>>> What to look at today - 21st of February 2017

Asia equity markets are slightly higher, though trading conditions remain muted after Monday's US holiday. Nikkei225 is one of the better performing indices on weakness in JPY, while tepid earnings season in Australia continues to weigh on S&P/ASX 200. USD traded firmer following hawkish set of comments from Fed voter Harker, particularly gaining vs JPY, NZD, and EUR. Harker reiterated that March meeting should be on the table for next rate hike, adding the Fed is not behind the curve, the economy is healthy, and job growth is steady. Japan flash manufacturing PMI offered a glimpse of February economic data, and the signs were positive. 53.5 was a multi-year high. PBOC says it is conducting an evaluation of a targeted RRR cut this month; Changes to take effect on Feb 27th; Adjustments to targeted rates will be made both upward and downward.

Nikkei +0.68% Hnsg Seng -0.60% CSI +0.18% Shanghai +0.26%

Eur$ 1.0586 CNH 6.8648 CNY 6.8821 JPY 113.51 CHF 1.0053 RUB 57.873 WTI$ 53.70+0.58%

S&P +0.15% EuroStoxx +0.03% Dax -0.05% FTSE -0.18% (HSBC) SMI +0.06%

Macro :
- Greece Misses Another Bailout Deadline as Talks Set to Resume
- EC Wants U.K. to Pay Into EU Projects Until End-2023: Telegraph

Keep an eye on :
- AAL LN : Anglo Said to Cap Value of Share Awards to Top Executives: Sky
- AF FP : Air France Wins Pilots’ Approval on Low-Cost Boost Airline
- BLT LN : BHP Billiton Board Approves Bond Buyback Plan of Up to $2.5b
- CABK SM : Caixa Picks 5 Banks to Advise on EU500m Bond Sale, ECP.pt Says
- COB LN : Cobham Said to Consider Rights Offering of GBP300m-GBP600m
- DGE LN : Diageo May Finalize United Spirits Open Offer This Week: CNBC
- ENEA SS : Enea Evaluates Possibility to Carry Out Directed Share Issue
- G IM : Generali Had 4.49% Holding in Intesa Sanpaolo as of Feb. 20
- HSBA LN : HSBC 4Q Adjusted Pretax Profit $2.62b; Est. $3.78b, HSBC 4Q Common Equity Tier 1 Ratio 13.6% -->-4& in HK
- LSG NO : Leroy 4Q Ebit Beats Estimates; Proposes NOK13/Share Dividend
- NOVOB DC : Novo Nordisk Deputy Chairman Tells JP He’s Not Running for Chair
- OSI FP : Randstad France to Implement Squeeze-Out Ausy Shares, ORNANE (€ 55.00 per Ausy share and € 63.25 (plus accrued interests), i.e. € 63.51, per Ausy ORNANE)
- ROG SW : Roche Wins EU Approval for Alecensa Lung Cancer Drug
- GLE FP : SocGen Deputy Corporate/Investment Banking Head Mianne to Leave
- SOLB BB : Solvay Raises Prices for All Silica Products by 10% as of April
- TEF SM : Telefonica to Sell Up to 40% of Telxius to KKR for EU1.28B
- WAC GY : Wacker Neuson Sounding Out Mkt Interest in Real Estate Co.
- WMN SW : Walter Meier, Tobler Haustechnik to Combine

>>> Europe : Brokers Upgrades & Downgrades - 21st of February 20

>>> Up
*Air France-KLM Raised to Buy at UBS, PT EU7.50
*Dialog Raised to Overweight at JPMorgan, PT EU52
*Hugo Boss Raised to Sector Perform at RBC, PT EU70
*Orange Raised to Buy at Natixis, PT EU17.30
*PGS Raised to Neutral at UBS, PT NOK27
*Philips Raised to Add at AlphaValue

