Opex savings yet to crystallise but gross margins and market outlook positive; remain Buy
Ericsson reported 4Q17 revenues broadly in-line with SME consensus, with gross margins ahead, which we view favourably in light of its plan to improve these via product quality enhancement. Further, ERIC maintained its wireless market outlook for 2% declines, which we see as positive given Nokia’s prior more conservative commentary, and constructive statements about dynamics in the US. While 4Q EBIT missed, this was primarily due to increased opex (as ERIC continues to invest in its products), which we view as temporary (albeit we look for meaningful improvements in coming quarters). Overall, we see commentary on product traction and certain self help actions (e.g. Services contract
rationalisation and headcount reductions) as representing progress.
Moreover, FY17 cash flow increased significantly yoy, despite significantly higher restructuring cash charges last year. While current FX rates imply a drag on FY18 estimates (and 4Q opex was above our forecast) we believe to some degree cost actions have not yet been fully reflected in P&L metrics and should progressively become visible. Of particular note, ERIC has achieved SKr6bn of its SKr10bn target (15k net employee reduction in 2H). We continue to see significant potential for self help actions to drive margin improvement on a long term view, specifically if the Wireless infrastructure market stabilises in coming periods. Moreover, we note that while the company has announced it is not divesting the whole Media business, it is deconsolidating the most heavily loss-making part. That said, we look for evidence of sustained operational execution and of this being clearly translated into P&L KPIs - not only driven by Services contract improvement, but as a result of turning around the Digital Services business. We would
become incrementally less positive on our view were these actions not to be forthcoming.
* The rebalancing of the oil market has likely been achieved, six months sooner than we had expected. The decline in excess inventories was fast-forwarded in late 2017 by stellar demand growth, high OPEC compliance, heavy maintenance
as well as collapsing Venezuela production.
* We expect many of these drivers to remain in place in 2018. The momentum of global growth and the rotation in its leadership to EM economies is leading us to raise our oil demand growth forecast even further above consensus expectations. In addition, we believe that the OPEC ramp-up in production will lag this normalization in inventories, requiring a shale supply response.
* As a result, we are raising our 3, 6 and 12-mo Brent oil price forecasts from $62.0/bbl to $75.0, $82.5 and $75.0/bbl, above current forwards. This forecast upgrade reflects a steeper level of backwardation - given a lower inventory path -as well as an expected increase in marginal costs - given higher activity levels and non-engineering cost inflation due to a weaker dollar and higher oil input prices.
* Greater backwardation will provide investors with even higher returns than implied by our price path and we forecast +24% petroleum total returns over the next 6 months. Inventories falling below average levels and the resulting greater
price impact of potential future disruptions will also lead to a rise in oil price volatility. While record high speculative positions may exacerbate this volatility, we find that these do not yet reflect the overweight allocation to commodities
that we recommend.
