US equities finished slightly higher on Monday. Activity remained subdued throughout the day, marking a stark contrast from the volatility of last week. With little macro news to drive markets today, investors were seemingly awaiting Janet Yellen’s first Congressional testimony today to provide some direction. It was also a fairly quiet day on the corporate calendar before the focus starts to shift to a few higher-profile January quarter reporters in the middle of the week. Healthcare, utilities and materials were the notable outperformers, while energy, industrials and consumer discretionary were the only sectors to finish in negative territory. Gold was up another 0.9%, finishing higher for a fourth consecutive session.
Asian markets are largely positive this morning but moves are quite muted on lack of directional newsflow. The PBOC abstained from open market operations taking CNY330B, which was due to be added, out of the system. The Australian market stopped trading after a technical glitch but reopened at 22:45 ET. The Japanese market is closed for Foundation Day.
Today, it’s all going to be about Yellen and some US data. Yellen’s declaration wil be available at 14:30 Paris time and her speech will start at 16:00. At 13:30 we’ll get the NFIB. Japan is closed. In Europe, Netherlands sells bonds; U.K.,
Germany sell linkers. Greece, Belgium, Malta, Switzerland sell
L’Oreal beats & sells Galderma stake to Nestlé and pay 6bn to buyback stock from Nestle, Actelion and Tomtom report better EPS, Metro inline, while Michelin numbers look light, GS remain buyers of Autos and upgrade vehichle growth forecasts to 6.4% in 14, Alcatel & BG downgraded to UW at MS
ON. Because running can hurt. A team of Swiss experts created this amazing shoes. If you’re into sports gear you probably know them. If you’ve taken good resolutions for 2014, it’s still time to make it easier on you with these…
• Biggest EU Mortgage Bank Sets Up $1.8b Risk-Weight Hedge
• U.K. Small Caps Reach 24-Yr High to FTSE 100: Chart of Day
• L’Oréal : Nestlé réduit à 23,29% sa participation
• L’Oreal 4Q LFL Sales Growth Beats Ests.; Confident on 2014
• Michelin 2013 Op Income EU2.23b, Est. EU2.27b; Div. Raised
• Actelion FY Core EPS CHF4.41m; Raises 2014 Forecast
• Nexans Sees Op. Margin Increasing in 2014; Yr Op. Margin Beats
• Metro 1Q Ebit Ex-Items EU1.07b, Est. EU1.08b
• Sanofi in Early Talks With Nutrition Companies, CEO Says
• Sanofi CEO Viehbacher Seeks Clarity on L’Oreal Stake
• Vodafone Is Said to Approach ONO for Potential Acquisition
• Porsche to Exceed 200,000 in Deliveries in 2015 on Macan
• Virgin America Said to Pick Barclays, Deutsche for IPO: FT
• Marcegaglia, Arvedi Interested in Ilva Stake: Reuters
• L’Oreal to Pay 6 Billion Euros to Buy Back Stock From Nestle
• Ubisoft Sees FY Loss End at High of Previous Target
Actelion FY Core EPS CHF4.41m; Raises 2014 Forecast
Actelion sees low single-digit core EPS growth in 2014 at constant FX; previously saw 2014 core earnings at least at same level as 2013.
Michelin 2013 Op Income EU2.23b, Est. EU2.27b; Div. Raised
Michelin 2013 oper. profit EU2.23b, est. EU2.27b. Yr. ago EU2.42b.
• Rev. EU20.25b, est. EU20.4b.
• Div. EU2.5, yr ago EU2.4, BDVD forecast EU2.4
• FCF: EU1.15b
• 2014 outlook: Sales volume +3%, FCF >EU500m with capex ~EU2b
• 2013 outlook was Y/y increase of ~EU150m oper. income ex-items and FX
L’Oreal 4Q LFL Sales Growth Beats Ests.; Confident on 2014
L’Oreal 4Q LFL sales up 5.4%, est. +4.7% (median of 15).