>>> Down
*Ageas Cut to Hold at ING, PT EU39.50
*AO WORLD Cut to Underweight at Morgan Stanley, PT 135p
*Enagas Cut to Equal-Weight at Morgan Stanley, PT EU26
*Heidelberger Druck Cut to Reduce at AlphaValue*Interserve Cut to Neutral at JPMorgan, PT 253p
*Nordea Cut to Sell at DNB Markets, PT SEK99
*OHL Cut to Reduce at Kepler Cheuvreux
*Prosafe Cut to Sell at Pareto Securities, PT NOK30
*Repsol Cut to Neutral at Goldman, PT EU15
*SEB Cut to Sell at DNB Markets, PT SEK102
*Swedbank Cut to Sell at DNB Markets, PT SEK212

>>> Initiation
*Baloise Re-initiated Buy at Berenberg, PT CHF152
*Coats Group Rated New Buy at UBS, PT 80p
*Helvetia Re-initiated Buy at Berenberg, PT CHF650
*Johnson Matthey Rated New Market Perform at Bernstein, PT 3400p
*Kinnevik Rated New Buy at Deutsche Bank, PT SEK264
*Mail.Ru Group Resumed Overweight at Morgan Stanley, PT $24
*MLP Rated New Buy at Hauck & Aufhaeuser, PT EU7.40
*Swiss Life Re-initiated Hold at Berenberg, PT CHF310
*Umicore Rated New Outperform at Bernstein, PT EU64

>>> Call
>> Stock
*Euronext Exits Conviction Buy at Goldman; Volumes Lackluster
*TOTAL ADDED TO CONVICTION BUY LIST AT GOLDMAN

>>> Asian Update

Asia Mid-Session Market Update: Japan manufacturing PMI at multi-year highs; USD rallies on hawkish comments from Fed's Harker; HSBC earnings disappoint


***US Holiday Hours***
- CYH: Reports Q4 $0.46 v $0.12e, R$4.47B v $4.42B
- PLKI: Restaurant Brands International said to be near agreement to acquire Popeyes - press
- (GR) EU official: Meeting between creditors and Greek Fin Min Tsakalotos went well, progress was made, auditors to return to Athens by next week - press

***Asia Key economic data:***
- (JP) JAPAN FEB PRELIMINARY PMI MANUFACTURING: 53.5 V 52.7 PRIOR; multi-year high, 6th month of expansion
- (JP) Japan Dec All Industry Activity Index M/M: -0.3% v -0.2%e
- (KR) South Korea Q4 Household Debt (KRW) q/q: 1.34T v 1.29T prior (record high)
- (KR) South Korea Feb First 20-days Exports y/y: 26.2% v +25.0% prior; Imports y/y: 26.0% v +25.9% prior
- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 113.7 v 116.4 prior

***Politics***
- (US) President Trump names General H.R. McMaster as his new National Security Adviser - US press
- (FR) French police said to have raided the office of National Front's Le Pen on suspicion of EU funds misuse - press

***Asia Session Notable Observations, Speakers and Press***
- Asia equity markets are slightly higher, though trading conditions remain muted after Monday's US holiday. Nikkei225 is one of the better performing indices on weakness in JPY, while tepid earnings season in Australia continues to weigh on S&P/ASX 200.
- USD traded firmer following hawkish set of comments from Fed voter Harker, particularly gaining vs JPY, NZD, and EUR. Harker reiterated that March meeting should be on the table for next rate hike, adding the Fed is not behind the curve, the economy is healthy, and job growth is steady. USD/JPY was up some 40pips in the wake of comments, EUR/USD fell about 30pips, and NZD/USD was off by 30pips.
- Japan flash manufacturing PMI offered a glimpse of February economic data, and the signs were positive. 53.5 was a multi-year high, as New Export Orders and Employment components increased at a faster rate while Backlog of work rose for the first time in over a year and Inventories fell.
- RBA meeting minutes expanded on neutral-hawkish rate decision earlier this month, noting higher terms of trade impact on growth and rising prices of commodities renewing mining investment; On inflation, RBA tone was more measured, stating the headwinds could be more persistent than assumed, but also noting wage inflation could rise more quickly if labor conditions improve.
- Late in the day, HSBC (and the Hang Seng) slumped after the banking giant released underwhelming FY16 results. Net profit of $19.3B missed expected $20.3Be, and Adj Rev slowed to $50.2B v $51.4B y/y; CET1 ratio came in 30bps to 13.6% and ROE slowed drastically to 0.8% v 7.2% y/y. HSBC also underscored some of the risks going forward, namely the "threat of populism impacting policy choices in upcoming European elections, possible protectionist measures from the new US administration impacting global trade, uncertainties facing the UK and the EU as they enter Brexit negotiations, and the impact of a stronger dollar on emerging economies with high debt levels."

