Amongst other factors, uncertainty around the UK Referendum has resulted in a number of investors exiting European equities. Pan-European equity funds have seen $32bn of outflows YTD at a time when global equity funds have enjoyed $14bn worth of inflows. Our work suggests that within equity markets, investors have already priced in a high probability of a potential vote to leave the EU.
Elevated risk premia: The uncertainty has manifested itself with both the equity risk premium and implied volatility on European stocks versus the US now near historical highs. In the UK, the PE discount on the FTSE 250 vs. FTSE 100 is now near financial crisis highs.
Domestic de-rating: Domestically focussed UK stocks have been de-rated vs. $-exporters to a 1 standard deviation low on PE. Our calculations suggest that investors are pricing in a near 20% decline in EPS for UK domestics. This is despite these stocks having enjoyed EPS upgrades recently, implying that a potential vote to leave is somewhat “priced-in”.
Referendum “in the price”: Similarly, investors have de-rated UK Discretionary stocks vs. Staples to levels that have been associated with a collapse in UK consumer spending growth to zero. That being said, if the UK were to vote to leave the EU, the impact on stocks would probably be negative. However, with betting odds signalling a declining probability of a “leave” vote, we feel that European equities, specifically UK domestic stocks, perhaps look underpriced. We add Next to our European recommended portfolio.
Asian Mid-session Market Update: Equities pushing to close May out on a strong note, while Aussie and Japan data show improvement
***Economic Data***
- (JP) JAPAN APR JOBLESS RATE: 3.2% V 3.2%E; Job-To-Applicant Ratio: 1.34 v 1.30e
- (NZ) NEW ZEALAND APR BUILDING PERMITS M/M: +6.6% V -9.8% PRIOR
- (KR) SOUTH KOREA APR INDUSTRIAL PRODUCTION M/M: -1.3% V -0.3%E; Y/Y: -2.8% V -1.3%E
- (KR) SOUTH KOREA APR CYCLICAL LEADING INDEX: 0.2 V 0.2 PRIOR
- (UK) MAY LLOYDS BUSINESS BAROMETER: 32 V 38 PRIOR
- (JP) JAPAN APR OVERALL HOUSEHOLD SPENDING Y/Y: -0.4% V -1.3%E
- (JP) JAPAN APR PRELIM INDUSTRIAL PRODUCTION M/M: +0.3% V -1.5%E; Y/Y: -3.5% V -5.0%E
- (AU) AUSTRALIA APR BUILDING APPROVALS M/M: +3.0% V -3.0%E; Y/Y: +0.7% V -6.7%E
- (AU) AUSTRALIA Q1 CURRENT ACCOUNT BALANCE (A$): -20.8B V -19.6BE; NET EXPORTS OF GDP: 1.10% V 0.7%E
- (AU) AUSTRALIA APR PRIVATE SECTOR CREDIT M/M: 0.5% V 0.5%E; Y/Y: 6.7% V 6.5%E
- (SG) Singapore Apr Credit Card Bad Debts (SGD): 27.5M v 29.6M prior; Credit Card Billings: 3.9B v 4.1B prior
- (SG) Singapore Money Supply M1 y/y: +0.7% v -1.8% prior; M2 y/y: 2.7% v 2.1% prior
- (SG) SINGAPORE APR BANK LENDING: S$589.8B V S$590.6B PRIOR
- (TH) THAILAND APR INDUSTRIAL PRODUCTION Y/Y: 1.5% V 1.0%E
- (KR) South Korea Apr Retail Sales m/m: -0.5% v 1.0%e; y/y: 4.2% (3-month high) v 2.9%e
- (JP) Japan Apr Vehicle Production Y/Y: -9.7% v +1.3% prior
- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 113.2 v 115.7 prior
- (NZ) New Zealand Apr M3 Money Supply y/y: 7.8% v 7.8% prior
- (MX) Mexico Apr YTD Budget Balance: 117.1B v -61.6B prior
- (BR) Brazil May CNI Consumer Confidence: 105.2 v 97.5 prior
- (BR) Brazil Apr Central Govt Budget Balance (BRL): 9.8B v 2.9Be
***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 +0.8%, S&P/ASX -0.1%, Kospi +0.7%, Shanghai Composite 2.4%, Hang Seng 1.2%
***Commodities/Fixed Income***
- Aug gold -0.2% at $1,212/oz, July crude oil +0.5% at $49.57/brl, Jul copper -0.4% at $2.11/lb
- (CN) PBOC SETS YUAN MID POINT AT 6.5790 V 6.5784 PRIOR; Weakest Yuan fix since Feb 2011
- (CN) PBOC to inject CNY120B in 7-day reverse repos
- (ID) Bank of Indonesia: IDR currency (Rupiah) is slightly deviating from fundamentals
- (AU) Australia MoF (AOFM) sells A$1.0B in 4.75% 2027 bonds; avg yield 2.3506%; bid-to-cover 2.05x
- JGB: Japan's MoF sells ¥2.09T v ¥2.3T offered in 0.1% (0.1% prior) 2-yr JGBs; avg yield -0.237%; bid-to-cover 5.52x
***Market Focal Points/FX***
- Asian equity markets push higher at mid-day after a subdued opening as stronger data and sentiment lend support to the region. Japan data was a bit stronger with household spending and industrial production coming in ahead of expectations while unemployment was inline. USD/JPY tested 110.79 on the date before finding support a little above 111. Markets continue to expect Japan to delay its sales tax hike until 2019, Japan Fin Min Aso said that the government and ruling parties are currently talking about sales tax and reiterated that PM Abe will make decision on sales tax when the time is right. Japan Opposition has submitted a no-confidence motion against PM Abe, though it is not expected to get anywhere.
