TheChek News Flow

Church & Dwight circled by Durex maker and Procter & Gamble 

Our cautious stance on Compass has not worked (shares +13% since early Nov vs peers +3%) and we believe recent results have sufficiently reduced downside risks to warrant a rating upgrade. We move from UP to N with a new TP of 1340p implying 6% potential upside plus introduce Blue Sky (1530p) and Grey Sky (1200p) valuations based on flexed 2018-25E organic growth assumptions.

Markets remain relatively more sanguine than polls on Brexit. However, the referendum has already weighed on domestic activity. Even more, a vote to leave could reduce trend GDP growth and there is also a risk of political contagion. In light of this, we remain mild sterling bears and stay benchmark FTSE100. On UK sectors, we upgrade retailing to benchmark from underweight and reduce our underweight of UK REITs (the most sterling-sensitive UK sector), while staying underweight regulated utilities.

*FMC TECHNOLOGIES AND TECHNIP TO COMBINE: DRIVING CHANGE BY REDE

>>> Up

Asian Market Update: Australia jobs report mixed as AUD tests 2-month lows; Japan's Sharp rallies on FY results

***Economic Data***

- (JP) JAPAN Q1 HOUSING LOANS Y/Y: 1.9% V 2.2% PRIOR

- (JP) JAPAN MAR MACHINE ORDERS M/M: +5.5% V -2.0%E; Y/Y: 3.2% V +0.8%E

- (AU) AUSTRALIA APR EMPLOYMENT CHANGE: 10.8K V 12.0KE; UNEMPLOYMENT RATE: 5.7% (matches lowest level since July 2013) V 5.8%E

- (NZ) NEW ZEALAND MAY ANZ CONSUMER CONFIDENCE INDEX: 116.2 (7-month low) V 120.0 PRIOR; M/M: -3.2% V +1.7% PRIOR

- (NZ) NEW ZEALAND APR ANZ JOB ADVERTISEMENTS M/M: 1.7% V 3.1% PRIOR; 3rd straight increase

- (PH) PHILIPPINES Q1 GDP Q/Q: 1.1% V 1.4%E; Y/Y: 6.9% V 6.9%E (highest level since Q2 2013)

- (KR) South Korea Apr PPI Y/Y: -3.1% v -3.3% prior; 21st consecutive decline

***Index Snapshot (as of 04:00 GMT)***

- Nikkei225 flat, S&P/ASX -0.8%, Kospi -0.6%, Shanghai Composite +0.4%, Hang Seng -0.6%, Jun S&P500 -0.2% at 2,037

***Commodities/Fixed Income***

- June gold -1.3% at $1,259/oz, June crude oil -1.5% at $47.47/brl, Jul copper -0.1% at $2.06/lb

- JGB: (JP) Japan's MoF sells ¥1.00T in 0.4% (0.4% prior) 20-year JGBs; Avg yield: 0.288% v 0.262% (record low) prior; bid-to-cover: 3.36x v 3.55x prior

- (JP) Japan investors bought net ¥1.12T in foreign bonds v ¥270.2B in prior week; Foreign investors bought net ¥71.7B in Japan stocks v sold ¥435B in Japan stocks in prior week

- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.5531 V 6.5216 PRIOR; weakest Yuan setting since Feb 1st

- (CN) PBOC to inject CNY85B in 7-day reverse repos

***Market Focal Points/FX***

- Asian equity markets are mixed even though today's US meeting minutes from the Fed gave their clearest indication that June FOMC meeting is live for a rate hike. Minutes declared that the market may be underestimating the chance of a June move, as most members were supportive of the hike if warranted by the economy. The jury is still out on whether or not the US conditions are sufficient for that June 15th hike, though investors will now pay even more attention to the next US jobs report on June 3rd and external factors such as the likelihood of a Brexit. In the meantime, US bond yields moved higher across the curve, and the implied probability of a rate hike in Fed Funds futures rose to 34%. In FX, USD consolidated today's gains in the majors - USD/JPY traded in a 30pip range above ¥110, EUR/USD in 20pip range above 1.1210, and AUD/USD extended declines below $0.72 - a 2 1/2 month low.

- Australia employment data - the key economic event of the day - added to the pressure on AUD. Although jobless rate remained at 5.7% v 5.8% consensus, data components showed participation rate falling to a 10-month low of 64.8%, full-time component declining for 2nd straight month, and total hours worked falling for the 3rd straight month and by the biggest margin since mid-2012. Ahead of the jobs report, Macquarie estimated RBA to cut rates by another 75bps or more over the next 2 years, forecasting AUD/USD falling further to $0.65.