China:
- (CN) PBOC says it is conducting an evaluation of a targeted RRR cut this month; Changes to take effect on Feb 27th; Adjustments to targeted rates will be made both upward and downward - financial press
- (CN) China Commerce Ministry (MOFCOM): Expect 2017 consumption growth to remain robust; China to assess and react if US rolls out tariffs - press
- (CN) China researcher: trade war unlikely to weaken China - China Daily
- (CN) China's 3rd batch of free trade zones may start this month - Chinese press

Japan:
- (JP) Bank of Japan (BOJ) Gov Kuroda: BOJ still far from inflation target; appropriate to continue powerful easing
- (JP) Japan Fin Min Aso: Cannot comment on border tax being considered by the US

Australia/New Zealand:
- (AU) Westpac's Evans: See nothing in RBA minutes to change our view that RBA will be on hold throughout 2017 and 2018 - SMH
- (AU) AUD/USD : Deutsche Bank chief economist: AUD may rise to $0.80 and beyond on strength in exports - SMH
- (AU) ANZ: New "Fed-Style" inflation indicator suggests inflation in Australia won't fall any further - press
- (NZ) According to Seek.com, January National new online job ads rose 5.0% y/y; Auckland rates rose 7.2% y/y - NZ Herald

***Asian Equity Indices/Futures (23:30ET)***
- Nikkei +0.7%, Hang Seng +0.1%, Shanghai Composite +0.3%, ASX200 -0.2%, Kospi +1.1%
- Equity Futures: S&P500 +0.2%; Nasdaq +0.3%; Dax flat; FTSE100 flat

***FX ranges/Commodities/Fixed Income (23:30ET)***
- EUR 1.0575-1.0615; JPY 113.05-113.70; AUD 0.7665-0.7690; NZD 0.7150-0.7185
- Apr Gold -0.4% at $1,234/oz; Apr Crude Oil +0.5% at $54.05/brl; Mar Copper -0.4% at $2.74/lb
- (CN) PBOC to inject combined CNY100B v CNY170B prior in 7-day, 14-day and 28-day reverse repos
- (CN) PBOC SETS YUAN MID POINT AT 6.8790 V 6.8743 PRIOR; 2nd straight weaker setting

***Asia equities / Notables / movers by sector***
- Consumer discretionary: SEK.AU SEEK -1.9% (H1 result)
- Financials: 5.HK HSBC -3.8% (FY16 result); WBC.AU Westpac Banking Corp flat (Q1 metrics); SCG.AU Scentre Group -1.2% (FY16 result); FXL.AU FlexiGroup -2.1% (H1 result)
- Industrials: WOR.AU WorleyParsons -5.9% (Credit Suisse cuts rating); BKN.AU Bradken +0.2% (H1 result); MND.AU Monadelphous Group +11.8% (H1 result); 6472.JP NTN Corp +5.5% (Nomura raises rating)
- Technology: ALU.AU Altium -5.7% (guidance); BXB.AU Brambles Limited -2.4% (Deutsche Bank cuts rating)
- Materials: IGO.AU Independence Group -5.0% (H1 result); SAR.AU Saracen Mineral Holdings -3.9% (H1 result)
- Energy: OSH.AU Oil Search -2.1% (FY16 result); CTX.AU Caltex Australia +1.3% (FY16 result)
- Healthcare: GXL.AU Greencross Limited +6.0% (H1 result)
- Telecom: 762.HK China Unicom +0.5%, 728.HK China Telecom Corp. +0.5% (Jan result)
- Utilities: 9507.JP Shikoku Electric Power Co. Inc +5.7% (raises guidance)

>>> GM Opel/PSA Group: rival bid would see hurdles, bankers say

GM Opel/PSA Group: rival bid would see hurdles, bankers say

  • Public negotiation tough given job issues
  • Past bidder Fiat Chrysler not ruled out

