LCM Dawn Patrol – 12.12.13 – Some great strat reports from GS and JPM, EADS day1, Umicore at MS, GS d/grades Edenred… MOOOOORE!

Bonjour,

 

US equities finished lower again on Wednesday. A bipartisan budget deal, and speculation about the implications it will have on monetary policy, was the key area of focus ahead of next week’s FOMC meeting. The economic calendar was quiet, as the November budget deficit was the only notable data point. COST (1.2%) was the notable reporter on the earnings calendar after it missed consensus expectations. Healthcare and materials led the market lower today, while consumer staples was the only major sector to trade higher. Treasuries, crude oil and gold all fell.
Asian markets are largely negative in morning trade. China new yuan loans, which were released post close yesterday, were significantly higher than expected. Australian unemployment increased to 5.8%, which was in line with expectations and had little impact on the market.

 

It seems that all is in the right direction in the US. The congress appears on track to approve the budget, employment is on the right path, the new Fed team is ready. There are rumours that Bernanke could leave his seat to Yellen as soon as next week, increasing the chances of tapering very soon… Look at the VIX yesterday…

 

Today, we’ll have the French and Italian CPI, US retail sales, jobless claims.

 

NEWS

 

• Libor Traders Said to Face U.K. Fines as Soon as Next Month
• Russia to Push On With Privatization, Ulyukayev Says
• ECB Test of Estonian Banks Won’t Yield Surprises: Regulator
• Italian Premier Letta Govt Wins Confidence Vote in Upper House
• Ukraine Opposition Shuns Yanukovych as Protesters Thwart Police

 

Air France may only meet two-thirds of its target for voluntary redundancies
Allianz: JPM analyst Huttner forecasts €2 special div on top of existing for 2015
ArcelorMittal Seeks to Simplify Organizational Structure
Boeing Beats Airbus on $6.5b Air Canada Jet Order
BPCE SA The banking group named Steve Gentili as chairman of its supervisory board.
Celesio Says McKesson Offer Price EU23/Shr ‘Reasonable’
EADS CEO said defense headcount reduction may stretch into 2017
EADS’ Airbus will deliver its first A400M plane to Germany mid-2015
Facebook  (+4%) Named to Replace Teradyne in S&P 500 Index Next Week
Finmeccanica Appoints De Luca As Chief Operating Officer
GDF Suez plans to sell 4 million tons of U.S. liquefied natural gas to Asia in 2017
Groupe Partouche reported FY revenue of EU436M vs EU451M.
Patrizia Said in Talks for Biggest German Office Deal of 2013
PEUGEOT CONFIRMS IT IS STUDYING A CAPITAL INCREASE
RBS to Pay $100m to Settle U.S. Sanctions Allegations
Roche, Prothena to Collaborate on Parkinson’s Treatment
Royal Mail, Ashtead Group to Join FTSE 100 Index, FTSE Says
Samsung Said to Near EU Antitrust Settlement Amid Apple Clash
UBS Enters Australia Property With A$10b Investment Plan
Verizon Agrees to Settle Suit Over Vodafone Stake Purchase

 

CURRENT STUFF

 

Ukraine’s president Yanukovich’s position looked increasingly precarious by the end of Wednesday after thousands of riot police failed to clear protest camps from Kiev’s Independence Square, prompting thousands more demonstrators to come out and defend the site. Public signs also emerged that more of Ukraine’s influential oligarchs were siding with protesters. (Financial Times)

 

Hedge holdings soar despite returns trailing behind equities: Interest in hedge funds among institutional investors, particularly pension funds, has increased as equity market valuations have risen sharply and bond market returns are threatened by future interest rate rises. (Financial Times)

 

Shares in Cinda, the former Chinese bad bank, got off to a flying start, rising more than 20 per cent in the opening minutes of their debut Hong Kong trading session on Thursday. (Financial Times)

 

Hilton IPO prices near top of the range to raise $2.35bn: Six years after one of the largest leveraged buyouts ever, private equity group Blackstone is set to return Hilton Worldwide , the world’s biggest hotel chain by number of rooms, to the US market after raising $2.35bn in an initial public offering. Hilton sold 117.6m shares at $20 each, at the upper end of the $18-$21 price range it had set. An extra 5m shares were sold, demonstrating resurgent investor demand in hotel stocks, which have enjoyed a rebound in room rates, occupancy levels and business travel. (Financial Times)

 

Moncler remains baffling success: Investors rushed to take part in Italy’s largest IPO since 2010, allowing the company to price its shares at €10.2, giving it a market capitalisation of €2.55bn. (Financial Times) Making Remo Ruffini a billionaire. (Bloomberg)

 

Facebook became one of the youngest public companies to join the S&P 500 on Wednesday, sealing the comeback of the social network stock which was shunned by investors after listing last year. Shares in Facebook rose as much as 4 per cent to $51.35 in after-hours trading on Wednesday after S&P Dow Jones Indices said the company would be admitted to the S&P 100 and the S&P 500 after the close of trading on December 20. (Financial Times)

 

STRATEGY

 

