(CS) Italian Banks - Value plays unloved for external uncertaint

Value plays unloved for external uncertainties
Italian banks’ average discount further widened in the last month to 32% from 30% (0.44x PTBV17E vs. 0.65x PTBV17E for Eurozone peers). The average profitability lags behind at 6.4% RoTNAV17E, with profitability 21% lower than Eurozone peers, implying ~12% relative valuation discount, at an all-time low level. (i) political uncertainties; (ii) high NPLs stock and (iii) persistent risk of industry paid bail-out fund harming the systemic risk perceptions keep Italian banks off investors' radar. Given that the political uncertainties won’t be dispelled until December 4th with the Referendum outcome, Italian banks will remain unloved among European banks. The sharp discount would suggest that a negative outcome for the referendum seems partly priced-in (unlike the UK referendum), but we suggest caution.

(DBK) Vivendi : Upgrade to Buy TP €22. Root Canal Surgery

We are believers in the Canal+ turnaround
The market is skeptical over Vivendi’s targets for turnaround at its French pay-TV operation, Canal+ (C+). But our analysis has shown a surprising scope for improvement. We now incorporate E230m of cost saving by 2018. We now also see a major opportunity in Africa and StudioCanal. We had been concerned over capital allocation and corporate governance, but now see Mr Bollore’s interests as more aligned with shareholders. Our VIV EPS rises to 18% ahead of consensus by 2020. The C+ regulatory review in June next year offers a positive catalyst. Upgrade to BUY, TP E22 offers 23% upside
Canal+ is central to the Vivendi investment case
Vivendi has been rationalized back to its core of music and pay-TV. C+ is key - we find far less variance in valuation and
estimates for UMG. We have held extensive discussions with Vivendi on their plans, taken views from our Sports Rights
panels & French regulatory sources. We have benchmarked with Sky UK, DirecTV, TF1, TALK, VMED, undertaken a
detailed review of the OTT opportunity & scope for improved terms from French ISPs plus renewal of the BeIN Sport
deal. The conclusion is that large cost savings and improved revenues are possible. We are increasing earnings forecasts
for C+ in France by 20-30% which is driving our above consensus view on Vivendi EPS.
Africa & Studio Canal easily dismissed, but also large upside
VIV’s enthusiasm for investing in Africa had looked a conflict of interest given Bollore Group’s interests in the region. But digging deeper has shown VIV is well positioned to capitalize on explosive growth in subs in the region driven by DTT
and mobile video. We have undertaken a detailed study, with input from our Naspers analysts and regional data
specialists. For StudioCanal, research for our Content Conundrum report has revealed the major ramp in TV production
and strong growth at Banijay-Zodiak, which stands to be a transformative deal.
Bollore is your friend in this process, not foe
Mr. Bollore is exactly what is needed at C+; pushing through the radical reform that is needed. He has form in successful
turnarounds and his African presence looks to be an asset, not a conflict of interest. He is heavily invested with E3.5bn in
Vivendi stock. Concerns over capital allocation look overdone to us; management and shareholders look more aligned.
Upgrading to BUY from Hold. TP E22. regulatory catalyst in 2017
TP rises to E22, offering 23% upside and we upgrade to BUY. We value on SOTP and move to recovery/2018 multples in
C+. Key downside risks: cost saving targets, loss of subs and/or ARPU, being outbid for premium rights, an acceleration
of download declines and streaming margin erosion, dividend payout and corporate governance.

