TheChek News Flow

The recovery in the oil price means that Repsol [BME:REP] can afford to keep its ambitious disposals program on ice for the time being, said two energy advisers and a person briefed on the situation.

Crude oil prices are currently trading around USD 45 after hitting a high of USD 50 a barrel in June. Prices have traded as low as USD 30 after collapsing below USD 100 in 2014.

The ratings agencies have worked on an oil price assumption in the “low 30s,” said the person, adding that any price above that level helps Repsol’s metrics. The company could accelerate its disposals programme if its investment grade rating came under threat, this news service reported in May.

The recovery means that the Spanish oil company is less stressed overall, said the first adviser.

The Madrid-based company plans to sell assets that are not linked to the oil price to raise EUR 3.1bn for 2016-2018 and a total of EUR 6.2bn by 2020. The company is closing deals that will bring its disposals so far to EUR 2.8bn, or 90% of its target for 2016-2018.

Repsol is highly unlikely to put its North Sea business on the block, said both advisers, the person and two bankers. There has been a question mark over the business since news broke in May that China Petroleum & Chemical Corp (Sinopec) [HKG:0386] is seeking USD 5.5bn repayment from a joint venture with Talisman, which was taken over by Repsol in 2015.

The company said that Sinopec’s claim is “baseless” and is a remote risk. The litigation means that it would be very hard to find a buyer, even if Repsol decided to sell, said the first adviser and one of the bankers.

A depressed post-Brexit UK pound also makes UK oil and gas more attractive in the near term, as reported. Oil is a commodity that is traded globally, so local issues tend to be less important, said the second adviser.

Repsol does not have any further disposals on its radar in the short term, the person said.

Syngenta [VTX:SYNN] will be first in line to acquire assets that will be offloaded to secure competition clearance if Bayer [ETR:BAYN] moves forward with its acquisition of Monsanto [NYSE:MON], Syngenta CFO, John Ramsay told this news service.

Competition authorities will make Bayer divest canola, cotton and potentially also vegetable seeds assets with a total acquisition value worth several billion dollars in the event of a deal, Ramsay said.

Syngenta is keen to acquire the assets should they come up for sale and would be backed with financing from ChemChina, Ramsay said.

In addition to anti-trust issues, opposition from the German pharmaceutical company's shareholders could also stall Bayer's attempts to buy Monsanto, Ramsay said.

Syngenta looked at the anti-trust issues facing various potential combinations during Monsanto's attempts to acquire the Swiss company, Ramsay said. Merger authorities will more likely look at combined market positions in seeds and chemicals for particular crops rather than assessing the market impact of deals on a product-by-product basis, Ramsay said. This would result in a combined Bayer-Monsanto having a stake in certain markets that could be viewed as anti-competitive behavior, he said.

Gapping down
In reaction to disappointing earnings/guidance: OLN -22.2%, SKX -15.5%, ATHN -11.1%, P -7.2%, ALV -7.1%, FLEX-5.6%, GEL -5.4% (also commences registered underwritten public offering of 8 mln common units representing limited partner interests), SWKS -3.9%, PYPL -3.8%, COF -2.9%, SBUX -2.7%, GE -2.1%, CMG -1.8%, HON -1.6%, T -0.8%.

Other news:

Analyst comments:

Gapping up
In reaction to strong earnings/guidance: PFPT +12.2%, AMD +9.6%, EGHT+4.5%, VOD +3.8%, CLS +3.2%, SAM +2.9%,CRH +2.4%, ETFC +2.3%, STI +1.9%, SLB +0.5%, V +0.5% (also PayPal and Visa announce a U.S. strategic partnership; adds $5 bln to buyback)

Select drybulk stocks trading higher: EGLE +17.2%, DRYS +15.5%

Other news:

EU Commission authorizes sale of genetically modified soybeans in Europe 

The European Commission has granted import approval for Roundup Ready 2 Xtend soybeans. This milestone allows for the import and food/feed use of Roundup Ready 2 Xtend soybeans into the European Union. The European Commissions approval follows Monsantos February announcement of Chinese import approval. With both the EU and Chinese import approvals and the U.S. Environmental Protection Agency (EPA) in the final stages of review for over-the-top use, Monsanto can now look forward to a full system launch in the United States in 2017 and continues to be in a strong position to supply roughly 15 million U.S. soy acres when the selling season arrives. A full system launch also is planned for Canadian soybean growers in 2017 given the previous Canadian regulatory approval for Roundup Xtend with VaporGripTM Technology and XtendiMax herbicide with VaporGrip Technology.

