>>> US Early premarket gappers

Early premarket gappers

Gapping up: VBLT +36%, ONTY +31.9%, EXEL +9.9%, ARRY +5.8%, RIO +3.5%, BBL +3.5%, SDRL +3.2%, BHP +3.2%,YNDX +2.6%, MT +2.3%, FCX +2.2%, VALE +1.7%, LC +1.7%, RLYP +1.3%, STO +1.3%, WMT +1%, VRX +0.8%, AA+0.5%

Gapping down: SSL -9.3%, GFI -2.6%, WLL -2.1%, HMY -2%, SLW -1.4%, NEM -1.4%, DB -1.3%, ABX -1.1%, GDX -1%,BCS -1%, HSBC -1%, AUY -1%

(MAKOR) - Share Class Weekly: Focus on + RYA LN / - RYAAY US

June 6, 2016 

 

MAKOR - Share Class Weekly: Focus on + RYA LN / - RYAAY US

 

Focus Situation: RYA LN vs RYAAY US (Ryanair):  

 

We find the + RYA LN / - RYAAY US at a great level to set up.  Spread is currently trading at 1.105 (ie ADR trading at a 10.5% premium).  We think the spread fluctuates partly in line with the share buy backs of the company on the European line or the ADR.   

 

 

Have a look at the chart below:

 

- In February 2016 when Ryanair bought a large quantity of ADRs (red line), the ADR went from 2% premium to 910%

 

- Between March and mid-April 2016, Ryanair bought large quantities of both the ADR and the European line, and spread was stable in the range 8-10%

 

- Between mid-April and third week of May 2016, Ryanair stopped buying back ADRs and continued buying large quantities of European lines, and spread tightened back to 4-5%.

 

- Since third week of May 2016, buy back on the European line went down sharply, which led spread to return above 10% 

 

 

Click Here For Full Report 

 

  

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(JPM) Strategy : Global activity momentum is failing to pick up, constraining th

Global activity momentum is failing to pick up, constraining the upside for stocks

* Equities have seen very large outflows for a number of weeks now, vs bonds which have enjoyed significant inflows. This could be interpreted as a positive, as one could say that equities appear underowned, vs bonds which might be overowned. US EPS revisions have managed to stay in positive territory for the last 3 weeks. Given these and the fact that stocks have been consolidating the Feb/March gains for two months now, the question is should one look for another leg higher, such as the 10-15% tradeable rally we called for on 15th Feb? Our view is that risk-reward is not attractive for equities, as:
* 1) Activity remains sluggish. The latest business expectations reading within US services PMI is the lowest on record. The latest output reading within US manufacturing PMI is the weakest since Sep ‘09. The gap between CESI and SPX continues to be significant.
* 2) Chinese backdrop remains worrying. Activity rolled over again, iron ore price is down 30% from highs, A-shares are down double digit ytd, policy support is waning and Renminbi is very close to making new lows vs the USD.
* 3) US EPS revisions will not likely be in positive territory for long. The hurdle rate for the rest of ’16 is very optimistic – S&P500 EPS are expected by consensus to accelerate from $27 in Q1 to $32 in Q4, which would be a new all-time high. Even using these lofty consensus EPS projections, P/E multiple for S&P500 is at the top of the range, at 17.8x for ’16e, not offering much upside.
* 4) Bond yields are staying put. We need these to move up for equities to perform, in our view. Furthermore, the move has to be for the right reasons, i.e. growth turning up, and not just inflation. Yield curve is the flattest in eight years, which was typically not a good sign.
* 5) Tactical indicators are mixed. Retail outflows suggest positioning is light, but HF beta is in fact elevated, and speculators are net long SPX futures. Seasonals are not attractive and some of the upcoming event risks might end up being more of a problem than the equity market gives them credit for currently. VIX trading near lows is perhaps a sign of complacency.
* In terms of equity allocation, we are UW equities in balanced portfolios for ’16, our first UW equity allocation since 2007. We cut our multi-year, structural OW stance on 30th Nov and this year have a preference for credit vs equities.

(JPM) Wolseley - Downgraded to Neutral

Downgrading to Neutral; lacking both near term catalysts and compelling valuation argument

Prior to Q3, Wolseley had outperformed by 10% year to date. Despite the fact the stock was approaching what we viewed as fair value, it was our expectation that outperformance could continue, driven by an inflection in LFLs at Q3 and positive US news flow. However, slower current growth reported last week actually results in us cutting FY17E EPS by 2%. While the stock is off 8% in the last three days, we still only have 9% upside to our lowered price target. Given that we do not view the valuation as particularly compelling and we struggle to think of near-term positive catalysts, we are downgrading to Neutral from Overweight.

