Gapping up
In reaction to strong earnings/guidance: JRJC +34.9%, HEI +5.2%, VRX +2.4%, HON +1.5%
M&A news: ANAD +24.3% (has determined that a new offer of $0.48/share is superior to the GaAs Labs transaction)FVE +11.8% (6.1% holder William F. Thomas/Gemini Properties disclosed proposal to FVE to acquire 33 facilities and explore strategic alternatives), HPY +10.4% (Heartland Payment Systems to be acquired by Global Payments for $4.3 bln, or $100.00 per share)
Select financial Solar names showing strength after House Republicans are pushing forward a bill lifting the ban on crude oil exports, including an extended tax credit for wind an solar: RUN +14.9%, SUNE +14.1%, PLUG +8%, SPWR +6.5%, FSLR +6.3%, CSIQ +3.9%, SOL +3.1%, ETP +3%, TSL +2.1%
Select metals/mining stocks trading higher: BHP +3.4%, BBL +3.2%, FCX +2.3%, RIO +2.3%, ABX +1.5%, SLW +0.8%
Select Heathcare related names showing strength in Europe: SHPG +2.9%, GSK +1.7%, NVS +1.1%, AZN +1.1%
Other news: ARRY +23.2% (reports top-line results from the ongoing Phase 3 clinical trial of binimetinib in patients with advanced NRAS-mutant melanoma), GBSN +11.1% (USPTO has issued it a patent for compositions for signal amplification), CLSN +10.7% (receives Clinical Trial Application approval from the China FDA to conduct its ongoing Phase III OPTIMA Study), SCTY +8% (following analyst day), PRKR +5.9% (filed complaint with the ITC), HART +5.3% (announced 2.5 year $15 mln common stock purchase facility with Aspire Capital), MNOV +5.1% (received Fast Track designation from the FDA for MN-166 ), LL +3.3% (cont strength), DIS +2.2% (likely related to positive early reviews of upcoming biggest movie of all time), RPXC +2.1% (agrees to acquire privately-held Inventus Solutions for $232 million in cash; executing agreements to secure licensing rights for more than 20 companies in the portfolio of Round Rock Research; transaction is valued at more than $100 mln), CZR +1.8% (Fitch affirmed Caesars IDR at 'CC' & CERP/CGPH IDRs at 'B-'; Upgrades Corner Investment to 'B-), TGT +1% (Target and CVS Health completed Pharmacy and Clinic Businesses transaction), CVS +1% (Target and CVS Health completed Pharmacy and Clinic Businesses transaction; co also raised guidance), NQ +0.9% (approves the termination of its plan to divest of its equity interest in Beijing Tianya)
Analyst comments: PSO +4.7% (upgraded to Outperform from Neutral at Exane BNP Paribas), NOC +1.7% (upgraded to Overweight from Neutral at JP Morgan), CHRW +1.1% (upgraded to Buy at Stifel ), UACL +1% (upgraded to Buy at Stifel )
CS top ideas for 2016 Produced
• Autoliv (OP, TP US$135) • Meaningful upside from airbag inflator business – acceleration of organic growth • China (16% of sales) – highest leverage (from low base) to strong China production
• FCA (OP, TP €18.2) • Stub-value attractive at c.2.5x 2016E EV/EBITDA • NAFTA margin improvement key for equity re-rating - our estimates are >20% ahead of the street
• Leoni (OP, TP €43) • Low point reached with limited further downside risk • Cheap valuation may attract some new shareholders who could demand more meaningful changes
Top three Underperforms
• Michelin (UP, TP €79) • Specialty tyres provide material downside risk – we expect SR3 margin to continue to fall throughout 2017 • FX tailwinds fading, which was the main profit driver in 2015
• VW (UP, TP €83) • Commercial impact (market share losses and pricing) underestimated • Risks for Financial Services business underestimated (higher refinancing costs and risk provisioning)
• BMW (UP, TP €82) • Weakening key end markets (Germany, UK, US) combined with high exports c.45% (Europe) put pressure on earnings • We expect automotive margin to fall below 8% in 2016E
RTRS - DAIMLER DAIGn.DE SAYS EMISSIONS TEST RESULTS CITED BY GERMAN LOBBY GROUP DUH ARE QUESTIONABLE
Back for Christmas
One of the advantages of being early to publish a year-ahead piece is that marketing feedback is available before anyone else. Another is being back in the office for the Christmas party. After a month on the road following the publication of our 2016 Outlook (see She's lost control), we reflect on the discussions we’ve had with investors. We were focused on two major risks to markets in 2016.
