(Exane) Capital goods : A Premium built on fear

The premium valuations of our construction exposed names are built on a fear of disappointment
from elsewhere in the sector. Yet the outlook for construction markets is uncertain too; we see
mixed signals coming from US non-residential and political risk in Europe is rising. Relative to the
Street’s expectations, growth could slow for construction exposed stocks next year, pressurising
their premium valuations. Legrand to Neutral (from O/P). Rexel the only O/P thanks to its self-help.
Mounting uncertainty on US non-residential
During the past six months we have seen mixed signals coming out of the US non-residential
market. Our analysis of the US non-residential market’s various sub-segments points to a
slowdown in the rate of its growth next year rather than an outright downturn. In the post crisis era,
North America has been a bright spot; a slowing of momentum could take many by surprise.
The European recovery is likely to be slower than hoped for, impacted by political risks
European construction activity has started to recover and overall demand remains well below its
normalized trend across a number of countries. However, political risks are likely to rise over the
coming 12 months, impacting the strength of the market’s recovery.
Relative earnings momentum no longer offers support
Over the past 12 months, our construction exposed stocks’ sector relative earnings momentum has
stalled, due to: 1) stabilisation of industrial activity; 2) resilient progression of margins elsewhere in
the sector; 3) a lack of positive surprise from construction volumes. Barring an industrial recession
we see little reason for construction stocks to regain their relative earnings momentum in 2017.
Construction stocks’ premium relative ratings are at risk barring a global recession
Building fittings stocks retain a record high premium rating (40%). We believe this highlights the
quality of those stocks, but also the bearishness of investors in respect of the demand outlook for
the rest of the sector. Barring a recessionary scenario, we struggle to see any relative multiple
expansion or earnings momentum for these companies. Legrand to Neutral from O/P; Kone and
Assa Abloy Neutral. O/P on Rexel reflecting the significant self-help potential in the medium term.

(Exane) Ubisoft : Brothers in Arms

All eyes on 29 September AGM and Vivendi’s hidden agenda
The Guillemot brothers (13.2% of capital, 19.2% of voting rights) will likely face off with Vivendi
(22.6% and 20.6% respectively) for the first time in public at this week’s AGM. The former wish to
keep Ubisoft independent while the latter has not submitted any resolutions despite making clear
that it wants Board representation; Vivendi will likely do so only at the AGM, for reasons unclear to
us (attempt to reduce opposition, wait-and-see attitude, wish for a gentlemen’s agreement?).

A creeping takeover by Vivendi: the worst case but still an unlikely scenario
A creeping takeover by Vivendi is clearly the worst case for our call on Ubisoft but this looks
unlikely (10% probability in our view vs 70% for Vivendi failing to enter the Board). We think that
Ubisoft investors are unlikely to back Vivendi given the potential conflict of interest and Mr Bollore’s
proven track record in creeping takeovers (think Havas, Vivendi, TI). As such, we continue to
believe Vivendi, which seems to have big ambitions in video games, will have to launch a takeover
bid at an attractive valuation (EUR45-50) to gain control of Ubisoft, as it did with Gameloft.

FY16/17 shaping up to be another strong year
After the AGM, investors will likely shift their focus back to operating trends. The positive buzz
surrounding Watch Dogs 2 (due on 15 November) and Ghost Recon Wildlands (8 March) and the
promising reception to the alpha version of For Honor (due in February) reinforce our confidence in
the strong line-up and delivery of guidance for FY16/17e (EUR1,700m sales, EUR230m operating
profit). These new highs should lend credence to the ambitious MT plan (sales of EUR2,300m,
operating profit of EUR440m in FY18/19e or a 20% operating margin).

We remain buyers – stars aligned for a further rerating – TP raised from EUR34 to EUR39.5
A unique play on video gaming listed in Europe, the stock continues to offer reasonable multiples in
our view (14x FY17/18e EBIT vs c.15x for EA and c.16x for Activision, which are trading at
historical highs) in light of its compelling growth story and speculative appeal. Our TP (raised to
EUR39.5) is now based on 12x FY18/19e EBIT of c.EUR440m, discounted back (vs 10x before).

(Citi) Shire Pharmaceuticals (SHP.L) — So far so good. Shares

Shire Pharmaceuticals (SHP.L) — So far so good. Shares discounting significant hemophilia erosion
Western Europe | Pharmaceuticals, Biotechnology | Buy
What's new? We hosted Shire at our 2016 European Healthcare Reverse Roadshow. Key topics included Xiidra, hemophilia, R&D, and US pricing. Baxalta marks a big step for Shire becoming a leader in rare disease (>65% of 2020e sales) and we value the combination at £70/share (WACC 8%, g=0%) with a bullbear of £82-33. We continue to believe headline risks from ACE910 (Ph III inhibitor-segment data expected early 2017 with non-inhibitor data in 2018) are baked into the share price. On our estimate, to get to the current share price requires an assumption Baxalta's hemophilia franchise declines up to -10% into perpetuity due to rising competition. We view this as pessimistic given underlying volume growth for the hemophilia market, pricing stability and pipeline considerations. Shire trades on ‘17 PE of c.12x for a 20% 17-22 EPS CAGR, we are 5-35% ahead of consensus. Xiidra: so far so good — While early in...

