Fed's Bullard (hawk, non-voter): Fed to use less forward policy guidance after the initial interest rate increase - Q&A
- The US has years to go in the current economic expansion
- Calls on US government to get its long-run fiscal situation under control
- From a cyclical perspective, US labor market is now back to normal
Gapping up
In reaction to strong earnings/guidance: HIBB +13.3%, ANW +12.7%, INTU +9.8%, ROST +7.4%, FL +4.8%, SPLK +3.6%, (announces the retirement of CEO Godfrey Sullivan, effective immediately), CNC +2.3%, NGVC +1.8%, CISG +0.5%
M&A news: LBMH +24.8% (to be acquired by C. R. Bard (BCR) for ~$181 Million, or $3.35/share), HZNP +2% (withdraws offer to acquire Depomed (DEPO) following court ruling), PSEM +1.3% (Pericom Semi reiterates support for Diodes (DIOD) transaction; responds to Montage's offer)
Select metals/mining stocks trading higher: AU +2.4%, ZINC +1.9%, RIO +0.9%, BHP +0.8%
Other news: SRPT +25.5% (BMRN competitor, benefiting from BMRN's negative FDA briefing docs), KBIO +22.6% (appoints Martin Shkreli as CEO; announces new financing), HART +10.2% (CEO and CFO disclose stock purchases), CAB +6.1% (reports that Bass Pro considering bid for CAB), VIPS +5.9% (Tiger Global Management reported 9.96% passive stake in 13G filing),HABT +5.7% (postpones proposed follow-on offering of common stock by certain stockholders in light of current capital market conditions), NKE +4.3% (announces new $12 billion share repurchase program, 14 percent increase in quarterly dividend, and two-for-one stock split), VOD +1.6% (cont strength)
Analyst comments: TRMB +3.7% (upgraded to Buy from Neutral at Goldman), DEO +1.3% (upgraded to Overweight from Neutral at JP Morgan), INTC +0.6% (upgraded to Mkt Outperform from Mkt Perform at JMP Securities
In reaction to strong earnings/guidance: HIBB +13.3%, ANW +12.7%, INTU +9.8%, ROST +7.4%, FL +4.8%, SPLK +3.6%, (announces the retirement of CEO Godfrey Sullivan, effective immediately), CNC +2.3%, NGVC +1.8%, CISG +0.5%
M&A news: LBMH +24.8% (to be acquired by C. R. Bard (BCR) for ~$181 Million, or $3.35/share), HZNP +2% (withdraws offer to acquire Depomed (DEPO) following court ruling), PSEM +1.3% (Pericom Semi reiterates support for Diodes (DIOD) transaction; responds to Montage's offer)
Select metals/mining stocks trading higher: AU +2.4%, ZINC +1.9%, RIO +0.9%, BHP +0.8%
Other news: SRPT +25.5% (BMRN competitor, benefiting from BMRN's negative FDA briefing docs), KBIO +22.6% (appoints Martin Shkreli as CEO; announces new financing), HART +10.2% (CEO and CFO disclose stock purchases), CAB +6.1% (reports that Bass Pro considering bid for CAB), VIPS +5.9% (Tiger Global Management reported 9.96% passive stake in 13G filing),HABT +5.7% (postpones proposed follow-on offering of common stock by certain stockholders in light of current capital market conditions), NKE +4.3% (announces new $12 billion share repurchase program, 14 percent increase in quarterly dividend, and two-for-one stock split), VOD +1.6% (cont strength)
Analyst comments: TRMB +3.7% (upgraded to Buy from Neutral at Goldman), DEO +1.3% (upgraded to Overweight from Neutral at JP Morgan), INTC +0.6% (upgraded to Mkt Outperform from Mkt Perform at JMP Securities
Gapping down
In reaction to disappointing earnings/guidance: NMBL -45.1%, MENT -28%, WDAY -7.5%, KEYS -6.8%, ZOES -5.3%, JMEI -5.3%, ADSK -3.8%, WSM -3.3%, TFM -3%, GPS -2.8%, MOMO -1.9%, WAIR -1.4%
M&A news: DEPO -5.5% (Horizon Pharma (HZNP) withdraws offer to acquire Depomed following court ruling)
