TheChek News Flow

· In his 09/25/15 note ,our Exane BNPP analyst reiterated the view that a takeover bid for Zodiac is “still unlikely”

· That said and as a key reminder ,Safran’s former managerial team unsuccessfully attempted to acquire the company in 2010

· The fresh plunge in the Zodiac share price is consequently reopening the theoretical takeover window

· A deal ,if any ,would have to be structured on an all-share basis to minimize implied tax costs

2 initial statements from Safran

· “Safran confirms that it proposed to Zodiac Aerospace to examine the merits of bringing their activities together”

Press release of July 11, 2010

· “The Group is not in the process of preparing an offer for Zodiac Aerospace”

Press release of August 30, 2010

And a final (?) withdrawal : “Safran will not make an offer for Zodiac”

Safran became subject to a 6-month bidding restriction after issuing on 11/18.10 the following notification to AMF:

“Since last June, Safran has deepened its understanding which fully confirmed its analysis of the industrial merits of a combination with Zodiac Aerospace, as well as the strategic benefits induced by technological complementarities.”

“The Group had proposed to the Chairman of the Supervisory Board and the Chief Executive Officer of Zodiac jointly to examine the merits of a friendly combination.”

“Following several contacts and under current circumstances, the conditions for a friendly combination are not met. In harmony with its corporate culture, Safran will not make an offer for Zodiac.”

Rolls-Royce has historically been viewed as a Civil Aerospace company and valued on earnings. In reality, half of 2014 sales were from other business lines, and we believe the accounting policies mean earnings are a poor indicator of economic value. Following a 48% fall in the share price since the beginning of 2014 and profit warnings in three major end markets, we believe the current valuation fails to reflect Rolls-Royce’s cash flow improvement, despite weak earnings growth. We favour a cash flow-based valuation method, seeing almost 50% upside to our new, 12m 966p PT. We remove the Not Rated designation from the shares and reinstate at Buy.

Rolls-Royce will release a 3Q IMS on November 12 and will host an Investor Day on November 24 to update investors on the ongoing operating review. We believe focus on the medium-term outlook at this update could be

supportive for the shares.

We value Rolls-Royce on 10.2x 2017E EV/DACF; this target multiple is based on our 2017E CROCI forecast of 15.5% and assumes a 1:1 relationship between EV/GCI and CROCI/WACC. This compares to the average target multiple of 11.4x for the sector (12.3x for Safran). In our view, a cash flow and returns-based valuation method captures the underlying drivers of economic value. We expect DACF (debt-adjusted cash flow) growth to outpace earnings; from 2015-18, we forecast an EBIT CAGR of 1% but improving cash conversion should result in a DACF CAGR of 17%.

Risks to our view and forecasts include: 1) FX; 2) pressure in defence spending in the core and export markets (where visibility is lower than in other businesses); 3) continued declines in sanctioned offshore capex spend; 4) programme risks, such as at Trent XWB and Trent 1000.

Activist investor urges the company to drive margins higher

Activist investor Starboard Value LP has built a 3.7% stake in Advance Auto Parts Inc. and is urging the company to drive margins higher.

The New York hedge fund plans to disclose its stake in the Roanoke, Va.-based seller of automotive parts at an investment conference in Toronto on Wednesday, according to a presentation reviewed by The Wall Street Journal.

Starboard, among the most prolific activist investors, has already met with Advance Auto’s management, including Chief Executive Darren Jackson, according to a separate letter the fund is sending to Mr. Jackson. Starboard says it hopes to work with the company to improve its operations.

Advance Auto had no immediate comment Tuesday evening.

The stake would put Starboard among the 10 biggest Advance Auto investors, according to FactSet. It would be worth more than $460 million at Tuesday’s close, when Advance Auto had a $12.5 billion market capitalization.

The presentation details Starboard’s view that Advance Auto is lagging behind peers AutoZone Inc. and O’Reilly Automotive Inc. in profit margins.

Advance Auto shares have risen 7% this year to $170.53, besting the decline in the S&P 500 which it joined in July, but trailing those peers. O’Reilly is up 26% and AutoZone is up 17%, as the industry has benefited from consumers driving more thanks to lower gas prices.

Starboard says in the presentation that Advance Auto could top $360 a share.

Advance Auto gets about 57% of its sales from garages and service stations that turn to the chain for parts, and the other 43% from do-it-yourself consumer sales, Starboard says. It urges the company to focus on business-to-business sales.

The presentation holds up O’Reilly’s margin expansion in the postrecession years as a model for Advance Auto.

One area Starboard focuses on is Advance Auto’s distribution to service stations. Starboard says the company doesn’t do a good enough job stocking its shelves every day, which the fund says can cost it sales.

Advance Auto is already expanding its daily delivery program. Executives on the company’s second-quarter conference call in August said they are on track for daily stocking at 1,000 of its 4,000 stores by year-end, up from 77 stores in the first quarter.

The company has touted its work improving margins, saying last month it expects to reach a goal of a 12% operating margin by the end of 2016, a year ahead of schedule. Management says “achieving 12% is not a final destination or full potential of our business, it is the next milestone.”

