(MS) European Strat : Time to add cyclical exposure

Time to add cyclical exposure
- upgrading Industrials to OW
We upgrade cyclicals to OW. Weaker growth now
seems increasingly priced into cyclicals. Relative
PEs are at their lowest levels since Nov-08, and
earnings revisions appear to have troughed. We
upgrade Industrials to OW, and downgrade Health
Care to UW.
Weaker growth increasingly priced in…
Cyclicals are just 4% off their 2011 lows relative to
defensives. While we may have to wait a little longer for
evidence, we believe the growth outlook isn’t as bad as
feared. Financial conditions have eased considerably
and economic surprise indices are not breaking down.
While it is hard to see an imminent pick-up in growth, a
broader slowdown is not our base case.
… and EPS momentum has improved…
Earnings downgrades have weighed heavily on
cyclicals. However, in recent weeks, especially since the
EUR has been weakening, cyclicals’ earnings revisions
have improved significantly.
… and valuations appear increasingly attractive
On 12M forward PEs, cyclicals trade at their lowest
relative valuations since Nov-08. Other valuation metrics
(such as normalised PEs) are less supportive, however,
and so we remain selective in buying cyclicals where
there is greater conviction around earnings.
We upgrade Industrials to OW, downgrade Health
Care to UW
Many industrials look oversold, with attractive valuations
and some areas showing an improvement in EPS
momentum. In contrast, Health Care performance looks
very extended, with increasingly stretched valuations.
We buy Babcock, Philips and BMW in our portfolio and
we sell Reed and GN Store Nord.

(Citi)Global Pharma - GLOBAL HEALTH CARE SECTOR RAISED TO OVERWEIGHT AT CITI

Global Pharma Essentials
An Essential Reference Pack For Healthcare Investors
We have revamped Pharma Essentials to make it truly global with inclusion of US Biotech, Japanese, Indian, Chinese and
Korean pharma. We hope you find it useful. We would love to hear feedback, both positive and negative.
* Citi's Top Picks — Citi global pharma/biotech analysts’ preferred names include AZN, NOVOB, PFE, BMY, HIK, TEVA,
CELG, BIIB, GILD, REGN, MDVN, Chugai, Ono, Lupin, Dr Reddy, CSPC Pharma and Seegene. A complete list of our top
global pharma picks can be found on pages 8 and 9.
* Sector Performance — US Spec and China pharma were the best performing sub-sectors in September, Japan Pharma
being the worst. Best performing stocks globally include: Merck KGaA (+10%), Novo (+9%), Allergan (+9%), Sysmex
(+10%), Aurobindo (+20%), CMS (+13%), and Osstem (+14%). Pages 14-23.
* Valuation — Pharma stocks globally, excluding those in China and Korea, continue to trade in the upper quartiles of their
historical PE bands. Citi-covered EU large-caps trade at 17x 2014e / 16x 2015e, while US large-caps trade at 18x / 17.5x,
respectively. Japan pharma trades at 30x 2015e; Indian pharma at 26x 2015e, China pharma at 26x 2015e, Korea
pharma at 23x 2015e. Current share prices imply largely flat terminal growth rates for most US/EU large-cap pharma, on
our estimates. Pages 26-48.
* Earnings Momentum — Consensus 2014E/15E EPS momentum is uniformly negative for most US large-caps and all
EU large-caps, with the downgrades being sharper in EU. US Spec pharma continues to see robust earnings upgrades as
the benefits of tax synergies start being fully reflected. US large-cap Biotech earnings momentum is largely explained by
the ‘Sovaldi’ factor for GILD and Eylea upgrades for REGN. Select Asian pharma stocks (Astellas, Aurobindo, Lupin, Lijun,
Sihuan) have positive earnings momentum. 3Q14 currency trends suggest slight Fx headwinds for most companies, with
impact greatest for Roche on sales (c.-3%) and AZN/ROG on EPS (c.-3%). Pages 50-84.
*Upcoming Catalysts — Companies report 3Q results towards the end of this month and early November. On the clinical
side, focus will be on the Opdivo lung data before the end of the year and possible readout from the MARIANNE trial for
Kadcyla/Perjeta in first line HER2+ breast cancer. On the regulatory

