DIOR and LVMH : parent CDI has re-entered an attractive zone
Why revisiting the Dior-LVMH case now ?
Because :
• LVMH has outperformed its parent Christian Dior (CDI) by about 6% since the 27 July release of its H1 earnings
Sending back the CDI price / LVMH content ratio near its 0.88 historic support (see chart page 3)
• Groupe Arnault (GA) interestingly reloaded a €24m CDI block on 2 August (AMF disclosure)
• the October-end release of CDI’s annual report may ,as usual ,revive some trading interest
Novo Nordisk, World Leader in Diabetes Drugs, Is Set to Rally
The diabetes-treatment leader has been hurt by competition, but it’s showing lots of promise.
Novo intends to stay the course, building on its No. 1 status in diabetes management, and expanding its drug pipeline into other lucrative areas, such as medications to fight obesity and treat hemophilia. With a portfolio of new and more efficacious diabetes drugs, and other promising treatments in the wings, the company is likely to win back investors, and could see its Copenhagen-traded shares (ticker: NOVOB.Denmark) rally 33% in the next 12 months, to 400 Danish kroner ($60.26).
Novo Nordisk’s stock has fallen 26% in 2016, to DKK296.10, while its American depositary receipts (NVO) are down 24%, to a recent $44.04. Each ADR is equivalent to one ordinary share. This year’s performance has been a rare disappointment for the company, based in Bagsvaerd, Denmark, after the stock’s sixfold advance in the past decade. Investors had grown accustomed to management setting ambitious financial targets and beating them routinely.
The consistency of results earned Novo Nordisk a premium valuation, averaging 22 times 12-month-forward earnings in the past five years. The stock now trades 17.7 times estimated 2017 earnings.
Marcus Morris-Eyton, manager of the Allianz Europe Equity Growth fund, is betting that the good times will return. His fund has owned Novo Nordisk shares for a decade, and he added to its holdings in recent months.
The company “probably provides one of the most visible growth stories of any business that we own,” he says.
Diabetes care is a rapidly growing market. According to the International Diabetes Federation, the number of people suffering from the disease could climb to 642 million by 2040, from an estimated 415 million in 2015. Most countries spend 5% to 20% of their total health-care budget on diabetes treatments and management. Novo Nordisk products accounted for 28% of global diabetes-related outlays last year.
NOVO NORDISK WAS formed in 1989 from the merger of two Danish pharmaceuticals companies founded in the 1920s to produce insulin. The company and its predecessors were at the forefront of diabetes care, with innovative products like Prandin, an oral treatment for Type 2 diabetes, and the NovoPen, a fountain-pen-like system for insulin delivery with replaceable cartridges.
Novo Nordisk generates almost 80% of its revenue from diabetes treatments, with drugs for obesity, hemophilia, and growth disorders contributing the remainder. Last year, sales totaled DKK107.93 billion, or $15.7 billion, roughly a fifth of industry leader Johnson & Johnson ’s (JNJ). Novo Nordisk earned DKK34.86 billion, or DKK13.52 a share.
The market for so-called modern insulins, designed to mimic the normal insulin response to changes in blood-sugar levels, is rife with competition. Novo Nordisk’s top-selling products, Levemir and NovoLog, are being squeezed by market leader Lantus, produced by France’s Sanofi (SNY). Meanwhile, biosimilars, which closely resemble existing products, are proliferating; Merck (MRK) will launch one next year.
Novo Nordisk and other pharmaceutical manufacturers also are being pressured by changing dynamics in North America, which accounts for 53% of company revenue.
The emergence of new payment models and demands for better value, particularly in the U.S., are prompting health-care payers to seek lower prices, higher rebates, and generic substitutes.
MANAGEMENT ANTICIPATES 4% erosion in prices in the U.S. this year, leading to a 2% drag on overall sales growth. As a result, Novo Nordisk has trimmed its sales-growth estimate for 2016 to 5%-7% from 5%-9%. Analysts expect a similar impact in 2017.