* Importantly, all the pillars of the New Oil Order remain intact in our view so this is a cyclical call. We expect that the shale response, OPEC’s eventual ramp-up and higher non-OPEC production will all bring prices lower sequentially with our 2020 Brent forecast at $60. The New Oil Order is on hiatus with its next point of reckoning likely a few years away.
BAML
3I - Blow out at 701p v BAML 695p for the FY so well ahead of cons (975)..+4-5%NEX - Has reaffirmed cost guidance, tax rate 22-24% is down from 27% (610)+3-4%
BBVA - Solid P&L in Q4 slightly offset by capital, divi and NAV/s miss (7.7)+2%
INDIVIOR - Tax rate for '18 onwards to be 'high teens' v 24.4% in 2016 (411)+2%
BT - Announcing 3m FTTP target up from 2m. This was already leaked info(260)+2%
DASSAULT SY - Q4 beat but mixed '18 guide, implies declining margin (94.7)..+2%
LUNDIN - Divi announcement; '18 US$175m (c2% yield); '19 US$350mn+ (199.2)+1-2%
RDSA - Clean NI $4.3b v $4.25b cons. DPS unchanged as was expected (2487)...+1%
UNILEVER - Org sales 4% v 3.7%,driven by better vols. Op margin inline(4040)+1%
ROCHE - EPS 1% miss, sales inline. EPS to grow broadly inline with sales(232)+1%
UNIBAIL - Earnings +7% inline & guidance for similar growth in FY18 (208.7).+1%
ICP - AUM bang inline with BAML ests. Reassuring. CMD is also today (1158)..u/c
VOD - Group headline, org service growth 1.1% inline cons. Guide reit'd(225)u/c
ORANGE - Will no longer be able to sell its subscribers access to TF1 (14.5)u/c
GLENCORE - Prodn looks broadly inline with copper a little better (403.7)...u/c
SKANSKA - EBIT SEK5.5b v pre-release SEK5.3b, EPS inline. Backlog down (160).u/c
JD SPORTS - Formally completed its acquisition of Sports Zone on 31 Jan(366)u/c
TF1 - Co says that it has ended its distribution accords with Orange (12)...u/c
ACACIA - More hedges in place to protect against downside in gold pxs (185).u/c
STM - Negative read across from Qualcomm (-1% a/hs) on weak guidance (19).-0.5%
MINERS - Copper -0.25%, Iron Ore fut -1% and BHP OZ +1.52%, RIO OZ +1.11%.-0.5%
DIALOG - Negative read from Qualcomm (-1% aft hrs) on weak guidance (24.4)-0.5%
SIG - Reports overstatement of profits in 2016; totalling £3.7m in '16 (161).-1%
DAIMLER - EBIT miss, 10% below cons. Trucks looks weaker than ests (73.7).-1-2%
NOKIA - Mixed. Q4 beat but IP licensing & networks gross margins weak (3.8).-3%
FERRAGAMO - Q4 sales -5.1% cFX, a miss v cons 0.2%, wholesale driven (21.9).-3%
NOVOS - Weak Q4 and disappointing outlook in DKK on 10% EBIT FX impact (317)-5%
CS
3I +1% 3Q NAV 701p, back in November this was 652pAIB -1% CS INITIATE with UNDERPERFORM (Valuation)
BBVA +1-2% 4Q net income EU70M est loss EU143.5M, Spain strong
Covestro +0.5% ICIS reports TDI plant in Geismar impacted by freeze damage
Daimler -2% Q4 revs inline but earnings light, Mercedes margin light
Dassault Sys +1% 4Q non-IFRS EPS EU0.89; est. EU0.82, guidance encouraging
DNB +2-3% Headline profit 27% better, capital 10bps better
Ferragamo -3-4% Retail LFL -3%, wholesale -10%
Glencore UNCH Production. Net neutral Copper beat CSe, Coal, Nickel miss
H&M UNCH CS DOWNGRADE to NEUTRAL (Challenging outlook)
ICP M/P AuM €27.4bn from €23.8bn in May, Q3 trading inline
Miners +0.5% Copper -0.30%, Brent +1.00%, Iron Ore -0.10%, China -1.00%
Nex Group +1-2% Tax rate down to 22-24% from 26-28%
Nokia -1% Q4 Adj EPS eu 0.13, est EU 0.11, betwork guidance ahead
Novo Nord -5% FY Sales DK112b est DK112.13b, guidance light
Outokumpu -1-2% CS DOWNGRADE to NEUTRAL (Cost pressures)
Ørsted +1-2% 2017 EBITDA inline, dividend ahead
Peugeot +1% French registrations up +2.5% y/y in Jan, Peugeot strong
PGS M/P Revs for Q4 $235.6m vs cons 212.8m, outlook inline
Qiagen +1-2% FY17 numbers in-line, bottom-line bit better
