(MedioBanca) Italian Banks - ITALY BANKS -- Our "NPLs fire sales scenario" indic

--> Italian Banks are best way to play ECB involvement in this market....market are pricing the worst and the worst won't happen...market sentiment on oil & Global economy is not helping at all but this trade is a 2 months trade...as I don't think that a lot of investors will stay short ahead of March ECB meeting...

Market’s fear of deposit outflows and extra LLPs on NPLs look overdone to us
Italian banks are down 18% ytd (-24% up to mid last week), marking the 15th worst three weeks in their 27 years of listing. Four small banks rescued in November with a ‘semi bail-in’ caught 130,000 retail clients unprepared to digest €1.2bn losses on equity and sub-debt imposed via a low 17% GBV of €8.5bn NPLs. A case-specific reading back then became a potential reference two months later when the SSM sent questions to some banks on the governance of their NPLs, triggering the bulk of the 6p.p. ytd underperformance. Deposit outflows of €10bn since then and lack of delivery on the bad bank due precisely to the Rome vs Brussels disagreement on the value of NPLs, led an already tired market to capitulate in light of €60bn ‘bail-in-able’ bonds in retail hands and the €200bn NPLs in Italy. Draghi’s reassuring speech last week and action on NPLs now firmly in sight according to the press, suggest to us the market overreacted. We attempt and show this via our ‘fire NPLs sales scenario’.

Current prices discount 85% coverage; we think 73% to be the worst case
Year to date performance implies €37bn extra LLPs, i.e. ~85% coverage, even above the level applied to the four rescued banks. Our ‘fire NPLs sales methodology’ adjusts the total €204bn RE fair value collateral down to €40bn, i.e. a 80% haircut, adding 27p.p. coverage and leaving us short of 14p.p. This suggests 73% coverage (14p.p. + current 59p.p.) to be a very prudent target, in line with the 70% figure that we infer from Cerved data based on the recovery values used by specialised investors.

Recap post ‘fire NPLs’ sales’ says 12% overshooting: BPER, Creval, UCG, UBI, BP
The €21bn extra LLPs from our NPLs fire sales scenario rise to €27bn when accounting for the migration of doubtful loans, set at €10bn below what the market is implicitly pricing in. Our scenario reduces CET1 by 180bps, generating a €13bn shortfall versus a target of 100bps above the SREP, concentrated in UCG (€8.5bn), MPS (€3bn), and BP (€1bn). Valuations post recap suggest not only that any NPLs’ driven theoretical capital shortfall looks to be in the price, but that the market might be overshooting in the region of 12%, showing 30% upside at BPER, 25% at CREVAL, and 10-15% at UCG, UBI and BP. These are the names we would play in any short term rebound.

Pricing in 16% higher funding cost on bail-in-able items looks too much given QE
Alternatively, let us attribute ytd prices entirely to higher funding cost on bail-in eligible items. The result is €2.2bn 2016 pre-tax negative impact, or -9% NII. This means 16% higher funding cost on bail-in items, i.e. +32bps: +7bps on deposits >€100k from 40bps currently, +52bps on senior unsecured from 325bps, +94bps on sub from 580bps. With Equity + Sub debt at 8.3% of liabilities, and rising to 38% when adding all bail-in eligible instruments, we think the cushion to be large enough to expect funding concerns to retreat. Italian banks remain best-positioned on QE owing to their short liabilities duration: ML-T funding maturing in 2016 (and thus to be rolled over lower) is 56% of total ML-T (14% of total funding) vs 38% at EU peers (8% of total funding).