The company sees opportunities for greater penetration in modern insulins, but is looking for a boost from its range of new-generation treatments that provide patients with added benefits—and can command higher prices. These include Tresiba, a long-acting insulin for treatment of Type 1 and Type 2 diabetes, launched in the U.S. in January. It offers flexibility in the timing of daily injection and reduces the risk of hypoglycemic events.
On a dollar basis, Novo Nordisk’s sales are forecast to rise by more than a mid-single-digit pace, to $16.96 billion this year and $18.05 billion in 2017. Tighter cost controls could ensure that profits grow by even more. Net income is projected to climb to $5.8 billion, or $2.27 a share. In 2017, the Danish company could earn $6.2 billion, or $2.49 a share.
Novo Nordisk “should return to double-digit growth when new products reach critical mass,” says ABG Sundal Collier analyst Andrew Carlsen. But that might not happen before the end of 2018. By then, sales of new products could offset the effects of U.S. pricing pressure.
If the company earns as much as $2.78 a share in 2018 and trades at a below-average price/earnings ratio of 21, the American depositary receipts could be worth about $58, or more than 30% above their recent price. The ADRs could reach that level even sooner if it appears that Novo Nordisk’s strategy is working.
Generous payouts to shareholders could boost the total return. Novo Nordisk shares currently yield 2.2%. Management plans to repurchase $2.1 billion of shares in 2016, or 1.9% of the total outstanding, emphasizing its plan to return excess cash to shareholders. The company spent $2.62 billion in a share buyback last year, and still had net cash of $2.38 billion.
NOVO NORDISK’S CEO, Lars Rebien Sørensen, has served in that post for 16 years, and has presided over a period of phenomenal growth. He will step down Dec. 31, handing the reins to Jørgensen, the current head of corporate development and a 25-year company veteran. Sørensen says he sees enormous potential in products such as Victoza, a daily treatment for Type 2 diabetes, which aids weight loss and reduces the risk of cardiovascular complications. Victoza sales jumped 18% last year, to $2.62 billion. The drug is the market leader in the category of glucagon-like peptide-1, or GLP-1, a protein produced in the gut in response to eating that stimulates insulin secretion.
A GLP-1 is “the ideal drug” to treat Type 2 diabetes, Sørensen observes, but such drugs account for only 2% of prescriptions for the disease in the U.S.
In the next four years he expects Novo to add a GLP-1 tablet, plus a GLP-1 treatment that needs to be administered just once a week, by injection.
And he adds: “We have a very strong portfolio of new drugs that needs to be launched globally, so we think we have a pretty good outlook longer term.”
Risk assets remain under pressure at the start of the new week in Asia as bears awoke from summer slumber to the sound of repricing of central bank easing expectations across the globe. Recall last week Gov Kuroda was not particularly persuasive that the central bank has enough conviction to expand asset purchases or push rates deeper into the red, with local press also commenting on a fractured BOJ containing a camp favoring no more easing. On Thursday, ECB's Draghi was similarly non-committal, stating his policy board also did not discuss extension of QE and suggesting that no additional stimulus was needed for the time being. On Friday, a typically dovish Boston Fed president and FOMC voter Eric Rosengren also seemingly endorsed another tightening this year in the face of the recently disappointing non-farm payrolls and ISM services US data, lifting the probability of a rate hike next week to 24% and that of 2016 to nearly 60% from low 50's last week. With the focus turning to Asia and the far east, traders are also closely watching the PBoC after it was reported to have gauged demand for 28-day reverse repos for the first time since February, having already added 14-day reverse repo to its liquidity toolbox last month. Hibor is rising to multi-month highs on funding worries, Shanghai Composite and Hang Seng are leading the decliners among indices, and Australias ASX200 is dragged down by materials. Political / geopolitical risk is also creeping into sentiment, adding policy uncertainty to the monetary worries. Stateside, Hillary Clinton was shown collapsing into the arms of Secret Service after leaving the 9/11 Memorial ceremony early. A statement from her doctor said the Democratic candidate was suffering from pneumonia and experienced. US and Russia had reached a ceasefire agreement on Syria. The ceasefire is effective on Monday, and if it holds for 7 days, Russia/US promise to do more coordinated bombing against the al-Qaeda wing in Syria.