Its same-store sales rose 1% in the quarter and profit rose 3.8% to $150 million.

Among activists, Starboard is known for pursuing many campaigns at the same time. Tuesday the fund disclosed a new investment in Media General Inc., wading into a three-way corporate bidding war. Starboard urged Media General to back out of a planned purchase of publisher Meredith Corp., and instead negotiate to sell itself to Nexstar Broadcasting Group Inc., which went public with an offer to buy Media General on Monday.

Media General reiterated it is reviewing Nexstar’s proposal. A Meredith spokesman wasn’t immediately available to comment and Nexstar declined to comment.

Story

Volvo Construction Equipment (VCE), the construction equipment operations of the listed Swedish truck manufacturer Volvo, will likely be spun off soon, according to Dagens Industri.

The Swedish business daily speculated that there are three reasons why a spin-off of VCE is likely to occur soon, the first being that Volvo is to gain competitor Scania's ex-Managing Director, Martin Lundstedt, as new MD in October and while Lundstedt is very knowledgeable about trucks, he knows less about the VCE market. Also, Lundstedt has been hired to improve Volvo's truck operations.

The paper also pointed out that Volvo's Chairman, Carl-Henric Svanberg, is known for conducting successful spin-offs in the past and that Volvo's activist shareholder Cevian Capital, will unlikely oppose spinning off VCE. The paper wrote that Industrivarden, which is also a significant shareholder in Volvo, has new management and is less likely to oppose such a deal than its previous management.

The paper reported further that the third reason why a spin-off is likely to occur is the fact that VCE would be better able to take advantage of its potential on its own. The item noted that VCE has a turnover of SEK 50bn (EUR 5.3bn) and would, in the event of a spin off and separate listing, become the 17th largest company on the Stockholm stock exchange in terms of turnover. The paper wrote that it is unlikely VCE could be sold due to difficulties in the Chinese market.

Meanwhile, the item also noted that VCE would benefit from growth via acquisitions after a spin-off, especially in the US. The paper speculated that a perfect way to do so would be to acquire American John Deere's VCE operations or even combine with American John Deere.

Dagens Industri

DARTY - All share approach from FNAC, 1 for every 39 DTY, c. 101p........+20% SAINSBURYS - LFLs in line, sees FY PBT ahead of cons,22% short interest.+3-4% GLENCORE - Headlines just a re-iteration of yday's comments,miners strong.+3% TESCO/MRW - Positive read from solid SBRY numbers, sector still shorted...+2% RIO - To sell coal stake in Australia to New Hope for $606m...............+2% NEOPOST - H1 sales +10% YoY, confirms org growth & op margin targets......+2% AUTOS - Chinese autos on fire post 50% cut to PV tax for engines <1.6l....+2% VOLVO - Spec VCE spin-off could be near, Trelleborg CEO tipped to lead....+2% ENEL GREEN POWER - Sells Finerge for EUR 900m, exits Portuguese market..+1-2% MOTA ENGIL - To sell port & logistics business (Tertir), c. EUR 275m....+1-2% SSE - Statement in line, nothing but a re-iteration of guidance...........+1% WPP - Positive read from Comscore buying RENT for $800m, WPP own c20%.....+1% GEA - Pre release cutting growth guidance but holds for EBITDA............+1% BNP/LLOYDS - Top pick from day 1 at our conf, watch SocGen today..........+1% SAGA - Interims slightly ahead of cons, u/lying COR worse on timing.......+1% SHAFTESBURY - pre-close update adds nothing new, trading still +ve........+1% QINETIQ - Trading in line with expectations, will move with the mkt.......+1% WORKSPACE - small acquisition of Mecca bingo site in Wandsworth for £26m..+1% SGS - Agrees to buy 70% of private co SIGA, c. CHF 43m rev in 2014........+1% ADEN/AHOLD/BT/LHN - We name amongst our top LONGS for Q4 in EMEA..........+1% NOKIA/PRU/SANOFI - We name amongst our top LONGS for Q4 in EMEA...........+1% PIRELLI - Paulson tenders 9.5% of co to ChemChina at EUR 15...............u/c DIALOG SEMI - Lowers approval threshold for Atmel to 50%+1 from 75%.......u/c CARLB/KNIN/NESTE - We name amongst our top UNDERPERFORMS for Q4 in EMEA...-1% UPONOR - Warning on weak EU demand, sees op profit flat YoY, cons +28%...-15%

