*EU ‘NOT DONE’ WITH TAX PROBES, IS WEIGHING NEW INFORMATION
*MCDONALD'S MAY BE NEXT ON EU TAX MENU AS PROBE SAID TO WRAP UP
Japan PM Abe's advisor Nakahara: BOJ should make a clean break from its current policy approach after Gov Kuroda’s term ends next spring
- Kuroda’s successor should announce a “second phase” of the BOJ’s quantitative-easing program that scraps attempts to control government-bond yields and cuts purchases of Japanese government debt by at least half
Earnings Momentum Strategies Dominate in Europe…
With >50% of European stocks seeing positive earnings revisions YTD, we review the efficacy of investing in consensus earnings momentum (EM) strategies relative to price momentum (PM) strategies. We adapt a method
employed by Chordia and Shivakumar (2006) to show that in Europe over the past decade, the excess returns generated by PM strategies are subsumed by earnings momentum. The reverse is not true. Effectively
therefore, “an investor who wants to trade momentum would lose nothing by completely ignoring price momentum” (Novy-Marx, 2015).
…But Be Aware of Embedded Sector Tilts
There are clear sector biases in an unconstrained earnings revisions strategy. At its most extreme, we observe that up to 60% of the long leg of the 1m FY2 earnings revisions strategy has been comprised of just three sectors. We find that both GS’ Eurozone Current Activity Indicator & the performance of GS Commodity index are strong lead indicators for sector skews in our preferred EM strategy (based on 1m FY2 consensus revisions).
Boosting Price Momentum Performance using Earnings Revisions
Over the past decade, buying stocks that combine strong 12m-1m price momentum (our preferred PM strategy) and strong 1m FY2 consensus earnings revisions has delivered higher annualized returns than a 12m-1m PM strategy. We find that the information ratio of the PM strategy is also boosted by adding a 1m FY2 revisions overlay, albeit with higher turnover.
Akzo Nobel raised to buy vs hold, PT EU84 vs EU77 at ABN Amro as brokerage sees value in the shares whether co. is acquired or stays alone.
- Brokerage says PPG’s offer of EU90/share undervalues Akzo; expects PPG will remain friendly and raise its offer
- PPG could pay EU100/share, which would increase the multiple to 9.2x, a very attractive multiple for PPG shareholders
- Management under pressure to create value for investors; ABN Amro expects cost savings program of at least EU200m
- Estimates proceeds of EU8.5b from pending separation of Specialty Chemicals, could be used for acquisitions in Coatings
- ABN Amro also raises Solvay to hold vs sell, PT EU115 vs EU110
- Expects co. will increase its exposure to specialty chemicals; M&A strategy not creating value yet
- Says favors Akzo Nobel, DSM, Tessenderlo, Umicore among chemicals; has neutral view on BASF, Brenntag, IMCD, Solvay
CJ Group hires Deutsche Bank for The Body Shop bid; LG H&G not interested
03 APR 2017
CJ Group, a South Korea-based conglomerate, has hired Deutsche Bank to prepare a potential bid for The Body Shop, UK-based cosmetic business of French beauty major L’Oreal [EPA:OR], two sources briefed on the matter said.
The news service had earlier reported that the CJ Group was seeking proposals in early March to hire financial advisors for The Body Shop bid.
While CJ Corp [KRX:001040], which supervises the core M&A of the group as a holding company, is likely to lead the deal, the specific bidding entity may be finalized at a later stage, one of the sources said.
The news service had earlier reported that the CJ Group was seeking proposals in early March to hire financial advisors for The Body Shop bid.
While CJ Corp [KRX:001040], which supervises the core M&A of the group as a holding company, is likely to lead the deal, the specific bidding entity may be finalized at a later stage, one of the sources said.
The Body Shop could fit with CJ’s retail operations, pointing to CJ Olive Young, which distributes beauty, personal care, and a wide range of lifestyle products and operates more than 500 stores in South Korea and five stores in China as of 2016, as reported by this news service. CJ Corp owns a 100% stake in CJ Olive Young.
