TheChek News Flow

We upgrade Jeronimo Martins today on a) a stronger outlook in Poland driving higher EBIT forecasts and

good cash generation, and b) a positive €450m valuation for the Colombian business, Ara (previously

valued at zero), as we look in more detail at the operations. While the details of the Polish retail tax are

still undecided, we feel the risks are well known and the market may be too cautious on Jeronimo's

long-term ability to pass this through.

The repositioned businesses of Biedronka (evolving from soft discounter towards value supermarket) and

Pingo Doce (from affluent into value supermarket) are once again delivering sound LFL sales growth.

With deflationary pressures slowly easing and a more benign competitive environment, we expect salesdriven

margin expansion to continue. Sound cash-flow generation, lack of debt on balance sheet and the

possible disposal of its manufacturing and services business should boost ROIC and may also result in

another wave of special dividends, as seen in 2015.

While we expect Ara to be in the red until 2019, the business appears to be gaining traction with

customers as sales densities grew c.40% in 2015. However, this is from a low base and the business still

has some way to go before breakeven, we believe. Logistics challenges also remain as infrastructure and

cultural barriers in the country create complexity. The company intends to have 1,000 Ara stores in 2020

(vs. c150 currently) with c€500-600m capex over the five-year period (circa one-fifth of total capex).

Jeronimo has traded on an average EV/EBIT of 15.6x over the past 10 years, and if we adjust for the

negative impact of the loss-making Colombian business, then it currently trades on 13x EV/EBIT, on our

2017 forecasts. We value the business on a blended 16.6x EV/EBIT for 2017e, a premium to the sector's

11.8x, reflecting high returns and growth potential. Our price target rises to €16 as a result of: (1) higher

EBIT forecast; (2) lower net debt estimate; and (3) positive €450m valuation of Ara (zero previously).

** Day 1 of BAML BUSINESS SERVICES, LEISURE & TRANSPORT conference...........

* BRAVIDA - Bain Capital selling 20m shrs @ ; MS/Nordea joint bookrunners....

