The Dawn Patrol – 08.01.13 – JPM 13 things to watch in ’13. SAP, Italian Banks, Autos.


Markets to open lower today. No real negative news, but the early rally seems to fade. Volume was slightly lower than 20DMA. Concerns over the debt ceiling is the new thing to worry about and is the lid on the markets.
Today, we’ll watch the EC business and consumer confidence indices, the US NFIB small business index. It’s the launch of the US Q1 reporting season with Alcoa tonight.

Lionel Messi’s status as the planet’s finest footballer was further cemented as he won Fifa’s Ballon d’Or for an unprecedented fourth successive time.


Asian markets
Nikkei 225 down -103.32 (-0.97%) at 10,496
Topix down -9.66 (-1.10%) at 871.40
Hang Seng down -140.23 (-0.60%) at 23,190

US markets
S&P 500 down -4.58 (-0.31%) at 1,462
DJIA down -50.92 (-0.38%) at 13,384
Nasdaq down -2.85 (-0.09%) at 3,099

European markets
Eurofirst 300 down -5.67 (-0.49%) at 1,162
FTSE100 down -25.26 (-0.41%) at 6,065
CAC 40 down -25.38 (-0.68%) at 3,705
Dax down -43.71 (-0.56%) at 7,733

Commodities ($)
Brent Crude (ICE) up +0.02 at 111.42
Light Crude (Nymex) down -0.04 at 93.15
100 Oz Gold (Comex) up +2.50 at 1,648
Copper (Comex) unchanged 0.00 at 366.30


YUM shares fell 5.2% to $64.35 as the company said in a regulatory filing that it now expects same-store sales in its China division to fall 6% in the fourth quarter. Yum had previously expected a decline of 4%.

SAMSUNG profits reach record: The South Korean group’s Q4 operating profit hit a record for the fifth straight quarter to reach Won8.8tn ($8.27bn), an increase of 88% on a year earlier. Revenue rose 18% to approximately Won56tn. Although Samsung did not provide a breakdown of the results, analysts reckon the profit growth was driven by the handset business. (Financial Times)
TNT. FedEx turned away informal approaches from UPS to buy TNT assets, FT says citing unidentified people involved in clearance talks
BAE Systems among suppliers on $7 billion IT contract to U.S. army. DJ

VODAFONE. Verizon CEO says buying out Vodafone from wireless is feasible

HTC -3.8% as the company misses 4Q earnings targets on the lack of new phones and iphone5 and Galaxy’s new offering taking market share away.

NOVARTIS CEO Jiminez says company will limit acquisition deals to $4bn.

PEUGEOT. French government wants Peugeot to buy Opel from GM.

GENERALI is planning to buy out the 49% stake it doesn’t own in joint venture Generali PPF.

BofA reached an $11.6 billion settlement to end a dispute with Fannie Mae and joined nine other banks in agreeing to pay $8.5 billion to close a regulatory probe over foreclosure abuses, in Wall Street’s latest effort to cure its mortgage headaches.


On US Banks
Ten U.S. banks reached a $8.5 billion agreement with bank regulators to settle charges of foreclosure abuses. Bank of America, J.P. Morgan Chase, Wells Fargo and Citigroup signed on to the pact.

On Italy
Berlusconi Forms Alliance in Comeback Bid. Silvio Berlusconi said he has forged an alliance with the Northern League party, a partnership likely to put the debate over how much more austerity Italians should endure to comply with EU fiscal rules into sharper focus.

On Las Vegas CES
I wish I was there…


SAP (JPM, Stacy Pollard)
Q4 Beat likely. Should reach 2015 targets a year early

SAP’s Q4 should be as eventful as ever, with 42% of license revenue normally falling in the quarter, new 2013 guidance expected, and the now more tangible possibility of revisions to 2015 guidance. We think that SAP is likely to beat Q4 License expectations for the following four reasons: 1) Easy prior year comp – Q4’11 License growth decelerated to +15.2% after three quarters of mid-twenties growth, 2) Strong momentum – our Q4’12 growth forecast of +11.7% y/y (Vara cons +10.8%) still looks modest after +17% growth YTD, 3) Positive read across from Oracle, which beat expectations in Q2 to end November on strong growth acceleration in EMEA (EMEA contributed 49% of SAP’s 2011 revenue), and 4) Positive read across from Gartner which raised its 2013 global IT spend forecast to +4.2% from +3.8% on 2nd January, citing reduced macroeconomic uncertainty.

