(UBS) Outotec & Metso - cutting estimates

* Outotec - Cutting estimates further driven by lower mining investment prospects
We cut our estimates 6-8% to reflect weaker mining investment environment
In connection with our latest review on the mining equipment and services end markets (Mining capex
weakness through 2017; downside risks stemming from China still high, 8th September 2015, Guillermo
Peigneux et al), we cut our EPS by c.8% on average. We leave our margin assumptions relatively
unchanged, which factor in prolonged cost under absorption and cost savings (+€25mn) aimed at
partially offsetting this cost under absorption. Our numbers are at the low end of Outotec’s revenue
guidance for 2015 (€1.2-€1.4bn) and at the low end of Outotec’s margin range of 5% to 7%. For 2016
we see further revenue declines (17%) and flat 5% EBITA margins.
Backlog pressures and weak order intake to hamper 2016
We are not particularly constructive on mining end markets as demand for the industry will continue to
be structurally challenged by growth uncertainty and deflationary pressures which will put further
pressure on margins, in our view. We forecast Outotec’s backlog at the end of 2015 to €1.06bn, which
will not underpin revenues next year. We have 2016 orders down at €1.13bn (c. €283mn per quarter).
We see revenues at €1.17bn for 2016e. That alone implies consensus 2016 revenue expectations need
to be cut 12%. All in all, we are over 20% below consensus clean EBITA estimates for the forecast
period.
Balance sheet could impact valuations further
Cash flow is eroding, resulting in all the €87mn net cash position at the end of 2013 (-€5.8mn in 2014)
disappearing and now, in the middle of 2015, Outotec has a net debt including pension liabilities of
€105mn (for the first time since 2003). We think this weakness will continue, driven by low activity in
order intake, lower advance payments and delays in the timing of milestone payments, resulting in
further cash losses.
Valuation: PT cut to €4.0 per share
Our price target goes down in line with our estimate changes and is based on the average of FCF
valuation methodologies. Outotec’s valuation is unattractive in our view, trading at 14x EBIT and 18x
earnings on our 2016 estimates. At our price target, Outotec trades on 10x EV/EBIT, in line with the
sector's average mid-cycle estimates.

* Metso - Mining continues to be a drag: Cutting price target and estimates further
Price target and estimates down, weakness in end market persist.
In connection with our latest review on the mining equipment and services end markets (Mining capex
weakness through 2017; downside risks stemming from China still high, 8 September 2015, Guillermo
Peigneux et al), we cut our 2017E earnings by ~8% and our price target from €25 to €21 per share.
Although we remain concerned about Metso's end-market growth, our concerns seem to be better
priced in consensus estimates as well as current valuations, hence we keep our Neutral stance on the
stock.
Metso Minerals to continue without momentum, Flow Control under pressure
We are not particularly constructive on mining or on O&G capex end markets as demand for the industry
will continue to be structurally challenged by growth uncertainty and deflationary pressures, which will
put further pressure on margins, in our view. Even though Metso Mining equipment has limited
downside from current depressed levels, we think it is too early to see a trough in orders for now, as we
see further downside stemming from after-market weakness. However, we see these concerns better
priced into Metso's shares, compared with peers such as Sandvik, FLSmidth and Outotec.
Limited downside to consensus estimates vs. its mining equipment peers
The downside to consensus estimates is narrowing as consensus downgrades to Metso earnings
estimates are taking place at a faster pace than for its industrial peers. From a revenue perspective we
see downside to consensus with clean EBIT 6% below on average, coming from over c.15% downside to
consensus estimates previously. In addition, downside to consensus estimates could be partially or totally
mitigated by opportunistic acquisitions after the disposal of Process Automation (~€350mn).
Valuation: At our price target Metso sits below 10x EBIT 2017E
We downgrade our price target from €25 per share to €21 per share, in line with our earnings and net
debt changes combined. Our price target is the average of our FCF and multiple valuation
methodologies. Our price target puts Metso on just below 10x mid-cycle EV/EBIT. At our price target
Metso trades on 1.15x EV/revenues, 9.7x EBIT and 14.8x earnings.

