LCM Dawn Patrol – 25.11.13 – JPM View and JPM on Europe strat. MS and JPM on SABMiller, Barcap and GS on Atos…

Bonjour,

Hope all is well and that you had a bon week end. This is going to be a quiet week in terms of data and a short week too with Thanksgiving.
We’ll have Flash HCIP for Europe and in the flah services PMIs for the US. We also get German GfK consumer confidence (Wednesday); Spain GDP, German unemployment and inflation (Thursday) and German retail sales,. In the UK, the biggest release will be GDP on Wednesday. From the UK we also get GDP and business investment (Wednesday) and consumer confidence (Friday).
In terms of politics, we’ll see if they finally get rid of Mr Berlusconi on Wednesday.

Index Calls:
*FTSE +16 points at 6690*
*DAX +3 points at 9222*
*CAC +4 points at 4282*

NEWS

• Iran Nuclear Accord Leaves Obama, Rouhani Seeking Support
• ECB’s Coeure Says Rate Cut Motivated by Slow-Motion Disinflation
• Europe’s Twin Woes Fester in Draghi Fight From Jobs to Inflation
• U.K. Regulator’s Wheatley Says More Co-Op Bank Probes Possible
• Asian Stocks Rise as Yen Weakens
• Norway Poised to Relax Bank Rules to Fight House Price Deflation
• London Luxury-Home Construction Accelerates as Price Gains Slow

Orange Said to Near Sale of Dominican Republic Unit to Altice
Chinalco Group Said to Exit Bidding for Glencore Mine
• AB InBev in Talks to Buy Back Oriental Brewery, Maeil Says
Peugeot Likely to Benefit Most of European Peers From Iran Deal
Peugeot Said to Discuss Hiring Tavares to Succeed Varin as CEO
Babcock, Avincis in Exclusive Talks About Forming Joint Venture
Reckitt Benckiser Hires Morgan Stanley to Review Pharma: Reuters

Apple Agrees to $350 Million Acquisition of Israel’s PrimeSense

CURRENT STUFF

Iran pact faces stiff opposition: “The leaders of both the Democratic and Republican parties are threatening to break with President Barack Obama’s policy and enact new punitive sanctions on Iran, arguing that the interim deal reached in Geneva on Sunday yields too much to the Islamist regime while asking too little.” (WSJ) A Q&A on the Iran nuclear agreement (Financial Times)

Some of the largest banks have tentatively agreed to create a new electronic bond trading venue in an attempt to improve liquidity in the $9tn market for US corporate debt while still retaining their control over the way the securities change hands. Five major banks have said they will stump up tens of millions of dollars to fund the new venue on Tradeweb, a company owned by Thomson Reuters and a consortium of banks, according to people familiar with the project. (Financial Times)

Apple has acquired PrimeSense, an Israeli technology company best known for providing the motion-detection software in Microsoft’s gaming sensor Kinect, in a deal that will spark fresh speculation about the iPhone maker’s plans for the living room. Apple confirmed the deal on Sunday after reports in the Israeli press. One person familiar with the terms said it had paid $360m. (Financial Times)

STRATEGY

JPM (Loeys) The J.P. Morgan View
Talk is cheaper, but will it work?

Asset allocation –– The Fed is planning to replace QE action with pure talk (rate guidance). It looks set to start tapering soon, and will try to offset the impact on bonds with soothing rate guidance. We expect only partial success, keeping us long equities, and mildly bearish US bonds.
Economics –– Fed is working on delinking tapering from tightening, but we do not foresee perfect success. Euro area growth nudged down.
Fixed Income –– Overweight euro duration against UK, US and EM.
Equities –– Within Asia, we prefer India, Taiwan, Korea and Thailand against China, Hong Kong, Singapore and Indonesia .
Credit –– Credit metrics are improving by more for BBBs than for As. OW BBBs vs. As.
FX –– Stay long USD versus Europe, just as we do the opposite in bonds.
Commodities –– Stay long copper and Brent.

JPM (Matejka) Equity Strategy
Rotation in leadership, but not a fundamental change of direction

SX5E has been essentially unchanged for more than a month now, trading less than 1% away from its mid-October levels. Beneath the surface there was a “risk off” rotation: Eurozone is underperforming the US by 400bp, periphery is lagging core, Cyclicals are lagging Defensives by 290bp, as are Financials. The question now is should one become more bearish given that: PMIs have fallen for 2 months now, EPS revisions remain negative, P/E is at a premium to normal, ECB balance sheet is shrinking and deflation fear is rising. Our tactical call since 28th October was for a rotation in leadership, but not for an outright fall. We continue to believe it would be wrong to turn outright bearish as: 1) recovery is still on track, capex and consumer spend are poised to rebound, 2) inflation always lags growth and deflation scare is probably at its worst right now, 3) equities are still cheap vs bonds and flows are coming in, 4) peripheral spreads are tightening.

