LCM Dawn Patrol – 20.0513 – GS on Telcos, JPM on Europe, Barcap global portfolio.

Bonjour,

European stocks were seen rising at the open on Monday, taking their cue from ebullient global equity markets after encouraging signals from the U.S. and Japanese economies. The U.S. Dow and S&P 500 finished at fresh record peaks on Friday after estimate-beating economic data and Japan’s Nikkei surged to a 5-1/2 year high on Monday as Tokyo raised its assessment of the economy for the first time in two months.

This week’s economic diary includes US, China & Eurozone flash PMIs, UK & German CPI plus MPC & FOMC minute

Done!
Rode 200km this week end. Despite the pouring rain and the freeing cold
All for Zumarika ‘www.zumarika.com’

NEWS

Barron’s is cautiously positive on European telecoms, suggesting that companies are not investing enough in new infrastructure. However, as regulators change measures in the industry and allow telecoms to charge more in order to encourage investment rather than competition, Europe’s telecoms are likely to follow in the path of the U.S. Barron’s likes FranceTelecom and Telecom Italia in the short-term, and Deutsche Telekom and Telefonica in both the short-term and long-term.

Shire studies $2b capital return to Investors acc to Mail

BHP’ s announcement of $4b, or 18%, cut in capital and exploration spending to $18b for fiscal year endingJune 30, 2014 reduces cash outflow while commodity prices are low – Moody’s

Petrobras has encountered low permeability at sections of Iara field, one of Brazil’s largest prospects. (BG Group has 25% stake in BM-S-11 block that includes Iara, Galp Energia has 10%)

Danone-COFCO venture to take 8.3% stake in China Mengniu Dairy

Barron’s is positive on ING U.S., suggesting the newly-public company is undervalued and poorly understood. Spun off of ING as required in part of a rescue plan by the Dutch government, the retirement-services specialist and asset manager’s shares could rise 30% or more in the case of a takeover. Barron’s notes that on a price-to-book value, ING U.S. is the cheapest stock in the sector.

5 reasons why Yahoo is making a $1.1 billion mistake bit.ly/Z5WoiD

Vodafone investors are urging CEO Vittorio Collao to decide on Verizon Wireless, co.’s joint venture with Verizon Communications in the U.S acc to the Sunday Telegraph. Shareholders may want a large part of payout returned as special dividend or share buyback

Telecom Italia controlling investor Telco will “very likely” take time to review additional details on spinoff plan provided at May 23 board meeting, Il Sole 24 Ore reports.

Blackstone and Carlyle may bid for UK’s Chesapeake … Deal may be worth as much as GBP400m – Sunday Times

Royal Mail IPO may value group at GBP3b – UK govt ministers are set to appoint banks to manage initial public offering by end of May, Sunday Times

CVC Capital Partners Ltd. targeting a $12 billion market value for Formula One on the Singapore stock exchange within 12 months – Guardian

BP sees completing sale of Carson refinery to Tesoro in 2Q

CURRENT STUFF

Europe
Italy premier says he’s demonstrated that jobs are central to his admin., pointing to initiatives on youth unemployment he’s announced for EU meeting in June – Repubblica.
Greek PM Antonis Samaras says fears of a “Grexit” are now replaced by certainty of a “Greekovery,”. Greece is steadily developing into a “success story". Greek coalition govt. is ‘‘absolutely solid’’ and ‘‘able to deliver"
Buba’s Weidmann says France has duty to cut deficits – Bild
Portuguese banks fear ‘Cyprus virus’: Heads of the country’s two biggest banks in separate interviews both called on Europe’s leaders to moderate their stance towards the periphery, fearing that the precedent set by Cyprus had raised nervousness across the eurozone to dangerous levels.

China
Chinese house price data raises overheating fears … China’s new-home prices rose last month in 68 of 70 cities tracked by the government, and increases in Guangzhou, Beijing and Shanghai were the biggest on a yearly basis since a change in data methodology in January 2011.

Yahoo buys Tumblr for $1bn
WSJ indicated the acquisition has been agreed, with reports putting the price at $1bn – $1.1bn in cash. The move represents the first big bet by Yahoo’s new CEO Marissa Meyer. Tumblr has 100m users but very little revenue. But the price may be disappointing to early Tumblr investors; at its last round of fundraising, in September 2011, it was valued at $800m.

