(MS) Europe Equity Strategy - Spring Outlook – It's still tough!

We remain cautious on European equities given a weak macro and earnings backdrop, high absolute valuations and elevated risks. We upgrade large-caps and Pharmaceuticals to overweight and downgrade commodities. Financials are oversold and should benefit from ECB action.

We now forecast EPS to fall by a further 5% in 2016
We cut our 2016 EPS growth forecast from 1% to -5% reflecting weaker economic forecasts, a more downbeat outlook for Financials' profits and an increasing drag from commodity sectors. Even excluding the latter we see no EPS growth across Europe this year .

Absolute valuations look high – 2% downside to our new 12m index target for MSCI Europe
We believe absolute valuations are too high given the backdrop of weaker economic and profit growth and an elevated risk profile. Europe's median stock trades on a N12M PE of 15.8 and absolute valuations in general are
around 15% above the long-run average. Our new rolling 12m price target for MSCI Europe is 2% below current spot prices.

Upgrading Pharmaceuticals to overweight
Post the recent rotation some of the more defensive/quality areas of the market are no longer so overbought – e.g. just 30% of defensive stocks outperformed the market over the last 1M. We upgrade Pharmaceuticals to overweight – it is 2SD oversold, is the only defensive sector to trade below its long-run relative valuation average and should benefit from any rebound in USD.

Downgrading Commodities
We believe the recent rally in commodity stocks is vulnerable to renewed USD strength that our FX strategists expect. With the oil price looking overbought we downgrade Energy to underweight. We downgrade Materials to neutral, rotating from Miners to Steel.

Banks/Financials look oversold and should benefit from ECB action
Banks is the one unloved value sector that has continued to disappoint this year. With just 6% of Bank stocks having outperformed over the last month (a record low) the sector looks very oversold while relative valuations have only
been lower in 2000 and 2008. Recent ECB policy actions should help the sector and we reiterate our overweight on Banks. We upgrade Insurance to neutral.

Upgrading large-caps to overweight
We upgrade large-caps to overweight as we believe they offer one of the best risk-reward profiles for investors wishing to lower their beta. Mid and small cap stocks look increasingly vulnerable at this point having continued
outperforming recently despite weaker economic and credit trends.

(Exane) Special Sit. Florange/ Double voting right 01/04/2016

Why revisiting this highly-sensitive March 2014 “Florange Law” now ?
Because the historic shareholders of French companies would automatically become in position to receive double voting rights (VRs) from 1 April 2016, unless the past relevant EGMs approved the insertion in the bylaws of the “one share, one vote principle”
- activists willing to block Florange-related resolutions would have needed to federate at least 1/3 of expressed votes
- possible attributions are exclusively reserved to shares which remained held in registered form for a least 2 years
In a nutshell
• Specific financial difficulties “rule out” several theoretical disposal initiatives
EDF ,Vallourec ,Soitec ,Areva ,Eramet ,…
• In other cases ,the delivery of double VRs will on the contrary open up fresh placing opportunities
Orange ,Renault ,Air France ,Engie ,ADP ,Safran ,Eiffage ,….

Reuters - Exclusive: Energy Transfer has held talks to sell Sunoco - sources

Exclusive: Energy Transfer has held talks to sell Sunoco - sources


Energy Transfer Equity LP (ETE.N), the U.S. pipeline company that agreed to acquire Williams Companies Inc (WMB.N), has held talks to sell gas station and convenience store operator Sunoco LP (SUN.N), according to three people familiar with the matter.

While these discussions were preliminary, they underscore Energy Transfer's efforts to bolster its balance sheet after a plunge in oil prices made its pending acquisition of Williams more financially burdensome than it previously envisioned.

Energy Transfer held conversations to sell Sunoco earlier this year after it was approached by at least one interested company, the sources said this week, who asked not to be identified because the deliberations were confidential.

Energy Transfer and Sunoco did not respond to requests for comment.