Roche +0.5% FY Core EPS CHF 15.34, EPS CHF 15.53, sales growth stable
Royal Dutch -1-2% Bottom line 5% ahead, cashflow weak
RPC UNCH H1 revs inline, tax rate better
Siltronic -3-5% Q4 sales €328m vs cons €325m, EBIT slightly light
SIG -7-10% Identified a historical overstatement of profit
Steels +1% US Steel strong overnight on earnings, Asia peers strong
Unibail M/P EPRA NAV of €211.0, up 2.3% in H2, guidance inline
Unilever +1% Underlying sales up 4% est 3.8%
Vodafone M/P Q3 Org serv rev growth +1.1% est +1.2% Re-affirms guidance
MainFirst
*ROCHE-FY EPS 15.34(15.53),Sales 53.3b(53.11),OP 19.01b(19.35)......-1%*NOKIA-Q4 Sales 6.7b(6.44),EPS 13c(11),Cuts FY N/Wrk mkt grwth......-2%
*SILTRONIC-FY Sales 1.18b(1.18),Ebit 236m(237.2),'18 Sales DD.......-7%
*BBVA-Q4 NI 70m(-143.5),NII 4.6B(4.36),CET1 11.1%,BLR 4.4%..........+1%
*DNB-Q4 NI 6.37b(5.12),CET1 16.4%,NII 8.86b(8.85),New B/Back........+1%
*DASSAULT SYS-EPS 2.68(2.61),Rev 3.24b(3.21),Q1 Rev 750-770m........+3%
*FERRAGAMO-FY Rev €1.39b(1.41),Sales Constant FX -1.4%(+0.2%).......-5%
*SKANSKA-FY Rev 160.8b(159.03),OP 5.5B(5.39),Divi 8.25).............+2%
*NOVO NORDISK-FY Ebit 49b(49.3),Sales 112b(112.13),Div 7.85.........-5%
*QIAGEN-Q4 EPS 43c(41),Sales 396.9m(1% beat),Buyback of $200m.......U/C
*DAIMLER-Q4 Ebit 3.47b(3.73),Rev 43.59b(43.47),Ebit flat YoY........-1%
*UNILEVER-Sales 4%(3.8),Vol 3.2%(1.6),Pricing 0.7%(2.2),H2 Prov.....-1%
*GURIT-FY17 Sales CHF361m(359),OP margin at upper end, FY 13/3.......+1%
Broker Changes
AIB Group Rated New Underperform at Credit Suisse; PT 4.60 Euros
Airbus Reinstated Overweight at Morgan Stanley; PT 115 Euros
ArcelorMittal Upgraded to Add at AlphaValue
BAE Reinstated Equal-weight at Morgan Stanley; PT 5.50 Pounds
BCP Downgraded to Underperform at BPI; PT 35 Cents
Burberry Rated New Hold at Jefferies; PT 16.50 Pounds
Capita Downgraded to Hold at Jefferies
Dechra Pharma Downgraded to Sector Perform at RBC; PT 24 Pounds
Freenet Downgraded to Sell at UBS; PT 27.50 Euros
Galp Downgraded to Sell at Goldman
H&M Downgraded to Neutral at Credit Suisse; PT 150 Kronor
Hamburger Hafen Raised to Hold at Kepler Cheuvreux; PT 24 Euros
IMCD Upgraded to Buy at ING
Imerys Upgraded to Add at AlphaValue
Inchcape Rated New Underweight at Barclays; PT 6.95 Pounds
Medistim Downgraded to Hold at DNB Markets; PT 76 Kroner
Meggitt Reinstated Equal-weight at Morgan Stanley; PT 5 Pounds
MTU Aero Rated New Underweight at Morgan Stanley; PT 140 Euros
NOS Downgraded to Underweight at Barclays; PT 6 Euros
Outokumpu Downgraded to Neutral at Credit Suisse; PT 7.50 Euros
Prosegur Cash Rated New Buy at Kepler Cheuvreux; PT 3.25 Euros
Prosegur Upgraded to Hold at Kepler Cheuvreux; PT 7.65 Euros
Rolls-Royce Reinstated Equal-weight at Morgan Stanley
Rosneft GDRs Downgraded to Hold at HSBC; Price Target $6.50
Safran Reinstated Equal-weight at Morgan Stanley; PT 98 Euros
Salvatore Ferragamo Downgraded to Underperform at Jefferies
Sartorius Stedim Upgraded to Add at Gilbert Dupont; PT 69 Euros
Statoil Upgraded to Neutral at Goldman
Straumann Downgraded to Sell at Berenberg
Subsea 7 Upgraded to Neutral at Goldman; PT 124.70 Kroner
TalkTalk Upgraded to Outperform at RBC; PT 1.50 Pounds
Unipol Cut to Hold at Kepler Cheuvreux; Price Target 4.60 Euros
Vivendi Downgraded to Hold at HSBC; Price Target 24 Euros
Yara Upgraded to Hold at Norne Securities; PT 380 Kroner
>>> Up
* ArcelorMittal Upgraded to Add at AlphaValue
* Baker Hughes Upgraded to Neutral at Goldman
* Data Respons Upgraded to Buy at Handelsbanken; PT 30 Kroner
* Hamburger Hafen Raised to Hold at Kepler Cheuvreux; PT 24 Euros
* Imerys Upgraded to Add at AlphaValue