UPS&DOWNS

SABMiller plc (MS, Sharma) Negativity an opportunity: Upgrade to Overweight
We argue negativity on EM growth & currency translation creates an opportunity for long-term investors and we upgrade SABM to OW. We see potential for cash returns, and the organic business is holding up relatively well. Our analysis highlights SABM’s growth for longer relative to peers.

SABMiller (JPM, Gibbs) Margins moving in the right direction
SABM beat our and market consensus expectations for H114 organic EBITA, up 7.3%, and organic margin expansion, up 80bps. We see this momentum continuing into H214E, with acceleration back to near 10% organic EBITA growth thereafter. SABM now trades on 19.8x CY14E PE, just 1.5x PE points ahead of the sector compared to 3x points at the start of CY13. We still see an attractive long term volume, revenue and margin opportunity at SABM with further balance sheet/M&A optionality. SABM’s EM exposure offers a more attractive near and long term growth opportunity when compared to peers in our view.

TOTAL (JPM, Sharma) Stay long into 2014 – four triggers to prove the doubters wrong
TOTAL (AFL rated) remains one of our top picks in European oil. YTD 2013 the stock has outperformed the European sector by almost 10%. We believe that valuation remains attractive – specifically its dividend yield is amongst the highest in our coverage group. We see the following triggers playing out over the next 12-18 months, leading the next leg of rerating for the stock: (i) Production growth gathers momentum in 2014/15, (ii) More asset sales given ample room in its portfolio, (iii) Resumption of dividend growth (iv) Evidence of CEO’s capital discipline commitment.

Atos (GS, Borra) Buy: Third phase of transformation over 2014-16; reiterate Buy
We reiterate our Buy rating on AtoS following positive analyst day. Clearly laid-out strategy and management’s solid track record makes us believe that 2013-16 goals are achievable. Our 12 month price target of €85 is unchanged.

Barcap on AtoS: Delivering the right message
Atos delivered at its CMD last week what we believe the market had expected – a new three-year plan and the Worldline IPO by mid-2014. We value the Worldline business at EUR2.0-2.7bn (EUR19.7-26.5 per share). This leaves a residual value for the IT part of just 8-10x ex cash PE and 0.37-0.46x EV/S. Whilst some discount to its European IT peers is fair, the current level is not valid in our view. In addition, the new three-year plan should close a substantial part of the profitability gap, thereby making this discount more difficult to maintain. We therefore reiterate our OW and have moved our PT to EUR75, the mid-point of our SotP valuation, given the clarity on the IPO timing.

ALIOR BANK CUT TO SELL VS HOLD AT CITI

BILFINGER CUT TO HOLD VS BUY AT KEPLER CHEUVREUX

CHRYSLER IPO PRICE RANGE MAY TARGET RAISING $1.5B TO $2B:…

EASYJET RAISED TO BUY VS HOLD AT JEFFERIES

FRESNILLO RAISED TO NEUTRAL VS SELL AT GOLDMAN

GLOBALWORTH REITS RATED NEW BUY AT CANTOR; PT EU8

ING BANK SLASKI CUT TO NEUTRAL VS BUY AT CITI

INVESTOR AB CUT TO NEUTRAL VS BUY AT GOLDMAN

LINDT & SPRUNGLI ASSUMED NEUTRAL AT CREDIT SUISSE, PT SFR…

NAMPAK RAISED TO NEUTRAL VS SELL AT UBS

NAMPAK RAISED TO NEUTRAL VS UNDERPERFORM AT BOFAML

SABMILLER RAISED TO OVERWEIGHT VS EQUALWEIGHT AT MORGAN…

SMITH & NEPHEW RAISED FROM MARKET PERFORM AT BERNSTEIN

TALKTALK RAISED TO NEUTRAL VS SELL AT CITI

OVERNIGHT MARKETS

Asian markets
Nikkei 225 up +222.05 (+1.44%) at 15,604
Topix up +9.35 (+0.75%) at 1,258
Hang Seng up +64.10 (+0.27%) at 23,760

US markets
S&P 500 up +8.91 (+0.50%) at 1,805
DJIA up +54.78 (+0.34%) at 16,065
Nasdaq up +22.49 (+0.57%) at 3,992

European markets
Eurofirst 300 up +1.31 (+0.10%) at 1,297
FTSE100 down -7.03 (-0.11%) at 6,674
CAC 40 up +24.63 (+0.58%) at 4,279
Dax up +22.96 (+0.25%) at 9,219

Currencies
€/$ 1.35 (1.35)
$/¥ 101.76 (101.33)
£/$ 1.62 (1.62)
€/£ 0.8347 (0.8352)

Commodities ($)
Brent Crude (ICE) down -2.53 at 108.52
Light Crude (Nymex) down -0.96 at 93.88
100 Oz Gold (Comex) at 1,244
Copper (Comex) at 3.23

10-year government bond yields (%)
US 2.76%
UK 2.79%
Germany 1.74%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.45bps at 64.18bp
Markit iTraxx Europe -2.99bps at 79.75bp
Markit iTraxx Xover -6.77bps at 328.67bp

Sources: FT, Bloomberg, Markit

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