Other news: NBG -31.8% (completed the book-building process to institutional and other investors by way of a private placement of its new ordinary registered shares), APTO -26.7% (suspends clinical dosing of APTO-253 to review its drug manufacturing processes and procedures; FDA places the Phase IB clinical trial on hold), PSTG -9.8% (in symp with NMBL), BMRN -7.8% (FDA briefing docs released for co's drisapersen for DMD; evidence of efficacy is 'inconsistent and in some cases contradictory'; safety a concern), PTCT -7.6% (BMRN peer), MNKD -6.6% (CEO steps down), BLDR -4.1% ( announces the commencement of a public offering of 7 mln shares of its common stock to be sold by Warburg Pincus), AVH -3.6% (following October traffic data), LYG -2.2% (in symp with BCS dg), CLVS -1.2% (PointState Capital disclosed 7.7% stake in 13G filing), S -1.2% (signs $1.2 bln deal w/ newly formed Mobile Leasing Solutions, LLC for the sale and lease-back of certain leased devices), SNPS -1.1% (on MENT earnings/guidance), ING -0.9% (may be in symp with BCS dg)
Analyst comments: BTU -5.4% (downgraded to Sell at UBS ), EXPR -2.8% (downgraded to Sell from Neutral at Goldman), AKAM -2.6% (downgraded to Sell from Neutral at Goldman ), BCS -2.2% (downgraded to Equal-Weight from Overweight at Morgan Stanley), GRFS -1.9% (downgraded to Hold from Buy at Berenberg), AMWD -1.5% (downgraded to Neutral at Robert W. Baird
)
In reaction to disappointing earnings/guidance: NMBL -45.1%, MENT -28%, WDAY -7.5%, KEYS -6.8%, ZOES -5.3%, JMEI -5.3%, ADSK -3.8%, WSM -3.3%, TFM -3%, GPS -2.8%, MOMO -1.9%, WAIR -1.4%
M&A news: DEPO -5.5% (Horizon Pharma (HZNP) withdraws offer to acquire Depomed following court ruling)
Other news: NBG -31.8% (completed the book-building process to institutional and other investors by way of a private placement of its new ordinary registered shares), APTO -26.7% (suspends clinical dosing of APTO-253 to review its drug manufacturing processes and procedures; FDA places the Phase IB clinical trial on hold), PSTG -9.8% (in symp with NMBL), BMRN -7.8% (FDA briefing docs released for co's drisapersen for DMD; evidence of efficacy is 'inconsistent and in some cases contradictory'; safety a concern), PTCT -7.6% (BMRN peer), MNKD -6.6% (CEO steps down), BLDR -4.1% ( announces the commencement of a public offering of 7 mln shares of its common stock to be sold by Warburg Pincus), AVH -3.6% (following October traffic data), LYG -2.2% (in symp with BCS dg), CLVS -1.2% (PointState Capital disclosed 7.7% stake in 13G filing), S -1.2% (signs $1.2 bln deal w/ newly formed Mobile Leasing Solutions, LLC for the sale and lease-back of certain leased devices), SNPS -1.1% (on MENT earnings/guidance), ING -0.9% (may be in symp with BCS dg)
Analyst comments: BTU -5.4% (downgraded to Sell at UBS ), EXPR -2.8% (downgraded to Sell from Neutral at Goldman), AKAM -2.6% (downgraded to Sell from Neutral at Goldman ), BCS -2.2% (downgraded to Equal-Weight from Overweight at Morgan Stanley), GRFS -1.9% (downgraded to Hold from Buy at Berenberg), AMWD -1.5% (downgraded to Neutral at Robert W. Baird
)
Early premarket gappers
Gapping up: KBIO +15.4%, ANW +12.7%, INTU +12.3%, ROST +8%, VIPS +5.9%, CAB +5.4%, HART +5.4%, NKE +4.4%, ZINC +4.3%, AU +3.3%, UVE +2.9%, CNC +2.3%, NGVC +1.8%, SPLK +1.5%, RIO +1.3%, RAD +1.2%, HIBB +1.2%, VOD +1.1%, BBL +0.9%, BHP +0.8%, FL +0.8%
Gapping down: NMBL -47.2%, MENT -32.7%, NBG -22.4%, DEPO -12.3%, WDAY -6.2%, ZOES -4.3%, BLDR -4.1%, AVH -3.6%, WSM -3.5%, SUNE -2.8%, SNPS -2.6%, MOMO -2.5%, BCS -2.1%, SAN -1.8%, TFM -1.7%, GPS -1.6%, WAIR -1.4%, RDS.A -1.3%, JMEI -1.3%, BP -1%, CHK -0.9%, ING -0.8%, SHPG -0.7%, AEG -0.7%, SNY -0.7%, VRX -0.6%, ADSK -0.6%
Gapping down: NMBL -47.2%, MENT -32.7%, NBG -22.4%, DEPO -12.3%, WDAY -6.2%, ZOES -4.3%, BLDR -4.1%, AVH -3.6%, WSM -3.5%, SUNE -2.8%, SNPS -2.6%, MOMO -2.5%, BCS -2.1%, SAN -1.8%, TFM -1.7%, GPS -1.6%, WAIR -1.4%, RDS.A -1.3%, JMEI -1.3%, BP -1%, CHK -0.9%, ING -0.8%, SHPG -0.7%, AEG -0.7%, SNY -0.7%, VRX -0.6%, ADSK -0.6%
We reduce our average K+S EBITDA forecasts by 11%, our target price to
€22/share, and our rating to UNDERPERFORM (from Neutral). We
implement our CS Global Potash price forecasts and update our estimates
following the Q3 2015 result and CMD. We remain concerned surrounding the
near and medium-term supply/demand balance across global Potash markets.
