LCM Dawn Patrol – 21.06.13 – Week End. GS ups Bayer, downgrades Merck to sell. JPM ups Danone. Oracle crashes. Semis BtB in line.

Bonjour,

Europe to open flat today after yesterday’s crash. The S&P finished down 2.50% (below the 1600 level) and the Nikkei is now up 1.7%. The news that the ESM can directly recapitalise EZ banks is a good news (see below).

Today, we’ll keep our eyes off the economic data, we’ll look at European software names crash on Oracle’s poor numbers, we’ll see how indices rebalances will affect individual stocks, we’ll finalise our WE plans…

NOTE: Option Expiry today and there is a lot of gamma imbalance…

 

 

WEEK END

EXPO: BRASILIA, UN DEMI-SIÈCLE DE LA CAPITALE DU BRESIL. At the French Communist Party (you wish you had one too, don’t you?)
DISCO: La fête de la Musique à Paris. The program is way too big: here is a good summary: http://bit.ly/16kHKU0 and here: http://fetedelamusique.culture.fr/
RESTO: If the sun would like to show its rays a great selection of places: http://bit.ly/19muW17KEEP these addresses
FILMO: Saw Man of Steel with my son in law (I thought I found the best excuse, but he cried during the first 45′ so I gave up) Not that great..

NEWS

Oracle crashed 8% after hours on poor numbers with Sales/EPS of $11bn/87c vs $11.2bn/87c and lower guidance for newt Q and strong FX headwinds.

Vestas Sells Two Europe Wind Power Plants for 127 Million Euros

John Lewis Weekly Sales Rise 10.2% to GBP191.2m

CDP May Sell 4.5% Generali Stake by End of 2015, Sole Says

Cadbury Avoided Tax in Years Before Takeover, FT Reports

AT&T Said to Evaluate Deals With Telefonica as It Scours Europe

Sanofi’s Zaltrap Not Recommended by NICE for Colorectal Cancer

Alcatel: I write it here, Exane’s piece on the name yesterday says it all: don’t touch Alcatel.

CURRENT STUFF

SEMI reports May North American semi equipment book-to-bill ratio of 1.08 vs prior month 1.08
North America-based manufacturers of semiconductor equipment posted $1.32B in orders worldwide in May 2013 (3-month average basis) and a book-to-bill ratio of 1.08, according to the May EMDS Book-to-Bill Report published today by SEMI.
The 3-month average of worldwide bookings in May 2013 was $1.32B.
The bookings figure is 12.5% higher than the final April 2013 level of $1.17B, and is 18.1% lower than the May 2012 order level of $1.61B.
The 3-month average of worldwide billings in May 2013 was $1.22B.
The billings figure is 12.6% higher than the final April 2013 level of $1.09B, and is 20.5% lower than the May 2012 billings level of $1.54B.

Chinese interbank rates eased after reports of central bank support. The one-day repo rate receded 3.84 percentage points to 7.9 per cent, its biggest drop since 2007, while the seven-day rate fell 3.51 percentages points from the record high it set on Thursday (Bloomberg).

Fed casualties watch: Pimco’s Total Return Fund is now down 2.2 per cent for the year, the worst performing of large US total return funds (Bloomberg); Having fallen below $1,300, gold’s 23 per cent slump this year is on course to be its worst since 1981 (Bloomberg); Thursday’s bond sell-off saw ETFs’ discounts to underlying asset values widen sharply, with cash redemptions halted for some (Financial Times).

The ESM has been authorised to ‘directly recapitalise’ eurozone banks but only if governments make their own investments in stricken lenders first, and with retroactive application of the new powers to be decided on a ‘case by case’ basis. Eurozone financial ministers also confirmed the size of the direct recap funds to be €60bn, unless later expanded by the ESM board. The ESM expects the tool to become operational in the second half of 2014 (Financial Times).

STRATEGY

GS (Oppenheimer) Strategy Matters (Europe)

EM Risks, DM Implications
Intense market focus on the prospects of Fed tapering is understandable. Investors are both worried about the sustainability of an equity recovery without such support while also sensitive to assets that are particularly vulnerable to a rise in US yields. EM debt is one such area. While EM equity has generally weakened already on growth concerns, exposure to EM within Europe appears vulnerable. We discuss the implications.

