LCM (after) Dawn PAtrol – 06.08.13 – CredAg+, Merck+, Deutsche Post+, MS: how to play recovery in Europe.

Good morning,

European shares were likely to fall on Tuesday after six days of gains, tracking weaker stocks on Wall Street and in Asia, with investors expected to take profits from two-month highs. Asian mkt slightly down, AUD bounced as the RBA rate cut by 25bps was widely exp and short positioning was at extreme highs. The PBoC also issued statements attempting to explain why the growth of themoney supply has outpaced that of the economy. Corporates made regional headlines as HSBC’s  below-expectations earning weighed on the Hang Seng, and Sony’s (6758.JP) rejection of a proposed spinoff of its’ entertainment unit was a drag on the Nikkei.

Today: German factory orders; US June trade balance; JOLTS job openings; Chicago Fed’s Evans speaks.



Crédit Agricole appeared to post Q2 results early – and they beat, apparently: “According to a presentation published on Monday ahead of the scheduled results announcement on Tuesday,Crédit Agricole made €1bn of pre-tax profit in the second quarter. Analysts has estimated about €778m, according to a poll from Bloomberg.” Shares in the bank had risen 2.5% on Monday, but it was not clear when the presentation was published or whether investors had been able to trade on the information. Calls to executives in NY and Paris were not immediately returned. FT

Merck KGaA
EPS beats est, confirms FY forecast; still sees 2013 sales ~EU10.7b-EU10.9b, Ebitda ex-items ~EU3.1b-EU3.2b, EPS ex-items ~EU8.50-EU9
Deutsche Post 2Q ahad consensus (2Q Net Eu422 Mln; Analyst Est. Eu362.8 Mln)
Salzgitter says guidance revised on Peiner Traeger losses Trading, services still meet expectations
DSM 2Q net slightly below exp, confirms forecasts.
Lanxess 2Q net well below exp, sales inline and cut 2014 target , says 2013 remains challenging
Munich Re Net a touch lower than anticipated, net combined ratio non-life reinsurance 99.3% vs 96.9%. Gross premiums EU12.9b vs EU12.6b. 2Q op. profit EU594m vs est. EU953.4m
Sky Deutschland 2Q Beats; Revenue surges on higher subscriptions. 2Q Ebitda up 60% Y/y to EU36.8m vs est. EU32.6m (10 ests); reiterates FY outlook: 2013 Ebitda expected to be positive, to grow strongly thereafter
Pirelli 2Q beats estimates strong beat in Industrial tires led by LatAm strength, poor outlook on Russia
Sony rejected Daniel Loeb’s proposal to sell part of its entertainment business through a public offering, saying in a letter released today that holding full ownership of its movies and music divisions are fundamental to the company’s future. Loeb had no immediate comment.
Telenor CEO sells 100,000 Shrs at Avg NOK 132.55/Shr
Amazon’s Jeff Bezos to buy Washington Post for $250m
Revlon to acquire Colomer Group from CVC for $660m
Liberbank Sells 8.2m Indra Shares for EU10.90 Each


FED Survey:
Banks eased lending standards, “experienced stronger demand in most loan categories”
China unveils some results of provincial government debt. The China Securities Journal revealed preliminary results of the government’s audit of local debt. Findings included that 9 of 35 provinces have debt ratios in excess of 100%, with the highest at 189%. The names of the provinces have not been revealed. StreetAccount notes that concerns over local government debt levels have been intensified by speculation of a growth slowdown in China.
PBoC sees some risks in credit growths, highlight importance of reforms. The WSJ highlights the PBoC’s quarterly monetary policy report (Chinese), noting that the +15% y/y growth of the money supply doubles the growth of GDP. Thecentral bank cites a growth lags from capital investment, infant industries, credit holdups and hoarding as reasons why the money supply hasn’t stimulated growth. The PBoC stressed the importance of reforms to China’s financial system, and warned of the risks of hoarding cash.

“Private-equity firms are adding debt to companies they own to fund payouts to themselves at a record pace, as fears mount that the window for these dealswill close if interest rates rise.” WSJ
IMF warns on Japanese debt levels. The WSJ, citing an interview with a director, reports that the IMF sees risks if investors believe the government is “monetizing its debt.” The article notes that some BoJ officials share the concern, adding that the IMF is pushing for an increase in revenues. In a staff report, the IMF speculated that long-term bond yields could rise from their current levels of 0.8% to 5.5% by 2030, and warns of risks of short-term yield spikes. StreetAccount notes that there has been debate in Japan as to whether the government should delay a planned sales tax increase; the belief is that PM Abe will make a decision in September.

