LCM Dawn Patrol – 04.12.13 – JPM on Generali, MS on tech, MS ups Symrise, downs Campari, JPM ups Severstal…


US equities were weaker on Tuesday with the S&P 500 down for a third straight session. There was no specific catalyst for the move, which followed a late-day pullback on Monday. Some press reports continued to focus on concerns about the tapering implications surrounding a recent batch of better-than-expected economic data. However, that seemed like more of an excuse in the wake of eight straight weeks of gains. In addition, there has been no shortage of discussion as of late about the market’s heightened comfort with a near-term tapering move amid the Fed’s push to distinguish between some removal of policy accommodation and an end to ZIRP. The holiday shopping season remained in focus with another barrage of headlines highlighting the structural shift in spending trends. The auto sector, which has played a higher-profile role in the economic recovery, also grabbed some attention with the release of November sales data. The cyclicals largely underperformed today with materials and financials leading the move lower. Utilities fared the best, though consumer staples, tech, energy and telecom all finished in positive territory.

We’ll monitor today PMI services in Europe, EU GDP and Retail sales. In the US ; US Trade balance, ISM Non-Manf, New Home Sales.
OPEC meets in Vienna to decide production targets as sanctions on Iran are loosened. Greece’s Samaras in Brussels to meet Barroso. EU, IMF start review of aid to Portugal. Poland to leave benchmark rate unchanged. Germany sells bonds. Tesco reports sales, Standard Chartered gives trading update.

Have a great Wednesday!


New place for us to try this week…
CAILLEBOTTE 8 rue Hippolyte Lebas, Paris 9e.


• Economic adviser Wieland sees room for action for ECB, says it is preferable to wait, in Handelsblatt interview
• EU’s Rehn says plan binding nations to reforms has real purpose
• Europe faces cold December with gas reserves at 5-year low
• European market for “smart home” networks could exceed 4 billion euros, FAZ says
• France May Face Nuclear Plant Shutdowns in 2020: Regulator
• U.K. Govt Plans to Sell Eurostar Stake, Times Reports
• Ukrainian Officials Scour Globe for Cash as Protests Intensify

Adidas (ADS GR) sees World Cup stoking growth
AstraZeneca Awarded Damages in Prilosec Patent Litigation
AXA ceo says most growth to be organic: CNBC
• Bankers in Safest Euro Nation See No Credit Demand as Finns Save
Bayer China postpones planned yuan bond sale due to high yields
Deutsche Securities Said to Face Penalty From Japan Watchdog
Gagfah (GFJ GR) shares offered at EU10.15 to market price
GlaxoSmithKline (GSK LN) open to takeovers in OTC segment, Handelsblatt says
InterContinental Plans China Hotels as Government Curbs Spending
Kering to Discuss Sale of La Redoute Unit, Reuters Reports
Mercedes rides $29,900 coupe to wider U.S. luxury lead over BMW (BMW GR)
Moulton Considering Bid for Albemarle & Bond, Sky News Reports
Mylan (MYL US), Pfizer (PFE US), Novartis (NOVN VX) may bid for Boehringer (BING GR) unit, Reuters says
Nokia/Microsoft: EU provisional deadline
Nordea Opens Currency Desk in Singapore in 24/7 Trading Push
Novartis Veterinary Unit Said to Draw Interest From Merck, Lilly
PostNL Reaches Deal on Funding of New Pension Arrangement
Space S.p.A. IPO Price Fixed at EU10/Shr
Veolia to Cut More Than 700 Jobs in France, Unions Tell AFP


ECB meeting – Thurs 12/5 – (preview from JPM’s G Fuzesi)we do not expect the ECB to announce further measures this week. The meeting should be significant, however, as the ECB staff will be extending their growth and inflation projections to 2015. If the inflation forecast for 2015 is low and shows little upward momentum it would reinforce the central bank’s low-for-long guidance. It is possible, however, that the ECB staff will assume a noticeable increase, which would create a communication challenge for Draghi (we see a risk for the ECB staff to forecast inflation at +1.4% by ’15). As far as future options are concerned, the most impactful option, in our view, is large-scale purchases of government bonds. This would be separate from the OMT as the motivation would be to add monetary stimulus, rather than remove the tail-risk of EMU breakup. But, we think the likelihood of this is very low. Other possible measures (further rate cuts, another LTRO, discontinuation of SMP sterilization, etc) are either unlikely or would not be very impactful.

“China’s services industry grew at a steady pace in November, a private survey showed on Wednesday, a further indication of strength in the world’s second-largest economy as the government embarks on a sweeping restructuring drive. The HSBC/Markit services PMI stood at 52.5 in November, little changed from October’s 52.6…” (Reuters)

“Japanese Prime Minister Shinzo Abe is readying a $182 billion economic package this week in his latest bid to pull the economy out of deflation, but the new measures will not require the government to sell more debt. The package, to be approved by Abe’s government on Thursday, will have a headline value of 18.6 trillion yen ($181.6 billion), people familiar with the process said on Wednesday.” (Financial Times)

Pro-European protesters in Ukraine vowed on Tuesday to continue mass demonstrations in Ukraine after the government survived a no-confidence vote in parliament over its withdrawal from an integration agreement with the EU. But as government agitation mounted over the protests, Prime Minister Mykola Azarov insisted he was “ready for dialogue” with protesters’ representatives and opposition leaders over the government’s stance on the Europe agreement. Ukraine’s president was absent from Kiev on Tuesday, making a previously scheduled trip to China for talks on potential Chinese loans and investments. (Financial Times)