US credit: The market or the Fed
Our view that the widening US corporate financing gap seen in H1 allied to a spike in debt issuance was a danger sign for both a market-driven financial tightening and changes in corporate behaviour chimed with widespread caution on the US outlook, though the consensus focus was understandably on the Fed. The capex cuts and lowest buybacks this cycle seen in Q3 demonstrate both the market and real-economy consequences of such a dynamic.
Chinese banks understating NPLs… and why it matters
Our view that China’s banking sector risks zombification was met with some debate, though no-one took issue with the understated NPLs. The discussion centred on the possible solutions to the issue, and we run through some of these (with sector sensitivities thrown in). From a global markets perspective there seems no painless way out from this structural overhang.
How to buy Europe
A large majority of investors concurred with the view that domestic Europe has the best investment story in 2016. The issue is how to implement this, with liquidity constraints and not insignificant benchmark risk required. We aim to address this with suggestions on which stocks play best in the Real Estate, Construction, Infrastructure and Regulated Utilities spheres.
Sector calls: Insurance, Industrials and Oil most debated
The general aversion to Insurance from many investors due to its opacity and the unintuitive nature of owning the sector in a low interest rate world meant we had plenty of discussions on its merits. In any case recent newsflow from Allianz and Axa seems supportive. The recent further crash in the crude price is consistent with our view on the risk to Oils, with a big difference in US investors’ attitude to the sector. We continue to argue that Industrials is not the right vehicle to play any improvement in cyclical indicators; structural risks should not be underplayed.
Pescanova minority shareholders eye BBVA and Bankia stakes
Pescanova minority shareholders want to increase their 20% stake by acquiring shares from BBVA and Bankia, El Confidencial reported, without citing any sources.
The group of Pescanova shareholders think that BBVA’s 6.25% stake in Nueva Pescanova and the 4.6% stake held by Bankia will soon be up for sale, the Spanish-language report said.
The group of shareholders is pushing the Spanish securities regulator CNMV to allow trading of Pescanova shares now that a long and complex court-supervised debt restructuring has been completed. Pescanova’s industrial shareholders hope that the company will return to the stock market in 2H16, the report said.
BBVA has shown little interest in becoming a long-term investor in the business, the report noted, while the government-controlled bank Bankia is compelled to sell all of its industrial holdings as per rules established by the European Commission.
Pescanova key lenders, known as the G-6 group, control 80% of the capital as follows: Caixabank 15.6%; Banco Sabadell 14.5%; Banco Popular 9.2%; Abanca 8.2% and the said stakes held by BBVA and Bankia. BBVA holds EUR 41m in Pescanova debt, and Bankia EUR 16m, the report noted.
The G6 have an initial agreement to maintain their Pescanova stakes of three years, but that could be shortened, the report said.
Among the group of Pescanova minority shareholders looking to recover control of the company are the funds Cartesian, Broadbill and Luxempart, and the Spanish entrepreneurs Demetrio Carceller, Carolina Masaveu and Jose Antonio Pérez-Nievas. Former president Manuel Fernández Sousa, is also an investor.
El Confidencial
The sharp sell-off in the US HY has focused investor attention on risk and financial leverage in
equities. We look at the drivers of the US credit market and the implications for equities. In US
equites, our strategists have a clear preference for strong balance sheet companies versus weak
balance sheet names (GSTHHBAL vs. GSTHWBAL). In Europe, we believe financially levered stocks
(GSSTFNLV) are generally less vulnerable due to a combination of their lower exposure to
commodities and more policy support.
Credit spreads have widened to recessionary levels...
Among the many risks investors are focused on currently is the sharp
widening of credit spreads, particularly US HY. The widening is concerning
as, on our analysis, credit spreads have reached levels that are consistent
with a global recession.
...but this has been largely related to commodity exposure...
That said, our credit strategists note that, while spreads at current levels
gave advance warning of recessions in 1990 and 2001, in 2008 spreads did
not reach current levels until after the recession had begun, and in 2011 were
a false signal. Most economic data suggest US recession risk is low and we
expect spreads to tighten again in 2016. Second, our credit strategists argue
that much of this widening relates to the heavy weight of oils in the (HY US)
index. Metals & Mining and Energy sectors account for 32% of the market.
