TheChek News Flow

* We have been on the road meeting with London and US investors

Our recent sector relaunch and work with UBS Evidence Lab has thrown up several big

surprises for investors based on the results from our pricing analysis of 46,000 SKUs

and our Chinese/US surveys. This note sets out the top ten of these investor surprises

and the charts which debunk each of these common misconceptions. Burberry, LVMH

and Kering are our key Buy calls in soft luxury. We prefer Richemont in hard luxury. We

are more cautious on Prada, Ferragamo and Tod's where we have Sell ratings.

* Myth #1: Handbags are most competitive at €1,500-€2,000

Investors are worried that handbag brands have upscaled too far. But SKU distribution

analysis by UBS Evidence Lab contradicts the consensus view that the €1,500-€2,000

handbag price point is too crowded. We see the absolute luxury & entry price points as

best placed. We believe that pricing power is strongest at the absolute luxury

positioning (>€2,500), while those brands with a strong offer at c€1,000 are best

placed to gain volume share. Louis Vuitton, Gucci and Burberry have the highest offer

around €1,000. Louis Vuitton has 37% of SKU's >€2,500 (industry 22%); given the

strength of brand equity and new launches here we see this as a positive for the

brand's pricing power. We think Prada, Tod's and Ferragamo are over exposed to the

squeezed €1,500-€2,000 segment.

* Myth #2: Global price gaps are similar across all brands

Soft luxury global price gaps are considerably more stretched than Hard Luxury. Within

Soft Luxury, gaps between Mainland China and the Eurozone vary considerably by

brand – with premiums ranging between 32% and 64% according to our data. We see

price cuts in Greater China as a risk for soft luxury brands as they seek to normalise the

regional price gaps, since we believe pricing power with domestic Europeans is limited.

* Myth #3: Chinese luxury brand selection is highly price sensitive

Chinese purchases are led by core luxury brand attributes ahead of price which

reassures us that luxury consumption is not as price sensitive as the market fears.

Looking at the main purchase drivers from our survey of 1,004 Chinese luxury

consumers in November 2015, 'quality', 'timelessness' and 'exclusivity' all rank higher

than price for the Chinese. This was in sharp contrast to our US survey results.

nature of such agreements from an outsider’s perspective. Nokia's announcement

yesterday of the Samsung IPR arbitration was unfortunately no different. While the

financial markets like to know the answer ahead of time, with IPR deals usually no

amount of analysis can provide a confident estimate of such deals. Our approach has

been to therefore take a conservative forecast of Nokia's patent revenue trajectory

and not to base our investment thesis solely on the Technologies unit. Our estimates

are unchanged and our analysis shows that Nokia's IPR business and its self-help

story remains very much intact. While the EUR800m IPR run rate is close to our

forecasts, it was a disappointment relative to SME Direkt consensus estimates of

EUR907m; that disappointment was exacerbated by misunderstanding of the

potential rate to be paid by others, in particular Apple, and the cash generation of the

Technologies division. This had an outsized impact on shares, down -11% (vs. Euro

Stoxx Tech -2%). On our unchanged numbers, Nokia now trades on 1.1x/1.0x

2017/18E EV/sales, 8x/7x EBIT and 11x/10x P/E, valuation multiples we find too

cheap for the growth in earnings and cash flow we forecast Nokia to achieve as it

works through the Alcatel integration. Yesterday's price decline, while painful, was in

our opinion an overreaction, one that creates an even more attractive entry point.

We reiterate our Overweight rating and EUR8.75PT.

We take equities down to benchmark and reduce our year-end S&P 500 target to 2,050 from 2,150 (having already reduced our equity weightings to the lowest since 2008 on December 2nd). Our tactical indicators gave a buy signal on January 21st (which normally leads to a 3-4% bounce, which we have had), but we have decided to turn more cautious on the back of the following concerns:

* ERP is at fair value: The warranted equity risk premium in the US (based on ISM new orders and credit spreads) is at 6.2%, slightly above the actual ERP, and to get to fair value ISM needs to recover to 56.

* A more complicated macro environment: Global nominal GDP growth is very weak (sub-4%); several US lead indicators are consistent with sub- 1.5% GDP growth (we think that there is a 40% chance that lead indicators are right); there are some signs that the US labour market is tightening, hence, if the consensus view of 2.5% US GDP growth is correct, wage growth could rise above 3%, causing a fall in earnings; China's property data, the loan-to-deposit ratio and control of FX reserves have all been worse than we had expected, increasing the risk of a hard landing; and the Fed appears to be unusually focused on lagging indicators of activity. Clearly, the Fed matters because the dollar is the world's reserve currency at a time when US monetary and financial conditions have both tightened sharply

* Earnings: We downgrade US EPS growth to be flat for 2016; NIPA and reported earnings suggest operating EPS has been flattered (and ex-energy, operating EPS is flat year-on-year).

* Our previous worries remain: i) abnormally high levels of disruption, caused by China exporting its excess investment and disruptive technology; ii) less corporate-friendly policies; iii) buybacks as a style underperforming (and buybacks have accounted for a third of EPS growth since 2012); and iv) announced M&A deals at danger signals

Why not underweight? Outside of the US, markets look cheap (the European ERP is 8.6%, against fair value of 6.8%, on our models); to get a bear market EPS needs to fall meaningfully – for that we need wage growth above 3% or US GDP growth to be sub-1.2%; the corporate sector and private equity can buy 8% of market cap; in the event of a disinflationary shock, central banks will (eventually) respond, in our view, and global excess liquidity remains supportive; global PMI new orders are not consistent with a sharp GDP slowdown. Tactical indicators are still supportive.

