The Dawn Patrol – 13.02.13 – Research: AAPL, SAP, LAFARGE, Smartphones… Results…


European stocks were expected to open little changed on Wednesday, pausing after solid gains in the previous session, with the market’s direction likely to be determined by corporate results due out from heavyweights including oil major Total. With just over a quarter of the European earnings season now completed, 40 percent of companies that have reported so far have missed estimates, resulting in a 2.3 percent average cut to 2013 expectations in the past 30 days, Starmine data showed.

US equities finished mostly higher on Tuesday. There did not seem to be anything specific behind the move. However, a few notable recovery leveraged pockets outperformed today, including housing and banking stocks. It was another quiet day on the economic calendar, while takeaways from the earnings calendar did not have much of an impact on broader market sentiment. There was a lot of press surrounding President Obama’s State of the Union address tonight, though the market is not looking for anything meaningful on the economy or the sequester. On the macro front, comments out of the G7 dominated the headlines, with volatility limited to the currency market.

Today, We’ll monitor today UK PPI/CPI and US NFIB Small Business Optimism, JOLT Job Openings and Monthly Budget Stmt.

The 2013 Sports Illustrated Swimsuit Calendar is out.
But I’m not sure it’s the proper place to talk about it… So I won’t place a link here…
Instead, here is a pic of Banana Joe who became the first affenpinscher to win Best in Show at the Westminster Kennel Club Dog Show


Comcast buys out GE’s NBC stake: The cable operator will buy the 49% of NBC Universal it doesn’t own from General Electric’s for $16.7bn, two years after buying a controlling stake in the broadcaster. Comcast will also buy NBC’s 30 Rockefeller properties and CNBC’s New Jersey headquarters for $1.4bn. GE said the sale would result in a pretax gain of about $1bn. Comcast shares rose 7.5% in after hours trade. (Financial Times)(Bloomberg)(Reuters)

Apple CEO considering returning more cash to shareholders: Tim Cook on Tuesday said he was “seriously” considering returning more of Apple’s $137bn cash hoard to investors, and dismissed a lawsuit from an activist shareholder as a “silly sideshow”. Cook said that Apple’s board was actively discussing “a series of alternatives” and would “seriously consider returning additional cash to our shareholders”.(Financial Times)(Wall Street Journal)

Societe Generale reports Q4 net income €537.0M ex-items vs FactSet €404.6M (€32.66). Reports Q4: IFRS net income (€476M) Net Banking income €5.13B vs year-ago €6.01B. The board will propose the distribution of a dividend of €0.45 per share, with a scrip dividend option

WSJ thinks Dell will go private at higher price, but not much higher than current $13.65/share offer ($13.79)

Vivendi contests Lagardere claims over Canal+ France

Apple Said to Have Team of 100 Developing Wristwatch Computer

GS hosted a keynote today with Apple CEO Tim Cook at GS Technology & Internet Conference. Overall, GS believe the Mr. Cook showed the company is much more flexible than previously thought in considering returning cash to shareholders as well as on the product innovation front, which we believe will be a positive catalyst for the stock. The company appeared remarkably confident in its incremental growth opportunities, and management seemed increasingly willing to explore a dividend or buyback. GS reiterate CL-Buy and 12-month target price of $660. They view the company’s sticky installed base as a baseline for valuation support, and in addition, we expect new products in coming months (including a refreshed iPhone, a new iPad, and a lower cost iPhone) to reinvigorate new user growth. They also believe Apple could move towards shorter product cycles, which would minimize the volatility they saw last year and add a key source of stabilization to the story.