KUKA - Midea to offer EU 115 per Kuka share in cash, already own 10%.....+30%

FIAT - Chinese partner, GAC might consider buying majority stake of Fiat..+5%

DELTA LLOYD - Solvency ratio 154% should be enough to reassure the market.+5%

BURBERRY - FY16 PBT -10% is inline. Cost savings higher than expected...+2-3%

SSP - Good. Margin ahead +50bps v BAML +30bps, momentum & outlook strong+2-3%

ORIFLAME - Q1 EBITDA 5% beat at EUR 27.7m v 26.4m cons. Positive into Q2..+2%

G4S - Local media suggests making progress with sale of its Israel bus....+2%

DASSAULT AVIATION - We INITIATE with a Buy rating, PO €1,225 (20% upside).+1%

NOVARTIS - Phase 3 trial of LEE011 in breast cancer meets endpoint......+0.5%

MARSTONS - Inline, trading solid. 1H16 EBIT £70.5mn. Outlook in inline..+0.5%

GALLIFORD TRY - Building division wins 2 new contracts worth GBP 102m.....u/c

RATHBONE BROS - FUM reach £29.3b and fee income £37.7m, +8.3% YoY.........u/c

PERNOD - Confirms sale of the Paddy Irish Whiskey brand to Sazerac. No #s.u/c

SSE - PTP £1513m v £1512m. EPS 119.5p at top end of guidance. DPS 89.4p...u/c

UBM - Performing inline with f/c's. No detail apart from warranty claim.-0.5%

PHILIPS - Small +ive. Lighting IPO said to be covered on full deal size.-0.5%

SAFRAN - Said accepting bids for Morpho Unit according to Le Figaro.....-0.5%

CARLSBERG - Chairman says that brewer will remain independent; FT.......-0.5%

UK MINERS - Copper -1%, Iron Ore -1.8% with BHP OZ +1.5%, RIO OZ unch.....-1%

ARM - Announces the acquisition of Apical (computer vision) for $350m.....-1%

FRAPORT - CEO Schulte says EasyJet seeking slots. Maintains FY EBITDA f/c.-1%

SONOVA - FY EBITDA 430.6 v 437.6 cons. Expects EBITDA to rise 3-7% in LC-2-3%

WINDELN - Warning. Cut FY16 outlook implying c.14% cut to cons rev ests..-15%

MARSHALLS - UK revs +1%,well placed to deliver on targets,+tive outlook....UNCH

PATISSERIE - Strong H1,revs +14.4% £50m,PBT +20.6% £8.4m,sees FY inline.....+1%

PLAYTECH - daily avg revs inline,healthy M&A pipeline,confident outlook....UNCH

JOHNSTON PRESS - grp revs -13.7%,ad revs -16.9%,saw improvement in April...UNCH

SSP - LfL sales +3.3%,oper.pft +28% £30.9m,margins +50bps,H2 starts inline..+2%

SABMILLER - Fy ptp $4.07b(Est$4.58B).Fy divi 122c.Strong underlying growth..-1%

BURBERRY - Fy pbt 416m.Revs 2.5b.Divi 26.8p.Environment remained challenging+2%

COUNTRYSIDE - H1 revs 312.8m.Firmly on track to deliver 2016 expectations...+1%

MARSTONS - H1 ptp +11.8%.Int divi 2.6p.Says fy plans on track...............+1%

SAFECHARGE - AGM,Says Q1 rev and gross profit ahead of budget...............+1%

RATHBONE - FuM +0.3% £29.2bn,acquired inflows of £134m,fee income +8.3%....UNCH

Airbus M/P QATAR ceo saying walked away from 1st A320 neo delivery

AsraZeneca -1-2% Co says Lynparza didn't meet goal in Gastric Cancer

Burberry -2-3% £100m cost savings, £150m buyback, outlook cautious

Flug Wien M/P Q1 revenues, EBIT and EBITDA inline

Galliford Try M/P 2 contract wins totalling £102m

Genmab +0.5% Arzerra Expanded Use Gets Priority Review by FDA

Kuka +30%+ Midea offers to buy remaining shares at EU115, 36% premium

Leasinvest RE M/P Q1 net rental income and EPRA NAV inline, confirms FY

Marshalls UNCH No's inline, remians well palced to deliver initiatives

Marstons +1-2% PBT 33.1m vs cons 32.53m, revs 428.7m vs cons 418.5m

Miners -1% Copper -1.20%, Brent +0.05%, Iron Ore -1.55%, China -1.43%

Novartis +0.5% Says LEE011 in Breast Cancer meets primary endpoint

Oriflame M/P 1Q sales 305.8m cons 294.714m

Playtech M/P AGM statement and outlook inline with expectations

SAB Miller R Company reports numbers today

Sonova R Sales Chf2071.9 cons Chf2098, Proposed divi of CHF 2.10

Skyepharma M/P No's inline, expect strong growth in revenues for FY

SSP Group M/P LFL sales +3.3% maybe slightly light, outlook inline

SSE +2-3% Numbers inline but guidance very strong

UBM M/P AGM, Outlook for FY unchanged. Performed inline

We downgrade equities to Neutral over 12 months on growth and valuation concerns. Until we see sustained earnings growth, equities do not look attractive, especially on a risk-adjusted basis. We expect particularly poor returns in dollar terms, with our forecast of a stronger dollar and the prospect of less negative equity/FX correlations.

We remain Overweight cash on a 3-month basis, as we see potential for higher cross-asset volatility. Key risks include less China growth, a general pick-up of European political risk, a repricing of the Fed rate hike cycle, and

commodity price declines (in particular for metals). But we now expect less downside to oil over 3 months, given supply disruptions, and upgrade commodities to Neutral. Our key Overweight remains credit, where valuations and fundamentals appear supportive. We remain Underweight bonds and would hedge duration more actively, in particular in the US.

We highlight five conviction cross-asset themes for a volatile but trendless market: (1) prefer credit to equity, (2) focus on cross-asset carry opportunities, in particular EM, (3) position for pick-up in US inflation, which should drive rotation within equities, (4) oil to outperform metals and drive divergence in equities and credit, and (5) resurgence of divergence, with a focus on FX, which seems best positioned to benefit.

The French consumer fixed market is beginning to show signs of price rationality, with accelerating fibre investments supportive for ARPUs. Mobile trends were unsurprisingly weighed down in 1Q by heightened competitive intensity, but nevertheless delivered a +30bp q/q improvement in the MSR trend. Following the EU competition’s decision to block the UK O2/Hutch merger, we view the French telecom market in an increasingly positive (relative) light, given fading prospects of four to three mobile consolidation across Europe. France should benefit from fixed price repair, mobile bottoming out and a French competition authority that may yet take a supportive view on future M&A. We are OW ORA/ILD, EW NUM-SFR/EN.

