LCM Dawn Patrol – 09.07.13 – MS 10 value names, JPM on EU trucks and Vivendi, GS likes Technicolor, TuesGear (???)

Aloha,

European markets to open higher today following the US (S&P+0.58%) and Asia (Nikkei+2.30%) as everyone now turns bullish on the US economy and Alcoa published some better than expected numbers (although the stock reversed early gains). As macro fears evaporate again, we’ll focus on the fundamentals (earnings), we’ll try to find some GARPy stocks (see MS note below) and will hope that the situation in Egypt stabilises after the bloodshed.

Today, we’ll monitor Ind. Production in the UK and trade; IMF interim global growth forecasts.  Netherlands sells bonds; Germany, U.K. sell linkers. ESM and
Greece sell bills.

TuesGear

(trying to find a name for this new section which is about gear and will be every Tuesday…)
Trying the Samsung Galaxy S4. As you may know, I’m an Apple fan and I’ve been using Apple products since the launch of the Apple ][e (1983). And now I’m giving a try to the Galaxy S4. It’s big, it’s bright. I really like the screen. It’s fast. It’s quite easy to switch from an iPhone. It’s much geekier in terms of apps and capabilities. I’ll give you more info next Tuesday as I just received it, but I like it… #mygalaxyS4

samsung

NEWS

Greece wins release of aid, stays lashed to tight conditions
U.K. house-price index rises as demand reaches 4-yr high
Spain. El Mundo publishes documents allegedly from the ex-treasurer (Barcenas) pointing to allegedly illegal financing of the Popular Party in the late 1990s and including payments to the current PM (Rajoy) when he was a minister.
Chinese consumer inflation rose 2.7% in June compared to a year earlier — its highest rate in four months.
The Renminbi is the only EM currency to rise against the dollar this year. (Financial Times)
Gold ETF assets drop below 2,000 tons for first time since 2010

ALCOA
declined 0.4% in heavy after hours volumes reversing a 2% jump following its earnings release. A good quarter thanks to strong lightweight aluminium growth (cars + planes) but volumes forecasts seem weak according to JPM. Sales/EPS came in at $5.85bn/7c vs $5.85bn/6c expected. The company also faces a $180m bill on a bribery probe (FT).

Apple’s Channel checks suggest core suppliers are expecting a 20 percent cut in  orders, Brian Blair of Wedge Partners says.
Barnes & Noble Edges Closer to Breakup as CEO Quits Amid Losses
Hon Hai 2H Consensus Sales Estimates Down 9.9%, Pegatron Up 11%
Intel Falls; Evercore, Citi Cut Ests., Cite PCs, Cannibalization
LVMH Acquires Cashmere Clothier Loro Piana for $2.6 Billion (a good deal according to MS’ Singlehurst)
Microsoft may unveil restructure Thursday (AllThingsDigital)
Munich Re Says Europe Flood Damage Tops EU12b, Sueddeutsche Says
SAP Faces Difficult Quarters Ahead, UBS Says
Tesla Motors to replace Oracle Corp on Nasdaq 100 Index

CURRENT STUFF

May U.S. consumer credit printed  at $19.6 bio vs. a BBG consensus of $12.5 bio, the biggest monthly jump  in a year. While non-revolving debt (mostly auto and student loans) continue to represent the lion’s share of  gains in this series, today’s report was rather interesting – revolving debt (mostly consumer credit cards – mortgage debt is not included in this report) increased $6.6 bio MoM, jumping to +9.3% YoY from +1.1% in  April and -1.1% in May.  While it’s a volatile number, the 3 month average of revolving debt is now running  at its highest since Spring, 2008.

Chinese consumer inflation rose 2.7% in June compared to a year earlier — its highest rate in four months. Producer input prices fell by 2.7%. The median estimate for CPI was 2.5% in a Bloomberg News survey. Food prices were up 4.9%. In May, the year-on-year increase was 2.1%. (Bloomberg)(Financial Times)

European Crisis update: German Finance Minister Wolfgang Schaeuble said Greece made “considerable progress,” commenting after a meeting with euro-region colleagues.  Says funds to be paid according to Greek financing needs. Says sub-tranches required due to Greek program delay – Slovenia “strongly encouraged” to cut deficit & Spain “is very successful, everything is well on the way”

Alcoa faces a bill of up to $180m to settle a bribery probe brought by the US Department of Justice, the US aluminium company revealed on Monday as it seeks to close the book on long-running allegations of corruption in Bahrain. It reported underlying earnings for the second quarter slightly better than analysts’ expectations but a headline loss hit by the provisions for the deal with the DoJ and restructuring costs. (Financial Times)

China’s air pollution has cut life expectancy by an average of 5.5 years in the north of the country and caused higher rates of lung cancer, heart attacks and strokes — according to a new study seen as groundbreaking because there is little historical precedent for prolonged exposure to such high levels of air pollution. (Financial Times)(Bloomberg)

To read:

