FT : Germany raises growth forecast

The German government on Wednesday raised its 2014 growth forecast and pledged to foster domestic investment and consumption, in a move that could cut the country’s reliance on its internationally criticised export surpluses.
The economics ministry predicted gross domestic product to increase 1.8 per cent in 2014, up from an October forecast of 1.7 per cent and well ahead of last year’s sluggish 0.4 per cent. For 2015, the ministry forecast a further 2 per cent increase.

Sigmar Gabriel, the economy and energy minister, said that the economy was “in good shape”, but warned of “significant challenges” ahead, including energy reform, infrastructure renewal and raising wages in low-paid jobs.
German industry cautioned against excessive optimism. Markus Kerber, managing director of the BDI employers’ organisation, argued that the improvement over last year is not as good as it looks because of “a statistical overhang” of 0.5 percentage points of GDP – growth that should have been recorded in 2013 but was not.
Mr Kerber added: “The government has the capacity to make higher growth possible. To do that, it must remove the uncertainties from the investment calculations of entrepreneurs and not impose new burdens on business. This is especially true for the implementation of the energy reforms.”
The forecast is driven by a predicted sharp turnround in investment, from a 2.2 per cent drop last year to a 4 per cent rise. Construction is expected to rise by 3.2 per cent and household consumption by 1.4 per cent.
Unemployment will fall from 6.9 per cent to 6.8 per cent, a move which suggests that the competition for skilled workers will increase, raising the pressure on employers to recruit immigrants, despite public concerns about the costs of immigration.
The US and other trade partners who have pressed Germany to reduce its export surpluses are unlikely to be satisfied with the report, as shipments overseas are predicted to rise 4.1 per cent. With imports expected to rise 5 per cent, officials are forecasting a decline in the current account surplus – but only of 0.1 per cent.
That would make only a small dent in last year record trade current account surplus of €201bn, including a record trade surplus of €198.9bn.
Mr Gabriel emphasised the role of increasing domestic demand, saying that this would support GDP growth in 2014 and 2015. “The dynamism of Germany’s domestic economy is not only good news for Germany, it is good news for our partners in Europe. In this way we are reaching our aim of reducing the economic imbalances in the eurozone.”
He forecast that the planned €8.50 an hour minimum wage and proposed increases in infrastructure investment would help.

>>> Fed's Bullard: Could use monetary policy in the future to head off possible

Fed's Bullard: Could use monetary policy in the future to head off possible asset price bubbles - comments to reporters
- employment/population ratio and hours worked are the key metrics to determine health of the US labor market (see: {http://libertystreeteconomics.newyorkfed.org/2014/02/a-mis-leading-labor-market-indicator.html}

- Notes a recovering economy is a fertile place for bubbles to appear
- would prefer ending reference to 6.5% unemployment threshold
- Highlights that the "Audit the Fed" legislation constitutes political interfence

(GS) Playing BRIC breaker: SABMiller onto the Conviction Buy List

* The annus horribilis, 2014 to show stabilisation 2013 was a tough year for European Consumer Staples, with slower growth in both emerging and developed markets (-300 bp and 110 bp, respectively) negative FX moves and belowaverage acquisition spend driving the lowest EPS growth (average 2%) since the financial crisis. We forecast 150 bp improvement in DM growth in 2014, and 80 bp of EM improvement, mostly driven by beer (FIFA World Cup). EM FX remains a risk which we assess in this report.

* Traditional EM concept is obsolete EMs remain the main source of long-term growth for staples; however, the global growth context is rapidly evolving and we introduce our maturity matrix to differentiate between early-stage (eg China, India, Nigeria) and maturing EMs (South Africa, Brazil, Russia, Turkey) as well as early-stage (eg HPC, spirits) and maturing categories (tobacco, beer, CSDs). This flows into our newly introduced CP framework, which provides an objective and transparent framework to appraise the strength of each company’s operations against global peers.

