>>> Europe : Brokers Upgrades & Downgrades - 20th of April 2018

>>> Up
* Bankia Upgraded to Neutral at BPI; PT 3.90 Euros
* Elis Upgraded to Buy at Berenberg
* Pharmanutra Raised to Buy at Corporate Family Office
* *SHIRE PT RAISED TO $200 AT B RILEY FBR AS ACQUISITION LIKELY

>>> Down
* *COMMERZBANK CUTS DEUTSCHE BANK PT TO EU11 FROM EU15

>>> Initiation
* Hammerson Resumed at Morgan Stanley With Overweight; PT 6 Pounds
* Recticel Rated New Buy at Berenberg; PT 13 Euros

>>> Call

>>> Closing Market Summary: Consumer Staples Lead Market Lower for


Closing Market Summary: Consumer Staples Lead Market Lower for First Time This Week

Stocks dropped for the first time this week on Thursday, giving back around a third of their weekly gains, as investors tried to sort through the latest pile of corporate earnings. The S&P 500 declined 0.6%, closing a step above its 50-day moving average (2687), while the Dow and the Nasdaq lost 0.3% and 0.8%, respectively.

Nine of the eleven S&P 500 sectors finished Thursday in negative territory, with consumer staples (-3.1%) taking the biggest hit. Tobacco giant Philip Morris (PM 85.64, -15.80) paced the consumer staples retreat, plunging 15.6% to its lowest level since late 2015, after reporting a decline in cigarette shipment volume for the first quarter and slower-than-expected growth for its IQOS product -- which heats tobacco instead of burning it. Procter & Gamble (PG 74.95, -2.53) also weighed on the sector, losing 3.3%, despite reporting above-consensus Q1 profits.

The top-weighted technology sector (-1.1%) finished a ways up from consumer staples, but still in the lower half of the sector standings as chipmakers weighed, evidenced by a 4.3% decline in the Philadelphia Semiconductor Index. Apple supplier Taiwan Semi (TSM 39.53, -2.39) was a driver of the bearish bias, losing 5.7%, after its first quarter earnings and revenues came in below estimates; the chipmaker also lowered its guidance for Q2. News that China has concerns about Qualcomm's (QCOM 52.57, -2.66) acquisition of NXP Semi (NXPI 107.17, -5.82) also had a negative impact.

At the opposite end of the sector standings, the influential financial sector (+1.5%) had a strong outing, helped by a steepening of the yield curve and upbeat Q1 results from American Express (AXP 102.37, +7.22); AmEx beat both earnings and revenue estimates in addition to raising its guidance for FY18. As for the yield curve, the 2s10s spread, which hit a 10-year low earlier this week, increased four basis points to 49 bps. The benchmark 10-yr yield accounted for all of that gain, advancing four basis points to 2.91% -- its highest level in eight weeks.

The energy sector was also relatively strong, adding 0.1%, even though WTI crude futures gave back all of a 1.6% intraday advance (and then some), closing lower by 0.2% at $68.30 per barrel. A stronger dollar weighed on the commodity, which -- despite Thursday's downtick -- is still hovering near its highest level in more than three years. The U.S. Dollar Index advanced 0.3% to 89.61 -- its highest level in more than a week -- with the greenback's most notable move coming against the British pound; the GBP/USD dropped 0.8% to 1.4092.

A Bloomberg report, which claims that Deputy Attorney General Rod Rosenstein told President Donald Trump last week that he isn't a target of any part of Special Counsel Robert Mueller's investigation, helped equities pair some of their losses ahead of the closing bell. Volume was light once again though, with just 754 million shares changing hands at the New York Stock Exchange.

Reviewing Thursday's economic data, which included the weekly Initial Claims report, the Philadelphia Fed Index for April, and the Conference Board's Leading Economic Index for March:

  • The latest weekly initial jobless claims count totaled 232,000, while the Briefing.com consensus expected a reading of 226,000. Today's tally was below the unrevised prior week count of 233,000. As for continuing claims, they declined to 1.863 million from a revised count of 1.878 million (from 1.871 million).
    • The key takeaway from this report is that it covered the period in which the survey for the April employment report was conducted, so it will fuel expectations for a strong gain in nonfarm payrolls.
  • The Philadelphia Fed Survey for April rose to 23.2 (consensus 21.0) from an unrevised 22.3 in March.
    • The key takeaway from this report is that there was a notable uptick in the Prices Paid Index (from 42.6 to 56.4), as well as the Prices Received Index (from 20.7 to 29.8), which will pique interest about budding inflation pressure.
  • The Conference Board Leading Economic Index increased 0.3% in March (consensus +0.4%). The prior month's reading was revised to +0.7% from +0.6%.
    • The key takeaway from the report is that the 4.3% growth rate for the index for the six-month period ending March 2018 was much faster than the 1.9% growth rate over the previous six months.