Potential rival bidders in PSA Group’s [EPA:UG] offer to acquire General Motors' [NYSE:GM] Opel would face difficulties publicly navigating a politically sensitive deal exposed to potential job losses, said two sector bankers.
Strategic shifts for potential rivals like Magna International [TSE:MG] have also made an acquisition less compelling than in the past, they and a third banker said, though some suitors could still have a rationale in a deal.
Earlier this week, the carmakers confirmed reports that they were exploring a strategic review that includes a potential disposition of Opel to Paris-based PSA Group. Analyst reports have valued Opel near EUR 2.6bn, though this news service previously reported the deal price could be influenced by the value of potential R&D, scale, and licensing benefits.
The proposed deal has already drawn political attention as the German and UK government showed concerns on whether the acquisition could lead to the closing of factories and job cuts. PSA has pledged to maintain Opel's independence and continue to invest in all its German sites until at least 2020, according to press reports. PSA CEO Carlos Tavares is also to meet British Prime Minister Theresa May to discuss his company’s acquisitions, which would include two factories ran in the UK by GM under the brand Vauxhall.
Rival bidders might be hesitant to make a bid given the political uncertainty around employees and factories in the UK and Germany, the first banker argued.
Opel has previously attracted takeover interest. In 2009, Italy-based Fiat—years before it became Fiat Chrysler [NYSE:FCAU]—took a look at Opel, as did Canada-based Magna , according to news reports. The first banker also noted that Chinese strategics and sponsors have pursued Opel in the past.
The bankers were split on the chances that either Magna or Fiat Chrysler would enter the bidding fray for Opel at this stage.
Magna initially expressed interest in Opel when it was attempting to develop into a carmaker, the first and third bankers said, but the company has since transitioned into a supplier. A second Magna approach could also be less likely without a partner, the first banker added. Sberbank partnered with Magna in its 2009 bid.
Still, the second and third bankers said they couldn’t rule out Magna as a rival given its previous expression of interest.
Magna did not return requests for comment.
Fiat Chrysler drew similarly mixed speculation. GM wouldn’t likely sell Opel to Fiat Chrysler as it would make the acquiring company, which is already a big competitor in the US, stronger in Europe, the third banker said. In May 2015, Opel chief Karl-Thomas Neumann publicly discounted another proposition from Fiat to combine with Opel, declining to elaborate.
Fiat did not return phone calls seeking comment, while GM declined to comment.
A fourth, US-based banker said that a rival bid is unlikely as the process is a negotiated sale, not an auction.
A PSA-Opel matchup would give PSA scale and also leave Opel with a more logical owner, as GM has always been much more US-oriented, said the first banker. PSA needs a stronger platform to develop further into the electric and autonomous car trends, as well to compete with Korean and Japanese automakers, this news service previously reported.

>>> Randstad France will implement a squeeze-out on Ausy shares and ORNANE Follo

Randstad France will implement a squeeze-out on Ausy shares and ORNANE 

Following the results of Randstad France's reopened cash tender offer for Ausy securities in France which was closed on 8-Feb-17, Randstad France holds today 5.9M Ausy shares, representing 95.18% of the share capital and at least 95.17% of the voting rights of Ausy.

Following the successful completion of the Offer and in line with its intentions, Randstad France has requested to the AMF the squeeze-out of the remaining outstanding Ausy shares and ORNANE not tendered to the Offer which will occur on 23-Feb-16, as indicated in the notice published today by the AMF (AMF notice n° 217C0491), it being specified that the treasury shares held by Ausy will be excluded from the squeeze-out.

The amount of compensation paid under the squeeze-out will equal that of the prices of the Offer, i.e. € 55.00 per Ausy share and € 63.25 (plus accrued interests), i.e. € 63.51, per Ausy ORNANE.

FT : Unilever chief now under pressure to deliver on reforms

Unilever chief now under pressure to deliver on reforms
Seeing off Kraft Heinz bid should be ‘wake-up call’ for group, analysts say

Relief coursed through Unilever’s riverside London headquarters on Monday, after the group saw off Kraft Heinz’s $143bn takeover proposal barely 48 hours after it was revealed.