- After yesterday's surprisingly strong Japan Q1 GDP report, a private survey estimated the 1.7% annualized rise to be overstated due to the Leap Year effects, with actual adjusted growth closer to 0.5%. Survey also forecast Q2 to return to contraction of about -0.4%, citing factors such as production disruptions from Kumamoto earthquake, less demand for electronic parts due to slowing smartphone market, and overall weakness in the global economy. There was also more speculation surrounding plans for the next round of sales tax increase as Nikkei reported the decision will be made after the upper house elections this summer. Govt spokesperson Suga reiterated however that there have been no changes in the plan for the sales tax hike in H1 of 2017.

- After some delay, Sharp reported FY15/16 and the results are not as bad as feared. Operating loss of ¥162B compared to loss ¥170B latest forecast and Rev was roughly in line at ¥2.46T v ¥2.45T estimate. Consumer electronics sales were down 18% and Display sales down 9%, but sales of components rose 10%.

***Equities***

US equities / ADRs:

- RPRX: Reports positive clinical data for Oral Proellex in women with severe menstrual bleeding due to Uterine Fibroids; +30.2% afterhours

- AEO: Reports Q1 $0.22 (adj) v $0.18e, R$749.4M v $731Me; Guides Q2 $0.20-0.21 v $0.20e; Q1 SSS +6%; +14.6% afterhours

- URBN: Reports Q1 $0.25 v $0.25e, R$763M v $760Me; +7.2% afterhours

- ZIOP: Announces Clinical Data Highlighting Favorable Interim Survival Results with Gene Therapy Candidate Ad-RTS-hIL-12 in Brain Cancer; +7.1% afterhours

- CRM: Reports Q1 $0.24 v $0.23e, R$1.92B v $1.89Be Raises FY17 $1.00-1.02 v $1.01e, R$8.16-8.20B v $8.12Be (prior $0.99-1.01, R$8.08-8.12B); +6.1% afterhours

- CSCO: Reports Q3 $0.57 v $0.55e, R$12.0B v $11.9Be; Guides Q4 $0.59-0.61 v $0.58e, Rev 0-3% y/y, implies $12.8-13.2B v $12.3Be; +5.7% afterhours

- TTWO: Reports Q4 $0.46 v $0.27e, R$342.5M v $309Me; Guides Q1 -$0.40 to -$0.30 v $0.22e, R$225-260M v $364Me; -0.8% afterhours

- TSLA: Offering $2.0B (7.1% of market cap) in common stock and $1.4B (4.9% of market cap) in shares sold by Musk in secondary offering; Musk exercising 5.5M shares (4.1% of shares outstanding) in stock options; -0.3% afterhours

- LB: Reports Q1 $0.59 (adj) v $0.55e, R$2.61B v $2.62Be; Cuts FY16 $3.60-3.80 v $4.01e (prior $3.90-4.10); Expects to report May SSS down low to mid-single digits versus last year; -4.8% afterhours

Notable movers by sector:

- Consumer discretionary: Shinsegae Co 004170.KR +4.5% (opens fist duty-free store in Seoul); JB Hi-Fi JBH.AU +3.9% (prelim talks for acquisition of Good Guys)

- Industrials: Suzuki Motor Corp 7269.JP +3.6% (data manipulation probe); James Hardie Industries JHX.AU +6.9% (FY16 result); Cathay Pacific Airways 293.HK -0.2% (Apr result)

- Technology: Tencent 700.HK -2.2% (Q1 result); Sharp Corp 6753.JP +1.4% (FY15/16 result); YPB Group YPB.AU +3.6% (guidance)

- Materials: Metcash MTS.AU -0.8% (consider bid for Masters business of Woolworths); Baoshan Iron & Steel Co 600019.CN +0.8% (China to cut overcapacity)

- Energy: China Shenhua Energy 1088.HK +0.5% (China to cut overcapacity)

- Healthcare: Chugai Pharmaceutical 4519.JP +1.9% (Phase III result)

EgyptAir flight MS804 from Paris to Cairo vanishes

EgyptAir flight 804 from Paris to Cairo has gone missing, according to a statement from the airline’s official Twitter account.

In a series of tweets on the incident, the airline cites an “informed source” as stating that the flight, which departed Paris at 23:09 for Cairo, had “disappeared from radar” 10 miles out from Egyptian airspace.

Activist Investors Ally to Form Lobby Group

Circa will make case in Washington that activism is good for companies, economy

The activists are taking on Washington.

