>>> Europe : Brokers Upgrades & Downgrades - 4th of April 2017

>>> Up
*Abcam Raised to Add at Numis
*Accor Raised to Overweight at Morgan Stanley, PT EU42
*BP Raised to Buy at Deutsche Bank
*Clinigen Raised to Buy at Numis
*Estee Lauder Raised to Buy at Goldman, PT $103
*Imagination Tech Raised to Neutral at Credit Suisse, PT 100p
*Mondelez Raised to Buy at Goldman, PT $52
*Nordex Raised to Buy at Nord/LB, PT EU15
*Redrow Raised to Buy at Liberum, PT 561p
*Rotork Raised to Overweight at JPMorgan, PT 265p

>>> Down
*A2A Cut to Neutral at MedioBanca
*Aviva Cut to Neutral at Goldman, PT 525p
*Berkeley Cut to Hold at Liberum, PT 3,169p
*Biotest Cut to Hold at Kepler Cheuvreux, PT EU16
*Eni Cut to Hold at Deutsche Bank
*Genmab Cut to Hold at Deutsche Bank, PT DKK1,380
*Imagination Tech Cut to Hold at Jefferies, PT 95p
*Mediclinic Cut to Neutral at Macquarie, PT GBP7.70
*Persimmon Cut to Hold at Liberum, PT 2,161p
*Suedzucker Cut to Sell at Goldman, PT EU18
*Tele2 Cut to Underweight at Barclays
*WS Atkins Cut to Hold at Stifel, PT 2,080p

>>> Initiation
*Allianz New Buy at Goldman, PT EU197
*Axa New Neutral at Goldman, PT EU24
*Berendsen New Outperform at Exane, PT 950p
*Essilor New Long at Evercore ISI
*Generali New Sell at Goldman, PT EU13.80
*Genus Reinstated Hold at Numis, PT 1,815p
*Greencore Group New Buy at Kepler Cheuvreux, PT 300p
*Hermes International New No Position at Evercore ISI
*Hugo Boss New No Position at Evercore ISI
*IMI New Neutral at Citi, PT 1,230p
*Kate Spade New No Position at Evercore ISI
*Maersk New Buy at HSBC, PT DKK13,300
*Pandora New Short at Evercore ISI
*Rentokil New Outperform at Exane, PT 285p
*Salvatore Ferragamo New No Position at Evercore ISI
*Weir New Buy at Citi, PT 2,270p
*Zurich Ins. New Buy at Goldman, PT CHF320

>>> Call

>>> US After Hours Summary: GBR +36% and SHIP +27% higher followin

After Hours Summary: GBR +36% and SHIP +27% higher following earnings/guidance, PRTK +32% on Phase 3 trial update... KATE -9% as sale talks drag on, URBN -3% on negative QTD comps update

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: GBR +36.2% (also files to delay its 10-K - additional time is required for the proper XBRL review process to be completed), SHIP +27.3%

Companies trading higher in after hours in reaction to news: PRTK +31.5% (reports 'positive' Phase 3 study of Omadacycline in community-acquired bacterial pneumonia), CYCC +19.3% (following 60%+ move higher today), BNTC +11.4% (continued strength), TXMD +3.8% (presents 'positive' safety and efficacy results from its Phase 3 data in two presentations for TX-001HR at ENDO), TEVA +2.4% (announces FDA approval of AUSTEDO tablets for the treatment of chorea associated with Huntington's disease)

After Hours Losers:

Companies trading lower in after hours in reaction to sales update: URBN -2.8% (discloses thus far during the first quarter, comparable retail segment net sales are mid single-digit negative)

Companies trading lower in after hours in reaction to news: KATE -8.8% (lower on reports of sales process being extended as negotiations continue), DGLY -4.7% (files for 800K share common stock offering by stockholders issuable upon the exercise of Common Stock Purchase Warrants), PIR -4.2% (appoints Alasdair James as President and CEO effective start date of May 1, 2017), NMFC -3.3% (commences underwritten offering of 5 mln shares of common stock; provides preliminary estimate of net asset value per share as of March 31), NVCR -1.8% (modestly lower after ~40% move higher today), PN -1.8% (light volume; to delay the filing of its Annual Report on Form 10-K for the year ended December 31, 2016; audit committee commences internal review regarding certain accounting matters)

>>> Asian Update

Asia Mid-Session Market Update: RBA on hold with a more dovish statement amid softer employment and wage growth

