TheChek News Flow

* Our economists expect this week’s data releases to support the narrative of a relatively resilient eurozone economy. Their PMI-based model suggests that GDP growth likely remained firm at around 0.3%Q in 3Q16 with small upside risks. In the UK, this morning’s manufacturing PMI numbers show a rise to 55.4, well above consensus expectations, which points to upside risks to current UK GDP forecasts for 3Q16. Also on Thursday the BoE will publish the results for the first week of CBPS at 3pm.

* European IG and HY mutual funds saw net inflows of 0.2% and 0.1% of AUM, respectively.

* European credit performance softened in September as central bank actions came into focus alongside concerns around DB towards the end of the month. Despite the strong pace of CSPP purchases and the start of the BoE’s CBPS in the final week of September, EUR IG, HY and GBP IG all experienced negative excess returns.

* European IG non-financial corporates issued a record €68bn of bonds in September across different currencies. Meanwhile European HY corporate issuance also picked up significantly, with €17bn of bonds pricing during the month.

* EUR IG mutual funds saw flat net flows, while EUR HY and GBP mutual funds experienced positive net flows of 0.7% and 0.4% of AUM, respectively. Meanwhile, cash balances increased in EUR IG mutual funds, even as EUR HY and GBP IG funds saw some moderation.

Proposals by the Valuation Office Agency (VOA) to apply materially higher business rates (local taxes) on infrastructure could lead to downside EBITDA risk for a number of the UK telecom operators and potentially reduce the incentive for infrastructure investment. The proposals were announced on 30 September and companies including BT and Virgin Media (LBTY) could potentially see a fourfold increase in their business rates longer-term. BT is currently appealing the issue.

The proposals would change the rateable values and multiplier that are used to calculate the business rate liability payable. BT has highlighted that under the current proposals they would see an effective increase in payments of £250m p.a., but with the increase phased in over a five year period. In a worst-case scenario, this would represent a potential 3-4% downgrade to EBITDA for BT longer-term. Infrastructure for Virgin Media only covers c50% of the country so their absolute payment p.a. would likely be lower than BT's, but they would likely be subject to a similar percentage increase. Virgin Media has EBITDA of c£2bn p.a.

Excluding any further revisions to the proposals, and assuming they materialise, we would expect the EBITDA impact on operators to be less than in the abovementioned worst-case scenario. In the case of BT, the changes would primarily relate to Openreach and markets that Ofcom regulates with charge controls. The increases in charges would

therefore be likely to be passed through to the retail divisions of BT and other wholesalers including Sky and TalkTalk. The impact on retail operator profitability would then depend on whether charges are passed through to consumers. For Virgin Media, it would not have the offset of higher wholesale revenues but may be able to pass the increase in business rates through to consumers.

Of the UK telecoms we remain cautious on BT given concerns around the pension and competition (footprint expansion by VMED in fixed line/Sky entering mobile). On

Vodafone we expect that operational gearing has been underestimated and believe

there is M&A optionality should VOD undertake a broader deal with LBTY. For Sky we

expect increased comfort on EPS momentum from FY17 to drive a rerating of the stock.

Recommendation: We are downgrading our recommendation on Thales shares from Strong Buy to Market Perform due to exhaustion of near-term potential positive catalysts, strong performance over the past 15 months since 3 July 2015

(+54% in absolute terms vs -6% for the SBF 120 index), little to no near-term EPS upside, and a broadly fair valuation on trading multiples. We are trimming our 2017 adjusted EPS estimate to reflect mild disposal, FX, and pension headwinds.

We regard Thales’ portfolio exposures, strategy, competitive strengths, and medium-term revenue growth prospects as being the best in large-cap European defence, but we see further price upside from these levels as being limited.

TalkTalk has announced new broadband pricing, a move that simplifies the proposition materially. This includes the ending of line rental (per announced Ofcom/Advertising Standards requirements), and offers two main products

(standard broadband and Fibre), with a free mobile SIM card for both, and bolt-on options for Calls, TV and Mobile. For some customers this will be a price increase and a cut for others. Customers do have the option to keep their existing tariff or migrate to the new ones, but we note a ca10% increase to legacy pricing, and new tariffs have an 18 months fixed price guarantee. This should support our 3.5% annual price increase estimates. We rate TalkTalk OW with a 350p price target.

BOFA-ML

** Day 1 of the ML BUILDING Conference. Please contact the desk for the agenda..
* ABERTIS - 43.8m shrs/ $680m priced at €13.65 (1% discount); UBS/BAML/JPM......

