LCM Dawn Patrol – 31.01.14 – WEEK END, Barcap Earnings scorecard, GS on deleveraging US vs EU, MS likes TF1, JPM likes Mittal and E.On…


US equities rebounded Thursday, with the S&P 500 closing higher for just the second time in the last six sessions. Calmness seemed to be restored early this morning with US stock index futures trading higher before the open as yesterday’s Fed’s minutes were digested and EM concerns waned. Little attention was paid to the final HSBC/Markit Chinese PMI manufacturing data, which was lower than the original flash estimate last week that seemed to spark recent market volatility. The release of in-line US GDP seemed to help keep underpin recovery sentiment, overshadowing some other disappointing US economic data. It was one of the busiest days in the corporate earnings season, with results fairly well received. The apparent return of risk appetite saw gold reverse sharply lower, the Japanese yen back on the defensive and bond yields rise with the 10-year yield to ~2.70%.

Today, no clear direction for the European markets. Japan got hurt by disappointing CPI numbers. We’ll focus on the Euro Area HICP flash number. Earnings: BBVA, BT, Caixabank, Electrolux, GFK, Vedanta and Mastercard.


SPORT. RUGBYFrance England. Saturday 18:00.
SPORT SKI, St Moritz, last race before Sotchi.
RESTO. Celebrate the Chinese New Year… CHEZ VONG. 10 rue de la Grande Truanderie 1er for good food (but sad decor) or TaoKan 8 rue du Sabot 6e.
EXPO. RaymonDepardon. Grand Palais.
KINO. DALLAS BUYERS CLUB. Good! Better than American Hustle. A must see movie.
DISCO. METRONOMY. La maroquinerie tonight 23 rue Boyer 20e.




BBVA 4Q Net Loss EU849m, Est. EU946m Loss

UPM-Kymmene Plans EU150 Mln Investment, Kouvolan Sanomat Says

Ferrovial, FCC, ACS, Sacyr Face EU500m Highway Loss, Cinco Says


Trading Higher:

+10.5% CMG (Chipotle Mexican Grill) — earnings
+5.8% JDSU (JDS Uniphase) — earnings
+1.7% WYNN (Wynn Resorts) — earnings
+0.2% GOOG (Google) — earnings

Trading Lower:

-9.9% AMZN ( — earnings
-3.8% CSC (CSC) — earnings
-2.9% MCHP (Microchip) — earnings


Japan’s benchmark inflation rate accelerated to 1.3 per cent in December, government data showed on Friday, capping a year in which aggressive central bank easing helped to push consumer prices up for the first time in half a decade and towards the BoJ’s 2 per cent target. Average core inflation for all of 2013, a measure that excludes the volatile price of fresh food, was 0.4 per cent, according to the interior ministry. (Financial Times)

“ Inc missed Wall Street’s estimates for the crucial holiday period and cautioned investors about a possible operating loss this quarter as shipping costs climb, pushing its shares down more than 5 percent.” (Reuters)

Lloyd Blankfein, chairman and chief executive of Goldman Sachs, may earn as much as $23m in 2013


GS (Karoui) Global Markets Daily
Not all releveraging forms are created equal: A cross-region comparison of the US vs. Euro area
We estimate credit metrics for nonfinancial firms and assess relative balance sheet strength in the US and Euro area. Like in the US, leverage ratios in the core of the Euro area have been rising recently, albeit at a slower pace. But in contrast to the US, where active forms of releveraging have notably increased the leverage uptick in the Euro area appears to be almost entirely passive, driven by weak revenue growth. This suggests continued underperformance of Euro area balance sheets but lower event risk relative to the US. Going forward, a better growth environment should improve credit metrics in the Euro area keeping risk appetite firm and pushing spreads tighter over the course of the year.

GS (Hatzius) Q4 GDP grew in line with expectations, although the composition was slightly softer than expected. We start our Q1 GDP tracking estimate three-tenths below our prior assumption at 2.7%.

Real GDP increased at a 3.2% rate in Q4 (vs. consensus 3.2%). Personal consumption expenditures rose a smaller-than-expected 3.3% (vs. consensus 3.7%), which was still the fastest rate since 2010. Business fixed investment rose 3.8%, held down by a 1.2% decline in structures investment following two quarters of strong gains. Equipment investment rose a solid 6.9%. Business inventories added four-tenths to headline growth. Residential investment declined 9.8%, reflecting in part the lagged impact of weaker housing starts in past quarters. Net exports were also a strong positive contributor, adding 1.3 percentage points to growth. Federal government spending fell 12.6%, pushing total government spending down 4.9%. The Commerce Department estimated that the federal government shutdown subtracted three-tenths from GDP growth. Although the composition of this morning’s report was slightly softer than expected, solid 2.9% growth in real final sales to private domestic purchasers suggests positive underlying momentum heading into 2014. We start our Q1 GDP tracking estimate three-tenths below our prior assumption at 2.7%, due to the larger-than-expected inventory contribution in Q4

Barcap European Earnings Scorecard: Trends in the Q4 reporting season
Better than you think: A slew of high profile profit warnings has left many investors with the perception that the start of the Q4 results season has been particularly weak. In reality specific one-off factors contributed to many of these pre-announcements (e.g. Shell, RBS, Serco, Akzo Nobel). Taking a step back, the initial data show underlying trends which, while unspectacular, give us no specific cause for concern. Although revenues are still under pressure from weakening EM currencies, the EPS surprise ratio does not suggest wide-spread deterioration in market conditions.


MS Best Ideas EUROPE – Adding TF1

TF1 (MS, Rossi) Inexpensive and Improving
At 0.8x sales, 6.5x EBITDA and 13x PE in 2015, TF1’s core business valuation is attractive against +18% 2013-16 EPS CAGR and a TV margin seen at just 8% in 2015 vs. peers at 25%. Positive structural developments (regulation, audiences) make us confident TF1’s TV margin is poised to improve.



E.ON (JPM,  Casali) 2014 expectations rebased, supportive court case news flow set to continue. Upgrade to Neutral
E.ON will report Q4 results and provide 2014 guidance on March 12th: we expect EPS to decline 21% this year, but so does consensus. Although we think consensus EPS is 8-15% too high for 2015-16, the non-negligible risk of a permanent reversal of the nuclear tax, upside to carbon prices and limited downside to generation profits lead us to adopt a less negative stance on the shares. We upgrade the stock to Neutral (from Underweight) and remove it from the European Analyst Focus List.


ArcelorMittal (JPM,  Abate) Q4 and FY’13 preview: we are long into the results. MT remains our top pick in the steel space
We reiterate our long position into the Q4’13 results due on Friday, Feb 7. MT remains our top pick in the Euro steel space, and our OW is focused on upside from restructuring and exposure to Developed Markets gradually supporting margin expansion towards normalized levels. Our Dec-14 PT of €15 remains unchanged. Mid-term, we expect the FX effect will turn positive, boosting MT utilization rates in the emerging markets with the recent TK/US mill reinforcing the added-value products franchise strategy. We expect FY13E $6.86bn EBITDA, $17.3bn net debt, and 14E EBITDA guidance >$7.5bn.


GS on Tobacco: Valuation now hard to resist: IMT up to Buy/on CL; BAT Buy
We upgrade Imperial Tobacco to Buy and add it to the Conviction List. We maintain a Buy rating on BAT. With sentiment and valuation at 10yr lows andlong term fundamentals unchanged, recent share price weakness offers an attractive buying opportunity.




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