* Network migration onto fibre should help Orange resume revenue growth
* Iliad is the most positively exposed altnet to fibre, Bouygues Telecom’s lower scale means lower returns
* We reiterate our Buy on Orange, Iliad and Numericable-SFR and we rate Bouygues Hold
The key takeaways for French operators are: (1) in areas of higher population density Orange will lose unbundling revenue but will regain market share of broadband at higher ARPUs (Orange expects ARPU uplift of EUR5 in 2015).
(2) Co-investment scheme in less densely populated areas offers altnets the option to invest in tranches of 5% of newly built lines, keeping total capex under control. But not all altnets are equal: the 5% tranches may offer a variable cost structure to Orange’s competitors but there remain some fixed costs that are better covered when the market share is high. Iliad and SFR are currently more than twice the size of Bouygues Telecom. The latter could still grow its market share on the basis of low prices but this will in turn weigh on its long-term returns. We are therefore more positive on Iliad than on Bouygues Telecom. SFR-Numericable will co-invest where it does not have cable and would also benefit due to its existing high ADSL market share. We retain our Buy ratings on Orange (TP EUR17), Iliad (TP EUR255) and SFR-Numericable (TP EUR63). We rate Bouygues Hold (TP EUR37).
Commission reiterates its position on mobile consolidation
* Reiterates there is no magic number of operators per market
* Remains unconvinced on competition vs investment trade-off
* Retains strong preference for structural remedies
Commissioner Vestager speaks on telecoms competition: Appearing at a US
competition conference, the EC’s competition commissioner, Margrethe Vestager, has
outlined her thoughts on the telecoms market, and especially the recent decision by
TeliaSonera and Telenor to abandon their proposed merger in Denmark. The tone is
tough, but the content largely reiterates a set of well-established Commission views.
consolidation has revolved around the question of whether the EC has a magic number of
operators per country in mind, and – more specifically – whether that number is three or
four? Invoking the hip-hop trio De La Soul, Commissioner Vestager states “there is no
magic number,” clarifying further: “The Commission has not laid down a general rule
saying that three or four network operators are necessary.” This is very much what we
would anticipate, and is actually a welcome clarification – given that the Commissioner’s
comment with reference to Denmark that “it was necessary to have a fourth mobile
operator” (Reuters, 11 September 2015) has been quoted out of context as indicating that
the EC has a new ‘rule’ on this matter. Instead, the speech re-emphasises that each market
and case is different, and must be considered on its own merits.
EC unconvinced by trade-off between competition and investment: Commissioner
Vestager remains sceptical on this crucial point, stating “Research seems to suggest that a
reduction of the number of players from four to three in a national mobile market in the
EU can lead to higher prices for consumers. But not that it leads to more investment per
subscriber.” Our own work indicates that, in the market that was the first of the recent
batch to consolidate (Austria), and so has the longest track record, prices have fallen since
the transaction. Furthermore, the pace of those price declines was faster than that seen
prior to the merger. Although there are data series indicating higher ‘prices’ have emerged
in Austria, these do not track prices but bills (and do not take into account the quality/
quantity of service provided). Additionally, we would argue that the link between
consolidation and investment is becoming progressively better established. Leaving aside
our own work identifying an inverted-U relationship between the two (yielding the
conclusion that consolidation would mean greater investment in European markets),
academics are now increasingly weighing into the field. For instance, see the recent paper
Evaluating Market Consolidation in Mobile Communications, by Dr Christos Genakos,
Professor Tommaso Valletti and Professor Frank Verboven (CERRE, 15 September
2015), which concludes that consolidation does indeed lift operator investment.
Upgrading to Outperform - 10 reasons to buy
Our view: We are moving from cautious to positive on Richemont
shares ahead of 1H results thanks to a combination of: (a) self-help
growth levers (jewellery, Cartier innovation, lower raw material costs), (b)
diminishing fears on opex deleverage risks, (c) more reasonable consensus
expectations post downgrades in L12M, (d) compelling valuation ex-cash.