The potential sale would have involved Energy Transfer's ownership of the general partnership of Sunoco, which could be valued at more than $2 billion, the people said.

A 36.4 percent stake in the limited partnership in Sunoco owned by Energy Transfer Partner LP (ETP.N), a master limited partnership, would also have been divested, the people added. Sunoco has a market capitalization of $3.3 billion.

The discussions about a sale never advanced because of disagreements over Sunoco's valuation, the people said, cautioning that Energy Transfer may choose to revisit the potential divestment if it receives new interest.

Sunoco operates about 900 convenience stores and fuel outlets in eight U.S. states, offering merchandise, food service and motor fuel. It also distributed about 7.6 billion gallons of motor fuel across the United States in 2015.

Logical buyers for Sunoco's gas station network could include Canada's Alimentation Couche-Tard Inc (ATDb.TO), Valero Energy Corp (VLO.N) or Tesoro Corp (TSO.N), sources said.

An Alimentation Couche-Tard spokeswoman, Karen Romer, said the company was always looking for acquisitions, but would not comment on whether the company had approached Energy Transfer with an interest in Sunoco. Tesoro also declined to comment, while Valero did not respond to a request for comment.

Energy Transfer's acquisition agreement with Williams in September valued the latter at $33 billion in stock and cash. Since then, pipeline company stocks have been pummeled as their oil exploration and production clients suffer from low oil prices.

In the wake of the selloff, the implied value of the deal is now $14 billion. As a result, the $6 billion cash portion of ETE's deal with Williams, which is scheduled to close in the first half of 2016, has gone from a minor consideration to a major portion, nearly half of the deal's value. A sale of Sunoco would help Energy Transfer recoup much of that cash.

Energy Transfer is not able to walk away from the deal, under its current terms. But Williams shareholders still need to vote to approve the deal. Williams has not yet set a date for the shareholder vote.

In another move to raise cash, Energy Transfer disclosed this week that a minority of its shareholders, including its billionaire chief executive Kelcy Warren, would receive convertible units in the company in exchange for foregoing some of their dividends for up to nine quarters.

Williams responded by arguing that it had offered to work with Energy Transfer to develop a way to finance the deal that is more beneficial for both companies investors.

Former Energy Transfer Chief Financial Officer Jamie Welch, who was fired last month, sued the company this week for breach of contract, saying he believes his "termination was motivated by an agenda unrelated" to his performance. The company has not made any public statements about why Welch was terminated.

>>> Metso and Weir merger could be on again – Talouselama

Metso and Weir merger could be on again - Talouselama

Metso, the Finnish industrial company, could re-start merger talks again with the UK-based Weir, according to Talouselama.

The Finnish-language reported an unsourced analysis piece about the company’s prospects, saying that the company can afford acquisitions worth up to EUR 500m.

It said that Weir was interested in acquiring Metso two years ago but one of the key owners, the Finnish state, was not keen on selling the company.

The situation is now different because of new government policies. The publication said that the valuation of Weir has also lower tha previously, which means the two companies are worth around the same.

The fundamentals of the merger are still same and the fusion could still make sense but this time it would be on Metso’s conditions.

Talouselama

>>> What to look at today - 14th of March 2016

Asian equity markets, particularly those of Shanghai and Japan, are firmly in the green as more disappointing economic data from China hardly dislodged the "short-covering" rally that is now more than a month old. Instead, investors appear to be encouraged by rhetoric from the PBOC maintaining the "easing bias" component of its prudent monetary policy and the new head of CSRS promising to support equities(Liu said it was too early to consider pulling state funds out of stock market, promising to act decisively against abnormal market volatility). China economic data out over the weekend was largely disappointing. Industrial output growth was the most underwhelming, falling to its lowest levels since 2009, even as the key power generation component returned to positive of +0.3% v -3.7% prior. Retail sales were also soft at an 8-month low.Ahead of tomorrow's BOJ decision, Japanese press noted the central bank is considering whether to exempt $90B in short-term funds from negative interest rates due to concerns that investment funds are being funneled from "money reserve funds" (MRFs) to bank deposits

