LCM Dawn Patrol – 26.11.13 – LCM Strategy, JPM on airlines, MS on property, GS on EM, TUESGEAR and much much more…

Morgen,

US equities finish mixed, little-changed in a very quiet Monday trading session. The major indices were trading modestly higher on the day until a late day slide erased the small gains. News flow was light. There were no clear catalysts for broad market action. The nuclear agreement with Iran was cited for early optimistic tone in trading, but the agreement is only a preliminary, partial step and faces widespread criticism. Pending homes disappointed again with October showing a small decline vs expectations of a small increase. Sectors were mixed; healthcare +0.41% lead gainers while energy (0.83%) was the largest decliner. Crude was lower. Gold was higher.
Asian equities were broadly flat in uneventful trading Tuesday morning. Although not directional drivers, statements from central bankers in China and Australia received some attention. The BoJ also released minutes from its 31-Oct monetary policy meeting, however no new ground was broken. The BoJ’s most recent meeting was 21-Nov. Japanese data scheduled to be released on Friday, including CPI and household spending, will likely be investors focus this week.

Today, we’ll get the US building permits, the S&P/Case-Schiller home price index, the consumer confidence index and the Richmond Fed Manufacturing. Italy to sell bonds.

TUESGEAR

I just moved places and the new flat has a crap Thermostat. So I thought it would be a great excuse to get the Nest but it’s not compatible with French wires. So I got the (much uglier and less efficient) Netatmo. I will let you know how easy it is to install and how efficient it is. In France we don’t need new designers, everything is designed by Starck.

NEWS

•Rio Tinto Says Poor Market Conditions Worsen Challenges for Gove
• Weidmann Says ECB Council Shouldn’t Permanently Supervise Banks
• Ukraine Ex-PM Tymoshenko Starts Hunger Strike in Jail
• China, Hungary, Serbia Reach Pact on Railway Project: Xinhua
• EU Sees U.S. Violations of ‘Safe Harbor’ Data Pact, FT Says
• Italy to Approve Law on State Aid to Banks in 2013: Reuters
• SNB’s Jordan Sees No Reason to Remove Ceiling on Swiss Franc

Companies

• Peugeot Hires Ex-Renault COO Tavares to Run Struggling Automaker
Yara Agrees to Buy OFD Holding for Enterprise Value of $425m
Chrysler IPO Said Delayed Until 2014 Over Tax Confusion in U.S.
• Portugal’s CTT Said to Get Demand for All Shares Offered in IPO
Blackstone and Viridian Said to Bid For Irish Power Company
Glaxo’s Avandia Restrictions Lifted by FDA After Review of Risks
Bank of America Buys Loan Bundle From Spain’s Sareb: Reuters
RWE Npower Pulls Out of GBP4b U.K. Windfarm Project: Guardian
Paschi Said to Hire Citigroup, Mediobanca to Lead Stock Sale
Cosco Greek Unit Says HP, Huawei Deal to Spur Athens Port Growth

US After markets

Intel Said to Seek $500m in Sale of Web-Based TV Startup
Chrysler Group to Seek Listing on New York Stock Exchange
Nuance 1Q Adj. Rev. Forecast Below Est.; Down 4.9% Post-Mkt
Greenlight Capital Discloses Holding 23m Shares of Micron
Qualcomm Sees Gain 22c-25c/Share on Sale of Omnitracs
Berkshire Said to Reduce Its Energy Future Bond Stake by a Third
Amazon, Acer Dropped From Chip Case as ITC Reviews Decision
Silver Lake Technology Unit Said to Plan New $1 Billion Fund
Philip Morris Sees 2014 Unfavorable Currency Effect of 40c/Shr

CURRENT STUFF

NASDAQ back at 4000 (for a while)…!

Minutes from the Bank of Japan’s last meeting reveal tension over how to frame the communiqué and meet its 2 per cent inflation target – arguably the chief goal of the central bank’s aggressive easing programme it initiated in April. The Oct 31 minutes also reveal pessimism and show that some members believe the 2015 inflation target might be too ambitious. (FastFT)

China said to plan crackdown on banks’ loan limit evasion: “The rules drafted by the China Banking Regulatory Commission impose restrictions on lenders’ interbank business by banning borrowers from using resale or repurchase agreements to move assets off their balance sheets, said the people, who asked not to be identified because they aren’t authorized to discuss the rules publicly. Banks are also required to take provision charges on such assets before their maturity… The proposed regulations would also limit a bank’s total lending to other financial institutions to 50 percent of its total deposits, and cap loans to non-bank financial companies at 25 percent of its net capital, according to the people. The rules, once approved, would take effect in February, they said.” (Bloomberg)

“Repsol and Argentina reached a preliminary deal on Monday for the Spanish oil major to get paid for the 51 percent stake in the South American’s country’s main energy company YPF that the Argentine government seized in 2012… Spain’s government was proposing Repsol receive $5 billion in compensation and that both Repsol and YPF each name investment banks to advise on the valuation of the stake seized, said one source.” The deal is to be approved by Repsol on Wednesday. (Reuters) (Financial Times)

Talk about putting your money where your mouth is. Myron Ullman, the chief executive of JC Penney, has just spent a little over $1m to acquire 112,000 shares in the struggling department store, according to a new filing with the US Securities and Exchange Commission.

