The Dawn Patrol – 12.04.13 – GS bull, MS: 8 stocks into earnings, JPM d/g BAE, Citi European portfolio strategy… and MORE!

Bonjour,

European markets to open lower today after four days up. There will be some interesting macro data today with the Eurozone IP for Feb and the US March retail sales, PPI and Business invetories. We also have JPM publications. On the side of the great European game of politics, the EU finance ministers will meet and approve the Cyprus bailout and we may get an update on the banking union. If we open down this morning, we may finish up depending on the US data…

Today:

– Euro zone area: Spanish/Italian CPI, Eurozone IP

– U.K: Construction Output

– U.S: Retail Sales, U. of Michigan Confidence

WEEK END

If you’re in London: A retrospective of Roy Lichtenstein.

If in Paris… get on your bike and ride on Sunday, because it’s going to be sunny!

This has nothing to do with anything at all: https://www.youtube.com/watch?v=Spq-K1J0yk8

EXPO: Chagall, entre guerre et paix. Au musée du Luxembourg (75006)
RESTO: Quai-Quai, 74 Quai ds orfèvres. 75001.
FILMO: Derrière la colline de Emin Alper.

Bon Week End!

NEWS

Nestle Aims to Lower Dividend Payout Ratio to 55%, Chairman Says

Cyprus Extends Capital Controls Seven Days

MetroPCS’s Largest Shareholder Paulson Backs Sweetened Bid

Xstrata and Glencore at thte J.P Morgan Nordic Mining and Steel day.

Mediaset denied press reports that it plans to sell its Mediaset Premium unit. BBG

CURRENT STUFF

New Drive for Tougher European Bank Tests (WSJ)
Europe is embarking on a new attempt to pull its banks out of the molasses of its debt crisis, hoping an aggressive cleanup of toxic assets will get banks to lend again and kick-start its flailing economies.

EU’s Rehn Calls for Faster Banking Union (WSJ)
Rules on how to deal with troubled banks in the euro zone should be accelerated and the bloc’s banking union should be in place by 2015, European Commissioner for Economic and Monetary Affairs Olli Rehn said.

Man Group is preparing a sweeping reorganisation of its core quant fund business, AHL, in an effort to diversify its revenue base and regain ground lost to competitors. The division is to launch new funds and is poised to embark on a hiring spree, say people at the company. (Financial Times)

Singapore’s GDP shrank an annualised 1.4 % in the three months through March 31 from the previous quarter. The Monetary Authority of Singapore said it won’t change the slope and width of the currency trading band that it uses as the main policy tool.” (Bloomberg)

STRATEGY

GS (Nielsen) GOAL Global Strategy Paper No. 9
Framing the future: Strong potential for global equities to 2015

We develop a new framework for forecasting equity returns over the medium term using a consistent approach globally. We extend our forecast horizon to the end of 2015.
We forecast strong returns, mainly driven by earnings growth, in all four regions we consider. We expect the best annualized total return in Asia ex- Japan (21%), followed by Europe (19%), Japan (15%), and finally the US (9%). These returns fall between the 50th and the 87th percentile of the distribution of US historical returns.

Citi (Catley) European Portfolio Strategist
Help Yourself
Enough growth to avoid the worst
— Citi’s economists expect global growth to be a touch below average this year and average next year. Not that bad.
Not enough growth to float all boats — But with the Eurozone mired in recession there is not enough growth for all companies to do well.
Balance sheets and profits repaired — Balance sheets and margins are in good health, there is cash on the balance sheet and credit markets are offering cheap funds.
It is now up to companies to deliver change — There are fewer reasons for companies to delay decisions, and the markets are rewarding those that go and do it.
Restructuring to release value — Cut costs, refocus, invest in growth, sell off, spin off or shut. There are plenty of options open to businesses. We expect more to grab them.
Companies where Citi’s analysts see opportunities — Around 25 make the list. Aviva, Novartis, PPR, Rio and Reckitt Benckiser are featured and on our Focus List.

UPS & DOWNS

MS (Britz) Convictions into Earnings
8 stocks with Near Term Catalysts.

We highlight eight names for which Morgan Stanley Research analysts have high conviction going into earnings season. Analysts expect the shares to move materially over the next 15-60 days on upcoming results or imminent news flow during the period. Each view is backed by a Research Tactical Idea (RTI), which is a short-term call on price performance on an absolute or relative (to the industry or sector) basis.