• 2013 sales EU23b, est. EU23b
• 2013 operating profit EU3.88b, est. EU3.88b
• 2013 adj. EPS EU5.13, est. EU5.09
• Div. EU2.50/shr, BDVD est. EU2.50/shr
• CEO Jean-Paul Agon says starting 2014 with confidence
• Co. confident in its ability to outperform mkt once again in 2014, achieve another year of sales, profit growth
• Conf. call 9am CET tomorrow, details
+28.6% MODN (Model N) — earnings
+19.5% MERU (Meru Networks) — earnings
+1.5% CAP (CAI International) — earnings
-9.8% RAX (Rackspace) — earnings/management change
-7.6% QLYS (Qualys) — earnings
-3.1% AMKR (Amkor) — earnings
-2.3% WBMD (WebMD Health) — earnings
-1.8% NUAN (Nuance Communications) — earnings
Yellen’s first testimony as chairwoman of the US Fed is a crucial chance to stamp her authority on her new role, just as a research paper highlighted the extent of her challenge with forward guidance about monetary policy. The House Financial Services committee on Tuesday will probably press Ms Yellen about weaker data on the US economy, turmoil in emerging markets and the Fed’s plans for forward guidance now that the unemployment rate, at 6.6 per cent, has almost hit the Fed’s 6.5 per cent threshold for considering a rate rise. It will give her a chance to set out the central bank’s outlook as there has been little real communication since December’s press conference. (Financial Times)
China’s 500-tonne gold gap fuels talk of stockpiling to take advantage of weak prices: The last time the Chinese central bank said it increased its gold holdings was nearly five years ago, in early 2009. Officials have since then repeatedly insisted that they do not view gold as a useful asset for diversifying the country’s $3.8tn mountain of foreign currency reserves. But the latest official figures show that China imported and produced far more gold in 2013 than its citizens bought. This chasm suggests that the central bank was a buyer in the gold market last year in spite of its protestations to the contrary, say analysts. (Financial Times)
L’Oréal sells Galderma stake to Nestlé in €3.1bn deal: The world’s largest cosmetics group, has just confirmed it will purchase the stake in the company owned by Nestlé — the boards of Nestlé and L’Oréal announced that they have approved a deal under which L’Oréal will buy 48.5m of its own shares (8 per cent of its share capital) from Nestlé. L’Oréal says the buyback will be financed by selling its 50 per cent stake in Swiss dermatology pharmaceuticals company Galderma (a 50/50 joint venture between L’Oréal and Nestlé) for an enterprise value of €3.1bn, paid by Nestlé in L’Oréal shares (21.2m shares). (FastFT) If Nestlé sells its stake in L’Oréal… (WSJ)
LCM Cross Asset Strategy – Unanswered Questions
The patience of investors leaves questions unanswered … for the moment.
– We discuss the manufacturing cycle in the US and show that economic growth can resist corporate weakness as long as the household sector stays on track. This would be the opposite of 2007: the de-coupling thesis happening in reverse.
– Commodity prices – and oil prices especially – have not overreacted recently, contrary to what we could expect given their EM sensitivity. This is strange and classic at the same time as the “memory effect” supports the trade. Investors tend to consider that their previous underperformance is enough for them to be seen as a bargain.
– The equity market correction in Europe is not driven by European fears and this explains why dividend futures (DEDZ5) have not adjusted. This looks consistent but starts to be contradictory with the absence of profit recovery in Europe. Earnings revisions for European listed companies have failed to come back into positive territory and although this is mainly due to non-cyclical sectors (oil&gas and healthcare) the question is: what is the necessary context for profits to grow in Europe?
Trade recommendation summary
– Buy implied volatility on oil prices against equities
– Get exposure to European equities via dividend futures
– Overweight European temporary and media agencies
France: Banks: Focus on BNP (GS, Neuez): significant room for returns recovery
After 3 years of returns compression owing to deleveraging, we believe BNP is at a turning point: BNP combines a strengthened balance sheet to a low efficiency. As volume growth resumes, the resulting operating leverage can add 50%+ to the bottom line.
Best Ideas EUROPE – Adding Ryanair (MS, Butcher).
RYA is our ‘must own’ airline stock for 2014.
Suez Environnement (MS, Turpin) What to look out for at the FY13 stage
SEV will report its FY13 results on 20 February. We expect a 2014 guidance based on a modest GDP growth assumption. Management should also give a FY14 target for capex level. It will be an important signal for the market, to assess how the company is positioning itself in the cycle.
Alcatel-Lucent (MS, Meunier) Strong momentum – but share price at our PT = EW
Q4 results were strong and showed that new management is executing well on costs, disposals and on market share. That said, the shares now trade on 0.9x EV/Sales, 15.8x PER 2015 MSe and the share price is close to our SOTP-based price target.
BG Group(MS, Rats) Too Much Uncertainty; Move to EW
Our thesis on BG had been based on expectations for strong production growth, declining capex and accelerating disposals. However, the company’s recent profit warning and the weakening of the upstream asset market have left too much uncertainty over key parts of this thesis.
Anheuser Busch InBev (JPM Gibbs) Still the clear top pick in the sector
The Beverages sector including ABI has fallen on EM macro/currency concerns with our ABI FY14/FY15 EPS estimates coming down by -3%/-4% as a result. We do not deny that the macro-economic backdrop in some of ABI’s markets, notably Brazil, is tough. However the gap in terms of organic profit growth has only widened this year with ABI offering low DD MT growth in a sector struggling to do 5%. This is underpinned by improving US, Brazil and China top lines and Modelo synergy capture.