(UBS) ABB - Break-up? Updated SOTP suggests little upside

ABB Ltd - Break-up? Updated SOTP suggests little upside
Swedish newspaper claims "dramatic news" coming tomorrow
Swedish newspaper Svenska Dagbladet reports that ABB is to present "dramatic news" at tomorrow's
capital markets day. The publication writes that this could be a break-up of ABB. We believe a break-up
could yield operational merits but would see little fundamental potential upside to the valuation. After
re-setting the SOTP element of our valuation for the sell-off in the sector and to reflect peer-group
valuations, we calculate a SOTP-based fair value of CHF 19.0 (prev. CHF 20.5). For details see page 3 in
this report.
Expect a positive message from management
Major news or not, our view is that most capital markets days are almost as much for employees as for
financial markets participants. Despite end-market headwinds it is therefore likely, we think, that the
message from management will be uniformly positive. We expect management to highlight the group's
competitive strengths in, for example, technology, and the group's ability to weather end-market
weakness. It is also possible we will receive more information on the white collar productivity
programme.
Sell end-market exposure and lofty valuation
We rate ABB Sell, reflecting our view that end-market headwinds will likely lead the group to miss
consensus revenue and margin forecasts (UBSe 5-8% below consensus). In addition we think the
valuation looks rich at 11x 2016e EBITA, when a number of peers trade sub 10x. The capital markets day
is due to be hosted by ABB tomorrow in London.
Valuation: PT 18
Our unchanged price target reflects a 2016e EV/EBITA multiple of 11x. At our price target ABB would
trade at a double-digit premium to peers including SKF, Volvo, Philips, Alfa Laval and Siemens.

(UBS) Volvo B - Upgrade to Neutral

Volvo B - Upgrade to Neutral
Upgrade to Neutral – keeping estimates and PT unchanged
We upgrade our rating for Volvo to Neutral from Sell, on the back of the recent drop in the share price.
In our view, the stock looks fairly valued at current levels. We keep our price target and estimates
unchanged, with adjusted EPS of SKr7.3 and SKr7.8 for 2016E and 2017E, respectively. In the sector we
rate Legrand, Siemens, Alstom and Hexagon Buy. We have Sell ratings on Sandvik, Kone, ABB and GEA,
among others.
Negatives now reflected in the share price
When we downgraded Volvo in June 2014, we argued that the anticipated European recovery, with
pent-up demand for Europe almost entirely built on Italy, would likely disappoint, and that consensus
expectations for North America and Brazil, as well as the expected savings from restructuring, were too
optimistic (click here). Over the past year, the European recovery has disappointed, the US truck market
looks to have peaked and Brazil looks likely to fall further and bottom in 2015E. We believe these factors
are now priced in.
5% and 8% below the street for 2016E and 2017E, respectively, on EBIT
We are still below consensus: 5% and 8% below on EBIT and 6% and 7% below on the top line for
2016E and 2017E, respectively. We expect consensus to gradually come down low-to-mid-single digits,
primarily due to moderating US revenue expectations. However, we see little risk of major surprises in
Volvo's Q3 and Q4 results.
Valuation: PT SEK 95
At our PT the stock would trade on 10x our 2016E EBITA, some 10% above its long-term average.

