>>> Eni chairman says all options open for Saipem stake

Eni chairman says all options open for Saipem stake 

Emma Marcegaglia, the chairman of listed petroleum group Eni, has said that all options are open with regard to the sale of its 43% stake in oil services group Saipem, Italian language daily Il Sole 24 Ore reported. The report cited Marcegaglia as saying that the priority for Eni was to deconsolidate Saipem's debt.

The item also said Marcegaglia did not rule out a sale of a stake in Saipem to CdP, the holding of the Italian Treasury,, However, Marcegaglia added that Eni was pursuing a number of scenarios and that it was only in the initial stages of deciding the fate of its stake in Saipem.


The report interpreted Marcegaglia's remarks as an indication that Eni was in no hurry to sell its stake in Saipem, especially since Saipem was carrying out a restructuring to allow it to deal with the worsening market caused by the fall in oil price.

As previously reported, CdP holds a 26% stake in Eni.

Saipem has a market cap of EUR 3.45bn.

Il Sole 24 Ore

(Barron's) U.S. Stocks Could Rally More Than 10% by Year End

U.S. Stocks Could Rally More Than 10% by Year End

Wall Street’s top strategists are bullish on U.S. stocks through the end of this year and into 2016. Why they like technology, financials.


The bull has stumbled, but his run isn’t over. Despite the stock market’s first 10%-plus correction in four years, touched off last month by fresh indications of slowing growth in China’s once robust economy, Wall Street’s top strategists remain optimistic that U.S. shares will finish the year with a gain, albeit a smaller one than they previously had forecast. Stocks will pick up the pace in 2016 as investors stronger profit growth, they say.


Collectively, the strategists expect the Standard & Poor’s 500 index to rise to 2150 by the end of the year, which would mean a gain of more than 10% from Friday’s close of 1921.22. Their year-end outlook implies a return of 4.4% for the full year. Barron’ssurveys a group of 10 prominent market strategists every September and December, to gauge their outlook for stocks, bonds, and the economy in the year ahead.

With memories of the 2008 financial crisis still somewhat fresh, it might seem churlish to sniff at a 12-month return of 4% to 5%. Yet 2015 has hardly measured up to Wall Street’s initial expectations. Last December, the strategists were forecasting that the S&P would advance 10% in 2015, to 2200; the index peaked year to date in May, at 2130.82. By way of comparison, stocks gained 11% last year, 30% in 2013, and 13% in 2014.


Scott Pollack for Barron's

The strategists’ year-end targets for the S&P 500 range from a low of 2100 to a high of 2200. That’s a much tighter range than in December.

The average of their 2015 profit expectations for the S&P 500 is $120.25, down from $127 as the year opened. These market seers see S&P earnings rising by 7% in 2016, to $129. (That consensus figure is based on eight estimates, as some strategists haven’t yet established their 2016 price targets or earnings estimates.)

With the summer’s setback, the market’s valuation has fallen from historically high levels. The S&P 500 index now trades for 14.8 times 2016 consensus earnings estimates, down from 16 to 17 times forward estimates earlier in the year, and a long-term average of 15. Some of our seers look for the stock market’s price/earnings ratio, or P/E, to expand in the months ahead, possibly returning to 16 or 17 times earnings.

At this point in the year, there isn’t much of a gap in earnings estimates between the Street’s strategists and industry analysts, who are predicting S&P profits of $119. The analysts, typically more optimistic, forecast an 11% gain in 2016, to $132, according to Thomson Reuters.

ALTHOUGH THE TONE of the strategists’ commentary seems less upbeat than in past surveys, there is no dissent in the group on the market’s direction: upward. Any disagreements are over how fast and by how much. “U.S. stock valuations are reasonable given the prospects for growth and inflation,” says Russ Koesterich, global chief investment strategist at BlackRock, who worried about “stretched” valuations last December.

Near term, he says, stocks are “particularly attractive relative to bonds.”

Dubravko Lakos-Bujas, chief U.S. equity strategist at JPMorgan Chase, agrees. Compared with international markets, the U.S. provides stocks of superior quality, he says.