Distressed valuations and short-term good news ahead: the play for any rebound
Our post-recap ‘NPLs fire sales’ scenario points to 0.8x TE and 7.5% 2016-17 RoTE, suggesting a lot of bad news is priced in, even more when considering NPLs sales would carry a mix of RWAs cut, higher RoTE from lower LLPs and funding cost, and lower CoE, which are not captured in our stress test. A credit event on the banks remains possible given China, depressed oil price and US tightening, but we think QE2 in March has the ammunition to fight it via senior banks’ bonds added to Draghi’s receipt, if needed. History says things hardly change in Italy, but when it happens it is a fast and large event. Weekend press points to this week being one of such moments: 1) the four clean rescued banks to receive bids and contribute to M&A price discovery; 2) M&A on Popolari and MPS entering its final stage; 3) the BCC reform to be unveiled in Rome; 4) a solution seems finally reached on offloading NPLs via state-guaranteed senior ABS. MPS and PMI are our M&A play, BPER, BP and Creval our bad bank play, UCG our short-term rebound play, and ISP a great entry point ahead of DPS payment.

>>> US Gapping Up

Gapping up
In reaction to strong earnings/guidance/SSS: GRUB +7.4%, MCD +3%

M&A news: TYC +9.4% (Johnson Controls (JCI) and Tyco Intl (TYC) confirm merger)

Select metals/mining stocks trading higher: HMY +4.8%, GFI +4.1%, AUY +4%, AU +2.8%, GDX +1.8%, MT +1.7%, ABX +1.7%, NEM +1.3%, GG +1.2%, SLV +1.2%, VALE +0.9%, GOLD +0.9%

Other news: AFMD +14.9% (collaborates with Merck (MRK) to investigate the combination anti-PD-1 therapy, KEYTRUDA), SUNE +6% (to give Einhorn's Greenlight Capital a seat on the Board, according to the WSJ), ANAD +5.6% (announces that a competing bidder has made an unsolicited further amended offer to acquire the company at a price of $0.76 per share), CRAY +4.4% (receives $36 mln upgrade contract in Europe), HF +2.8% (declares special cash dividend of $1.80/share), TSEM +2.7% (defends itself against short seller thesis, calling the report false and misleading), RPTP +2.3% (PROCYSBI has been granted additional U.S. Orphan Exclusivity), ANH +1.9% (authorizes the co to acquire up to an additional 5 mln shares of its common stock through its share repurchase program)

Analyst comments: ORLY +2% (upgraded to Buy from Hold at Deutsche Bank ), RSYS +1.5% (upgraded to Buy from Hold at Needham), YHOO +1% (upgraded to Buy at Pivotal Research Group)

>>> US Gapping down



Gapping down
In reaction to disappointing earnings/guidance: KMB -2.6%, HAL -1.6%, T -0.4%

Select EU financial related names showing weakness: LYG -4.1%, DB -3.8%, BCS -3.5%, HSBC -1.9%, ING -1%


Select oil/gas related names showing early weakness: SDRL -5.9%, CHK -5.7%, WLL -5.4%, PBR -5.3%, ETE -4.8%, MRO -3%, TOT -2.9%, BP -2.4%, COP -2.4%, KMI -2.2%, RIG -2.1%, RDS.A -2%, STO -1.6%, SLB -1.5%, XOM -1.4%

Other news: OMED -43% (updates on tarextumab phase 2 pancreatic cancer trial; DSMB recommended that the study proceed to completion without modification, but informed co of several findings regarding futility of the trial), NVAX -7.9% (proposes offering of $200 mln of convertible senior notes due 2023), MDVN -7.5% (discloses partial clinical hold on its IND for MDV9300), TWTR -5.2% (confirms various executive departures), MNKD -5.2% (modest pull back following Friday's move), WMB -3% (announces 2016 Capital and Financing Plan; Funding needs of $2 bln, down approx $1 bln from prior plans), ZFGN -2.7% (modest pull back following Friday's move), ZINC -2.6% (temporarily idling its Mooresboro, North Carolina zinc production facility), CEL -2.4% (announced the receipt of a labor dispute announcement by the Histadrut)

