TheChek News Flow

French Telco Deals Not Close, Macron May Help in Italy: Analysts

This morning, we increase the weight of the European banking sector from N to OW. Persistent signs of a better economic activity in Europe, the likely forthcoming increase of inflation expectations and the removal of the French electoral roadblock should all lead to an increase in LT bond yields and a corresponding outperformance of banks’ stocks. Our

increased coverage (Spain and Germany) enables us to widen our Most/Least Preferred Stocks to four names each and we point at the spectacular recovery of the lists’ performance since we downgraded the sector (-1.6% YTD vs. -9% in February). In light of our new OW rating, we reintroduce France into the Long list (with Société Générale (Buy, TP EUR53.6) replacing Santander) and we increase the weight of Italy: Anima (Buy, TP EUR6.8) is the newcomer and joins UBI (Buy, TP EUR4.3). On the short side, no change to existing names: we add newcomer Mediobanca (Hold, TP EUR8.0) as a hedge against Anima and UBI.

We discuss: 1) the second leg of the asset rotation following the period of consolidation that led to our downgrade of the sector in February; 2) the perceived geographic shift of the so-called “reflation trade” from the US to Europe; and 3) the removal of the French election roadblock.

We believe it makes sense to reintroduce France (via SocGen) into our Most Preferred Stocks at the expense of Santander (global growth proxy).On top of UBI, we also add Anima, in our view an underrated consolidator within the asset management industry. We keep Credit Suisse (Buy, TP CHF18.0). Our Most Preferred Stocks strikes us a satisfactory mix between periphery exposure, good quality, restructuring and attractive valuation, in our view. On the short side, we remain happy with Julius Baer (Reduce, TP CHF45.00), Popular (Reduce, TP EUR0.40) and RBI (Hold, TP EUR18.5). We introduce Mediobanca (Hold, TP EUR8) into our Least Preferred Stocks as a hedge against our two Italian Longs.

Our OW call on banks is fully consistent with the top-down investment narrative that we have developed since H2 2016. It is nonetheless slightly less straightforward than it was then, as: 1) the valuation of the sector is slightly less attractive (0.9x PTBV, 10x P/E); 2) the increase in LT interest rates remains a cornerstone of our positive view, but its impact on earnings could be back-ended to 2019E; and 3) the Q1 earnings season could be mixed, raising questions about its ability to fuel further EPS increases.

The company is set to cut more than 100 jobs at a North Carolina distribution center.

Ralph Lauren’s restructuring plan is moving full steam ahead as the company is set to cut more than 100 positions from a distribution center in North Carolina.

The distribution center is based in Greensboro, and while a company spokeswoman declined to specify what positions were being cut, she said “North Carolina remains a critically important hub for our business.”

While the number of positions being cut is understood to be around 107, the layoffs do not constitute additional cuts for Ralph Lauren but are part of a recent decision to shutter its New York Polo flagship and move to a new e-commerce platform.

That disclosure was characterized as part of a broader restructuring effort, referred to by the company as the “Way Forward Plan,” as are the layoffs at the distribution center.

“We are continuing to deliver on the Way Forward Plan to return the company to sustainable, profitable growth,” the spokeswoman said. “As part of this, we have conducted a comprehensive assessment of all areas of our business and will reduce headcount in select areas.”

The retail side of the business is also headed for a sizable reduction in staff. In addition to the New York flagship closure, the company previously said it’s planning to close 50 stores during this fiscal year, in addition to the 43 stores closed during fiscal 2016.

While the previously announced store closures are expected to see Ralph Lauren saving $70 million in costs per year, the flagship closure and the e-commerce move is set to save $140 million per year.

Rent alone at the 38,000-square-foot flagship located on a prestigious strip of New York’s Fifth Avenue cost Ralph Lauren $25 million per year, according to sources.

The company has been in cost-cutting mode since last year, when its now former chief executive officer Stefan Larsson revealed the Way Forward Plan, which is set to reshape the company throughout this year and the next, and bring Ralph Lauren back to profitability over 2019 and 2020.

WWD has learned that Paolo Bulgari, the great-grandson of luxury jeweler Sotirios Bulgari, who founded the eponymous brand, has reserved one of three penthouses at 75 Kenmare in NoLIta.

The family’s controlling stake in the luxury jewelry brand was bought by LVMH Moët Hennessy Louis Vuitton in 2011 and, according to Forbes, the 79-year-old businessman, who is Bulgari’s chairman, has an estimated $1.43 billion fortune.

His neighbor at 75 Kenmare will be fellow Italian billionaire businessman Pier Luigi Loro Piana, a source told WWD. He is the grandson of Franco Loro Piana, who founded the Loro Piana fashion line (in which LVMH also owns a controlling stake) and serves as its deputy chairman.

Both penthouses are thought to be worth in the region of $10 million, but will not be ready for the businessmen to use until the Andre Kikoski-designed building is completed in late 2018.

All of the interiors of 75 Kenmare have been designed by Kravitz Design, rock-star-turned-interior-decorator Lenny Kravitz’s firm.

Apartment sizes at the 38-unit-condominium range from one to four bedrooms, while prices vary from about $1.7 million to more than $12 million. Amenities include a 24-hour concierge, automated parking, a fully equipped gym, a rooftop terrace and a private courtyard.

Douglas Elliman’s Fredrik Eklund of Bravo’s “Million Dollar Listing New York” fame is handling sales at the building. At the time of the launch, he said NoHo and NoLIta are the Manhattan neighborhoods where residential property prices have appreciated the most over the past several years and this is where everyone wants to be.

A spokeswoman for Loro Piana declined to comment, while a spokeswoman for Bulgari did not respond immediately to request for comment.

The firm said it has discussed the strategic review process with its majority shareholder, JAB Luxury which has confirmed it is supportive of the process.

It said Britain's Takeover Panel has agreed that any talks with third parties may be conducted within the context of a “formal sale process” to enable conversations with parties interested in making a proposal to take place on a confidential basis.

Jimmy Choo said it is currently not in receipt of any approaches.

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