>>> What to look at today - 4th of October 2016

Dow -0.30% S&P -0.33% Nasdaq -0.21% Russell -0.47% VIX 13.57 (+2,11%) VXX 33,89 (-0.53%)
US market started the week on a weak note. DBk was still in focus even if german mkt was closed today. UK Prime Minister Theresa May also contributed to early selling interest after she confirmed that the UK will invoke Article 50 of the Lisbon Treaty by the end of March 2017. The decision resuscitated fears regarding the terms and/or restrictions the UK will face in accessing the common market. Sterling declined 1.0% against the dollar in response, finishing the day near the 1.2850 price level. The UK's FTSE (+1.2%) outperformed amid strength from exporters. Eight sectors settled in the red with financials (-0.4%), consumer staples (-0.6%), utilities (-1.4%), and real estate (-1.8%) acting as the largest laggards. IBB Finished ahead of broader market. Volume were below average with 800mil shares traded. US After Hours CNAT +9% AASLD abstracts acceptance, PKY +5% and OLLI +3.5% on S&P SmallCap 600 addition news... VOXX -2% on S&P SmallCap 600 replacement news. In Asia, Reserve Bank of Australia had its first policy decision under Gov Lowe, leaving rates on hold as forecast by unanimous survey of economists. USD/JPY extending gains to 2-week high above 102.30 as better than expected US ISM Manufacturing raises expectations of a Fed hike this year; CME probabilities of at least a 25bp move by 2016-end back above 60%; Nikkei leads regional indices higher on softer JPY.. Oil moved lower to 48.57 -0.49%.

Nikkei +0.69% Hang Seng +0.10% CSI Closed Shanghai Closed

Eur$ 1.1197 CNH 6.6835 CNY 6.6718 JPY 102.12 GBP 1.2843 CHF 0.9750 RUB 62.3694 WTI 48.56 (-0.51%)

S&P +0.08% EuroStoxx +0.27% Dax-0.01% SMI +0.26% FTSE -0.10%

Macro :
- Fed Hamstrung in Using Rate Cuts If Recession Comes Soon: Dudley
- Fed’s Mester: November Live as ‘Apolitical’ Fed Considers Hike
- Australia Holds Key Rate as Commodity Rebound Gathers Pace

Keep an eye on :
- ABBN VX :ABB to Keep Power Grids Unit, Buy Back $3b Shares, ABB Raises Power Grids Margin Target Corridor
- ABE SM : OHL Sold 4.425% Abertis Stake at EU13.65/Shr: Filing
- AGS BB : Ageas Sees 3Q P&L Impact EU4.6m From Relative Performance Note
- AZ IM : Alitalia Considering Debt Swap to Raise Capital, Sole Reports
- CS FP : Axa CEO Buberl Rejects Possible Mergers: Sueddeutsche Zeitung
- BP IM : BPM May Become Takeover Target Without Merger, CEO to Sole
- BON FP : Bonduelle Op. Profit to Stagnate Amid Tough Harvest Conditions
- CXRX US : Concordia Said in Talks to Sell Equity Stake to PE Firm: Reuters
- DIE BB : D’Ieteren 3Q Deliveries Rise 3.5% as Belgian Market Expands 10%
- EDF FP : EDF to Reclaim EU1b From Clients for 2014-15, Le Figaro Says
- ERICB SS : Ericsson to Cut 3,000-4,000 Jobs in Sweden, SVT Reports
- EUCAR FP : Europcar Group Names Jean-Claude Poupard Group CFO
- GIMB BB : Gimv Acquires Stake in French Inspection Company Acceo
- LIN GY : Linde Signs Iran Petrochemical Plant Contract: Handelsblatt
- MC FP : LVMH to Buy 80% of Luxury Luggage Maker Rimowa for EU640m
- MAERSKB DC : Maersk Said Unlikely to Buy Korean Container Ship Operators: WSJ
- NN NA : NN Group Sells Irish Reinsurance Portfolio to Canada Life
- NDA SS : Nordea CEO Says He’s Not Yet Ready to Change Dividend Goal: DI
- RNO FP : Nissan to Announce Technology Tie-Up With Verizon’s Telogis: FT
- SCAB SS : Buy SCA on Hygiene Margin Delivery, a ‘Free Forest’: Goldman
- CFR US : Salesforce Agrees to Buy Krux for $700m in Cash and Stock: WSJ
- SIE GY : Siemens Signs Deal to Supply Iran With Locomotive Parts: DPA
- SSABA SS : SSAB unlikely to sell its Finnish units now despite earlier rumours - Rautaruukki
- TWTR US : Twitter Climbs 5.2%; Ex-CEO Says M&A Not Only Option for Growth
- UCG IM : UniCredit May Wait After Dec. 4 to Pick Pioneer Buyer: Reuters
- VOW3 GY : VW Judge Won’t Ease Deadline for Consumers to Exit Settlement

