LCM Dawn Patrol – 24.05.13 – Lots of research… MS 9 undervalued stocks, JPM ups Generali, MS ups UBS, MORE…

Bonjour,

European stocks are seen opening slightly lower after another drop in Japan and despite the US markets recovery yesterday (showing that bulls are still here or as some strategists mentioned yesterday: TINA – There Is No Alternative). Kuroda commented that the BoJ had done an adequate amount on the monetary easing was the catalyst. Today’s main focus will be the German GDP and IFO. We’ll alos look at US durable goods orders. Volumes should be lower as Monday is Memorial Day in the US.

WEEK END

RESTO: Comme chez Maman (fête des mères). 5 rue des Moines 75017 Paris. Pas mal!

CONCERT: Grizzly Bear sam 25 mai 20:00 à l’Olympia.

EXPO: Ron Mueck, Fondation Cartier, 75014 Paris.

DISCO: "Penny" by Hanni El Khatib

NEWS

Elan board unanimously rejects $6.4b takeover offer

Merkel says EU needs policy coordination to avoid crisis repeat

German Consumer Sentiment to Reach 5-Year High in June, GfK Says

WPP CEO Martin Sorrell Is Targeted In An ‘Open Letter’ From One Of His Own Creative Directors (Here)

CURRENT STUFF

Draghi wants UK to become ‘more European’: “I cannot say which of the two sets of arguments is stronger, the economic or the political ones, neither am I going to enter into a domestic policy debate, but what I can say is that Europe needs a more European UK as much as the UK needs a more British Europe,” Draghi said in a speech met with applause at the City of London Corporation last night. (Financial Times)

Spanish banks will need to provision up to another €10bn to cover loans that borrowers will struggle to repay, according to an internal estimate by the Bank of Spain. It is the first official assessment of the likely impact of the central bank’s new approach towards more than €200bn of loans that were rolled over before they were due to expire, often because of doubts over corporate borrowers’ ability to repay. (Financial Times)

German shale industry takes on shale gas: “Germany’s brewers have warned Berlin that permitting unconventional gas exploration in Europe’s biggest economy could put the purity of the country’s celebrated beer at risk.” (Financial Times)

Gold is having a good week: Prices are headed for the highest weekly performance in a month amid worries about monetary stimulus. (shouldn’t it be the other way around?) (Bloomberg)

Other
– How Chinese brokerages deal with regulators: ‘kissing asses’. (Financial Times)
– How US banks deal with regulators: write the legislation themselves. (NYT Dealbook)
– Ford stops making ‘Mad Max’ style cars, blaming Aussie dollar. (Bloomberg)
– Four senior executives of SAC Capital have been subpoenaed. (NYT Dealbook)

UPS&DOWNS

MS’ 9 Overweight-Rated European Value Stocks
Morgan Stanley’s European Strategists recommend investors concentrate more of their portfolios on value stocks, which have continued to underperform. Our strategists point to the long- and short-term underperformance of cheap versus expensive stocks in Europe as well as a bottoming of the Eurozone Economic surprise index as reasons to reconsider value names. 9 Overweight-rated stocks that fit into value screens. We highlight our analysts’ investment cases on nine stocks that screen well under three of the eight different value screens used by our strategy team to identify low priced stocks. Energy and utility names are relatively over-represented on the list. Call me for the list…

Generali (JPM van Embden) Upside strategic plan outweighs downside of any potential equity issue – Upgrading to OW
Generali aims to improve its capital position without raising equity capital, earmarking divestments as the main tool to strengthen solvency instead. While this strategy could create significant value, there is potential execution risk if disrupted by renewed market dislocation. As such, raising equity might make sense, we believe, allowing the company to execute its strategy with a strong capital base. Interestingly, the shares appear to be partly discounting this already. Hence, we are comfortable with the downside risk of any potential equity issue which, notably, could be more than offset by the value of a successful execution of the strategic plan.

BT Group (JPM, Murdock-Smith) Downgrade to Neutral on near-term catalyst momentum
We downgrade BT to Neutral, seeing BT Sport, regulation and pension as sources of potential negative sentiment over the Summer. We remain supportive of BT’s strategy, but with the next positive catalysts likely being the next round of consumer price increases (end 2013, allaying price rationality concerns expected to build until then) and a possible Mar-14 lump sum pension deficit payment (to provide contribution visibility out to 2018), we believe the shares may now pause for breath. We increase our Mar-14 PT to 330p (280p) on updated sector multiples and the introduction of a 5% strategic premium offsetting the increased pension deficit.

