LCM Dawn Patrol – 06.11.13 – Earnings… TSLA fall, MS bullish on Apple post meeting, MS fears a wine shortage, GS downgrades Valeo, MS likes Thales… More

Sorry for the multiple send.

Bonjour,

US equities finished mostly lower on Tuesday. However, there were no meaningful directional drivers in play. The lack of overall direction seemed to fit with the continued focus on the Fed, particularly in terms of the near-term debate surrounding the timing of a tapering announcement and the longer-term debate about the risks in the policy normalization process. The latest batch of Fed speak did not provide any additional color, though forward guidance did get some attention in sell-side research. While the government shutdown was not the drag on the services sector last month that some expected, the economic calendar remained largely on the backburner ahead of the October employment data on Friday. The corporate calendar continued to drive a lot of the notable single-stock price action, but not the broader market. Macro influences seemed fairly limited as evidenced by the sector breakdown. However, the euro was weaker with the recent pickup in ECB easing speculation.
Asian equity markets traded broadly flat Wednesday morning.

Today, we’ll look at the final October PMIs in Europe as well as UK and German IP and factory orders. As the ECB meeting is this week’s main attraction and as weak PMIs are expected today, the pressure on the Euro (which rose overnight) should be under pressure. Also banks should be in focus following the FT article stating that Brussels is about to fine all Euribor fixing involved parties.

NEWS

Fraport 3Q Net Income Falls, Sales Miss Estimates
TESLA dropped by 12% in AH after the co failed to beat exp
Twitter valuation calculator: http://on.ft.com/16EWeR1
LVMH’s TAG Heuer to Make 100,000 Movements by 2016, Temps Says
Andritz 3Q Net Income Drops, Confirms Full-Year Forecast
Axel Springer 3Q Rev. Beats Est.; Sees Drop in 2013 EPS
Scor Posts EU113 Million Third-Quarter Net Income
Alstom 1H Operating Profit EU695m vs Analyst Estimate EU664m
Kuka 3Q Sales, Net Income Fall; Confirms Full-Year Forecast
SocGen Said to Increase Stake in Newedge in Swap With Agricole
Pirelli Cuts 2013 Profit Target for Second Time on Russia
Croda Willing to Consider Larger Acquisitions, CTO Layden Says
Orange Not Going Down Bouygues’s Discount Path as Shares Slump

Lafarge 3Q Sales Fall on FX; Confirms FY Cement Growth Target. Lafarge says volume trends improved month after month in 3Q, sustained by ongoing growth in most EM, recovery in U.S., Europe stabilizing at low level, though quarter marked by negative FX impact of ~7% on both sales and Ebitda.

ING 3Q Underlying Profit EU891m, Est. EU899m
ING 3Q net income EU101m, est. Loss EU27.3m.
• Banking unit underlying result before tax EU1.10b
• Insurance EurAsia unit operating profit rises 90% to EU218m
• Includes ~EU950m writedown on Korean insurance unit sale

CURRENT STUFF

Morgan Stanley raises a ruckus with its wine-shortage note. Morgan Stanley analysts Tom Keirath and Crystal Wang, in a report dated Oct. 22, said the global wine industry was slowing moving from balance to shortage. The analysts pointed out that global wine demand exceeded supply by 300 million cases in 2012, and production that year fell to its lowest levels in more than 40 years. With that setting the backdrop, they suggested a few investment plays.

US Earnings: 410 companies reported their Q3 numbers. 310 beat expectations, 86 disappointed. Aggregated EPS stand at $27.71, a 5.36% increase vs 2Q12, and 3.39% above expectations.

ECB o’clock: Speculation over a rate cut intensified on Tuesday after the European Commission shaved its forecasts for eurozone growth, sending the single currency to a near four-week low against the yen and a one-month low versus sterling. The euro slipped to as low as $1.3449 against the dollar, down from more than $1.38 in late October. (Financial Times)

Microsoft “has narrowed its list of external candidates to replace Chief Executive Steve Ballmer to about five people, including Ford Motor Co chief Alan Mulally and former Nokia CEO Stephen Elop, according to sources familiar with the matter. The world’s largest software maker also has at least three internal candidates on its shortlist, including former Skype CEO Tony Bates, who is now responsible for Microsoft’s business development, and Satya Nadella, the company’s cloud and enterprise chief, the sources said.” (Reuters)

Samsung Electronics’ CFO has responded to growing shareholder pressure by promising a modest dividend increase this year, while ruling out a major overhaul of the company’s investment-focused cash policy. (Financial Times)

“Indians bought about half the gold they usually buy in the run up to the Diwali holiday this year, according to sellers of the precious metal.” (WSJ)

Ukraine signed a deal worth up to $10bn with Chevron to exploit its shale gas reserves – one of the biggest such agreements in Europe to date – as it steps up efforts to break free from its reliance on Russian gas. (Financial Times)

STRATEGY

Taper ON/OFF:
From GS: The most senior Fed staff economists for monetary policy analysis and domestic macroeconomics, William English and David Wilcox, have published separate studies that imply a strong case for a reduction in the 6.5% unemployment threshold for the first funds rate hike. We have proposed such a move for some time, but have been unsure whether it would in fact happen. And while the uncertainty around near-term Fed policy remains very considerable, our baseline view is now that the FOMC will reduce its 6.5% threshold to 6% at the March 2014 FOMC meeting, alongside the first tapering of QE. A move as early as the December 2013 meeting is possible, and if so, this might also increase the probability of an earlier tapering of QE.