Why Google is a “must own”: http://ow.ly/mKPur

Much attention devoted to real estate and housing and other sectors to blunt formation of bubbles using “macroprudential tools,” WSJ said, citing its analysis. (WSJ)

UPS&DOWNS

Theme Trades (MS, Secker) 10 Value Stocks with EPS Growth in Europe
Our European strategy team currently prefers Value over Growth, given much more attractive relative valuations, wide valuation dispersion, a relative improvement in Value’s ROE, and an improving macro outlook. However, the ongoing inflection point in US monetary policy and associated back-up in bond yields means that Value stocks will also have to offer reasonable EPS growth to outperform. In this piece, we highlight 10 Morgan Stanley Overweight stocks that are trading at attractive valuations, while offering higher EPS growth than their peers. Aberdeen, Akzo Nobel, Aviva, EDP, Eni, Lafarge, Petrofac, Siemens, Technip, Volkswagen.

European Trucks (JPM, Whight) Regional review and Q2 preview: 2014 risks building, book-to-bills peaked; d/g Volvo and Scania to Neutral
Our positive view on Trucks was based on a view that near term orders would come in ahead of market expectations, particularly in Europe. At Volvo we saw (and still see) upside from the 2014/2015 reorganization, while we saw Scania best exposed to benefit from the 2013 recovery in Brazil post Euro 5 transition. Truck orders have beat expectations but with the book to bills now peaking and increased risks in Europe and Brazil, near term upside looks limited and we lower our recommendations to Neutral. At Volvo we do not see a near term catalyst for outperformance with Q2’14 the first quarter where the market gets confirmation of the reorganization potential, in our view. At Scania, we are concerned about the medium term outlook in Brazil.

Vivendi (JPM, Lo Franco) The sale of MT and cash back from AB could pave the way for potential cash returns by Vivendi
According to an article in the FT, VIV could force, from Tuesday, the payment of a large dividend from Activision Blizzard (AB). A large dividend payment or a share buy back by AB would be positive news for VIV as it would ease pressure on VIV’s BBB/Baa2 rating (with neg outlook at S&P and Moody’s) and div payments. As we have previously highlighted, we believe the completion of the sale of Maroc Telecom (MT) and potential cash returns by AB would be positive news for VIV, helping to unlock value, reduce the conglomerate discount and trigger cash return to shareholders.

Technicolor (GS, Schafer) Buy: Upgrade to Buy and onto Conviction List with a €5 12M price target
Technicolor to CL Buy (from Neutral) on raised multiple to make it more congruent with the recovery in margins and cash returns. We are encouraged by the recovery in Digital Delivery and its efforts to monetize its IP portfolio more aggressively.

C&C GROUP RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
CORIO RAISED TO NEUTRAL VS SELL AT UBS
DNB ASA RAISED TO OUTPERFORM VS SECTOR PERFORM AT RBC
EDF RAISED TO NEUTRAL VS SELL AT UBS
ELIA CUT TO HOLD FROM BUY AT ING; PT LOWERED TO EU33 VS EU37
ENKA INSAAT RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
ERSTE RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
HIKMA RAISED TO NEUTRAL VS SELL AT UBS
KOMERCNI RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
OSRAM LICHT RATED NEW BUY AT UBS, PT EU38
PKO CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE
RAIFFEISEN CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
RUSAL RAISED TO OUTPERFORM AT CREDIT SUISSE, PT HK$4.50
SCANIA, VOLVO CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
TECHNICOLOR RAISED TO CONVICTION BUY VS NEUTRAL AT GOLDMAN
WEIR GROUP RAISED FROM UNDERWEIGHT AT MORGAN STANLEY

OVERNIGHT MARKETS: UP

Asian markets
Nikkei 225 up +236.65 (+1.68%) at 14,346
Topix up +19.09 (+1.63%) at 1,192
Hang Seng up +63.53 (+0.31%) at 20,646

US markets
S&P 500 up +8.57 (+0.53%) at 1,640
DJIA up +88.85 (+0.59%) at 15,225
Nasdaq up +5.45 (+0.16%) at 3,485

European markets
Eurofirst 300 up +16.13 (+1.39%) at 1,180
FTSE100 up +74.55 (+1.17%) at 6,450
CAC 40 up +69.98 (+1.86%) at 3,824
Dax up +162.54 (+2.08%) at 7,969

Currencies
€/$ 1.29 (1.29)
$/¥ 101.02 (100.95)
£/$ 1.49 (1.50)

Commodities ($)
Brent Crude (ICE) down -0.18 at 107.25
Light Crude (Nymex) down -0.04 at 103.10
100 Oz Gold (Comex) up +17.80 at 1,253
Copper (Comex) down -0.02 at 3.09

10-year government bond yields (%)
US 2.65%
UK 2.51%
Germany 1.70%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.43bps at 100.2bp
Markit iTraxx Europe +1.64bps at 113.57bp
Markit iTraxx Xover +9.58bps at 455.56bp
Markit CDX IG +1.12bps at 86.56bp

Sources: FT, Bloomberg, Markit

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