***US Session Highlights***
Major equity indices retraced slightly with little news from Washington, as the Trump administration's Supreme Court nomination is headed for a filibuster fight and investors continue to wait for the economic policy promises that began the last stock rally. There were some positive economic data releases, but not enough to put more wind into the sails. NYSE volume 3% below 3-month average.
- GM Reports Mar US sales +1.6% y/y, to 256.2K units v 276.3Ke; Mar industry SAAR at 17M (v 17.2Me)
- (US) MAR MARKIT FINAL MANUFACTURING PMI: 53.3 V 53.5E (lowest since August)
- (US) MAR CHICAGO PURCHASING MANAGER: 57.7 V 56.9E
- (US) MAR ISM MANUFACTURING: 57.2 V 57.2E; PRICES PAID: 70.5 V 66.0E (prices paid highest since May 2011); Employment: 58.9 v 54.2 prior (highest since June 2011)

***US markets on close: Dow -0.1%, S&P500 -0.2%, Nasdaq -0.3%***
- Best Sector in S&P500: Telecommunication
- Worst Sector in S&P500: Consumer Discretionary
- Biggest gainers: INCY +3.6%; NEM +2.8%; CI +2.0%; GGP +1.8%; HUM +1.8%
- Biggest losers: KMX -4.3%; FTR -4.2%; ORLY -4.1%; RHI -4.0%; BWA -3.5%
- At the close: VIX 12.41 (+0.04pts); Treasuries: 2-yr 1.25% (-2bps), 10-yr 2.35% (-5bps), 30-yr 2.99% (-3bps)

***US movers afterhours***
- PRTK: Announces positive Phase 3 study of omadacycline in community-acquired bacterial pneumonia; +29.6% afterhours
- SHIP: Reports Q4 -$0.29 v -$0.31 y/y, R$10.9M v $6.8M y/y; Fleet utilization 82.6% v 73.0% y/y; +23.7% afterhours
- EDAP: Reports Q4 -$0.05 v -$0.01e, R$11.4M v $10.1Me; +4.1% afterhours
- KATE: Reportedly wants a few more weeks of time to negotiate following receipt of bid from Coach last week; Michael Kors said to still be interested in Kate Spade; -5.9% afterhours

***Key economic data***
- (JP) Bank of Japan (BOJ) Q1 TANKAN 12-month Inflation Expectation Survey for Japan companies: 0.7% v 0.7% prior
- (AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50% (AS EXPECTED)
- (AU) AUSTRALIA FEB TRADE BALANCE (A$): 3.6B V 1.9BE (4TH CONSECUTIVE SURPLUS)
- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 111.1 v 113.8 prior
- (NZ) NEW ZEALAND Q1 NZIER BUSINESS CONFIDENCE: 17 V 28 PRIOR (1-yr low); ADJ 16 V 26 PRIOR
- (KR) SOUTH KOREA MAR CPI M/M: 0.0% V 0.0%E; Y/Y: 2.2% V 2.1%E; CORE CPI Y/Y: 1.4% V 1.5%
- (KR) SOUTH KOREA Q1 FOREIGN DIRECT INVESTMENT (FDI) Y/Y: -9.2% V -18.2% PRIOR

***Asia Session Notable Observations, Speakers and Press***
- Asian equity markets are tracking the declines on Wall St, where cash markets were down for the 2nd straight day. Soft auto sales in March and a slight miss on the US manufacturing PMI were attributed to the selloff, while political risk remained in focus with reports that Democrats in the Senate have the numbers to stonewall Supreme Court nominee Gorsuch with a filibuster. Materials, Financials, and Consumer Discretionary sectors led the selling, while Telecom fared well. US Treasuries were bid for the 2nd straight session, with the 10-year around 1-week lows of 2.35%. Gold prices were also higher on safehaven demand.
- Nikkei225 is among the worst performers in Asia, though trading remained light as markets in mainland China and Hong Kong were closed for holiday. Headwinds in Japan tracked the rally in USD/JPY, as it fell below 110.50 for the first time in a week. AUD/USD and NZD/USD saw more pronounced selling late in the session with the release of a more dovish statement accompanying RBA decision to keep rates at 1.5%.
- Employment had been fairly resilient in Australia in the 2nd half of last year, but the latest reading saw jobless rate rise to a 13-month high and net change was negative for the first time in 5 months. RBA acknowledged the softening in its statement, and also added that wage growth remains slow. Another notable change in the statement was addressed at the property market, as RBA recommended that "lenders ensure the "serviceability metrics that they use are appropriate for current conditions" while also urging reduced reliance on interest-only housing loans. RBA is clearly wary of risks of accelerating housing correction given that some of the lenders have started to tighten mortgage rates and target speculative buying. Ahead of the decision, Australia Trade Balance topped expectations, with Exports rising 1.5% and Imports sliding over 5% on the month.