ITALIAN BANKS (JPM, Bastoni) Downgrade ISP, MPS, retain N on UCG
Bottom-up analysis on NIM suggests 2014 profitability 28%-52% lower than Consensus

We believe the market has not fully priced in earnings pressure on Italian banks from net interest margin and higher provisions. Our forecasts are well below Consensus (on 14E -32% UCG, -28% ISP, -52% MPS). We include a detailed analysis on NIM, which we see as stable around current levels, so marginally down in 2013 y/y. We maintain a negative stance on Italian banks, downgrading ISP and MPS to UW (N) and maintaining N on UCG. Our relative preference is for UCG, for us the best risk-reward mix to play Italian exposure:1) more potential upside in case of stabilization of sovereign stress, 2) diversified geography, 3) more asset sale options if needed.

AUTOS & AUTO PARTS (MS, Pearson) Investor Views into 2013
Consensuality is the most striking aspect of our latest investor survey. Most are at least benchmark the sector, and VW, Conti and Michelin are the top picks. 2013 has started differently, however, with 2012’s laggards reverting to mean. Next week’s Detroit show could test conviction in the sector.

AB Inbev Rated New Buy at Isi Group
Accor Rated New Buy At SocGen, PT Eu30.6
Beiersdorf PT Raised to EU72 vs EU60 at Nomura; Kept at Buy
Easyjet Cut To Neutral VS Outperform at Credit Suisse
Galp Energia Cut to Neutral from Buy at BofAML
Generali PT Raised to Eu15 VS Eu14.3 at BofAML; Kept at Buy
HSBC Cut to Hold VS Buy at Investec
Intesa Cut To Underweight From Neutral at JPMorgan
KBC Rating Under Review at Morgan Stanley, Would Be Buyer <EU22
KPN Raised to Outperform VS Underperform at Macquarie
L’Oreal PT Raised to EU111 vs EU107 at RBC Capital
Luxottica PT Raised to EU37 vs EU31 at Barclays
Mapfre, Vienna Insurance Cut To Underperform VS Buy at BofAML
Monte Paschi Cut To Underweight From Neutral at JPMorgan
Morrisons PT Cut to 243p from 250p at Cantor Fitzgerald
Porsche PT Raised to Eu75 VS Eu65 at Morgan Stanley
Standard Life Cut To Underperform VS Neutral at BofAML
Technip Cut to Underperform from Outperform at Cheuvreux
Telenor PT Cut to Nok138 VS Nok141 at Berenberg; Kept at Buy
TeliaSonera Raised to Equalweight at Morgan Stanley
Tenaris Cut To Equalweight From Overweight at Barclays
TUI Travel Cut to Underweight VS Equalweight at Morgan Stanley
UniCredit PT Raised to EU3.31 vs EU2.9 at JPMorgan
Whitbread Cut To Equalweight VS Overweight at Morgan Stanley


GS (Oppenheimer) Portfolio Strategy Research
Why the risk premium could unlock so much value.

The ERP and the macro market. Increased uncertainty has led to increased correlations. We show that there is a close relationship between the ERP and correlations of stocks within the market and also across asset classes. A lower ERP would reduce correlations, increase alpha opportunities and also enhance the value of active management and long/short strategies.
The ERP and growth and closing our long Stable Growers call.
The high ERP has reduced the value of duration. Investors have been less willing to pay for growth further into the future as the future has become more uncertain. This leaves growth undervalued. In general, investors have been willing to pay more than normal on a relative basis for top-line growth and stability of growth than for margins or earnings. A lower ERP would increase the premium paid for cyclical growth as the last few weeks has demonstrated; the premium paid for stability would tend to fade.
The ERP and the financial crisis.
There has been a strong relationship between the ERP and relative bank stocks performance, as well as the P/B of banks. The ERP has also moved closely with sovereign debt spreads. We would expect a lower ERP to be associated with a reversal of these trends and to unlock value in financials.

JPM (White) Economics Research
13 Things to Watch in Europe in 2013:
Our Political analyst writes about events that may influence political outlook in the EU this year. 2013 will be a year of policy limbo in Europe; with few major steps forward, but likely without disasters either. Progress on key policy issues will be delayed because of the German elections, while the OMT will continue to suppress political incentives to deliver structural and institutional reform. On the plus side, the electoral calendar means that policy-making will be risk averse, and Germany will work hard to keep a lid on any problems which may emerge. As a result, the region will likely remain in its current ‘halfway house’ with its long-term problems substantively unaddressed, but with the likelihood of near-term disaster relatively remote. Despite this quieter backdrop, there will be a large number of bumps in the road which investors will need to be aware of. We will set out our expectations for the year ahead in more detail shortly; this email lays out our high-level views on the 13 things to watch in 2013. Some examples are the Italian general election, French government policy disarray, Greece and the German election in the autumn

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


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