Investors will not receive any economic data on Friday.

  • Nasdaq Composite: +4.9% YTD
  • Russell 2000: +2.5% YTD
  • S&P 500: +0.7% YTD
  • Dow Jones Industrial Average: -0.2% YTD

FT : A second Brexit referendum would tear Britain apart

A second Brexit referendum would tear Britain apart
The UK electorate is split down the middle, but another vote would make things worse

Does the idea of a second referendum on Brexit make sense? Many who share my view of the vote — that it is a huge error — would insist it does. Those on the other side would respond that the people have spoken: it would be wrong to ask again.

Yet it is the essence of democracy that voters may change their minds. If that were not the case, the UK should have accepted that the issue of membership was resolved by the referendum of 1975. The UK also has no rules on how and when to hold referendums. Parliament is entitled to call for such votes as and when it wishes. That is, after all, what makes it sovereign, as Brexiters desire.

To the argument that the referendum occurred less than two years ago, one may rejoin that the electorate has changed since then. Far more important, the referendum was merely on whether to leave or stay. Nobody knew exactly what leaving might mean. Voters can only choose between remaining and the reality of Brexit after the withdrawal agreement has been reached.

This, moreover, is not the only significant change since the referendum. With the election of Donald Trump, the geopolitical environment for the UK and the EU has been transformed, unambiguously for the worse. The mutation of the US, under the banner of “America First”, makes the strategic position of Europe as a whole (of which the UK is — and always will be — a part), far more fragile. Is this a good time to divide the UK from the rest of the EU? That will harm both sides, possibly grievously.

In addition, it is becoming clear that Brexit is indeed (and will continue to be) costly. The forecasts of a near-term catastrophe advanced by the Treasury (and several others) before the referendum have proved false. But instead, the British economic frog is being boiled slowly. The UK economy will perform worse than the rest of Europe, except Italy, over the next two years, argues the IMF in its World Economic Outlook. Comparison of pre- and post-referendum forecasts from Consensus Forecasts suggests annual growth has fallen by around half a percentage point, relative to earlier hopes. Moreover, this is before Brexit has actually happened.

It might be argued that parliament could overturn Brexit on its own: a referendum is therefore unnecessary. Indeed it could. But the referendum has been made sacrosanct. Only another referendum might now overturn it.

Yet there are also arguments against another referendum. It is not altogether clear what question would be on the ballot. It could be between accepting the terms and remaining. But there is a third option: a no-deal Brexit. That could not be ruled out, since it is far from obvious that a withdrawal of the Article 50 application to leave would work: experts disagree on this. Thus, such a vote might merely mean that the UK crashes out, which would be a true disaster. Furthermore, even after the withdrawal agreement, the electorate would still not know the details, and, in all probability, much of the meat, of forthcoming deals on trade with the EU.

Another problem surely is timing. Suppose the exit deal were agreed in October. Thereupon parliament would call the second referendum on its terms. Agreeing the actual question, setting up the campaigns and holding the vote would surely take until well into 2019, close to the date of the exit. Theoretically, it might be possible to persuade the EU to postpone Brexit or even accept cancellation of the application to quit at that late date. In practice, I doubt it. I would guess that the EU has had enough of the UK’s endless prevarication (and rudeness) by now and would be most reluctant to halt the Brexit process.

There is, however, another vital matter: the domestic politics in the UK. The evidence suggests that the UK electorate remains split down the middle. The country is, as I have argued, in a sort of civil war. Suppose there were a 51 to 49 per cent vote against the deal. Would this really decide anything? It would be more likely to make the strife hotter. Last but not least, no major British party has a settled will against Brexit. The reasons Labour leader Jeremy Corbyn is against the EU — that it is a capitalist plot — are the opposite of those on the Tory right — that it is a socialist one. But his opposition is real, all the same.