>>> Europe : Brokers Upgrades & Downgrades - 4th of October 2016

>>> Up
*AHOLD DELHAIZE RAISED TO OUTPERFORM VS NEUTRAL AT EXANE
*ALDERMORE RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS
*AVI RAISED TO BUY VS HOLD AT DEUTSCHE BANK
*BMW RAISED TO OUTPERFORM AT EXANE BNP PARIBAS
*CEGEREAL RAISED TO HOLD AT KEPLER CHEUVREUX
*COLRUYT RAISED TO REDUCE VS SELL AT ALPHAVALUE
*HENDERSON GROUP RAISED TO HOLD VS UNDERPERFORM AT JEFFERIES
*INTERTEK GROUP RAISED TO BUY AT JEFFERIES
*INDUSTRIVARDEN RAISED TO ’BUY’ AT DNB MARKETS
*JERONIMO MARTINS RAISED TO BUY AT REDBURN
*ROSNEFT RAISED TO BUY VS HOLD AT DEUTSCHE BANK
*SVENSKA CELLULOSA RAISED TO BUY VS SELL AT GOLDMAN
*TRANSNEFT RAISED TO HOLD VS SELL AT DEUTSCHE BANK
*VIVENDI RAISED TO BUY VS HOLD AT DEUTSCHE BANK

>>> Down
*DRILLISCH CUT TO NEUTRAL VS BUY AT CITI
*HUFVUDSTADEN CUT TO SELL AT NORDEA
*OMNIA HOLDINGS CUT TO NEUTRAL VS OUTPERFORM AT MACQUARIE
*PANALPINA WELTTRANSPORT CUT TO SECTOR PERFORM FROM OUTPERFORM AT RBC
*THALES CUT TO MARKET PERFORM AT RAYMOND JAMES


>>> PT Change


>>> Initiation
*DONG ENERGY RATED NEW OUTPERFORM AT CREDIT SUISSE, PT DKK310
*HANDELSBANKEN RATED NEW HOLD AT SEB, PT SEK114
*KINNEVIK AB RATED NEW ’BUY’ AT DNB MARKETS
*LATOUR RATED NEW ’HOLD’ AT DNB MARKETS
*LUNDBERGS RATED NEW ’HOLD’ AT DNB MARKETS
*MELKER SCHORLING AB RATED NEW ’SELL’ AT DNB MARKETS
*NORDEA RATED NEW HOLD AT SEB, PT SEK85
*SWEDBANK RATED NEW SELL AT SEB, PT SEK183
*WOLSELEY RATED NEW NEUTRAL AT GOLDMAN, PT 4,600P

>>> Call

>>> Asian Update

Asia Mid-Session Market Update: RBA on hold as expected with added concern over slowing housing sector; USD/JPY at 2-week highs above ¥102


***Asia Notes/Observations***
- Reserve Bank of Australia had its first policy decision under Gov Lowe, leaving rates on hold as forecast by unanimous survey of economists; Accompanying statement reiterated some of the prior positions - global economy growing at slower pace, China growth is moderating, labor market has been mixed with continued expansion seen in near term, and inflation remains quite low; RBA did feature some notably new focus on the housing sector, adding that growth in lending for housing has slowed over the past year, turnover has declined, rate of increase is lower than year ago, and growth in rents is the slowest in some decades; There has been speculation that the RBA could eventually pave the way to rate hikes by next year, but concern on housing will likely keep the central bank at bay. Nov meeting will be more telling with updated projections of economic growth and inflation.
- USD/JPY extending gains to 2-week high above 102.30 as better than expected US ISM Manufacturing raises expectations of a Fed hike this year; CME probabilities of at least a 25bp move by 2016-end back above 60%; Nikkei leads regional indices higher on softer JPY

***Top US session headlines***
- (US) Atlanta Fed GDPNow: cuts Q3 GDP forecast to 2.2% from 2.4% on Sep 30th
- (US) SEPT ISM MANUFACTURING: 51.5 V 50.3E; PRICES PAID: 53.0 V 53.5E (higher raw materials prices for the seventh consecutive month)
- (US) Fed's Mester (hawkish dissenter, FOMC voter): the US economy is not overheating; Fed is not behind the curve and policy has to be forward looking

