>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: TFM +7.2%, GME +6.2%, QUNR +5%, ROST +4.8%, FL +3.8%, TA(E) +2.8%, GPS +2.7%, (plans to extend international presence to India through franchise agreement for 40 stores; first stores to open in Mumbai and Delhi in 2015), BRCD +2%, CRM +1.8%, RY +0.6%.

M&A news: DYN +8.5% (to acquire assets from Duke Energy (DUK) and Energy Capital Partners for total consideration of $6.25 bln), VOD +1.2% (strength overseas on AT&T (T) related speculation).

Other news: OGXI +4.8% (announces update on Phase 3 ENSPIRIT trial evaluating custirsen in advanced non-small cell lung cancer; ENSPIRIT trial to continue as planned following completion of the first of two interim futility analyses), LOCO +4.6% (signs franchisee to 20 unit expansion agreement in Texas, unveils multi-year franchising initiative), ISBC +2.1% (Blue Harbour Group disclosed 5.7% active stake in 13D filing), EAT +2% (increased quarterly dividend 16.7% to $0.28 from $0.24 per share; Board authorized an additional $350 mln in share repurchases), GOGO +1.9% (following 6% move higher yesterday on M&A speculation), DMD +1.8% (CEO disclosed purchase of 27000 shares worth total of $247.5K on August 19), KING +0.9% (Candy Crush Saga is now available for players in China).

Analyst comments: SEAS +1.5% (upgraded to Outperform at FBR Capital), AKS +0.9% (upgraded to Neutral from Sell at UBS), BBY +0.8% (may be attributed to positive UBS comments ahead of next week's earnings)

>>> UBS making comments on US Steel Sector; Steel trade cases mitigate global ov

UBS making comments on US Steel Sector; Steel trade cases mitigate global overcapacity 
- Firm now assume steady steel prices in H2/14, weakening slightly through 2015/16 before strengthening in 2017. They have raised their scrap price forecast considerably, which mitigates EPS upside for the minimills 
- Firm raises price target for X (Neutral rated) to $38, AKS to $11, NUE to $59 and STLD to $25.5. Upgrades AKS to Neutral from Sell
- Firm contiues to prefer Buy rated mini-mills NUE and STLD for exposure to non-residential construction demand 
- Firm sees another possibility from their earlier opinion of "imports to balance the market and return US prices in-line with other regions, putting steel producers profit under pressure". Now Firm sees that trade duties help insulate the market from cheap foreign steel, and strong demand allows US mills to grow margins 
- Firm finds that trade duties can be effective in the near term, however they stop short of declaring a bull market for steel prices and equities. Firm have slowed their assumed rate of price decline considerably but still have declining prices for a $50/t headwind to margins over the next 2yrs, perpetuating the industry's ongoing minicycles

>>> Fed's Bullard: Reiterates forecast for first rate hike in Q1 of 2015, disagr

Fed's Bullard: Reiterates forecast for first rate hike in Q1 of 2015, disagrees with Fed's discription of labor resources 
- FOMC is doing a great deal of work to prepare for the policy exit 
- Market expectations for rate path is lower than current Fed forecasts 
- Unemployment rate to fall to 5.8% by the end of 2015 
- Worried about inflation expectations slipping lower in Europe, ECB needs to take action

(BFW) Statoil May Shelve $6.7b Snorre Project Due to Costs: Upstream

--> for Oil services
1
1
Statoil May Shelve $6.7b Snorre Project Due to Costs: Upstream
2014-08-22 08:12:01.542 GMT


By Mikael Holter
Aug. 22 (Bloomberg) -- While Snorre partners disagree on
economic viability of redevelopment project, operator Statoil
has no alternative to new tension-leg platform, Upstream
reports, without saying where it got info.
* Justifying investment is “challenging”; 2013 tax increase
has weakened Snorre 2040 project economics, Upstream says,
citing unidentified Statoil spokesman
* State-owned Petoro hopes added reserves, concept
optimization can still make project profitable, spokesman
Sveinung Sletten says in Upstream report
* NOTE: Norway Vigilant on Delays as Oil Producers Set to
Slash Spending, see June 16 story: NSN N79AAK6JTSED <GO>
* NOTE: Statoil Snorre Recovery Project Hesitation Criticised
by NPD, see April 3 story: NSN N3GM4C6K50XT <GO>


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FT : Common sense disappears in mining mergers

Common sense disappears in mining mergers
Thankfully focus is now on costs, cash and core assets

Many a good mine is spoiled by sinking the shaft, as the old adage goes. The new adage might run: many a good mining company is spoiled by a merger.
The charge-sheet is long and damning, from Rio Tinto’s hubristic takeover of Alcan, which ended in the humiliation of a rescue rights issue, to the deal that is being unwound with as much dignity as BHP can muster, its value-destroying purchase of Billiton.