Key points:
Upgrading Richemont to Outperform (from Sector Perform) with a new
target price of CHF90 (from CHF87). We are increasing our FY16-17E EPS
forecasts by c3% following better than expected Jun-Aug sales figures and
positive read-across for margins ahead of 1H results on 6 November.
Positives outweigh the negatives - 10 reasons to buy: We have been
cautious on the stock so far on the back of weakness for high-end watches
(its biggest category) in Greater China (its biggest market) and persisting
Chinese macro concerns. After material stock underperformance year-todate,
we now see more positives than negatives in the next 6-12 months
1. Jewellery surprising on the upside driven by strength in all price points,
from bijoux to high-end jewellery, where Cartier’s investment in precious
stones is paying off. Van Cleef is sustaining its impressive multi-year run.
2. New Cartier watches: potential greater contribution from Cle (more
models supported by A&P) and Croisiere Ronde (more accessible line).
3. Easier comparatives in Hong Kong (from Oct'15 onwards)
4. Estimated raw material cost tailwind of €150m (+130bps) in FY16E
based on gold & diamond spot price evolution with a 20-month lag.
5. Diminishing fears of opex deleverage impact to margins with c.6%
organic growth in Jun-Aug'15 driven by positive surprises in Europe/Japan.
6. FX to support EBIT growth (hedging effects are booked below the line)
7. ROIC to stabilize in FY16E (at a level above its multi-brand peers)
8. Strong management and focus on the right KPI's (cash flow and ROA)
9. Reasonable consensus expectations post material downgrades in L12M
10. Compelling valuation ex-cash at 13x cal. 2016E NOPAT, the most
attractive in our coverage (with Swatch). Richemont looks also relatively
attractive on EV/Invested Capital vs. its 2018E lease-adjusted ROIC of 19%.
Asian equity markets are sharply higher, tracking the rally in the US on Friday where a disappointing September non-farm payrolls along with a significant downward revision to the prior month raised a question over the durability of recovery in employment and greatly diminished expectations for a Fed liftoff this year. Shanghai Composite remains closed for holiday. Investors are also shrugging a World Bank report that lowered China 2015 GDP target below the official forecast of 7% to to 6.9% from 7.1% and 2016 GDP outlook to 6.7% from 7.0%. Moreover, the likelihood of lower US rates for longer defused a call by a PBoC official for China to continue fine-tuning policy rather than implement more decisive stimulus measures. Ahead of this week's BOJ decision, a Nikkei report speculated the central bank would lower its economic and inflation forecast at the biannual outlook on Oct 30th and push back expectation for 2% inflation target from the current H1 of FY16. The BOJ may also use this week's meeting to signal it would consider boosting QE at that Oct 30th decision. Incoming economic data continued to justify added easing - wage inflation missed expectations for a modest growth, while Services PMI also showed some pronounced deterioration. Markit economist said the "data pointed to a slowdown in the expansion of the Japanese service sector" though "employment growth resumed in September and at a rate that was the strongest since November last year."..Electronic trade in the energy markets was somewhat more volatile than usual after reports that Saudi Arabia cut the price of light-crude oil deliveries to Asia by $1.70/brl, possibly signalling a price war with other exporters. WTI fell about 1% to $45.20 but then rose back to $46/brl on lower USD along with some geopolitical worries over expanded campaign in Syria by Russian military.
Nikkei +1.60% Hang Seng +1.36% Shanghai Closed
Eur$ 1.1233 CNY 6.3561 JPY 119.98 GBP 1.5211 EURCHF 1.0904 RUB$ 66.3452 WTI $45.76 (+0.48%)
S&P -0.06% EuroStoxx+2.11% Dax +1.98% SMI +1.87%
Macro :
- Nikkei Japan Sept. Composite PMI 51.2 vs 52.9 in Aug.
