>>> LyondellBasell beats by $0.17, beats on revs

LyondellBasell beats by $0.17, beats on revs
  • Reports Q4 (Dec) earnings of $2.73 per share, excluding non-recurring items, $0.17 better than the Capital IQ Consensus of $2.56; revenues rose 17.9% year/year to $9.13 bln vs the $8.82 bln Capital IQ Consensus.
  • Outlook
    • "Over the past several months, strong global demand and delays in capacity additions across our industry have improved the outlook for 2018. We look forward to realizing the benefits of strong operating rates across our global portfolio of assets and continuing the upward trajectory in reliability and profitability for the Houston refinery. Over the coming years, LyondellBasell will continue to advance our growth by increasing the pace of organic business investments while diligently pursuing value-adding inorganic opportunities," Patel said.
  • "In 2017 we demonstrated the strength of our earnings performance under dynamic market conditions. Against a backdrop of substantial new capacity in our industry, LyondellBasell increased volumes, improved EBITDA and raised earnings. The complementary performance of our two global Olefins and Polyolefins segments combined with the relative stability of our Intermediates and Derivatives business portfolio provided a resilient platform for profitability during 2017. Outstanding performance by our Olefins and Polyolefins — Europe, Asia and International segment provided a fourth consecutive year of record EBITDA. In 2017, global operating rates remained strong due to delays in new capacity, a volume shortfall from Hurricane Harvey and an improving Chinese market. LyondellBasell captured market opportunities by operating our plants safely and reliably. We advanced our growth program by starting up a new polypropylene compounding plant in China, entering a premium polymer recycling joint venture with SUEZ, breaking ground on our new Hyperzone HDPE plant in La Porte, Texas and reaching a final investment decision for the world's largest PO/TBA plant," said Bob Patel, LyondellBasell chief executive officer.

>>> Merck beats by $0.04, reports revs in-line; guides FY18 EPS in-line, revs ab

Merck beats by $0.04, reports revs in-line; guides FY18 EPS in-line, revs above consensus
  • Reports Q4 (Dec) earnings of $0.98 per share, $0.04 better than the Capital IQ Consensus of $0.94; revenues rose 3.1% year/year to $10.43 bln vs the $10.48 bln Capital IQ Consensus.
  • The non-GAAP gross margin was 74.6 percent for the fourth quarter of 2017, compared to 74.8 percent for the fourth quarter of 2016.
  • Sales grew 1 percent, on top of a 5 percent sales increase in the year-ago quarter, reflecting increases in the International, Lifestyle and Cleaning segments, supported by the benefit of price increases and partially offset by unfavorable mix. Second quarter sales also included a reduction of nearly 1 point from the sale of the Aplicare business in late August 2017. Volume grew 1 percent, on top of 8 percent volume growth in the year-ago quarter, largely driven by gains in the Cleaning and Lifestyle segments.
  • Co issues guidance for FY18, sees EPS of $4.08-4.23 vs. $4.11 Capital IQ Consensus Estimate; sees FY18 revs of $41.2-42.7 bln vs. $41.1 bln Capital IQ Consensus Estimate.

>>> The Flow Show: Sell signal



 

Global Research

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The Flow Show

 

Sell signal

 

02 February 2018

 

 

Key takeaways

·         Sell signal triggered: BofAML Bull & Bear Indicator surges to 8.6

·         Tactical S&P 500 target: we forecast a decline to 2686 by end-Q1

·         Client feedback: would rather play rotation than reversal

 

 

FULL REPORT

      

 

Talking Points

Hot January: S&P 500 bull market became 2nd largest of all time last Friday (@ 2873), global equity market cap of $86.6tn up $57.9tn from 2009 lows and $29.9tn from 2016 lows.

Hot Flows: massive $25.7bn into equities this week (Chart 2), $5.7bn into bonds; remarkable $102bn into equities YTD; rotation into equities, out of Treasuries & HY bonds currently fastest pace of Great Rotation on record.

Sell: BofAML Bull & Bear Indicator surges from 7.9 to 8.6, triggering contrarian sell signal for risk assets (Chart 1); signal triggered on Jan 30th via record equity inflows, bullish hedge fund risk appetite (CTFC data), global equity index breadth >1SD.