Is this like 2008? In our view, no: ten factors are better, five are worse. What is needed for markets to stabilise? A stabilised oil price, clear evidence that it's different in the US this time around (i.e., the savings ratio falls and employment stays robust), China to stabilise capital flight, high yield spreads to narrow or, failing all of this, a Fed response.

* Action/Event: Vallourec has announced its plan for a capital hike to raise c €1b partly by selling new shares to fund its restructuring in Europe and Brazil and to acquire an asset in China. Detail of the cap hike given within this report. We cut 2016E EBITDA to E-100m (from E50m) on revised company guidance of –ve EBITDA for the year. 2016E and 2017E EPS are up as we now use diluted number of shares to account for mandatory convertible bonds maturing in 2018.

* Investment Case: We think the revised restructuring looks sensible but delivery is not without material risks. We think the presentation lacked detail on assumptions and timing of cost reductions which is a risk in the light of the failure of the Valens plan announced last year. We think the following questions are important: 1) is €1b of fresh capital enough 2) is the E750m cost reduction plan a) feasible, b) enough c) deliverable fast enough to avoid another capital raise and d) likely to be retained in the p/l or given back to a weaker market. Within the note we perform scenario analyses on earnings, debt and valuation. Without a material market recovery there is risk that there remains no real value in the equity until 2019. A weaker cycle would make even this assumption optimistic. A

material recovery in the cycle could see upside to c E 23 per share by 2020, but this scenario remains very much a play on the oil cycle and rig count and VKFP may not be the safest way to play this upside yet. We maintain our Underperform rating awaiting further clarity of detail of cap hike and cycle.

* Catalysts: Q4 2015 earnings release 18th February.

* Valuation: Valuation is €4/sh as before and remains so until we have new information on the planned capital hike.

Dow-0.10% S&P-0.04% Nasdaq+0.14% Russell-0.29%

Macro :

- Fed Officials ‘Don’t Know’ What Will Happen in March: Fischer

Keep an eye on :

- ABT US : Abbott Seen ‘Done’ With Big Diagnostics Deals After Alere: Cowen

- ABT US : Alere Topping Bid, Regulatory Challenges Unlikely: Leerink

- ALFA SS : Alfa Laval 4Q Pretax Misses Estimates; Dividend Raised

- AMS SW : AMS 4Q Revenue, EPS Beat Ests., Sees 1Q Revenue Lower

- BLT LN : BHP Billiton Cut to A From A+ by S&P, May Be Cut Further

- AM FP : Dassault Aviation 5X to Be Delayed by 2 Years: Flight Magazine

- EDF FP : EDF Unions Demand Hinkley Point Delay, AFP Reports

- EDF FP : EDF Aims to Lift Nuclear Production in 2017, Les Echos Says

- GL FP : Galeries Lafayette Said in Partnership With Al-Futtaim: Echos http://bit.ly/1PQe8Zt

- GAM SM : Gamesa Wins Contract to Provide 95 Wind Generators in Mexico

- GEC FP : Blackstone Placing 3.4% Gecina Shrs in Bookbuild

- GIVN VX : Givaudan Cash Flow, 4Q LFL Growth Beat Estimates, Exane Says

- HOME LN : SBRY Find agreement 161.3p/share (55p +0.321nes sbry shares)

- IAG LN : IAG Acquired 22 Million Own Shares Under Buyback Plan

- IFX GY : Infineon 1Q Rev., Adj. EPS Beat Ests.; Keeps FY Outlook

- EGL PL : Mota-Engil Names Vasconcelos da Mota as Head of Africa Unit

- OUT1V FH : Outokumpu Books EU62m Gain in 4Q for Selling SKS Stake

- RIO LN : Rio Tinto Ratings May Be Cut by S&P

- RDSA NA : Royal Dutch Shell Cut, 5 Others May Be Cut by S&P on Oil Prices

- SAN FP : Sanofi Pasteur Says Launching Zika Vaccine Project

- SN/ LN : Stryker May Be Cut by S&P on Sage Acquisition Plan

- SYNN VX : Syngenta shareholder alliance criticises high level of director compensation

- SREN VX : Swiss Re’s Lies Wants ECB Zero Rate Policy to End: Handelsblatt

- TWTR US : Silver Lake Said to Have No Interest in Buying Twitter: Fortune

- VATT SS : CEZ to Make Binding Bid for Vattenfall Coal Unit: Handelsblatt

- VK FP : Vallourec Isn’t Protected From a Takeover Bid, CEO Says

- WCH GY : Wacker Chemie 2015 Ebitda Beats Estimates, Sales In Line

Terms of the Possible Offer

Under the terms of the Possible Offer Home Retail Group shareholders will receive per Home Retail Group share:

· 0.321 New Sainsbury's shares; and

· 55 pence in cash.

*BENI STABILI RAISED TO BUY VS HOLD AT SOCGEN

Although we don't have access to the full story, apparently the article discusses deal possibilities, potential interest from Marc Andreessen and Silver Lake.