What could Nestle say at its seminar to make us more positive?
* Another week of risk-off flows: $5.8bn equity redemptions vs $2.8bn bond inflows & $1.8bn precious metals inflows
* Defensive sector rotation: into utilities, REITs out of tech.
- Equities: $5.8bn outflows (6 straight weeks) (note $4.1bn mutual fund outflows and $1.8bn ETF outflows)
- Bonds: $2.8bn inflows (inflows in 11 of past 12 weeks)
- Precious metals: $1.8bn inflows (largest in 11 weeks) (inflows in 18 of past 19 weeks)
- Money-markets: $1.2bn outflows
>>> Equity Flows
- Japan: $0.6bn inflows (largest in 10 weeks) (2 straight weeks)
- Europe: $1.1bn outflows (15 straight weeks) (but smallest outflows in 6 weeks)
- EM: $1.6bn outflows (3 straight weeks)
- US: $4.9bn outflows (outflows in 5 of past 6 weeks)
- By sector, 13 straight weeks of REITs inflows ($0.5bn); 5 straight weeks of tech outflows ($0.5bn); largest outflows from healthcare in 7 weeks ($0.7bn)
>>> Fixed Income Flows
- $1.5bn inflows to IG bond funds (11 straight weeks)
- $1.3bn inflows to Munis (35 straight weeks)
- Small $0.1bn outflows from HY bond funds (3 straight weeks)
- First outflows from TIPS funds in 14 weeks ($0.2bn)
- First outflows from EM debt funds in 13 weeks (albeit tiny $38mn)
- Small outflows ($83mn) from Govt/Tsy funds (13 straight weeks)
ML
ASML - Positive read over from AMAT (+8% after hrs) on beat and raise.....+2%
YNAP - Relief Richemont does NOT announce divestment (owns c.50% stake)...+2%
CLOSE BROS - Loan book growth is fraction ahead of expectations at 4%.....+2%
LADBROKES - Coral merger gets prov. CMA approval if 350-400 shops are sold+2%
CREDIT SUISSE - We UPGRADE to Neutral, taking our PO to CHF 14.50 from 14.+2%
TOTAL - Total, Oil Search divide InterOil assets in $2.2bn deal...........+1%
INGENICO - Announces acquisition of Nera Payment Solutions for $88m.......+1%
ABERDEEN - CEO says resisting buyer interest to stay independent..........u/c
JOHN MENZIES - Group trading inline. Aviation ahead, Distribution below...u/c
DAIMLER - Revised '16 guidance lower, truck EBIT now significantly lower-1-2%
VOLVO - Negative read across from Daimler guiding trucks lower overnight..-2%
SPECTRIS - Disappointing with org growth decline of 4%. House broke d/gs..-3%
RICHEMONT - Very weak with EBIT 6% light, outlook soft and no buyback.....-5%
CS
Daimler -2-3% Warned on truck business after the close last night
Fiat -3% German minister doubts that "Fiat adhered to the rules"
IMI -1% Negative read from Daimler warning, 10% exposure to trucks
Ladbrokes +2-3% Better than expected CMA decision
Miners +2% US names had a 4.5% reversal from lows AUS names better
Unicredit +2% Considers sale of stake in FinecoBank
Richemont -3-5% FY sales inline but April update looks v weak
Santhera +2% Receives FDA fast track designation for Omigapil
SKF -1% Negative read from Daimler warning, 10% exposure to trucks
Spectris -1-2% LFL sales -4%, driven by Europe weakness
Swatch -3% Negative read from Richemont earnings
Volvo -2-3% Negative read from Daimler warning
Ypsomed -2-3% Results a good beat, guidance small light
Shore calls
BATS/IMB - plain packaging effective today,high court throws out challenge..UNCH
CONVIVIALITY - grp sales +137% £864m,sees EBITDA marginally ahead............+3%
MOSS BROS - trading inline,LfL sales +5%,margins strong +430bps..............+2%
