The Dawn Patrol – 04.12.12 – JPM on pharma, MS on Medtech, GS adores Dior, and more

Bonjour,

European markets to open down this morning. The US and Asia followed Europe down after the weak ISM numbers and the lack of progress on the Fiscal Cliff.
Gold down 0.72% to 1703.85; EUR at 1.3065.
Today, we’ll monitor the EZ PPI, the Spanish unemployment, the UK construction and housing indicators and in the US, the ISM NY.

It’s Tuesday, it’s App day! http://www.feedly.com is a great news aggregator. Firts you need a google reader account to choose your RSS feeds, and then all the news are in one place. I’m used to Netvibes.com, but this one has a better interface on iThings.

AUTO’S. Final U.S auto sales for November are 15.54mn units which is well ahead of the streets (and our own estimates of 15mn). GM was the only major vendor to fall short but overall a very strong figure. Replacements for vehicles damaged by Hurricane Sandy would have had an impact
E.ON: Verbund to swap assets with EON as focus shifts to Germany
EDF says Flamanville nuclear costs revised up to 8bn vs 6bn initially expected
 Oerlikon sell natural fibers/textile components to Jinsheng at CHF 650m & raises FY sales forecasts to 5% growth
UBS, CS announced yesterday they would begin charging negative interest rates on Swiss franc cash clearing deposit accounts. Germany has details of CHF3.5b in UBS Accounts, T-A Says
ELEKTA 2Q net beat exp and reiterate targets
PORSCHE reports 71% rise in US sales – best sales month ever
GEMALTO may replace ALCATEL in the CAC 40– L’Agefi
MAN to cut worker hours as truck demand falls – Sueddeutsche
TELECOM ITALIA. Patuano says Tel Italia network spinoff may still proceed Il Sole 24
YARA reiterates tgt of 8m ton increase from 2010 to 2016, sees strong demand amid tight grain demain in 2013 – won’t issues equity except for “very largest acquisitions”

CURRENT STUFF

On the Fiscal Cliff
(I know it’s getting really boring). “Republicans proposed steep spending cuts on Monday but gave no ground on President Barack Obama’s call to raise taxes on the wealthiest in their first formal proposal to avert a “fiscal cliff” that could push the US economy into recession.” John Boehner presented a $2.2tn deficit reduction package over 10 years, including $800bn in new taxes – much lower than the $1.6tn target for new revenue proposed by the president last week. (Reuters)(Financial Times)

On Australia
The Reserve Bank of Australia has reduced its official cash rate to a level last seen during the depths of the financial crisis in an effort to foster stronger growth in the non-mining sectors of the economy. It cut is rates by 25bp to 3%.

On Portugal
Portugal and the OMT? The ECB’s Asmussen said last night that Portugal must issue a ‘reasonable’ amount of bonds with maturities longer than three years for it to qualify for the European Central Bank’s bond purchases program, an ECB Executive Board member told a Portuguese newspaper. Jornal de Negocios. He did add however that the country had taken a significant step forward with it’s bond swap in November (Portugal replaced almost EUR4bn of bonds maturing in 2013 with a three year. Asked what the country needed to do to gain access to the yet-to-be-activated Outright Monetary Transactions (OMT) bond-buying program, he said: “I would say that it will be necessary to issue reasonable amounts of bonds with longer maturities … along the yield curve.”

On the Dividend Tax Hike
Oracle said its board has approved the payment of three upcoming quarterly dividends on Dec. 21, with the “accelerated” dividend totaling 18 cents a share for its fiscal 2013 second, third and fourth quarters. Companies including Wal-Mart Stores Inc. have accelerated dividend payments, or, like Costco Wholesale Corp., have launched special dividends, to take place before Jan. 1. That’s when a package of $600 billion in tax increases and spending cuts are set to go into effect unless lawmakers and the White House reach a deal to avert the so-called fiscal cliff.

