir

Louis Capital Markets UK,LLP

Authorised and regulated by the FSA and Banque de France

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