TheChek News Flow

Key points:

• AFKLM on track for almost Q4-15 break-even. Tiny unit revenue

upgrades and the windfall of still falling oil prices (but a weaker Euro)

sees 2015E operating profit lifted 50% to €637m underlying (2.5%

margin) and 2017E to ~€1bn (~4% margin). Note we include the adverse

€50m short-lived impact on bookings from the Paris terrorist attacks

(like Q1-15 and seen before elsewhere, e.g. Madrid, London).

• >70% upward BBG consensus revisions coming: BBG consensus at

€370m in 2015E (€733m in 2016) implies scope for large upward

profit revisions for in the next 3 months (Q3-14 due 18/02/2016). This

suggests scope for a strong (but speculative risk) upside performance

into 2016 amplified by the small (13%) equity component of EV.

• Big fundamental issues remain and 2016 is key: AFKLM has a relatively

unproductive workforce (Exhibits 4 and 5). Without fundamental

change, we see risk that 2017 profits sink YoY and the shares fall in 2017.

Without cost change, margin pressure will resume once fuel windfalls

wash through and are competed away (we see Europe awash with seat

overcapacity that compounds in 2017, in our view).

• No reform – no equity value: Without productivity reform we see

longer-term risk that higher costs leave the company fundamentally

unable to compete and ill-prepared to survive the next recession. If

ongoing decisions with unions do not yield progress in early 2016, then

fleet cuts are planned but this alone will not address the fundamental

productivity problem.

1. We see short-term upside into summer 2016 driven by large upward

consensus EPS revisions amplified by the high debt component of the

AFKLM EV. At a minimum we think investors should move to neutralise

any underweight positions.

2. More in Q1-2016? A successful Air France labour agreement in early

2016 could further lift this outlook. The risk is that an improving profit

backdrop makes progress harder.

3. We see risk that underperformance resumes after Q3-16 reporting

if the last chance at labour productivity reform is not grasped (and

GDP/demand outlook does not improve): After a potential bumper

summer 2016 profits we think investors (under our present scenario)

may then need to move to lock in any gains made by then – as without

deep change (which will be clear, or not, by end Q1-2016) the risk

of long-term nil equity value then will re-merge as fuel gain windfalls

wash out into 2017E.

AT&T could consider selling Latin American assets or combining assets in the region, as long as conditions are positive, according to a newswire report.

Bloomberg, citing CEO Randall Stephenson of AT&T, said the Dallas-based communications giant could sell assets in Latin America, but it is in no rush for that.

The company expects to have subscriber growth in its wireless unit in Mexico in 4Q15, the item said. AT&T is open to other options in countries going through difficult economic and political situations, such as Venezuela and Brazil, the CEO told the newswire.

*VOLKSWAGEN CO2 EMISSIONS PROBE AFFECTS 40,000 CARS, FAZ SAYS

*VW ORIGINALLY ESTIMATED 800,000 CARS WITH INACCURATE CO2 DATA

We expect earnings to surprise on the upside in 2016 driven in large by

operating leverage and margin expansion. In this report we look at the key

drivers of this margin pick-up and some of the key beneficiaries from it.

Driver 1 – labour costs at historical lows could boost margins

Driver 2 – the fiscal drag becomes a fiscal push in 2016

Driver 3 – low producer prices point to margin expansion

--> On the sector level Construction, Autos, Transport could benefit

A Dow/DD merger would have three implications for the European names 1) For Syngenta a Dow/DD tie-up is a good thing as some investors feared Syngenta might actually try and buy the DuPont ag business. This merge would put pressure on Monsanto so to us the most likely outcome is now a revised offer from Monsanto for Syngenta. 2) For the large European names this is now time to be looking at big US deals as the US chemicals industry is heavily up for sale due to the pressure from activists. BASF would be well placed to buy assets from a Dow/DuPont tie-up as could other names (e.g Evonik). Our analysis in the sector suggests that share prices of acquiring companies tend to go up post acquisition announcements (not down) for the 180 day period following announcements. 3) In gases we see incremental pressure on Air Products and remain of the view that a break-up of this name could occur mid-term with Linde the most logical name to be involved. 4) In Europe the attention will inevitably turn to who could be taken-out now M&A is firmly back on the agenda and aside from Syngenta we would flag JMAT, Symrise, Clariant and Croda as the more vulnerable names in this space.

RTRS - Adidas CEO says to stay until end of contract in 2017

supported by a solid operational outlook. Whilst investors are focused on

the top-down risk to Consumer Staples from sector rotation out of defensive

sectors in anticipation of rising interest rates, we adopt a bottom-up

perspective and see a relatively solid outlook in the coming 12 months.

Three debates that we think will drive relative stock performance in 2016 are:

1. Can organic growth in Food/HPC improve in 2016? We believe the

market is underestimating the potential for improved top-line growth with

Emerging Markets stabilizing, ongoing investment in growth, partlymoderating

competitive pressure and easing comps.

2. Can ‘Self Help’ become a key earnings driver in 2016? We expect

intensified focus on efficiency gains, portfolio changes and M&A to drive

earnings, whereas consensus estimates seem to reflect caution. In particular,

we think margins could surprise on the upside.

3. Can current high multiples be sustained? A key concern in the market is

that with the average EU Food/HPC rel. P/E sitting on a lofty ~50% premium

vs. MSCI Europe (albeit in line with long-term multiples) having outperformed

~20% in 2015 (driven by HPC), the likely imminent increase in interest rates by

the US Fed raises the prospect of a sector rotation out of defensive stocks

affecting staples' valuations. We acknowledge this as a risk for 2016, but see

solid operational performance as supportive (e.g. in contrast to other sectors,

we saw no profit warnings in the recent 3Q results; indeed, most reported

better-than-expected results with some (e.g. Reckitt) even raising guidance).

and Beiersdorf in HPC. Our top picks are those with the most scope for 'Self

Help' to drive margins and to reinvest to support top-line growth. We also

believe the EU Food and HPC stocks will benefit from improving DM,

stabilizing EM and mix improvement, and again see Danone & Nestle in Food

and Reckitt & Beiersdorf in HPC as preferred stocks to play this improving

EM/top-line inflection theme.

According to the filing, Niel holds additional options that can only be settled in cash. Those amount to a potential stake of around 5 percent, according to Reuters calculations.

According to a source close to the matter, the filing details the options Niel already disclosed to the Italian market regulator in October and November and does not point to any additional stake building on his behalf.

Niel, founder of low-cost French telecoms group Iliad , in October emerged as a potential leading investor in Telecom Italia when regulatory filings in Italy disclosed he held positions relating to 15.14 percent of Telecom Italia's share capital.

That placed him immediately behind top shareholder Vivendi , the French media group that owns just over 20 percent of Telecom Italia.

Niel's sudden investment in Telecom Italia led to an inquiry by Italian market regulator Consob as to whether the businessman and Vivendi were acting in concert, which both sides denied.

In Tuesday's filing to the SEC, Niel details various option agreements that his holding company NJJ entered via its Rock Investment unit with either Societe Generale or Credit Suisse.

These option agreements are all of the European type and have various expiration dates between June 2016 and November 2017.