(BN) German Industry Output Drops Most Since 2009 as Economy Wobbles

German Industry Output Drops Most Since 2009 as Economy Wobbles
2014-10-07 06:00:00.38 GMT


By Jana Randow
Oct. 7 (Bloomberg) -- German industrial production fell
more than economists forecast in August in the latest sign that
the outlook for Europe’s largest economy is deteriorating.
Production, adjusted for seasonal swings, dropped 4 percent
from July, when it expanded 1.6 percent, the Economy Ministry in
Berlin said today. That’s the biggest decline since January 2009
and compares with a median estimate of 1.5 percent in a
Bloomberg News survey.
Germany’s economy is losing steam as sluggish growth in the
euro area, its largest export market, and political tension with
Russia weigh on confidence. The European Central Bank has
enacted unprecedented stimulus to sustain the regional recovery
while calling on governments to press ahead with structural
reforms.
“The German economy will develop rather weakly in the
second half of this year,” said Ralph Solveen, head of economic
research at Commerzbank AG in Frankfurt, who forecasts third-
quarter gross domestic product will be little changed. “And in
light of the weak trend in orders, we would not expect a great
deal for the final quarter of this year.”
Output of investment goods slumped 8.8 percent in August
and intermediate goods dropped 1.9 percent, today’s report
showed. Consumer-goods production fell 0.4 percent and
construction slid 2 percent. Only energy output rose, climbing
0.3 percent.

School Holidays

While the volatility of the data was exacerbated by the
timing of the German school holidays this year, it still adds to
evidence that the economy is losing momentum after shrinking in
the second quarter.
Factory orders plunged 5.7 percent in August, also the most
since 2009, data showed yesterday. German manufacturing shrank
in September, with new orders falling at the fastest pace since
2012, according to a survey of purchasing managers. Business
confidence as measured by the Ifo research institute fell to the
lowest in almost 1 1/2 years, while unemployment increased for a
second month.
MAN SE, Europe’s third-largest truck manufacturer, said on
Sept. 25 that operating profit, revenue and sales volume at the
truck and bus division will be “significantly below” last
year’s level, reflecting weaker demand in markets including
Europe and Russia.
“The industrial economy is going through a weak phase,”
the ministry said in a statement. “The third quarter as a whole
is set for soft output.”
The International Monetary Fund will cut its German growth
forecasts for this year and next to about 1.5 percent from 1.9
percent and 1.7 percent, respectively, according to Spiegel
magazine. The Washington-based lender will publish the data,
together with updated projections for the euro area, later
today.
The 18-nation currency region is still on track for a
“modest economic expansion in the second half,” even though
risks remain on the downside, ECB President Mario Draghi said
last week. The Governing Council kept interest rates unchanged
at record lows and said it will start buying covered bonds and
asset-backed securities to support the economy.

For Related News and Information:
German Factory Orders Slump Most Since 2009 as Euro Area Falters
NSN ND0HHJ6JTSEM <GO>
Economic Malaise Frustrates Draghi as ECB Readies New Stimulus
NSN NCV74K6JIJUT <GO>
Top Forecaster Sees Weaker Euro on ECB Embracing QE: Currencies
NSN ND0PVZ6JIJUO <GO>
Search for central bank stories: NSE MONETARY POLICY <GO>
Stories on ECB interest rates: STNI ECBACTION <GO>
Stories related to the ECB: NI ECB <GO>
Euro-region economic stories: TNI ECO EUROP <GO>

--With assistance from Kristian Siedenburg in Vienna.

To contact the reporter on this story:
Jana Randow in Frankfurt at +49-69-92041-206 or
jrandow@bloomberg.net
To contact the editors responsible for this story:
Fergal O’Brien at +44-20-7330-7152 or
fobrien@bloomberg.net
Zoe Schneeweiss, Paul Gordon