However, pride of place must go to the merger that (fortunately) never was, BHP Billiton’s assault on Rio Tinto. It is frequently forgotten how close this barmy idea came to fruition: it was only the regulatory delays that eventually ran it into Pilbara’s desert sands. BHP had argued that it was merely iron ore production that would be merged (with splendid cost savings, of course) rather than sales. To which the Chinese eventually replied: pull the other one.
Perhaps it is something about mining and those at the top of these vast enterprises. The actual process of winning the minerals is really quite dull, once you have got used to the sheer scale of the production, so when the investment bankers send round their hottest M&A boys, the executives are vulnerable to their sales pitch.
Think of the impact of a “transformational” deal, the thrill of the chase, the media spotlight, the boasting rights and – of course – the massive pay rises. You will be number one! Ride the commodities supercycle! No wonder common sense disappears, along with the first rule of mining investment (never buy an aluminium producer). By the time it all ends in tears, the executives who have laid waste to the shareholders are long departed with their winnings.
Today’s mantra is the workaday one of cost reduction, cash generation and concentration on core assets. This is certainly less damaging than corporate hubris, but if everyone is selling mines at the same time, decent prices will be hard to realise. In the case of Billiton, it is a fair bet that most of its assets have already been hawked round the industry before BHP chief executive Andrew Mackenzie produced his plan. Ah well, demerger is so much easier, since it avoids having to price the bits he does not want.
It may be that BHP will be better off without Billiton, although the feeble justification about “focus” turns the usual economies of scale argument on its head. Meanwhile, both BHP and Rio are cranking up production of iron ore just when Chinese demand is weakening. The gains from more output will be more than wiped out by lower prices.
The only good news is that cash that might have been spent on empire-building is now more likely to come to the shareholders. We should be grateful for small mercies.
Buy toothbrushes
The latest M&A boom is well under way, the escape of Time Warner from Rupert Murdoch notwithstanding. This is music to the bankers’ ears, but their joy is not quite unconfined, since too many companies are doing without them.
Two-thirds of technology acquisitions in America worth over $100m so far this year have dispensed with bank advisers. This may be because the bankers have little more idea than the rest of us of exactly what Nest Labs, DeepMind or Songza do.
These three (among others) have been bought by Google this year. Rather than the traditional analysis, co-founder Larry Page is said to use the “toothbrush test” – ie. Is this something everyone could use every day to make their lives better?
That is all very noble, but ignores the little question of price. The $19bn that Facebook paid for WhatsApp looks absurd, unless you consider it as adding 10 per cent to the outstanding Facebook stock for an application to replace pricey text messages for a billion consumers.
As Max Nisen at Quartz points out, having voting control (and the paper wealth of a small country) allows the management to pay up for the next toothbrush whatever the outside shareholders think. They might remember that Google’s flotation price looked almost as fanciful as does WhatsApp today, yet those buyers have multiplied their investment 10 times in a decade. So an ounce of instinct may be worth a tonne of analysis. Just don’t tell the bankers.

FT : Equity bulls face slowing share buybacks

Hopes rise that spare cash is now being spent on organic growth

One of the biggest drivers of the US equity bull run has retreated as the S&P 500 ventures further into record territory.
Ultra low interest rates and a paucity of investment choices in recent years has unleashed a tidal wave of share buybacks by S&P 500 companies, notably from the likes of Apple and other big members of the index.

