TheChek News Flow

FT : Persimmon reports strong housing demand post Brexit vote

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.

(CS) Safran - Downgraded to Neutral

A pause in 2017 to clear away key uncertainties

■ 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

Download SAFRAN_CS_05012017.pdf

>>> prE mARKET

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

>>> Randstad could be on lookout for targets, analysts say (translated)

Randstad could be on lookout for targets, analysts say

Randstad [RAND.AS], the Dutch staffing agency, could be on the lookout for further M&A targets, De Telegraaf reported citing analysts at Credit Suisse.

The Credit Suisse analysts, however, flagged Randstad's management capacity as a potential hurdle to acquisitions, the item added. In its report Credit Suisse expects 4.1% organic growth in Randstad's turnover in 2017.

Degroof Petercam analyst Marcel Achterberg also sees potential for M&A, as Randstad is currently behind the curve in the professionals sector, the Dutch-language article in De Telegraaf noted.

(JPM) European Aero & Defence - 2017 Airbus, Dassault & Zodiac Upgradded

European Aero & Defence - 2017

Turning more constructive on Civil Aero; remain selectively positive on Defence

For 2017 we adopt a more constructive stance on European Civil Aerospace (ECA). We upgrade Zodiac to OW from Neutral, and upgrade Airbus to Neutral from UW. We upgrade Dassault Aviation to OW (a hybrid civil aero-defence stock). We remain positive on the Defence industry and reiterate our OW ratings on BAE Systems, Thales, and Ultra Electronics.

* Civil Aero – what changed? (1) Whilst programme execution is still a risk for ECA in 2017, comments from some companies in late 2016 (e.g. MTU, Zodiac) suggest they are closer to the end of “the great product transition”

that has challenged the industry since 2014. (2) Many airlines lowered profit guidance / deferred aircraft deliveries in 2016, and some airlines could do this in 2017; but an improving economic backdrop probably provides respite to the airline industry as a whole. (3) The rally in the $ vs the euro and sterling in late 2016 is positive for the earnings of ECA companies.

* European Defence – many positives: (1) We believe a multi-year upturn in global defence spending is about to begin. (2) European Defence trades at a notable discount to US Defence. (3) Potential for significantly lower tax

rates in the US and UK. (4) UK Defence companies enjoy a 3-4% yoy benefit to 2017E EPS if the FX rate remains $1.25/£1.

* Airbus – upgrade to Neutral (PT to €68 from €55): Our comments above (“What’s changed?”) all apply to AIR as we enter 2017. But we still believe AIR has above average near-term execution risk and still see some downside risk to 2018E consensus. Hence, we upgrade to Neutral rather than OW.

* Dassault Aviation – upgrade to OW (PT to €1260 from €1100): DA’s shares underperformed in 2016 as investors digested a weak business jet market and slippage to fighter jet deliveries. 2017 should be another challenging year, but we think investors can now focus on 2018 and 2019. We see 2019E EBITA at 2x that of 2017E, driven by rising fighter jet

deliveries and better FX rates. Our updated SOTP model suggests attractive upside for the shares by end 2017.

* MTU Aero Engines – reiterate OW (PT to €140 from €125): We only upgraded MTU to OW on December 15, 2016, and take this opportunity to reiterate our more positive view. 2014-17 is a major investment period for MTU. But investors should now focus on the growth in EPS and FCF that MTU should yield from 2018. Our higher PT mostly reflects the improved FX rate (to $1.05/€1 from $1.10/€1).

* Zodiac – upgrade to OW (PT to €25.5 from €22): ZOD has been the 2nd worst performing ECA stock over the last two years as cost overruns put a major dent in EBITA for YE Aug 15 to Aug 17E. In late 2016, ZOD said it would return to more “normal” levels of profitability in YE Aug-18. We believe this is credible. Our higher PT mostly reflects an improved FX rate.

(Citi) Salvatore Ferragamo SpA (SFER.MI) — Tax Benefit from Patent Box

Salvatore Ferragamo SpA (SFER.MI) — Tax Benefit from Patent Box

Regime Drives Significant EPS Upgrade, TP Raised to €26.5 –

Reiterate Buy

Western Europe | Apparel, Accessories & Luxury Goods, Luxury Goods |

Buy

FY16-18E EPS raised by 14%/8%/7% to reflect adoption of favourable patent

box tax regime, TP raised to €26.5 — Last week Ferragamo announced the

conclusion of a renewable 5-year agreement for the “Patent Box” regime with

Italian tax authorities. A portion of the income generated from the direct and

indirect use of intangibles will be exempt from Italy’s ~31% corporate tax rate:

30% for FY15 (paid altogether with the FY16 tax reduction), 40% for FY16E and

50% for FY17-19E. We update our model accordingly and raise our FY16-18E

EPS by 14%, 8% and 7%, respectively. Based on our revised estimates and

sector multiple expansion since our last update, we update our valuation built on

a weighted average of: 1) DCF (50% weight, TP €23.2); and 2) sector peer

multiple (50% weight, TP €29.8). This points to a fair value of €26.5, the basis of

our new target price (raised from €23.0).

>>> Europe Pre-Market Indications

Indications:

MainFirst Pre Mkt Indications

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