They continue to prefer IG to HY in the US, and Europe to US IG.
...and liquidity issues
There are also significant liquidity concerns. There have recently been
record volumes in HY ETFs and imposed limits to volumes exacerbate
these concerns. Last week, $3.5 bn exited HY funds in the US, $2.8 bn of
which was from mutual funds.
What about equities?
One concern is that problems in HY credit have yet to be fully reflected in
equity. HY credit spreads have increased much more than implied volatility
for the S&P 500. Also, highly levered US companies have not sharply
underperformed despite the poor performance of credit. Our US equity
strategists recommend a long in strong balance sheet stocks (GSTHSBAL)
vs. weak (GSTHWBAL). We believe financially levered European stocks
(GSSTFNLV) are less sensitive (outside those exposed to commodities) to
the US HY sell off. That said, risks in credit make us reluctant to recommend
these names; we prefer our high DY with growth basket (GSSTHIDY), this is
screened on balance sheet criteria, to ensure the dividend is sustainable.
--> Top picks: VOD, KPN, DTE & NUM. TEF remains Sell. BT d/g to Sell. Altice u/g to Buy.
Buy selectively on sector growth and cashflow recovery
European telcos out-performed in 2015 benefitting from low inflation and domestic demand in Europe, though those with EM exposure lagged. The macro advantage will wane during 2016 however and we remain downbeat on LatAm but a triumvirate of more growth, rising margins and falling capital intensity next year will see cashflow margins bounce from all time lows. A greater contribution from mobile data, market rationality and more consolidation should underpin attractive dividends. Top picks: VOD, KPN, DTE & NUM. TEF remains Sell. BT d/g to Sell. Altice u/g to Buy.
Favorable relative macro to wane in 2016 GDP growth across the European Telco footprint will improve by 0.3pp in 2016 vs. no change in 2015 and is a help, but the relative benefit to telcos of low inflation and strong domestic demand (relative to GDP) will start to wane. Further, 2016 will likely see US and UK interest rates rise and ECB tapering at least discussed which will be viewed as unhelpful for a dividend sector. Telco yields are likely to first re-rate however due to operational trends
Valuation: Toto, we’re not in Kansas any more European telcos are no longer cheap on cash flows vs market. The reason? EBITDA and capital margins that are each more than 3pp below/above their 15 year average, respectively. We expect a partial reversal in 2016 to see an OpFCF margin improvement of c20%. Further growth (our ests moved up again for 2016), operating leverage and falling capital intensity could see OpFCF margins back at 2011 levels, and the sector back to a c30% discount.
New year, new promise on mobile revenue and capex evolution Cisco forecasts annual mobile IP traffic growth (2014-19) at 59%, a rate recently experienced by the European operators. Unfortunately the OpCos experience price declines which more than outweigh the usage benefit. In a world of large volume and price changes, small deltas can make a big difference to top line trends. Our work on European data tariffs suggests that unit price deflation may soon ease with positive consequences for top lines. Our work on mobile capital intensity shows how expected capital intensity (13-14pp in Vodafone's case) can support materially higher growth trends.
More deals likely in 2016 but sector recovery not contingent upon execution Despite the Danish deal ‘disaster’ of 2015, consolidation momentum continues and we expect deals in the UK, Italy and potentially France to be consummated in 2016. We expect remedies galore including creation of new MNOs which should keep consumers protected. Whilst we see limited chance of price rises, lower risk of falls would be nevertheless helpful. Cross-border deal prospects also appear more likely with the smaller incumbents the beneficiaries of larger Co scale ambitions
Dow+0.90% S&P+1.06% Nasdaq+0.87% Russell+1.41%
US Market closed higher, finish aboive its 100d MA ahead of tomorrow FOMC, Oil rebound helped hte sentiment, WTI crude surged 2.7% to $37.32/bbl, taking the energy sector (+2.9%) along for the ride, but still down 7.8% on the month. HYG +1.6% also helped the mkt to rebound. Heavey tech underperform but move was masked by good rebound from semi. Volme were above average with 940mil shares. US after Hours higher on earnings : JRJC +42.1%, HEI +1.8%, LAKE -6.3%, GPN -2.3%, CBT -1.4%...HPY+11.7% on GPN take over news @ $100/Sh. FVE+36.7% on asset sale. Congress Reaches Fiscal Deal That Ends U.S. Oil Export Ban. No ShutDown in the US with a $1.1T Budget agreement according to House speaker Ryan. The popular risk-off trends of the couple of weeks - namely short high-yield debt, short stocks, short energy, and long JPY - are all being unwound over the last 24 hours, as investors look ahead to Wednesday's monumental Fed announcement that will likely signal the start of the tightening campaign. Yen Weakness triggered rebound. Japan Manuf PMI data. 52.5 print was a decimal below last month but remained in expansion for 8th month. New orders also rallied to 54.1 v 53.6 prior, while new export orders slid to 52.4 v 53.2 prior. Markit economist said the growth in total new work picked up to the second-highest since October last year, supported by strong overseas demand. In China, PBoC adviser Fan Gang said economy is facing adjustments but still has potential to grow over the long term. Fan pointed to continued issues around industry overcapacity, bad loans, and Internet finance as key risks.
