LCM Dawn Patrol – 18.06.13 – MS initates Telecity with OW. Hilsenrath on the Fed’s next move. MS on Ingenico, GS d/grades Saipem, JPM d/grades Abertis…

Aloha,

Europe to open lower ahead of the FOMC meeting (today and tomorrow). The US closed off their highs on an FT article saying that the Fed is likely to signal tapering move is close. There is also an article from Jon Hilsenrath (see below). Get ready to be lectured on how lower assets purchases are different from raising rates.

We’re still in very volatile markets with the current pause and funds outflows all attributed to tapering fears. At the same time, everyone (by that I mean strategists who see the future) says it’s a known issue, it’s not like 1996, and the world economy will get better. Hard to be very bullish, but the fact that many are giving up now is a bullish sign. In any case, stick with cheap, cyclical, US exposure, strong FCF…

Today, we’ll watch EU new car registrations, the UK PPI and CPI, the German ZEW, The US CPI and housing starts.

A startup to watch: Trustev
http://onforb.es/12S2qWc

 

NEWS

China Mengniu Said Close to Buying More Than 51% of Yashili

Samsung Says Seeking Targets in Health to Education for Devices

Third Point Boosts Stake in Sony as Daniel Loeb Seeks Talks

Netflix finished up 7% on the deal with Dreamworks Animation (AND you have to watch House of Cards).

Kabel Deutschland Confirms Approach by Liberty Global (indicative offer @ €85 vs VOD @ €81/82).

Apollo Said to Bid for Rio Tinto’s Iron Ore Co. of Canada Unit

PPR Is in Talks to Buy Watchmaker Richard Mille, Reuters Says

Imtech 1Q Net Loss 59.6m Euro Vs Net Loss 79.4m Euro

Danske told by FSA to add $18b to risk-weighted assets

Ryanair chairman-linked Bonderman Trust sells EU4.48m in shrs

KPN to accelerate 4G rollout in The Netherlands

Air Liquide signs L-T U.S. contract with LyondellBasell

Commerzbank board and employee representatives reached agreement on group-wide job cuts

Rambus Raises Low End of 2Q Revenue Forecast

Ingenico Confirms FY Like-for-like Growth, Ebitda Targets

Siemens Blackstone, KKR, TPG interested in Siemens Nokia Networks

CURRENT STUFF

Fed likely to signal tapering move is close
Ben Bernanke is likely to signal that the US Federal Reserve is close to tapering down its $85bn-a-month in asset purchases when he holds a press conference on Wednesday, but balance that by saying subsequent moves depend on what happens to the economy. (Financial Times)

Economists Wary as Fed’s Next Forecast Looms
Jon Hilsenrath explains how Wall Street is watching the Federal Reserve with wary eyes as it feels the Fed has overestimated economic growth which could result in the tapering of its bond-buying program. (WSJ)

On the G8.
The outlook for the global economy remains weak, although actions by policy makers in the U.S., Japan and the euro zone have made it less likely that it will slow sharply, leaders from the Group of Eight said Monday. In a statement following the first session of a two-day gathering here, the leaders said they were committed to “exploiting all sources of growth,” including by “supporting demand.” DJ

EPFR data reveals that bond funds set a new outflow record on tapering fears. Investors pulled $14.45bn out of bond flows and $8.5bn out of equity funds during the week ending the 12th of June. Redemptions from Emerging Markets Bond and Equity Funds were the highest since 3Q11, with combined outflows exceeding $8 billion. At the country level Japan Equity and China Bond Funds extended their current inflow streak while flows into Germany Equity Funds hit a 51 week high. But China, Switzerland, Brazil and Russia Equity Funds experienced fresh outflows and redemptions from Turkey Equity Funds were the highest since mid-1Q11.

EU-US trade talks launched amid French fury with Brussels: “Barack Obama and European leaders on Monday launched talks on “the biggest bilateral trade deal in history” , an initiative that the US president has put at the heart of his second-term economic agenda. Mr Obama announced that talks on a transatlantic trade and investment deal would begin in Washington next month. While EU leaders admit the negotiations will be “difficult”, they believe they can be wrapped up within two years.” (Financial Times)

Putin, Obama Clash Over Assad’s Fate

President Barack Obama and Russian counterpart Vladimir Putin clashed openly over Syria as world leaders began a summit, sharply underscoring deepening differences over the civil war. (WSJ)

French Attack Sparks Tension With China. An attack on a group of Chinese students in Bordeaux has sparked a diplomatic outcry amid trade tensions that have threatened the budding wine commerce between the two countries. (WSJ).

Private equity-run brands’ tax bills spark ire: “Alliance Boots has accumulated a tax credit on £5bn of profit in the past six years, prompting calls by unions and MPs for an overhaul of the tax advantages enjoyed by private equity. The revelation came from an analysis by the Financial Times of the corporation taxes paid by some of Britain’s best-known brands under private equity control.” (Financial Times)

UPS&DOWNS

Telecity Group PLC (MS, Wood) Connecting the Dots
Initiate at OW, PT 1,200p

Telecity is a high growth data center provider with a highly differentiated offering, which we believe is not fully understood by the market. This has resulted in a significant valuation disconnect at current levels. We initiate with an OW rating and a 1200p PT.