BAE Systems (JPM, Perry, CFA) If you don’t invest you don’t grow; downgrade to Underweight
On 10 April we received BAE’s 2012 Annual Report. We learnt that in 2012 BAE cut its self-funded R&D by £72 mn yoy, the 3rd consecutive R&D cut. We did not know this on the day of its results (21 February), when BAE beat our 2012 EBITA estimate by £59 mn. Second, BAE’s 2012 pension finance (PF) gain of £55 mn in 2012 becomes a charge of £115 mn under new IAS 19 rules. We thus cut our clean EPS (including the PF charge) by 6%/10%/11% for 2013/14/15E. We downgrade to UW. Our new Dec-13 price target of 365p implies 8% potential downside.

European Auto Suppliers (JPM, Asumendi) Initiate with Neutral recommendations on both Faurecia with PT €13.5, and Pirelli with PT €9.5
In Faurecia and Pirelli, we see two well managed companies that are experiencing limited visibility in a European market suffering from declining volumes. With Faurecia, we address in our initiation why we believe results will fall below guidance, leading us to a Neutral recommendation and price target of €13.5. On Pirelli, we have belief in the company’s fundamentals over the long term, but initiate with a Neutral recommendation and price target of €9.5 due to short term market dynamics.

ARCELORMITTAL RAISED TO HOLD AT LIBERUM, PT EU10
BAE CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
CAIRN ENERGY RAISED TO OUTPERFORM VS SECTOR PERFORM AT RBC
CHR HANSEN RAISED TO HOLD VS SELL AT SOCGEN
CRODA CUT TO SELL VS NEUTRAL AT UBS
DUERR RATED NEW BUY AT UBS, PT EU104
FAURECIA RATED NEW NEUTRAL AT JPMORGAN, PT EU13.5
HEIDELBERGCEMENT RATED NEW BUY AT SOCGEN, PT EU64
HOLCIM RAISED TO BUY VS HOLD AT SOCGEN
HSBC CUT TO HOLD VS BUY AT LIBERUM
INFORMA CUT TO HOLD VS BUY AT JEFFERIES
JCDECAUX RAISED TO OUTPERFORM VS UNDERPERFORM AT EXANE
JOHNSON MATTHEY RAISED TO BUY VS NEUTRAL AT UBS
K+S CUT TO SELL VS HOLD AT DEUTSCHE BANK
LEGAL & GENERAL CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
LEIFHEIT RATED NEW HOLD AT BERENBERG, PT EU33
MAIRE TECNIMONT PT CUT 33% TO EU0.4 AT EXANE; KEPT AT NEUTRAL
MILLENNIUM RAISED TO HOLD VS SELL AT ING
MOSCOW EXCHANGE RATED NEW OVERWEIGHT AT JPMORGAN, PT R61.43
MTN RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
PIRELLI RATED NEW NEUTRAL AT JPMORGAN, PT EU9.5
REED ELSEVIER CUT HOLD VS BUY AT JEFFERIES
RENTOKIL CUT TO NEUTRAL VS BUY AT GOLDMAN
RESOLUTION RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
ROYAL BAFOKENG PLATINUM RAISED TO BUY VS NEUTRAL AT BOFAML
VODACOM RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
WILLIAM HILL CUT TO HOLD VS BUY AT DEUTSCHE BANK

OVERNIGHT MARKETS: MIXED

Asian markets
Nikkei 225 down -100.70 (-0.74%) at 13,448
Topix down -3.95 (-0.34%) at 1,143
Hang Seng up +38.23 (+0.17%) at 22,140

US markets
S&P 500 up +5.64 (+0.36%) at 1,593
DJIA up +62.90 (+0.42%) at 14,865
Nasdaq up +2.91 (+0.09%) at 3,300

European markets
Eurofirst 300 up +6.70 (+0.56%) at 1,193
FTSE100 up +28.77 (+0.45%) at 6,416
CAC 40 up +31.95 (+0.85%) at 3,776
Dax up +61.00 (+0.78%) at 7,872

Currencies
€/$ 1.31 (1.31)
$/¥ 99.43 (99.67)
£/$ 1.54 (1.54)

Commodities ($)
Brent Crude (ICE) up +0.05 at 104.32
Light Crude (Nymex) down -0.20 at 93.31
100 Oz Gold (Comex) down -3.50 at 1,561
Copper (Comex) unchanged 0.00 at 342.80

10-year government bond yields (%)
US 1.79%
UK 1.79%
Germany 1.31%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.44bps at 101.51bp
Markit iTraxx Europe -2.05bps at 107.97bp
Markit iTraxx Xover -15.54bps at 434.26bp
Markit CDX IG -0.44bps at 81.56bp

Sources: FT, Bloomberg, Markit

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