- Netanyahu Says He Is Ready to Move on After Iran Nuclear Deal
- IMF Lowers Forecast for Ukraine’s 2015 GDP to -11%
- Dudley Says Work Needed on Tools to Avert Financial Crises
- Kocherlakota Says Low Inflation Warrants Further Fed Stimulus
- Fed’s Rosengren Says 2% Growth Needed for Rate Liftoff This Year
Keep an eye on :
- ABE SM : Abertis Sees EU1.9b Investments in Brazil Through 2020: Cinco
- ANA SM : Acciona to Acquire 13.3% Additional Existing Nordex Shares
- AIR FP : Emirates Won’t Decide on A350 Vs Boeing 787 Order This Yr: Clark
- ALT NA : Funds Said in Talks to Buy Over $1 Billion Cablevision Stake
- AREVA FP : French PM Valls Says Open to Alliance on Nuclear: Asahi
- AKE SM : Arkema CEO Sees Slower Economic Growth in China, Les Echos Says
- BKIA SM : Bankia’s Chairman Says It Should Eventually Be Privatized: Papel
- CLN VX : Clariant CEO Sees U.S. Shale as Hunting Ground for Acquisitions
- AM FP : Qatar in Talks to Buy Eurofighter Typhoon Warplanes: al-Sharq
- DGE LN : Diageo's Sterling Vineyards likely to interest Treasury Wine Estates, other brands likely to be avoided
- EDF FP : EDF May Seek to Sell Its Stake in Edison: Repubblica
- EDF FP : EDF Raises $1.5B Selling 30-Year Bonds in Taiwan, Echos Says
- FRE GY : +ve article in the Barron's
- GLEN LN : 805 HK +43% now after being up more than 65% in heavy volume on Telegraph article & interest comment
- GVNV NA : GrandVision Agrees to Buy U.S. Optical Retail Chain For Eyes
- HAV FP : Havas Acquires Market Researcher CSA, Intervalles From Bollore
- HSBA LN : ICBC Said to Study Buying HSBC Argentina Operation: Perfil
- SDF GY : Potash Corp. Withdraws Proposal to Negotiate a Deal With K+S
- MRW LN : Morrison Scraps Price Matching Strategy, Financial Times Says
- NOVN VX : Alcon Gets FDA Approval For Pre-Loaded Intraocular Lens System
- UG FP : Peugeot in Talks With Tatas to Make Cars in India: Times Link
- PRU LN : U.K.’s Prudential May Move Headquarters to Asia: Sunday Times
- RCS IM : RCS Mediagroup to Sell RCS Libri to Mondadori
- CFR VX : Vacheron Constantin Sees Single-Digit Growth This Year: Le Temps
- RR/ LN : Rolls-Royce to Cut 400 Mgmt Jobs in Marine Division, FT Says
- RYA LN : Ryanair’s O’Leary Aims to Cut Ticket Prices to EU25, Welt Says
- SAB LN : SABMiller key director may need to sit out AB InBev talks
- SCHAEFFLER IPO : *SCHAEFFLER PRICE RANGE SET AT BETWEEN EUR12.00, EUR14.00/SHR
- TECH FP : Technicolor ’17 Adj. Current Op. Profit to Remain Above EU500M
- VOW3 GY : VW Scandal Spreads to More Executives: Frankfurter Allgemeine
- VOW3 GY : VW’s Poetsch Said Company Threatened by Scandal, Welt Reports
- VOW3 GY : VW Engineers Admit Installing Cheating Software, Bild Says
- VOW3 GY : Volkswagen to Hold Extraordinary Board Meeting Weds.: Reuters
- VOW3 GY : VW Chief Warns Cheating Scandal May Threaten Company’s Existence
>>> Up
*ARCELORMITTAL RAISED TO BUY VS SELL AT CITI
*EDENRED RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
*GLENCORE RAISED TO BUY AT SOCIETE GENERALE
*MEDIOLANUM RAISED TO NEUTRAL VS UNDERPERFORM AT MAINFIRST
*METSO RAISED TO HOLD VS REDUCE AT HSBC
*NEOVACS RAISED TO BUY VS REDUCE AT KEPLER CHEUVREUX
*PENNON RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
*PGE RAISED TO BUY AT SOCIETE GENERALE
*RICHEMONT RAISED TO OUTPERFORM AT RBC CAPITAL
*TCS GROUP HOLDING PLC RAISED TO OVERWEIGHT AT JPMORGAN
*UNICREDIT RAISED TO SECTOR PERFORM VS UNDERPERFORM AT RBC
*UNITED UTILITIES RAISED FROM NEUTRAL TO OUTPERFORM AT CREDIT SUISSE