UPS&DOWNS

Apple (MS, Huberty) Laying the Groundwork for Future Growth
Our meetings with Tim Cook, CEO, and Peter Oppenheimer, CFO, highlight: 1) an upbeat outlook on future growth, 2) gross margin stabilization despite increased innovation, and 3) the laying of groundwork to increase value of Apple’s platform.

Technology – Global Semiconductors (MS, Moore) Q3 Spotting, and Why Apple Is Going 64-Bit
We presented our Blue Paper framework for thinking about returns in the semiconductor industry earlier this year. Our general sense continues to be that the direction of the industry is moving left on the x- axis (meaning, towards more commoditized CPUs), and moving up on the y-axis (meaning, that the industry makes strides towards fixing the capital intensity pressures).

Thales SA (MS, Vig) Assessing the margin upside
OW, PT €43 to €51
With Probasis delivering, the focus now shifts to the potential for further savings – something we assess in our in-depth analysis of Thales margins versus peers. A move to peer margins could trigger 14% upgrades. We remain OW & raise our PT to €51.

Valeo (GS, Puetter) Sell: Valuation no longer justified by returns – down to Sell
We downgrade Valeo to Sell from Neutral on valuation relative to our coverage. The shares now imply 7% downside potential to our 12-month price target of €68 compared with 8% average upside for our coverage, and hence we see better value elsewhere.

AAREAL BANK CUT TO HOLD VS BUY AT DEUTSCHE BANK
AERCAP CUT TO UNDERPERFORM VS BUY AT BOFAML
ALACER GOLD CUT TO EQUAL-WEIGHT AT MORGAN STANLEY; PT A$3
ALLIANCE OIL RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
ALSTRIA CUT TO HOLD VS BUY AT DEUTSCHE BANK
BOOKER GROUP RATED NEW BUY AT BERENBERG; PT 164P
EUROCASH RATED NEW BUY AT BERENBERG; PT PLN54.90
EXPERIAN CUT TO NEUTRAL VS BUY AT BOFAML
INTERNATIONAL FERRO METALS RAISED TO BUY AT BOFAML
LEGAL & GENERAL CUT TO NEUTRAL VS OUTPERFORM AT MEDIOBANCA
METRO AG RATED NEW HOLD AT BERENBERG; PT EU32.8
MOTHERCARE RATED NEW OVERWEIGHT AT JPMORGAN; PT 450P
RYANAIR RAISED TO BUY VS NEUTRAL AT NOMURA
SKY DEUTSCHLAND CUT TO HOLD VS BUY AT BERENBERG
STERIA CUT TO NEUTRAL VS BUY AT NATIXIS
TRAVIS PERKINS CUT TO NEUTRAL VS BUY AT GOLDMAN
UNILEVER CUT TO NEUTRAL VS BUY AT NOMURA
VALEO CUT TO SELL VS NEUTRAL AT GOLDMAN

OVERNIGHT MARKET

Asian markets
Nikkei 225 up +124.82 (+0.88%) at 14,350
Topix up +10.73 (+0.91%) at 1,193
Hang Seng up +46.38 (+0.20%) at 23,085

US markets
S&P 500 down -4.96 (-0.28%) at 1,763
DJIA down -20.90 (-0.13%) at 15,618
Nasdaq up +3.27 (+0.08%) at 3,940

European markets
Eurofirst 300 down -2.05 (-0.16%) at 1,292
FTSE100 down -16.78 (-0.25%) at 6,747
CAC 40 down -35.25 (-0.82%) at 4,253
Dax down -28.12 (-0.31%) at 9,009

Currencies
€/$ 1.35 (1.35)
$/¥ 98.62 (98.47)
£/$ 1.61 (1.60)
€/£ 0.8393 (0.8397)

Commodities ($)
Brent Crude (ICE) up +0.59 at 105.92
Light Crude (Nymex) up +0.50 at 93.87
100 Oz Gold (Comex) up +4.50 at 1,313
Copper (Comex) unchanged 0.00 at 3.26

10-year government bond yields (%)
US 2.66%
UK 2.74%
Germany 1.74%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.25bps at 68.15bp
Markit iTraxx Europe +1.57bps at 85.01bp
Markit iTraxx Xover +6.7bps at 349.49bp

Sources: FT, Bloomberg, Markit

SandP earnings summary.xlsx

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