LCM Dawn Patrol – 31.10.13 – Earnings… MS on Nestlé, utilities, JPM on Generali. Week e nd.


US equities were weaker on Wednesday, but finished off their worst levels for the session. The S&P 500 snapped a four-day winning streak. Trading was fairly quiet throughout the better part of the day with the waiting game ahead of the FOMC statement. The statement was little changed from September, a dynamic that sent stocks further into negative territory given expectations that the Fed would acknowledge the heightened fiscal overhang and the recent string of disappointing employment data. However, there did not seem to be anything in the statement that would force the market to revisit the recent pushback in expectations for an initial tapering move in 1H of 2014. This may have provided some semblance of reprieve, though overall fatigue was not too surprising given the extent to which the monetary policy tailwind has driven stocks over the last couple of weeks.

Today, we’ll scramble through earnings, again… In terms of economic data, German retail sales look weak, UK housing prices weak later we’ll we get French and German consumption data and CPI. In the US, we’ll look at the jobless claims, Milwaukee ISM and Chicago purchasing manager….

In summary: +BNP, +ALU, =NRE1V, =RXL, -TEL, -WCH, -NOVOB, -AF, -TEC, -ABI, –OR


I went to see Gravity. Not a great movie, but a great attraction. It’s like those virtual roller coasters. Make sure to go to a theater with proper 3D glasses.

EVENT • The Last Stand of Tour Paris 13. It’s official: the legendary Tour Paris 13 gallery, unsurprisingly housed in a tower in the 13th, is set to shut its doors for good this month – or rather, to send them flying in a controlled implosion.
FESTIVAL • Pitchfork Music Festival
RESTO : Le Voltaire
. 27 Quai Voltaire, 7e. One of the best (expensive) bistro in Paris.


• Abe Aide Honda Advocates 29% Japan Corporate Tax to Stoke Growth
• Fed Keeps $85b Bond-Buying Pace Awaiting Signs of Economic Pickup
• Citigroup, JPMorgan Are Said to Put Currency Dealers on Leave Amid Probe
• China’s Largest Banks Post Biggest Bad-Loan Surge Since 2010
• China, Germany Criticized by U.S. for Current-Account Imbalances

• Constantia Flexibles Plans IPO Before Year-End
• RHJ Says BlackRock Pulls Out of Deutsche Bank Unit Purchase
• EDF Says Saudi Partner Seeks Arbitration in Nuclear Dispute
• Constantia Flexibles Plans IPO Before Year-End


Alcatel 3Q operating profit beat & expect to exceed cost target: Alcatel reports 3Q adj. operating profit EU116m vs est. EU51m, realizes EU84m fixed cost savings in 3Q. 3Q sales EU3.67b vs est. EU3.62b, gross margin 32.6% vs est. 31.2%

Bayer 3Q Ebitda Ex-Items Beats Ests.; Repeats 2013 Group Goals
Gedeon Richter 3Q Net Rises 26%, Beats Estimate
BNP Paribas 3Q Net Income Beats Estimates; CIB Pretax In Line
Alcatel 3Q Operating Profit Beats, Expects to Exceed Cost Target
Rexel 3Q Sales In Line With Ests.; Confirms Full Yr Targets
Novo Nordisk 3Q Net Misses Est.; Lowers Forecast Range in DKK
Wacker Chemie 3Q Ebitda, Sales Miss Estimates, Confirms Forecast
Telenor 3Q Sales In Line W/ Est.; Lowers FY Revenue Guidance
Air France Sees 2014 Ebitda at Bottom of Targeted Range
Technip 3Q Net EU150m vs Est. EU171m; Cuts Subsea Profit Targets
Geberit 3Q Sales, Ebitda Ahead; Construction Challenging in 4Q
L’Oreal 3Q LFL Sales Misses Est.; 2013 Goals Confirmed
Ingenico raises fy guidance
Altran Strong Q3 sales thanks to acquisitions.

After Hours

Decliners after earnings:
• JDSU -8.5% (583k)
• FB -2.9% (39.3m)

Advancers after earnings:
• EXPE +18.1% (2.2m)
• PCLN +1.1% (16k)
• SPRT +11.3% (6k)
• MCHP +1.6% (16k)
• ATML +1.2% (4k)


The years of vast US budget deficits appeared to be at an end after the gap between revenues and spending fell to just 4.1 per cent of gross domestic product in the last fiscal year. According to the US Treasury, in the fiscal year ended September, the deficit was $680bn, compared with $1.09tn – or 6.8 per cent of GDP – the year before. The figure came in substantially below budget projections earlier this year. (Financial Times)

Fed stays the course on bond buying: The US Federal Reserve said the world’s largest economy is still expanding at a moderate pace in a statement that suggests a slowing of asset purchases in December or January is still under consideration. The rate-setting Federal Open Market Committee made no changes to policy at its October meeting, keeping its asset purchases steady at $85bn a month, but the statement implied it did not see a lot of damage from a three-week government shutdown earlier this month. (Financial Times)

The US Treasury took an unusual swipe at Germany and blamed its large current account surplus for giving a deflationary bias to the euro area and the whole world economy. Although the Treasury has criticised German policy before, in its new semi-annual currency report it elevated the comments to a “key finding” alongside China’s undervaluation of the renminbi and Japan’s monetary stimulus. (Financial Times)

“Retailers and grocers are bracing for another drain on consumer spending when a temporary boost in food-stamp benefits expires Friday. The change will leave 48 million Americans with an estimated $16 billion less to spend over the next three years and comes just months after the expiration of a payroll tax cut knocked 2% off consumers’ monthly paychecks. On the business side of the equation, the cuts will fall particularly hard on the grocers, discounters, dollar stores and gas stations that depend heavily on low-income shoppers.” (WSJ)


Nestle (MS, Khoo) Transformed Position in China Infant Nutrition; OW
Our AlphaWise China survey highlights Nestle’s transformed position in the attractive, high-profile Chinese IMF market post its Wyeth acquisition. Superior brand momentum and portfolio breadth stand out versus global peers.

RWE AG (MS, Chada) Q3 to Reveal Earnings Power
Q3 results will be an important event for RWE. We expect to gain clarity on 2014 guidance, deleveraging plans, capex cuts and cost cuts. This will provide clarity on underlying earnings power. If this is >€2.50, this could drive a re-rating but visibility is key.

E.ON (MS, Chada) Finally Finding that Elusive Earnings Floor?
We highlight earnings weakness, slower deleveraging and some issues in new markets. We also highlight weakness in the non-generation businesses. Near-term momentum is a risk. But, stripping out the short-term nuclear tax, the valuation is in line with peers.

Iberdrola SA (MS, Dores) Watch Spain…and the UK – Remain UW
Iberdrola cut its dividend but still aims to guarantee a good yield. While a 6% yield is attractive, we think regulatory risk (we see risks in Spain and now the UK) and little earnings leverage to macro improvement are challenges to its sustainability. We remain UW.

Generali (JPM, van Embden) Fundamental upside supported by improving peripheral tailwind
We view Generali as the most attractive peripheral recovery story within the insurance sector. We believe the Co’s recent strong share price performance was driven by both the narrowing of peripheral spreads and a gradual discounting of the Co’s operational restructuring. We estimate there is still further upside with a) scope for peripheral spreads to narrow further, b) the Co’s cost of capital to decline, and c) the operational restructuring to gain momentum. Whilst the stock is still a balance sheet story, we believe both the 9M Results and upcoming investor day should provide comfort that Generali will gradually transition towards an earnings story and become one of the more attractive insurance stocks in our universe. Generali trades at 1.2x ’14e for a 13% op. RTNAV. O/W


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