China
- (CN) CICC sees China Q1 GDP rising to 6.9% from 6.8% in Q4 - Shanghai Daily

Japan
- Japan Ministry of Economy, Trade and Industry (METI): To increase LNG investment in emerging countries
- (JP) BOJ Gov Kuroda: BOJ ETF purchase to cut risk premium; reiterates too early to discuss an ex; Too early to talk about exit strategy

Korea
- (KR) South Korea acting President Hwang: There is a high chance of North Korea provocation

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei -0.6%, Hang Seng closed, Shanghai Composite closed, ASX200 -0.3%, Kospi -0.1%
- Equity Futures: S&P500 -0.2%; Nasdaq -0.1%, Dax -0.1%, FTSE100 -0.1%

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.0660-75; JPY 110.45-95; AUD 0.7588-0.7614; NZD 0.6990-0.7020
- Apr Gold +0.3% at 1,258/oz; May Crude Oil +0.1% at $50.29/brl; May Copper -0.2% at $2.60/lb
- (KR) South Korea MoF sells 30-yr Treasury Bonds; avg yield 2.325
- JGB (JP) Japan MoF sells ¥2.08T v ¥2.3T offered in 10-year 0.1% JGBs; Avg yield: 0.064% v 0.082% prior; bid to cover: 3.96x v 3.74x prior

***Asia equities notable movers***
Australia
- NWS.AU News Corp. -2.5% (sued for sexual harassment)
- CDV.AU Cardinal Resources +7.6% (acquisition)
- BAL.AU Bellamys +5.9% (Janchor Partner adds stake)
- NUF.AU Nufarm -1.7% (Credit Suisse downgrades)
- VLA.AU Viralytics -9.5% (interim clinical result)
- RMS.AU Ramelius Resources +6.7% (exploration update)
- RSG.AU Resolute Mining +5.6% (guidance)
- WHC.AU Whitehaven Coal +7.9% (coking coal prices may spike)

Japan
- 3333.JP Asahi Co Ltd +6.4% (results)
- 8227.JP Shimamura +3.6% (results)
- 3632.JP Gree Inc -1.7% (Jefferies cuts rating)
- 2809.JP Kewpie Corp. -8.0% (Q1 result)
- 6146.JP Disco Corp +1.1% (Q4 result)
- 6113.JP Amada +1.9% (JPMorgan upgrades)
- 3148.JP Create SD Holdings -4.9% (9-month result)
- 5423.JP Tokyo Steel Mfg +1.9% (Mitsubishi upgrades)
- 6502.JP Toshiba Corporation -8.9% (may seek 3rd extension to earnings)

South Korea
- 005930.KR Samsung Electronics +1.2% (Apple said to order OLED panels)

(Global handelsblatt) Playing by Its Own Rules (Adidas)

Playing by Its Own Rules
Adidas is betting on massive growth of its internet sales to boost margins and gain ground on arch-rival Nike. Sports retailers, however, are furious and looking at alternative brands

Adidas chief executive Kasper Rorsted has seduced investors but alienated retailers. Source: DPA
Since taking over as Adidas chief executive last October, Kasper Rorsted has quickly won investors’ approval. Especially early last month, when the 55-year old Dane raised the company’s medium-term goals, the markets responded enthusiastically. The share price leaped 10 percent within minutes of the announcement. The centerpiece of Mr. Rorsted’s plans was a massive increase in online revenue, raising Adidas’s 2020 target from €2 billion to €4 billion, around $4.27 billion.

But many sports retailers see Mr. Rorsted’s investor-friendly plans as a declaration of war. “It’s a slap in the face for people who, over decades, have made Adidas what it is today,” said one leading manager of an international sports retail chain, who preferred to remain anonymous. Others are speaking out openly. “This means more competition for us,” Markus Rech, head of the Munich-based sports retailer Sport Scheck, said bluntly.

In private, many German retailers are already bitter toward what is by far their most important supplier. They are particularly angry about the steep discounts Adidas offers in its online stores, and complain about delays in delivery that leave yawning gaps on their shelves while the same items can be purchased easily on Adidas’s own websites.

“Adidas only thinks in selfish terms.”
Leading sports retail manager
This selective distribution is a sore point for retailers. The Bavaria-based sportswear giant, a rival to U.S. hegemon Nike and smaller peers Under Armour and Puma, chooses exactly which stores can stock which products. So specialist sports stores no longer get to sell fashionable sneakers, cutting them off from a crucial segment of the youth market. “They only think in selfish terms,” one store owner said off the record. Even Nike was now more reliable than Adidas, he added. In the past, the American company had itself drawn criticism for its supply policies.

Mr. Rorsted seems untroubled by retailers’ concerns. “We have to be where consumers are buying,” he said, adding that the Adidas website was the company’s most important retail outlet. Last year, the company’s e-commerce revenues shot up 59 percent, to around €1 billion. “It’s all about direct contact with the customer,” Mr. Rorsted said. Above all, Adidas is looking to sell directly to young consumers, cutting out middlemen in order to achieve substantially higher margins by 2020. It was one of his promises to investors he made last month.