Europe to unleash heavy rate-fixing fines: Brussels will unveil hefty fines as soon as Wednesday on global banks that allegedly formed cartels to rig two global interest rate benchmarks, in a settlement that is set to break European antitrust enforcement records. Some banks – JPMorgan, HSBC and Crédit Agricole – have been involved in the talks but were last month balking at signing a joint Euribor settlement. (Financial Times)


JPM reiterate OW on Generali as they believe confidence target will be met, downgrade Campari to Neutral and keep Novo UW.
GS reiterate CL Buy on Faurecia and Novo Nordisk, reiterate Buy on Aker.
Barcap remain UW on Securitas ahead CMD, stay UW on HugoBoss and prefer Richemont & Kering.
MS downgrade Tate&Lyle to EW, upgrade Symrise to OW
Reckitt Benckiser cut to Sell Vs Buy at UBS while Accor raised to Buy, raised Wacker Chemie PT to 95e (Buy)

Generali (JPM, Embden) Delivering confidence targets will be met
Generali’s savings program will deliver at least the adj 13% RoE target by 2015 we believe. Our EPS estimates have not materially changed but there is now greater confidence returns will be met. In a benign macro scenario, we see 7% upside to our EPS estimates from this first wave of restructuring. Moreover, the new CEO has a strong track record, hence delivery might be sooner than expected; we estimate c.14% adj RoE in ‘14. The short-term catalyst focuses on delevering the balance sheet and restoring capital strength. But now that new management is extracting significant synergies from Generali, it should improve confidence in the long-term earnings quality and targets of the group. We see 9% EPS CAGR in the next three years and upside to the DPS payout. With the stock trading at 1.2x TNAV and 27% upside potential, Generali is our favourite insurance restructuring story

IT Hardware(MS, Huberty) 2014: Cloud Adoption Drives Rating Changes
Accenture: OW to EW, PT $86 to NA
Brocade: UW to EW, PT $6.50 to NA
NetApp: OW to EW, PT $47 to NA
Teradata: EW to UW, PT NA to $36
Western Digital: EW to OW, PT NA to $85
We move to a Cautious view of our group as cloud computing adoption accelerates faster than expected. We downgrade ACN to EW, NTAP to EW, and TDC to UW on revenue and multiple risk from cloud adoption, and upgrade BRCD to EW and WDC to OW on better risk/reward. We favor AAPL, HPQ, WDC into 2014.

Symrise (MS, Sjogren) Hitting a Sweet Spot in 2014 – Upgrade to Overweight
EW to OW, PT €32 to €37
We upgrade Symrise to OW as consensus underestimates sustainability of sector leading top line and EPS growth in 2014 from EM exposure and penetration of core supplier lists, with good margin progression. At 16x 2014e P/E, the stock looks set for further re-rating having lagged peers YTD.

Campari (JPM, Gibbs) Valuation discounts the earnings recovery; Downgrade to Neutral
Consensus FY13E EBIT (BBG) has fallen by -13% since Jan 13 largely to reflect on trade decline and wholesaler credit squeeze in Italy, the share loss to me-toos in aperitifs in Germany, margin dilution from the LdM acquisition and adverse currency movements. We see Q313 as the inflection point and expect a sharp acceleration in FY14E with organic sales growth (+4% vs +1% in FY13E), organic EBIT growth (+12% vs -5%) and EPS growth 18% vs -2%. However at a CY14E PE of 17.1x, a premium to large cap peers Diageo 16.7x and Pernod Ricard 15.4x, we think this acceleration is discounted and would look for a more attractive entry point. We downgrade to N from OW.

Severstal (JPM, Vlasov) Russian Steel: Focus on cost control and positive FCF. Downgrading MMK to N (OW), upgrading SVST to OW (N)

Automobiles (GS, Burgstaller) Profit growth to drive further re-rating: Daimler, PSA top OEM picks
We focus in on 14 key issues for 2014. We see further upside to Autos next year, especially at the OEMs, where we see the OEM profit pool increasing 57% over 2013-17E. Our top picks are Daimler (remains CL Buy) and PSA (add to Conviction List).


Asian markets
Nikkei 225 down -316.46 (-2.01%) at 15,433
Topix down -20.62 (-1.63%) at 1,242
Hang Seng down -106.10 (-0.44%) at 23,804

US markets
S&P 500 down -5.75 (-0.32%) at 1,795
DJIA down -94.15 (-0.59%) at 15,915
Nasdaq unchanged 0.00 (0.00%) at 4,037

European markets
Eurofirst 300 down -19.84 (-1.53%) at 1,281
FTSE100 down -62.90 (-0.95%) at 6,532
CAC 40 down -113.37 (-2.65%) at 4,172
Dax down -178.56 (-1.90%) at 9,223

€/$ 1.36 (1.36)
$/¥ 102.53 (102.49)
£/$ 1.64 (1.64)
€/£ 0.829 (0.829)

Commodities ($)
Brent Crude (ICE) up +0.21 at 112.83
Light Crude (Nymex) up +1.15 at 97.19
100 Oz Gold (Comex) up +0.20 at 1,222
Copper (Comex) up +0.01 at 3.21

10-year government bond yields (%)
US 2.78%
UK 2.83%
Germany 1.73%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.09bps at 63.22bp
Markit iTraxx Europe +2.93bps at 80.92bp
Markit iTraxx Xover +9.57bps at 324.05bp
Markit CDX IG +0.96bps at 70.52bp

Sources: FT, Bloomberg, Markit


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