* Outokumpu Raised to Buy at DNB Markets; Price Target 7.70 Euros
* Prosegur Upgraded to Hold at Kepler Cheuvreux; PT 7.65 Euros
* Sartorius Upgraded to Buy at Bankhaus Metzler; PT 110 Euros
* Sartorius Stedim Upgraded to Add at Gilbert Dupont; PT 69 Euros
* Statoil Upgraded to Neutral at Goldman
* Subsea 7 Upgraded to Neutral at Goldman; PT 124.70 Kroner
* TalkTalk Upgraded to Outperform at RBC; PT 1.50 Pounds
* Wartsila Upgraded to Buy at Pareto Securities; PT 62 Euros
* Yara Upgraded to Hold at Norne Securities; PT 380 Kroner
>>> Down
* BCP Downgraded to Underperform at BPI; PT 35 Cents
* DIA Downgraded to Sell at Mirabaud Securities; PT 4.44 Euros
* Burberry Rated New Hold at Jefferies; PT 16.50 Pounds
* Freenet Downgraded to Sell at UBS; PT 27.50 Euros
* Galp Downgraded to Sell at Goldman
* H&M Downgraded to Neutral at Credit Suisse; PT 150 Kronor
* Mondelez Cut to Equal-weight at Consumer Edge Research; PT $48
* NOS Downgraded to Underweight at Barclays; PT 6 Euros
* Outokumpu Downgraded to Neutral at Credit Suisse; PT 7.50 Euros
* Salvatore Ferragamo Downgraded to Underperform at Raymond James
* Straumann Downgraded to Sell at Berenberg
* Unipol Cut to Hold at Kepler Cheuvreux; Price Target 4.60 Euros
* Vivendi Downgraded to Hold at HSBC; Price Target 24 Euros
>>> Initiation
* Airbus Reinstated Overweight at Morgan Stanley; PT 115 Euros
* AIB Group Rated New Underperform at Credit Suisse; PT 4.60 Euros
* BAE Reinstated Equal-weight at Morgan Stanley; PT 5.50 Pounds
* Medistim Downgraded to Hold at DNB Markets; PT 76 Kroner
* Meggitt Reinstated Equal-weight at Morgan Stanley; PT 5 Pounds
* MTU Aero Rated New Underweight at Morgan Stanley; PT 140 Euros
* Prosegur Cash Rated New Buy at Kepler Cheuvreux; PT 3.25 Euros
* Rolls-Royce Reinstated Equal-weight at Morgan Stanley
* Safran Reinstated Equal-weight at Morgan Stanley; PT 98 Euros
>>> Call
>> Stock
* *NVIDIA REMOVED FROM CONVICTION LIST AT GOLDMAN, REMAINS BUY
Asia Market Update: Markets mixed after Fed holds rates, Aussie Dec building approvals sharply decline
***Headlines/Economic Data***
General Trend:
- Fairly quiet Asian trading session for the FX majors post FOMC statement
- Markets looking ahead to Apple’s earnings release on Thursday
Japan
-Nikkei 225 opened +0.8%; closed +1.7%
TOPIX Iron & Steel Index gains over 2%, Securities higher by more than 1.5%
- Mega-banks gain after reporting 9-month results and affirming outlooks: Sumitomo Mitsui higher by over 3%, Mizuho Financial gains more than 2%
- Fujifilm [4901.JP]: Gains over 12% after confirming merger with Xerox
- Fujitsu [6702.JP]: Declines over 9% as 9-month Op profit declined y/y
- Nippon Steel [5401.JP]: Reports 9M Net ¥156.1B v ¥59.4B y/y; Op ¥138.0B v ¥62.2B y/y; Rev ¥4.16T v ¥3.33T y/y; Raises guidance for FY17/18 Net ¥180B v ¥170B prior
- (JP) Japan Jan Final Manufacturing PMI: 54.8 v 54.4 prelim (highest since Feb 2014)
-(JP) Japan MoF sells ¥2.3T v ¥2.3T indicated in 0.1% (prior 0.1%) 10-yr JGB; avg yield 0.088% v 0.078% prior; bid to cover 4.58x v 3.74x prior
Korea
-Kospi opened +0.5%
- Celltrion [068270.KR]: Declines over 2% after receiving US FDA warning letter
- (KR) SOUTH KOREA JAN CPI M/M: 0.4% V 0.7%E; Y/Y: 1.0% V 1.3%E, CPI Core Y/Y: 1.1% v 1.5%e
-(KR) SOUTH KOREA JAN TRADE BALANCE: $3.72B V $4.0BE
(KR) South Korea Major department stores have put a large number of delivery workers on standby for the Lunar New Year holiday, expecting stronger sales after adjustments to an anti-corruption law - Korean press
China/Hong Kong
-Hang Seng opened +0.2%, Shanghai Composite -0.1%
- Hang Seng Services Index -1.2%, Consumer Goods -0.8%