UBS (MS, Van Steenis) How much capital return potential from faster de-risk?
OW, PT SFr18 to SFr19 | Added to MS Best Idea

We think the market underestimates potential for capital returns in 2015-16, as UBS frees up a large part of the SFr 13.9bn equity in non-core & legacy and an estimated ~SFr 2.6bn in StabFund. We forecast SFr 1.75 of combined divi/special divi in 2015-16, for a ~10% yield – the highest of EU banks.

OTE (Hellenic Telecoms) (MS, Prota) Valuation attractions fading, catalysts lacking, cutting to EW
OW to EW, PT €7.40 to €7.70

OTE looks more fairly valued after its strong run and risk-reward appears more balanced. The catalysts we identified in December have largely materialised and with earnings visibility still low, we lower to EW. With a catalyst vacuum at the moment, the stock now resembles more of a macro call.

Rexel (GS, Woodman) Buy: Undervalued inflection opportunity; onto Conviction Buy List
Reiterate Buy rating and add to Conviction List as we see it as undervalued exposure on a growth inflection, driven by stabilising end-markets, easing comps and structural growth opportunities. Valued on 9.0x 2014E EV/EBITDA, 12M PT increased to €23.2.

Aixtron (GS, Schafer): Recent rally leaves a balanced risk-reward: Downgrade to Neutral
We continue to believe that 2013 likely marks a cyclical trough in LED industry capex. However, in light of the recent run in AIX’s shares, we see a more balanced risk-reward in the stock and downgrade it from Buy to Neutral.

AIXTRON CUT TO HOLD VS BUY AT BAADER BANK
BANK PEKAO CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
BANKIA REMOVED FROM UBS’S LEAST PREFERRED LIST
BARLOWORLD CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE
BARRATT CUT TO HOLD VS BUY AT LIBERUM
BT CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
DAIMLER CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS
GENERALI RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
GUINNESS PEAT CUT TO NEUTRAL AT FIRST N.Z. CAPITAL; PT NZ$0.55
HALFORDS CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
KUMBA IRON ORE CUT TO SELL VS NEUTRAL AT GOLDMAN
Linde Raised to Outperform vs Mkt Perform at Sanford Bernstein
MAUREL ET PROM RAISED TO HOLD VS SELL AT SOCGEN
NEXT CUT TO UNDERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY
QINETIQ CUT TO NEUTRAL VS BUY AT BOFAML
TAYLOR WIMPEY CUT TO HOLD VS BUY AT LIBERUM
THOMAS COOK RAISED TO BUY VS SELL AT PANMURE
UK BANKS RAISED TO OVERWEIGHT VS NEUTRAL AT UBS
UNIBAIL CUT TO NEUTRAL VS BUY AT UBS

OVERNIGHT MARKETS: MIXED

Asian markets
Nikkei 225 down -177.96 (-1.23%) at 14,306
Topix down -6.67 (-0.56%) at 1,182
Hang Seng down -45.47 (-0.20%) at 22,624

US markets
S&P 500 down -4.84 (-0.29%) at 1,651
DJIA down -12.67 (-0.08%) at 15,295
Nasdaq down -3.88 (-0.11%) at 3,459

European markets
Eurofirst 300 down -26.34 (-2.10%) at 1,230
FTSE100 down -143.48 (-2.10%) at 6,697
CAC 40 down -83.96 (-2.07%) at 3,967
Dax down -178.91 (-2.10%) at 8,352

Currencies
€/$ 1.29 (1.29)
$/¥ 102.21 (102.01)
£/$ 1.51 (1.51)

Commodities ($)
Brent Crude (ICE) down -0.08 at 102.36
Light Crude (Nymex) down -0.33 at 93.92
100 Oz Gold (Comex) unchanged 0.00 at 1,392
Copper (Comex) unchanged 0.00 at 329.95

10-year government bond yields (%)
US 2.03%
UK 1.93%
Germany 1.44%

CDS (closing levels)
Markit iTraxx SovX Western Europe +2.78bps at 79.19bp
Markit iTraxx Europe +4.71bps at 91.94bp
Markit iTraxx Xover +18.08bps at 386.24bp
Markit CDX IG +1.73bps at 73.29bp

Sources: FT, Bloomberg, Markit

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