Other (interesting) stuff :

M&A activity low despite reduced Interest Rates : Percentage of corporate loans being applied to mergers andacquisitions 25% so far this year, compared with 60% in 2006. Low rates have led to refinancing and recapitalization competing with M&A – FT

UPS&DOWNS

JPM reiterate OW on STM citing 20% upside & upgrade PT of UK Property’s stocks (British Land and Land Securities). GS reiterate Buy on ITRK.L and HTY.L, reiterate Sell on A2A, reiterate CL Buy on SBMO.AS, reinstate GASI.MI as Neutral
Thomas Cook cut to Neutral at UBS, Next cut to Neutral at Nomura, Barcap reiterate its preference for ABB over SIE

GS on Telecom Services :
In this note, they outline the need to be selective when ‘buying yield’ in European telecoms given the challenges facing the sector and the recent history of large dividend cuts.

They like (CL-Buy), SCMN and VOD (both Buy rated). Those with high dividends but also high structural risk inc TEF, DT (both Neutral) and FT (CL-Sell), which we would avoid in the ‘search for yield’. The large combined market cap of these ‘risky yield’ names supports thir strategists underweight sector view.

STRATEGY

JPM Equity Strategy (Mislav Matejka) : Valuation cushion still significant despite large P/E rerating
We stick to thecall that markets will not see the typical seasonal weakness this time around and expect them to continue grinding higher. The question is whether valuations are becoming a constraint as EPS revisions remain negative (-5% ytd) and P/E multiples have moved back to historical averages (near 13x). P/E rerating was big, but we think that asset reflation will continue to dominate as prospective yield on equities is still beating most other assets, hands down. Inflows into equity funds are in early stages and institutions remain largely underinvested. We continue to expect the asset reflation theme to be manifested in peripheral spread compression far beyond what fundamentals would call for. This should help: 1) beaten down domestic Euro plays, and 2) Banks. It should also support increased buyback activity. Ytd 38 MSCI Europe names bought back stock and were rewarded for it (+4%).

Barcap Global Portfolio Manager’s Digest : Shifting energy trends

Expect a gradual impact from US shale energy. While rising domestic petroleum and natural gas exploration will likely drive the US to more energy independence, we still expect it to remain a net importer of oil until 2020. The broader implications across equities and economics could be substantial but we see these changes a more gradualthan most expect
Cheaper oil scenario lowers EM inflation. In a $90/bbl oil price environment, we believe EM Asia’s current account surplus would improve by 25%, resulting in a lower inflation outlook. This should benefit most countries leading to lower yields and a favorable bond market,with India and Thailand outperforming.
A new era of cash returns. We think near-term investor interest in technology will be driven by cash returns in the face of a challenging environment for the sector. We have already seen US bellwethers move toward a cash return strategy and expect other companies in Europe and Asia to follow suit.
GSEs return to operating profit. Given the recovery in the US housing market and an improved earnings profile for the GSEs, we see several means for the government to reduce its exposure to mortgage credit. We see privatization as a scenario; however, we do not view this as a likely outcome given the political landscape

OVERNIGHT MARKETS: UP

Asian markets
Nikkei 225 up +219.98 (+1.45%) at 15,358
Topix up +18.73 (+1.49%) at 1,272
Hang Seng up +391.35 (+1.70%) at 23,474

US markets
S&P 500 up +17.00 (+1.03%) at 1,667
DJIA up +121.18 (+0.80%) at 15,354
Nasdaq up +33.73 (+0.97%) at 3,499

European markets
Eurofirst 300 up +2.73 (+0.22%) at 1,248
FTSE100 up +35.26 (+0.53%) at 6,723
CAC 40 up +22.20 (+0.56%) at 4,001
Dax up +28.13 (+0.34%) at 8,398

Currencies
€/$ 1.28 (1.28)
$/¥ 102.62 (103.01)
£/$ 1.52 (1.52)

Commodities ($)
Brent Crude (ICE) up +0.02 at 104.66
Light Crude (Nymex) down -0.03 at 95.99
100 Oz Gold (Comex) down -22.00 at 1,343
Copper (Comex) unchanged 0.00 at 332.10

10-year government bond yields (%)
US 1.96%
UK 1.89%
Germany 1.33%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.38bps at 88.74bp
Markit iTraxx Europe -2.47bps at 91.32bp
Markit iTraxx Xover -6.71bps at 381.68bp
Markit CDX IG -1.21bps at 70.33bp

Sources: FT, Bloomberg, Markit

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