For years, Adidas has lagged its main rival Nike in terms of profitability. The German sport shoe maker expects its operating profit margin should rise to 11 percent from 7.7 percent in 2016. That’s still well below Nike’s 13.9 percent. At the same time, Adidas also faces growing competition in the United States from a relatively new American sports brand, Under Armour, which has $4 billion in annual sales and is selling in Europe as well.

Despite the competition, Mr. Rorsted is well aware of his company’s strength. The Adidas brand is more popular than ever in its 60-year history and the CEO has made it a priority to grow in the United States. Revenue grew by 20 percent last year, with profits up 40 percent. By contrast, German sports retailers saw income stagnate in 2016, with many barely breaking even. In America, the world’s largest market for sporting goods, a number of chains have already gone bankrupt. “Our negotiating position is very limited these days,” said Mr. Rech, the SportScheck CEO.

03 Adidas and Nike Key Figures-01
The power balance has long been tipping in Adidas’s favor. The company understands how modern retail works, and is constantly expanding its own network. Worldwide, the company already has 2,800 retail outlets of its own, including 50 online stores, along with 900 factory outlets offering heavy discounts. Adidas dwarfs any retail chain. Last year, its revenues came close to €20 billion. Intersport, Germany’s largest grouping of independent sports retailers, had a turnover of just €2.9 billion, including value-added tax.

Industry experts back Mr. Rorsted’s uncompromising strategy. “He has to forge ahead with online business. Ultimately, Adidas can’t expect others to do it for them,” said Philipp Prechtl, a senior manager at retail consultants Dr. Wieselhuber & Partner. Many well-known sports retailers have weak internet presence, added Mr. Prechtl, former head of marketing with Jack Wolfskin, a German maker of outdoor clothing and shoes. “It is in Adidas’s interest to have a presence in all retail channels,” he said.

Sports retailers do have some leverage, above all by turning to other suppliers. Although Adidas cannot be completely replaced, rivals such as Puma are striving to build good relations with retailers. “There are good alternatives,” said one business owner.

At the beginning of this decade, Puma moved sharply toward the lifestyle market. Under Björn Gulden, who took over as CEO in 2013, the company has brought out new football and running collections, bringing the brand back into sports stores. Mr. Gulden’s relations with retailers are markedly warmer than Mr. Rorsted’s. Smaller brands, like Jako and Erima, have used a strong service ethic to win over retailers.

Alternative brands are securing a higher profile in sporting goods outlets, including the retailers’ own labels. Brands such as McKinley, from Intersport, and High Colorado, from retail network Sport 2000, compete on price and are popular with consumers. “Customers are looking for value alternatives,” said Mr. Rech.

03 p14 Adidas 1-01
Adidas revenue retail e-commerce
Other market players also pose a threat to Adidas. The American V.F. Corp. owns a diverse portfolio of sportswear brands, including The North Face, Timberland and Vans. It may be smaller than Adidas, with revenues of around €11 billion last year, but its margins far outperform its giant rival. In Europe, the Finnish group Amer Sports has a similar brand-portfolio strategy, enjoying particular success with its outdoor gear line Salomon. Its other brands include Atomic and Arc’teryx. “If it’s well-managed that model can really work,” Mr. Prechtl said. Like Adidas, these multi-brand groups have a powerful influence on retailers. Amer, for example, is Intersport’s third-largest supplier.

Both V.F. Corp and Amer have a track record of regular new acquisitions. “We always have our eyes and ears open,” Heikki Takala, Amer’s chief executive, told Handelsblatt. V.F.’s last substantial acquisition came in 2011, when it took over Timberland, the outdoor wear specialist. “We are still looking,” Karl Heinz Salzburger, V.F.’s head of international business, told Handelsblatt. Persistent rumors suggest his company may attempt to acquire Reebok, a brand Adidas is said to be keen to dispose of.

Despite Adidas’ new online focus, it is making moves to preserve goodwill with retailers. It recently set up a partner program for sports stores, which links retailers’ websites to Adidas’s own online portal, and sports firm will pay retailers a commission if the consumer buys an Adidas product. Sport Scheck is said to be keen to take part. Mr. Prechtl said he suspected Adidas would come to a compromise. “I do think the retailers will be given something,” he observed.

Adidas may be flavor of the month right now, but that might not last. “Every wave comes to an end,” said one retailer. The wheel of fashion will turn, Adidas will lose out, and the company will need strong retailers again, he added. That may be the case. But retailers must first survive an increasingly punishing environment.