TheChek News Flow

Expect continued strong EPS growth and cash generation. Reiterate as top pick in media sector

media sector. Following strong Q4 15 organic growth momentum (+4.9%)

and solid FY15 results we continue to expect good EPS momentum with 15-

17E EPS CAGR of c10% (ex impact from likely bolt-on M&A in ‘17). We

also expect continued strong EqFCF generation and shareholder returns with

2016E/17E div. yield of 3.4%/3.7% & 3% buyback in 2016E. Despite these

attractive characteristic WPP trades in line with the market on 2016E/17E P/E

of 14.7x/13.5x and an EqFCF yield (pre-bolt-on M&A) of 7.8%/8.1%. We

increase our 2016E/17E Net Income estimates by 1.3%/2.0% (Table 1) and

bring our WACC estimate inline with the rest of our large cap coverage (8.5%

vs 9.0%). However, we take a more cautious view on 2016E net debt and

share count. Net-net we increase our multiples and DCF derived Dec-16 price

target by 4% to 1,835p, implying 19% upside.

 Positive 2016 growth outlook. Management sees 2016 organic net sales

growth of over 3% (JPMe 3.4% y/y) with January net sales tracking just

behind this at 2.3% y /y due to strong 2015 comp and expected phasing

during 2016 (with Euros / Olympics / US presidential election). Group M

forecasts 2016 ad-spend growth of +4.5% y/y, 110bps ahead of 2015’s rate.

 Margin expansion on track with management targeting +30bps margin

expansion in 2016 vs +40bps achieved in 2015 (at cons FX). The main

drivers are costs savings from operational effectiveness and efficiency

programmes in 2016/17 (expected to deliver savings of c.£30m/£51m).

WPP acknowledged pricing pressure from the recent account reviews but

maintain its long-term margin target of 19.7% (JPMe max margin of 18.7%

in 2022E) given the significant cost saving potential still within the group.

 Many different levers provide robust EPS outlook: Management

reiterated its long-term guidance of achieving 10-15% EPS growth through

four levers in 1) organic growth; 2) margin expansion; 3) buybacks; and, 4)

M&A. We note WPP achieved a 14% EPS CAGR between 1993 & 2015.

 Use of cash. We expect c£400m of small to mid size acquisitions in 2016E.

We also expect WPP to achieve its 50% payout target in 2016 (3.4% div

yield) on top of a 3% buyback.

New Information on Casino Casts Additional Doubt on France Recovery; Governance Problems in Brazil Appear Larger than Admitted

• Based on new information, we are revising downward our estimate of 2014 adjusted France retail EBITDA by 9.1%.
• Our investigators uncovered strong evidence that indicates in H2 2015 Casino has stretched payables to its suppliers in France to levels beyond what was typical of Casino, and generally accepted in France.
• Casino’s announced sale of its crown jewel stake in BigC Thailand validates our thesis that the company is hollowing itself out in order to sustain the debt load largely held at the parent level and at Rallye.
• Our investigators found evidence that the accounting and governance problems with Casino’s consolidated subsidiaries Cnova and GPA in Brazil are likely much greater than have been disclosed, and that these problems are likely attributable to Casino’s decision to force out GPA Chairman Albio Diniz, son of the company’s founder, in 2013. The information our investigators collected certainly calls into question Casino’s ability to operate its far-flung retail empire, and its willingness to be forthright with investors.
• We found a strikingly similar analog to Casino’s situation in that of Israeli supermarket chain Mega, where many mistakes by management led to the collapse of a once promising company. Like Casino, Mega was highly-levered, paid out unsustainable dividends, and has a questionable relationship with an affiliated property company.
• Casino’s management shows strong indications of deception toward investors on numerous key business issues. We engaged a behavioral analyst who worked for the U.S. Central Intelligence Agency to analyze Casino’s call transcripts and its responses to our prior analyses.

inclusion rationale was that we identified multiple, near term catalysts that

would reduce GLEN’s credit risk and drive an equity re-rating. Over the

period, GLEN concluded a $0.5bn precious metal streaming sale,

refinanced its $8.5bn one-year revolving credit facility on comparable

terms to those obtained in 2015, plus increased its 2016 disposal target to

$4-5bn (from $2-3bn in Dec’15). Over the period, GLEN’s CDS has fallen

from ~1,140bps to ~530bps. We expect further catalysts in H1’16, most

significantly the disposal of a 30-49% stake in Agriculture (JPM value at

$8.0bn on 100% basis), will reduce balance sheet risk and drive further

outperformance. Therefore with our catalyst driven investment thesis well

advanced, we remove GLEN from the AFL. However we remain

Overweight - the shares are still attractively valued at ~7x EV/EBITDA in

2016 at spot commodity prices, with an ~18% FCF yield.

* SAIPEM - EUR 270m, syndicate desk from rights issue, clean up trade........

