LCM Dawn Patrol – 12.09.13 – Richemont, MS on OMV, JPM on Renault, STP, GS on SES, ASML.

Bonjour,

European stocks are seen inching higher on Thursday, adding to the week’s steep gains as investors bet euro zone industrial production data due during the session will confirm the region’s economic recovery is on track.
US equities finished mixed in fairly uneventful trading on Wednesday. Following the pickup in global recovery sentiment over the last couple of days, there did not seem to be any meaningful directional drivers for the market today. Syria remained in the headlines, though its influence waned with the waiting game surrounding the negotiations for a possible diplomatic solution. Takeaways from today’s price action were fairly limited, particularly with the dearth of macro data and the extent of the recent moves in some of the deeper cyclical plays. Tech was a notable underperformer on the back of the disappointing product update from Apple on Tuesday. While the sell-side conference season remained in focus, it has really not had a meaningful impact on near-term earnings and recovery sentiment.
Asia’s benchmark stock index swung between gains and losses after Japanese machinery orders accelerated less than expected.

Today, we’ll monitor tje Jobless claims, the French CPI and more importantly, the European IPs. We’ll also check if Berlusconi is expected from senate.

NEWS

Summers Seen Prone to Tighter Credit Than Yellen in Global Poll
Vladimir Putin Writes Intense New York Times Op-Ed — Calls Out American Exceptionalism http://read.bi/1e4NXKf

Societe Generale May Sell Asia Private Banking Unit: Reuters
Vivendi Prepares for Company Split, Names Bollore Vice Chairman
Sanofi Withdraws U.S. Lixisenatide Application, Plans to Reapply
Tesla Challenges BMW on Home Turf as Germans Go Electric: Cars
Richemont 5-Month Sales Up 9% in Constant Fx; Est. Up 10% (-3% pre mkt)
Nestle Says It’s Seeing Slight China Sales Slowdown: China CEO
Deutsche Bank, RDIF to Buy $241m Rostelecom Stake: Kommersant
Ericsson removed from conviction buy at Goldman, still buy
Norges Bank Selling 13 Million EDF Shares, Terms Show

Activision Shareholder Sues Vivendi to Halt Stock Sale
Verizon’s $265 Million in Fees for Record Bond Sale Top Average
Intel Says Toshiba, Asustek Are Building Chrome Devices
Facebook Shares Reach All-Time High on Optimism About Mobile
Men’s Wearhouse fell 14%, with the company saying fiscal second-quarter earnings fell 28%, in part because of one-time charges.
Pandora rose 6.6% after the company said Brian McAndrews would replace long-time CEO Joe Kennedy
Yahoo Inc. picked up 0.7% as CEO told attendees at TechCrunch’s conference that Yahoo has topped 800 million monthly active users
Apple Inc. got a small lift of less than 1% as investor Carl Icahn said on CNBC that he had bought shares of the company

I flag it here, in case you haven’t seen it yesterday, Adnaan Ahmad (Berenberg), the top analyst upgraded Alcatel (Sell to hold), Nokia (sell to Buy) and keeps a buy on Ericsson

CURRENT STUFF

Indices
Coca-Cola HBC, Sports Direct International, Mondi to be included in FTSE 100 Index
Two S&P 500 constituents will switch places with two S&P MidCap 400 constituents effective after the close of trading on Friday, 20-Sep. S&P MidCap 400 constituents Vertex Pharmaceuticals (VRTX) and Ametek Inc. (AME) will replace Advanced Micro Devices Inc. (AMD) and SAIC Inc. (SAI) in the S&P 500, and Advanced Micro Devices and SAIC will replace Vertex Pharmaceuticals and Ametek in the S&P MidCap 400. Capstead Mortgage Corp. (CMO) will replace Rue 21 Inc. (RUE) in the S&P SmallCap 600 after the close of trading on Thursday, 19-Sep

Brussels is probing Ireland, Luxembourg and the Netherlands over their tax deals with multinationals. Europe’s top competition authority has asked the governments to explain their system of tax rulings and give details of assurances given to several specific companies – including Apple and Starbucks – according to people who have seen the request. (Financial Times)

