(BofA-ML) Luxury Goods : Downgrading Earnings - Stock Selection Remains Key

* Sector likely to remain under pressure
The Luxury Goods sector is down 7% ytd, underperforming the broader market.
Despite this underperformance (and weak investor sentiment / positioning), we
remain cautious in the near term given [1] uncertainty around China growth (click for
BofAML China GDP downgrade); [2] significant currency headwinds; [3] on-going
EPS broker downgrades; and [4] sector valuation in line with historic average. Q1
results are unlikely to be a positive catalyst given volatile trends in China, weaker
than expected US (partly weather related) and for most 2014 growth H2 weighted

* Downgrade 2014-15 by 4-5% on FX mark-to-market
We downgrade our sector earnings by 4-5% largely related to a stronger EUR, GBP
and CHF. The mismatch between revenue & COGS currency exposure, combined
with lower hedging gains means the FX drop through impact on 2014 EBIT can be
significant. We made the biggest downgrades to Burberry (-11%), Swatch (-5%),
Richemont (-3%) & LVMH (-3%). Our PO changes are shown in Table 1.

* BofAML estimates 5-6% below consensus
Our forecasts are now 5-6% below consensus. Stocks where we see the greatest
downside risk to consensus earnings are Burberry (-9% in 2014), Swatch (-8% in
2014) and Kering (-8% in 2015).

* Burberry downgrade to Neutral as FX & Japan mute growth
Burberry's best in class digital strategy should continue to support SSSG above
peers. However a significant FX headwind in 2015 and the Japanese integration in
2016-17 will likely impact group EPS growth (3-yr CAGR of 5%). Burberry trades at
a 20% PE premium to peers, limiting outperformance in near term in our view. Click
here for note.

* Top picks: Buy Hugo Boss & Prada
In our view Hugo Boss has one of the most attractive medium term stories. Hugo
Boss is trading on 14.5x 2015 EPS, a 10% discount to luxury peers despite having
[1] lower maturity & increased penetration opportunities; [2] a retail roll out story; [3]
above sector EPS growth; [4] 4-5% dividend yield, twice that of peers; [5] the
potential for a €350m capital return; and [6] a multiple re-rating towards general
retailers. Prada is now trading in line with the sector on 2015 EPS, in our view a
premium is still warranted given above sector EPS growth.

* Retain U/P on TOD’s, Swatch & Kering
Current trading at TOD’s is very weak (-6% in first 10 weeks of 2014). Its earnings
growth profile over the next 3 years one of the lowest in our coverage and in our view
no longer deserves its premium valuation. Swatch is trading in line with peers, but at
a 10% premium to its own history. In our view this does not discount the potential for
increased competition associated with smart watches. We expect the very weak
momentum at Gucci & Puma to continue in H1, given its Kering’s key sentiment
driver we see little rationale for its discount to peers to close in the near term.

(BofA-ML) Flow Show

--> Talking Points
Weekly flows show inflows to all asset classes (equities, bonds and commodities) save money-market funds
Another week of outflows from EM equity funds ($4.2bn and 21st straight week); since Oct’13, EM equity & debt funds have recorded $75bn outflows amounting to a massive 7.5% of AUM

>>> Asset Class Flows
- MMF: $32bn outflows (largest in 4 weeks)
- Equities: $9.2bn inflows (6 straight weeks but all via ETF’s – VIG, VO, SPY)
- Bonds: modest $3.5bn inflows
- Commodities: 4 straight weeks of inflows ($0.2bn)

>>> Equity Flows
- EM: $4.2bn outflows (21 straight weeks of outflows = 6.7% of AUM = longest outflow streak on record by far)
- Europe: $1.0bn inflows (38 straight weeks) (Table 2)
- US: 6 straight weeks of inflows ($10.7bn inflows – all via ETF’s)
- Japan: first inflows in 3 weeks

>>> Fixed Income Flows
- 25 straight weeks of outflows from EM debt funds ($0.8bn) (last week’s “inflows” due to fund reclassification)
- 91 straight weeks of inflows to floating-rate debt ($0.3bn)
- 13 straight weeks of inflows to IG bond funds ($2.3bn)
- 6 straight weeks of inflows to HY bond funds ($1.2bn)
- First govt/tsy fund inflows in 5 weeks