Nikkei +1.74% Hang Seng +0.97% Shanghai+1.67%

Eur$1.1160 CNH 6.4896 CNY 6.4942 JPY 113.76 GBP 1.4365 CHF 0.9840 RUB$ 70.0750 WTI $38.21 (-0.75%)

S&P -0.15% EuroStoxx+0.39% Dax+0.53% SMI+0.28%

Macro :
Iran on Oil Freeze: ‘Leave Us Alone’ Until Production Higher
Savills Says H.K. Luxury Property Price May Drop Up to 30%: HKET
ECB Giving ‘Final Shove’ to End Crisis: ABI Head to Messaggero
EU Says China Gave Some Clarity on Steel Cuts, Must Do More
U.K. to Cut Welfare by GBP1.2b by 2020: Telegraph
ECB Measures to Spur More Lending, UniCredit CEO Says: Stampa

Keep an eye on :
- AC FP : Colony Starwood Repeats Forecast; Sees $9m Savings on Job Cuts
- AIR FP : Airbus Chief Sees 5% Annual Air Traffic Growth Over 20 Years
- ALV GY : Allianz 2015 Board Compensation Almost Doubles to EU57 Mln: BZ
- ARYN VX : Aryzta Sees Erratic Revenue Development for Further 18 Months
- AZN LN : AstraZeneca CEO Said to Face Shareholder Revolt Over Pay: Times
- EN FP : Bouygues, Orange Close to Deal, Les Echos Reports - http://bit.ly/1QQVfEr
- CBK GY : Martin Zielke Named as New CEO of Commerzbank - WSJ
- ACA FP : Credit Agricole Tenders to Buy Up to EU4b Covered, Tier 2 Bonds
- DRTY LN : Fnac Planning to Improve Offer for Darty: Journal du Dimanche
- DB1 GY : LSE, Deutsche Boerse Deal Could Be Announced Monday, Times Says
- EDF FP : EDF Seeks French Govt Financial Support on U.K. Plant: FT
- EDF FP : EDF’s Hinkley Deal ‘Outrageously Expensive’, Ineos Tells Times
- ENEL IM : Enel to Decouple Its Gas-Supply Contracts From Oil Price: Welt
- ENI IM : Eni’s Goliat Starts Producing, Stavanger Aftenblad Reports
- EOAN GY : Germany Worried About Hacker Attacks on Utilities: Tagesspiegel
- FERR IM : Ferrero’s Reorganization to Start in May, Sole Reports
- FLU AV : IFM Offers EU100 per Flughafen Wien Share to Raise Stake by 10%
- HELN VX : Helvetia 2015 Underlying Profit Rises, Raises Dividend
- ITP FP : Interparfums Confirms Sales, Op. Margin Targets for 2016
- TFM US : Apollo Global Said to Near Deal to Buy Fresh Market: Reuters
- INW IM : Inwit 2015 Adj. Net EU83.9m vs Pro-Forma EU82.2m Y/y
- UG FP : FFP CEO Says Peugeot Stake to Remain Stable, Les Echos Reports
- RBS LN : RBS Cut 550 Jobs, Replace People With ‘Robo-Advisers’: FT
- RWE GY : Germany Worried About Hacker Attacks on Utilities: Tagesspiegel
- SAF FP : Safran Sees Flat Adjusted Recurring Operating Margin 2016-20
- SBRY LN : Sainsbury Set to Raise Bid for Argos Parent to GBP1.5b: Mail
- SIKA VX : Saint-Gobain, Burkard Family Extend Validity of Agreement
- SIKA VX : Sika Board Supports Proposal to Extend Special Experts Term
- SKAB SS : Skanska Said to Sell Stake in London M25 Contract: Sunday Times
- UBSN VX : UBS May Pay Higher Dividend From 2017 Onwards, Citi Says
- WWP LN : WPP’s Sorrell May Be Awarded GBP60m in Bonus, Sunday Times Says
- ZEG LN : Zegona Said to Offer More Than EU500m for Yoigo, Expansion Says