Nikkei -1.97% Hang Seng -2.80% CSI -2.11% Shanghai -2.16%
Eur$1.1243 CNH 6.6830 CNY 6.6774 JPY 102.51 GBP 1.3278 CHF 0.9758 RUB$ 64.6874 WTI$45.12 (-1.66%)
S&P -0.53% EuroStoxx -1.57% Dax -1.50% SMI -1%
Macro :
- EU Turns to OECD for Advice on Financial Transaction Tax Plan
- Fed’s Kaplan Says Monetary Policy Won’t Fix Slow Growth: Reuters
- Sweden Eyes Slice of Apple EU13b Tax Bill: Nyhetsbyraan Direkt
- Swiss to Tell EU Immigration Deal Means No Talks Needed: SZ
- Central Bank Governors, Supervisors Back Basel Steps: Statement
Keep an eye on :
- ABE SM : Abertis Studies Initial Bid for M6 Toll, Cinco Dias Reports
- AF FP : Air France CEO Says Cost Cuts to Be Needed More Than Ever: JDD
- ALO FP : Alstom Job-Cut Methods Unacceptable, French PM Tells Europe 1
- ANTO LN : Antofagasta Said to Mull Stake Cut in Power Project: La Tercera
- AAPL US : Apple Said to Be Rethinking Strategy on Self-Driving Cars: NYT
- AAPL US : Iphone 7 Sold Out in H.K. Minutes After Pre-Order Starts: SCMP
- BMPS IM : Padoan Says He’s Confident That Paschi Capital Plan Will Succeed
- BMPS IM : ECB Will Review New Paschi CEO Run on Tuesday: Messaggero
- BMPS IM : BofA’s Morelli Gets an Informal ECB Nod for Paschi Role: Ansa
- BMW GY : BMW Plans ‘Major Restructuring’ of Executive Board: Handelsblatt
- COL SM : Colonial Says Line 1 Release ‘Confined’ w/ Repairs Ongoing
- DSM NA : DSM Growth, M&A Strategy in Focus at CMD, PT Raised: Jefferies
- LLOY LN : Lloyds Shareholders Seek Stronger Succession Plan: FT
- MC FP : LVMH’s Tag Heuer CEO Says Sales Grew 20% in August: L’Agefi
- EMG LN : Man Group Raised to Buy at Citi on Valuation, Capital Deployment
- MRL SM : Merlin, Santander Plan Testa Residencial IPO in 2017: Europa
- MUV2 GY : Munich Re Sees Ongoing Strong Competition Amid Ample Capital
- PRGO US : Starboard Said to Take 4.6% Stake in Perrigo: WSJ
- POP SM : Larena Makes Organizational Changes at Popular: Cinco Dias
- QIA GY : Qiagen Says It Will Defend U.S. Intellectual Property Position
- REP SM : Repsol, Caixa Offer GIP 3 Gas Natural Board Seats: Expansion
- RWE GY : RWE’s Innogy Said to Plan to File for $2.2b IPO Next Week
- RWE GY : RWE to Push Ahead With Innogy IPO, Still Sees Listing in 4Q
- SAN FP : Alphabet, Sanofi to Invest $500 Million in Diabetes Venture
- SFR FP : SFR to Consider All Sports TV-Rights Tenders, Media CEO Says
- SRG IM : Snam, Allianz Place Joint Bid in OMV’s Gas Unit Sale, Sole Says
- SREN VX : Swiss Re Aims to Steer Portfolio to Focus on Large Deals
- SCMN VX : Swisscom Should Be Privatized, Sunrise Chairman Kurer Tells SaS
- STL NO : Statoil Sets 1Q Subscription Dividend Price at NOK126.57/Shr
- TSLA US : Ex-Tesla Maps Leader Bill Chen Joins Uber: The Information
