The Dawn Patrol – 31.01.13 – On the FEd, the GDP, RIMM. MS prefers Spain to France, GS likes ENI, U/g SCHNEIDER…

Bonjour,

European Markets expected to open down (0.3%) following the poor US Q4 GDP number and Saipem. But, this could be changed during the day as the Fed keeps its stimulus policy unchanged and HF investors are still underweight Equities.

Today, Macro wise, we’ll monitor Gfk Consumer confidence, Germ Retail sales, CPI & Unemployment, FR PPI & Consumer spending, US Personal income/spending, PCE, Claims, Chicago Purchasing Manager.

The S&P ended nearly session lows. There were no specific drivers behind the pullback, though the waiting game ahead of a few high-profile economic releases over the next couple of days may have helped to shift some of the focus to month-end profit-taking and lingering concerns about near-term overbought conditions. 4th quarter GDP unexpectedly shrank but did not seem to bother the market and better-than-expected ADP private payrolls data did not have any impact on expectations for Friday’s official January employment data from the BLS. All sectors but utilities ended in the red, industrials and energy stocks were the biggest laggards for this session.

As some of you may have seen, I like ENI and yesterday’s drop in the shares on Saipem profit warning may be a good entry point.

Big Wave Surfing

http://www.youtube.com/watch?feature=player_embedded&v=pOHDZpPvbIc

HOT STUFF

Deutsche Bank, Ericsson, Shell, Diageo, AstraZeneca, BSkyB, Novo Nordisk, Banco Santander, LVMH are among cos. scheduled to publish earnings. Germany’s first estimate for nationwide inflation in Jan. won’t be based on reports from six of the country’s states as the base year is changed and economists est. annual rate will hold at 2%.

Credit Agricole Plans to Write Down Goodwill, Le Figaro Says

Deutsche Bank 4Q Net Loss Eu2.17b; Analyst Est. Eu311m Loss

Ericsson 4Q Net Loss Sk6.46b VS Sk1.15b Profit

FB: revenues and earnings came out slightly better than estimates but share are down 1.5% because spending on new mobile and advertising features led to a surge in operating expenses.

KKR, Apax Said to Team Up for Vivendi’s GVT Against DirecTV

Novo Nordisk 4Q Net Beats Est.; Raises Top End of Rev. Forecast

Philips Sale of Lifestyle Segment Is Credit Pos, Moody’s Says

QCOM: reported higher Q1 EPS and revs than estimates and increased Q2 and FY13 guidance; shares are up 4.8% in after-market.

Roche’s First Stage Phase 3 GA101 Study Met Primary Endpoint

SEB 4Q Net Misses Estimates, Announces New Financial Targets

TeliaSonera 4Q Net Misses Estimate, Sees Flat Sales 2013

CURRENT STUFF

On the FOMC meeting
No policy changes were announced at today’s meeting, and changes to the statement were generally modest. The FOMC’s view of risks to the economic outlook seems to have improved on net, although the FOMC sees the rate of growth in economic activity as having “paused” in recent months.

On the Q4 US GDP
Real GDP growth in Q4 was much weaker than expected, but was dragged down by inventory investment and defense spending. Real private final demand rose more robustly, and personal consumption expenditures were broadly in line with expectations. Separately, this morning’s ADP employment report was slightly stronger than expected.

On RIMM
So, then, is this the phone that’s good enough to woo buyers away from the Galaxy S III or the iPhone 5 or any of the other delicious devices on the other platforms? The short answer is that no, as of now it isn’t quite — but of course it’s a lot more complicated than that.” http://www.engadget.com/2013/01/30/editorial-engadget-blackberry-10/

Brussels formally blocks abandoned UPS takeover of TNT: EU competition commissioner ‘surprised’ that UPS abandoned bid two weeks ago. (Financial Times)

To read:
– 10 companies ripe for M&A: http://cnb.cx/YfVN9k

– Germany not yet out of the woods http://bit.ly/UDaELd

STRATEGY

MS (Ostrower, based on Carr and Bizimana work)Implications of ‘French Corporate Hangover’ and Spanish Strength
Our analysts expect Spanish fundamentals to improve relative to French fundamentals.
Morgan Stanley Strategist Ronan Carr and French Economist Olivier Bizimana recently warned of lagging French corporate and economic growth, particularly in comparison to more robust change and fundamentals in Spain (French Corporates Losing Ground – Prefer Spanish Equities). They see both these micro and macro factors as rationale to invest in Spanish versus French equities.

The Spanish recovery trade appears to be better integrated in market valuations, French issues less so. While investors still appear to be heavily underweight Spain and not underweight France, recent stock performance suggests better digestion of good Spanish economic news than risks of ongoing malaise in France.

More implications. We expand our list of relevant stocks to include those with most revenue exposure to both France and Spain.

GS (Sun) China A-Share Strategy
Reaffirm pro-Cyclical bias; CSI300 target up 9% to 3,000

CSI300 target up to 3,000, driven by 11% EPS and 5% valuation We reiterate our positive stance on A-shares and raise our CSI300 2013 yearend target to 3,000 (prior 2,750), implying 16% potential upside, despite possible higher volatility ahead and the 21% gains since our 2013 strategy outlook report dated Nov. 29, 2012. We expect earnings to play a more important role ahead and the 16% implied return will be driven by 11% (prior 9%) EPS growth and another 5% P/E expansion to 11.2X (prior 10.7X), still well below the 13.6X average since the 2008 trough.

UPS&DOWNS

ENI (GS, della Vigna) 3% EPS impact from Saipem profit warning; reiterate CL Buy
We factor the new Saipem estimates in our ENI model and also include a €1 bn increase in net debt due to Saipem working capital outflow. Our price target decreases slightly and we maintain our Conviction Buy.

Bouygues (JPM, Achtmann) Telecom remains under pressure
The French mobile market remains under pressure highlighted by the latest SFR price cut and we believe this could trigger further price cuts in the market. While we expect no immediate reaction from Bouygues we believe management will act if customer momentum is turning. We expect revenue dilution from the new tariffs to continue and now expect Bouygues to lose 30% of its 2011 mobile service revenues until 2016, slightly higher than our original estimate of 27%. While we expect a stable outlook for the Construction businesses we expect a difficult Q4 for the Group driven by difficult comps for the Construction parts and a weak Telecom business.

Europe: Electrical Equipment (GS, Costa) Target practice – Buy ABB/Schneider, Siemens Neutral
Siemens rerated vs. ABB/Schneider due to new targets. We see triple the incremental upside on ABB/Schneider if meet all targets (and the 2 have better track record at that than Siemens). We prefer ABB on structural themes & Schneider on cyclical: Buy both

Afren Cut To Neutral From Overweight at JPMorgan
Antofagasta Cut To Underperform From Neutral at Credit Suisse
BofAML Still Negative on Fiat, 2013 Profit Guidance Disappoints
Close Brothers PT Raised to 1,150p vs 930p at Berenberg
Coloplast Raised To Buy VS Neutral at Goldman
Fresenius SE Raised to Buy VS Neutral at Goldman
Lonmin Raised To Overweight From Neutral at JPMorgan
Rim Cut To Underperform VS Neutral at Credit Suisse
Schneider Electric Raised To Buy VS Neutral at Goldman
SAFRAN Cut To Neutral VS Outperform at Exane

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