(BFW) *ELLIOTT CAPITAL INCREASES INTEREST IN F&C TO 20.183%

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BFW 03/21 15:25 *ELLIOTT CAPITAL INCREASES INTEREST IN F&C TO 20.183% BN 03/21 15:22 *ELLIOTT CAPITAL HOLDS 20.183% F&C ASSET MGMT VOTING RIGHTS

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Elliott Capital Advisors, L.P: Form 8.3 - F&C ASSET MANAGEMENT PLC 2014-03-21 15:20:16.327 GMT

Elliott Capital Advisors, L.P: Form 8.3 - F&C ASSET MANAGEMENT PLC

FORM 8.3

PUBLIC OPENING POSITION DISCLOSURE/DEALING DISCLOSURE BY

A PERSON WITH INTERESTS IN RELEVANT SECURITIES REPRESENTING 1% OR MORE

Rule 8.3 of the Takeover Code (the "Code")

1.         KEY INFORMATION

(a) Identity of the person whose Elliott Capital Advisors, L.P. positions/dealings are being disclosed: (for itself and related general partners and investment managers) (b) Owner or controller of interests and Elliott International, L.P. short positions disclosed, if different from Elliott Associates, L.P. 1(a): Liverpool Limited Partnership      The naming of nominee or vehicle companies is insufficient (c) Name of offeror/offeree in relation to F&C ASSET MANAGEMENT PLC whose relevant securities this form relates:      Use a separate form for each offeror/offeree (d) If an exempt fund manager connected with an offeror/offeree, state this and specify identity of offeror/offeree: (e) Date position held/dealing undertaken: 20thMarch 2014 (f)  Has the discloser previously disclosed, Yes or are they today disclosing, under the Code in respect of any other party to this offer?

2.         POSITIONS OF THE PERSON MAKING THE DISCLOSURE

(a)        Interests and short positions in the relevant securities of the offeror or offeree to which the disclosure relates following the dealing (if any)

Class of relevant security: Ordinary shares Interests Short positions Number % Number % (1) Relevant securities owned and/or controlled: (2) Derivatives (other than options): 118,634,818 20.183% (3) Options and agreements to purchase/sell:      TOTAL: 118,634,818 20.183%

Class of relevant security: Interests Short positions Number % Number % (1) Relevant securities owned and/or controlled: (2) Derivatives (other than options): (3) Options and agreements to purchase/sell:      TOTAL:

All interests and all short positions should be disclosed.

Details of any open derivative or option positions, or agreements to purchase or sell relevant securities, should be given on a Supplemental Form 8 (Open Positions).

(b)        Rights to subscribe for new securities (including directors' and other executive options)

Class of relevant security in relation to which subscription right exists: Details, including nature of the rights concerned and relevant percentages:

If there are positions or rights to subscribe to disclose in more than one class of relevant securities of the offeror or offeree named in 1(c), copy table 2(a) or (b) (as appropriate) for each additional class of relevant security.

 

3.         DEALINGS (IF ANY) BY THE PERSON MAKING THE DISCLOSURE

(a)        Purchases and sales

Class of relevant security Purchase/sale Number of securities Price per unit

(b)        Derivatives transactions (other than options)

Class of Product Nature of dealing Number of Price relevant description e.g. opening/closing a long/short reference per security e.g. CFD position, increasing/reducing a securities unit long/short position Ordinary CFD Increasing a Long Position 2,250,000 GBP Ordinary CFD Increasing a Long Position 1,000,000 120.5 Ordinary CFD Increasing a Long Position 5,000,000 GBP Ordinary CFD Increasing a Long Position 1,500,000 120.5 Ordinary CFD Increasing a Long Position 5,502,810 GBP 120.5 GBP 120.5 GBP 120.5

(c)        Options transactions in respect of existing securities

(i)         Writing, selling, purchasing or varying

Class of Product Writing, Number of Exercise Type Expiry Option relevant description purchasing, securities price e.g. date money security e.g. call selling, to which per unit American, paid/ option varying option European received etc. relates etc. per unit

(ii)        Exercising

Class of relevant Product description Number of Exercise price per security e.g. call option securities unit

(d)        Other dealings (including subscribing for new securities)

Class of relevant Nature of dealing Details Price per unit (if security e.g. subscription, applicable) conversion

The currency of all prices and other monetary amounts should be stated.