I am convinced the decision to leave was an unnecessary and disastrous error. I would love to see a way to halt the train to the station called Brexit. I wish everybody trying to do so the best of luck. But I don’t think it is do-able. Worse, I fear it might tear my country apart. My efforts will instead go to arguing for the best possible deal, including permanent participation in the customs union. It might be defeatist. But limiting the damage matters, too.

FT : Bidding war looms over Shire after £42.4bn Takeda offer rejected

Bidding war looms over Shire after £42.4bn Takeda offer rejected
Shares in Irish drugs group jump as Allergan says it is also considering move

A potential battle for control of Shire broke into the open on Thursday after the Irish drugmaker rejected a £42.4bn takeover offer from Japanese rival Takeda and Botox-maker Allergan disclosed it was considering a run at the company.

Shares of the Irish group leapt 5.9 per cent on expectations of a bidding war, which would break out in the middle of what is already the busiest run of acquisition activity the pharma industry has ever seen.

If a deal with Takeda — or another suitor — is consummated at current valuations, it would rank as one of the largest the sector has ever seen, trailing Pfizer’s $112bn takeover of Warner Lambert in 2000, data from Dealogic showed. Including the value of Shire’s debt, the deal is worth roughly $81bn, according to the data provider.

Shire turned down Takeda’s bid for the group, which was its third attempt to win over the company’s board and valued the group at £46.50 a share. Under the proposal, each owner of Shire stock would get £17.75 in cash and £28.75 in new Takeda shares, in what would be the largest-ever outbound deal by a Japanese company.

Takeda said talks between the two companies were continuing, but attempted to play down expectations it would raise its offer significantly higher, saying it remained “disciplined” about the terms and intended to “maintain its well-established dividend policy and investment-grade credit rating”.

Shire said Takeda’s two previous offers were at £44 a share and £45.50 a share. It noted that, based on the most recent proposal and Takeda’s current market capitalisation, current Shire shareholders would own about 51 per cent of the “enlarged Takeda”.

The Irish drugmaker said it had “thoroughly considered” the third proposal at a meeting on April 14, but had “unanimously rejected it”, arguing its strong growth prospects and drug pipeline meant the price “continues to significantly undervalue the company”.

Allergan publicly entered the fray just hours later, disclosing it was considering a bid but had not yet made an official offer. While it cautioned that it might not present Shire with an offer, it added that it had already hired financial advisers to assist it in a review of potential acquisitions or disposals.

Shire’s advisers have continued “a dialogue” with Takeda to determine if a more attractive offer will be made. Shire did not comment on Allergan’s expression of interest. The FTSE 100 group closed at £39.75 in London trading, giving it a market capitalisation of £36.5bn.

Earlier this week, Shire agreed to sell its oncology business for $2.4bn in cash to Servier, a French pharmaceutical group. The move was seen by some as a defensive tactic to repel Takeda, which revealed three weeks ago that it was considering a bid for Shire. 

Some analysts believe the Servier transaction suggests that Shire has been undervalued, and the deal potentially strengthens its hand in negotiating with its Japanese suitor.

Takeda has been aggressively trying to expand abroad in recent years as it seeks growth from outside its shrinking home market. It has been hunting particularly for companies developing drugs for cancer, gastrointestinal conditions and diseases of the central nervous system, such as Alzheimer’s. 

Last year, Takeda acquired US oncology group Ariad Pharmaceuticals for $5.2bn and it later tried to acquire Valeant, the Canadian drugmaker, for around $10bn. but the talks collapsed over price. In 2011, it acquired Nycomed, the Swiss drugs company, for $13.7bn. 

Japanese companies have been encouraged to acquire foreign assets under prime minister Shinzo Abe’s drive to reinvigorate the country’s economy with his stimulative “Abenomics” reforms. 

Takeda’s shareholders have seemed less enthusiastic in recent weeks. Its shares have declined almost 8 per cent since it revealed its interest in Shire in March as investors worried about the increasing level of its interest-bearing debt — totalling over $10bn — and the risk of a dilutive share issuance to finance the new deal. 

A tie-up is likely to be complicated by the fact Takeda’s market capitalisation is significantly smaller than Shire’s. Given that asymmetry, some analysts have suggested any agreement reached between the two parties would have to be in the form of a merger.

Takeda was forced to disclose its interest last month after coming under pressure from the UK Takeover Panel, following sharp movements in Shire’s share price.