The Dawn Patrol – 31.10.12 – On Greece, UBS and China. GS thematic piece on Europe.

Wassup,

European markets indicated flat following a very quiet day with very low volumes as Sandy quietly made her way though NY. Asia slightly better following statements from the BoJ and the Japan govt stating their will to fight deflation. Gold up to $1712.09 ans EUR USD worth 1.2962. Today we’ll watch what news comes out of Greece, the German retail sales, EU CPI and in the US the MBA apps and the Chicapo Purchasing Managers index. Lots of results to come in again today and France and Germany will sell bonds.

EU Earnings : INBEV 3Q Ebitda inline and rev. growth beat exp (9.1% vs 7.5%), GSZ confirms FY targets, MITTAL 3Q Net a touch ahead with dividend cut to 20c/pref share, AIRFRANCE 3Q profit beats & 2H outlook maintained, LUFTHANSA well ahead and CLARIANT & FRESENIUS MEDICAL missed, DIALOG SEM inline. BBVA report slightly below consenss & bad loan ratio keep increasing ( 4.8% vs 4%). LONZA to cut 500 jobs in total, delivers solid performance in Q3, confirms ’12 forecasts, to deliver social plan in November, says Microbial to deliver $50ln synergies end of year 2, mid term objectives ’15 confirmed.

Disney is buying LucasFilm for $4bn. It plans to release a new Star Wars film in 2015, and another film in the series every two to three years after that.
France is seeking for Belgium to contribute more than 50 percent of the planned capital increase of Dexia, which would amount to between 5 billion euros and 7 billion euros in total – Les Echos
LVMH : The Daily Mail says the company mulled a bid for Burberry but has instead decided to launch a cash bid for the outstanding 29% minority stake in Dior “at a substantial premium to the current price of EUR110”
ARM is to keep ahead of Intel by launching processors that will power a new generation of “superphones”. The Times
President of Potash Corp. met with Israeli Prime Minister Benjamin Netanyahu to seek permission to acquire 100% of Israel Chemicals – Calcalist

UPS & DOWNS

BNP Removed from Conviction Buy List at Goldman; Kept at Buy
FIAT PT Cut to Eu2.45 VS Eu3 at BofAML; Kept at Underperform
GEBERIT Cut To Hold From Buy at Berenberg
PPR Luxury Unit Undervalued, Nomura Says; Raises PT
SOLVAY Raised To Hold From Sell at ING ; Solvay PT Raised to Eu100 VS Eu80 at ING
Stay Underweight FIAT On Plan to Move Up-Market: Morgan Stanley
SWEDISH MATCH Cut To Neutral From Buy at Nomura
UBS PT Raised to Sf17 VS Sf13 at Berenberg, Stays Buy
UBS Raised to Accumulate from Neutral at Helvea
UBS Raised to Buy from Neutral at BofAML
WOLSELEY Cut To Underperform From Hold at Jefferies

CURRENT STUFF

On UBS
I guess I was way too early when I pushed it 2 months ago… ML raise it to Buy, Berenberg keeps as a buy and increases pt to 17 vs 13 and JPM stays OW with 16 pt, pt increase by 9% at Exane (OW)
and here is what MS and GS think:

UBS (MS, Van Steenis) OW, PT SFr13.60 to SFr15
Decision Time: Where Next?
Our UBS restructuring thesis to reveal the value of A&WM has more legs. We up our PT to SFr15, but if UBS executes flawlessly our SFr 19 bull case is not implausible in 3 years. Execution risk, exit cost, viability of new i-bank model & timing could hold back multiple until some delivery.

UBS (GS, Omahen) Buy
Course set for private banking; add to Conviction Buy List
UBS’s changes will have three key medium/long-term effects: (1) an improved profitability profile, (2) reduced volatility (COE), (and 3) improved capital position (lower capital absorption, a cut in assets). We add the shares to our Conviction Buy List.

On Greece
There is a conf call today between the EU finance ministers to see how they can fill the Greek financing gap. As PASOK memebers back the measures proposed by Samaras who claims that the Greek government has done everything possiple within the limits of time and pressure, we could have sme posiitve news soon. Also Schauble and Moscovici want this to happen quickly. The implementation of the measures will be another debate all together and Greece will make new headlines (at least here) in the next few weeks.

On China
BoA got a bullish note on Chinese GDP growth for 2013 :

Prices of cement, iron ore, steel and transportation bounced recently. Inventory of coal, iron ore and perhaps some raw materials are declining. Consumers were exuberant during the Golden Week. Ports activities were up; Manufacturers’ earnings growth turned the corner in Sep. In addition, credit growth quickened significantly in Sep if they take into account corporate bonds and trust loans. Finally, They see a brighter future of the US economy with some recent encouraging data.

Other Stuff
JPM’s Tom Lee On Stocks And Hurricanes – Business Insider http://read.bi/Ym1rqP

STRATEGY

This is the kind of report I like…

GS (Goulder) Behind the numbers, ahead of the market
Piecing together the themes from 3Q results

Behind the numbers…

While results season kick-off has been especially choppy, we can already isolate four factors that have made a difference to performance:
1) Global growth exposure. Companies exposed to softer global demand, particularly across parts of Asia and the BRICs, have seen the most significant misses at the top and bottom lines (-5.0% EPS miss), such as Remy, Pernod, Nestle, WPP, Publicis.
2) Secular growth drivers. By contrast, companies benefitting from secular growth drivers such as online retail, mobile data (+7.0% EPS beat) and oil and gas capex (+2.7%) have typically beaten (ASOS, Sports Direct, ARM, Technip).
3) Competitive positioning. Companies with stronger barriers to entry and pricing power have typically seen the greatest margin improvements (+0.5% EPS beat), particularly when demonstrating a superior ability to execute and/or strong stock-specific product cycles (SAP, Dassault, Roche, Unilever, Atlas Copco).
4) Market expectations. Finally, where the shares have underperformed, multiples are at a discount, and market expectations are already low, corporates have often rallied (+0.6% in the next 4 days) despite weaker results (Sandvik, SKF, McBride).

…ahead of the market In order to capitalize on these trends as we approach the halfway mark for 3Q results, we isolate the companies yet to report that demonstrate: – Structural leadership via secular growth drivers and strong competitive positioning (rather than macro exposure): BG Group, L’Oreal, Yoox, Kabel Deutschland AG, Elekta AB, Berkeley Group, Victrex, Imagination Technologies or
– Credible mean-reversion because market expectations are already low: Havas, ITV plc, Exor SpA, Aryzta, ITE Group, IG Group Holdings

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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