HEADLAM - revs +4.5%,LfL +4%,margins inline,confident outlook...............UNCH
CLOSE BROS - loan book +4% in Q3,wins improved from difficult 1H.............+1%
SINCLAIR PHARMA - sales significantly ahead of prev yr,launches in the US....+3%
MENZIES - gd start to yr,trading inline,aviation revs +7%....................+2%
APPLEGREEN - Says 2016 has started well in terms of trading and development..+1%
SPECTRIS - LfL sales declined 4% in Jan-April period.Outlook unchanged.......-1%
LADBROKES - CMA extends deadline.350/400 shops may have to be sold..........UNCH
MainFirst Pre Mkt Indication
*RICHEMONT-Sales 11.1b(11.1),Net 2.23b(2.39),Div 1.7,o/l weak........-6%
*DAIMLER-Lowers Ebit for Trucks,due to weaker mkt,Grp Ebit unch......-1.7%
*ELIOR-In talks to buy Autogrill French railway concessions..........+0.5%
*DBK-Said to be probing some employee trades says WSJ................+1%
*CAIXABANK-To sell 144 Hotels for €1bln saya Expansion...............+1%
*INGENICO-Buys nera Payment Solutions for S$88mln,close in Q3........+0.5%
*SWATCH-Read across from Richemont...................................-3.5%
*VOLVO-Read across from Daimler comments.............................-1%
Richemont indicated -6.00% in Julius Baer Pre-market Swatch indicated -3.52%
We held our annual Consumer Conference this week. Of the European
beverages companies, we hosted ABI, Diageo, Heineken, Pernod Ricard,
Carlsberg, CCH, Stock Spirits and AG Barr. Our top picks remain
Heineken (OW, AFL) and Diageo in the large caps and AG Barr in SMID.
We are Neutral on Pernod Ricard, CCH and Stock Spirits and UW on
Carlsberg.
* Diageo and Pernod Ricard are currently losing share in the US, but
expect share to stabilise in FY17 before outperforming the industry in
FY18. Both companies are striving to stabilise or increase sales of their
vodka brands, with flavours expected to be a much lower part of total
sales. In China, PR does not believe it is losing share but it is too early to
comment on growth in FY17E, while Diageo's Baijiu is seeing strong
growth and its Scotch is expected to growth in FY17E on easy comps.
In India, DGE’s USL is expected to regain lost share in the MT, and PR
expects continued DD growth. Capital allocation is expected to be in the
form of consistent compounding rise in the dividend flow for DGE and
bolt-ons for PR.
* We are confident that Heineken can deliver above-average HSD organic
EBIT growth with challenges in Africa offset by strong growth in
Mexico and Vietnam, as well as cost savings. We do not expect FEMSA
to sell its stake in the S-MT. For Carlsberg, delivery of cost savings on
a sustainable basis remains the key issue. Mixed views on potential PE
entrance in the Central European beer industry with Heineken preferring
industry consolidation and Carlsberg believing that focus on cost (and
therefore price) would be constructive.
* CCH’s good performance in Nigeria and Italy is partially offset by
continued decline in Russia and challenges in Greece. Revenue
management and cost savings remain a focus. A.G. Barr’s priority is to
grow its market share in England & Wales, with emphasis on expanding
its range of SKUs in the grocery channel, supported by bolt-on M&A.
Stock Spirits is comfortable with consensus and expects to generate FCF
of at least €20m in FY16E.