* The investment themes for 2014 In an uncertain growth environment, we think dominant companies operating in consolidated markets will be better placed to mitigate the risk of potentially greater competitive activity in 2014. We favour the following themes: (1) attractively valued DM exposure, with the potential to see an inflection in growth and lower FX risk; (2) oversold EM assets with long-dated robust organic growth and dominant positions; and (3) M&A beneficiaries, where attractive conditions are likely to drive a more than doubling of 2013’s level of M&A this year (GSe US$46 bn in 2014 vs. US$19 bn in 2013).

* Top picks L’Oreal, SAB, Pernod, Imperial We add SABMiller to the Conviction Buy List, joining L’Oreal, Pernod Ricard and Imperial Tobacco (all CL-Buy) as our top picks. We upgrade Reckitt Benckiser to Buy from Neutral, and ABInBev to Buy from Sell. Campari moves up to Neutral from Sell and we downgrade Beiersdorf to Sell from Neutral. We remain Sell-rated on Carlsberg, Oriflame, ABF, Suedzucker, Agrana, Kerry and CL-Sell on Dairy Crest.

(BFW) *AMERICA MOVIL CEO HAJJ SAYS STILL ‘VERY INTERESTED’ IN KPN

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BN 02/12 15:23 *AMERICA MOVIL REDUCES KPN STAKE TO STRENGTHEN OWN FINANCES BN 02/12 15:22 *AMERICA MOVIL PLANS TO MAINTAIN CURRENT CREDIT RATINGS: CFO BN 02/12 15:22 *AMERICA MOVIL INTERESTED IN TAKING PART IN BRAZIL CONSOLIDATION BN 02/12 15:22 *AMERICA MOVIL CEO HAJJ SAYS STILL `VERY INTERESTED' IN KPN BN 02/12 15:17 *AMERICA MOVIL CEO HAJJ SPEAKS ON CONFERENCE CALL BN 02/12 15:17 *AMERICA MOVIL SEES 2014 CAPEX $9.5B-$10B

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*AMERICA MOVIL CEO HAJJ SAYS STILL ‘VERY INTERESTED’ IN KPN 2014-02-12 15:23:16.144 GMT

--GAURAV PANCHAL

-0- Feb/12/2014 15:23 GMT

(GS) Breaking up the BRICS : Brazil and Russia to slow; India and China continue

Brazil and Russia to slow; India and China continue to grow

* A US$5 trn industry with a 6% CAGR…
Consumer staples is a US$5 trn global industry with a global profit pool of US$600 bn (2013). We forecast industry growth of 6% pa to 2020 (vs 5% CAGR 2001-11) with faster profit pool growth due to further consolidation and efficiency initiatives.

* …undergoing structural change…
Emerging markets remain the principal driver of growth (82% of global value growth to 2020E). However, the traditional concept of emerging markets offering growth for all is now obsolete – understanding category and country exposure is key to mapping future growth for staples.

* …as emerging markets mature
Growth slows as countries/categories mature and many growth markets are now approaching developed market levels of consumption per capita, meaning later-stage countries (Brazil, Turkey, Russia, South Africa) are likely to see much slower growth for more mature categories (tobacco, beer, carbonates). Understanding how growth rates are changing is key for asset turn.

* Brazil, Russia to slow; China, India to grow
We expect 95% of staples categories to slow in Russia vs 90% in Brazil, 43% in China and 10% in India for 2011-20 vs 2001-11. China remains the largest contributor to global staples growth (16% of total), followed by Russia (6%), the US (6%), Brazil (6%) and India (5%). Globally we expect 59% of category/country combinations to slow; however, we forecast overall global staples growth to accelerate by 60 bp as the weight of Growth markets increases. HPC accelerates the most while tobacco is the only category to slow.

* Ingredients, tobacco, CSDs are advantaged
The GS Competitive Positioning (CP) Framework for Global Consumer Staples ranks 154 companies to assess competitive advantage and finds that ingredients, tobacco and CSDs are the most advantaged subsectors. All benefit from industry concentration, a key driver of margins. Our global top picks all appear mispriced for growth/returns and benefit from the evolving industry context: Japan Tobacco, Imperial Tobacco, L’Oreal, Souza Cruz, Pernod, SABMiller, CCE, Coca-Cola Femsa.