The yield on 10-year U.S. Treasury bonds fell last week to 2.13% from the previous week’s 2.19%. Yields were 2.12% at the start of this year. The strategists’ mean forecast calls for yields to rise to 2.47% in the fourth quarter (bond yields rise inversely to prices), based in part on an assumption that the Federal Reserve will move to lift interest rates before the end of the year.

The S&P 500’s dividend yield is 2.24%.

The “earnings yield gap” is another measure that indicates stocks are fairly cheap. It compares the market’s earnings yield, or the inverse of the P/E, now about 6%, to the 10-year Treasury yield. The spread is roughly four percentage points, much higher than the 1.2-percentage-point average of the past 20 years.


Poor economic data from China rocked markets again last week. Still, the U.S. market’s correction “was a long time in coming,” says Jeffrey Knight, head of global asset allocation at Columbia Threadneedle Investments. The downdraft here had more to do “with the length of time since the last [major selloff], and investor complacency, than with any particular catalyst, China notwithstanding,” he says.

Knight expects the S&P 500 to end the year at 2150.

The magnitude and speed of the initial selloff in August were surprising and relatively rare in the annals of stock market history, says Adam Parker, Morgan Stanley’s head of U.S. equity strategy. It might be that “China is a scapegoat” for other issues, he says, such as the dollar’s rise in value, emerging-market woes, plunging oil prices, and the uncertainty over the timing of the Fed’s next move.

Despite these concerns, Parker sees “a relatively benign backdrop for U.S. equities,” with slow economic growth, low inflation, and a gradual but slow tightening of monetary policy by the Fed.

JOHN PRAVEEN, chief investment strategist at Prudential International Investments Advisers, recently lowered his 2015 S&P target by 100 points, to 2150. Nevertheless, like most strategists, he thinks earnings could improve in the current and fourth quarters, on the back of stronger U.S. gross-domestic-product growth. U.S. GDP was revised upward to 3.7% in the second quarter, but the economy grew by a mere 0.6% in the first three months of the year.

Praveen expects GDP growth to top 3.5% in the second half, helped by a buoyant housing market, solid consumer spending, and rising consumer confidence and employment. The strategists’ mean prediction calls for 2.5% GDP growth in 2015, up from 2.4% in 2014.

For all of the concerns about China and emerging-market dislocations, David Kostin, chief U.S. equity strategist at Goldman Sachs, says the Middle Kingdom’s struggles “will not derail the U.S. economic expansion.” Approximately 2% of the revenue of S&P 500 constituents is generated in China, and U.S. exports account for just 13% of GDP, with less than 1% going to China.

As even neophyte investors know, stocks are driven by profit growth—or the lack thereof. With the economy expanding, our strategists expect second-half corporate profits to exceed first-half results and, more important, exceed expectations.

Even before this year’s setbacks in China and other emerging markets, U.S. stock indexes were struggling to make big strides. Blame that on subpar profit growth in general, and trouble in the energy sector in particular.

IN THE FIRST AND SECOND QUARTERS, S&P 500 earnings rose just 2% and 1%, respectively. That is far less than the double-digit profit gains projected last October, according to Thomson Reuters. Additionally, this year’s profits are down sharply so far from 2014, when S&P earnings rose 8%. S&P 500 energy-sector profits plummeted nearly 60% in this year’s first and second quarters. Analysts look for a 3.4% decline in S&P 500 earnings in the third quarter, and a 2.2% rise in the fourth. That would not seem to be a promising recipe for a meaningful stock market advance.

But BlackRock’s Koesterich expects that third- and fourth-quarter earnings will be better than expected. After the anniversaries of the dollar’s rise and oil’s plunge—which both began about 12 months ago— the comparisons will get easier, he says.

U.S. economic data might be spotty, but they reveal that the U.S. economy is weathering the slowdown in China. The Institute for Supply Management reported last week that its manufacturing purchasing managers index fell to 51.1% in August from 52.7% in July, but the latest level still indicates expansion. Orders for durable goods rose 2% in July, after a 4.1% increase in June.

Prudential’s Praveen expects S&P 500 earnings to jump nearly 5% for the full year, after a poor first-half showing.