French pricing – further signs of rationality. French fixed pricing is increasing, per our Orange – Prospects for price inflation research; Bouygues increased frontbook pricing €1-4/mth, NUM-SFR prices will increase €2-3/mth from mid-year, and ORA's newly announced 4k Livebox comes with €2-5/mth increases. With fixed capex set to rise, per Iliad - Capex in a co-financing world, continued fixed price rationality appears likely.

ORA (OW) – Prospects for price inflation: As ORA continues to take share with FTTH, competitors are raising prices to balance capex spending. Higher prices should offer a powerful value driver; we estimate each c.€1/mth ARPU increase is worth c.1% on group adj. EBITDA, per Bridge to higher profitability. Mobile conversely remains competitive, but ORA's mobile service revenues are tracking towards stabilization with 1Q16s -1% y/y a c.1pp sequential improvement. Trading on 5.7x 2016E EV/EBITDA, 12x OpFCF and 5.3% EFCF, we are OW with our €20 PT implying 32% upside potential.

NUM-SFR (EW): 1Q results were below expectations, but management commentary on the call was supportive of a material 2H16 inflection given: (1) tax unwinds; (2) further cost savings; (3) fixed and mobile price increases. We trim forecasts, leaving NUM-SFR trading on 7.7x 2016 E EV/EBITDA, 20x OpFCF and 3.4% EFCF. We are EW with our €33 PT (from €35 prior) implying 19% upside potential.

ILD (OW) – Broadband inflection: 1Q results delivered a further acceleration to +3.7% y/y in broadband service revenues, benefiting from ‘vente privee’ unwind and continued strong adds momentum. With capex a key cashflow driver for ILD, our published bottom up capex forecasts capture: (1) the ongoing mobile build-out, and; (2) accelerating fibre deployments. Our forecasts imply capex/sales falls steadily from c.27% in 2016E, and <€1.3bn peak capex in 2017E, per Iliad - Capex in a co-financing world. We are OW ILD, viewing the 8x 2016E EV/EBITDA multiple as attractive for a c.10% EBITDA CAGR stock. Our €230/shr PT implies 19% upside potential.

EN (EW): Bouygues 1Q results delivered positive telecom trends and rays of light in construction. Trading on 4.6x 2016 E EV/EBITDA, 11x OpFCF and 1.1% EFCF. We are EW with our €33 PT (from €36 prior) implying 11% upside potential.

* We believe industrial gases contract bidding discipline will be maintained in a low growth environment. As a result, the industry's defensive revenue stream, FCF yield, and return premium over WACC are sustainable. We review a decade of gas contract awards to ascertain end market demand, contract risk profiles, and changes in return metrics across the sector. Our preferred European Industrial Gas exposure is Linde (O/P, €151.5/share).

* Why are Industrial Gas returns lower? 1) Gas suppliers are passing through lower cost of financing to customers. However, ROCE/WACC spreads are holding; 2) Longer average project ramp up/larger projects: We estimate the average project size is +15% over the last eight years, average project construction time +20%. This weighs on the capital employed (ie: larger construction in progress on balance sheets); and 3) Underwhelming merchant activity – average utilization rates in the low 70's.

*

For all their qualities, in this market analysis we show the French grocers are hardly fraternal. Whilst regional, it is a franchised, locally priced, competitive, low margin French grocery industry.

We’re not unlocking any ‘trade secrets’ with the above summary. What we do show in our detailed regional analysis – courtesy of store-level Nielsen data – is that Carrefour is the clear #1 operator, on average, by region, not just at a national scale. That results in scale where it matters. Carrefour may have its faults but, structurally, it should be competitively advantaged.

Carrefour may be numerically the biggest, but Leclerc is the best…in brand and price perception, and in reality. However, that price advantage is somewhat distorted. We show pricing is heavily influenced by wealth, or rather the regional costs relating thereto. Leclerc’s geographic exposure to less affluent regions helps its pricing, though isn’t the defining factor in its success.

With the bulk of Casino’s profit coming from the Ile de France, focus understandably is on on-line’s advance and Carrefour’s acquisition of DIA. Whilst some impact is expected, we show that <25% of Casino’s Franprix stores likely will be impacted by Carrefour’s DIA conversions.

Given its regional nature there’s a surprising degree of overlap for most operators. That said, the buying group of 2014 made a degree of geographic sense, most notably Auchan and Systeme U.

With further consolidation (beyond the buying collaborations) unlikely, we think the French market will remain highly competitive, but with structural reasons for Leclerc and Carrefour to win-out.