Baxalta acquisition builds a more sustainable company, trading at a compelling valuation. Reiterate
OW, add to AFL
* Reflecting Baxalta acquisition, PT raised to £56, 36% upside, reiterate
OW, add to Analyst Focus List (AFL). We upgrade our forecasts to reflect
Baxalta acquisition. Following our Haemophilia deep dive, we find Core EPS
accretion of 4-6% 2017-20, with double digit accretion post 2023, the impact
of the Vyvanse genericisation halved, replaced by more gradual pressures
within haemophilia. Within Baxalta, we believe the market has overly focused
on the outlook for the haemophilia inhibitor franchise (only c.5% of NewCo
Revenues), and has overlooked the strong and sustainable outlook for
Baxalta's non-haemophilia franchise, c.20% of NewCo Revenues. After also
updating for Q1’16, we trim Core EPS for 2017, make significant upgrades
beyond. We now forecast a 2017-20 Core EPS CAGR of 13% (prev. 10%).
Over the next 12m, we expect the market to take a more positive view on
the sustainability of the Shaxalta growth outlook and anticipate a
* Our haemophilia model finds greater sustainability for Baxalta’s
franchise than the market fears. We introduce our new haemophilia
model, split by inhibitor and non-inhibitor patients, reflecting competitive
threats from new agents including Roche’s ACE910. For inhibitor Revenues
(only 5% of 2017e NewCo Revenues), we forecast a 2017-20 CAGR
decline of 20%. However, for the bigger non-inhibitor segment (c.20%
NewCo Revenues), we forecast Revenues almost flat 2017-20, with only a
mid-single digit CAGR decline from 2020-25 with competition to noninhibitor
patients not starting until 2019. Overall, we see total haemophilia
sales almost flat from 2017-20, and declining only single digit 2020-25.
* Strong outlook for Baxalta’s Non-haemophilia franchise overlooked.
We believe the market has overlooked the sustainability of the c.20% of
NewCo revenues from products outside haemophilia, i.e. Immunoglobulins
(IG), Albumin and A1PI. We see s these products growing 10% CAGR
2017-20, 4% CAGR 2020-25, sustainable growth, without substitution risk.
In particular, we see Baxalta’s HyQvia as the best in class IG, IG sales
growing from $2.1bn in 2017 to $2.8bn by 2020. Non-haemophilia assets
providing a long-term growth platform with high barriers to entry and
limited competitive threats, not reflected in the NewCo valuation.
significantly increases long-term sustainability. Mid-single digit Core EPS
accretion by 2020 is solid, if unspectacular. But more important is the doubledigit
accretion post Vyvanse. Trading on just under 12x 2017e PE, for 13%
2017-20e EPS CAGR, we reiterate our Overweight rating.
DAIMLER (N, TP EUR62.0): On already lowered consensus expectations for the Truck division, Daimler announced that Truck profit is now expected to be down significantly YoY, compared to prior guidance of flat profit only just given at Q1 results. This implies in our view that profit could be more than 10% below 2015's, which would mean less than €2.47bn. In our view, Daimler's expectations for the NAFTA market may have been too optimistic originally looking for -10% decline in class 6-8. New outlook for a -15% decline still looks hopeful. While the profit warning did not cite Europe specifically, The situation in Europe also appears to be deteriorating.
Reckitt Benckiser lost 1.2 per cent to £67.63 after Church & Dwight, the maker of Arm & Hammer toothpaste and Oxiclean detergent, denied receiving any takeover approaches.
Church was responding to a report that Reckitt was poised to offer $23bn for its US peer.
Analysts saw Henkel of Germany as by far the more likely bidder for Church, given Reckitt would face regulatory concerns about its effective global monopoly for condoms and has been targeting over-the-counter medicines rather than household brands.
Restaurant Group climbs on takeover talk
Restaurant Group was a gainer on Thursday on a retread of speculation that the Frankie & Benny’s owner could attracting interest from private equity.
Cinven and TA Associates were reportedly among the funds running the numbers on a potential bid for Restaurant Group, which was also rumoured to have knocked back an approach earlier in the year from Apollo, the US turnround specialist that owns Casual Dining Group.
Three profit warnings since January have halved Restaurant Group shares, putting the group on a sharp discount to peers based on expected operating earnings. The stock added 5.4 per cent to 335.4p, the highest since its most recent warning in late April.