Earnings will look better for many non-energy-sector companies, even if business doesn’t improve, says Tobias Levkovich, chief U.S. equity strategist at Citigroup’s Citi Investment Research. Some of the drag from lower oil prices will dissipate, along with the some of the impact of a strong dollar on companies with international sales. Sentiment is subdued, valuations are OK, and there will be benefits from job growth, wage increases, and lower energy prices, says Levkovich. He has a year-end target of 2200 on the S&P 500 index.

According to Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch, investors will be begin to anticipate better profit growth for 2016 toward the end of this year, which will help to bolster stocks prices. She has a year-end target of 2200 on the S&P 500, one of three strategists with the same telescope.

Corporate share buybacks, which reduce shares outstanding, will continue to contribute to earnings-per-share growth, as has been the case in recent years, says JPMorgan’s Lakos-Bujas. He thinks there will be positive revisions to earnings per share, and notes that buybacks among S&P 500 companies already have totaled about $439 billion so far this year. They are on pace to surpass the previous annual record of $690 billion, according to JPMorgan. “Buybacks could add two to 2.5 percentage points” to earnings growth if the pace persists, he says.


JONATHAN GLIONNA, head of U.S. equity strategy at Barclays, is best described as a subdued bull. Glionna, who hasn’t changed his 2015 year-end target for the S&P 500 since last December—it’s 2100—concedes that because the market has reset lower, there is a “decent outlook” for the rest of the year. But with the index trading for 1.6 times expected sales, he worries that investors might be paying too much for growth. Historically, parity has been the rule.

The price/sales ratio is an even loftier 3.5 times for the 100 stocks in the S&P 500 with the fastest-growing expected revenue. Glionna says that both revenue and earnings growth aren’t strong enough to justify so high a valuation.

UNTIL CHINA ROCKED WALL STREET by devaluing its currency in the aftermath of disappointing revelations about the pace of the nation’s growth, the Federal Reserve’s intended actions were the talk of the Street. It has been expected, at various times and in various quarters, that the U.S. central bank would raise its interest-rate target in September, or December, or maybe even next year.

The strategists Barron’s consulted generally agree that the Fed will raise rates sometime this year—and that it will be a good thing, too. But they don’t agree on the timing. Most are counting on calm returning to Asian markets, and they expect the Shanghai Composite stock index, which has fallen 40% from its highs, to stabilize at some point, too.

Similarly, they look for oil prices to bottom and the U.S. dollar to stop surging. Greater stability in other markets and asset prices could encourage Fed Chair Janet Yellen and her team to act, rather than delay a decision on rates.

At the start of the year, the strategists expected the Fed to begin normalizing monetary policy by midyear, by lifting its federal-funds rate target above the abnormally low 0% to 0.25% range that has prevailed since December 2008. The federal-funds rate is the overnight lending rate banks charge one another for funds maintained at the Fed.

Such predictions have since gone by the boards. The strategists are evenly split at this juncture between those who see a modest hike coming later this month or in December. The call typically is made by each firm, not by individuals on the strategy team.

For years, investors took solace from the Fed’s highly accommodative monetary policy. But now it is time for rates to rise and credit to tighten, the strategists say, as the U.S. economy looks to be gaining steam.

FED WATCHERS HAVE been viewing a monetary-policy-themed version ofGroundhog Day for the past two years, wherein each time it seemed that the Fed was about to raise interest rates, something happened to stay its hand. Last year, European bond yields plunged. Lately, there have been fears that dislocations in China and other emerging markets could restrain inflation or promote deflation. The U.S. central bank maintains an inflation-rate target of 2%.

“If the volatility continues, the Fed won’t hike in September,” says Stephen Auth, chief investment officer of Federated Investors. It will do so when things calm down, says Auth, who has been among the most bullish Street strategists for several years.


He recently took his 2015 S&P target down to 2200 from a prior 2350. But next year, he expects the benchmark index to rally to 2500.

“I’m looking forward to a [rate] hike,” says Auth. “The market needs a return of normalcy.”

A 1% federal-funds rate is good for the economy, good for the banks, and still good for corporate debt funding, he says.