- FP FP : Total Costs Cuts Make Angola’s Zinia 2 Viable at $50/BBL: Echos
- UBER IPO : Uber, Drivers Jump-Start Settlement Talks After Pact Denied
- VOD LN : Vodafone’s Charms: 33% Upside and a 5.3% Yield - BArron's
- VOD LN : Vodafone Plans Pay-TV ’Soft Launch’ in October: Telegraph
- VOW3 GY : VW CFO Says ‘Mountain Is Moving’ on Efforts to Rein in Spending
- WMT US : Wal-Mart May Be Interested in Retailer Esselunga: Repubblica
- WB US : Weibo’s Largest Holder Alibaba Reports 68.1% Class A Stake
>>> Up
*ASTRAZENECA RAISED TO BUY AT JEFFERIES
*CONOCOPHILLIPS RAISED TO OVERWEIGHT AT JPMORGAN
*CSX RAISED TO OVERWEIGHT AT BARCLAYS
*MAN GROUP RAISED TO BUY VS NEUTRAL AT CITI
*RIO RAISED TO OVERWEIGHT FROM NEUTRAL AT JPMORGAN; PT A$54
*TDC RAISED TO OVERWEIGHT AT BARCLAYS
*WOOD GROUP RAISED TO OUTPERFORM VS NEUTRAL AT EXANE
>>> Down
*COMMERCIAL INTERNATIONAL BANK EGYPT SAE CUT FROM BUY TO NEUTRAL AT CITI
*ERSTE CUT TO NEUTRAL VS CONVICTION BUY AT GOLDMAN
*NOKIAN RENKAAT CUT TO SELL AT NORDEA
*OMA CUT TO HOLD AT SANTANDER
*SUBSEA 7 CUT TO NEUTRAL VS OUTPERFORM AT EXANE
>>> PT Change
>>> Initiation
*SABADELL REINSTATED AT NEUTRAL AT GOLDMAN; PT EU1.38
*UNIPER RATED NEW OUTPERFORM AT MACQUARIE; PT EU16
>>> Call
>> Stock
*AURUBIS ADDED TO EUROPE SMID FOCUS LIST AT CREDIT SUISSE
>> Index
*FTSE 100 YEAR-END TARGET RAISED TO 6,500 AT UBS
>> Sector
*EUROPE AUTOS RAISED TO OVERWEIGHT VS NEUTRAL AT UBS
*EUROPE TRANSPORT CUT TO NEUTRAL VS OVERWEIGHT AT UBS
Areva board to approve sale of Adwen JV to Gamesa – Siemens this week
The board of listed French energy group Areva [EPA:AREVA] is meeting on Wednesday and is expected to approve the sale of joint venture Adwen's wind power assets to partner Gamesa [GAM.MC] from Spain, Le Figaro reported.
The unsourced French-language report said that Gamesa, which will merge the business with the wind energy unit of Siemens [SIE.DE] in a EUR 10bn deal, will pay Areva about EUR 60m for the 50% it does not already own in Adwen, as the competing offer made by US conglomerate General Electric's [GE.N] for Adwen was not successful.
The report noted that the European Commission will have a say on the deal, noting that that an approval would not be a foregone conclusion as Siemens is already the worldwide leader in the wind energy turbines manufacturing sector.
Le Figaro
Deutsche Bank and Commerzbank to keep Deutsche Postbank in the event of merger
German banks Deutsche Bank (DB) and Commerzbank would keep DB's Deutsche Postbank in the event of a merger, Die Welt reported.
The German daily cited unnamed sources close to the talks would said it would make sense to keep Postbank in the event of a merger. DB announced plans to sell Postbank earlier this year, the report noted.
