LCM Dawn Patrol – 07.11.13 – Short version. JPM on EADS and Euler Hermes. Some earnings…


The major US indexes finished mixed on Wednesday, though eight of the ten S&P sectors were higher. Once again, there were no meaningful catalysts behind the price action. Overseas developments seemed somewhat supportive with Japan and Europe higher on the day. Some additional focus on ZIRP thresholds was also cited as a tailwind despite the lack of any new developments. Treasuries were highlighted as the bigger beneficiary of this dynamic following the recent backup in yields. While still largely on the backburner after dominating the headlines through much of October, there was some talk about the likelihood of a deal to avoid another round of fiscal drama in Washington. Earnings takeaways and related price action remained fairly company-specific. Some of the notable corporate newsflow revolved around tech and retail. Defensive sectors outperformed today, while the bulk of the cyclical plays lagged.
Asia’s markets have continued to show nervousness ahead of China’s Communist party meeting that begins Saturday.

Busy day today… We’ve got lots of earnings (see for a quick summary below), the ECB will announce its decision (some expect a 25bp drop in the refi rate, some expect a third LTRO). In the US we’ll get the first estimates for Q3 growth, the jobless claims, some mortgage data as well.


• Hutchison Faces EU Probe Into Bid for Telefonica’s Irish Unit
• London Luxury-Home Values Rise at Slowest Annual Rate Since 2009
• Telecom Italia Faces Tug of War With Bondholders as Board Meets
• UBS Placing 3.4m Travis Perkins Shares, Terms Show
• Bank of Spain Selling 5.335% Stake in Bolsas & Mercados
• Twitter valuation soars to $18bn

• Carrefour to Buy Klepierre Malls for $2.3 Billion, Figaro Says

• Siemens Plans $5.4 Billion Share Buyback After Earnings Exceed Estimates
• Activision Profit Surpasses Estimates After Vivendi Stake Is Cut

Aktia Bank 3Q EPS, Net Income Increase in Year; Raises Forecast
ArcelorMittal 3Q Beats; Maintains FY Ebitda Forecast Above $6.5b
Barry Callebaut FY Ebit Beats Ests., Confirms Outlook
Bureau Veritas 3Q Rev. Below Est, Growth Unlikely to Rebound
Commerzbank 3Q Net Income EU77m; Est. EU32m
Credit Agricole 3Q Net Misses; In Talks to Sell Newedge Stake
Delhaize 3Q Adj. Ebit EU176m vs Est. EU179.9m; Forecast Affirmed
Deutsche Telekom 3Q Sales, Adj. Ebitda Beat Estimates
HeidelbergCement Says 2013 Forecast More Challenging on FX
Natixis Third-Quarter Profit Rises on Asset-Management Sales
Siemens 4Q Adj. Profit Beats Estimates, Plans EU4b Share Buyback
SocGen 3Q Profit Declines, Misses Estimates; in Talks on Newedge

After Hours
Whole Foods dropped 10% as sales came in below estimates, Qualcomm dropped 4.4% on lower than expected numbers, Activision fell 2.5% as numbers came in alright but guidance is low.


Twitter’s valuation soared to $18bn after the messaging platform capitalised on surging investor interest to price its shares on Wednesday at $26 each, just above the range it had indicated just two days ago. Earlier on Wednesday Mary Jo White, head of the SEC, warned that investors in technology companies risk being bamboozled by the “sheer magnitude” of user numbers which may have no relation to profitability. (Financial Times)

“Goldman Sachs and other underwriters on Twitter’s IPO will share about $59.2 million for managing the sale after accepting one of the smallest fee rates for a U.S. IPO this year.” (Bloomberg)

In rapid succession on Thursday and Friday, the US will release two pieces of important economic data – on third-quarter output and the labour market in October – that were delayed by last month’s government shutdown. The figures should cast light on the state of the economy before and during the fiscal crisis that gripped Washington for 16 days, threatening the recovery’s momentum. But there will be distortions… (Financial Times)


AFL EADS (JPM, Perry, CFA) Raising Dec-14 price target to €70; time to focus on life after 2015
In our EADS model we had assumed the Airbus Commercial Aircraft (ACA) margin stabilised at c7% from 2015-2018. We now increase our 2018 ACA margin estimate to 8% (Table 1), but believe it could be higher as we explain below. The implication is that EADS could have solid double digit EPS growth every year to 2018 (Table 2). This leads us to raise our price target. Instead of applying a target multiple to our 2015 estimates we now apply the same target multiple to our 2016 estimates and discount the implied fair value of €76.6 back one year (at 9%) to derive our new Dec-14 price target of €70 (from €63). We believe EADS remains the cheapest European civil aero stock by some degree (Table 3).

Euler Hermes (JPM, Huttner, CFA) Reducing forecasts and moving recommendation from OW to N, reducing Dec14e price target from EUR99 to EUR90
We reduce our recommendation from OW to N, our Dec14 sum of parts based target price from EUR99 to Eur90, and we reduce our net profit 2013e forecasts from €331m to €291m mainly reflecting the €30m lower than we forecast 3Q13 net profit, 2014e from €360m to €330m to reflect a choice by the company to balance margin with more topline growth, and 2015e from €384m to €348m for the same reason. Over the past year to intraday afternoon 6 Nov, the stock is up 72.8% vs the SXIP index up 29.3% and, while we believe the company still has the potential to surprise positively, for now we see more relative upside in other stocks in our coverage, including Euler’s 68% parent Allianz.


Asian markets
Nikkei 225 down -74.66 (-0.52%) at 14,263
Topix down -6.55 (-0.55%) at 1,186
Hang Seng down -167.06 (-0.73%) at 22,870

US markets
S&P 500 up +7.52 (+0.43%) at 1,770
DJIA up +128.66 (+0.82%) at 15,747
Nasdaq down -7.92 (-0.20%) at 3,932

European markets
Eurofirst 300 up +5.00 (+0.39%) at 1,297
FTSE100 down -5.15 (-0.08%) at 6,742
CAC 40 up +33.59 (+0.79%) at 4,287
Dax up +31.76 (+0.35%) at 9,041

€/$ 1.35 (1.35)
$/¥ 98.59 (98.62)
£/$ 1.61 (1.61)
€/£ 0.8405 (0.84)

Commodities ($)
Brent Crude (ICE) down -0.41 at 104.83
Light Crude (Nymex) down -0.06 at 94.74
100 Oz Gold (Comex) unchanged 0.00 at 1,318

10-year government bond yields (%)
US 2.64%
UK 2.72%
Germany 1.75%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.24bps at 68.39bp
Markit iTraxx Europe -0.31bps at 84.7bp
Markit iTraxx Xover -2.8bps at 346.69bp

Sources: FT, Bloomberg, Markit


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