TheChek News Flow

PMI report shows fastest growth since July 2015 but input costs rising

The brick-and-mortar shop will be located inside The Shops at Columbus Circle.

Amazon’s push into physical retail is hitting New York City this year.

The mammoth online retailer is opening a brick-and-mortar bookstore inside Manhattan’s Time Warner Center at some point in 2017, a spokesperson said. The store will join retailers such as J. Crew, Diesel and Microsoft inside the Shops at Columbus Circle, an indoor mall that also features high-end restaurants. Defunct bookstore chain Borders once operated a location in the same mall.

The Amazon shop is among the company’s first handful of physical bookstores and its only one to date in New York. Amazon opened its first “Amazon Books” location in late 2015 in Seattle and has since opened two more on the West Coast. Amazon also plans to open bookstores in Chicago and the Boston area this year.

Amazon’s existing bookstores feature a curated selection of Amazon best-sellers and books that, for the most part, have customer ratings of at least four out of five stars. Perhaps more importantly, the bookstores also showcase Amazon’s gadgets, giving shoppers the chance to try out devices such as the popular Echo voice-controlled speakers before buying them.

To some bookstore owners and the people who love them, the Amazon initiative must seem like some cruel joke — Amazon, the bookstore slayer transformed into Amazon, the bookstore owner.

But Amazon’s appetite for retail experimentation extends beyond Amazon Books shops. Amazon recently unveiled a Seattle convenience store, called Amazon Go, with no checkout and no cashiers. The company is only planning at least one grocery store.

The new retail projects are being overseen by Steve Kessel, a longtime Amazonian who led the first Kindle team and is tight with CEO Jeff Bezos. The head of Amazon Books, Jennifer Cast, reports to Kessel.

The Wall Street Journal first reported the news of Amazon’s New York bookstore plans.

We see CGG's trading update as a modest negative. The company highlighted that it 'intends to commence discussions'

with its stakeholders to restructure, but we would have expected these talks to have begun already after the

comments in November.

Restructuring discussions about to commence: CGG said that it intends to start discussions with all of its stakeholders to restructure. The company said in November that it would address its capital structure in January 2017, thus we

would have expected discussions to have started already. See our 4Q results note Further Changes to Capital Structure Signaled. Stay UW for more details.

Net debt in line and covenant waiver: End-2016 net debt of $2.3bn is broadly in line with consensus at $2.2bn for year end and is in line with guidance of net debt <$2.4bn. CGG has been given a covenant waiver relating to its leverage ratio and coverage ratio.

Multi-client sales light: Muti-client sales of $135m are below MSe of $153m for 4Q, due to lower late sales. Pre-funding in 4Q was in line with guidance of >80% for the full year.

Stay Underweight: We stay Underweight CGG, and would highlight that it is highly financially geared, with equity making up only 12% of the enterprise value. Thus, there is a large range of future outcomes for the stock price.

This follows a similar ruling by a UK employment tribunal in October which found that the two Uber drivers bringing the claim were employees, not contractors.

Swiss broadcaster SRF says the Suva agency made its decision on the status of Uber drivers in the market on account of their inability to set price or payment type, and because they are threatened with consequences from Uber if they do not fulfill its requirements.

The Suva described its decision on the classification as a “clear conclusion”. The public sector insurer is involved in determining whether workers are freelance or not as a provider of compulsory on-the-job accident insurance which is required for certain high risk professions.

At the time of writing Uber had not responded to a request for comment but the company’s general manager in the market, Rasoul Jalali, told SRF it intends to appeal. “In Switzerland, courts still have to decide the ultimate verdict,” he said.

Uber’s appeal process might be superseded by the country’s Federal Council which, according to the SRF, is due to submit a report on digital services soon that’s set to make it clear whether new rules will be created for technology service providers.

Uber is also appealing the UK tribunal ruling — despite the latter dubbing its characterization of the relationship between it and its drivers as “a pure fiction”. That ruling sets a precedent for other Uber drivers in the UK to bring employment classification challenges against the ride-hailing platform giant.

As well as various challenges at the national level, Uber is also defending its business model in front of Europe’s top court, the ECJ, which is also set to rule this year on whether the tech giant is a transportation service or a digital platform. The case was referred to the court after a legal challenge in Spain.