Li Keqiang, the Chinese premier, commits to reform vowing to overhaul state-dominated financial institutions, liberalise interest rates and eventually make the renminbi freely convertible in a sweeping restatement of the newly installed government’s economic reform agenda. Although liberalisation of interest rates and renminbi convertibility are already stated policy objectives of the government, Mr Li has rarely laid out Beijing’s financial reform agenda with much detail. (Financial Times)

Disappointment over new iPhone price hits Apple shares: Its shares closed 5.4 per cent lower at $467.83 on Wednesday, amid speculation that investors may increase calls for a redistribution of its profits, which will probably be boosted by the new devices. (Financial Times)

“Qualcomm the most cash-rich semiconductor company, said its board authorized a new $5 billion share repurchase program to return more money to investors. The plan replaces an earlier $5 billion buyback program that was announced on March 5…” (Bloomberg)

UPS & DOWNS

OMV AG (MS, Rashed) FCF headwinds limit upside – move to UW
EW to UW, PT €29.40 to €29.10

Recent acquisitions have addressed near-term volume growth issues. However, E&P capex is set to move significantly higher leading to negative FCF momentum and greater uncertainty around returns, in our view. Meanwhile, growth challenges beyond 2016 increase upside risk to capex nearer term.

STMicroelectronics (JPM, Deshpande) Recent under-performance unwarranted given improving end markets. Likely also to have maintained MEMS share in iPhone
Recent substantial (10+%) underperformance of STMicro is a buying opportunity, in our view. STMicro benefits from sales growth from improving macro, share gains in microcontroller, lower ’14 margin dilution from ST-E & ongoing opex cuts, all creating substantial ’14 mgn improvement. We remain OW with €8.8 TP with potential upside to €11.1 on our scenario analysis.

Renault (JPM, Asumendi) Encouraging European Volume Performance so far, Pricing also positive
We continue to like Renault’s cash generation ability and healthy net cash position on the balance sheet. We believe Renault is suitably geared to a potential recovery in European auto sales in 2014 (50% units sales generated in Europe) while improved group pricing momentum could lead the autos division to hit 1.9% margin in H2FY13 (1.1% in H1FY13) and over €1bn of Ebit in FY14 or 2.9% margin in FY14. In addition, the recent departure of Mr. Tavares (COO) was in our view well anticipated by Renault and we expect the upcoming announcements on the mgt will represent a catalyst to provide comfort for investors that the Renault Nissan cooperation remains intact.

SES S.A. (GS, Boddy): Off Conviction List given slower ramp-up at O3b; remains Buy rated
We remove SES from our Conviction List given delays to the launch of O3b and a slower path to breakeven than previously forecast. We retain our Buy rating as increased uncertainty over long-term growth is already reflected in SES’ 2013/14E P/E multiple.

ASML Holding NV (GS, Schafer) Buy: Reinstate with a Buy, add to Conviction List; €105 12m price target
We reinstate a rating on ASML shares with a Buy and add it to the Conviction List with a 12-month price target of €105. ASML is on the GS SUSTAIN Focus List and we introduce 2016/17 forecasts that suggest substantial cross-cycle EPS growth.

Europe: Technology (GS, Schafer) Looking for growth and relative change out to 2017
We roll forward sector valuations by 1 year, basing our 12m price targets on 2015 estimates. Given our expectations of sector earnings growth and expanding cash returns, our price targets rise by 16% on average, and we see 34% sector average upside.