WIRECARD - Tweaks guidance up to €321-298m from €310-290m: +ve biz dev (47)..+2%

RYANAIR - Sept traffic +13%. Reit guide of yields to fall 10-12% (12.45).....+2%

DNB - We DOUBLE UPGRADE to Buy, with a new PO NOK 130/shr (>25% TSR) (106.5).+1%

CARILLION - Wins 7 yr contract worth £350m (roughly 1% per/yr of rev) (253.5)+1%

ABB - CMD. Increase margin target 200bps to 10-14%, reorganising divs(22.1)+0.5%

AXA - Ins Journal reports AXA has no intention to merge with rivals (18.8).+0.5%

DERWENT LDN - Prelet 2 floors at White Chapel at rents above June ERV (2590).u/c

MINERS - Copper +0.15%, Gold unch with BHP OZ +0.66% and RIO OZ +1.1%........u/c

NN GROUP - Sells Irish reinsurance portfolio to Canada Life Int'l Re (27.15).u/c

ERICSSON - To announce 3000-4000 jobcuts in Sweden today; SVT reports (61.35)u/c

GREGGS - Inline. Outlook remains unch but mgmt highlight cost pressures(1035)-1%

ASTRAS - Neg datapoint as Brilinta has -ve read in EUCLID trail for PAD(4940)-2%

CS Calls :

Abb +2% CMD - $3bn buyback, raises longer-term Power Grids margin

AstraZeneca -2% Brilinta did not meet primary endpoint of trial

Autos M/P US auto sales 17.8m vs estimates of 17.5m

Carillion M/P Wins £350m contract for Nationwide, 7 year contract

Deut Bank UNCH Closed +80 bps in the US (From 4.30)

Dong Energy +1% CS initiate with OUTPERFORM (Gains from wind farm sales)

DKSH +1% Appointed by P&G to sell and distribute brands in Hong Kong

Ericsson +0.5% To announce 3,000-4,000 jobcuts in Sweden, SVT reports

Fiat +1% Italy auto sales for September +20.5% vs avg 17.4%

Greggs M/P LFL 2.8%, trading and outlook inline

LVMH +0.5% Purchases 80% of luxury luggage maker Rimowa for EU640m

Miners +0.5% Copper +0.25%, Brent +0.95%, Iron Ore closed, China closed

NN Group M/P Sells Irish Reinsurance Portfolio to Canada Life

Roche M/P FDA Grants Breakthrough Therapy Designation for Alecensa

Ryanair M/P Load factor rises to 95% vs 94%, confirms recent guidance

SGS M/P Buys Axys, expected 2016 revenues in excess of CAD 12m

SSE +0.5% Rating affirmed by Moodys, outlook to stable from negative

Thom Cook +0.5% FOSUN increases stake to 9.01% vs prev 8.1%

Wirecard +1-2% Increases their EBITDA guidance

JPM:

ABB CMD. Retains grid,buyback slowing,cost saves increased by $300m -1%

ASTRAZENECA (BBG) Brilinta Didn’t Demonstrate Benefit Vs Clopidogrel -2%

AUTOS US SAAR Sept 2% ahead of cons. Incentives higher +17% yoy +1%

ERICSSON Co. to announce 3,000-4,000 jobcuts in Sweden today(SVT reports)+1%

RYANAIR Sept traffic stats showing slight acceleration from Aug +1%

SCHIBSTED Neg sentiment from Facebook Marketplace feature -1%

SKY FT highlights potential bid spec boosted by £ weakness unch

shore

SCS GROUP - sales +14.5%,LfL +14.8%,profits +17.3% £149m,sees FY in line....+1%

ASTRAZENECA - Bilinta did not meet primary endpoint.......................-0.5%

RYANAIR - September traffic +13%,load factor +1%...........................UNCH

REV BARS - revs +6.9% £119.5m,LfL +2.3%,PBT +10.8%,new year begins well.....+1%

JOURNEY GRP - under possible offer from Jaguar Holdings of 240p per share...+5%

GREGGS - Q3 lfl sales +2.8%.Says Fy forecasts unchanged,costs pressure ahead-1%

CARILLION - Wins 350m contract from Nationwide Building Society.............+1%

ST.IVES - Trading in new financial year has started in line with expec.....UNCH

QUANTUM PHARMA - sees FY performance materially below market expectations..-15%

WIZZ AIR - September passenger stats +17.9%...............................UNCH

GRESHAM COMP - looks to raise £3.3m in placing at 105p to fund acquisition..MKT