Analyst comments: KS -5.8% (downgraded to Underperform from Neutral at Macquarie), WRK -5.2% (downgraded to Neutral from Buy at BofA/Merrill), PKG -4.8% (downgraded to Neutral from Buy at Citigroup), IP -4.5% (downgraded to Neutral from Buy at Citigroup), CAT -3.7% (downgraded to Sell from Neutral at Goldman), MOS -3.6% (downgraded to Neutral from Overweight at JP Morgan), WFM -3% (downgraded to Underperform from Market Perform at BMO Capital), POT -3% (downgraded to Neutral from Overweight at JP Morgan), AEO -2.7% (downgraded to Hold from Buy at BB&T Capital Mkts), REGN -2.7% (downgraded to Sell from Neutral at Chardan Capital Markets), CMI -1.6% (downgraded to Neutral from Buy at Citigroup), JPM -1% (downgraded to Neutral from Buy at Nomura)

>>> US Early premarket gappers

Early premarket gappers

Gapping up: TYC +10%, SUNE +9.4%, GFI +5.5%, HMY +4.8%, AUY +4%, AU +3.4%, CRAY +3.3%, TSEM +3.3%, MT+3.1%, FMS +2.6%, ALV +2%, GG +1.8%, GDX +1.7%, RSYS +1.5%, ARMH +1.5%, ABX +1.4%, VALE +1.3%, NEM+1.3%, SLV +1.3%, AZN +1.2%, JCI +1.1%, GOLD +1%, YHOO +0.9%, BABA +0.6%

Gapping down: MNKD -7.5%, TWTR -4.7%, LYG -4.1%, ZFGN -3.7%, SDRL -3.4%, PBR -3.3%, BCS -3.2%, WLL -3%,POT -3%, CAT -3%, TOT -2.8%, DB -2.7%, MOS -2.6%, STO -2.6%, CEL -2.5%, WFM -2.2%, KMI -2.2%, BP -2.1%, AA-1.7%, HSBC -1.7%, RIO -1.7%, EA -1.7%, RDS.A -1.3%, SLB -1.3%, ING -1.2%, XOM -1.1%, AMBA -0.8%

(9to5) KGI: iPhone 5se/iPad Air 3 won’t significantly grow Apple’s revenues but

KGI: iPhone 5se/iPad Air 3 won’t significantly grow Apple’s revenues but new MacBooks coming soon could