>>> Down
*ENEA CUT TO HOLD AT SOCIETE GENERALE
*INTL PERSONAL FIN. CUT TO UNDERPERFORM AT RBC CAPITAL
*ITHACA ENERGY CUT TO HOLD VS BUY AT PEEL HUNT
*PORSCHE CUT TO HOLD VS BUY AT SOCIETE GENERALE
*SCHRODERS CUT TO EQUALWEIGHT VS OVERWEIGHT AT MORGAN STANLEY
>>> PT Change
>>> Initiation
*AMEC FOSTER WHEELER RATED NEW UNDERPERFORM AT JEFFERIES
*PETROFAC RATED NEW HOLD AT JEFFERIES; PT 777P
*SAIPEM RATED NEW HOLD AT JEFFERIES
*SUBSEA 7 RATED NEW UNDERPERFORM AT JEFFERIES; PT NOK54
*TECHNIP RATED NEW BUY AT JEFFERIES; PT EU51
>>> Call
Confirms to place 66M shares at a price between €12-14/share
- Schaeffler Group sees €975M gross proceeds from IPO based on mid-point price range;
- Plans to place 75M non-voting shares with institutional investors;
- Shareholders reserve right to place an additional up to €24.4M shares from holdings of Schaeffler Verwaltungs GMBH;
- Schaeffler's shares expected to be traded on October 9th
--> Glencore +60% in HK Trading
Shrs jump as much as 72% in afternoon trading, most since debut in May 2011, to highest since Sept. 1, trading volume ~12x 3-mo. full-day avg.
Asian Mid-session Update: World Bank cuts China GDP targets, but stocks remain firm on the prospects of lower US rates after a miss in NFPs
***Economic Data***
- (JP) JAPAN AUG LABOR CASH EARNINGS Y/Y: 0.5% V 0.6%E; REAL EARNINGS (EX-INFLATION) Y/Y: 0.2% V 0.5%E
- (JP) JAPAN SEPT NIKKEI SERVICES PMI: 51.4 V 53.7 PRIOR; COMPOSITE PMI: 51.2 V 52.9 PRIOR
- (AU) AUSTRALIA SEPT ANZ JOB ADVERTISEMENTS M/M: 3.9% V 1.3% PRIOR; 15-month high
- (AU) AUSTRALIA SEPT TD SECURITIES INFLATION M/M: 0.3% V 0.1% PRIOR; Y/Y: 1.9% V 1.7% PRIOR (10-month high)
- (AU) AUSTRALIA SEPT AIG PERF OF SERVICES INDEX: 52.3 V 55.6 PRIOR; 4TH MONTH OF EXPANSION, 3-MONTH LOW
***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 +1.2%, S&P/ASX +1.8%, Kospi +1.1%, Shanghai Composite closed, Hang Seng +1.9%, Dec S&P500 -0.1% at 1,941
***Commodities/Fixed Income***
- Dec gold +0.1% at $1,137/oz, Nov crude oil +0.2% at $45.65/brl, Dec copper +0.8% at $2.34/lb
- (SA) Saudi Arabia cut the price of light-crude oil deliveries to Asia by $1.70/brl
- (AU) Australia Aug Port Hedland iron ore exports 39.4Mt v 39.2M m/m; new record high - financial press
- (JP) BOJ offers to buy ¥400B in 1-3yr JGBs, ¥400B in 3-5yr JGBs, ¥240B in 10-25yr JGBs, and ¥140B in JGBs with maturity over 25-yr
- (KR) South Korea sells KRW800B in 3-yr govt bond, avg yield 1.605%; Sells KRW1.2T in 3-yr govt bonds, avg yield 1.580%
***Market Focal Points/FX***
- Asian equity markets are sharply higher, tracking the rally in the US on Friday where a disappointing September non-farm payrolls along with a significant downward revision to the prior month raised a question over the durability of recovery in employment and greatly diminished expectations for a Fed liftoff this year. Australia and Hong Kong are particularly strong, while Shanghai Composite remains closed for holiday. Investors are also shrugging a World Bank report that lowered China 2015 GDP target below the official forecast of 7% to to 6.9% from 7.1% and 2016 GDP outlook to 6.7% from 7.0%. Moreover, the likelihood of lower US rates for longer defused a call by a PBoC official for China to continue fine-tuning policy rather than implement more decisive stimulus measures. In FX, USD remained under modest pressure in Asian trade - AUD/USD and NZD/USD were notably firmer by about 40 and 30 pips respectively above $0.7080 and $0.6470.