“The planned stock market listing of Fiat’s U.S. unit Chrysler will not take place this year, the Italian carmaker said on Monday, prolonging the uncertainty over its chances of buying out the rest of the company.” (Reuters)

STRATEGY

LCM (Abet) Placebo

The QE3 placebo has worked too well for equity investors but failed to maintain the bull market for bonds.
– QE3’s objective was to flatten the yield curve and to support the mortgage bond market. One year later, we can see that QE3 was a complete failure as targets have not been reached. So why do equity investors remain so attached to it? This monetary obsession looks like a real placebo and the Fed’s challenge next year will be to wean markets off this unbelievable addiction.
– The equity market surprised this year on the upside due to the strong P/E expansion which was not expected. We discuss this biggest surprise since 1999 and show the high volatility of stocks’ status that lead to a convergence of betas within equity markets.
– P/E expansion worries some investors because it takes place in weaker sectors. We would remind readers of the large de-rating these sectors suffered in recent years.
Trade recommendation summary

– Long US Natural Gas Short Nickel

– Long S&P500, Short Sensex (India), IPSA (Chile)

– Long ISEQ (Ireland), Short BUX (Budapest)

GS (Eoyang) Emerging Markets Strategy: 2014 Outlook: Embarkation
We expect MSCI EM to reach 1180 (+18%) in 2014 on slightly higher EM growth (5.3%) and 8%/14% EPS growth in 2014/15. We upgrade Russia and China on reform implementation, with Korea and Mexico at overweight; we also like exporters vs domestic cyclicals.

UPS&DOWNS

Euro Airlines/Equity & Credit (JPM, Baker) New equity price targets, and 2014 outlook
We are introducing our YE2014 equity price targets for European Airlines, which suggest respectable upside potential at IAG, easyJet and Ryanair. Turning towards 2014, we expect to see renewed investor confidence in the low-cost carrier (LCC) business model following 2013’s Ryanair-induced skepticism, as well as continued momentum at IAG given Spanish contributions and improving Heathrow competition. No change to Equity or Credit ratings, though we no longer see absolute downside equity potential as we once did for certain names. Lastly, we are initiating formal coverage of the British Airways US$ EETCs (IAGLN) with an Overweight recommendation to the senior A-tranche EETC (4.625% due ’24, $721mm deal size, rated Baa1/A/A) and a Neutral rating to the subordinated B-tranches (5.625% due ’20, $205mm deal size, rated Ba1/BBB/BBB) [the A’s and B’s were last quoted at $101.75 and $104.25].

Property (MS, Gysens) 2014 Outlook: Key debates, potential surprises, top picks
We set out our views for 2014, highlight potential surprises and select our preferred names. We think the sector will again outperform and we stick with our preference for UK and German names, while largely avoiding retail and low-growth stocks, even those at deep NAV discounts.

Aberdeen Asset Management (MS, Hamilton) Attractive accretion – costs/growth needed for next leg
We estimate attractive 12% accretion to FY15e EPS. The deal offers welcome diversification, but at 12x FY15e, broadly in-line with sector, better cost delivery or growth from core or acquired business is necessary to drive a further leg, we believe – EW.

Geberit (MS, Pereda) What are shares pricing in?
Geberit shares have continued to re-rate. Despite a sound business model and reliable earnings profile, valuation looks unattractive versus peers and comparable growth stocks. To reach the current price we need to assume 3% market share gains and a 15% tax rate in perpetuity. Retain UW

Tecnicas Reunidas (JPM, Dobbing)
Downgrade to UW – premium valuation lost sight of margin risk and challenging book to bill outlook

AUTOLIV RAISED TO NEUTRAL VS SELL AT CITI
CHINA, RUSSIA RAISED TO OVERWEIGHT AT GOLDMAN
GEOX RAISED TO NEUTRAL VS SELL AT CITI
LIFE HEALTHCARE RATED NEW OVERWEIGHT AT BARCLAYS; PT ZAR…
LONMIN RAISED TO BUY VS NEUTRAL AT BOFAML
LUXOTTICA CUT TO HOLD VS BUY AT BERENBERG
MEGGITT CUT TO OUTPERFORM AT RBC CAPITAL
SAFRAN RAISED TO TOP PICK AT RBC CAPITAL
SONAE RATED NEW EQUALWEIGHT AT BARCLAYS; PT EU1.17
SPONDA CUT TO NEUTRAL VS BUY AT UBS
SUEDZUCKER CUT FROM CONVICTION SELL AT GOLDMAN, STILL SELL
SULZER RAISED TO BUY VS NEUTRAL AT CITI
TECNICAS REUNIDAS CUT TO UNDERWEIGHT AT JPMORGAN

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