- AUD/USD got a boost to 0.7250 with current account data showing that net export of GDP will be a positive 1.1% to Wednesday's release of Q1 GDP. Building approvals also showed a large improvement. Virgin Australia announced China's HNA was taking a 13% stake through a strategic agreement, which will reduce Singapore Air's stake to 20.1%. NZD/USD had about a 40pip range from 0.6732/0.6689, building permits saw a nice jump m/m after a prior decline.
- China markets remained strong into their break with the PBoC setting a weaker setting on the yuan. China officials reiterated their push towards open policy and reforms for currency. Hong Kong is looking into a better IPO review system in order to grow their pipeline.
***Equities***
US equities / ADRs: US markets closed for holiday
CPXX: Jazz Pharmaceuticals said to be close to a deal to acquire Celator for $1.5B - financial press
Notable movers by sector:
- Consumer discretionary: Hainan Airlines Co 600221.CN +1.9% (deal with Virgin Australia)
- Financials: FlexiGroup FXL.AU -7.9% (earnings update); Japan Post Insurance Co 7181.JP +2.4% (considers raising fees)
- Industrials: Toyota Motor Corp7203.JP ,'TM' +2.6% (Apr auto production); Virgin Australia VAH.AU +5.4% (enters into alliance with HNA); Takata Corp 7312.JP +2.7% (rules out bankruptcy); Bridgestone Corp 5108.JP +1.6%(agreement to purchase Speedy France); China Cosco Holdings Co 1919.HK +0.75% (update on restructuring)
- Technology: MediaTek Inc 2454.TW 1.4% (Q2 sales guide)
- Materials: Aluminum Corporation of China 2600.HK -1.3% (asset sales); Samsung C&T Corp 028260.KR -0.4% (to appeal court ruling)
- Energy: Nearmap Ltd, NEA.AU +10.2% (contract award)
Jazz Pharmaceuticals Nears Deal to Buy Celator for About $1.5 Billion
Jazz would pay roughly double Celator’s market value of about $740 million, a lofty premium for a company with a promising leukemia drug but no revenue
Jazz Pharmaceuticals PLC is nearing a deal to buy Celator Pharmaceuticals Inc. for about $1.5 billion, a large premium for a company with a promising leukemia drug but no revenue.
The deal could be announced as soon as Tuesday, according to people familiar with the matter.
Jazz would be shelling out about double Celator’s market value of roughly $740 million—a big price even in biotechnology, where acquirers often pay up for promising new treatments. Less than three months ago, Celator announced positive results for a clinical trial of a leukemia drug. The therapy, Vyxeos, aims to treat a blood cancer known as acute myeloid leukemia with two available drugs in a new formulation.
In mid-March, Celator, of Ewing, N.J., released data indicating the drug candidate prolonged the lives of patients. The news raised investors’ confidence that the compound would be approved by the Food and Drug Administration, and Celator’s share price rose more than 400% in a single day.
Celator subsequently sold new shares to raise money that it could use to bring Vyxeos to market, if it is approved. But some analysts still questioned whether the company, which doesn’t have any revenue, would have enough money to do that.
