(Makor) Special Situations: Alstom: Eur 24.00 / short-term target: Eur 26.00

Special Situations: Alstom (ALO FP)

Asset disposals more important than results – BUY OPPORTUNITY

ALO FP: 24.00; Short-term initial target; Eur 26.00 January 21, 2014 Alstom reported 3Q FY2013/2014 results. The key take-away for us is the change in margin and cash flow guidance vis-à-vis the previous guidance. As per the latest guidance, ALO expects (i) the operating margins to decline "slightly" for the 2014/2015 period from the current level of ~7.0%. Previously (as of Nov 2013), ALO was guiding for a gradual increase in operating margins to 8% over the next two or three years. (ii) Negative cash flow for 2013/2014 period vs a previous positive expectation.

Certainly, the lowered guidance on operating margins is negative for the stock. The latest guidance suggests that the targeted margin recovery to 8.0% is pushed back further past 2016. We believe that this development is likely to force ALO management to push for more aggressive cost saving/restructuring measures to improve margins. In our previous report, we suggested that ALO’s cost cutting targets were not as aggressive as Siemen’s targets, hence room for a more aggressive stance. Also, a pickup in sector activity in Europe is likely to benefit ALO share price disproportionately vis-à-vis its peers. Hence, we believe that substantial downside risk to margins is limited.

On a balance sheet perspective, we note that ALO continues to target non-core asset sales, which according to the management is generating substantial interest from potential buyers. ALO is planning to generate €1Bn to €2Bn via asset sales and the management seems very optimistic (in today’s conference call) in achieving this target. Hence, guidance on negative cash flow does not worry us as we believe that the above asset sales should support the balance sheet flexibility of the group.

On a relative valuation basis, ALO seems fairly valued given the current estimates in its sector. ALO is also cheap vs SIE. ABBN seems to be slightly undervalued vs. ALO and SIE. Despite the fair valuations for ALO, we believe that upside to the share price could come in the form of higher than expected cost savings, aggressive non-core asset sales and pick-up in order activity. Hence, we set a short term price target of €26. This could increase north of €30, if the margin recovery picks up. On the other hand, we believe that downside from the current share price is limited. On this basis, we would remain buyers of ALO at current price levels. Risk Adjusted Efficient Price The table below shows our "efficient" price estimate for ALO. We estimate a target price of €25.9 assuming three scenarios:

· Bull Case estimates a target price (using our relative valuation model) of €28.5 assuming ALO achieves its stated OP Margin target of 8.0%.

· Base Case estimates a target price of €24.7 assuming that ALO experiences a slight improvement in OP Margin from 7.0% to 7.30%.

· Bear Case estimates a target price of €21.5 assuming that ALO OP margin drops to 6.5%.

Risk Adjusted Price.€ [cid:image003.jpg@01CF16C8.228ED510]

In other words, the correction brought about by the disappointing numbers is excessive in our view. We expect the stock to settle toward Eur 26 in order to be efficiently priced within the sector, and we recommend buying the stock in order to realize the valuation arbitrage. FULL REPORT ATTACHED

(BFW) EON Says Unclear What Energy Combination Hollande Has in Mind

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EON Says Unclear What Energy Combination Hollande Has in Mind 2014-01-21 15:13:06.301 GMT

By Tino Andresen Jan. 21 (Bloomberg) -- EON Management Board Member Leonhard Birnbaum points out EDF sold its holding in EnBW in comments at press conference in Berlin. * Note: Jan. 15, French President Francois Hollande seeks French-German energy company

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Tino Andresen in Dusseldorf at +49-69-92041-395 or tandresen1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at +44-20-7073-3603 or wkennedy3@bloomberg.net

(BFW) IMF Raises U.S. 2014 Growth Est. to 2.8% vs 2.6%, Cuts 2015

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IMF Raises U.S. 2014 Growth Est. to 2.8% vs 2.6%, Cuts 2015 2014-01-21 14:30:00.47 GMT

By Greg Chang Jan. 21 (Bloomberg) -- IMF says 2015 U.S. est. cut to 3.0% from 3.4% est. made in Oct. amid tighter projected fiscal stance. * Japan 2014 est. raised to 1.7% vs 1.2% est. from Oct., U.K. est. raised to 2.4% vs 1.9% * 2014 world GDP raised to 3.7% vs. 3.6% est. from Oct.; 2015 world GDP est. cut to 3.9% vs 4.0% * 2014 est. for Euro area 1.0%, all advanced economies 2.2%, China 7.5% (vs 7.3% in Oct.), all developing countries 5.1% * 2015 est. for Euro area 1.4%, all advanced economies 2.3%, China 7.3%, all developing countries 5.4% * IMF says advanced economies should keep accommodative monetary policy amid continued fiscal consolidation; developing economies should benefit from stronger demand for exports while facing domestic weakness * Advanced economies face risk of “very low inflation” * Link to Bloomberg story: NSN MZR8PI6KLVTE <GO>