Q1 Reversal: per last week we forecast decline in S&P500 to 2686 by end-Q1; Bull & Bear indicator sell signal hit ratio = 11/11 since 2002; avg equity peak-to-trough decline = 12% (following 3 months), avg decline in 10-year Treasury yields = 58bp (link for indicator composition & full backtest results).

Clients position for Rotation not Reversal: YTD flows show stubborn bid in secular deflationary leadership ($35.4bn to IG & EM Credit, $5.7bn to Tech - record 4 weeks) but also new desire to chase inflation or weak dollar laggard plays (past 4 weeks $12.5bn into Japan equities, $3.6bn to Financials, record $4.4bn into TIPS, record $24.4bn to EM equities. BofAML Emerging Market trading rule "sell" signal triggered this week as EM equity inflows >1.8% AUM past 4 weeks, hit ratio 11/18 since 2004 (link).PX <2600: catalysts for deeper correction...consensus stunned by February of weaker macro, weaker stocks, lower yields, stronger dollar; surge in wage growth causes spike in Fed hike expectations; we think "bond shock" too consensus and EPS shock (Chart 3), credit shock, dollar shock more likely catalysts for cross-asset vol spike.

SPX <2600: catalysts for deeper correction...surge in wages (eg Jan AHE >0.4%) causes spike in Treasury vol (MOVE index); but since all worried "bond shock" bigger surprise would be Feb of weaker macro, stronger dollar, lower yields (nb weakness in US homebuilders XHB early sign rates starting to bite).

SPX >3000: catalysts for no correction…a speculative equity overshoot has begun driven by central bank liquidity supernova (BoJ expanded QE this week) and rotation out of $10.8tn of -ve yielding global debt, suggesting we have entered a 2SD world, no longer a 1SD world, making sentiment signals less relevant.

Client feedback (Asia): "too early for a tradable correction...pullback 2-3% max which will be bought...macro & investment backdrop too perfect to sell...come back when yields & inflation punitively above 3% and SPX above 3000...rotation to Japan, China, Europe more tempting than US reversal...wait for top in laggard China banks to signal global top…we only just got bullish!".

 

 

 

Michael Hartnett  Send email
Chief Investment Strategist
MLPF&S
+1 646 855 1508

 

This report is intended for Alexandra Fletcher

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Recode : Here’s the chart that explains why CBS and Viacom want to merge

Here’s the chart that explains why CBS and Viacom want to merge
They’re big. But not nearly big enough.

CBS and Viacom plan to merge and will set up a special committee to figure out how the combination would work for shareholders, both companies announced today.

Shari Redstone, who controls both companies, wanted to look at a possible deal in 2016, but then she said she changed her mind. Now she supports a merger.

Her family company, National Amusements, which controls both CBS and Viacom, said in a statement, “National Amusements supports the processes announced by CBS and Viacom to evaluate a combination of the two companies, which we believe has the potential to drive significant, long-term shareholder value.”

Redstone’s original argument for keeping the two companies apart was that Viacom, the once-mighty cable programmer that had fallen into disrepair, could improve on its own.

But even if Redstone believed that, it looks as though the rest of the media industry won’t wait for Viacom’s turnaround.

A series of proposed mergers, kicked off by AT&T’s planned acquisition of Time Warner, is forcing smaller media companies to look for larger homes. The operating theory: Programmers need to bulk up in order to get leverage with distributors — or find a distributor who just wants to buy them.

And while Viacom and CBS are giant media companies that reach tens of millions of people every night, by the standards of today’s media landscape, they’re comparatively small: Investors value CBS at $23 billion and Viacom at $14 billion. By comparison, Time Warner is worth some $72 billion, and Disney, which is worth $168 billion, is swallowing a big chunk of 21st Century Fox, which for now is worth $67 billion.

Here’s a visual representation of the market: We’ve grouped distributors and content companies by market cap, and highlighted some of their main lines of business. Note the digital guys on the right side of the chart — many people think Netflix, with its boom streaming business, is spurring some of this consolidation, and we’re still waiting to see if the truly big tech companies like Apple and Amazon enter the market for real.

