The Dawn Patrol 02.10.12 – On China and Spain. On what the credit guys are buying. ENI by Citi.

Bonjour,

European markets to open very slightly down on the weak Chinese data and Rajoy’s Tango (or is it a Waltz?). Gold is at 1,774 the EUR/USD at 1.2890. NatGas down 0.7% and Sugar up 2.18%.. Today, we’ll watch the European PMI services, the US ADP employment and the ISM non Manf.

In the European Equities Section a brief summary of a note on ENI. I still think it’s one to hold onto. My top picks currently are: ARM, SAP, ENI (and others). I still think that Iliad will suffer from Sosh aggessiveness. I still like Dialog and Arkema needs a lower entry point… In the Long/Short space: Alstom/Siemens; RDS/Total, LVMH/PPR, Mittal/Thyssen, Vod/BT, Pernod/Diageo… Oh… Stay long GOLD…

DEUTSCHE TELEKOM confirmed late yesterday that it is holding talks with MetroPCS on a deal that would combine PCS with T-Mobile USA, leaving Deutsche Telekom holding a majority of the shares in the new company. Talks are at an early stage and the resolutions necessary to action such a deal have not yet been taken by Deutsche Telekom. Conclusion of the deal is still not certain. Bernstein says Sprint may take hostile offer of T-Mobile

Greece’s Piraeus in preliminary agreement to buy SOCIETE GENERALE’S Greek unit Geniki, Deal approvals may take 1, 2 weeks Reuters

TELEFONICA said to proceed with German IPO plans to reduce debt

Watch FIRSTGROUP shares on open-UK govt’s cancels West Coast Rail franchise award due 2 “technical flaws” way franchise process conducted

PETROBRAS plans $6bn Gulf of Mexico sale

Ups and Downs

SODEXO Raised To Outperform From Neutral at Credit Suisse. CENTRICA Raised To Buy From Neutral at Citi. SYNGENTA Removed From Europe Best Ideas List At Morgan Stanley. SMITH & NEPHEW Cut To Equalweight VS Overweight: Morgan Stanley. VOLKSWAGEN FY13-14 EPS Est. Cut 10-15% at Morgan Stanley. RALLYE Reinstated At Buy at Goldman. SANOFI PT Raised 9% to Eu75 at Barclays, Stays Overweight. REXEL Rated New Neutral At Nomura. SCHRODERS Cut To Sell From Neutral at UBS.

CURRENT STUFF

On what they are buying…
From Bloomberg: “Pimco’s $2.9 billion exchange-traded fund boosted the proportion of its corporate-debt holdings by almost 8 percentage points in three weeks by adding notes of lenders from Spain’s Banco Santander SA to Italy’s Intesa Sanpaolo SpA, data compiled by Bloomberg show. BlackRock added to its Santander holdings in the period while AllianceBernstein LP increased its allocation to bonds of Spanish lender Banco Bilbao Vizcaya Argentaria SA.” The other names mentioned are MetroPCS and Heineken on the Credit side…

On China
The purchasing managers’ index fell to 53.7 from 56.3 in August, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing today. Readings above 50 indicate expansion. This continues to show the Chinese slowdown and the slump in Demand from Europe. This index is, however, subject to seasonal distortion and is not seen as having low predicitve power…

On Spain
Spain ‘Bad Bank’ to Buy Land at Average 73% Discount according to Expansion. This is based on Oliver Wyman’s criteria and the average discount for assets ill be from 40% to 70%.
And MS thinks that Spain is likely to apply for sovereign support sooner rather than later …with opportunities to make some progress over the next several weeks Spain’s new budget measures help to satisfy most of Europe’s demands. The amount of reforms hasn’t yet reached ‘critical mass’

On Golf
Olazábal Says He’s Had Enough Ryder Cup Action. Describing the role as “torture” at times, victorious Ryder Cup captain José Maria Olazábal ruled out the possibility of staying on for the 2014 event at Gleneagles. WSJ.com http://on.wsj.com/QpXKg5

To read
On Draghi: How ECB Chief Outflanked German Foe in Fight for Euro WSJ.com http://on.wsj.com/SCO409

On the proposal by the governor of Finland’s central bank. The idea is to have different shareholders for the banking and trading activities in addition to bonus limitations and many other new rules.: Big banks face hardest hit from ringfencing FT.com http://on.ft.com/PVHaVg
On Oil: Goldman : oil could hit $130 over Iran http://on.ft.com/QJlMVr

The One Chart No Equity Portfolio Manager Wants To See http://bit.ly/RzkCLu

EUROPEAN EQUITIES

MS Europe
Best Ideas

MS is removing Syngenta following Amy Walker’s report today. While she believes the stock continues to discount overly optimistic expectations, the team’s meeting with ChemChina last week revealed no evidence of an acceleration in development of competitive low-cost generic crop protection products, in contrast to our meeting with the company in April.
The list of MS best Ideas: ARM (I like), Aviva, Continental, EasyJet, GN Store Nord, SAP (I like), Tullow.

BioMerieux SA: Downside Risks Emerging (MS, Andrew E Olanow) EW to UW, PT €62
MS’ analysis of the competitive pressure from BD’s KIESTRA acquisition and BIM’s recent FDA warning letter suggests Micro risks in 2012/13, adding to the risks from Immuno & EU exposure. MS downgrades BIM to UW on a €62 PT, based on peers’ ~2x PEG.

Smith & Nephew: Downgrading to Equal-weight (MS, Michael K Jungling) OW to EW, PT 660p to 696p
Following solid share price performance over the past 12-months, SN has approached fair value in our view, leading MS to lower our recommendation to Equal-weight. Furthermore, MS is concerned that the Hip & Knee market may slow in CY13E.


ENI (Bernstein, Oswalsd Clint) Impact of Snam Sale on Eni Valuation?

Eni has long traded at discount to European major peers because on lower returns generated from more diverse business mix, with less than half of capital employed in Upstream segment, Bernstein says. Removes discount applied to Eni in past as sale of stake in Snam will shift business mix back toward Upstream and create integrated oil & gas business much more similar to peers. Says sale also increases financial flexibility. Keeps at market perform with PT at EU20 because of lost cashflow from Snam

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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