>>> Swedish shareholder association prefers ZF's offer Haldex over Knorr-Bremse'

Swedish shareholder association prefers ZF's offer Haldex over Knorr-Bremse's (translated)

The Swedish shareholder association, Aktiespararna, prefers ZF's offer for Swedish brakes systems company Haldex overKnorr-Bremse's, according to Dagens Industri.
The Swedish business daily cited a representative for the association, Asa Wesshagen, who said that Aktiespararna believes that Haldex's shareholders should either sell their shares on the stock exchange or accept ZF's offer.
She said that the association believes that the regulatory investigations for the Knorr-Bremse will take time which costs money and it is also more likely that the offer will fail. She added that the recommendation is not set in stone and that it could change if new information comes to light.
The paper reported that the announcement from Aktiespararna could significantly affect the ongoing bidding war for Haldex.

>>> Ubisoft looks for help from Govt of Quebec to derail Vivendi's takeover atte

Ubisoft looks for help from Govt of Quebec to derail Vivendi's takeover attempt

Ubisoft Entertainment, the France-based video game publisher, has reached out to the Government of Quebec for assistance in its attempt to derail a takeover attempt by Vivendi, the France-based media and content company, reported The Globe and Mail on its website Monday.
The report said that Quebec Premier Philippe Couillard's government is keeping an eye on the situation but is unable to get involved in such a situation that pertains to two private sector businesses. The report added that Ubisoft employs approximately 3,000 people in the province.
Meanwhile, the report indicated that a potential showdown could materialize on Thursday when Ubisoft holds its annual general meeting, which is slated for Paris, France.
According to the report, Vivendi, which has established a stake of more than 20% in Ubisoft, has requested seats on the company's board of directors.
As well, Vivendi has indicated that it wishes to talk to Ubisoft in a non-hostile fashion, insisting that it is not open to contemplating a 100% takeover of Ubisoft until, at the earliest, sometime next year.
Meanwhile, the report said that Ubisoft does not wish to add Vivendi to its board since it believes that Vivendi would, among other things, get in the way of its strategy.
The report cited Quebec Minister of Economy, Science and Innovation Dominique Anglade as saying that a hostile takeover attempt is never the best option. Anglade added that the provincial government's priority is to keep jobs in the province.
According to the report, Ubisoft announced in February that it was on the lookout for Canadian investors to help it fend off Vivendi. The takeover target, noted the report, spoke with approximately 12 possible investors. Unidentified sources have said that the Government of Quebec's investment arm, Investissement Québec, was one of the parties that Ubisoft contacted.
In addition to trying to find Canadian investors, Ubisoft has pursued other strategies to derail Vivendi's plans. For instance, Ubisoft's founding Guillemot family upped its stake to around 13% of capital and nearly 22% of voting rights. As well, the company obtained the support for its objectives from important shareholders.
Wedbush Securities analyst Michael Pachter said in the report that Ubisoft will pull out all of the stops to stay independent, which could mean merging into another entity as a standalone unit. The analyst added that Take-Two Interactive Software of New York, New York could be open to such a deal.

>>> Proton gets VW Group and Geely to enter bidding process

Proton gets VW Group and Geely to enter bidding process – report

Proton Holdings, the car manufacturing unit of DRB-Hicom [KLSE:1619], a Malaysian conglomerate, is getting VW Group, the German carmaker, and Geely, the China based company, to bid for a stake in the Malaysian carmaker, The Star reported.
The report, citing an unnamed source, said that the two carmakers were among several companies, namely Renault, PSA Peugeot-Citroen and Suzuki, looking to acquire a stake in Proton.