>>> What to look at today - 7th of October 2014

US Market closed lower after opening on a stronger note. The main pockets of weakness in the market were found in the biotech, transport, and semiconductor spaces...HP was strong on Spin off announcement...the energy sector (+0.1%) had a roller-coaster day of trading, vacillating with oil prices, which dipped below $89/bbl before finishing the day at $90.57/bbl, The rebound in oil prices coincided with a break lower in the U.S. Dollar...biggest winner was the telecom services sector (+0.4%) while the biggest loser was the consumer discretionary sector (-0.6%)...VIX @ 15,46 +6,25%...Volume were light @ 530mil shares...US After Hours CAMP +5.8%, IDT +0.6%, TCS -12.3%, EZPW -11.6% following earnings/guidance...BOJ policy statement is delayed by Gov Kuroda's speech at Japan's parliament. Kuroda noted export growth is lacking momentum despite softer JPY and sales tax rise impact has been prolonged, reiterating he is prepared to ease further if the economy undershoots forecasts...Hong Kong PMI contracted for the 2nd consecutive month, though it rose marginally from last month's levels. HSBC economist said "the impact of the cyclical slowdown is being felt through deteriorating labour market conditions, (and) new orders will likely have to pick up more significantly in the coming months before the downward trend in employment reverses." Separately, Hong Kong student leader said the Occupy Central will respond if talks with the govt fail, adding they are not very optimistic about the outcome of negotiations for any constitutional reform...Nikkei -0.48% Hang Seng +0.77%...Shanghai +0.26%

Eur$1.2624 S&P -0.14% EuroStoxx -0.35% FTSE +0.05% (Thxs to GLEN, RIO,...) DAX -0.22% SMI -0.39%

Macro
- Bank of Japan Statement on Monetary Policy Decision: see atatched
- HSBC India Sept. Composite PMI 51.8 vs 51.6 in Aug.
- China equity investors confidence for Sept rose 1.3pts to 70.5; Highest level since Apr 2008 - Shanghai Daily
- French Govt Can’t Cut Spending Further, Eckert Tells Le Figaro
- France Fin Min Sapin: EU Commission can't refuse a budget, they can only give recommendations

keep an eye on :
- AF FP : Air France Set to Announce New Low-Cost Unit Today: Parisien
- ASC LN : Rallied Yesterday on Amazon bid Specultation
- ATC NA : Altice Said to Seek Portugal Telecom Bid to Unravel Oi Merger {NSN ND183R6KLVR6 <go>}
- SPR GY : Axel Springer Increases Stake in Online Magazine Ozy to 16%
- BKIA SM : Bankia Under investigation for tax fraud associated with the "Visa Case" in Spain
- DWNI GY : Deutsche Wohnen to Raise Annual Dividend 15%: Boersen-Zeitung
- GLEN LN : Rio-Glencore Potential Deal Has ‘Substantial Hurdles’: CMC
- LOND LN : London Mining rumoured to have received bid approach from Cape Lambert
- LHA GY : Lufthansa Cargo Faces Pilot Strike on Oct. 8 and 9, Union Says
- MGROS TI : Migros: Anadolu Endustri may bid for whole company in future, pricing may not correspond to market capitalisation
- MMT FP : M6 Audience Share Rose to 10.8% in Sept, Le Figaro Says
- MT NA : ArcelorMittal May Bid Up to EU250 Million for Ilva, Echos Says
- UG FP : Mahindra Unit to Buy 51% Stake in Peugeot Motocycles
- PTC PL : Altice Said to Seek Portugal Telecom Bid to Unravel Oi Merger {NSN ND183R6KLVR6 <go>}
- RHK LN : Rhoen Klinikum to sell Waltershausen-Friedrichroda hospital in structured tender procedure
- RIO LN : Rio Tinto tradin higher on potential Glencore bid RIO + % / GLEN + %
- RIO LN : Rio May Not See Much Value From Possible Glencore Deal: Clarkson
- SAB LN : SABMiller CEO denies Heineken approach was intended to deter Anheuser-Busch InBev bid
- TSCO LN : TPG Looking Into GBP2b Bid for Tesco's Clubcard Arm: Sky
- TSCO LN : Tesco rejected bid approach from TPG for Dunnhumby marketing subsidiary months ago
- TIT IM : Metroweb CEO Says Telecom Italia Stake Would Make Sense: Ansa
- UBSN VX : UBS France to Restructure Asset Management Business: Reuters
- UBSN VX : Switzerland Sent 100 UBS Client Documents to France, NZZ Says
- WDI GY : Wirecard Raises Ebitda Outlook for 2014 on ’Customer Gains’