***US markets on close: Dow -0.3%, S&P500 -0.3%, Nasdaq -0.2%***
- Best Sector in S&P500: Basic Materials
- Worst Sector in S&P500: Utilities
- Biggest gainers: CTSH +5.6%, NFLX +4.1%, NWSA +3.2%, AAL +3.0%, LUV +2.2%
- Biggest losers: RIG -7.6%, APD -6.5%, CNC -5.5%, TDC -5.0%, FRT -3.8%

***VIX 13.57 (+0.3pts); Treasuries: 2-yr 0.80% (+3bp), 10-yr 1.62% (+2bp), 30-yr 2.34% (flat)***

***US movers afterhours***
- OLLI +5.4%: to enter S&P SmallCap 600 index; VOXX -2.9%: dropped from S&P SmallCap 600

***Equity Futures (00:00ET): S&P e-mini +0.1%, Dax -0.3%, FTSE100 flat***

***FX / Commodities ranges (00:00ET):***
- EUR 1.1195-1.1215; JPY 101.60-102.40; AUD 0.7660-0.7690, NZD 0.7270-0.7310
- Gold flat at 1,313/oz; Oil -0.5% at $48.57/brl; Copper -0.3% at $2.18/lb

***Asian Equity Markets (00:00ET)***
- Nikkei +0.6%, Hang Seng flat, ASX -0.1%, Shanghai closed, Kospi +0.5%

***Key economic data:***
- (AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET AT 1.50%; AS EXPECTED
- (AU) AUSTRALIA AUG BUILDING APPROVALS M/M: -1.8% V -6.0%E; Y/Y: 10.1% (10-month high) V 5.1%E
- (AU) AUSTRALIA SEPT ANZ JOB ADVERTISEMENTS M/M: -0.3% V +1.8% PRIOR
- (NZ) NEW ZEALAND SEPT QV HOUSE PRICES Y/Y: 14.3% V 14.6% PRIOR
- (NZ) New Zealand Q3 Business Confidence: 26 v 19 prior; highest since Q2 of 2014 - NZIER business survey
- (JP) JAPAN SEPT MONETARY BASE Y/Y: 22.7% v 24.2% PRIOR; MONETARY BASE END OF PERIOD: ¥412.8T v ¥404.5T PRIOR
- (KR) SOUTH KOREA AUG CURRENT ACCOUNT BALANCE: $5.5B V $8.7B PRIOR; GOODS BALANCE: $7.3B V $10.8B PRIOR

***Speakers / Press / Key Themes***
China:
- (CN) PIMCO: Expect China to make more progress on financial market reform amid slowing growth and a depreciating yuan
- (CN) China to crack down on 45 real estate developers and intermediaries for violation - China Daily

Japan:
- (JP) BOJ Q3 TANKAN Inflation Survey: Japan companies see inflation 0.6% y/y 1-year v 0.7% q/q; 1.0% in 3-yrs v 1.1% q/q, and 1.0% in 5-yrs v 1.1% q/q
- (JP) Japan PM Abe: have not given any thought to calling snap elections
- (JP) Japan Fin Min Aso: Will explain Japan's economic policy at G20 - financial press
- (JP) BOJ Gov Kuroda: negative rates have cut bank earnings but are a plus for overall economy; Not seeing immediate damage to banking sector from negative rates; Reiterates view that new poilcy framework is not tapering
- (JP) Japan Center for Economic Research (JCER): AUG GDP estimated at -0.2% m/m, down for 2nd straight month - Nikkei

Australia:
- (AU) Australia Treasurer Morrison: Govt to strengthen regulation on financial benchmarks
- AUD/USD falls about 15pips to 0.7660 after RBA policy statement