>>> Europe : Brokers Upgrades & Downgrades - 14th of March 2016

>>> Up
*ADECCO RAISED TO NEUTRAL VS SELL AT CITI
*ATRIUM RAISED TO BUY AT BAADER-HELVEA
*FLUGHAFEN ZUERICH RAISED TO HOLD AT HSBC
*HANNOVER RE RAISED TO HOLD VS UNDERPERFORM AT JEFFERIES
*INDUSTRIVARDEN RAISED TO BUY AT NORDEA
*SALZGITTER RAISED TO BUY VS HOLD AT BERENBERG

>>> Down
*ACACIA MINING CUT TO HOLD VS BUY AT HSBC
*ADMIRAL CUT TO UNDERPERFORM VS NEUTRAL AT BOFAML
*ADMIRAL GROUP CUT TO HOLD AT HSBC
*AMEC FOSTER WHEELER CUT TO UNDERPERFORM VS NEUTRAL AT MACQUARIE
*CABOT CORP. CUT TO NEUTRAL AT JPMORGAN
*DET NORSKE CUT TO NEUTRAL VS BUY AT UBS
*HEINEKEN CUT TO HOLD VS BUY AT ING; PT CUT TO EU80 VS EU85
*HOCHTIEF CUT TO HOLD AT HSBC
*RHON-KLINIKUM CUT TO HOLD VS BUY AT BANKHAUS LAMPE
*STAGECOACH GROUP CUT TO REDUCE AT HSBC
*VALEO CUT TO HOLD AT HSBC

>>> Reiteration

>>> Initiation
*CYBG PLC RATED NEW NEUTRAL AT JPMORGAN
*ENQUEST RATED NEW HOLD AT JEFFERIES; PT 15P
*GERRESHEIMER RATED NEW BUY AT BANKHAUS LAMPE, PT EU76
*ICADE RATED NEW BUY AT ABN AMRO, PT EU73

>>> Call

>>> Asian Update

Asian Market Update: CSRC, PBOC cushion China slowdown after more disappointing economic data; BOJ decision on tap tomorrow

***Economic Data***
- (CN) CHINA JAN-FEB INDUSTRIAL PRODUCTION: 5.4% V 5.6%E; 7-YEAR LOW
- (CN) CHINA JAN-FEB RETAIL SALES: 10.2% V 11.0%E; 8-MONTH LOW
- (CN) CHINA JAN-FEB FIXED URBAN ASSETS Y/Y: 10.2% V 9.3%E
- (JP) JAPAN JAN MACHINE ORDERS M/M: 15.0% (record high) V 1.9%E; Y/Y: +8.4% (3-month high) V -3.8%E
- (AU) AUSTRALIA JAN CREDIT CARD BALANCES: A$50.9B v A$52.1B PRIOR; CREDIT CARD PURCHASES: A$21.9B v A$27.6B PRIOR
- (NZ) NEW ZEALAND FEB PERFORMANCE OF SERVICES INDEX: 56.9 V 55.4 PRIOR; first rise in 3 months
- (KR) SOUTH KOREA FEB EXPORT PRICE INDEX M/M: 0.8% v 1.0% PRIOR; Y/Y: -2.0% v -1.5% PRIOR

***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +2.0%, S&P/ASX +0.6%, Kospi +0.1%, Shanghai Composite +2.6%, Hang Seng +1.3%, Jun S&P500 -0.1% at 2,009