Auth sounds no less bullish than in December, despite the ratcheting down of his S&P price target. He sees an “impressive rally” in the fourth quarter. Markets are underestimating the ability of China to get its house in order, and with a “massive $3.5 trillion in currency reserves,” the country has the wherewithal to combat its problems, he says. This isn’t like the emerging-markets problems of 1997-98, when underdeveloped countries had few currency reserves and current account deficits, he says. China, in contrast, is a creditor nation.

By November or December, says Auth, investors will see that “China is not blowing up” and earnings are improving. With the U.S. job market showing strength, consumers reaping the benefits of lower energy prices, and the dollar’s muscle baked into earnings comparisons, the “stage is set” for another big stock market rally in the fourth quarter, going into 2016. “That’s where you will get a big rush into equities,” says Auth.

Bull markets, he notes, end when recessions hit or valuations become extended, and “we aren’t there yet.”

FOR THE PAST SEVERAL YEARS, investors whooped it up each time the Fed was forced to postpone raising interest rates. Now, however, “if the Fed doesn’t tighten, it would be a negative signal on a global basis,” says Merrill’s Subramanian.

“It needs to be this year,” adds BlackRock’s Koesterich of a rate increase. “When you look at the strength in the labor market, it is hard to justify that zero is the correct policy rate,” he says.

The U.S. Dept. of Labor reported on Friday that unemployment fell to 5.1% in August from 5.3% in July.

It is one thing to be bullish about the outlook for the S&P 500 and its fellow indexes. But where, exactly, should investors put their money? A majority of strategists favor information-technology stocks, particularly after the sector’s 5% slide this year. Tech, says Barclays’ Glionna, offers strong profit margins, the fastest dividend growth in the past three years, for which it doesn’t get credit, and share buybacks, which help to lift earnings per share, and thus, stock prices.

Moreover, capital-expenditure trends are favorable, notes Citi’s Levkovich. Corporations need to refresh their computer systems and move into cloud computing, jobs growth leads to use of more technology, and cybersecurity is becoming increasingly mission-critical.

Certain technology subindustries, such as semiconductor manufacturing, could benefit from the recent decline in the Chinese yuan, which will reduce costs, says JPMorgan’s Lakos-Bujas.

Indeed, in a world where growth is weak, tech is one of a few areas likely to see revenue gains. And now, valuations have fallen. Kostin, of Goldman Sachs, likesAlliance Data Systems (ticker: ADS), a Plano, Texas–based provider of branded credit-card, marketing, and customer-loyalty programs.

FINANCIALS HAVE REPLACED industrials as the Street’s second-favorite market sector. When the Fed finally lifts its rate target, perhaps to 1%, that will benefit banks and insurance companies. Net-interest-margin spreads could widen. Strengthening economic growth could foster credit growth, while an expanding housing market could be a positive for this mostly domestic sector, which is down 9% this year. And like tech, Glionna points out, financials are showing fast dividend growth in 2015.

Morgan Stanley’s Parker says financials could see the most growth in shareholder return, and they have little exposure to the rising greenback. Valuations are unchallenging, as well. Among them, he likes Bank of America (BAC).

There are differences of opinion, too, about the details of a market recovery. For example, Goldman’s Kostin advocates a “Buy America” theme, favoring companies that derive most of their profits from the U.S. and have little or no exposure to emerging markets.

Others, like Subramanian, say it is time to buy the now-cheaper megacap U.S. stocks that have substantial international exposure because they are able to grab share during tough times.

She is also one of the few strategists to favor the decimated energy sector, which looks to be an interesting contrarian call. Energy stocks are down 21% or more this year, reflecting a precipitous drop in the price of oil that began last fall. Subramanian notes that mutual funds specializing in large-cap stocks have record underweight positions in energy shares, even as industry analysts have stopped cutting their earnings estimates and are starting to revise them upward.

The sector trades for 1.5 times book value. The last time the group reached such an inexpensive extreme, it outperformed in the following year by 33 percentage points.

Subramanian likes ExxonMobil (XOM), which makes her a rarity these days. The stock yields nearly 4% and typically suffers less than other integrated energy companies when oil prices fall, due to the benefit of lower prices to its extensive refining operations.

