LCM Dawn Patrol – 13.02.14 – Too much… BNP looks bad, ABB too. JPM dgrades KERING, PUMA, GS ups ABI… More…


US equities finished narrowly mixed in fairly uneventful trading on Wednesday. The political backdrop improved today as the House and Senate both passed clean debt ceiling bills. The earnings calendar drove some notable stock specific moves today, though aggregate takeaways were limited, as is typically the case in the latter stages of earning season. Tech, telecom and industrials were the best performers today, while consumer staples, energy and materials were among the laggards. Treasury yields were mostly higher on the day.
Asian markets are largely flat this morning. Japan markets are the exception, down over 1% seemingly on little news. The yen moved only slightly stronger against the dollar overnight. Weaker than expected Australian employment data drove the AUDUSD back below to the 0.90 mark to around the 0.894 level. As widely expected the Bank of Korea left rates unchanged. Weaker than expected Indian CPI and industrial production above expectations data provided the Indian market a sentiment boost.

Today, we’ll get the US Jobless Claims and Retail Sales, and Business Inventories; Germany CPI; Canada Housing Price Index; and Turkey Current Account. We also get Sweden’s Riksbank but no move is expected (consensus).
Earnings: ABB, BNP Paribas, Lloyds, Nestle, Pernod, Renault


• IMF Disburses $1.24 Billion to Portugal as Outlook Improves
• Spain Said to Ask Banks to Accept Losses on Loans for Highways
• SocGen Economist Brings Forward Forecast For BOE Raising Rate
• U.K. Jan. RICS House Price Index at 53 vs Est. 58
• Nordea CEO Says Swedes Can Withstand 10% Housing Market Slump
• Ireland’s NTMA Plans to Sell EU4b of Bonds in Auction Series
• Letta Challenges Renzi in Appeal to Save Government in Italy
• Thames Flood Risk to Increase as U.K. Girds for More Rain, Wind
• Osborne to Urge Scots to Reject Independence in Favor of Pound

•  Comcast Said To Agree Time Warner Cable Deal At About $159/Shr
Royal Mail, Asos, Inter Pipeline, Seiko Epson to Join MSCI World
Faroe May Buy $400m in Norway Oil Assets to Double Output
Glencore-Macquarie Said to Exit Race for Shell Australia Assets
Emperador Invests 3.7B Pesos to Expand Spain Brandy Production
Deutsche Asset Mgmt, Prelios Sell DGAG Portfolio to Immofinanz
Immofinanz Approves Proposal for Spinoff Buwog
Cinven, Investindustrial Said to Look at Assicurazioni’s BSI: WSJ
Zurich Insurance in Talks to Sell Malaysia Unit Stake: Star
Viva Aerobus Says Jet-Purchase Plan Intact After IPO Put on Hold
Danone Weighs Sale of Tube Feeding Unit: Reuters
Corio FY Net Rental Income EU379.7m vs EU397.5m Y/y
AstraZeneca, Teva Win End of Lawsuit over Nexium Settlements
• David Jones CEO Zahra: ‘I Haven’t Resigned’ From the Company
Peugeot Capital Increase May Be for Up to EU4B, Tribune Says



Rio Tinto 2013 Underlying Profit $10.2b; Est. $9.66b
Commerzbank 4q net income eu64 mln; est. Eu23.3 mln
Telenet FY Rev. Eu1.641 Bln; Est. Eu1.65 Bln
Zurich Insurance
4Q Net $1.074 Bln; Estimate $1.26 Bln
Solocal 2013 Sales Fall 6.3% to EU998.9M

BNP Paribas 4Q Net Income Misses Amid Charge; Dividend Misses
BNP Paribas 4Q net income EU127m;
est. EU1.02b, takes $1.1b provision for U.S. sanctions probe.
• Basel 3 fully loaded CET1 ratio 10.3% vs 10.8% end Sept
• Basel 3 fully loaded leverage ratio 3.7%
• Plans div EU1.50; BDVD forecast EU1.75
• 4Q CIB pretax up 36% to EU350m
• 4Q French Retail pretax down 3.5% to EU354m
• 4Q Investment solutions pretax down 15% to EU493m
• 37 ratings, 73% buy, 16% hold, 11% sell: Bloomberg data
• NOTE: BofAML, Citi said Feb. 5 buy BNP, SocGen ahead of 4Q, focus on investor day
• NOTE: JPMorgan said Feb 10 UBS, Deutsche top picks as 1Q disappoints

ABB 4Q Income From Operations Misses, Lowers Sales Growth
ABB confirms 2011-15 group targets for operational Ebitda margin, free cash flow conversion, sees EPS growth toward lower end of 10%-15% target.


