The Dawn PAtrol – 21.11.12 – On HP, the Fiscal Cliff, the Fed, Greece. Stocks: SKYD, DEERE, K+S and more…

Bonjour,

European futures are flat. In the US, the S&P finished up 0.07% with the Tech sector being hit by HP’s revelations about their Autonomy’s acquisition (see below). The Fiscall Cliff and Greece remain the main worries. Gold at $1724.96, the EUR falling to 1.2754 on Greek deal failure, and the Brent down 1.64% at $110.06. RIMM touched $10, but you can help it getting above that…
Today, macro eyes on the Spanish trade balance, the BoE, the US MBA mortgages apps, the U of Michigan confidence. On terms of Earnings, we’ll watch Deere (see below).
Germany will sell 10y notes and Portugal some short term ones.

There is a stock I really don’t know much about I’m going to investigate: SKY DEUTSCHLAND. They’re getting more and more subs, the issue with their €2bn of tax losses could be resolved according to UBS, News Corp could move and acquire more of Sky as they just acquired 49% of YES Network…

BASF Offers to Buy Pronova For NK12.5-Shr in Cash
Compass Group Revenue of 16.9B PNDS , analyst estimated 17 PNDS , free cash flow of 760M PNDS, Dividend ex-items 21.3P , organic revenue growth up 5.4%
EADS A1 Rating Affirmed by Moody’s; Outlook Stable
GAGFAH 3Q Recurring FFO Rises 37%; Sees 2012 FFO of 49c/Shr
Glencore Says Xstrata Deal Still Subject to Anti-Trust Approvals
Zodiac Raises Full-Year Dividend as Net Income Gains 34% ; Full-year sales rise 26% to EU3.44B ; Co. raises its full-year dividend to EU1.40 versus EU1.20 a share for 2010-11

UPS & DOWNS

BRITISH LAND Raised To Overweight at Morgan Stanley
DIRECT LINE Rated New Neutral At Citi, PT 200p
DIRECT LINE Rated New OW At MS
DIRECT LINE Rated New Neutral At Goldman, PT 234p (see below).
HAMMERSON Cut To Equalweight VS Overweight at Morgan Stanley
K+S Cut to Underweight From Neutral at JPMorgan (see below)
LAFARGE Cut to Underperform from Market Perform at Bernstein
LAND SECURITIES Raised To Overweight at Morgan Stanley
lloyds Banking Raised To Equal-weight at Morgan Stanley (See below)
LUKOIL Raised To Outperform at Credit Suisse
RASPADSKAYA Raised To Neutral VS Sell at UBS
SBM Offshore Raised to Neutral VS Underperform at Credit Suisse
SCOR Removed From Ubs’s European Key Call List
Siemens Cut To Sell VS Hold at Deutsche Bank
SKY DEUTSCHLAND Raised To Overweight VS Underweight at HSBC
STORA ENSO Reinstated Underperform at BofAML
UPM Reinstated Neutral at BofAML

CURRENT STUFF

On HP / Autonomy
A stock I knew well back in the day… How H-P was duped in Autonomy deal – MarketWatch http://on.mktw.net/UHU9t5

On the Fiscal Cliff
Both sides are pessimistic about their ability to reach a quick deal on Fiscal Cliff. Hill Democrats say Republicans aren’t serious about crafting a deal that President Barack Obama can accept. The GOP’s opening offer, the sources said, would freeze the Bush-era tax rates, change the inflation calculator for entitlement programs, keep the estate tax at 2012 levels and authorize a major overhaul of the Tax Code – Politico http://t.co/WYgKTk7E

On the Fed
Ben Bernanke suggested the Fed will keep trying to push down interest rates in 2013. “What the Federal Reserve can do and will do is continue its stated policy which is to do additional asset purchases, buy MBS, and take whatever actions are appropriate to try to ensure that the outlook for labor markets improves in a sustained way and a substantial way.” (Wall Street Journal)

On Japan
Japan’s October trade balance report is out. Exports fell 6.5 percent, which was much worse than the 4.9 percent decline expected by economists. Exports to China plunged 11.6 percent. Exports to Europe sank 23.5 percent.