KGI’s Ming-Chi Kuo issued an AAPL investor report this morning that is mostly pessimistic on Apple’s prospects of meaningfully increasing iPhone and iPad sales in the first half of the year. The Taiwan-based investment analyst doesn’t see an upside to the release of the iPhone 5se or iPad Air 3 later this quarter, sees meaningful slowing in YoY 6S/Plus sales and isn’t yet excited about the iPhone 7…
We revise down 2016F shipments of new 4-inch iPhone, as little new to offer. While the new 4-inch iPhone has been enjoying the media spotlight, we don’t regard the product as innovative, either in terms of form factor (similar to iPhone 5s, though distinguished by an upgraded panel cover glass from 2D to 2.5D) or hardware specs (with 6s as a benchmark, though a 12MP camera is higher spec than our expectation of 8MP). Moreover, considering the replacement impact on price cuts for iPhone 5s, we lower 2016F shipments of the new 4-inch model from 18-20mn units to 10-12mn units.
Specifically, KGI reiterates its 4Q15 iPhone shipments forecast of 77M units, and forecasts 1Q16 shipments to decrease 44.2% QoQ and 29.7% YoY to 43M units, due mainly to “lackluster iPhone 6s sales”. For 2Q16F, assuming iPhone inventory correction is healthy and shipments of new 4-inch models begin ramping up, KGI estimates iPhone shipments will be flattish or up slightly in the range of 42-45M units.
Although bear-ish on the iPhone and iPad Air 3, the new MacBooks coming in the first half of the year give KGI a reason to be optimistic.
We see MacBook as a stronger candidate for becoming a theme given solid growth in the business segment, as well as a potential upgrade to hit the market in 1H16.
If you are itching for some positive iPhone investment news, AAPL Bull Gene Munster from Piper Jaffray this week issued a report in which he sees AAPL stock rising 50% in the lead up to the iPhone 7 launch, as it has in the past few years:
“We are buyers of [Apple] going into next week’s earnings (Jan. 26) and over the next month based on a belief that over the next 6 months the stock will react similarly to past number change cycles (i.e., iPhone 5 and 6), and experience P/E multiple expansion,” said Gene Munster, senior research analyst at Piper Jaffray. Apple shares are poised for their best day in three months, recently trading up 3.7% to $99.89, after Mr. Munster, a longtime Apple bull, published an optimistic note on the tech giant Thursday night. The pop is a reprieve for Apple’s stock, which has tumbled 26% since its intraday peak of $134.54 in late April amid the broader market pullback and expectations of falling iPhone sales. It has underperformed the S&P 500 by 15 percentage points since its April high…
While the stock looks relatively cheap now, Mr. Munster noted that heading into the past two full cycle updates – those when the number changes (i.e. iPhone 5 and iPhone 6) – Apple’s multiple expanded both times, averaging a 30% rise, from March to September. Apple is set to debut its iPhone 7 in September. “The relative consistency in multiple expansion heading into a new product cycle…suggests that shares of [Apple] could have over 50% upside heading into the iPhone 7 launch in September,” wrote Munster.
Personally, I see a lot to be excited about as the folks who have been waiting for a 4-inch iPhone now have something to buy and buy off cycle. If Apple prices it reasonably and gets the modern features we’ve heard about, there certainly will be some upside. As for the iPad Air 3, if it can gain some of the iPad Pro features including a keyboard case and Pencil compatibility as well as 3D touch, it will certainly be a compelling buy, especially for big companies.
And, that’s assuming Apple doesn’t have any surprises coming this spring…

(9to5) Apple’s Chinese retail store roll-out continues gathering pace, fifth thi

Apple’s Chinese retail store roll-out continues gathering pace, fifth this month, 33 in total

At its current rate of expansion, Apple could conceivably hit its October goal of 40 retail stores in China within a couple of months. The company has just announced that its 33rd Apple Store in China will open on 31st January, making it the fifth new store in the country in one month …
The latest addition will be Apple’s first store in Qingdao, a major port and industrial center due to its proximity to both Korea and Japan. The city is home to the largest Korean population in China.

Qingdao is also noted for the beauty of its beaches, featuring the largest beach in Asia. As a significant tourist destination, Qingdao holds several large-scale festivals each year, including the International Beer Festival, International Sea Festival and Beach Culture Festival.

As with many of Apple’s Chinese stores, the Apple Store in Qingdao will be in a MixC mall, this one boasting over 400 stores and restaurants at 6A Shandong Road in the Shinan District. The grand opening is at 10am on January 31.

Apple announced stores #31 and #32 a couple of weeks ago. China has already overtaken Europe to become Apple’s second-biggest market after the USA, and Tim Cook has said that it is “only a matter of time” before China takes the number one slot.

>>> Aixtron to consider acquisitions and JVs to broaden its technology portfolio

Aixtron to consider acquisitions and JVs to broaden its technology portfolio - exec
Aixtron [FRA:AIXA], a German provider of deposition equipment for the semiconductor industry, would consider acquisitions to broaden its technology portfolio, Vice President Corporate Business Development & Strategy Johannes Froehling said.

Aixtron would consider full takeovers, stake acquisitions, JVs and partnerships and make decisions case-by-case, Froehling said. He cautioned that M&A is only a part of the company’s strategy and the focus is organic growth. Aixtron invests between EUR 55m and EUR 65m a year in R&D, he said.

Screening the market for potential M&A opportunities is an ongoing management task, but there is nothing concrete in the pipeline, Froehling said. To identify potential M&A candidates, Aixtron builds on its strong network in the semiconductor area and related sectors, he explained. He mentioned that the company also has an in-house team scouting the market for interesting technologies.