AB INBEV CUT TO REDUCE VS NEUTRAL AT NOMURA
ASM INTERNATIONAL RAISED TO BUY VS NEUTRAL AT GOLDMAN
ASML RESINSTATED CONVICTION BUY AT GOLDMAN, PT EU105
BODYCOTE RAISED TO NEUTRAL VS SELL AT CITI
BOUYGUES RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
COLOPLAST RATED NEW BUY AT CITI, PT DKK370
ELISA RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
EUROPEAN STEEL CUT TO BEARISH VS NEUTRAL AT NOMURA
EXACT HOLDING CUT TO SELL VS NEUTRAL AT GOLDMAN
GREENE KING CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
HOLCIM CUT TO MARKET PERFORM VS OUTPERFORM AT BERNSTEIN
MARINE HARVEST RATED NEW BUY AT CITI, PT NK7.50
MARSTON’S CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
MELROSE CUT TO NEUTRAL VS BUY AT CITI
MICRO FOCUS CUT TO SELL VS NEUTRAL AT GOLDMAN
MITCHELLS & BUTLERS CUT TO UNDERWEIGHT VS NEUTRAL AT JPMOR…
OMV CUT TO UNDERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY
PGE RAISED TO BUY VS HOLD AT SOCGEN
SABMILLER CUT TO REDUCE VS NEUTRAL AT NOMURA
SCHNEIDER ELECTRIC RAISED TO NEUTRAL VS SELL AT CITI
SES REMOVED FROM CONVICTION BUY LIST AT GOLDMAN, STILL A BUY
SPIRAXSARCO CUT TO NEUTRAL VS BUY AT CITI
SSAB CUT TO REDUCE VS NEUTRAL AT NOMURA
TUI TRAVEL RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
YOUNG & CO BREW CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN

ECONOMIC DATA

Date Time Event Survey Actual Prior
14:30 US Initial Jobless Claims Sep-07 330K 323K
01:50 JN Machine Orders MoM Jul 2.40% 0.00% -2.70%
01:50 JN Machine Orders YOY Jul 7.70% 6.50% 4.90%
08:45 FR CPI YoY Aug 0.90% 1.10%
08:45 FR CPI EU Harmonized YoY Aug 1.00% 1.20%
08:45 FR CPI MoM Aug 0.50% -0.30%
08:45 FR CPI EU Harmonized MoM Aug 0.50% -0.30%
10:00 IT Industrial Production MoM Jul 0.30% 0.30%
10:00 IT Industrial Production WDA YoY Jul -2.70% -2.10%
11:00 IT CPI EU Harmonized YoY Aug F 1.20% 1.20%
11:00 EC Industrial Production SA MoM Jul -0.30% 0.70%
11:00 EC Industrial Production WDA YoY Jul -0.20% 0.30%
14:30 US Import Price Index MoM Aug 0.50% 0.20%
14:30 US Continuing Claims Aug-31 2960K 2951K
14:30 CA New Housing Price Index MoM Jul 0.10% 0.20%
15:45 US Bloomberg Consumer Comfort Sep-08 -32.3
20:00 US Monthly Budget Statement Aug -$146.0B -$190.5B

OVERNIGHT MARKETS: move along

Asian markets
Nikkei 225 down -33.40 (-0.23%) at 14,392
Topix down -5.00 (-0.42%) at 1,184
Hang Seng up +55.90 (+0.24%) at 22,993

US markets
S&P 500 up +5.14 (+0.31%) at 1,689
DJIA up +135.54 (+0.89%) at 15,327
Nasdaq down -4.01 (-0.11%) at 3,725

European markets
Eurofirst 300 up +4.01 (+0.32%) at 1,248
FTSE100 up +4.44 (+0.07%) at 6,588
CAC 40 up +2.47 (+0.06%) at 4,119
Dax up +49.19 (+0.58%) at 8,496

Currencies
€/$ 1.33 (1.33)
$/¥ 99.53 (99.85)
£/$ 1.58 (1.58)

Commodities ($)
Brent Crude (ICE) up +0.19 at 111.69
Light Crude (Nymex) up +0.14 at 107.70
100 Oz Gold (Comex) down -3.90 at 1,360
Copper (Comex) down -0.01 at 3.25

10-year government bond yields (%)
US 2.89%
UK 3.02%
Germany 2.00%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.18bps at 90.67bp
Markit iTraxx Europe -1.52bps at 96.98bp
Markit iTraxx Xover -4.81bps at 387.04bp

Sources: FT, Bloomberg, Markit

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