Jazz has a market value of about $9 billion and had nearly $1 billon in cash as of March 31. Formerly based in California, Jazz gained a foreign tax address due to its 2012 acquisition of an Irish drug company—a so-called “tax inversion” that moved its legal home to Ireland.
Such deals have been popular among drug companies, and many that struck them around that time have since become voracious acquirers in the U.S. However, Jazz largely sat out the wave of consolidation in specialty pharmaceuticals during the past two years. Its last major purchase was a 2014 deal for Gentium SpA, an Italian maker of drugs to treat rare diseases. Jazz spent about $1 billion to acquire Gentium.
But Wall Street has questioned what the company will do when its main product, narcolepsy drug Xyrem, loses patent protection. Executives have indicated they are interested in bulking up the company’s portfolio of cancer treatments, such as the one Celator is developing.
Jazz already sells two drugs for cancer patients. One is Erwinaze, a treatment for a blood cancer known as acute lymphoblastic leukemia. Jazz recently began selling a new drug in the U.S., Defitelio, which treats a rare but fatal complication of stem cell transplants given to certain cancer patients.
Jazz shares are down about 15% during the past year, though they have recovered somewhat from the broad selloff in pharmaceutical stocks last summer. The company posted $1.3 billion in revenue last year, a 13% increase over 2014.
There has been a steady stream of deal making in biotech even as merger activity among big drugmakers has slowed somewhat this year. Two weeks ago, Pfizer Inc. struck a $4.5 billion deal to buy Anacor Pharmaceuticals Inc., which is seeking approval from the FDA for an eczema treatment.
* E.ON, RWE to split up companies
* Govt wants to ensure utilities liable for nuclear shutdown costs
* Subsidiaries to have liability for parent companies (Adds details on companyrestructuring, bullets)
BERLIN, May 30 Germany plans to ensure that utility companies remain liable for the costs of shutting down the country's nuclear power plants even if they split up, government sources said on Monday.
The move, which will be announced on Wednesday, is designed to close a loophole ahead of the annual general meeting of E.ON on June 8, when shareholders will vote on plans to spin off the utility's power plant and energy trading unit.
Germany's No.2 utility RWE also plans to hive off its renewables, grids and retail units into a separate entity and sell a 10 percent stake in an initial public offering.
The German cabinet approved a draft law last year that ensures power firms will remain liable for the shutdown and decommissioning costs for as long as it takes, even if they spin off subsidiaries that own the nuclear entities.
However, there is some legal uncertainty as to whether this will still apply if the nuclear assets remain with the parent company, as E.ON and RWE now plan to make the case.
As a result, the statement on Wednesday is designed to ensure that the taxpayer will not have to fork out for the costs if the parent company goes bankrupt by ensuring that any improved law will still have a retroactive effect.
* Les deux autres actionnaires veulent faire le point sur
les intentions de l'Etat-source
* Discussions informelles mardi avec des représentants des
holdings Peugeot-source
* Tavares très satisfait de la situation actuelle à trois
par Gilles Guillaume
PARIS, 30 mai (Reuters) - Des représentants de la famille
Peugeot devraient rencontrer mardi l'Etat de manière informelle
pour faire le point sur l'éventualité d'une future recomposition
du capital de PSA PEUP.PA , a-t-on appris lundi de source
proche du dossier.
Les rumeurs sur ce que l'Agence des participations de l'Etat
(APE) entend céder prochainement dans son portefeuille vont bon
train, et l'hypothèse d'une vente de tout ou partie des 14% que
l'Etat détient dans le constructeur automobile a refait surface
récemment. Le ministre de l'Economie, Emmanuel Macron, n'y a pas
coupé court la semaine dernière en déclarant que l'Etat n'a "pas
vocation à rester indéfiniment au capital" de PSA.
"Après ces déclarations, il est normal que les différents
actionnaires de référence veuillent en savoir davantage", a
déclaré une source proche du dossier. "Il devrait y avoir des
discussions informelles mardi, ce qui ne veut pas dire que des
décisions soient imminentes."
Des représentants des holdings de la famille Peugeot
devraient y prendre part. La source n'était pas en mesure de
dire si le troisième grand actionnaire, le chinois Donfgeng
Motors 0489.HK , aurait des échanges semblables ce jour-là.
La recapitalisation de PSA, au bord de la faillite fin 2012,
s'est accompagnée de l'entrée au capital de l'Etat français et
de Dongfeng à hauteur d'environ 14% chacun, tandis que les
holdings FFP et EPF de la famille fondatrice Peugeot se sont
laissé diluer à 14% également.