Where there have been dealings in more than one class of relevant securities of the offeror or offeree named in 1(c), copy table 3(a), (b), (c) or (d) (as appropriate) for each additional class of relevant security dealt in.

4.         OTHER INFORMATION

(a)        Indemnity and other dealing arrangements

Details of any indemnity or option arrangement, or any agreement or understanding, formal or informal, relating to relevant securities which may be an inducement to deal or refrain from dealing entered into by the person making the disclosure and any party to the offer or any person acting in concert with a party to the offer: If there are no such agreements, arrangements or understandings, state "none" None

(b)        Agreements, arrangements or understandings relating to options or derivatives

Details of any agreement, arrangement or understanding, formal or informal, between the person making the disclosure and any other person relating to: (i)  the voting rights of any relevant securities under any option; or (ii) the voting rights or future acquisition or disposal of any relevant securities to which any derivative is referenced: If there are no such agreements, arrangements or understandings, state "none" None

(c)        Attachments

Is a Supplemental Form 8 (Open Positions) attached? NO

Date of disclosure: 21st March 2014 Contact name: Michael Cross Telephone number: 0203 009 1305

 

Public disclosures under Rule 8 of the Code must be made to a Regulatory Information Service and must also be emailed to the Takeover Panel at monitoring@disclosure.org.uk.  The Panel's Market Surveillance Unit is available for consultation in relation to the Code's dealing disclosure requirements on +44 (0)20 7638 0129.

 

The Code can be viewed on the Panel's website at www.thetakeoverpanel.org.uk.

BArron's : BP Offers 33% Upside as 'the Worst Is Over'

BP Offers 33% Upside as 'the Worst Is Over' {BP/ LN Equity GIP <GO>}

The 2010 Gulf oil spill exacted a heavy toll, but the worst looks to be over. Why the stock, which yields 4.8%, looks very undervalued.

BP is back.

With a ban on new U.S. government contracts lifted, the energy giant on Wednesday won drilling leases in the Gulf of Mexico, where in April 2010 one of its wells exploded, killing 11 people in the worst offshore oil disaster in U.S. history. BP (ticker: BP) won 24 of the 31 auction blocks it bid on for $41.6 million.

Since the spill, BP has sold assets worth near $40 billion and plans to sell $10 billion in underperforming assets over the next two years. That should help management slash debt, repurchase shares, and streamline its business, resulting in a higher dividend and stock price. Shares yield 4.8%.

"The worst is over," says Lorne Steinberg, a Montreal money manager who has been buying the stock. "The bulk of liabilities have been paid for, or are accounted for … BP has plenty of room to raise the dividend, and with share repurchases, if the stock price doesn't go up, it will yield 6% in two years. That is reason enough to own it."

BP is a behemoth in offshore drilling globally, producing about 3.2 million barrels of oil equivalent per day globally, with about 20% of its production in the U.S. and 30% in Russia. It also has a refining business.

BP recently said it would form a separate business to operate U.S. onshore exploration and production. The move highlights its cash-flow strength in shale plays and creates a more competitive operation. That should help boost BP's discounted valuation relative to other large, integrated energy companies.

This year, BP is expected to generate 15% per-share profit growth, and cash flow of nearly $10 per share on revenue of $350 billion, despite lower-capital spending and spill liabilities.

While BP stock has roughly doubled from its June 2010 low following the blowout, it's still down more than 20% from the initial disaster, while competitors ExxonMobil (XOM) and Chevron (CVX) are each up about 40%.

And BP trades at a discount to peers. Exxon trades at more than 12 times forward earnings, and Royal Dutch Shell (RDSA) at more than 10 times, while BP's multiple is 9.5 times estimated 2014 earnings of $4.92 per share. It can eventually mend that gap.

Steinberg thinks BP management is being overly conservative with profit forecasts to woo Wall Street with upside surprises. He sees shares rising 33%, to $62, in 12 months. Oppenheimer analyst Fadel Gheit has a target price of $60.