KNIGHT’S FAVORABLE VIEW of telecom stocks is another out-of-consensus call. The group is down 6% this year. In the past, strategists have viewed telecoms as bond proxies that would be hurt by rising rates. The Columbia Threadneedle strategist says the sector, dominated by Verizon Communications (VZ) and AT&T (T), offers attractive dividends and defensive characteristics, and has underperformed in the recent selloff. That creates an opportunistic entry point, he adds.

Knight also thinks investors who want to “buy the dip” should look at markets outside of the U.S., “where there are way bigger dips to buy.” Some markets fell for good reason, he adds, but he notes that Taiwan and Korea might offer good value.

Another internationally focused strategist is Koesterich. Stocks outside of the U.S. are more reasonably valued, and face less of a currency head wind, he says, particularly in developed markets such as Europe and Japan. European net profit margins, running around 6%, have room to grow, compared with record-high U.S. profit margins of 8% to 9%.

German stocks are down 6% in dollar terms this year. Koesterich likes the iShares Currency Hedged MSCI Germany exchange-traded fund (HEWG), a currency-hedged ETF that mimics the MSCI’s index for Germany. (IShares is owned by BlackRock.)

The utilities sector, down 14%, is the least favored among the strategists. It is likely to be affected negatively when the Fed finally begins to raise rates. It also offers little growth, and the shares aren’t particularly cheap.

The strategists don’t think much of materials stocks either, as plunging commodities prices in the past 12 months have dented companies’ revenue, earnings, and prospects.

ALTHOUGH WALL STREET’S STRATEGISTS generally have been bullish and prescient in recent years, many things could dash their optimism. Perhaps most important, they are betting that the dislocations in China and emerging markets will be temporary in nature, and won’t have much of an impact on the U.S.

China’s economic growth might continue to slow, “but it will be good enough not to blow the rest of us up,” says Federated’s Auth.

Yet, investors’ fears about contagion could overwhelm reality. As JPMorgan’s Lakos-Bujas points out, in extended selloffs such as last month’s, technical factors like poor breadth, and reduced liquidity sometimes overpower fundamentals. “Spikes in volatility can create technical deteriorations that foster a negative feedback loop, and fundamentals no longer hold,” he says.

In bull years, the rally that began in March 2009 is getting old. But no matter the tremors in the rest of the world, earnings will drive stock prices over time. The big bet on Wall Street is that corporate earnings will improve next year, allowing this bull market to celebrate yet another birthday. 

(Barron's) European Retail and Real Estate Stocks Headed Higher

European Retail and Real Estate Stocks Headed Higher
Europe must still cope with China and deflation. But certain sectors still look like opportunities.

Dow Jones Global Indexes | Global Stock Markets

European investors received a much-needed shot in the arm last week when the European Central Bank hinted it could expand its quantitative-easing program to help combat pressure on inflation from weak commodities prices and China’s economic woes.

The Stoxx Europe 600 index closed more than 2.3% higher on Thursday after ECB President Mario Draghi stressed the central bank’s “willingness and ability to act if warranted.”

Stocks around the world have taken a battering lately, as oil prices resumed their downward path, and China, a key export market for the euro zone, continued to push out disappointing economic data. Following Thursday’s gains, the Stoxx index had still tumbled by almost 12% from the previous month.

The problems afflicting markets have upset the ECB’s efforts to lift inflation, dampening the positive impact of its 60 billion euros ($67.44 billion) a month bond-buying program launched earlier this year. As a result, its initial signs of success turned out to be short-lived.

The euro dropped to about $1.05 when QE was launched in March, but more recently crept back to around $1.12 ahead of last week’s ECB announcement.

At Thursday’s meeting, the ECB reduced its inflation forecast for this year to 0.1% from its previous figure of 0.3%, which itself was modest relative to its medium-term target of just under 2%. In August, euro-zone inflation was only 0.2% on the year. The ECB also lowered its expectations for next year to 1.1% from 1.5%, and for 2017, to 1.7% from 1.8%.

Some adjustment had been widely expected following comments from the central bank’s Chief Economist Peter Praet a week earlier, who warned the risk of Europe suffering weak inflation in the longer term had increased.