- Ahead of this week's BOJ decision, a Nikkei report speculated the central bank would lower its economic and inflation forecast at the biannual outlook on Oct 30th and push back expectation for 2% inflation target from the current H1 of FY16. The BOJ may also use this week's meeting to signal it would consider boosting QE at that Oct 30th decision. Incoming economic data continued to justify added easing - wage inflation missed expectations for a modest growth, while Services PMI also showed some pronounced deterioration. Markit economist said the "data pointed to a slowdown in the expansion of the Japanese service sector" though "employment growth resumed in September and at a rate that was the strongest since November last year."
- Going into tomorrow's RBA decision, economic data also reflected prevailing sentiment of policy being appropriately calibrated. TD inflation remains below the RBA's 2-3 target range, but TD Securities report saw y/y level at a 10-month high, as resident economist said "the weaker Australian dollar may be boosting imported prices." Separately, ANZ job ads growth also rose to a 15-month high, and the bank noted "the demand for labor in a range of services industries has strengthened."
- Electronic trade in the energy markets was somewhat more volatile than usual after reports that Saudi Arabia cut the price of light-crude oil deliveries to Asia by $1.70/brl, possibly signalling a price war with other exporters. WTI fell about 1% to $45.20 but then rose back to $46/brl on lower USD along with some geopolitical worries over expanded campaign in Syria by Russian military.
***Equities***
US equities / ADRs:
- LMT: Reportedly in talks to merge its $4B information technologies business with another govt contractor - press
- GE: Trian reportedly has built a $2.5B (about 1%) stake in GE since May; Marks its largest investment - financial press
- APP: Said to be planning a bankruptcy filing as early as Monday - financial press
- GLEN.UK: Reportedly to consider offers for any potential takeover offer - UK press
Notable movers by sector:
- Consumer discretionary: Toray Industries 3402.JP +1.0% (H1 result speculation); Galaxy Entertainment Group 27.HK +5.6%, Wynn Macau 1128.HK +5.8% (China visitors to Macau rises)
- Financials: Bank of Queensland BOQ.AU +0.4% (update); ANZ Bank ANZ.AU +1.3% (speculation on unit sale)
- Industrials: Great Wall Motor 601633.CN +10.0%,Dongfeng Motor 489.HK +1.0% (positive news for small cars)
- Technology: Asustek Computer 2357.TW -0.7% (to broaden patent engagement with Microsoft);
- Materials: Kingsgate KCN.AU -7.6% (update on Thai IPO); Glencore Xstrata 805.HK +21.5% (payment update, speculation on takeover offer); BHP Billiton BHP.AU +3.7%, Rio Tinto RIO.AU +2.1% (momentum); Newcrest Mining NCM.AU +9.7%, Evolution Mining EVN.AU +9.1% (gold price rises)
- Energy: Woodside Petroleum WPL.AU +3.0% (CEO's comment); Santos STO.AU +4.8% (speculation for asset bid)