Any ruling by the ECJ which deems Uber a transportation provider would have huge ramifications for its business across the region as it would be required to comply with national regulations of the 28 EU Member States.

Persimmon reports strong housing demand post Brexit vote

UK housebuilder says forward sales are 12 per cent ahead of last year

Persimmon, the UK’s second-largest housebuilder, on Thursday reported an 8 per cent boost to revenues during 2016 as demand for newly built homes strengthened in the wake of the vote to leave the EU.

In a trading update, the group said revenues for the year were £3.14bn, in line with analysts’ expectations, while it ended the year with forward sales worth £1.23bn, some 12 per cent ahead of the figure a year earlier.

“Our product is aimed at first-time buyers, affordability is good and people really want to buy new houses and get on to the housing ladder,” said Jeff Fairburn, chief executive.

“We start 2017 from a strong position but we will need to see how trading goes in the spring selling period, which is an important period for the industry.”

Persimmon said its private sales rate in the second half of 2016 was 15 per cent ahead of the first half, with customer demand proving “healthy”. The average selling price of its homes increased by 4 per cent to £206,700, as completions rose 4 per cent to 15,171.

Shares in Persimmon opened up 3.4 per cent after the news.

The upbeat numbers contrast with a profit warning from fellow top 10 housebuilder Bovis Homes last week, prompted by production problems leading to a delay in some of its completions.

However, analysts said the trend across the sector was positive as peers including Taylor Wimpey and Barratt Developments prepare to issue updates next week.

Charlie Campbell, analyst at Liberum, said: “Persimmon’s update shows that 2016 ended strongly for the housebuilders.” The Markit/CIPS survey of UK construction firms climbed to a nine-month high in December.

Persimmon said: “We continue to see good opportunities to acquire additional land whilst remaining mindful of the risks associated with the uncertainty arising from the UK’s decision to leave the EU.”

Deutsche Bank on Wednesday upgraded its estimates for the sector to levels approaching its forecasts ahead of the EU referendum last June. Housebuilders’ shares dropped abruptly after the Brexit vote — Persimmon’s shares shed 33 per cent — but have since recovered most of that ground.

Deutsche said it had issued the upgrades because “both the UK economy and the housing market [have appeared] to largely shrug off the impact of Brexit”.

Housebuilders so far appear unhurt by a slowdown in transactions across the broader housing market, which has hurt groups such as Foxtons and Countrywide.

They have received widespread support from the government’s Help to Buy equity loan scheme, which provides loans for buyers of newly constructed homes so they can purchase with deposits of only 5 per cent. This supports about 45 per cent of Persimmon’s sales.

A government white paper on housing due this month is expected to outline further measures aimed at boosting construction. Persimmon will report final results for the year ended December 31 2016 on February 27.

■ Downgrade to Neutral: Following the recent rally in the name, which we believe has largely been fueled by the USD strengthening and the overall reassurance on the LEAP delivery rates, we downgrade the stock to Neutral (vs Outperform). 

■ Several uncertainties that need to be cleared away: We (and the market) assume a rather benign scenario for LEAP costs, but Safran enters 2017 in a phase of major industrial risk around the ramp-up of that engine. This combines with a strategic question around the use of the cash proceeds from the disposal of its Security businesses and M&A ambitions (we maintain the view that Safran could be interested in Zodiac, if the latter were to be up for sale). Also, investors may want a quantified IFRS 15 framework to allay potential concerns on how this will impact profits. Finally, the absence of consistent consensus data (as a consequence of the upcoming disposal of Security, to be held as discontinued asset held for sale for most of 2017) further blurs the market view on future earnings. 

■ Earnings revisions: We increase our 2016E operating profits by 1% and trim 2017E and 2018E by 3%. We now expect a small growth in operating income in 2016E and a small decrease in 2017E, before growth rebounds strongly from 2018E onwards (60% USD-driven). 

■ Catalysts and Risks: FY results on February 24. LEAP issues, a slowdown in air traffic and IFRS 15 can be downside risks; on the upside: USD strength, aftermarket acceleration, further share buyback announcements. 