CJ Corp had cash and cash equivalents of KRW 1.17tn (USD 1.1bn) in 2016.
CJ declined to comment. Deutsche Bank declined to comment.
Separately, LG Household & Healthcare (LG H&H) [KRX: 051900], is not interested in acquiring The Body Shop, a company spokesperson told this news service.
The company was reviewing the target, but did not find the target a strategic fit, two sector advisors said. It also prefers a smaller deal size.
LG H&H was mentioned as a potential buyer of The Body Shop in local media reports in February.
Separately, LG Household & Healthcare (LG H&H) [KRX: 051900], is not interested in acquiring The Body Shop, a company spokesperson told this news service.
The company was reviewing the target, but did not find the target a strategic fit, two sector advisors said. It also prefers a smaller deal size.
LG H&H was mentioned as a potential buyer of The Body Shop in local media reports in February.
L’Oreal hired Lazard as it financial advisor. Indicative bids are around mid-April.
The Body Shop has drawn several financial investors including Bain Capital, Advent International, Clayton Dubilier & Rice (CD&R) and KKR [NYSE:KKR]. Apax, Carlyle [NASDAQ:CG], CVC Capital Partners, BC Partners, PAI Partners and American retail store operator Bed Bath & Beyond also have been mentioned as potential buyers.
L’Oreal expects EUR 1bn (USD 753m) for the deal, but its potential bidders value the deal approximately EUR 700m given the potential turnaround work required, as reported.
The Body Shop has drawn several financial investors including Bain Capital, Advent International, Clayton Dubilier & Rice (CD&R) and KKR [NYSE:KKR]. Apax, Carlyle [NASDAQ:CG], CVC Capital Partners, BC Partners, PAI Partners and American retail store operator Bed Bath & Beyond also have been mentioned as potential buyers.
L’Oreal expects EUR 1bn (USD 753m) for the deal, but its potential bidders value the deal approximately EUR 700m given the potential turnaround work required, as reported.
L’Oreal acquired The Body Shop for EUR 941.9m in March 2006.
Fidelity joins ETF rush with launch of two products
New exchange traded funds will invest in companies that pay attractive dividends
Fidelity International will become the latest investment manager to try to break into the rapidly growing exchange traded funds industry with the launch of two income-focused ETFs today.
Fidelity already offers a range of 14 index-tracking mutual funds but the launch this week marks the ETF debut of the £224bn UK asset manager.
The two new ETFs have been designed as “quality income” funds that will invest in US and global companies with stable earnings and cash flows that also pay attractive dividends. Both ETFs will track proprietary Fidelity-branded indices instead of benchmarks created by established index providers such as S&P Dow Jones Indices or MSCI.
Nick King, head of ETFs, said this approach would allow Fidelity to use its active investment expertise to offer “something innovative” to investors looking for an income stream.
Mr King said Fidelity also planned to launch more “smart-beta” ETFs over the next 18 months, as it believed there was “significant scope” for growth for strategies that combine active and passive investment management techniques.
“Demand for smart-beta strategies such as quality income has been growing in recent years and is expected to accelerate as investors look for competitively priced products that provide a particular investment outcome,” said Mr King, who was hired from BlackRock in 2015 to build an ETF team for Fidelity.
Investors globally ploughed a record $57bn in new cash into smart-beta ETFs in 2016, according to ETFGI, a London based consultancy. Record investor inflows have led to a rush by asset managers to offer products. Around 230 smart-beta ETFs were launched last year, leading to downward pressure on fees.
Inigo Fraser-Jenkins, a strategist at Bernstein Research, the brokerage, said that smart beta had become one of the most popular investment searches on Investopedia and Google, the websites.
“The reason why smart-beta ETFs are growing in popularity so fast is not because they are revolutionary in some way but because they are cheap,” said Mr Fraser-Jenkins.
He added that the cheapest smart-beta ETFs were attracting the highest inflows and that fees would continue to decline in 2017.