Bank of America Merrill Lynch’s Europe economist Gilles Moec had expected minor tweaking to the ECB’s monetary policy, with the possibility of a more substantial move further out. “In the medium run, we believe the negative risk to consumer prices from the China-related turmoil matters more than the adverse shock on growth,” he says.

Hopes that China’s problems weren’t as deep-rooted as some feared were shaken on Tuesday when the country published weaker-than-expected manufacturing data.

Apart from the likely positive impact on European stocks from more extensive monetary intervention, investors are buoyed by the prospect that ongoing economic weakness will continue to keep a lid on interest rates. Janus Capital reckons China’s woes and low rates will be especially helpful for Europe’s retailers and property businesses. “China’s weakness to some extent is a boon to consumers, with lower oil and gasoline prices, lower prices on imported goods such as apparel, and lower raw-material prices overall. Retailers can do well if positioned to take advantage of healthier and savvier consumers,” says Janus European Equity Strategy fund portfolio manager Wahid Chammas.

LOW INTEREST RATES, in particular, should be good for European real estate businesses, he says. “The property market is firming throughout Europe and looks especially attractive in Germany,” he says, as lower rates keep prices high and provide cheap financing for acquisitions.

He says Germany has one of the fastest growth rates in household formation, as people continue migrating from the countryside to cities and as the number of working immigrants increases. “The German housing market is one of the lowest priced when considering their [gross domestic product] per capita, their average wage rate versus house prices, and their low interest rates,” he says.

Vonovia (ticker: VNA.Germany), formerly Deutsche Annington Immobilien, Germany’s largest residential real estate player, last month reported that its funds from operations more than doubled in the first half of the year to €264.3 million from €130.3 million a year earlier. JPMorgan Cazenove’s European property analyst, Tim Leckie, described the figures as “positive” and in line with the bank’s upbeat view of the company.

He has the stock at Overweight with a €32.50 price target. It closed on Friday at €29.57.

Among retailers, says Chammas, many apparel and food “discounters” in the United Kingdom have generated strong growth that should go further. “Online retailers continue to see positive momentum, and it is another area that we expect positive growth from,” he says.

RBC Capital Markets analyst Richard Chamberlain says a challenging summer for European apparel retailers is likely to give way to a stronger fall and winter period. Among others, he favors undervalued British stocks, such as Debenhams (DEB.UK). Last week, he upgraded the company to Outperform with a 100-pence ($1.53) price target. He expects Debenhams to post its first full-year pretax profit in four years in October, something he says isn’t currently factored into the share price. The stock closed Friday at 74 pence.

(ZeroHedge) What Does It Mean If The Fed Hikes... And If It Doesn't

What Does It Mean If The Fed Hikes... And If It Doesn't
Today's jobs report was supposed to be a tiebreaker for the Fed's September rate decision, giving fed funds and eurodollar traders some respite after a summer that has been a gut-wrenching, dramamine-chewing rollercoster. It did not, in fact it boosted uncertainty, with the probability of a September rate hike rising from 26% to 30%.

 

In other words, any hope for clarity was promptly dashed with a job report that once again was both bad and good, depending on one's bias.
Which means that the September 17th decision will come to the absolute wire, with little if any guidance available in the 13 days left until what may be the Fed's first rate hike in 9 years... or not.
Here is an oddly accurate explanation of what it means if the Fed does hike rates on September, and alternatively, what it means if Yellen punts once again, and leaves the decision to the October or December meeting, or just punts to 2016 and onward altogether. As a reminder, Goldman does not expect the Fed to hike on September 17.
On Wall Street only 2 things matter: interest rates and earnings. Everything else is noise unless it impacts rates and earnings. No-one impacts interest rates more than the Fed. So the Fed’s September 17th rate hike decision is a big deal.

 

Should the Fed decide to raise interest rates, it will be the first Fed hike since June 29th 2006. In the 110 months that have since past, global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assetszero [or negative] interest rates policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime.