Aixtron looks at attractive technologies that might strengthen or expand its existing portfolio, the executive said. Deals purely focused on geographical expansion are unlikely, he added, as Aixtron already has a global presence.

The company has developed technologies in the fields of compound semiconductors (MOCDV), organic electronics (OVPD/PVPD/TFE), carbon nanostructure (PECVD), silicon semiconductors (ALD/MOCVD), according to a company presentation.

Aixtron’s last deal was the April 2015 acquisition of Silicon Valley-based PlasmaSi Inc. The candidate was identified through the company’s network and the deal was managed internally, the executive said.

Ssize of the target is not a key decision criterion for M&A deals, Froehling said. Financing of a potential deal will be put in place "when the time comes," he said.

Aixtron finances its growth with own resources and has no plans for a capital increase, the executive said. At the end of June 2015 it had a cash position of EUR 255.4m.

For 2015 the company forecasts revenues of approximately EUR 190m. In 2016 the revenues are expected to remain in line with 2015 and should grow from 2017, the executive said.

In the first nine months of 2015, 73% of Aixtron revenues were generated by equipment while the sale of spare parts accounted for the reminder of the turnover. The main contributor to sales was LED segment with 28%, followed by silicon with 25%, optoelectronics with 22%, power electronics with 17% and others with 8%.

Aixtron’s main market is Asia, which generated 72% of its revenues in 9M15. Europe accounted for 12% of the revenues and the Americas for 16%, according to a company presentation.

Established in 1983, Aixtron has a market capitalization of approximately EUR 393m and a free float of 93.12%.

>>> Johnson Controls confirms it will merge with Tyco (TYC)

Johnson Controls confirms it will merge with Tyco (TYC)
Under the terms of the agreement, which has been unanimously approved by both companies' Boards of Directors, Johnson Controls shareholders will own approximately 56 percent of the equity of the combined company and receive aggregate cash consideration of approximately $3.9 billion. Current Tyco shareholders will own approximately 44 percent of the equity of the combined company.

>>> Halliburton beats by $0.07, reports revs in-line (30.19)

--> HAL - not trading yet

Halliburton beats by $0.07, reports revs in-line

  • Reports Q4 (Dec) earnings of $0.31 per share, excluding non-recurring items, $0.07 better than the Capital IQ Consensus of $0.24; revenues fell 42.1% year/year to $5.08 bln vs the $5.13 bln Capital IQ Consensus.
    • As a result of the downturn in the energy market and its corresponding impact on the company's business outlook, Halliburton recorded co-wide charges related primarily to asset write-offs and severance costs of ~$192 million, after-tax, or $0.22 Adjusted operating income was $473 mln in Q4, compared to adjusted operating income of $506 million in Q3.
  • Completion and Production rev -12% QoQ to $2.8 bln, primarily driven by activity and pricing headwinds in all regions; operating income -12% QoQ to $144 mln.
  • Drilling and evaluation rev -5% QoQ to $2.3 bln, driven primarily by decreased drilling activity and logging services in the United States, Latin America, and Europe/Africa/CIS, along with reduced project management activity and drilling services in Middle East/Asia; operating income flat QoQ at $399 mln.
  • "For our international business, fourth quarter revenue and operating income declined sequentially by 5% and 10%, respectively, as a result of price concessions and activity declines. In addition, due to customer budget constraints, we did not see the typical benefit from year-end equipment and software sales... North America revenue declined 13% sequentially, led by reduced activity and pricing concessions in US Land. Operating margins improved by 160 basis points, driven by cost reduction efforts, and year-end completion tool sales in the Gulf of Mexico.
  • "2016 is expected to be another challenging year for the industry."
  • Fully committed to Baker Hughes acquisition. "We are continuing our discussions with competition authorities, and recently offered an enhanced set of divestitures in an effort to resolve competition-related concerns as soon as possible."