Paul Polman, chief executive, who led the board’s efforts to lobby against the offer “was very determined”, says one person present at the weekend meetings.

But, while Mr Polman succeeded in warding off the US group’s proposal — with the backing of some shareholders — many analysts warn the century-old company could not simply return to business as usual.

“This doesn’t mean that Unilever is out of the woods,” says Warren Ackerman, an analyst at Société Générale. “This near miss should be a wake-up call for Unilever that maintaining its independence and culture is not a given.”

The pressure is now on Mr Polman to accelerate, or at least deliver, on reforms he outlined last year, which form the backbone of a three-year plan to improve profitability and growth at the UK’s third-largest company by market value.

Andrew Wood, an analyst at Bernstein Research says that despite the kudos of seeing off Kraft Heinz, “we believe that this has been a somewhat humbling and chastening experience for Polman and Unilever.

“How can a €53bn sales company (with €112bn market cap, before the bid was announced) be put under threat from a US corporation less than half its size in sales?” he adds.

Unilever’s share price fell more than 6 per cent on Monday but remains higher than it was before Kraft Heinz’s interest emerged on Friday.

One top 15 shareholder praises Mr Polman, whose model of long-term growth based on sustainable business practices is at the opposite end of the cost-cutting profit-driven model of 3G Capital. The private equity group, led by Jorge Paulo Lemann, the Brazilian billionaire, is the biggest shareholder in Kraft Heinz along with Warren Buffett, chairman of Berkshire Hathaway investment group.

“Polman is doing a good job,” says the shareholder. “The Kraft Heinz model is very different — it is based on cutting costs and maximising margins, not reinvesting back into the brands”.

Unilever is an unusual hybrid of a food, home care and personal care businesses with no directly comparable rivals.

But even Mr Polman acknowledges that the group’s operating profit margins, especially in its homecare and foods business, are still too low — its core operating profit margin of 15 per cent is half that of Kraft Heinz.


In addition, the company’s free cash flow conversion, of 82 per cent, is well below the average for home and personal care companies, of 100 per cent, according to Bernstein.

To sharpen its performance, Unilever last year adopted three policies aimed at generating €1bn of savings by 2019, all with echoes of 3G’s practices. These include zero-based budgeting — when managers have to justify costs each year from zero — and a plan to incentivise senior managers with shares to generate a more entrepreneurial culture.

First, Unilever has said it will target an improvement in its operating profit margin of 0.4-0.8 percentage points (up from 0.2-0.4 percentage points); second, it is aiming for underlying sales growth of 3-5 per cent — the actual growth rate last year was 3.7 per cent — and finally it has committed to increasing the rate at which it converts earnings to free cash flow to 90 per cent.

Another consequence of Kraft Heinz’s approach could be to increase Unilever’s resolve to sell its underperforming margarine and spreads business, which accounts for 5 per cent of sales but continues to suffer from falling revenues.

Some investors could also ramp up the pressure on Mr Polman to be more ambitious on M&A by seeking a large takeover, such as of the US group, Colgate-Palmolive. So far his policy has centred around small bolt-on acquisitions — such as Dollar Shave Club and prestige skincare brands.

Mr Polman argues that more value is generated for shareholders by acquiring small businesses and then ramping up sales.


The question is whether his measures go far and fast enough. Martin Deboo, analyst at Jefferies says: “Fortunately Unilever has a plan, albeit a less hair shirt one [than Kraft Heinz].”

If Unilever had to go further, he says it might consider selling more — or even all — of its foods businesses such as Hellmann’s mayonnaise and Knorr stock cubes.

“With Unilever looking even keener to exit its spreads business but with a spinout difficult with such a weak top line, might there be a deal to be done with Kraft Heinz for either spreads or spreads plus Hellmann’s, or even the whole smorgasbord?”

Mike Fox, head of sustainable investments at Royal London Asset Management, which holds a 0.66 per cent stake in Unilever’s UK-listed shares, says: “We backed the management’s decision to reject the bid by Kraft Heinz and we have no concerns with the strategic direction of Unilever.”

But he adds: “The challenge for Unilever management now will be to deliver the recently announced strategy of improving margins and above-market growth.”