BURBERRY - FT reports mystery investor had built c.5% stake, now below 5%.+5%

ESURE - PBT £134m, div light 11.5p v cons 12.4p but payout ratio only 70%.+2%

CLOSE BROS - Op profit +2%, winterfloods profitable & AM had net inflows..+1%

MENZIES - Mixed with turnover inline but PBT/EPS better. Div +4% to 16.8p.+1%

AIR FRANCE - Traffic stats inline, RPKs +5.3% YoY and ASKs +3.5% YoY....+0.5%

LINDT & SPRUNGLI - EBIT CHF 518.8m v cons 515.9, outlook org growth 6-8%+0.5%

TELEFONICA - Could IPO Telxius before July 1, inline with recent reports..u/c

WPP - Prelim Feb net sales 'well over 3%' inline. Sentiment positive......u/c

ACACIA - $20mn prepayment agreement with govt on corp tax, won't move dialu/c

JOHN LAING - Inline with PBT of £106.6m & 15% net asset value growth......-1%

RWE - Preannounced. Lignite outlook weak, npower solutions delayed........-1%

SYMRISE - EBITDA 6% below but org growth ahead, disappoints on outlook....-1%

SARAS - We INITIATE with Underperform, PO €1.1. Pure play EU oil refiner..-1%

CASINO - Muddy Waters says 2H has abnormal stretched payables to suppliers-1%

MINERS - RIO OZ -2.6%, BHP OZ -1.8% FMG -9.4% post weak Chinese trade data-2%

VONTOBEL - Asset Mgmt appoints Benkendorf as CIO, effective end of May....-2%

MERCK - EBITDA 2% ahead, EBITDA guidance of low double digits vs cons 16%.-2%

WORLDPAY - Higher OPEX & CAPEX, EBITA small miss but guidance unchanged...-2%

DIALIGHT - Revs touch weaker, op profit ahead £6.1m v bbg cons £5.8m......-3%

DIALOG SEMI - EBITDA 10% beat but Q1 guidance 8% below cons disappoints.-3-4%

ONTEX - FY15 inline, FY16 guidance cautious, could see c.5% cons d/grades.-5%

BRAMMER - FY15 revs inline, op profit a beat £33.9m vs bbg est £28.4m....-5%

CS:
BMW -1% Brilliance Feb Sales -31% yoy,

Bucher -1-2% Numbers light across the board, divi light

Burberry +5% 5% stake built, co hired advisors to defend from bid

Casino -1-2% Muddy Waters sees 'additional doubt' on Casino recovery

Close bros unch EBIT ahead, bank divis continues to grow

Dialog Semi -1-2% FY numbers fine, Q1 revs guidance looks light

Esure -1-2% Numbers fine, divi light, stock strong into numbers

Equiniti +0.5-1% Revs inline, EBITDA light, working capital good

Foxtons M/P FY inline, faalling volumes in London

Inficon M/P Q4 numbers inline, guidance looks fine

Lindt +1% FY numbers inline, magins better, confirms guidance

Merck -2-3% FY sales inline, 2016 guidance disappointing

Ontex -3-5% Numbers light, net debt better, divi light, CEO sells stock

Paddy/Bet M/P Very much inline, Betfair solid

RWE M/P Already pre-announced, detail shows a few one offs

SAS +2-3% Q1 rev inline, loss better, SI >30%

Symrise -1-2% Sales inline, EBIT light, divi light
UK Banks -1% BOE said it will offer extra liquidity around EU referendum

Valora +2-3% revs light, EBIT ahead, guidance inline

Vontobel -3-5% Rajiv Jain has resigned and will leave the firm in May

Wier unch Continued takeover speculation (daily mail)

Worldpay -1-2% Solid maiden results, expectations were high, CS broker


ShoreCap:
BURBERRY - puts bid defences up after mystery stake holder goes through 5%..+4%

FOXTONS - grp revs +4.1% £149.8m,PBT -2.6% £41m,encouraging pipeline.......UNCH

ESURE - written premiums +6.3% £550.3m,PBT +29.7% £134m,gd start to 2016....+1%

BRAMMER - sales -0.9%, oper.pft -17.7%,incurs £11m exceptional charge.......-2%

WPP - gives further trading update showing LfL rev growth over 3%..........UNCH

DIALIGHT - oper.pft -66%,scraps final divi,targets EBIT growth in 2016......-4%

WORLDPAY - rev +9%,oper.pft +34%,growth in all key segments,gd start to '16.+2%

CLOSE BROS - H1 adj op pft 111.2m.Divi +6%.Outlook in line.................UNCH

TYMAN - Fy op pft 51.4m.Revs 353.4m.2016 has started in lien with f'casts..UNCH

JOHN MENZIES - Fy ptp 18.2m.Fy divi +4% 16.8p.Confident statement...........+1%

PADDY POWER BETFAIR - says group trading in line with forecasts............UNCH

GRESHAM COMP - total revs +16%,CTC licence rev +212%,PBT +243%,well placed.UNCH

VERTU MOTORS - sees FY trading ahead of mkt expec,new vehicle LfL +6.5%.....+5%


Investec UK:
* ACACIA-Agrees to prepat Corp. taxx(sml +ve)...............................+2%