***Asia movers***
Notable movers by sector:
- Consumer discretionary: Kewpie Corp 2809.JP -3.0% (9-momtn result); News Corp NWS.AU +3.2% (pending Tronc-Gannett deal); Seven West Media SWM.AU -1.1% (divestment)
- Financials: Evergrande Real Estate Group 3333.HK +8.8% (reorganization); Digital Domain Holdings 547.HK -4.9% (share sale); Tokyu Fudosan Holdings Corp 3289.JP -0.9% (Credit Suisse cuts to neutral); Nomura Real Estate Holdings 3231.JP -3.6% (Credit Suisse cuts to Neutral)
- Industrials: Bradken BKN.AU +31.7% (Hitachi Construction to acquire Bradken for A$3.25/shr or about A$689M); Mitsubishi Motors 7211.JP +0.9% (Sept North America sales); Honda Motor Co 7267.JP +2.0% (Haitong raised to Buy)
- Technology: FIH Mobile 2038.HK -0.8% (profit warning); Tokyo Electron 8035.JP +2.9% (SMBC raises PT)
- Materials: Galaxy Resources GXY.AU +8.4% (update on Mt Cattlin)

>>> US After Hours Summary: CNAT +9% AASLD abstracts acceptance, PKY


After Hours Summary: CNAT +9% AASLD abstracts acceptance, PKY +5% and OLLI +3.5% on S&P SmallCap 600 addition news... VOXX -2% on S&P SmallCap 600 replacement news

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: N/A

Companies trading higher in after hours in reaction to news: BIOD +18% (ticking higher, Biodel confirms Albireo announced positive top-line results from a pivotal Ph 3 clinical trial of its product candidate, elobixibat, in chronic constipation conducted in Japan), CNAT +8.7% (higher in after hours after announcing acceptance of emricasan abstracts for AASLD Annual Meeting November 11-15), PKY +5% and OLLI +3.5% (to join S&P SmallCap 600), BRCD +1% ( initiated with a Buy at DA Davidson; $12 tgt)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: N/A

Companies trading lower in after hours in reaction to news: VSM -7.1% (following late spike higher into the close), VOXX -2% (Parkway will replace VOXX in the S&P SmallCap 600), ACRX -1.3% (ticking lower after amending Loan Agreement; reduced the exercise price of the existing warrants held by the Lenders), FITB -0.7% (light volume; downgraded to Mkt Perform from Outperform at Keefe Bruyette)

>>> US CLose Dow -0.30% S&P -0.33% Nasdaq -0.21% Russell -0.47%

Closing Market Summary: Stocks End Lower as Defensive Sectors Lag

The stock market began the week on a modestly lower note as the major averages pulled back following last Friday's relief rally. Factors impacting today's trade included weakness in European financial names, an uptick in interest rates, and relative weakness from the heavily-weighted technology (-0.4%) and financial (-0.4%) sectors. The S&P 500 (-0.3%) settled in-line with the Dow Jones Industrial Average (-0.3%) and slightly behind the Nasdaq Composite (-0.2%). 

Equity indices began the day under pressure as a mixed performance from European bourses weighed on the broader market. Shares of Deutsche Bank (DB 12.98, -0.11) continued to be in focus after the German lender failed to confirm whether or not it had reached a revised settlement with the U.S. Department of Justice. Recall that the stock rallied 14.0% on Friday after AFP reported that the bank was close to reducing its fine to $5.4 billion from $14 billion.

UK Prime Minister Theresa May also contributed to early selling interest after she confirmed that the UK will invoke Article 50 of the Lisbon Treaty by the end of March 2017. The decision resuscitated fears regarding the terms and/or restrictions the UK will face in accessing the common market. Sterling declined 1.0% against the dollar in response, finishing the day near the 1.2850 price level. The UK's FTSE (+1.2%) outperformed amid strength from exporters.

The ISM Manufacturing Index for September spurred a downturn in the Treasury market as the better-than-expected economic data boosted rate hike odds. The September ISM Index rose to 51.5 (Briefing.com consensus 50.4) after registering at 49.4 in August. The data led to some early positioning in the fed funds futures market, but the implied probability of a rate hike at the December meeting finished at 62.1%, rising from the prior session's reading of 61.7%. 

The benchmark index finished in the middle of today's trading range, bouncing off support near its 20-day simple moving average (2155.81) in the final hour. Eight sectors settled in the red with financials (-0.4%), consumer staples (-0.6%), utilities (-1.4%), and real estate (-1.8%) acting as the largest laggards. 