Looming large is BP's remaining spill liability. The company has about $9 billion remaining of $43 billion set aside for spill damages. As lawsuits continue to wind their way through the courts, BP's liability may be higher than expected. But the resolution of the amount, even if higher, will provide clarity that can boost shares, says Gheit.

Another overhang: BP's significant exposure in Russia. Last year, BP swapped a 50% stake in TNK-BP for a 19.75% stake in Russia's state-owned energy giant Rosneft, worth about $13.5 billion. Rosneft provided BP with $456 million in distributions for the first nine months last year. BP can be hurt two ways: Sanctions against Russia over the annexation of Crimea in Ukraine could reduce the value of BP's interest, hurting the balance sheet and leverage ratios, says Phil Adams, a credit analyst at Gimme Credit. More important, sanctions could cut off perhaps $600 million in cash dividends coming to BP.

"In the context of 2014's estimated $30-$31 billion of cash from operations, this would not be a huge body blow, but it is not an insignificant amount," Adams tells Barrons.com.

So far, sanctions don't have much muscle. Europe needs Russian gas, and Western energy companies have much at stake in Russia.

However, if oil prices sink, BP shares will likely fall as the company collects less money for its barrels. Better refining margins won't make up the difference.

But because BP shares appear undervalued and offer an enticing yield, they are likely to fare better than peers in a selloff. The largest integrated oil companies have underperformed the broader market over the past five years and BP has trailed its peers during that time. Now, we think BP will break from the pack.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: SYMC -9.6% (reaffirms guidance, appointed interim CEO effective immediately; downgraded at Jefferies, Baird, Cowen, UBS), INVE -9.3%, DLIA -8% (light volume), AIR -6.2%, TIF -3.5%, RALY -3.3%, NKE -3.6%, ENVI -2.6% (light volume), DRI -2.6%, TISI -1.7% (also announces impact of Q3 weather delays; revises earnings guidance and announces revaluation of Venezuelan operations), WTSL -0.6% (light volume; also entered into definitive agreement with a single institutional investor to issue $27 mln of convertible notes as well as warrants to purchase Class A common stock in a private placement).

Other news: ISR -6.1% (modestly pulling back), ENLK -5.7% (prices public offering of 17,997,296 common units representing limited partner interests owned by GSO Crosstex and certain of its affiliates for total gross proceeds of ~ $550 mln), PBF -5.7% (prices secondary offering of 15 mln shares of its Class A common stock by funds affiliated with First Reserve Management for total gross proceeds of ~ $382.5 mln), BGMD -4.7% (still checking), BLDP -3.7% (still checking), WMC -3.2% ( declares first quarter dividend of $0.67 per share; announces estimated book value per share, as of Feb 28, 2014, was ~ $15.18), SONS -2.1% ( announces offering of common stock by selling stockholder and concurrent share repurchase), SGMO -1.7% (priced public offering of common stock consisting of 4,444,444 shares at $22.50 per share), HLF -1.2% ( Carl Icahn considering adding to HLF Board, but not to his stake, according to reports ; downgraded to Hold from Buy at Argus), ZION -0.7% (only bank that did not clear fed hurdle for capital and leverage), UA -0.7% (following NKE results), FMI -0.3% (files for $150 mln offering of common stock), BCS -0.3% ( has missed chance to participate in Alibaba IPO, according to reports).

Analyst comments: EQY -100% ( downgraded to Hold at MLV & Co; tgt lowered to $23), AMRI -3% (downgraded to Underperform from Neutral at Sterne Agee), CHL -2.6% (downgraded to Neutral from Overweight at HSBC Securities ), RBS -1.4% (downgraded to Equal Weight from Overweight at Barclays), CAG -1% ( downgraded to Neutral from Buy at Goldman), BA -1% (downgraded to Neutral from Buy at Goldman)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: DEJ +22.9%, COMM +14.3%, TIBX +1.9%, SLW +1%, WLP +0.3%, .