To read:
ECB announces schedule for next banking crisis :–mahoney
Soft approach to forward guidance may be Carney’s best bet
The bond-market selloff in historical perspective: excellent analysis from WSJ
The rich are saving cash at a record pace:






JPM Global Fixed Income Markets Weekly: How ECB forward guidance affects the best bearish trades:

Stay biased short duration globally; better macro data supports higher long-end rates although central bank policy will keep front-end rates moored. Compared to prior periods of improving macro data, ECB forward guidance has turned the typical sell-off dynamic on its head. Specifically, shorts in front-end rates are underperforming and positive carry is a positive predictor of subsequent P/L. These trends are likely to persist, pushing the pivot point farther out the yield curve for longer than is normal and supporting sustained curve steepening.

MS European Equity Strategy : How to play a potential recovery in European ROE
Better domestic macro newsflow suggests an upturn in Europe’s ROE. We look at those stocks and sectors that offer the lowest ‘normalised’ PE.
The recent upturn in Europe’s economic indicators suggests EPS and ROE can rise going forward. ROE improvement is critical for Europe to outperform. Europe’s relative valuation is close to a record low on ‘normalised’ PE but close to a record high on trailing PE.
Banks, Diversified Financials, Food Retailing and Materials offer a combination of low valuations and low ROE relative to history – i.e. these sectors offer the lowest ‘normalised’ PE.
European stocks that trade on low normalised PEs include: Aegon, AXA, BHP Billiton, BNP Paribas, Credit Suisse, EDP, ENI, Gas Natural, KBC, Lafarge, Mapfre, Metro, Royal Dutch Shell and Vinci.






JPM on Unilever : Going gets tougher: Earnings risk as top-line slows Downgrade to Neutral
Despite the slide in earnings YTD we see further earnings risks at Unilever, as the market has yet to factor in a slower top line growth and muted margin rise as management reinvests to grow. Top line should not only bear the brunt of cyclically lower inflation, but Unilever’s market share gain success story is loosing steam while competition is heating up. At 18.9x PE14E, itsvaluation premium looks vulnerable in the face of slower underlying delivery. While MT performance should be in line with peers, top line upsets in Q3/Q412 could drive ST underperformance. Downgrade to Neutral.

Barcap on European Food Retail: Aisle Help Local versus Multinational
Globalisation of food retail was once believed to be the future of the industry but over the last few years as the general underperformance of many global retailers has continued we are seeing a reallocation of capital and a redirection of focus back towards home markets. In our latest thematic report we examine the advantages and disadvantages of local and multinational businesses. Multinationals clearly ought to have certain advantages most notably buying power but also cost absorption and sheer financial muscle. However, the better local operators have been able to outweigh these pointsthrough local knowledge, greater focus and lighter cost structures. A good local operator can therefore often beat an averagely good Multinational. However, this preference for local is starting to be heavily reflected in valuation multiples and thus we feel that the share prices of some of the strongest local operators including Jerónimo Martins and Colruyt might have run too far. We also express caution about retailers entering new markets organically which gives us another reason to be cautious on Jerónimo Martins given its entrance into Colombia. Meanwhile, for a local operation, with strong management and a track record of consistency, we feel Sainsbury remains under-appreciated.

GS on HeidelbergCement (HEIG.DE): A solid showing in 2Q13, but valuation remains full; Sell
1H13 results were solid and especially in W. Europe. However, despite the positive reaction, we make little change to core forecasts and the small increase in our price target still implies downside potential. Maintain Sell rating.

Thoughts on HSBC from here capital return expectations intact (Barcap)
At first look, HSBC’s first half numbers disappointed on income and credit quality, but digging through the detail they look better. With capital strong and management reiterating a planned 60% dividend payout ratio this year, slightly weaker headline earnings don’t seem to particularly threaten our 20% ahead of consensus dividend forecast for 2013 and we continue to see HSBC as well placed for faster growth and returns moving through 15% in the medium term. We reiterate our Overweight rating.




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