(GS) Sab Miller - Retain Buy - Added to conviction buy List

* Undervalued structural growth; adding to the CL, retain Buy rating

Source of opportunity
Combining access to growth and the most advantaged competitive structure
in our European consumer staples sector coverage, SABMiller scores
third-highest on our Competitive Positioning framework. This, and our
assumption that the company reinvests cash in accretive acquisitions, leaves
our FY16 EPS estimate 5% ahead of the Reuters consensus. Since reaching a
peak P/E of 22.4x in May 2013, the shares have de-rated by 20% and now
trade at a discount of 2% (2014E basis) to our European staples coverage
despite the company’s strong positioning and strategic attractions. We add
the stock to the Conviction List and retain our Buy rating.

Catalyst
SABMiller will release its FY14 trading statement on April 15 and FY14 results
on May 22. We expect both releases to demonstrate resilient performance
despite continued tough conditions in both EM and DM. In addition, any
announcement of further acquisition spend may be a catalyst for the shares;
we assume US$45 bn (from US$64.5 bn) of acquisition spend over FY2015-20.

Key risks
1) Weaker-than-expected trading in one of SAB’s main geographies; 2)
further currency depreciation; 3) higher-than-expected input cost increases;
and 4) lower-than-expected cash deployment.

>>> GS - Reco Change

*RECKITT BENCKISER RAISED TO BUY VS NEUTRAL AT GOLDMAN
*BEIERSDORF CUT TO SELL VS NEUTRAL AT GOLDMAN
*SABMILLER ADDED TO CONVICTION BUY LIST AT GOLDMAN
*CAMPARI RAISED TO NEUTRAL VS SELL AT GOLDMAN
*AB-INBEV RAISED TO BUY VS SELL AT GOLDMAN

(Makor-O.Gruss) Helen of Troy (HELE) Dutch auction

Troy, Helen of

On 2/10/14, Helen of Troy Limited (Nasdaq-HELE) announced a $300M Dutch Auction as part of a Board-authorized $550M share repurchase program; the remaining $250M of shares will be subsequently repurchased over the next three years. The HELE Board had retained a financial advisor in January 2014, two months after meeting with Sachem Head Capital Management (“Sachem”) to discuss their views on how the company could maximize shareholder value. Sachem believes there are several strategic and financial buyers that may have an interest in acquiring HELE; Sachem currently owns 1.2M shares (3.7% S/O). HELE gave an open-ended response the day after a letter to the Board from Sachem was made public on 2/4/14; the company continued to believe its shares were undervalued, even after reaching an all-time high in mid-January 2014. Last, HELE announced on 1/15/14 that Chairman/CEO/President Gerald Rubin was stepping down; he had been with the company for 30 years) and the company expects to realize ~$30M net after-tax savings in FY15 (~$0.95/share) from his departure.

The HELE tender offer price range is $57.75-$66.50 ($0.25 increments), an 8.4%-24.9% premium to the $53.23 closing price on 2/3/14 and a 2.5%-18.0% premium to the $56.36 VWAP for the ten days ending on the same date. If fully subscribed, The company will repurchase 4.51M-5.19M shares (14.1%-16.1% S/O). HELE directors and officers (as a group) own 0.4% S/O; Sachem has not indicated their intention to participate in the tender offer. HELE will fund the tender from cash-on-hand ($29M as of 11/30/13) and an existing revolving credit facility ($245M availability as of 11/30/13). There is no minimum condition; the tender is subject to no more than a 10% decrease in HELE shares and three major indices since 2/10/14. Including the additional $250M share repurchase authorization and assuming a price of $63/share, the 8.73M buyback would total ~27% S/O (based on 32.1M S/O).