It is unclear how the competition commission would react to a merger of the two banks including Postbank, the report stated.
Die Welt
Asia Mid-Session Market Update: Bond market strain reverberates across Asia after Friday's massive US selloff
***Economic Data***
- (JP) JAPAN JULY MACHINE ORDERS M/M: +4.9% V -2.9%E; Y/Y: 5.2% V 0.3%E; Govt raises machine order assessment
- (JP) JAPAN AUG PPI M/M: -0.3% (4-month low) V -0.1%E; Y/Y: -3.6% (6-month high) V -3.4%E
- (AU) AUSTRALIA JULY CREDIT CARD BALANCES: A$51.3B v A$52.2B PRIOR; CREDIT CARD PURCHASES: A$23.6B v A$25.5B PRIOR
***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 -1.5%, S&P/ASX -2.2%, Kospi -1.8%, Shanghai Composite -2.1%, Hang Seng -2.8%, Dec S&P500 -0.6% at 2,103
***Commodities/Fixed Income***
- Dec gold -0.2% at $1,331/oz, Oct crude oil -1.7% at $45.10/brl, Dec copper -0.5% at $2.08/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 10.7 tonnes to 939.9 tonnes; 3rd straight decline
- (LY) Ras Lanuf and Es Sider oil terminals in Lybia have been captured by forces of Libyan commander Haftar - financial press
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6908 V 6.6684 PRIOR; 3rd straight weaker setting; biggest margin of decline in 2 weeks
- (CN) PBOC to inject CNY70B in 7-day reverse repos and CNY45B in 14-day reverse repos; Gauges demand for 28 day reverse repos (1st 28-day reverse repos gauge in 7 months)
- (JP) BOJ offers to buy ¥430B in 5-10yr JGBs and ¥25B in inflation-indexed JGBs
***Market Focal Points/FX***
- Risk assets remain under pressure at the start of the new week in Asia as bears awoke from summer slumber to the sound of repricing of central bank easing expectations across the globe. Recall last week Gov Kuroda was not particularly persuasive that the central bank has enough conviction to expand asset purchases or push rates deeper into the red, with local press also commenting on a fractured BOJ containing a camp favoring no more easing. On Thursday, ECB's Draghi was similarly non-committal, stating his policy board also did not discuss extension of QE and suggesting that no additional stimulus was needed for the time being. On Friday, a typically dovish Boston Fed president and FOMC voter Eric Rosengren also seemingly endorsed another tightening this year in the face of the recently disappointing non-farm payrolls and ISM services US data, lifting the probability of a rate hike next week to 24% and that of 2016 to nearly 60% from low 50's last week.
- With the focus turning to Asia and the far east, traders are also closely watching the PBoC after it was reported to have gauged demand for 28-day reverse repos for the first time since February, having already added 14-day reverse repo to its liquidity toolbox last month. Hibor is rising to multi-month highs on funding worries, Shanghai Composite and Hang Seng are leading the decliners among indices, and Australias ASX200 is dragged down by materials. In FX, USD/JPY traded down nearly 40pips from Friday close to 102.30, AUD/USD was down about 20pips around 0.7520, and NZD/USD trading sideways in a 30pip range below 0.7350.
- Political / geopolitical risk is also creeping into sentiment, adding policy uncertainty to the monetary worries. Stateside, Hillary Clinton was shown collapsing into the arms of Secret Service after leaving the 9/11 Memorial ceremony early. A statement from her doctor said the Democratic candidate was suffering from pneumonia and experienced overheating/dehydration, prompting her to cancel her campaign trip to California. On the Korean peninsula, South Korea officials warned that the North has already completed preparations for another nuclear test, just as the UN Security Council convenes to discuss imposing further sanctions on Pyongyang for its detonation last week. Finally, US and Russia had reached a ceasefire agreement on Syria that they hope will result in a peace process, but one of the main rebel groups - Ahrar Al Sham - contends that it will not be bound by truce as it would only benefit Assad. The ceasefire is effective on Monday, and if it holds for 7 days, Russia/US promise to do more coordinated bombing against the al-Qaeda wing in Syria.