WSJ: ECB Considers Negative Deposit Rate. “The European Central Bank is “seriously” considering taking its rate on overnight bank deposits into negative territory, a top member of its executive board said Wednesday, adding to mounting speculation that the central bank will act at its next policy meeting to keep the tepid euro-zone economy on track. “[Negative rates] is something we are considering very seriously,” Benoît Coeuré, ECB executive board member, told news agency Reuters in an interview, adding that it is “a very possible option.” The ECB confirmed Mr. Coeuré’s remarks. Such a measure could help to kick-start the flow of bank credit to households and businesses by penalizing banks for parking their excess funds at the central bank instead of lending them to other banks in the financial markets.”

Interest rates are unlikely to rise before next year’s election, the Bank of England indicated on Wednesday, as it unveiled bullish economic forecasts that boost George Osborne’s claim that the economic recovery is on track. Ditching the previous guidance linking interest rates to unemployment, Mark Carney, governor, said the Bank would no longer tie its future policy decisions to any particular economic indicator. (Financial Times)

“PSA Peugeot Citroen has reached an outline deal with Dongfeng and France to raise up to 4 billion euros ($5.5 billion) in fresh capital and deepen cooperation with the Chinese carmaker, sources familiar with the matter said.” (Reuters)

Comcast is set to acquire Time Warner Cable for a deal that values its smaller rival at $45.2bn and effectively brings to an end a six-month long battle to consolidate America’s fragmented pay-TV market, according to people familiar with the matter. The deal, which will be confirmed on Thursday morning, brings together the country’s largest and second-largest cable companies by subscribers and is likely to face an intense regulatory battle. Comcast is expected to divest 3m subscribers if the deal goes through. Comcast will pay $158.82 a share. (Financial Times)

Nigeria’s central bank governor, Lamido Sanusi, has exposed a multibillion-dollar subsidy racket inside the state-owned oil company that may partly explain huge shortfalls in what Africa’s leading oil producer is earning from its crude. (Financial Times)

“China’s trust assets surged 46 percent in 2013 to a record 10.9 trillion yuan ($1.8 trillion), underscoring investor interest in products that pay more than bank deposits even as default risks mount.” (Bloomberg)

Cisco unnerves with profit margin squeeze: Revenues at Cisco Systems tumbled 8 per cent in the latest quarter as it struggled with falling demand from emerging markets and a product transition that has hit sales of its core router business. Wall Street analysts were unnerved in particular by an erosion in profit margins on the company’s product sales, despite a better than expected performance in services. (Financial Times)


Anglo American (JPM,  Jamieson) Updating estimates ahead of FY’13 results; PT +5% to £12.60/sh but retain UW

CRH (MS, Serov)Equal-weight reiterated, but near-term risks exist
We raise the price target for CRH to €17.00 with updated forecasts on better prospects in outer years and rolling forward the estimates. Longer- term outlook for CRH is positive, but high valuation prevents us from turning buyers. We see near-term risks especially around portfolio review results.”

Kering (JPM, Flouquet) Momentum on hold – Downgrading to Neutral
We downgrade Kering to Neutral. Our Dec 14 SOP based PT is €165 (€190) leaving limited potential upside to the current share price. We believe that the earnings correction cycle that started in 2013 will continue into 2014 at Kering (we cut our FY14E earnings by 8%) and this should reduce the scope for further stock re-rating for the time being. The PUMA and Gucci brand underperformances should drag the Group’s top line and EBIT growth below that of peers in H2 13E and FY14E.