Billionaire investors Paul Singer, Carl Icahn, Barry Rosenstein, William Ackman and Daniel Loeb are setting aside their political differences to launch a Washington-based lobbying group to fight mounting attacks on shareholder activism.

Dubbed the Council for Investor Rights and Corporate Accountability, or Circa, it is the first coordinated effort by activists to make their case to lawmakers and the American public that their investment strategy helps, rather than harms, companies and the U.S. economy.

The lobbying push comes as debate over the merits of activist investing spills over into the presidential campaign. Hillary Clinton last year proposed changing the tax code to crack down on “hit and run” activists. In March, Bernie Sanders, Mrs. Clinton’s rival for the Democratic presidential nomination, co-signed legislation aimed at their ability to buy stakes and influence companies.

Activist investors have targeted some of the biggest companies in the U.S., from Apple Inc. to Procter & Gamble Co. to Dow Chemical Co. , agitating for an array of changes designed to boost shareholder value.

Circa’s five backers together manage about $90 billion. The group’s message to lawmakers: Activist investors, as owners of the companies they target, are spurring a debate about corporate decision making that has the potential to benefit all shareholders and, by extension, the broader economy.

“We’re telling a story about an ecosystem and how they help America and make it a competitive system,” said Rob Collins, a political strategist who is advising Circa.

Mr. Icahn, a veteran activist who has targeted a wide swath of companies including Apple, Xerox Corp. and eBay Inc., said poor corporate performance is dragging down the U.S. economy. Activists that keep a watchful eye on management serve as a counterbalance, he said.

“It’s the opposite of short term. You need to nurture,” Mr. Icahn said in an interview. “This is what the country needs right now.”

Activist investors’ stature has risen in recent years as they have racked up wins at major U.S. companies and won the support of some big institutional shareholders. But concerns about their aggressive tactics have grown along with their influence.

Poor performance, meanwhile, has hampered some activists this year. Mr. Ackman was brought before Congress last month to answer for his investment in Valeant Pharmaceuticals International Inc., which has weighed heavily on his Pershing Square Capital Management LP.

Circa’s backers say the spark for their effort came in 2011, when one of activism’s most strident critics, Wachtell, Lipton, Rosen & Katz, proposed changing the rules on when activists must publicly disclose their stakes. The law firm and its co-founder, Martin Lipton, led an effort to shorten the 10-day period during which activists can keep secret a more than 5% stake before they must disclose it to the Securities and Exchange Commission.

The SEC hasn’t taken action on the disclosure period, but activists and their detractors are still fighting over the rule. The Brokaw Act, the March legislation co-sponsored by Mr. Sanders and other Senate Democrats, would cut the disclosure period to two days and toughen rules to prevent activist “wolf packs” from evading securities laws.

“Hollowing out longstanding companies so that a small group of the wealthy and well-connected can reap a short-term profit is not the path to a strong and sustainable economy for our nation,” Sen. Jeff Merkley (D., Ore.), one of the bill’s sponsors, said at the time.

While Circa wasn’t formed in response to the legislation, the proposed law underscored the activists’ need for a Washington presence. Until now, the activists backing the group have mostly concentrated their efforts on increasing their influence by winning campaigns at the companies they target.

Circa’s backers have been meeting in recent years to determine the appetite for a more organized response but were slow to reach an agreement, in part because of their differing political views, according to people familiar with the group. Mr. Singer leans right, for example, while Mr. Rosenstein leans left.

Members of the group also have sparred over the years. Messrs. Icahn and Ackman, most notably, publicly warred over nutritional-products company Herbalife Ltd. They later patched up their differences.

Mr. Singer runs Elliott Management Corp., which has called for change at companies from EMC Corp. to Cabela’s Inc. Mr. Loeb’s Third Point LLC has pushed for changes at Yahoo Inc. and Dow Chemical, among others, while Mr. Rosenstein’s Jana Partners LLC has targeted PetSmart Inc. and Safeway Inc., to name a few.

Circa doesn’t plan to wade into the presidential election or other political contests; nor does it plan to form a political action committee to fund individual candidates or issue campaigns, the people said.

Instead, the group will seek to educate policy makers and the American public. Activists point to data that show stocks targeted by activists outperform, on average, in three- and five-year periods. They say their proposals create value for pensioners and other investors and reduce corporate waste.

A Wall Street Journal study last year of the biggest 71 campaigns from 2009 through 2014 found that it is difficult to quantify the broader impact of activist investors on companies. Activist-targeted companies outperformed peers in total shareholder return about 50% of the time.