M&A news: LIN +21.9% (Media General and LIN Media to combine; LIN Media shareholders to receive aggregate consideration of $763 million in cash and 49.5 million shares in stock, calc to ~$27.82 per LIN share)... Peers trading higher: GTN +9.7% CETV +4.5%, NXST +3.1%

Select financial related names showing strength boosted by stress test results: SAN +0.9%, MS +0.8%, DB +0.5% (still facing 4 lawsuits over bad mortgages, according to reports), wfc +0.6%, gs +0.5%, DFS +0.3% (proposes an increase in quarterly dividend to $0.24 per share from $0.20 per share and share repurchases of up to $1.6 bln during the four quarters ending March 31, 2015 ), .

Metals/mining stocks trading higher: MUX +4.9%, IAG +4%, SWC +3.1%, KGC +2.1%, MT +1.9%, BBL +1.7%, BHP +1.6%, RIO +1.5%, GLD +0.9%, SLV +0.9%, GOLD +0.8%.

European drug names trading higher: MRK +2.9%, SNY +1.9% (Genzyme's Lemtrada Approved in Brazil for Treatment of Multiple Sclerosis), NVS +1.5% (UK recommended Bexsero vaccine for inclusion in National Immunisation Programme to help protect against devastating meningitis B ), AZN +0.2%

Other news: UPIP +84.6% (Unwired Plant and Lenovo announce $100 mln patent license and patent purchase transaction), GNK +33.9% (makes $3.1 mln payment on interest payment originally due Feb 18), AVEO +13.8% (regains worldwide rights to AV-203: Agreement with Biogen Idec (BIIB) allows AVEO to seek partner to accelerate clinical development), KIOR +8.4% (disclosed it issued Lenders ATM Warrants to purchase 3,032,406 shares of Class A common stock for exercise price of $1.37 on March 18), ANN +7.7% (Golden Gate Capital discloses 9.5% stake; ANN comments that it welcomes new investors), ASTM +4.6% (continued strength), AKS +3% (announces price increase for hot roll carbon steel to $660 per ton, effective immediately with new orders),YELP +2.5% (Yelp and YP sign strategic deal), ABMD +2.3% (announced that the Centers for Medicare & Medicaid Services has released an updated version of ICD-10 MS-DRGs and maintained assignment to Diagnosis Related Groups 216-221 for the category of devices that includes Impella pumps), JKS +2.2% (still checking), DEG +2.1% (still checking), TXMD +1.9% (prices secondary offering of 9 mln shares at $7.10 per share), ORAN +1.8% (still checking), JDSU +1.7% (still checking), BWLD +1.5% (following positive MadMoney mention), FEYE +1.5% (modestly rebounding), AGO +1.4% (WL Ross & Co and affiliates sell 4 mln common shares), SI +1.4% and ASML +1.3% (still checking), EGLE +1.1% ( announces entry into waiver and forbearance agreement), DRYS+0.9% (following GNK news), CMGE +0.9% ( priced follow-on public offering of 3,442,000 American depositary shares at $24.00 per ADS), SBUX +0.7% (expanding alcohol sales, according to reports; Barron's profiles positive view on Starbucks), AMZN +0.5% (has closed China third party store following reports of fake cosmetic sales, according to reports), KBH +0.5% (priced aggregate of 6,944,445 shares of its common stock at $18.00 per share and upsized $400.0 mln in aggregate principal amount of its senior notes due 2019 ), DATA +0.2% (priced public offering of 4 mln shares of Class A common stock at $89.25 per share ).

Analyst comments: PRMW +3.5% (initiated with a Buy at B. Riley & Co.), KERX +3.3% (initiated with a Buy at Mizuho; tgt $25), ABMD +2.1% (ticking higher, upgraded to Buy from Neutral at BTIG Research), ELGX +1.9% (ticking higher, upgraded to Buy from Neutral at BTIG Research ), JDSU +1.7% (strength attributed to analyst upgrade), EXC +1.1% (upgraded to Outperform from Neutral at Credit Suisse), UTX +1.1% (upgraded to Buy from Neutral at Goldman; tgt raised to $138 from $123), CLGX +0.3% ( initiated with a Outperform at Oppenheimer), PGR +0.3% ( upgraded to Outperform from Mkt Perform at William Blair), PKX +0.3% (Posco upgraded to Buy from Neutral at Citigroup), AAPL +0.2% (initiated with an Outperform at Macquarie; tgt $630)