We believe the Dutch Auction will be viewed as an opportunity for long term holders to monetize some of their investment at a premium price. At a $63/share tender price, HELE could purchase up to 4.76M share; this equates to ~16% of the share float (excluding Sachem and HELE directors and officers), not quite at the level of a recapitalization but more significant than the 8%-10% S/O buyback amount of the standard Dutch Auction. HELE has a concentrated shareholder base (top five holders owned 42% S/O as of 9/30/13); the potential prorate is a difficult call at this early stage of the offer and we believe market conditions going into the tender expiration will be a major factor in the percentage of shares tendered (as well as the price level of those tenders).

The HELE stock price steadily increased in 2013, from $33.42 at prior year-end to $49.38 (up ~48%). HELE shares are now trading at the $63-$64/share level. The company’s ~90% share price increase (from year-end 2012) in now similar to that of Jarden Corp. (NYSE-JAH), a comparable consumer products peer. The JAH shares are up 78% since year-end 2012; the stock price has tripled since it announced its Dutch Auction in January 2012. The share price of Spectrum Brands Holdings, Inc. (NYSE-SPB), a highly leveraged household products peer that acquired the handheld tools business from Stanley Black & Decker Inc. (NYSE-SWK) in December 2012, is up 67% since the end of 2012. Last, the HELE share price is up 18% since the Sachem letter was made public. We note the JAH Dutch Auction was well-timed to the increase in the discretionary consumer spending cycle as well as expanding valuation multiples from depressed levels. The initial $30-$33 price range of the JAH tender was increased to $32-$36 after the shares traded over the top end. The offer was undersubscribed; only 13% S/O were tendered even though JAH could have purchased up to 15% S/O. In comparison, HELE was not trading at a high single-digit P/E multiple preannouncement and the consumer recovery is well underway; we would not use the JAH Dutch Auction results as a proxy for the current HELE offer.

Using a 3.5% interest rate and a 17% tax rate (Bermuda incorporation), we estimate HELE P/F CY14E $4.30 EPS; a 13x-14x P/E implies a $55.90-$60.20/share backend value (excluding any premium for the Sachem activism). Based on a HELE $54/share trading prior (prior 20 day average closing price ended 2/3/14), HELE’s implied CY14E valuation multiples ($1.73B EV) were 1.3x EV/REVS ($1.33B, flat YoY), 8.7x EV/EBITDA ($200M, 15% margin, up 16.6% YoY) and 13.7x P/E ($3.93, up 8% YoY); the 0.97 PEG ratio reflects a 15% LT growth rate. In comparison, JAH at $62/share ($10.3B) has CY14E valuation multiples of 1.4x EV/Revs ($7.38B, up 11.3% YoY), 9.0x EV/EBITDA ($1.14B, 15.4% margin, up 20.5% YoY) and 15.6x P/E ($3.98 EPS, up 11.1% YoY); it has an 11% LT growth rate. Conversely, SPB at $75/share ($7.19B EV) has CY14E valuation multiples of 1.6x EV/Sales ($4.44B, up 2.8% YoY), 9.8x EV/EBITDA ($733M, 16.5% margin, up 16.9% YoY) and 17.1x P/E ($4.38 EPS, up 32% YoY); it has a 9% LT growth rate. Last, given HELE’s flat YoY revenue growth and projected EBITDA increase due to compensation savings from the recent executive departure, we do not anticipate the market will re-rate the stock price with higher post-tender valuation multiples.

The Dutch Auction announcement appears to be a defensive action to counter an activist shareholder that is on a value-enhancing offensive push. Assuming full debt funding of the tender, HELE P/F Debt/EBITDA leverage will increase to ~2.5x from ~1.0x. We view the higher debt level as being an interim buffer against any near-term potential takeover as well as addressing Sachem’s position that the HELE balance sheet was underleveraged. Although the current $2.0B market cap makes the company a manageable takeover target by either financial or strategic buyers, we feel the advantages of its Bermuda corporate structure makes HELE a better acquirer rather than a seller. Overall, we view the company’s Dutch Auction as a quick way to meaningfully reduce the share count and do not expect there will be another extraordinary transaction on the near horizon.