***Equities***
US equities / ADRs:
- PRGO: Starboard said to take a 4.6% stake; Calls for Board to consider selling some non-core assets, including Tysabri - financial press
- TSLA: Announces Autopilot 8.0; Will rely on radar and fleet learning to improve safety - Tesla blog
Notable movers by sector:
- Consumer discretionary: Asiana Airlines 020560.KR -11.4% (rights offering)
- Consumer staples: Australian Agricultural AAC.AU -5.9% (to stop long-haul export of cattle); Elders ELD.AU +6.9%(guidance); Coca-Cola East Japan Co 2580.JP +2.6% (raises guidance)
- Financials: Greenland Hong Kong 337.HK -2.6% (YTD result); ICBC 1398.HK -3.6%, CCB 939.HK -3.8% (CSRC calls for loan support to indebted firms); Woori Bank 000030.KR +2.2% (Posco considering bid)
- Industrials: Calsonic Kansei Corp.7248.JP +3.5% (receives bid for Nissan's stake)
- Technology: Samsung Electronics 005930.KR -6.4% (Galaxy Note 7 halt recommended)
- Materials: LG Chem 051910.KR +0.6% (to merge LG Life Sciences); Whitehaven Coal WHC.AU -7.5% (China targeting coal price)
- Energy: Neo Solar Power Corp. 3576.TW +3.8% (deal with Hermes Micro)
- Healthcare: Novogen NRT.AU +5.0% (FDA approves new drug application)
Activist investor urges drug company to refocus on its core business
Starboard Value LP has built a 4.6% stake in Perrigo Co. , worth nearly $600 million, and is urging the drug company to refocus on its core business.
The activist shareholder sent Perrigo a letter Sunday criticizing the company for failing to live up to performance targets it set while successfully fending off a $26 billion takeover offer last year from Mylan NV. A copy of the letter was reviewed by The Wall Street Journal.
Starboard, fresh off victory at Yahoo Inc., argues Perrigo management has been distracted by the merger fight and attempts to diversify away from its over-the-counter drugs business, a powerhouse in private-label medicines including versions of headache remedy Tylenol, heartburn aid Pepcid and allergy pill Claritin. Starboard argues the company should command a far higher stock-market value but has lost investor confidence, according to the letter.
Perrigo should consider shedding noncore assets, including its prescription-pharmaceuticals unit and the lucrative income stream it gets from multiple-sclerosis treatment Tysabri, Starboard argues.
The hedge fund wants the company to hire advisers to explore that and other alternatives.
Perrigo said in a statement that it would review the letter and it “looks forward to a constructive and productive dialogue with Starboard—as we do with all of our shareholders—while we execute on a number of strategic and operational initiatives.”
In November, Perrigo managed to win the backing of its investors in a hotly contested shareholder vote over what in retrospect was a rich takeover offer from Mylan.
Perrigo’s then-Chief Executive Joseph Papa argued the offer substantially undervalued the company and its future prospects, which he described as bright as the company took its over-the-counter medicines abroad.
Yet Perrigo stumbled and shares have lost more than half their value. Its market capitalization is now $12.7 billion.
The company has acknowledged difficulties integrating a European business it had bought and counted on for growth. It has lowered its financial outlook for this year, to $6.85 to $7.15 a share from $9.50 to $10.10 in January.
In August, Perrigo reported second-quarter results that missed Wall Street’s expectations, which new CEO John Hendrickson blamed largely on “competition and price erosion” for its generic drugs.
In April, Mr. Papa left to take the helm of Valeant Pharmaceuticals International Inc.
Starboard often seeks board changes and recently helped get Yahoo sold.