*TOTAL 4Q ADJ. NET EU3.081 BLN; ANALYST ESTIMATE EU3.002 BLN. *DJ Total: Confirms Production Growth Target Of 3% A Year On Average By 2015. Total Proposes Annual Dividend of EU2.34/Share for 2012

Peugeot FY recurring operating loss EU576m, est. loss EU647m. Sales EU55.5b, est. EU55.7b.
• Net loss EU5b vs net income EU588 Y/y; auto div. loss EU1.5b
• Negative FCF EU1.4b
• Net debt: EU3.15b
• Outlook: Aims to halve rate of FCF consumption, confirms its objective of restoring FCF to break-even by the end of 2014.
• See contraction in the European auto market of 3%-5% in 2013

TUI AG 1Q pretax loss widens 21% to EU250.6m vs loss EU206.8m Y/y.
• 1Q rev. up 1.4% to EU3.5b, est. EU3.52b (2 ests.)
• Confirms FY outlook; sees “moderate” sales growth, oper. profit at prior yr level, positive net inc. before minority interests
• 1Q underlying Ebita loss of EU141.5m vs EU147.3m Y/y
• 1Q net loss after minorities widens by 56% to EU137m vs loss EU87.6m Y/y
• NOTE: TUI Drops Plan to Merge With TUI Travel After Weighing Deal (Jan. 23)

Heineken 2012 Ebit ex-items (Ebit beia) EU2.91b, est. EU2.85b (median of 10); says in-line with prior yr on organic basis.
• 2012 organic rev. growth 3.9%, est. 4.4% (median of 7)
• 2012 rev. EU18.4b, est. EU18.3b
• Sees EU525m of cost savings under TCM2 program 2012-14, had seen EU500m
• 2012 net ex-items EU1.696b, est. EU1.63b (median of 10)
• 2012 consolidated organic beer vol. growth 2.4%, est. 2.5% (median of 8)

Edenred confirms organic growth targets of 6%-14% for issue volume, >10% for FFO.
• 2012 profit EU183m vs EU194m
• Rev. EU1.07b vs EU1.03b, up 7.3% LFL
• Ebit EU367m vs EU355m
• Issue volume +9.7%, LFL +10.1%
• Div. +17% to EU0.82/shr; aims to raise div. on recurring basis in coming yrs


Obama’s State of the Union speech highlights:
– Laid down a challenge to Congress, warning he’d use executive powers on issues from climate change to manufacturing. (Reuters)
– Announced talks for a US-EU bilateral trade deal, in a long awaited decision which restores trade to centre of efforts to spur growth in large industrial economies. (Financial Times)
– Called for the minimum wage to be raised to $9/hour to stimulate the economy. (Bloomberg)

The US posted a surprise $3bn budget surplus for January, as the Treasury likely benefited from a windfall when payroll tax cuts expired. (Reuters)

Other stuff:
The FT’s 125th anniversary Tumblr! (Tumblr)


Apple (MS, Huberty) Higher Yield a Potential Catalyst
Higher cash return could be a positive catalyst. IT Hardware stocks with higher cash return historically outperformed peers. To match the average FCF payout of the S&P IT sector, Apple needs to return $28B, which implies a 6% total yield (68% of FY13 FCF) versus MSe of $15B.

SAP (GS, Moawalla) Buy: Entering R3 – Recovery, Renaissance, Redefinition; reiterate CL Buy
We maintain our above consensus estimates and 12m PT of €86. We believe SAP is entering the next phase of its transformation as a platform and applications vendor, and expect the focus in 2013 to be on HANA & gaining scale in cloud.

Europe Building Materials (GS, Morgan) Focus on value and positioning in the face of near-term obstacles
We introduce our new cement model, which forecasts 33 of the most important markets in European cement. We use the model to drive earnings forecasts as well as influencing our valuation approach. We add Lafarge to the Conviction Buy List.

Barclays (JPM, Sinha) Upgrade ’15 EPS 18% post strategic review.
At 6.3x P/E, valuations remain most attractive in the UK; Retain as top pick

Following on from the Barclays’ strategic review, we upgrade our adj. 2015 EPS by 18% to 53p, modeling for the group’s cost reduction targets while remaining 3% below management’s implied assumptions around revenue (JPMe £30.8bn in FY’15e). We see adj. RoNAV of c12% in 2015E, which is enough in our view to justify a re-rating toward the rising TNAV, as the group delivers on its targets over time. We upgrade our Dec-13 PT to 375p (1x 2013 adj. TNAV) from 350p and also introduce our 2016 estimates with adj. EPS 57p. We remain OW Barclays and continue to see it as most attractively valued within the UK banks.