For K+S (in the upper half of the global cost curve), this increases pressure on
forward margins/returns/cash flow.
* Potash Price Pain: We drop Global Potash price forecasts by avg.
-12.5% as a function of adverse supply/demand dynamics across global
Potash markets – CS forecast op. rates decrease to 70-75% by decade-end,
from ~78%. This leads to avg. ~25% EBITDA downgrades to K+S Potash &
Magnesium earnings through the forecast period. We recognise limited
protection to earnings from K+S' speciality/SOP product offering.
* Legacy Issues: We estimate the K+S Legacy Project expansion is
~€1.4/share value dilutive, in our view. We estimate K+S require Potash
prices >$400/t for the project to be value-neutral.
* Above the Salt: We are impressed by the margin resiliency of the Salt
business through FY15E, and now forecast the division to achieve its 'Salt
2020' targets in FY18E (2 years early vs. company targets). We believe this
driven by underlying business improvement, CS est. ~300bps margin
contribution from cost saves, and holding record prices.
* Catalysts: Q1 result – 10 March 2016. Potash prices.
* Valuation: Our K+S valuation is €22/sh. This is derived using our
Discounted Cash Flow analysis for its existing European Potash assets
(€12/sh – assuming a run-off of existing reserves), and an average SOTP
approach for the Salt business (€19/sh). Our Legacy Project valuation is
€(1.4)/sh on Forward NPV / €(7.8)/sh on Total Project NPV.
* Cyclicals are leading in the US, lagging in Europe. In the US, Cyclicals have outperformed Defensives by 6% over the last quarter. However, over the same period European Cyclicals have underperformed Defensives by 2%. These two relative series have tracked each other closely in recent years and hence this divergence is significant. In fact, the size of the gap between the relative performance of Cyclicals vs Defensives in the US against the same series in Europe has only been exceeded twice in the last decade (moments of extreme stress in Oct-08 and late 2011).
* Diverging monetary policy is temporarily boosting European defensives – an opportunity to sell. There has been no significant change in the growth outlook for the US or Europe recently, hence this divergence most likely reflects diverging monetary policy (cyclicals traditionally outperform defensives post the first Fed rate hike as we showed in ‘1st Fed rate hike should be good for cyclical value and bad for defensives’, 12 November). Improving fundamental trends should ultimately trump interest rate differentials (and a weaker EUR is also good for European growth), and hence we’d expect this divergence to narrow driven by a period of cyclical outperformance in Europe – this is a good opportunity to sell European defensives.
ENEL GREEN POWER (EGPW IM) / ENEL (ENEL IM)
Easy being Green
On 18 November 2015, the boards of Enel and Enel Green Power announced the approval of the non-proportional spin-off of part of EGP into Enel.
The spin-off envisages:
· Assignement by EGP to Enel of the spun-off assets, essentially represented by (i) the 100% stake held by EGP in Enel Green Power International B.V., a Dutch holding company that holds investments in companies operating in the renewable energy sector in North, Central and South America, Europe, South Africa and India; and,
· The assets, liabilities, contracts and other legal relationships associated with those investments (the "Spun-Off Assets"); and - the retention by EGP of all remaining assets and liabilities other than those that are part of the SpunOff Assets (and thus, essentially, all Italian operations and a small number of remaining foreign investments).
The transaction will help simplify Enel’s current business structure and EGP have performed very well since its listing, registering an 82.7% increase in installed capacity, reaching the current 10.6 GW from 5.8 GW, and a 38% EBITDA increase to €1.8bn expected for full year 2015 (to date 12% of Enel Group’s EBITDA) from €1.3bn euros in 2010 (which was 8% of Enel Group’s EBITDA), which may help balance a weaker outlook elsewhere e.g. in Latin America.
The transaction does not require any regulatory approvals and is only conditional on: (i) EGP shareholder approval (2/3% of shares present and voting with a 20% quorum), (ii) Enel shareholder approval (2/3% of shares present and voting with a 20% quorum), and, (iii) recesso rights not exceeding €300m (recesso rights price using the 6M VWAP is €1.78 per EGP share).
Under Italian law, Enel are allowed to vote their c.70% stake in favour of the transaction making the EGP shareholder approval a “no brainer”, consequently minority shareholders have no choice but to accept the offer. We do not expect any issues in obtaining Enel shareholder approval.
Both shareholder meetings are scheduled for 11 January 2016 (the record date has not been set yet) and following the 2-month creditor period for the recesso rights the transaction should be on track to close/settle by mid/late March.