(UBS) Sandvik - End-market weakness makes consensus 2017 margins of 14% look too

Sandvik - End-market weakness makes consensus 2017 margins of 14% look too
optimistic
Growth and EBIT margin recovery potential look limited
We cut our earnings and price target in connection with our latest review on the mining equipment and
services end markets (Mining capex weakness through 2017; downside risks stemming from China still
high, 8 September 2015, Guillermo Peigneux et al). We think Sandvik Mining (SM), Material Technology
(SMT) and Venture (SV) margins will continue to be hampered by high inventory levels, cost underabsorption
driven by further volume declines and an incrementally tougher price environment. We
believe consensus' margin expectations will likely be missed.
New management can change Sandvik, but revenue sacrifices will be needed
We are concerned about Sandvik's end markets and its malleability as a group. We have previously
argued that Sandvik's underlying issues reside in its end markets, vertical integration (Machining
Solutions and SMT) as well as high consensus expectations. Moreover, since 2008, Sandvik has
announced over SKr12bn in cost savings and there have been numerous management changes. We are
now about to embark on another set of far-reaching actions, with potentially further management
changes in a stagnating environment with deflationary pressures in some segments and, in our view,
potentially to the detriment of Sandvik employee morale.
Cutting our numbers further; we are more than 10% below consensus
We cut our EBIT numbers between 5-8% for the forecast period, our EPS cuts are more modest, ranging
2-4% for the forecast period (lower taxes). On an EBIT basis, we are over 10% below consensus on
average for the next three years. We think consensus underestimates the impact from operating leverage
on declining revenues in some of Sandvik's segments. We see consensus' 2017 14% EBIT margins (11-
12% 2014 and 2015) as unrealistic, given limited growth prospects for Sandvik's revenues.
Valuation: Sell rating, price target cut to SKr70 per share
Our PT is the average of our static and FCF valuation methodologies. Our price target cut is in line with
our estimate changes and higher net debt, and results in a 10x EV/EBIT multiple which we consider midcycle
for Sandvik, vs 12x previously (2017E). This, in our view, reflects the Sandvik's cyclical nature and its
long-term sustainable returns. At our price target Sandvik trades on 14x earnings and 11x EBIT 2016E.

(UBS) Atlas Copco A - Survival of the fittest: Upgrading to Buy

Atlas Copco A - Survival of the fittest: Upgrading to Buy
Solid cash flow and balance sheet, attractive risk/reward
After the recent share price underperformance, Atlas Copco is trading at what we consider an
unwarranted sector discount. At a price of SKr200 Atlas shares seem to be discounting SKr13 EPS on
mid-cycle multiples (in line with 2016 consensus), disregarding Atlas's strong balance sheet which we
estimate could add up to 30% EPS growth through leverage (increasing to 2x Net Debt to EBITDA).
Consensus earnings expectations have been curbed and now look undemanding. Despite lacklustre end
markets, we see Atlas outperforming the sector on the back of improving returns, superior cash flow and
a strong balance sheet which, combined with lower market values, could also potentially rekindle its
M&A appetite. We upgrade the stock to Buy.
Better end markets + better cash flows = outperformance
We believe Atlas Copco deserves a premium valuation rather than its current discount to the sector. It is
the sector player least impacted by (still) deteriorating mineral investment patterns (click here for our
latest mining capex report) and, mining apart, Atlas Copco's growth has been in line with peers. Recent
organic growth, and positive trends for margins and cash flows, should mark the beginning of operating
outperformance, especially once the firm restarts its M&A cycle and/or continues to distribute
shareholder returns ahead of peers.
Limited downside to consensus; upside if M&A is factored in
We think it is quite unusual to see Atlas Copco underperforming its peer group, as consensus is
forecasting for the next three years: the consensus call is for 7% EBIT CAGR in 2015-17 (we estimate
6%), which is more modest than the "hockey-stick" (>10%) recoveries being forecast for the likes of
Sandvik, FLSmidth and Outotec. Moreover, Atlas Copco's balance sheet is in a better condition than
those of its peers. We think this balance sheet strength could be used to acquire growth, mitigating part
of the earnings downside risk (our upside scenario factors 15% M&A-derived growth).
Valuation: Lifting our price target to SKr230; valuation discount unjustified
We raise our price target to SKr230 (the average of our FCF and static valuation methodologies), driven
by better cash flows (lower working capital) and balance sheet (lower net debt) resulting in higher ROEs
and ROICs. At our target, Atlas would trade on 12x 2017E EBIT. Atlas Copco still trades at a premium to
its long-term average multiples (12%), but only trades in line with its peer group despite its superior
quality, in our view.

(CS) European Major - Update on Oil scenario..

EUROPEAN MAJORS: We defer the timing of the oil market rebalance and lower our "new normal" for medium term Brent from $80/bbl to $70/bbl. EU Majors' business models continue to be challenged, most notably those with limited downstream businesses; greater differentiation is warranted. In some instances, management teams have the difficult task to review dividend policies. We think certain companies are over-distributing, in particular when removing the scrip where relevant, including BP, Repsol, and STL. We see RDS (with BG) and Total as having better positioned portfolios with more levers available to manage this more prolonged downturn in oil markets.