- ZTE Corp [0763.HK]: Has dropped over 9% after announcing planned share sale
- Lenovo, 992.HK Reports Q3 Net loss $288.8M v profit $125Me; Rev $12.9B v $12.5Be
-(HK) Macau Jan Gaming Rev MOP26.3B, +36.4% v 27%e (largest gain since 2014)
- USD/CNY (CN) PBOC SETS YUAN REFERENCE RATE AT 6.3045 v 6.3339 PRIOR
- (CN) China PBoC: Skips OMO (6th straight session) v skipped prior
- USD/CNY (CN) PBOC SETS YUAN REFERENCE RATE AT 6.3045 v 6.3339 PRIOR
- (CN) CHINA JAN CAIXIN MANUFACTURING PMI: 51.5 V 51.5 PRIOR
- (CN) China Commerce Ministry (MOFCOM): Reiterates hopes US does not politicize trade issues, still views US as 'partner' in trade
(CN) China 2017 gold consumption 1,089 tonnes, +9.4% y/y; production 426.1 tonnes, -6.0% y/y
-
Australia/New Zealand
-ASX 200 opened +0.5%; closed %
- ASX 200 Consumer Discretionary Index +1.4%, Financials +1.1% Resources +1.1%, Energy +1.2%, Utilities +0.9%
- (AU) Australia Treasurer Morrison: To tighten rules for key energy infrastructure and farmland M&A
- (AU) AUSTRALIA DEC BUILDING APPROVALS M/M: -20.0% V -7.6%E; Y/Y: -5.5% V 11.5%E
- (AU) AUSTRALIA Q4 EXPORT PRICE INDEX Q/Q: 2.8% V 2.0%E; IMPORT PRICE INDEX Q/Q: 2.0% V 1.5%E
Other Asia
- (TW) Taiwan names current Deputy Gov Yang Chin-Long as new Central Bank Gov [**Note: Current Gov Perng has been Gov of the central bank since Feb 1998]
-(ID) Indonesia Jan CPI m/m: 0.6% v 0.7%e; y/y: 3.3% v 3.3%e; Core y/y: 2.7% v 2.8%e (core CPI at multi-year low)
North America
- US equity markets ended mostly higher: Dow +0.3%, S&P500 +0.1%, Nasdaq +0.1%, Russell 2000 -0.5%
- S&P500 Real Estate sector +2.1%, Utilities +1.1%
- PayPal [PYPL] declines over 11% in the afterhours: eBay said that Adyen will become its primary payments processing partner, replacing PayPal (timing uncertain)
- eBay [EBAY]: Gains more than 8% in afterhours: Q4 $0.59 v $0.59e, Rev $2.60B v $2.61Be; Guides Q1 $0.52-0.54 v $0.51e; Rev $2.57-2.61B v $2.39Be
- AT&T [T]: Higher by over 2.5% in the afterhours: Reports Q4 $0.78 adj v $0.66e, Rev $42B v $41.2Be; Guides initial FY18 $3.50 v $3.08e,
- US Steel [X]: Gains over 2% in the afterhours: Reports Q4 $0.76 v $0.68e, Rev $3.13B v $3.07Be; Guides initial FY18 ~$3.88 v $3.28e
- (US) FOMC HOLDS TARGET RATE RANGE AT 1.25-1.50% (AS EXPECTED); Vote was unanimous; Inflation to rise this year, stabilize around 2% in medium term
- (US) Former Fed Chair Greenspan: We have stock market and bond market bubbles - TV interview
- (US) DOE CRUDE: +6.8M V +2ME
Looking Ahead: Apple due to report quarterly results after the US equity close on Thursday; US Jan ISM Manufacturing PMI due for release
Europe
- (UK) China Commerce Ministry: To sign £9B worth of deals with the UK when PMc May visits China
- (EU) EU said to be considering a tax blacklist on UK post Brexit
- (EU) ECB’s Coeure (France): Currency war is always a losing proposition - press interview
- (EU) European Banking Authority (EBA) released macroeconomic scenarios related to 2018 EU-wide stress test; The adverse scenario encompasses a wide range of macroeconomic risks that could be associated with Brexit.
- (IT) Forza Italia party denies reports about Berlusconi's ill health; A report earlier this week said Berlusconi, age 81, was ordered by his doctor to stop campaigning and rest for at least 48 hours.
***Levels as of 01:00ET***
- Nikkei225 +1.7%, Hang Seng -0.3%; Shanghai Composite -1.1%; ASX200 +0.9%, Kospi +0.3%
- Equity Futures: S&P500 +0.3%; Nasdaq100 +0.3%, Dax +0.3%; FTSE100 +0.3%
- EUR 1.2429-1.2406; JPY 109.41-109.09; AUD 0.8063-0.8035;NZD 0.7381-0.7352
- Apr Gold +0.4% at $1,347/oz; Mar Crude Oil +0.3% at $64.89/brl; Mar Copper +0.1% at $3.20/lb