Share buybacks have tallied $1.559tn since the start of 2011 according to S&P Dow Jones Indices. During this period, buybacks peaked during the first quarter of 2014, to the tune of $159.28bn, before slipping to a provisional figure of $120.21bn for the second quarter.
Investors like share buybacks and typically view them as a sign from management that the company’s stock price is cheap. Reducing the amount of outstanding shares helps boost earnings, with around a quarter of buybacks accounting for paying maturing options granted to employees.
A less charitable view is that a big buyback reflects a company with too much cash and lacking good ideas about investing in their business or making a major acquisition.
The boom in buybacks also owes much to the Federal Reserve’s suppression of long term interest rates via quantitative easing and stagnant growth in Europe, an important foreign market for many S&P 500 global companies.
Record low interest rates in the corporate bond market have helped fund large buybacks, but with the central bank on course to conclude buying bonds under QE in October, fuel for buybacks is ebbing and non-financial debt issuance has slowed.
Andrew Lapthorne at Société Générale says companies have exploited the generosity of financial markets to fund their share buybacks and as that fades, the equity bull market faces losing a key source of support.
“The absence of the largest buyers of US equity going forward is likely to have significant consequence on stock prices,” he says.
With the S&P 500 just shy of the 2,000 point threshold and the Fed ending QE, the economics behind buybacks are clearly no longer as compelling.
That in turn raises an important question for equity bulls: what drives prices higher should buybacks retreat further? The best case scenario answer is that we have reached a point in the cycle where companies finally look at spending more of their excess cash on organic growth opportunities and acquisitions now that buybacks are more costly.
Certainly investors are sending that message as stocks extend their gains for the year.
“The attractiveness of Capex and mergers and acquisitions has increased because share prices have gone up,” says Peter Stournaras, portfolio manager at BlackRock.
“The market is rewarding companies investing for growth though Capex and M&A.”
Over the past year, companies buying back their own shares have outperformed other companies issuing shares by some 5 per cent, estimates Vadim Zlotnikov, chief market strategist at AllianceBernstein.
Normally such outperformance over an extended period of time runs around 1 per cent, so clearly the market has rewarded companies buying back their stock over the past year.
A slowing pace of buybacks, however has seen the degree of outperformance over the past three months narrow to 0.7 per cent says Mr Zlotnikov.
All of which underlines the importance of the economy gaining altitude and companies deploying their excess cash into operations and funding acquisitions that can boost revenues in the coming months.
That remains the bull case for equities and such an outcome would alleviate any concern over ebbing buybacks.
A looming danger entails companies being less optimistic about the economy and struggling to significantly boost their top line growth.
For now, the market ignores any comparison with 2007, when third quarter buybacks reached $171.95bn and the S&P 500 rallied into then record territory the following month.
We may well discover that a further reduction in buybacks does not pave room for an extended business cycle and therefore removes a key prop for equities.
Reducing the potency of a major buyer from any market usually means lower prices.

(BFW) Europe Luxury Doesn’t Show Signs of Improvement: Deutsche Bank

Europe Luxury Doesn’t Show Signs of Improvement: Deutsche Bank
2014-08-22 07:47:01.891 GMT


By Heather Burke
Aug. 22 (Bloomberg) -- European luxury cos. have reported
disappointing 2Q earnings, Deutsche Bank says in note; cuts EPS
ests. by avg. 3%
* Sector still hurt by weak consumer backdrop, especially in
Asia, where brands are investing and/or repositioning
* Sales growth pressure may continue, even as negative FX
slows, doesn’t see much basis for S-T optimism, suggests
“still uninspiring” 3Q
* Wholesale may be one area of improvement in S-T, benefiting
cos. like Hugo Boss
* Hugo Boss raised to buy; disproportionate exposure to
wholesale leaves 2H results more ensured than for rest of
luxury cos. more geared to retail; has strong FCF generation
* Luxottica reiterated buy, exposed to stronger U.S. consumer,
USD, is a leader in attractive industry
* Prada cut to hold, EPS growth may be pressured into 2015,
worsening retail growth in China, Hong Kong may hurt margins

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>>> Zmapp Ebola Drug show improvements --> +ve for Allergan

(BFW) Doctors, Nurse Who Got ZMapp Ebola Drug Show Improvement: WHO

--> +ve Alletgan who bought Mapp Pharmaceuticals in 2004
BN 08/21 16:17 *ONE DOCTOR WITH EBOLA REMAINS IN SERIOUS CONDITION: WHO
BN 08/21 16:16 *DOCTORS, NURSE TREATED WITH ZMAPP SHOW MARKED IMPROVEMENT: WHO
BN 08/21 16:16 *TWO DOCTORS, ONE NURSE HAVE RECEIVED ZMAPP FOR EBOLA: WHO
Doctors, Nurse Who Got ZMapp Ebola Drug Show Improvement: WHO
2014-08-21 16:27:52.7 GMT


By Kristen Hallam
Aug. 21 (Bloomberg) -- One doctor and a nurse infected with
Ebola virus show significant improvement, while the second
doctor has improved but remains in serious condition, the World
Health Organization says in stmt, citing clinicians working in
Liberia.
* ZMapp supplies have been exhausted, WHO says, citing
manufacturer
* ZMapp one of several experimental treatments and vaccines
for Ebola that are undergoing investigation
* NOTE: Both U.S. Ebola Patients Are Released From Atlanta
Hospital {NSN NANY3N6KLVRE<Go>}

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