Nikkei +2.61% Hang Seng +1.92% Shanghai -0.08%
Eur$ 1.0944 CNY 6.4680 JPY 121.89 GBP 1.5048 CHF 0.9897 RUB$ 70.3645 WTI $37.17 (-0.48%)
S&P +0.23% EuroStoxx Dax SMI
Macro :
- Congress Reaches Fiscal Deal That Ends U.S. Oil Export Ban
- Fed to Hike Tmw, Bring Down Dot Plot, Pimco’s Ivascyn Says: Rtrs
- Germany Plans to Adjust Renewable Energy Act Exceptions: Welt
- China Growth May Slow to 6.6 Percent in 2016, Researchers Say
- Italy Weighs Mkt, Insurance, Bank Regulator Overhaul: Repubblica
Keep an eye on :
- ABG SM : Abengoa Could Get Lifeline Totaling EUR210m, Reuters Says
- ABG SM : Banks to Provide EU100M to Tide Abengoa Over to Jan.: Expansion
- ADS GY : Adidas CEO Sees 8% American Revenue Growth 2015: Handelsblatt
- ATOCA SS : Atlas Copco CEO Sticks to Demand View, Dagens Industri Reports
- AVV LN : Aveva's potential bidders had been waiting for conclusion of discussions with Schneider Electric - FT
- BPM IM : BPM has UBI Banca and Banco Popolare as likeliest candidates for merger - Il Messaggero
- AFX GY : Carl Zeiss Meditec FY Sales, Ebit Rise; Sees 2016 Margin Rise
- CO FP : Casino to Cut Debt by More Than EU2b in 2016
- CSGN VX : Credit Suisse Said to Be in Talks for Part of BTG Loan Portfolio
- DTE GY : DT to Postpone T-Mobile Netherlands Sale: De Telegraaf
- DRIO GY : Drillisch Raises Ebitda Forecast 2015
- FAGR BB : CVC, Yvan Vindevogel May Be Interested in Fagron, Tijd Reports
- BAER VX : Julius Baer to Buy Commerzbank Luxembourg Unit for EU68m
- KUNN SW : Kuoni Hired Credit Suisse to Explore Options for Business: FuW
- MAU FP : Maurel & Prom approaches Ophir and Tullow regarding potential merger - Irish independant
- ML FP : Michelin to Cancel 4.7ml shares dec. 17, 2,5% of Capital
- OMV AV : OMV Preparing Downstream Assets for Gazprom Swap, Presse Reports
- PRY IM : Prysmian Group to Pay ~100m Euros to Raise Oman Cables Stake
- RR/ LN : Rolls-Royce Chief to Cut Senior Roles in Shake-Up, FT Reports
- TIT IM : Telecom Italia shareholders reject conversion of savings shares into ordinary shares; approve enlargement of BoD (Details sent by bbg)
- FP FP : Total to Appoint a Lead Independent Director, Les Echos Says
- VOD LN : Vodafone, Liberty Investor Says Neither Side Pushing Away: FT
- ZC FP : Zodiac Aerospace Reported Rev up 8.8% in 1Q
>>> Up
*ALTICE RAISED TO BUY VS HOLD AT DEUTSCHE BANK (Note /attached)
*ARCADIS RAISED TO HOLD AT BANK DEGROOF PETERCAM
*BUWOG RAISED TO BUY AT BAADER-HELVEA
*BWIN.PARTY RAISED TO BUY VS SELL AT CITI
*CREDIT SUISSE RAISED TO HOLD VS SELL AT BANKHAUS LAMPE
*EURAZEO RAISED TO BUY AT HSBC
*EUROCOMMERCIAL PROPERTIES RAISED TO OVERWEIGHT AT JPMORGAN
*GBL RAISED TO BUY AT HSBC
*HELICAL BAR RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
*OSRAM LICHT RAISED TO HOLD AT KEPLER CHEUVREUX
*PEARSON RAISED TO OUTPERFORM AT EXANE BNP PARIBAS
*TAURON RAISED TO BUY VS HOLD AT SOCGEN; ADDED TO PREFERRED LIST
*TLG IMMOBILIEN RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
*TUPRAS RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
*WENDEL RAISED TO BUY AT HSBC
>>> Down
*A2A CUT TO NEUTRAL VS BUY AT CITI
*ANGLO AMERICAN CUT TO SELL VS HOLD AT SOCGEN
*BIG YELLOW CUT TO NEUTRAL VS OUTPERFORM AT JPMORGAN