* What happened at Q3: Wolseley reported Q3 numbers in line with our expectations. US LFL sales were a touch lighter than our est. at +5% vs. our +6%, but the trading margin was comfortably ahead at 8.5% vs. JPM 8.2%. However, the group guided that US LFL growth slowed to +3% in April and Q4 to date to 2-3%, driving a group LFL of 1%. This was impacted by weather in HVAC and Waterworks, which together are 25% of revenue and pricing deflation of 3% vs. 2.3% in Q3 (JPMe: 2%).
* Changes to our estimates: We are cautious on extrapolating what is a very short period; however, we have cut our estimates to reflect 1% slower LFL growth in the US for the coming year, on the basis that pricing may be down more than the 1.5% we had assumed for H1 and based on current trends, Industrial looks likely to remain negative. Lower growth drives a cut in our DCF-based Dec-16 PT to 4,100p (from 4,300p).
* Cutting to Neutral: Wolseley currently trades on 13.7x our new 2017E EPS, inline with historical average. While we continue to view this as a multi-year share gain and margin expansion story, it is difficult for us to argue for meaningful near-term multiple expansion while earnings momentum is negative. The group is scheduled to report FY results on 27 Sept. Baring a sharp improvement in commodity pricing or industrial data, we struggle to think of positive catalysts between now and then.

(UBS) Kering - Investing in Gucci's €6bn vision

* Stock is pricing in limited EBIT growth at Gucci long term
Our Buy case on Kering is predicated on a recovery at Gucci together with optionality on a Puma disposal. Last Friday Kering hosted an investor day where it laid out ambitious plans to build Gucci into a €6bn brand. This stems from a complete product revitalisation and a store refurbishment plan leading to a 50% uplift in sales densities. The speed of change to date has been remarkable with 75% of all core categories now repositioned. We believe that the current share price is attributing limited growth at Gucci long term most likely given the difficult trading backdrop in luxury and fashion risk. Our base case reflects 4% EBIT growth at Gucci p.a. with our upside case of €208 per share reflecting the long term targets to reach €6bn of sales and an EBIT margin >30%. We see the risk reward as skewed to the upside here and reiterate our Buy.

* Gucci aims to be a €6bn brand long term
The brand targets sales to grow 4%-6% p.a. medium term. Over 75% of the move from just under €4bn of revenue today is envisaged to be driven by a 50% uplift in sales densities. We were surprised that these have fallen as low as €2,000 sales per square foot (historically €3,000 we believe). The new product launches and store concept (>80% uplift in sales densities in some cases) so far set the scene for success here. E-commerce will also support the growth. We were encouraged that the core leather goods category is now 75% repositioned and our UBS Evidence Lab pricing database suggests that 39% of SKUs in handbags are now from five new lines.

* Cost control and capex in focus; we estimate EBIT margins could be >32%
Despite ambitious top line plans, there will be strict control of costs and capex with opex expected to grow <4%-6% and capex <5% of sales. The brand targets a return to 30% EBIT margin medium term and >30% long term. Our calculations suggest that should the sales density targets be achieved an EBIT margin of at least 32% is possible for the brand. We see guidance of flat gross margin as conservative.

* Valuation: Trading at a 16% discount to the sector on 2017E P/E
Our price target of €177 is driven by a sum-of-the-parts valuation. We value Gucci, Bottega Veneta and Saint Laurent on DCFs (WACC of 7.3%, terminal growth of 2%) and Puma at a 20% discount to the current share price.

(UBS) Kering - Investing in Gucci's €6bn vision

* Stock is pricing in limited EBIT growth at Gucci long term
Our Buy case on Kering is predicated on a recovery at Gucci together with optionality on a Puma disposal. Last Friday Kering hosted an investor day where it laid out ambitious plans to build Gucci into a €6bn brand. This stems from a complete product revitalisation and a store refurbishment plan leading to a 50% uplift in sales densities. The speed of change to date has been remarkable with 75% of all core categories now repositioned. We believe that the current share price is attributing limited growth at Gucci long term most likely given the difficult trading backdrop in luxury and fashion risk. Our base case reflects 4% EBIT growth at Gucci p.a. with our upside case of €208 per share reflecting the long term targets to reach €6bn of sales and an EBIT margin >30%. We see the risk reward as skewed to the upside here and reiterate our Buy.

* Gucci aims to be a €6bn brand long term
The brand targets sales to grow 4%-6% p.a. medium term. Over 75% of the move from just under €4bn of revenue today is envisaged to be driven by a 50% uplift in sales densities. We were surprised that these have fallen as low as €2,000 sales per square foot (historically €3,000 we believe). The new product launches and store concept (>80% uplift in sales densities in some cases) so far set the scene for success here. E-commerce will also support the growth. We were encouraged that the core leather goods category is now 75% repositioned and our UBS Evidence Lab pricing database suggests that 39% of SKUs in handbags are now from five new lines.

* Cost control and capex in focus; we estimate EBIT margins could be >32%
Despite ambitious top line plans, there will be strict control of costs and capex with opex expected to grow <4%-6% and capex <5% of sales. The brand targets a return to 30% EBIT margin medium term and >30% long term. Our calculations suggest that should the sales density targets be achieved an EBIT margin of at least 32% is possible for the brand. We see guidance of flat gross margin as conservative.