Other Stuff
– Tom DeMark says Shanghai Comp will rally 48% within 9 months after decline below 1,960 signaled selling has climaxed http://bloom.bg/TCR3dU
El-Erian: “If eurozone gov’ts continue to stumble, the delay will overwhelm defenses that the ECB has put in place.”http://bit.ly/SB9DSR
– If the US avoids the fiscal cliff, the jobs picture for 2013 looks pretty good http://on.wsj.com/RuLmj1
– Italy is a better bond bet than Britain – FT http://on.ft.com/SGffK5
– Behold: 26 economists you should follow on Twitter http://huff.to/11rpx60

– Spiegel reports German regional authorities are expected to decide this week to attempt to ban the far-right National Democratic Party http://bit.ly/Xkyw8E
– The FT says it is unlikely the US will fall off the fiscal cliff http://on.ft.com/WFQUnw

UPS & DOWNS

European Pharma (JPM, Alexandra Hauber) Sanofi Remains Our 2013 Top Pick
2013 is year two of the sector patent cliff, when most companies should return to growth, but generic erosion still remains significant and is likely to keep sector growth muted. Specifically, Novartis and AZN have further generic erosion to digest and face considerable earnings uncertainty. For both companies, the 2013 outlook should provide a floor for earnings expectations with risk to current consensus expectations. Aside from those two companies, investor focus should return to growth for both 2013 and the next 5 years. For the large cap group overall, we see 1% sales growth overall in 2013E (after a 2% decline in 2012) that should accelerate towards mid single-digit level in the coming years.

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MedTech & Services (MS, Jungling) 2013 Outlook: Mixing Macro & Micro – Another Good Year
In our 2013 Strategy & Outlook report, we provide updated stock ratings and an overview of the important investment themes for the year ahead.

MEDTECH: SHOULD OUTPERFORM EU MARKET. We expect EU MedTech to outperform the EU Market, helped by a large number of companies offering the sweet spot of defensive growth. Furthermore, a strong new product cycle in the sizeable hearing aid market adds spice. We move EU Services to In-line vs the EU Market. 2013 investment returns are likely to be a combination of macro & company specific events.
OVERWEIGHT: DEFENSIVE GROWTH / PRODUCTS: 1] Defensive Growth: FMC, DiaSorin and Synergy; 2] Strong Product Cycles: Sonova and GN Store Nord; 3] Self Help focused on cost cutting initiatives: Getinge.
UNDERWEIGHT: EXPENSIVE WITH EARNINGS RISK ESSILOR, BIOMERIEUX, NOBEL BIOCARE & STRAUMANN.
EQUAL-WEIGHT: RISK / REWARD BALANCED We see CELESIO, COLOPLAST, ELEKTA, FRESENIUS, RHOEN KLINIKUM, SMITH & NEPHEW AND WILLIAM DEMANT as less actionable for the time being.

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Christian Dior (GS, Iwar): An attractive way to gain exposure to luxury goods, Conviction Buy
Christian Dior is in our view an attractive way to gain exposure to luxury goods. We believe the suggested regulatory tax changes may trigger a restructuring of the Dior/LVMH system, which could unwind the current NAV discount fully. Reiterate CL Buy.

Andritz Cut To Neutral VS Buy at Citi
COLOPLAST PT Raised to Dk1,300 VS Dk940 at Morgan Stanley
COLOPLAST Raised To Equalweight VS Underweight: Morgan Stanley
ELEKTA PT Raised to Sk93 VS Sk81 at Morgan Stanley
ESPIRITO SANTO Cut to Reduce from Neutral at Nomura
ESSILOR PT Raised to Eu60 VS Eu51 at Morgan Stanley
FRANCE TELECOM Raised to Market Perform at Bernstein
FRESENIUS SE Cut to Equalweight VS Overweight at Morgan Stanley
FRESENIUS SE PT Raised to Eu95 VS Eu81 at Morgan Stanley
Generali PT Raised to EU14 vs 12.7 at JPMorgan
GETINGE PT Raised to Sk235 From Sk216 at Morgan Stanley
HEIDELBERGCEMENT Raised From Equalweight : Morgan Stanley
Henkel Cut To Underperform VS Neutral at Credit Suisse
IBERDROLA Cut To Neutral VS Buy at UBS
IBERDROLA PT Cut to Eu3.9 VS Eu4.25 at UBS
ILIAD Rated New Outperform At Bernstein; PT Eu170
Kabel Deutschland Rated New Market Perform at Bernstein
Legrand PT Raised to Eu30 From Eu27 at UBS, Stays Neutral
Rexel PT Cut to Eu16 VS Eu17 at HSBC, Stays Neutral
Sandvik Cut To Sell VS Neutral at UBS
SONOVA PT Raised to Sf115 VS Sf92 at Morgan Stanley
SONOVA Raised To Overweight VS Equalweight at Morgan Stanley
ZIGGO Rated New Market Perform At Bernstein; PT Eu25

STRATEGY

GS (Lake) Global Markets Daily
Go short AUD/NOK: Our first top trade for 2013 is a trade which reflects the differing cyclical conditions in two AAA-rated commodity economies, which require different monetary and financial conditions.

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