(SEB) Nokia : Recovery becoming more tangible Buy Target Price €5.20

Recovery becoming more tangible
● Attractively valued play on 5G-driven earnings recovery – upgraded to Buy
We have upgraded Nokia from Hold to Buy and raised our target price from
EUR 4.5 to EUR 5.2. We believe that the financial targets for 2020, which indicate
meaningful earnings recovery from a challenging 2018, should shift the focus
towards revenue stabilization and some growth via 5G commercial rollouts from
2019. Nokia’s initiatives within adjacent markets and end-to-end offering should
bring revenue support to a greater extent and Technologies has good scope to
further broaden the licensee base. Trading at 2020E PER excluding restructuring of
12.5x (11x based on the mid-point of company guidance) and EV/EBIT of 7.2x, we
believe that market expectations are conservative in terms of earnings recovery
during 2019-20. In relative terms, Nokia trades at a 30% discount to Ericsson on
2020E EV/EBIT based on our estimates (25% on 2020 targets) – making Nokia a
good relative pick to play on 5G and market improvement beyond 2018.
● EPS lowered for 2018 by 8% but upped 5% for 2019
We have cut our 2018 EPS estimate 8% due to estimate cuts in Networks and
Global Services. The net revisions are mainly due to EUR 100m costs relating to
5G trials. For 2019 our EPS estimate is up 5% due to higher assumptions for Ultra
Broadband Networks and some upgrades for Technologies (lower cost base).
● Target price raised from EUR 4.5 to EUR 5.2
We have raised our target price for Nokia from EUR 4.5 to EUR 5.2; still based on
an equally weighted average of a peer group valuation of EUR 5.4, sum-of-theparts
(SOTP) of EUR 4.8 and a DCF fair value of EUR 5.6. We now have shifted
our peer group and SOTP-based valuation reference year from 2018 to 2019.

(Nordea) Nokia Buy Target Price €5

Ericsson-inspired long-term targets saving the day
Nokia's Q4 report offered exceptional information value as the company
provided precise targets until 2020. Our previous claim of EUR 0.40 per share
long-term earnings power stands and is now supported by Nokia. Business mix
will be more IPR-heavy (from <25% of EBIT to up to 40% especially in the shortterm).
We reiterate our Buy rating and raise our DCF-based target price to EUR
5.0 (4.8) due to significant derisking of the long-term direction. On triggers, we
anticipate news flow regarding an improving networks market even though
short-term financial performance is likely to remain muted. Towards year-end,
there should be room for guidance or IPR-related triggers.

Q4 beat, soft Networks guidance but solid 2020 group targets
As we anticipated, Q4 offered a clear beat on recent IPR deals with Huawei and
Xiaomi (net sales 5% and adjusted EBIT 13% above consensus). Despite raised
Networks market guidance for 2018, Nokia promised only ~7.5% EBIT margin
(consensus 9.3%) and only ~10.5% in 2020 (consensus at 10.6% for 2019).
Technologies will, however, make up in both the short and longer term. Nokia is
guiding for an aggressive 10% CAGR until 2020 (run-rate stands EUR 1.32bn).
This is the key risk factor, as the low-hanging fruit has already been grabbed.
Nokia sees ~10% group EBIT margin and EUR 0.25 EPS in 2018 (consensus
11.0% and EUR 0.27, respectively). For 2020, Nokia promises ~14% EBIT margin
and EPS of EUR 0.395 (consensus 12.4% and EUR 0.32 for 2019, respectively).

Guidance forcing 2018 estimate cuts, 2019-20 consensus intact
New guidance should result in a ~7% cut for 2018 consensus (EUR 0.25 EPS
versus EUR 0.27 consensus), while there should not be a need to trim estimates
for 2019-20 (EUR 0.395 EPS for 2020 versus consensus at EUR 0.38). We trim
our estimates for 2018-19 to be in line with Nokia's outlook comments. We do
not need to revise our 2020 estimates, but the business mix becomes skewed
towards IPRs.

Investment case about high visibility and notable valuation upside
The investment case offers visibility into earnings growth. We assume 2021 EPS
of EUR ~0.40 when full ALU synergies have been reaped, the Networks market
has recovered and the remaining IPR deals have been struck (a ~14% operating
margin), valuing the share at a P/E of 11x. Nokia also trades at a bargain 2020E
EV/EBIT of 6.9x and offers a >4.5% dividend yield