On Greece
European finance ministers failed to agree on a debt-reduction package for Greece after battling with the IMF over how to cut the country’s debt. However the Eurogroup meeting in Brussels was interrupted “to allow for further technical work on some elements of this package” and will reconvene on Monday. (Bloomberg)(Statement)

Also: Should Britain remain in the EU? Spiegel http://bit.ly/QtQq75

Spiegel on the slow pace of French reform http://bit.ly/USgjZW

STOCKS

K+S (JPM, Tyler) From N to UW, PT: €28.
Downgrade to Underweight. Price risk outweighs volume recovery potential
Ongoing production constraints suggest K+S has limited scope to benefit from a potential 2013 potash demand rebound, while the cut in prices required to prompt such a recovery presents significant downside risk to current company FY’13 guidance and consensus estimates, in our view. Using a $400cfr (-15%) central-case Chinese settlement, combined with limited volume growth and ongoing cost inflation lead us to reduce our 2013/14 EPS forecasts by 14/18%. Our updated €28 Dec’13 DCF TP, implies 16% potential downside. We therefore lower our rating to Underweight.

Lloyds Banking Group (MS, Manners) : UW to EW, PT 30p to 47p
Tail risks diminished – EW

MS upgrades Lloyds to Equal-weight – with tail risks from funding and asset quality much reduced, they expect a continued focus on ‘core’ earnings power in 2015+. they view the stock as around fair value and would see more appeal in the high 30s.

Direct Line Group Plc (MS, Jon Hocking) Initiating at Overweight
Upside Driven by Ongoing Restructuring and Income

MS initiates coverage with an Overweight rating. In their view the shares are inexpensive, with upside driven by restructuring and capital management. They forecast a significant rebasing of the ordinary dividend in FY14 (yield of 8.3%), and in addition £270m of excess capital return over 2014 and 2015.

Direct Line Group (GS, Colin L.Simpson) Neutral for now
Capital repatriation potential exists longer term,
Direct Line Group has strong brands and the opportunity for significant cost reductions. While the softening motor rate environment appears widely known, the potential for additional capital repatriation in 2-3 years’ time is underappreciated in our view.

Deere & Co
For the farm-equipment maker’s fiscal fourth quarter, analysts polled by FactSet estimate Deere will show a profit of $1.88 a share, up 16% from the $1.62 a share Deere made in the same 2011 period. Sales are forecast to grow 13% to $8.9 billion. For fiscal 2013, analysts are looking for Deere to earn $8.32 a share on sales of $34.7 billion. Based on that estimate, Deere currently trades at a price-to-earnings multiple of 10.4 times next year’s earnings.

CRM: Salesforce trades higher after market…up 3$. Salesforce.com 3Q billings $742.9m vs est. $733.8m (avg. of 8 ests. compiled by Bloomberg News). Sees FY13 rev. $3.04b-$3.05b, saw $3.025b-$3.035b, est. $3.033b. Salesforce.Com Sees FY13 Adj. EPS $1.50-$1.52, Saw $1.48-$1.51

CMG: Chipotle in Accelerated Repurchase Deal; Adds $100m in Buybacks

STRATEGY

MS (Van Steenis) EU Banks.

EU Banks: 2013 Outlook: Expect greater differentiation against weakening backdrop
Expect greater differentiation in 2013 as prices don’t reflect the broad spread in banks’ stage in recovery, deleveraging and their strategic responses. We are well below consensus EPS and DPS for most Eurozone banks, and just a handful of cheap banks with strong core franchises make our Top Picks.
Most preferred: UBS, BNP, BARC, SWED, SBER and ADN.
Least preferred: CBK, BP, MPS, Sabadell, ICAP, Bankinter.

GS (Song) Emerging Markets Daily: China
Getting out of the woods but beware of possible near-term headwinds

Activity growth rebounded significantly in September/October on looser domestic policy and an export rebound. However, we see reasons for caution in the next 2-3 months. Monetary policy may be tightened modestly at the start of 2013. Contrary to popular wisdom, fiscal policy in 4Q2012 is likely to be less supportive than usual (but still net-spending instead of net-withdrawal). Exports rebounded too much to be justified by the current pace of global growth, and that pace is expected to slow amid fiscal headwinds in the US.

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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