European Insurance Sector at Demanding Level, Bernstein Says
Sector performance can only partially be attributed to fundamentals or momentum.

• Doesn’t expect CoE to go down further over next 6-12 months due to mixed set of macro data in Europe and further falling running yields keeping earnings risk high and capital buffers volatile
• Stays short on Generali (underperform; PT EU8.2 unchanged), Munich Re (underperform; PT raised to EU106 from EU100), Swiss Re (underperform; PT raised to CHF55 from CHF50)
• Keeps market perform ratings for Allianz (PT raised to EU103 from EU100) and Sampo (PT raised to EU26 vs E

On Smartphones
Interesting to note that JPM expects smartphone adoption to peak in 2013: “We see 2013 as another strong growth year for smartphones with 37% growth predicted. However, our proprietary smartphone model continues to indicate that 2014 will be the first year that new adoptions decline with overall growth slowing to 17%. Smartphones more macro exposed: Replacements continue to grow in importance and actually become the main driver of unit growth in our model in 2014 as new adoptions fall off. We believe that increased reliance on replacement sales represents greater market exposure to potential macro volatility.”. JPM also cut QCOM from OW to N.

Buzzi Unicem Raised To Neutral VS Sell at Goldman
Catlin Cut To Underperform VS Neutral at Credit Suisse
Gas Natural Raised To Overweight VS Equalweight at Barclays
Glencore Raised To Outperform VS Market Perform at Bernstein
IMI Cut to Sell VS Neutral at UBS
KPN Raised to Market Perform VS Underperform at Bernstein
L’oreal PT Raised 2% to Eu114 at Exane; Kept at Outperform
Lafarge Added To Conviction Buy List at Goldman
Pennon Cut to Neutral vs Overweight at JPMorgan
Petrofac Raised To Buy VS Neutral at UBS
Rallye Rated New Underweight at Barclays; PT EU20
Telecom Italia Cut to Market Perform at Bernstein
Thomas Cook Cut To Underperform VS Neutral at Exane
Wirecard Raised To Buy VS Hold at Berenberg
Yara PT Raised 4% to Nok280 at Exane; Kept at Neutral
Zurich Insurance Cut to Market Perform at Bernstein


Asian markets
Nikkei 225 down -138.74 (-1.22%) at 11,230
Topix down -15.11 (-1.56%) at 953.39
Hang Seng up +38.16 (+0.16%) at 23,215

US markets
S&P 500 up +2.42 (+0.16%) at 1,519
DJIA up +47.46 (+0.34%) at 14,019
Nasdaq down -5.51 (-0.17%) at 3,186

European markets
Eurofirst 300 up +7.15 (+0.62%) at 1,161
FTSE100 up +61.32 (+0.98%) at 6,338
CAC 40 up +36.00 (+0.99%) at 3,687
Dax up +26.45 (+0.35%) at 7,660

€/$ 1.34 (1.35)
$/¥ 92.90 (93.51)
£/$ 1.57 (1.57)

Commodities ($)
Brent Crude (ICE) down -0.05 at 118.61
Light Crude (Nymex) up +0.11 at 97.62
100 Oz Gold (Comex) up +3.60 at 1,652
Copper (Comex) unchanged 0.00 at 373.65

10-year government bond yields (%)
US 1.98%
UK 2.13%
Germany 1.64%

CDS (closing levels)
Markit iTraxx SovX Western Europe -1.76bps at 104.18bp
Markit iTraxx Europe -3.14bps at 113.3bp
Markit iTraxx Xover -13.77bps at 441.27bp
Markit CDX IG -2.06bps at 87.45bp

Sources: FT, Bloomberg, Markit


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