GS Fortnightly thoughts: Quiter Macro, Noisier Micro?
This is defintely worth reading!
We highlight five themes that we believe matter, that are still in their relative youth, that we believe will have broad impacts, and that have investable ways of gaining exposure.
The rising size, role and influence of governments
The rising ubiquity of technology
The impact of new manufacturing technologies
The widening gap in relative energy prices
Growing pains in emerging markets

 

 

JPM (Kolanovic) Systematic Strategies Across Asset Classes
Risk Factor Approach to Investing and Portfolio Management.
I haven’t started reading this yet. It’s a 200 pages report and will certainly be too complicated for me. I know some of you may be interested though…

 

 

UPS&DOWNS

 

Edenred (GS, Edelman): Factoring in FX depreciation, estimates reduced, removed from Buy list
We now forecast a 2014-17 EPS CAGR of 9% vs. 18% previously. Our new 12-month (previously 18-month) PEG-based price target is calculated on C2015 estimates (1.25x organic EPS growth) and is lowered to €25.70, from €27.50, which implies 1% upside.

 

EADS (JPM, Perry, CFA) Investor forum – day 1: A lot of moving parts, but equity case remains on track
EADS is holding its annual Global Investor Forum (GIF) on Dec 11-12. At the end of day 1 we are not changing our estimates but we flag some of the key issues: 2014-16E sales may be 3-5% lower than we expect; 2015E margin guidance is 50bp above where we expected; Net-net, with lower sales and higher EBITA margins, EBITA in 2015E may be modestly higher than we currently expect. EADS said it “will target a sustainable growth in dividend within a payout ratio of 30-40%”. We currently assume an average dividend payout ratio of 32% for 2013-2016E.

 

Air Liquide (JPM,  Diebel) CMD feedback – With a negative catalyst behind us and a confident message on Large Industries the shares look attractive
Air Liquide management provided a confident message at yesterday’s CMD emphasizing that the business model remains on track with a slowdown in the European base business to be offset by new growth areas and applications such as Healthcare, US-shale and Emerging Markets growth. The expected cut to guidance at the CMD has been an overhang in recent weeks but with a new range of 6-9% mid term revenue growth (vs. 8-10% before) in a weak environment for European Chemicals overall we think valuation at 16.1x 2014E is justified and remain OW the shares.

 

Volvo (MS, Lembke) Lack of Visibility on Savings Now Our Key Concern
Post Volvo’s CMD, timing of savings and clarity on the financial impact of Volvo’s strategy become our key question marks. We take a detailed look at DAI Trucks, where we see little evidence of structural margin lift despite >€3bn savings announced.

 

Umicore SA (MS, Stiefel) Downgrade cycle likely to trough in H1’14: initiate at EW
The EPS downgrade cycle at UMI started in May ‘12, with 1-yr FWD cons. EPS tumbling by 27%. We still see 11-14% cuts as likely near term. But many of the risks are known, we’re in the final 1/3rd of the downgrade cycle and, from a depressed ‘13 base, we forecast ~11% 5-yr EPS CAGR – initiate at EW.

 

Analyst Actions

IMAGINATION RAISED TO NEUTRAL VS SELL AT UBS

UMICORE RATED NEW EQUALWEIGHT AT MORGAN STANLEY, PT EU32

EFG INTL RAISED TO BUY VS HOLD AT HELVEA/BAADER BANK

IMAGINATION RATING UNDER REVIEW, WAS OVERWEIGHT:MORGAN S…

CREDIT SUISSE RAISED TO BUY VS HOLD AT HELVEA/BAADER BANK

TRYG RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN

EDENRED CUT TO NEUTRAL VS BUY AT GOLDMAN

BLUE SOLUTIONS RATED NEW NEUTRAL AT HSBC

TENCENT PT LIFTED 13% TO HK$525 AT BNP, KEPT BUY

TRYG AS RAISED TO NEUTRAL AT JPMORGAN

OVERNIGHT MARKETS

Asian markets
Nikkei 225 down -170.84 (-1.10%) at 15,344
Topix down -9.14 (-0.73%) at 1,241
Hang Seng down -90.25 (-0.39%) at 23,248

US markets
S&P 500 down -20.40 (-1.13%) at 1,782
DJIA down -129.60 (-0.81%) at 15,844
Nasdaq down -56.68 (-1.40%) at 4,004

European markets
Eurofirst 300 down -6.66 (-0.53%) at 1,256
FTSE100 down -15.59 (-0.24%) at 6,508
CAC 40 down -4.28 (-0.10%) at 4,087
Dax down -37.33 (-0.41%) at 9,077

Currencies (I know… I will find a better source)
€/$ 1.38 (1.38)
$/¥ 102.56 (102.42)
£/$ 1.64 (1.64)
€/£ 0.8429 (0.8417)

Commodities ($)
Brent Crude (ICE) down -0.07 at 109.63
Light Crude (Nymex) down -0.09 at 97.35
100 Oz Gold (Comex) down -3.10 at 1,255
Copper (Comex) at 3.33

10-year government bond yields (%)
US 2.85%
UK 2.87%
Germany 1.82%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.49bps at 62.63bp
Markit iTraxx Europe +0.42bps at 78.18bp
Markit iTraxx Xover +0.51bps at 319.14bp
Markit CDX IG +2.45bps at 70.23bp

Sources: FT, Bloomberg, Markit

 

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