>>> What to look at today - 27th of September 2016

Dow-0.91% S&P -0.86% Nasdaq -0.91% Russell-1,09%
US Market closed lower ahead of first Clinton/ Trump debate. Pressure came from Europe after financials weakness pushed by DBK, The stock tumbled 7.1% and ended at a fresh all-time low. Participants favored a risk-off stance throughout the session, bidding Treasuries, gold, and safe-haven currencies. The CBOE Volatility Index (VIX 14.49, +2.20) jumped more than two points as investors sought some portfolio insurance ahead of some key macro events. Ten sectors ended in the red with consumer discretionary (-1.1%), health care (-1.2%), and financials (-1.5%) acting as the largest laggards. Conversely, defensively-oriented real estate (+0.2%) finished with the only gain. DIS -1.4% on news they could bid for TWTR. Volume were below average with 775mil shares. US after Hours SNX +8% and THO +1.4% higher following earnings/guidance, INFI +14% / PIRS +13% / KITE +10% on trial data news... SXL -6% on acquisition / offering news. US Future trading higher after the first debate as Clinton looked better. In Asia, China industrial profit growth widens to 19.5% V 11.0; Stats bureau keeps expectations in check by referencing low y/y base and warning about soft internal/external demand; PIMCO concerned over high China corporate debt.

Nikkei +0.52% Hang Seng +1% CSI +0.07% Shanghai -0.17%

Eur$ 1.1245 CNH 6.6804 CNY 6.6697 JPY 100.86 GBP 1.2977 CHF 0.97 RUB$63.7372 WTI 45.86 -0.17%

S&P +0.56% EuroStoxx +0.74% FTSE +0.62% Dax +0.64% SMI +0.40%

Macro :
- ECB’s Coeure Says He’s Not in Favor of Buying Bank Bonds: SZ
- Clinton, Trump Draw Stark Contrasts With Sharp Debate Attacks
- Mexican Peso Jumps, Gold Retreats as Clinton Seen Taking Debate

Keep an eye on :
- AC FP : Accor Plans to Create Youth Hostel Chain, Le Figaro Says
- BAYN GY : Mylan, Lupin Said to Weigh Bids for Bayer Dermatology Business
- BMPS IM : Monte Paschi Says Business Plan to Be Approved Oct. 24
- CBK GY : Commerzbank Overhaul Said to Include 9,000 Job Cuts by 2020: HB
- CNA LN : Centrica Still in Process of Selling Canada Gas, Oil Assets
- ACA FP : Credit Agricole Sells EU300M Bonds Changeable for Eurazeo Stock
- ENGI FP : Engie Wins Beijing Gas Contract Worth EU200m-EU300m: Figaro
- RF FP : Credit Agricole Sells EU300M Bonds Changeable for Eurazeo Stock
- FFP FP : Peugeot-Family Holding FFP Names Bertrand Finet to Mgmt Board
- GNFT FP : Genfit 1H Net Loss Widens, Co. Must Raise Funds for Elafibranor
- NOVOB DC : Novo Nordisk May Resume Double-Digit Growth From 2019: Thomsen
- ORA FP : Orange Belgium Names Arnaud Castille CFO; Werner De Laet Returns
- RBI AV : Raiffeisen CEO Says ‘Smaller’ Issues Left to Resolve on RZB
- ROG VX : Roche Gets 510(k) FDA Clearance for Treponema Pallidum Assay
- RWE GY : RWE’s Innogy IPO Has Demand for All Shares on Offer: Terms
- LOCAL FP : SoLocal Holders Group Plans Resolution to Oust Board: Figaro
- STL NO : Statoil Cancels West Epsilon Contract W/ North Atlantic Drilling
- GLE FP : France May Consider Partial Cut of SocGen Tax Rebate: Tribune
- HO FP : Thales Denies Railway Signalling Unit Was Ever Put Up for Sale

>>> Europe : Brokers Upgrades & Downgrades - 27th of September 2016

>>> Up
*ASHTEAD RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
*DIALOG SEMI RAISED TO BUY VS ADD AT ALPHAVALUE
*FRESNILLO RAISED FROM UNDERWEIGHT TO EQUAL WEIGHT AT MORGAN STANLEY
*KERING RAISED TO BUY VS NEUTRAL AT GOLDMAN
*ORANGE RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
*TARGA RESOURCES CORP RAISED TO OVERWEIGHT AT BARCLAYS

>>> Down
*EON CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
*GEMALTO CUT TO SELL VS HOLD AT BERENBERG
*SAGA CUT TO HOLD VS BUY AT CANACCORD
*SMURFIT KAPPA CUT TO HOLD VS BUY AT JEFFERIES

>>> PT Change


>>> Initiation
*NOVOZYMES RATED NEW SELL AT BERENBERG, PT DKK250
*SYNERGY RESOURCES CORP RATED NEW OUTPERFORM AT RBC CAPITAL

>>> Call
>> Stock
*ALROSA REMOVED FROM CEEMEA FOCUS LIST AT GOLDMAN
*CAPITAL STAGE ADDED TO BANKHAUS LAMPE SMALL-CAP ALPHA LIST
*HEIDELBERGCEMENT, INFINEON ADDED TO BANKHAUS LAMPE ALPHA LIST