UPS&DOWNS

UK Water (MS, Chada) All Eyes on OFWAT
United Utilities: OW to EW, PT 700p to 780p
Severn Trent: Resume at EW, PT 1,730p

The 2014 regulatory review increases uncertainty for the sector. While we think it will provide many challenges, importantly, we believe dividends look sustainable. More clarity, unlikely until 2014, is needed to be bullish. UU (now EW from OW) looks most attractive, but better value lies elsewhere.

SAP AG (MS, Wood): Moving beyond 2Q13
Investors have become increasingly concerned about 2Q licences post Sapphire, pushing the stock price from €64 to €56. With expectations much lower, we see a very attractive risk / reward here and remain positive ahead of 2Q results.

Danone (JPM, Pannuti, CFA) Tipping point: top line acceleration to drive earnings recovery and premium rating; upgrading to OW and adding to AFL
We raise Danone to Overweight from Neutral with a Dec-14 target price of €74 (vs. €56 to Dec-13 prior) and add the name to the European AFL. We believe Danone is set to become the fastest growing company in our coverage. After three years of flat EPS as margins were rebased, we forecast 10% EPS growth from FY14, driven by an acceleration of LFL to reach 7-8%, 1-2% ahead of its peers, as Danone delivers on its faster growing portfolio and issues in WE become less of a drag. Despite closing the valuation discount to peers YTD, we believe the shares could build a premium as top line superiority and earnings rebound become evident. Danone becomes our preferred pick amongst European food peers.

AEGON REMOVED FROM CONVICTION BUY AT GOLDMAN; KEPT AT BUY
AMLIN CUT TO NEUTRAL VS BUY AT CITI
AXA REMOVED FROM CONVICTION BUY AT GOLDMAN; KEPT AT BUY
BOLIDEN RATED NEW SELL AT SOCGEN, PT SK75
BAYER RAISED TO BUY VS NEUTRAL AT GOLDMAN
DANONE RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
EUROTUNNEL CUT TO UNDERPERFORM VS OUTPERFORM AT RBC
GO-AHEAD CUT TO SECTOR PERFORM VS OUTPERFORM AT RBC
KAZKOMMERTSBANK RAISED TO NEUTRAL VS UNDERPERFORM AT BOFAML
MERCK KGAA RATED NEW SELL AT GOLDMAN, PT EU114
SWATCH CUT TO HOLD VS BUY AT BERENBERG
TAYLOR WIMPEY RAISED TO NEUTRAL VS SELL AT CITI
Telefonica Deutschland Cut to Equalweight at Morgan Stanley
TMK CUT TO NEUTRAL VS BUY AT BOFAML
TYCO RAISED TO OUTPERFORM VS IN-LINE AT IMPERIAL, PT $37
UBS CUT TO SELL VS HOLD AT BANKHAUS LAMPE

OVERNIGHT MARKETS: DOWN

Asian markets
Nikkei 225 down -63.97 (-0.49%) at 12,950
Topix down -13.30 (-1.22%) at 1,078
Hang Seng down -305.59 (-1.50%) at 20,077

US markets
S&P 500 down -40.74 (-2.50%) at 1,588
DJIA down -353.87 (-2.34%) at 14,758
Nasdaq down -78.56 (-2.28%) at 3,364

European markets
Eurofirst 300 down -36.22 (-3.07%) at 1,143
FTSE100 down -189.31 (-2.98%) at 6,159
CAC 40 down -140.41 (-3.66%) at 3,694
Dax down -268.60 (-3.28%) at 7,928

Currencies
€/$ 1.323 (1.325)
$/¥ 97.29 (96.92)
£/$ 1.55 (1.555)

Commodities ($)
Brent Crude (ICE) up +0.42 at 102.57
Light Crude (Nymex) up +0.17 at 95.31
100 Oz Gold (Comex) up +1.2 at 1,287
Copper (Comex) up 0.01 at 3.07

10-year government bond yields (%)
US 2.42
UK 2.29
Germany 1.66

CDS (closing levels)
Markit iTraxx Europe +12.3bps at 119bp
Markit iTraxx Xover +45bps at 484.7bp
Markit CDX IG +5.3bps at 92.6bp

Sources: FT, Bloomberg, Markit

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