(GS) Construction : LafargeHolcim, HeidelbergCement...

Value emerges, but not in EMs; HeidelbergCement up to CL Buy

We make 8 rating changes and reinstate on CRH with a Buy
Recent share price volatility and the rebasing of our price targets to 2017
earnings leads to various changes in our recommendations. In addition to
our upgrades of HeidelbergCement and Crest Nicholson, we raise
LafargeHolcim to Buy from Neutral and Skanska to Neutral from Sell, while
downgrading Eiffage to Neutral from Buy. In our accompanying report, we
downgrade Taylor Wimpey and Redrow to Neutral from Buy and upgrade
Foxtons to Neutral from Sell. We reinstate a rating on CRH as Buy.

HeidelbergCement & Crest Nicholson added to Conviction Buy List
We keep Wienerberger and Buzzi on our Conviction Buy List, with both
stocks offering exposure to European recovery. We also upgrade
HeidelbergCement to Buy (from Neutral) and add it to the Conviction List,
reflecting its strong exposure to DM – including the US, which we expect to
recover in 2H – and inexpensive valuation after recent underperformance.
In a separate report, UK Housing: Selective value remains after strong run;
CL-Buy CRST, we also add Crest Nicholson to the Conviction List, based on
its sound returns, strong land bank and high growth.

After a mixed 1H, we remain positive on European recovery
Construction and cement data in 1H was mixed in our view, with cement
markets remaining subdued in Europe, being restrained by bad weather in
the US and weakening in emerging markets. However, we continue to have
a positive outlook on European construction – we forecast real growth in
Western Europe of 2.9%/2.8% in 2016/17 vs. 2.6%/2.5% previously.


Developed market residential exposure remains the key theme
Our key theme remains residential construction exposure in developed
markets. While European data remains mixed, our thesis is supported by
the European residential bank lending survey, which is at all-time highs.
We also favour exposure to the US building materials end market, as we
think 2H could see a rebound in activity after bad weather weakened 1H.
Finally, we continue to favour exposure to operating leverage to a
European recovery.

(GS) Altice : Summer sell-off leaves large organic upside; raising FCF ests, CL

ALtice : Summer sell-off leaves large organic upside; raising FCF ests, CL Buy

* Source of opportunity
Altice underperformed sharply during the recent market sell-off and now
trades materially below our valuation excl M&A potential, which increases
to €30/shr (from €28) as our analysis suggests there remains c.€1 bn of extra
cost-cutting opportunity in France. Given attractive organic upside potential,
we see less likelihood that Altice will issue equity to acquire new assets
until the stock price recovers. Even so, we see several opportunities for
additional value creation, including: (a) a buy-in of NUME, which could be
4%-13% accretive to FCF/shr, (b) rapid de-leveraging creating >€10 bn of
debt-financed M&A capacity by mid-2016, (c) scope for accretive buy-backs.

* Catalyst
Catalysts include: a) improving customer trends in France in the coming
quarters and strong early execution in Portugal, which should reassure on
the sustainability of Altice’s cost-cutting ‘formula’; b) earnings upgrades –
our raised 2016/17 EBITDA forecasts are 10% / 13% ahead of Bloomberg
consensus, but remain conservative relative to ATC’s long-term ambition to
reach c.50% EBITDA margins; and c) the French spectrum auction could be
competitive, but this would increase pressure to price rationally, and we
note recent reassuring commentary from Bouygues.

* Valuation
On our higher forecasts (our medium-term prop. FCF increase 8%-19%),
Altice now trades in line with European incumbents (9% 2017E FCF yield)
despite its superior growth / M&A optionality. Our valuation excl. M&P
potential is now €30/shr, implying 25% upside and our ‘blue-sky’ analysis
(incorporating €36 bn of debt-financed future acquisitions) implies upside to
€45/shr. Our 12-month ROIC-based price target remains €41/shr, as we
moderate our expectations for the pace of future incremental M&A.

* Key risks
Downside risks include execution, increased competitive/regulatory
pressure in all markets; access to high-yield markets is key for future M&A.