In the financial sector (-0.4%), Wells Fargo (WFC 43.83, -0.45) underperformed after U.S. Presidential candidate Hillary Clinton argued that the lender bullied employees into committing fraud. Mrs. Clinton also contended that the Consumer Financial Protection Bureau should be afforded new powers in order to deal with "bad corporate actors." The banking name tumbled 12.8% in September after it was reported that two million credit and deposit accounts were opened illegally. 

Health care providers underperformed in the health care space (-0.2%) as Cigna (CI 128.01, -2.31) and Anthem (ANTM 122.90, -2.41) declined by 1.8% and 1.9%, respectively. The names continued to show weakness after last week's speculation that a judge who is presiding over their merger hearing may break the hearing up into two separate phases. Separately, biotechnology erased an early loss as the iShares Nasdaq Biotechnology ETF (IBB 290.00, +0.54) finished ahead of the broader market. 

In the consumer discretionary space (-0.1%), auto names ended on a mixed note after reporting auto and truck sales for September. General Motors (GM 32.04, +0.27) ended higher by 0.9% after reporting a smaller-than-expected decline in monthly U.S. sales. Meanwhile, Toyota Motor (TM 115.26, -0.80) declined by 0.7% even though the company reported that U.S. sales rose 1.5% year-over-year while a decline was expected. 

Treasuries finished near their worst levels as yields rose through the curve. The yield on the 2-yr note increased three basis points (0.90%) while the yield on the benchmark 10-yr note rose two basis points (1.62%).

Today's participation was below the recent average as fewer than 800 million shares changed hands on the NYSE floor.

Today's economic data was limited to August Construction Spending and the September ISM Index: 

  • The ISM Manufacturing Index for September checked in at 51.5 (consensus 50.4). The September reading was better than expected and up from 49.4 in August.
    • The dividing line between expansion and contraction for this measure of national manufacturing activity is 50.0.
  • Total construction spending declined 0.7% in August (consensus +0.2%) following a downwardly revised 0.3% decline (from 0.0%) for July.
    • On a year-over-year basis, total construction spending is down 0.3%.

There is no economic data of note scheduled to be released tomorrow. 

  • Russell 2000: +9.6% YTD
  • Nasdaq: +5.9% YTD
  • S&P 500: +5.7% YTD
  • Dow Jones: +4.8% YTD

FT Lex : ABB: Powering up

ABB: Powering up

The engineering conglomerate must avoid complacency

A capital markets day is usually a festival of granularity. Investors and analysts are bombarded with the minutiae of tax rates, depreciation curves and competitor analysis. ABB’s annual conflab could turn out rather more interesting.

The Swiss-Swedish engineering conglomerate has been urged by 5 per cent shareholder Cevian Capital to spin off its power grids division. The results of a year-long review will be presented on Tuesday. Most expect ABB will opt to retain it.
True, the market could ascribe a higher valuation to the division as a standalone entity than it does to ABB as a whole. Based on UBS estimates, ABB trades at about 11.7 times its earnings before interest, tax and amortisation. If power grids traded at say, 14 times, an extra $2.4bn of equity market value is theoretically available. The remainder of ABB’s business would be proportionately more exposed to growth segments such as robotics, where rivals such as Kuka and Fanuc are valued at higher multiples.
Cevian acknowledges that the vagaries of valuation alone are not a reason to incur separation costs it puts at $330m (plus extra annual costs of $60m). Its case rests in large part on improving cost control and margins. Power grids, which sell primarily high-voltage equipment to utilities, has the lowest margins of ABB’s four divisions. This is as much about portfolio mix as administrative flab. About three-fifths of sales come from relatively low-margin transformers and switchgear, says Morgan Stanley. Having already agreed to offload the cables part of power grids to NKT, it may offer hints as to the long-term future of transformers.
Other crowd-pleasers are also possible. It has just completed a $4bn share buyback; it could announce another. With just $1.65bn of net debt it could easily afford to. A tilt towards software and digitalisation, possibly through acquisitions, is also feasible. Or it could fall back on good old cost-cutting, extending an existing “white collar productivity” programme.
ABB’s shares have beaten the market over the past year. It may feel less need to be radical as a result. But it must also avoid complacency.