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

--Editor: Madeleine Lim

To contact the reporter on this story: Greg Chang in San Francisco at +1-415-617-7076 or gchang1@bloomberg.net

To contact the editor responsible for this story: Madeleine Lim at +1-212-617-2296 or mlim131@bloomberg.net

FT : Standard Chartered back atop takeover target list

STAN LN : just had a decent move +5.4% now on the day - still like the name good alternative in the financials, bought some thos mroning on back of this FT article - decent potential - still a Buy

Original Message From: LAURENT CHEKROUN () At: 1/21 08:22:25
Standard Chartered back atop takeover target list

When Standard Chartered and HSBC engaged in a £500m bidding war for Royal Bank of Scotland more than 30 years ago, it did not end well. The UK competition authority blocked both bids, citing their damaging impact on “career prospects, initiative and business enterprise in Scotland”.
Ever since its failed swoop for RBS in 1982, StanChart has been regularly cited as a potential takeover target. It narrowly survived a bid from Lloyds in 1986 when rescued by investors dubbed the “three white knights” and was later approached by several rivals, including Barclays.

Now this UK-based commercial lender specialising in Asia, Africa and the Middle East is back at the top of the list for many investment bankers and analysts as the most likely target of a big banking takeover.
Once among the most expensive banks in the west, StanChart’s shares have lost a third from their peak last year, while most banks have seen their shares soar. Its price-to-book multiple has dropped from 1.7 times a year ago to 1.2 times, in line with its main rival HSBC, and even below banks hit harder by the financial crisis, such as Spain’s Bankia.
“At this kind of valuation it starts to look very attractive to a potential bidder,” says Christopher Wheeler, banking analyst at Mediobanca. “They are definitely at risk, but it is almost certain they would oppose a bid. However, I do wonder if they think their time has come.”
Ronit Ghose, banking analyst at Citi, says: “Relative to the peer group, StanChart has gone from having one of the highest multiples to one of the lower ones, and it now trades at a 40 per cent discount to Asian peers on a sum of the parts basis.”
Mr Ghose and Craig Williams, his colleague in Citi’s Australia office, caused a stir last week by publishing research that asked if a takeover of StanChart could make sense for ANZ, Australia’s third-largest bank by market value.
They pointed out that ANZ’s market capitalisation was 50 per cent higher than StanChart’s, and its higher price-earnings valuation would allow the acquisitive Australian bank to pay a 20-25 per cent premium and still end up creating value for shareholders on an earnings per share basis.
Others historically interested in a deal have included Spain’s Santander and JPMorgan in the US, though the latter is now seen as excluded from big transactions given its recent regulatory troubles.
The speculation around StanChart has been fuelled by its recent propensity for slipping on a series of banana skins. This started in August 2012, when the bank was accused of violating US sanctions on Iran and forced to pay $667m to US regulators.
Since then it has suffered a $1bn writedown in its South Korean business and abandoned a longstanding double-digit percentage revenue growth target due to weakness in financial markets and slower-than-expected growth in several markets, including India.
The latest setback came earlier this month when StanChart announced the surprise departure of its well-regarded finance director Richard Meddings and consumer boss Steve Bertamini. The search is under way for a new finance director, while the consumer business has been folded into its bigger wholesale banking unit under its head Mike Rees.

StanChart appears to be one of the better capitalised banks, with a core tier one capital ratio of 10.5 per cent under the latest Basel III regulatory standards. But there are still nagging doubts among some analysts over whether it may be forced to raise capital if it is hit by a further slowdown in emerging market economies and more financial market volatility caused by the Federal Reserve reducing its monetary stimulus.
After this month’s management reshuffle, Credit Suisse analysts said their “main concern in terms of a weak capital position has not yet been addressed”.
Yet the bank is dismissive of these worries. Peter Sands, chief executive, said recently that the UK regulator was satisfied with its capital position.
Bank insiders point out that StanChart’s main Asian markets continue to achieve economic growth of about 6 per cent – well above that of the US and Europe.
Furthermore, large bank mergers seem to have fallen out of fashion in recent years as regulators step up efforts to reduce risks in a sector already considered “too big to fail”.
And with the “global systemically important financial institutions” being forced to hold extra capital on a sliding scale depending on their size, there is an added deterrent against large deals.
Yet some bankers say there is still interest in a possible move for StanChart. “It could be an attractive deal for Wells Fargo to expand in Asia, and don’t forget the Chinese,” says one banker.
However, Wells Fargo executives have ruled out a transformational international deal for the foreseeable future.
A wild card is the 18 per cent held in StanChart by Temasek, the Singapore state investment agency, which looked at selling its stake a couple of years ago and is still open to offers at the right price after withholding support from several executive directors for two years running.