■ Valuation: We believe that any further re-rating of the stock requires that the market is satisfied with 1/ the financial consequences of the LEAP ramp-up and 2/ the cash allocation decisions. Our target price of EUR68 (unchanged) is a combination of 2017E and 2018E SOTPs, capturing both short term pressure and longer term growth in earnings

BAML
CGG - Net debt flat QoQ & inline. Received covenant waiver for '16 end (15).+2%

PERSIMMON - Traded well in '16, revs +8%. Good land cost recovery (1837)..+1-2%

MINERS - Copper +0.55%, Iron Ore fut +1.1% & BHP OZ +0.08%, RIO OZ +0.17%...+1%

VIVENDI - +ve appt. Hires Amos Genish (resigned from VIVI/TEF last yr) (18.4)+1%

BANCO BPM - We INITIATE coverage post the BP/BPM merger with a BUY (2.75)...+1%

NORWEGIAN AIR - Traffic stats; vols increased +20%, load factor 84.6% (300).+1%

TULLOW - CFO taking extended leave of absence to undergo treatment (326.5)..u/c

BATS - Street Insider article reporting that deal said to hit snag (4591.5).u/c

ENEL - Italy said to be ready to confirm state-controlled CEOs (EUR 4.174)..u/c

SWATCH - Retailers weak o/n in US as Macy's and Kohl's cut FY guidance (310)-1%

RICHEMONT - Macy's CEO cites weak watch & handbag sales, cuts guidance (66).-1%

LVMH - - Negative read across from Macy's & Kohl's cutting FY guidance (176)-1%

Investec
UK

* BATS StreetInsider says Reynolds deal has hit a snag, RAI -1.5%.........+0.5%

* CAPE +ve trading update (materially ahead) and contract win...............+7%

* CENTRAL ASIAN METALS +ve ops update, record copper production.........+1%/+2%

* COSTAIN continues to perform well, sees FY in line + contract win..........+1%

* IMI MOBILE trading & o/look inline, renewed contract w/ largest customer...+1%

* JOHNSON SERVICE disposal of dry-cleaning business for £8.25m..............+2%

* PERSIMMON +ve short pre close update, NB stock +3% yesterday..............+1%

* TULLOW CFO taking leave, appoints Les Wood as interim CFO................unch

EURO

* DBK-shares jumped 2% o/night on big option blocks..........................+1%

* ERICSSON-is deepening cooperation with Cisco on Wi-Fi, networks.........+0.5%

* MICHELIN-launches $400m convertible bond...................................-1%

* STMICRO-Investor Meeting today.

* Retailers: Macy's and Kohl's both warned a/hours. M US -10%, KSS US -15%

CS
BATS -0.5% Street Insider suggesting issues on the Reynolds deal

Cape +3-5% Sees 2016 results materially ahead

CGG -7-10% Trading update weak, talking restructuring

Enel +1% Italy seen set to confirm state-controlled cos’ CEOs

Gold Miners +2-3% Post FOMC/USD sell off... GOLD trading +1%

Johnson Serv +2-3% Trading statement slightly ahead

Miners +1-2% Copper +0.85%, Brent +0.75%, Iron Ore +1.75%, China UNCH

Next M/P CS UPGRADE to NEUTRAL (Post move)

Oils +0.5% US API data showed a 7.4m barrel draw

Persimmon +0.5% Revs 3.14bln cons 3.15bln, sales reservations strong

Safran -1% CS DOWNGRADE to NEUTRAL (Post strong performance)

Volkswagen -0.5-1% A few negative stories overnight

MainFirst
*BATS-Said to hit snag in Reynolds deal-StreetInsider.................U/C

*VW-Ordered to face investor suit in US over diesel cheating..........-0.5%

*DBK-Said to pay $95m to resolve US tax case(ADR's +6.19%)............+1.5%

*AUDI-And Nvidia expand partnership into artificial intelligence......+0.5%

*VALEO-Plans to invest in an Israeli and Chinese VC Fund..............+0.25%

*EURAZEO-Expanding in Third-Party Management with new €500m fund......+0.25%

*SYNGENTA-ChemChina to revise terms in attempt to gain EU approval....+1%

*FREENET-CEO sees shrinking Mobile Business market - HB...............-0.5%

*LHA--Austrian Airlines to be added to Eurowings Brand-we doubt this..U/C