DISCLAIMER

This information represents neither an offer to buy or sell any security nor, because it does not take into account the differing needs of individual clients, investment advice. Those seeking investment advice specific to their financial profiles and goals should contact their Oscar Gruss & Son Incorporated sales representative. Oscar Gruss & Son Incorporated believes this information to be reliable, but no representation is made as to accuracy or completeness. This information does not analyze every material fact concerning a company, industry, or security. Oscar Gruss & Son Incorporated assumes that this information will be read in conjunction with other publicly available data. Matters discussed here are subject to change without notice. There can be no assurance that reliance on the information contained here will produce profitable results. A security denominated in a foreign currency is subject to fluctuations in currency exchange rates, which may have an adverse effect on the value of the security upon the conversion into local currency of dividends, interest, or sales proceeds. The value of securities and depositary receipts of foreign issuers that are denominated in United States dollars are also influenced by fluctuations in currency exchange rates.

© 2014 Oscar Gruss & Son Incorporated. All rights reserved.

(Makor)Top Trading Ideas: Long Corio/Short Unibail: 300-500bps objective

Top Trading Ideas: long Corio NV / short Unibail-Rodamco

We recommend going long Corio NV (CORA NA) / short Unibail Rodamco (UL NA), two of the largest European commercial property REITs, and thus arbitraging the rental income yield (RIY) differential between the two companies. Corio has a RIY of 7.8% compared to Unibail's 5.1% (see our latest IRS Europe Real Estate report for details). Moreover the trade as a 2% dividend positive carry. The recent price dislocation between the two presents a long/short opportunity in this highly mean reverting pair trade.

FULL REPORT ATTACHED

>>> US Gapping down

Gapping down

In reaction to disappointing earnings/guidance: CALX -13.2%, RLOC -10.1% (also ReachLocal confirmed Google agreement extended; downgraded to Neutral from Overweight at JPMorgan), JBT -9.5%, JIVE -7.6% (also downgraded to Equal-Weight from Overweight at Morgan Stanley), FEYE -5.2%, VSAT -5%, WCG -3.6%, CSOD -2.3%, BDE -2.3%, (begun to explore strategic alternatives to monetize the value of untapped markets for Gregory Mountain Products), MKTO -2.2%, ANDE -2.1% (light volume), TRI -2% (light volume), LO -1.9%, WU -1.8%, ANR -1.1%, PG -0.9%, INTU -0.3%.

A few Brazil related names are trading lower: GOL -3.3%, BBVA -2.6%, ITUB -1.6%, TSU -1.2%, VALE -0.9%, BSBR -0.8%, VIV -0.8%,

Other news: PRGN -10.9% (announces public offering of common stock), GPK -3.5% ( announces secondary offering of 30 mln shares of common stock by selling stockholders), NOK -2.8% (Nokia has suffered a reversal in India tax dispute, according to reports), HZNP -2.1% (announced that the FDA joint Arthritis Advisory Committee and Drug Safety and Risk Management Advisory Committee was split on whether the data show adequate differences in cardiovascular risk among NSAIDs to support labeling change for NSAIDs due to cardiovascular risk), SNY -1.4% and NVO -1.4% (still checking), BCS -1.1% (still checking), PANW -1% (following FEYE results), DOW -1% (Dow Chemical finds that after review, a break-up of the company in a significant manner created no productivity or capital allocation improvements), ATO -1% ( prices offering of 8 mln shares of common stock at $44 per share ), ALU -0.9% (still checking), TM -0.8% (Toyota Motor plans to recall 1.9 Prius hybrids, according to reports).

Analyst comments: CLNE -3.3% (downgraded to Underperform from Neutral at Macquarie), AMZN -2.1% (downgraded to Neutral from Buy at UBS; tgt lowered to $375 from $450; removed from US Key Call list; Creates 2,500 Full-Time Jobs with Comprehensive Benefits Across its U.S. Fulfillment Network), GMCR -2% (downgraded to Neutral from Buy at Longbow), SDRL -1% (downgraded to Underperform from Market Perform at Wells Fargo), CB -0.5% (initiated with a Sell at Citigroup)