TalkTalk (MS, Tsui) A Cost Story with Upsell Potential
We think TalkTalk’s FCFE can rebound 60% in FY15e from cost cutting and some upselling. Applying an 8% FCFE yield to our base case forecasts implies 280p. We upgrade to OW, with 25% upside to our new price target.

Ingenico S.A.(MS, Humpfrey) Debunking the Bear Case: Raising Estimates and PT
EW, PT €37 to €57

We believe R&D investment creates a sustainable basis for the hardware business, the threat of nearterm disintermediation is minimal and concerns on EM growth are overdone. We see a long-term opportunity for significant expansion of the POS market through mobile, which Ingenico can shape.

Saipem (GS, della Vigna): Downgrade to Neutral following further profit warning
We downgrade Saipem to Neutral following a significant profit warning driven primarily by cost overruns on onshore contracts. Our EPS falls 29%/22% for 2014E/15E, and our new 12-month target price is €17.1.

Abertis (JPM, Rall) Valuation looking full following a strong performance; downgrading to Neutral
“We are downgrading our recommendation from OW to N with a revised June-14 PT of €14. We believe that the observed decrease in bond yields over the past year has supported the shares to fully re-rate, and we see limited scope for a further increase at this stage. In addition, our revised estimates are 4% below management’s guidance and 1% below consensus. We expect upcoming newsflow to be mixed. Share buy backs and potentially increasing interest from OHL could be positives, while the prolongation of the current status quo on the Spanish regulatory side could start raising concerns about the true value of the AP-7 (and C-32) guarantees (c. 11% of our EV of Abertis), and more than offset the expected positive news flow on the French concessions.”

ABERTIS CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
ADECCO RAISED TO NEUTRAL VS SELL AT GOLDMAN
AMADEUS
IT RATED NEW BUY AT BERENBERG, PT EU29.30
AMS AG CUT TO HOLD VS BUY AT BERENBERG
AVEVA RAISED TO BUY VS NEUTRAL AT CITI
AZ ELECTRONIC RATED NEW OVERWEIGHT, PT 360P
EVONIK RATED NEW EQUALWEIGHT AT MORGAN STANLEY, PT EU30
GREENE KING CUT TO HOLD VS ADD AT NUMIS
GROUPE STERIA RATED NEW BUY AT BERENBERG, PT EU13.40
HSBC RAISED TO BUY FROM NEUTRAL AT CITI, PT GBP7.70, HK$94.20
INDRA RATED NEW BUY AT BERENBERG, PT EU12.80
LAGARDERE RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS
PRADA RAISED TO BUY FROM NEUTRAL AT CITI, PT HK$90
RANDSTAD RAISED TO NEUTRAL VS SELL AT GOLDMAN
RSA RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
SOPRA RATED NEW BUY AT BERENBERG, PT EU87.40
TALKTALK RAISED TO OVERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY
TELECITY RATED NEW OVERWEIGHT AT MORGAN STANLEY, PT 1,200P
TIETO RATED NEW HOLD AT BERENBERG, PT EU18.80
TRAVIS PERKINS CUT NEUTRAL VS BUY AT GOLDMA
VESUVIUS CUT TO UNDERPERFORM AT CREDIT SUISSE

OVERNIGHT MARKETS

Asian markets
Nikkei 225 down -22.98 (-0.18%) at 13,010
Topix up +2.99 (+0.28%) at 1,088
Hang Seng down -152.83 (-0.72%) at 21,073

US markets
S&P 500 up +12.31 (+0.76%) at 1,639
DJIA up +109.67 (+0.73%) at 15,180
Nasdaq up +28.57 (+0.83%) at 3,452

European markets
Eurofirst 300 up +8.44 (+0.72%) at 1,184
FTSE100 up +22.23 (+0.35%) at 6,330
CAC 40 up +58.50 (+1.54%) at 3,864
Dax up +87.77 (+1.08%) at 8,216

Currencies
€/$ 1.34 (1.34)
$/¥ 94.88 (94.49)
£/$ 1.57 (1.57)

Commodities ($)
Brent Crude (ICE) up +0.05 at 105.52
Light Crude (Nymex) up +0.01 at 97.78
100 Oz Gold (Comex) down -0.90 at 1,382
Copper (Comex) unchanged 0.00 at 3.20

10-year government bond yields (%)
US 2.17%
UK 2.10%
Germany 1.52%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.06bps at 90.51bp
Markit iTraxx Europe -1.26bps at 108.14bp
Markit iTraxx Xover -10.29bps at 442.38bp
Markit CDX IG -1.28bps at 82.08bp

Sources: FT, Bloomberg, Markit

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