>>> Brokers Upgrades & Downgrades - 7th of October 2014

>>> Up
*AIR FRANCE RAISED TO OVERWEIGHT VS UNDERWEIGHT AT JPMORGAN
*ANTOFAGASTA RAISED TO HOLD VS SELL AT SOCGEN
*ENDESA RAISED TO OVERWEIGHT VS UNDERWEIGHT AT JPMORGAN
*HEIDELBERGCEMENT RAISED TO BUY AT JEFFERIES
*SMA SOLAR TECHNOLOGY RAISED TO BUY VS NEUTRAL AT CITI
*SMITH & NEPHEW RAISED TO HOLD VS SELL AT SOCGEN

>>> Down
*BAE SYSTEMS CUT TO HOLD VS BUY AT CANTOR
*COMMERZBANK CUT TO SELL FROM HOLD AT BANKHAUSE LAMPE
*ENEL GREEN POWER CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*RYANAIR CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*SANTANDER CUT TO REDUCE VS NEUTRAL AT NOMURA
*SCHRODERS CUT TO UNDERPERFORM VS BUY AT BOFAML
*SUEDZUCKER RAISED TO HOLD VS SELL AT DZ

>>> PT Changes


>>> Initiation
*ACS RATED NEW EQUALWEIGHT AT MORGAN STANLEY
*DATALOGIC RATED NEW BUY AT BERENBERG
*FERROVIAL RATED NEW OVERWEIGHT AT MORGAN STANLEY
*VINCI RATED NEW OVERWEIGHT AT MORGAN STANLEY

>>> Call
>> Sector
*EUROPEAN INDUSTRIALS RAISED TO OVERWEIGHT AT MORGAN STANLEY
*EUROPEAN HEALTHCARE CUT TO UNDERWEIGHT AT MORGAN STANLEY
>> Stock
*LUKOIL ADDED TO UBS MOST PREFERRED LIST
*ROSNEFT ADDED TO UBS LEAST PREFERRED LIST
*TRAVIS PERKINS ADDED TO EUROPE 1 LIST AT BOFAML

>>> Migros: Anadolu Endustri may bid for whole company in future, pricing may no

Migros: Anadolu Endustri may bid for whole company in future, pricing may not correspond to market capitalisation 

Anadolu Endustri Holding, the Turkish conglomerate, may consider buying out Migros in the future, although it is currently bidding for a stake, according to a report in Milliyet. The Turkish language report quoted Anadolu Chairperson Tuncay Ozilhan as saying that the group is new to the retail sector, and wants to evaluate the potential of the sector for new investments. Ozilhan said that the talks may take more than a month. According to Ozilhan, the acquisition price would be different from the market capitalisation of Migros, since the company would have to consider Migros' debts as well, considering that it is bidding for joint control in the target.


Source Milliyet

>>> Tesco rejected bid approach from TPG for Dunnhumby marketing

Tesco rejected bid approach from TPG for Dunnhumby marketing subsidiary months ago

Tesco plc has rejected a bid approach from the private equity firm TPG for the listed UK-based supermarket group’s Dunnhumby marketing subsidiary, Sky News reported. TPG approached Tesco regarding Dunnhumby while previous Chief Executive Philip Clarke was still managing the supermarket group, the item added, citing an unspecified source for the claim.

The report cited insiders who said TPG is still interested in Dunnhumby despite Tesco’s rejection of its offer. TPG and Tesco had not entered into formal discussions, the item added.

Tesco is currently conducting a strategic review, and its future ownership of Dunnhumby is under consideration as part of that review, the article said.

Bankers cited by the report said Dunnhumby is worth considerably more than GBP 2bn (EUR 2.54bn), with some bankers estimating a valuation of up to GBP 3bn.

Other buyout groups and large marketing companies are likely to make offers for Dunnhumby should Tesco begin a formal sale process for the subsidiary, the item continued.

Separately, the report cited analysts who said Tesco might try to sell its Asian and Central European businesses, its UK-based garden centres operations and its banking subsidiary.

TPG and Tesco refused to comment on Monday, 6 October, the item said.


Source Sky News