>>> What to look at today - 9th of September 2015

Dow+2.42% S&P+2.51% Nasdaq+2.73% Russell+2.25% VIX 24.98 (-10.1%)
US Market closed higher after a l,ong week end. US did ok despite a volatile chinese market and some mixed data. Better than expected economic data highlighted the European session as eurozone Q2 GDP was unexpectedly revised up to 0.4% quarter-over-quarter from 0.3%. technology (+2.8%), industrials (+2.8%), financials (+2.6%), and health care (+2.8%) kept the market from drifting too far away from its early high. The strength in those areas proved supportive in the late afternoon as the market charged to a fresh high during the last two hours of the session. Viotech surge also 4.4%. the energy sector (+1.5%) was able to end the day well above its flat line even as crude oil futures shed 0.3%, slipping to $45.94/bbl. Volume were below average just below 800mil shares. US After Hours PLAY +9.3%, KFY +0.9%, TIVO +0.2%, PSUN -16.7%, FCEL -9.2%, MW -6.1%, PBY -3.9 following earnings/guidance, AKBA +65.2% on phase 2 results, VTAE +29.6% on phase 1 results, TTPH -77.8% on trial results,ZQK -60.4% on Bankruptcy report, FLXN -41.4% on phase 2 results...Broad-based risk appetite on display in the US session has resonated in Asia, where all key regional indices are up...Nikkei225 rally of over 6% is particularly impressive, as investors cheered Japan PM Abe's announcement to cut corporate tax rates by at least 3.3% or even more in FY16. BOJ dove Shirai also called for continued accommodative environment given expectations of 1% inflation holding over medium-long term. a research note from Fitch suggested China's local debt rise is significant but manageable. In FX, PBoC set Yuan a touch firmer, and offshore currency rallied by over a cent to 6.4450. World Bank chief economist Basu added his voice to other critics urging caution. Basu said the hike would trigger "panic and turmoil" in emerging markets, even though there would be no major crisis.

Nikkei +7.7% Hang Seng +3.40% Shanghai +2.3%

Eur$ 1.1159 CNY 6.3740 JPY 120.41 GBP 1.5381 EURCHF 1.0948 RUB$67.7656 WTI $46.18(+0.48%)

S&P +1% Eurostoxx +2% Dax +2% SMI +1.91%
Macro :
- China Aug. Retail Auto Sales Rise 0.6% on Year, PCA Says

Keep an eye on :
- ABBN VX : ABB Cuts 2015-2020 Revenue Growth Target on Oil Price, EM Growth
- AF FP : Air France-KLM August Passenger Traffic Rises 2.1%
- AAPL US : Apple in Talks to Open Store on Champs Elysees, Le Figaro Says
- BLT LN : BHP, Rio Unlikely to Cut Div., Anglo May Follow Glencore: CIBC
- GBB FP : Bourbon 1H Adj. Ebit EU48.8m Rises 40% Y/y; Keeps Objectives
- CERV IM : CVC Selling 29m shares (14.87%) @E6.55/sh (cut to 24.4% stake)
- CSGN VX : Credit Suisse Said to Lose Three Asia Bankers as Strategy Shifts
- GSK LN : GSK/Theravance Primary Endpoint Was Not Met in Summit COPD Trial
- ITP FP : Interparfums Sees Significant Earnings Growth 2015 and Beyond
- SDF GY : Hesse Ministry Wasn’t Told of Any Hostile Bid by Potash for K+S
- LHA GY : Frankfurt Court Says Lufthansa Pilots Strike Can Proceed
- MC FP : Hennessy Introduces New Cognac for Travelers, Les Echos Reports
- NG/ LN : National Grid Hires Boston Scientific’s Adduci as CIO: WSJ
- UG FP : Peugeot Citroen Plans Temporary Halt at Madrid Plant: Echos
- REP SM : Repsol Mulls Sale of Home Butane Gas Unit: El Confidencial
- RYA LN : Ryanair Raises FY Profit Guidance by 25%
- TDC DC : Denmark’s TDC Said to Have Held Talks to Buy Cable Firm Com Hem
- RIGN SW : Transocean Sees ‘Very Healthy Position’ by End of 2017