The Fidelity US Quality Income ETF will carry an annual fund charge of 30 basis points, while the Global Quality Income ETF has been priced at 40bp. Both funds will start trading on the London Stock Exchange and Deutsche Börse today.
RWE and CEZ worst prepared for move to low-carbon economy
Research warns big fossil fuel dependent utilities at risk of profit losses
RWE and CEZ are the worst prepared of Europe’s large utility companies for a shift to a greener economy, according to a ranking compiled for Norway’s $920bn oil fund and other big investors.
The research, used by investors with $100tn in collective assets under management, warned that many of Europe’s publicly listed utilities companies are heavily dependent on fossil fuels, putting them at risk of profit losses as governments worldwide look to tackle climate change.
RWE and Czech group CEZ, along with Germany’s EnBW and Spain’s Endesa, sit at the bottom of the ranking examining how ready 14 of Europe’s large utilities companies are for a transition to a low-carbon economy and a future in which natural resources such as water become increasingly scarce.
Almost 200 countries globally have agreed to limit global warming to less than 2 degrees centigrade a year as part of the 2015 Paris Agreement on climate.
Rick Stathers, head of investor initiatives at the Carbon Disclosure Project, the non-profit organisation that carried out the research, said: “We are still a long way off having a utilities sector that will meet the goal of a 2-degree future.”
According to CDP, the utilities industry is responsible for a quarter of global carbon emissions and must reduce these by more than two-thirds by 2030 to meet the goals of the Paris Agreement.
Almost half of Europe’s big utilities generate at least 20 per cent of their energy from coal, which is a significant source of carbon emissions.
Pelle Pedersen, head of responsible investments at PKA, the pension fund managing €33.6bn for 275,000 Danes, said: “It is difficult to argue why these [European utilities] companies should not pursue a sustainable business plan.
“The question for all of us should be: what is going to work? And using unrenewable resources is of course not going to work in the long term.”
There are concerns that as governments introduce policies to combat climate change, some businesses — particularly those that depend on fossil fuels, such as coal — could become stranded or suffer big losses.
Big investors, including PKA, Nordea Asset Management, the Nordic fund house, and Norway’s oil fund, the world’s largest sovereign wealth fund, have already made steps to divest from companies that generate large chunks of their revenue from fossil fuels such as coal.
Ben Caldecott, director of the sustainable finance programme at the University of Oxford, said: “Investors are increasingly developing capabilities to differentiate between utilities more or less exposed to environmental risks. Utilities heavily exposed to coal are particularly at risk.”
The Austrian company Verbund, Spain’s Iberdrola and Finland’s Fortum ranked among the best prepared for a low-carbon economy in the CDP list.
Verbund is aiming to generate 100 per cent of its energy through renewables by 2020 and is in the process of decommissioning remaining fossil fuel assets.
But RWE, which suffered losses of €5.7bn in 2016 and scrapped its dividend for the second consecutive year, is reliant on coal for more than 50 per cent of its power generation, the CDP report said.
RWE said the company had “a clear commitment to support the national and European climate protection goals for 2050”.
“RWE will also continue to make further efforts to reduce CO2 significantly.”
EnBW said it was “fully committed to the Paris climate agreement and we are committed to contribute our share to its implementation”.
CEZ and Endesa did not respond to a request for comment.
>>> Up
*Norsk Hydro Raised to Hold at DNB Markets, PT NOK50
>>> Down
*Balder Cut to Sell at DNB Markets, PT SEK175
*Castellum Cut to Sell at DNB Markets, PT SEK110
*ElringKlinger Cut to Neutral at Macquarie, PT EU19
*Fabege Cut to Sell at DNB Markets, PT SEK130
*Hufvudstaden Cut to Sell at DNB Markets, PT SEK120
*Klovern Cut to Hold at DNB Markets, PT SEK9
*Kuka Cut to Reduce at HSBC, PT EU78
*Kungsleden Cut to Hold at DNB Markets, PT SEK56
*Wihlborgs Cut to Hold at DNB Markets, PT SEK175
>>> Initiation
*Atea New Buy at SpareBank, PT NOK110
>>> Call