Autos +4-5% China cuts small passenger vehicle purchase tax to 5%

Deut Post -1% Negative article on antitrust in Handelsblatt

Electrolux +2-3% Considering options for settling with US on antitrust

Galenica M/P Received Japan approval for Sucroferric Oxyhydroxide

Geberit -1-2% Read across from Uponor profit warning

IMI UNCH Read across from Uponor profit warning

Infineon +2% China tax cut should be a benefit

Miners +1-2% Copper +0.40%, Brent UNCH, Iron Ore UNCH, China +1.18%

Qinetiq M/P The Board is maintaining expectations for Grp performance

RPC M/P Sees total trading in line with management expectations

Sainsburys +3-4% Sees FY Pre tax ex items moderately ahead of consensus

Saga M/P H1 Op profit inline, confident in achieving FY

Shaftsbury +1-2% Trading update solid. London strong

SSE UNCH Numbers and dividend inline with market expectations

St Gobain UNCH Read across from Uponor profit warning

STM +2% China tax cut should be a benefit

Temenos M/P H1 results after the close inline

Topps Tiles +1-2% Management remain comfortable with current market ests

Uponor -10-15% Profit warning, says FY op profit will not improve

Volkswagen +8% May not face Environmental criminal charges, WSJ

G1A +1.5% 2015 sales guidance narrowed down due to "global eco downturn"

DLG +0.9% A 50% DLG shareholder approval needed for the cap inc, ~60% dilution

LHA +1.7% DZ raises to Buy (Hold) - PT €14 (13.5)

SIE +1.3% Siemens India wins order at 790mn Rupees

TLX +1.8% CBK upgrades to Buy (Hold), €30 (26.50) on valuation

VOW3 +2.9% May be dropped by Swedish National Pension Funds amid scandel

ZAL +1.0% CBK raises PT to €40 (38) - online retailing is the winner

* D POST-Cartel Office investigating contract with Arvato from 2007-15(HB)..U/C

* ELECTROLUX-GE 'considering options' for settling with DoJ on merger.......+2%

* FIAT-Ferrari ipo could launch early as Fri, likely size $1bn(CNBC)........+2%

* GEA-cuts sales gth guidance, sticks to ebita and div guidance.............-2%

* NEOPOST-H1 rev -1.1%, confirms outlook but dividend guidance light........-3%

* TOTAL-wants to sell electricity to businesses, plans 8% mkt share(Echos)..+1%

* DARTY bid from FNAC, 1 FNAC for 39 every Darty............................+25%

* DIGITAL BARRIERS-Wins (another) TVI contract ($1.2m).......................+1%

* ETO 4 for 9 rights raising £193.6m to buy 70% of Baker Davies.............-10%

* GREENKO 1.In line,H2 weighted.Waiting on sale proposal for Mauritius.......+2%

* LEKOIL-H1. In line,net cash $22.6m .+ive outlook(shs +8.5% yday)..........unch

* PETROCELTIC-H1.In line, FY guidance unch..................................unch

* QINETIQ board maintains expectations for FY...............................unch

* RPC-PreClose.Trading ahead of prev. yr,sees stronger H2.Overall in line....+1%

* RIO selling 40% stake in Aus coal venture for $606m, sector better.........+2%

* SAINSBURY Q2 lfl -1.1%, sees FY PTP moderately ahead of expectations.......+3%

* SAB MILLER no update further to ABI Inbev finance story y'day..............-1%

* SAGA trading update, says on track to meet estimates for FY...............unch

* SSE pre close update, on course to achieve financial objectives for 15/16.unch

* TOPPS TILES: +tive tone to update, confident of hitting 33% mkt share......+2%

* TULLOW vauge bid spec in DM market report..................................+1%

* WORKSPACE small acquisition for £26.1m, not a factor......................+1%

* WIZZAIR-PreClose.Raises FY guidance (Net Profit +8%) due to oil price......+3%

*GEA-Cuts est's 4 Global Eco Grth,FY Ebitda €590m-€640m(€633m).....+1.5%

*NEOPOST-Cuts Divi from €3.9 to €1.7,Ebita €112m(114),o/l ok.......-10%

*CLARIANT-To acquire part of Vivimed's personal care portfolio......+1%

*SGS-Acquires 70% in Siga(Chilean Project Management)Rev CHF43m.....+0.6%

*SAINSBURY-Comp Sales Ex Fuel -1.1%(1.3),Ret Sales +0.3%(0.3)......+3%

*TOTAL-Wants to sell electricity to French businesses-Les Echos.....+0.5%

*ENEL GREEN POWER-To exit Portugal renewables mkt post-deal.........+0.5%

*DPW-Cartel Office reviews DPW,Bertelsmann contract from 2007.......+1%

*H&M-To open more than 70 mainland China stores despite slowdown...+0.5%

*AUTOS-Chinese Govt cuts purchase tax on 1.6l cars to 5% from 10%...+2%

Strong growth in the Americas and optionality on Chinese recovery – but one to watch

Remy Cointreau’s share price has halved since the peak of 2012, predominantly from the

impact of China’s anti-corruption drive on cognac sales. We see this recent share reaction as

overdone, since the focus of Remy Cointreau’s growth has now switched to the Americas,

while sales in China appear to have plateau’d. While there is still some good upside in Remy

Cointreau on our metrics, this is as yet insufficient for us to rate it Buy on our ratings system

given our lower price target (cut to €59 from €73) . But with its current robust growth in the

Americas and a stabilising market in China, we think it is one to watch.