***Commodities/Fixed Income***
- Apr gold -0.4% at $1,254/oz, Apr crude oil -0.3% at $38.39/brl, May copper +1.3% at $2.27/lb
- SLV: iShares Silver Trust ETF daily holdings rise to 10,135 tonnes from 10,076 tonnes; highest since Aug 2015
- (IR) Iran Oil Min Zanganeh: Iran will raise daily output to 4M barrels; Until then, "they (other major producers) should leave us alone" - ISNA (update)
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.4913 V 6.4905 PRIOR
- (CN) PBOC to inject CNY10B in 7-day reverse repos

***Market Focal Points/FX***
- Asian equity markets, particularly those of Shanghai and Japan, are firmly in the green as more disappointing economic data from China hardly dislodged the "short-covering" rally that is now more than a month old. Instead, investors appear to be encouraged by rhetoric from the PBOC maintaining the "easing bias" component of its prudent monetary policy and the new head of CSRS promising to support equities. Further strength in energy is also helping matters, though WTI took a bit of a stumble in electronic trade after Iranian oil minister stubbornly maintained that Iran remains on course to ramping up post-sanctions daily output to 4M bpd. In FX, USD/JPY traded in a 40pip range just shy of 114, AUD/USD opened in 0.7540s and rallied to 0.7580s, while NZD/USD has now erased most of the losses seen after the RBNZ rate cut to trade above 0.6750.

- China economic data out over the weekend was largely disappointing. Industrial output growth was the most underwhelming, falling to its lowest levels since 2009, even as the key power generation component returned to positive of +0.3% v -3.7% prior. Retail sales were also soft at an 8-month low, and while fixed urban asset investment topped consensus, the growth came from fiscal policy infused public sector. Property market recovery was steadfast, with property investment growth rising to 3% from 1% and construction up a healthy 13.7%. Stats Bureau attempted to write off the decline in output to seasonal factors and weak global demand along with reduced activity in sectors with overcapacity - namely steel and coal.

- Commentary from PBoC Gov Zhou and new securities bureau (CSRC) chief Liu supported sentiment. Zhou said the latest economic targets are in line with potential growth rate and also promised not to rely on exports - and implicitly weaker Yuan - for GDP growth. Zhou reiterated China monetary policy will remain prudent with a "slight easing bias". CSRC's Liu said it was too early to consider pulling state funds out of stock market, promising to act decisively against abnormal market volatility.

- Ahead of tomorrow's BOJ decision, Japanese press noted the central bank is considering whether to exempt $90B in short-term funds from negative interest rates due to concerns that investment funds are being funneled from "money reserve funds" (MRFs) to bank deposits. Recall Kuroda shocked global markets in late January with a -0.1% setting on excess reserves in a narrow 5-4 decision. While few expect the BOJ to take those rates deeper into the red, latest contraction in GDP and worries about another sales tax hike on the long-term horizon should keep Kuroda's finger on the trigger and the markets tuned in to every BOJ policy statement. Note that Abenomics support has also turned increasingly less popular since those negative rates were imposed by the central bank.

***Equities***
US equities / ADRs:
- TFM: Reportedly Apollo Global is finalizing deal to acquire The Fresh Market for $28.50/shr in cash or $1.3B - press
- ETE: Energy Transfer Equity had talks on potential sale of its Sunoco assets; talks didn't move forward because of disagreement on valuation - press

Notable movers by sector:
- Consumer discretionary: Car Inc 699.HK +5.8% (transfer share to Hertz)
- Financials: China Galaxy Securities Co 6881.HK +3.7% (Feb result); China Vanke 2202.HK +13.3% (acquisition, FY15 result); China Overseas Land 688.HK +2.9% (acquisition); China Resources Land 1109.HK +3.6% (Feb result)
- Industrials: China Resource Cement 1313.HK +7.5% (FY15 result)
- Technology: GCL New Energy Holdings 451.HK +3.7% (guidance); Sharp Corp 6753.JP -1.3% (expects to reach agreement with Hon Hai tomorrow)