Roundup Ready 2 Xtend is Monsantos newest soybean platform that includes tolerance to dicamba. This new dicamba-tolerant trait is stacked with the current GenuityRoundup Ready 2 Yieldsoybean trait technology, which offers farmers the highest yield opportunity with more beans per pod and more bushels per acre.

Post the close of the acquisition of Cablevision (CVC), Altice assets are now split 40/40/10/10 between France (SFR), USA (Suddenlink, CVC), Portugal and smaller markets (principally in Israel, Caribbean). In this note we review the coming quarter and carry out a deep dive on US broadband (and TV) pricing. Recent broadband tariff moves at Suddenlink in particular bode well for cable gross profit growth. We retain our Outperform rating on Altice OP PT €20/share (was €30) and Top Pick on SFR PT €45/share (was €54).

SFR (Top Pick PT €45, was €54). SFR has raised prices, is investing in 4G catch up, fibre coverage expansion which combined with 2H bias to cost savings should see them on track to deliver c€4.0bn EBITDA. We estimate that SFR will generate ~€0.75bn and ~€1.0bn FCF in 2016 and 2017 and that the shares trade on 5.5x EV/EBITDA and 8.3% equity FCF yield for 2016E offering potential upside. We lower our PT to €45.00/share (was €54.00) using a 2.0% terminal growth (was 3.0%) as we standardise assumptions across our coverage group.

Portugal and smaller assets. Portugal should face easier comps in the coming quarters reducing both enterprise and wholesale drag. Coming to resolution with NOS over access to premium sports cost remains a key driver for investors.

Picking battles - USA cable pricing. Along with our US colleague, Jonathan Atkin, we have done a deep dive on US broadband, dual and triple-play prices (see Broadband/Video Pricing & Product Update: 2Q16). Key to successful pricing is segmentation and the ability for cable players to driven higher gross profit by shifting consumers to higher speed broadband (on higher ARPU/gross profit) to mitigate risks from 'cord cutting' (consumers spinning down from high price TV bundles to cheaper OTT offerings).

Suddenlink moves in the right direction. Suddenlink has recently simplified its broadband offers to four tiers from 35mbps/US$39 per month, 100mbps/US$49, 200mbps/US$59 and 1Gbps/US$99 (with prices rising by US$5 per year, wifi-routers etc rented at US$10/month). Encouraging consumers to move to higher ARPU and gross margin broadband is key to cable profit growth.

Altice (Outperform PT €20, was €30). Altice has now closed the acquisition of Cablevision (CVC). Altice US cable assets combine high growth, lower competition Suddenlink and lower growth, more competitive urban franchise of CVC. We see future value creation driven broadly equally between FCF from France and USA, however more visible growth in the US, some initial easy wins on cost cutting at CVC mean we expect US trends to come into focus in the coming quarters. We lower our price target to €20/share (was €30) using an Sum-of-the-parts methodology compared with the prior method.

Altice and SFR — Mixing the good and the bad

Western Europe | Integrated Telecommunication Services, Wireless

Telecommunication Services, Telecommunications Operators

We reduce our TP on SFR to €23.5 (from €32.5), reflecting cuts in our forecasts.

We reduce our TP for Altice to €14.0 from €14.5 due mainly to our change in TP

for SFR. Both Altice and SFR remain Neutral-rated. In 2Q16, we expect Altice

group revenue to decline by -2.1% yoy excl CVC, which is a small improvement

on -2.7% excl CVC in 1Q due to moderating declines in France and Portugal

offset by slightly slower growth in the US on a tough comparable. We forecast

2Q16 EBITDA margin of 40.2% vs. 37.9% in 1Q with PT and SuddenLink making

a positive contribution to the margin mix. We expect core SFR revenue to decline

by -5.3% (from -6.1% in 1Q) despite the price rises applied to the subscriber

base during 2Q. Inclusion of Media sees the reported top line decline by -3.2%

and reported EBITDA decline by -7.9% yoy.