TheChek News Flow

Output from Opec countries accelerated last month as Nigeria and Libya offset cuts from their peers in the cartel.

The two countries have been exempt from the supply curb deal agreed among big producer countries, that started in January and which was extended in May for a further nine months.

The data in Opec’s monthly oil market report illustrates the latest challenge facing the group, which is already grappling with a renewed price drop and a reinvigorated US shale industry.

Although output in both Nigeria and Libya remains volatile due to political instability and violence, their combined production increased by more than 350,000 b/d last month, according to data from consultants and analysts submitted to Opec’s research arm.

That amount is equal to more than a quarter of the supply curbs Opec has implemented since the start of the year.

Libya and Nigeria contributed to a rise in Opec’s total production to 32.1m b/d from the prior month’s 31.8m b/d, according to the group’s monthly oil market report.

The level is still lower than the more than 33m b/d the group averaged in the last three months of 2016, before a cuts deal was agreed between Opec and producers such as Russia.

Although Brent crude prices reached nearly $60 a barrel at the start of the year, when output curbs came into effect, they have since fallen.Prices are languishing below $50 a barrel as production from US shale oil fields has also risen.

Separate data from Opec’s research arm published on Tuesday showed the average price of an Opec barrel was $40.76 in 2016, down from $49.49 in 2015.

The annual statistical bulletin showed the value of members’ petroleum exports stood at $446m in 2016 – a fall of 53 per cent since 2014 levels, when the crude market downturn got underway.

We are downgrading Apple to Neutral from Buy while adjusting our PT to $150 from $160. The stock has meaningfully outperformed on a YTD basis and we believe enthusiasm around the upcoming product cycle is fully captured at current levels, with limited upside to estimates from here on out. Our sensitivity work indicates bull case EPS of around $11 which, along with a cycle-peak multiple, indicates limited upside to the stock. Our LTVC work suggests more muted gains as well. As such, we move to the sidelines despite our expectations of a strong iPhone 8 cycle.

Still expect strong iPhone 8 cycle. We concur that the upcoming product cycle is likely to drive a strong holiday season following into early next year; however, we believe strength is anticipated and see very limited upside to estimates from here. A few things make us cautious on consensus FY18 numbers: 1) potential pull-in of demand creating tough comps in the following year; 2) growth driven primarily by replacements vs. net new customers, limiting expansion of installed base; 3) initial supply constraints due to complexities around product ramp; 4) potentially higher ASPs for high-end SKU driving demand elasticity; 5) risk to out-year gross margins.

Sensitivity analysis and supply chain checks indicate limited upside to FY18. Current consensus for iPhone shipments, iPhone ASP, consolidated margins and EPS are at 242mm (up 12% Y/Y), $680 (up 3%), ~27% and $10.43, respectively. We think consensus expectations for FY18 do not leave much room for upside, rather, based on our current checks, we see potential downside risk to current forecasts. Our most bullish case yields earnings of about $11 for FY18, which is only ~$0.50 above consensus.

Other areas' contribution unlikely to drive significant growth uptick. China is likely to remain weak in the n-t. We find that recent developments in India are a step in the right direction; however, affordability continues to be constrained

limiting n-t contribution from the country. On services, while we acknowledge the company's intent to double the line-item by 2020, we believe ongoing penetration of developing countries (where attach is lower) could weigh on meaningful expansion from current levels. Additionally, consensus is expecting 30% growth in services revenue/user over the next 2 years, which seems high.

Downgrading to Neutral from Buy; adjusting PT to $150 from $160. At 15x and 11x NTM EPS and FCF, the stock is trading near the upper-end of its recent valuation range and we believe it is tough to expect the multiple to expand. With

limited upside to EPS or FCF estimates, we think the stock is fully valued.

Dutch brewing giant Heineken has been given until June 20 to address competition concerns in 33 UK areas before approval is given for its £400m takeover of of the pubs company Punch Taverns.

The UK’s Competition and Markets Authority on Tuesday said the Dutch brewer must “offer proposals to address these concerns by 20 June or face an in-depth investigation into the merger”.

Andrea Coscelli, CMA acting chief executive and decision-maker in the case, said:

We have listened very carefully to a range of concerns about this merger. The companies will own less than 10 per cent of all British pubs after any deal, but we are concerned about the loss of competition for pub goers in a number of local areas. Without sufficient competition from rivals, pubs in these areas might be able to raise prices or worsen the service they offer customers.

She said: “Heineken will now have the chance to offer proposals to address these concerns – otherwise we will carry out an in-depth investigation.”

In response, both Heineken and Punch said they were confident they could allay concerns.

The planned £400m cash deal was approved by Punch shareholders in February. Under the plan, the Dutch brewing company, the world’s second-largest after Anheuser-Busch InBev, would acquire 1,900 of Punch’s 3,350 pubs and become the number three pub company in the UK after Greene King and Enterprise Inns. The remaining Punch pubs would be bought by Heineken’s partner in the deal, Patron Capital, a property investment fund.

In its announcement on Tuesday, the CMA said it had also considered the impact the deal would have on brewers that compete with Heineken but concluded that the pubs acquired would only represent around 4 per cent of the British market and “are therefore not a major route to market for brewers”.

On the issue of whether choice on offer to drinkers would suffer, the CMA also dismissed concerns pointing out Heineken would not have a strong incentive to reduce the range of beers and cider “in part because doing so would risk losing business in pubs where this is important to customers.”