*COLOPLAST CUT TO UNDERPERFORM VS HOLD AT JEFFERIES
*FONCIERE DES REGIONS CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
*MAIRE TECCN DOWNGRADED TO EQUALWEIGHT FROM OVERWEIGHT AT BARCAP
*SCHIBSTED CUT TO SELL VS NEUTRAL AT CITI
*SEGRO CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*VASTNED CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*WERELDHAVE CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*ZODIAC AEROSPACE CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
*ZURICH INS. CUT TO HOLD AT JEFFERIES
>>> PT Change
*BARCAP DOWNGRADING MOST OF OIL SERVICES PT IN REPORT TODAY - LOOK TO SPECIFIC EMAIL
>>> Initiation
*CELLNEX RATED NEW NEUTRAL AT MACQUARIE; PT EU16.60
*EMS-CHEMIE RATED NEW BUY AT KEPLER CHEUVREUX; PT CHF470
*ENTERTAINMENT ONE RATED NEW NEUTRAL AT CREDIT SUISSE; PT 160P
*GVC HOLDINGS RATED NEW BUY AT CITI; PT 580P
*INWIT RATED NEW OUTPERFORM AT MACQUARIE; PT EU5.50
*PANTALEON ENTERTAINMENT RATED NEW BUY AT HAUCK & AUFHAEUSER
>>> Call
European Oil Services & Drilling: Not so sweet '16
*MAIRE TECN – Downgrade to EW from OW. Lower PT to €3.30 from €3.60
*GULF MARINE (OW) Lower PT to 185p from 200p
*PETROFAC (OW) Lower PT to £13.20 from £14.00
*TECHNIP (OW) Lower PT to €72.00 from €76.00
*WOOD GROUP (OW) Lower PT to £7.70 from £7.80
*HUNTING (EW) Lower PT to 410p from 485p
*PGS (EW) Lower PT to NOK45.00 from NOK50.00
*TECNICAS (EW) Lower PT to €46.00 from €50.00
*AKASTOR (UW) Lower PT to NOK13.90 from NOK14.00
*AKER SOLUTIONS (UW) Lower PT to NOK41.00 from NOK44.00
*CGG (UW) Lower PT to €3.90 from €6.20
*SAIPEM (UW) Lower PT to €8.40 from €9.00
*SUBSEA 7 (UW) Lower PT to NOK82.00 from NOK84.00
*TGS (UW) Lower PT to NOK170.00 from NOK177.00
2016 is likely to be much of the same for the European Oilfield Service (OFS) industry as a large portion of its client base comes to terms with spending limits that are much reduced from what once was. Indeed, the most notable point is oil industry capex, which is likely to be down for a second year in succession, the first time since we began tracking it in the mid-'80s. As such, what little work is available is likely to be competitively bid and the delivery of the self-help programmes initiated in 2015 is likely to be a key determinant of performance. However, as we work through the year, we believe we will see a concerted effort to make the best projects viable, and at some stage the confluence of project delays, robust demand and the often forgotten decline rates mean that a tighter oil market is inevitable. At that point, we believe investors would be unwise to be underweight the energy complex, the risk of which could lead to significant share price upticks as it did twice in 2015. More important, the next dawn is less likely to be false. In such a scenario we remain Positive on the sector, excepting gradual improvements from here. Our recommendations remain focused on the more defensive stocks, those with backlog or those less exposed to the more extreme self-preservation measures of Big Oil. Our Top Pick remains Petrofac and the only change in rating is a downgrade on Maire Tecnimont to Equal Weight based on relative upside potential.