Puma (JPM,  Battistini) A fading roar — Downgrading to Underweight
Puma will report its FY 13 Results on Thurs 20th Feb. at 10am CET, followed by a conference call at 3pm CET. We expect Group FY 13E Sales -3% organically, -8% reported to €2,995m and FY 13E adj. EBIT -33% YoY to €195m. On its conf. call (the first since FY12 results last year), we believe the new CEO, B. Gulden, will highlight that 2014 will be another transition year, dedicated to further investments to reignite Puma’s topline growth from 2015. As a result, with still meaningful investments to be made, coupled with muted revenue growth, and overall a poor turnaround track record, we cut FY14E by 25%, our Dec-14 PT to €175 (€210) and downgrade Puma from N to UW.

European Trucks (JPM, Whight) Cyclical upside priced in; a top down driven rerating would leave valuations stretched
In this report we outline our country-by-country analysis of the longer term heavy duty truck supply/demand outlook. We estimate a 2017E European cycle peak of 260K trucks but believe this is priced in, with Volvo fairly priced for this scenario (assuming SKr8.5bn savings). Near-term relative performance could be supported by improving European truck orders but we believe a rerating would leave valuations stretched with 1) pricing a risk (also long term), 2) high risks on execution in a competitive industry, and 3) high expectations reflected in the stock price and consensus forecasts; JPMe 2014E Volvo EBIT 25% < pre-results consensus and 15% below for Scania.

Europe: Consumer Staples (GS, Collett) Playing BRIC breaker: SABMiller onto the Conviction Buy List
The traditional concept of EMs is obsolete we differentiate between early-stage and maturing EMs as well as early-stage and maturing categories. We identify three investment themes: attractively valued DM exposure, oversold EM assets, M&A beneficiaries.

Anheuser-Busch InBev (GS, Collett) Buy: Strong and efficient cash deployment to continue; upgrade to Buy
Based on ABI’s strong track record of synergy delivery from acquisitions, we upgrade our rating to Buy (from Sell) to reflect our expectation of continuing cash deployment. Our 12M PT increases to €89 on our higher forecasts and higher target P/E.

Reckitt Benckiser (GS, Edwards) Buy: The return of Reckitts; growth reacceleration to drive re-rating; Buy
We believe Reckitts can return to the organic growth levels seen pre the financial crisis, as the DM consumer recovers and category penetration in EMs and DMs increases. This should drive multiple re-rating we believe. We upgrade to Buy from Neutral.

SABMiller (GS, Collett) Buy: Undervalued structural growth; adding to the CL, retain Buy rating
We add SABMiller to the Conviction List and retain our Buy rating. The stock’s 9% underperformance this year to date creates an attractive buying opportunity in one of the most structurally advantaged companies in European consumer staples.


Asian markets
Nikkei 225 down -240.12 (-1.62%) at 14,560
Topix down -17.78 (-1.46%) at 1,202
Hang Seng down -98.06 (-0.44%) at 22,188
ASX 200 down -1.15 (-0.02%) at 5,309

US markets
S&P 500 down -0.49 (-0.03%) at 1,819
DJIA down -30.83 (-0.19%) at 15,964
Nasdaq up +10.24 (+0.24%) at 4,201

European markets
Eurofirst 300 up +9.49 (+0.72%) at 1,327
FTSE100 up +2.37 (+0.04%) at 6,675
CAC 40 up +22.18 (+0.52%) at 4,306
Dax up +61.23 (+0.65%) at 9,540

€/$ 1.36 (1.36)
$/¥ 102.15 (102.49)
£/$ 1.66 (1.66)
€/£ 0.819 (0.8189)

Commodities ($)
Brent Crude (ICE) down -0.30 at 108.49
Light Crude (Nymex) down -0.59 at 99.78
100 Oz Gold (Comex) down -4.90 at 1,290
Copper (Comex) down -0.02 at 3.30

10-year government bond yields (%)
US 2.77%
UK 2.83%
Germany 1.72%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.53bps at 54.57bp
Markit iTraxx Europe +0.49bps at 74.49bp
Markit iTraxx Xover +0.46bps at 279.9bp
Markit CDX IG -0.22bps at 65.28bp

Sources: FT, Bloomberg, Markit


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