Mardi dernier dans les Echos, et le lendemain lors d'une
audition au Sénat, Emmanuel Macron a souligné que la
participation de l'Etat, souscrite initialement pour 800
millions d'euros, avait doublé de valeur depuis 2014.
"Si l'Etat descend, la famille serait intéressée", a ajouté
la source, tout en précisant que tout dépendait du prix demandé.
Avant la recapitalisation de 2014, les Peugeot détenaient encore
plus de 25% de PSA.
"Je sais que la famille Peugeot est attentive", a ajouté une
autre source interne au constructeur. "En revanche, Dongfeng ne
semble pas vouloir augmenter sa participation."
UN EQUILIBRE DÉLICAT
L'accord initial de recapitalisation de PSA prévoit une
clause de "stand-still" qui interdit pendant dix ans aux trois
actionnaires d'accroître leur participation sans l'assentiment
des deux autres.
Parmi les hypothèses en présence, l'Etat peut donc vendre
directement tout ou partie de ses parts aux deux autres
actionnaires de référence, s'ils l'acceptent, les laissant ainsi
en tête-à-tête, ou favoriser l'arrivée d'un autre acteur pour
conserver la structure à trois qui a accompagné avec succès le
redressement de PSA. Il pourrait aussi placer une partie de ses
titres sur le marché.
Mais Emmanuel Macron doit aussi veiller à ne pas brusquer
une entreprise officiellement sortie de convalescence seulement
en avril dernier. "Nous avons le souci de maintenir l'équilibre
entre les actionnaires", a-t-il ajouté la semaine dernière dans
les Echos.
D'autant que la présence de l'Etat au capital reste
importante aux yeux de la direction du groupe, alors que PSA
vient d'engager avec ses syndicats un nouveau cycle de
négociations sur sa compétitivité.
"La collaboration entre les trois actionnaires de tête de
l'entreprise a extrêmement bien fonctionné (...) la gouvernance
a très bien fonctionné", a déclaré mercredi dernier à Reuters le
président du directoire Carlos Tavares. "La base actionnariale
de PSA est encore marquée par la présence de beaucoup
d'investisseurs court terme (...) PSA appelle de ses vœux une
base actionnariale la plus stable possible et de ce point de vue
là les trois actionnaires de tête de PSA jouent parfaitement
leur rôle."
Aucun commentaire n'a pu être obtenu dans l'immédiat auprès
du ministère de l'Economie, de l'Agence des participations de
l'Etat (APE) ou de Dongfeng Motors. PSA n'a pas souhaité
commenter ces informations.
Henkel: not coming unstuck
New chief executive must decide whether to change the group’s shape
Bayer’s Werner Baumann was not the only new chief executive to take up his post at the start of this month. On the same day Mr Baumann moved into the top office in Leverkusen, Hans van Bylen was tucking his feet under the desk at Henkel’s Düsseldorf headquarters. He too is a company veteran, and is also likely to be contemplating acquisitions to help drive growth — though almost certainly not on the scale of Bayer’s $62bn Monsanto bid.
Under Kasper Rorsted, Mr Van Bylen’s predecessor, Henkel steadily increased sales and improved margins but did not fundamentally change its shape. Its mix of revenues — from adhesives to personal care and household products — is broadly the same now as it was in 2008.
This time last year, Henkel missed out on an acquisition that would have changed this: a portfolio of P&G’s haircare brands that went instead to Coty for $12.5bn. That deal might also have helped Henkel achieve its sales target of €20bn by 2016, a goal that has since been effectively abandoned. The company now prefers to talk about achieving a compound-average rate of earnings growth instead.
It has not given up on acquisitions, and is reportedly bidding on haircare assets again. The target is Vogue International, owner of OGX shampoos and FX styling products. Vogue represents a useful test case for Mr Van Bylen. One of his main strategic challenges will be to find uses for Henkel’s growing financial firepower — by 2018, Liberum thinks it will have net cash of almost €4.5bn. Personal care products offset the inherent cyclicality of industrial glues. But they tend to be keenly fought over. The P&G brands fetched about twice their annual sales. Even Vogue, whose $2.5bn revenues are much smaller, is attracting bids from large consumer products groups. There is possibly less competition for household products, such as washing powders and detergents.
Henkel has been a disciplined acquirer in the past. And if Mr Van Bylen needed a warning about the dangers of overpaying or lurching in an unexpected strategic direction, he needs only look at the investor criticism directed at Mr Baumann.