* BRAMMER-FY.PBT 5% miss.10% D/G to FY16 PBT...............................-10%

* BURBERRY-To defend against t/o after mysterious investors 5% stake(FT).+7-10%

* CLOSE BROS.-H1.#'s in line, despite tough environment.'Satisfactory' FY...+1%

* CRANWARE-H1. #'s in line.Record pipeline gives confident H2 outlook.....+2-3%

* DIALIGHT-FY.#'s ahead of our low end fcast.U/G FY16-18.Shs +10% yday....+1-3%

* ESURE-Prelims.#'s in line.+ve o/look for Go-Compare.......................+1%

* EQUINITI-FY.#'s inline with estimates.Well placed going forward...........U/C

* FOXTONS-FY: Rev/EBITDA small miss, encouraging sales pipeline............unch

* GULF KEYSTONE-Shaikan payment($15m) pos readacross to GENL/DNO..........+3-4%

* JOHN LAING-FY: PBT in-line with est';15.4% increase in NAV................+1%

* MENZIES-FY: Sales/EBITDA small miss, Gatwick issues now resolved..........+1%

* NMC HEALTH-Officially opens hospital in Khalifa City(In line).............U/C

* PADDY POWER-FY:Rev miss, PBT ahead(ex-Betfair), Betfair momentum.........unch

* PREMIER FARNELL-Appoints new Chief Exec,Jos Opdenweegh(Neovia Logistics)..+1%

* STAGECOACH-Loses £11m legal battle with HMRC over tax avoidance(FT).......-1%

* WALKER GREENBANK-Receives interim Ins. payment(£8m) for Dec. flooding....unch

Investec EU:
* AIR FRANCE-Feb passengers +6.3%,capacity +3.5%,load factor +1.4% YoY......-1%

* CASINO-Muddy Waters publishes fresh report,more doubt on accounting.......-2%

* DIALOG SEMI-Q4 u/l perf in line,Q1 rev guidance $230m-245m(est $258m).....-3%

* LINDT&SPRUENGLI-FY ebit inline,div Chf800(est Chf750), onfirms guidance...U/C

* MERCK-Q4 rev,div inline,ebitda 2% ahead. Guidance looks light,checking....-1%

* RWE-FY already preannounced, FY16 guidance reiterated, comment sent.......-1%

* SYMRISE-FY sales in line,ebit 3% light,div €0.8(est €0.9),confirms goals..+1%

* TEF-wants to speed up Telxius listing, sees €5bn valn (Expansion).........U/C


Mainfirst:
*RWE-Sales 48.6b(47.7),NI 1.13b(1.12),Reits 2016 f/casts,No Divi......-2%

*MERCK-Ebitda Ex 933.4m(912.7),Rev 3.46b(3.44),EPS 1.13(1.17).........-1%

*BUBERRY-Investor builds 5.4% stake,spec of potential t/o target......+7%

*SYMRISE-Sales 2.6b(2.6),Ebit 395.2m(408.6),Ebitda 572.2m(579.8)......-0.5%

*VONTOBEL-Rajiv Jain (CIO) leaves to pursue his own plans.............-0.5%
*TEF-To list Telxius before the 1st July says Expansion...............+0.5%
*ADP-Invited for exclusive talks on Vietnam's ACV 7.4% stake..........+0.5%

*LINDT & SPRUENGLI-Ebit 518.8m(519.6),Divi 800(750),O/G 7.1%..........+0.75%

*AIR FRANCE-Feb Traffic +6.3%,Passengers 6.3m,Transavia +10.7%... ....+0.5%

*DIALOG-Q4 Sales 397.2m(397),GM 45.6%(46),Ebit 81.3m(84.8),O/L lite...-4%

*JC DECAUX-Wins Dallas Fort Worth Airport Ad concession,no fins.......+0.25%

* Investment Case: We disagree with the consensus bull case on TI – we doubt that a change of control at TI will transform the business- with no easy fixes on costs - and currently a buyers' market for Brazil assets. We think the 3-Wind deal probably gets approved but wonder if things can get any better for TIM mobile anyway, after a doubling of front-book prices.

* However, beyond this consensus bull case there is a more interesting and potentially more rewarding upside case emerging. The Italian fixed broadband market appears to be finally waking up, growing on rising data usage and rising availability of high speed broadband. Cord cutting is already slowing slightly in response. TI is particularly geared to broadband market growth, with more new customers available to replace churn. If the broadband market recovers to European norms of +3-4pp penetration growth per annum, TI line loss should slow, helping EBITDA to stabilise on a sustainable basis, and arguing for a share price of up to eu1.2.

* This improving line loss trend would emerge gradually over the next year or so. Meanwhile the stock has rallied 20% from the CMD with Vivendi increasing its stake to 23.8%. Consensus also remains too high, in our view, due to Brasil. We therefore maintain our Neutral rating on the TI ord (TLIT.MI) and look for a better entry point. We upgrade our rating on the TI saver (TLITn.MI) from Underperform (a rating we had for several years) to Neutral with the shares having returned to a typical discount following the cancellation of the conversion plan.

* Valuation: 2016E 6.2x proportionate EV/EBITDA vs 6.6x for the sector. 2.4% adjusted equity FCF yield, vs 5.9% for the sector.