 

As noted above, a rate hike with a stroke ends this era. So:

 

If they don’t hike…
  • It’s an admission that Wall Street threatens to reverse the recovery on Main Street
  • It will lead to a short-term relief rally on Wall Street
  • It will be relatively positive for EM/commodities/resources, as it unwinds the higher US growth/rates/dollar narrative
  • It will be positive for higher-yielding assets
  • It will be positive for growth > value, as the Fed is confirming the deflationary recovery
  • In short, if the Fed’s failure to hike does not lead investors to completely abandon hope on growth and scurry into gold, cash & volatility, then look for the “barbell of 1999” to reemerge: Über-growth & Über-value were massive outperformers after the Asia crisis (Chart 9).

 

If they do hike…
  • Watch the long-end
  • If the long-end concurs with the Fed’s view of economic recovery, then banks, cyclicals and value stocks will receive a bid. Asset allocation toward “strong dollar” & “Fed tightening plays” will harden, with the exception that value will likely outperform growth
  • If the long-end rallies, signaling a policy mistake, then cash, volatility, gold & defensive growth will be the way to go.
Most importantly, if the long-end rallies, it's almost over and get ready to bail on any outperforming long-end position, as the reaction itself will signal the beginning of the end of the fiat regime.

>>> Carrefoursa re-IPO plan on hold as retailer focuses on small

Carrefoursa re-IPO plan on hold as retailer focuses on small targets - CEO
Carrefoursa [IST:CRFSA], the Turkish retailer, has put its re-IPO plan on hold as it focuses on absorbing acquisitions and growing organically and inorganically, according to CEO Mehmet Nane.

"Our advisers offered a re-IPO as an alternative to finance the TRY 429.6m (USD 166m) acquisition of Kiler Alisveris Hizmetleri [IST:KILER], but we decided to rule it out as our first option. We have a strong war chest to cover acquisitions," he said. "If there's a need, we'll choose long-term borrowing as an alternative."

However, a source familiar with the plan said the re-IPO option is still "on the cards" for the first quarter of next year. The timing of any share sale would be determined in accordance with market conditions, the source added.

Carrefoursa is a joint venture between diversified Turkish enttity Sabanci Holding [IST:SAHOL] and French retailer Carrefour [EPA:CA]. Sabanci holds 50.93% and Carrefour owns 46.19%; the remaining 2.05% is freefloat on the Borsa Istanbul.

An Istanbul-based analyst noted that a secondary offering would also allow Carrefour to reduce its holding and help the company access fresh capital.

The source said the offering’s size and structure have not been decided yet. "The share sale process could be similar to Kordsa Global [IST:KORDS], a fabric producer -- which is also a subsidiary of Sabanci Holding,” the source noted.

Sabanci ran an investor roadshow in April but postponed plans to place Kordsa shares because of market conditions. It completed the stake sale in late May, reducing its holding to 71.11% from 91.1%.

The analyst noted Sabanci had some TRY 800m (USD 272m) in cash, after the disposals of subsidiary Sasa [IST:SASA] and a 20% stake in Kordsa, and could back Carrefoursa’s acquisitions.

Carrefoursa, which runs 480 stores within Turkey, is focused on adapting newly bought stores from Kiler, acquired on 15 May. "Kiler’s acquisition will help to penetrate further in central Turkey," Nane said. The deal was closed on 30 June after approvals from the Competition Board. Through the acquisition, Carrefoursa added 190 supermarket stores to its portfolio.

The second quarter sales at Carrefoursa increased 12% year-on-year to TRY 861m (USD 304m) mainly through organic and inorganic store expansion. "New store openings temporarily burden Carrefoursa’s profitability. As those stores mature, their full potential will be reflected," a company report noted. The retailer plans to increase its store count to 750 and its revenue to TRY 5bn (USD 1.7b) next year. It posted revenue of TRY 3bn last year.

In March, Carrefoursa bought 29 supermarkets from Antalya-based hard discount retail chain 1e1 Market. “Carrefoursa and Migros [IST:MGROS] -- key players in the supermarket sector -- have started to focus more on proximity stores to penetrate the country in a more effective way,” Renaissance Capital analyst Mete Ozbek wrote in a research note.

“Hard discounters are losing their competitive advantage, as price differences between discounters and supermarkets are increasingly blurred and supermarkets focus on proximity stores,” Ozbek said.

>>> Schneider Electric seeks buys in Brazil to expand solutions in process autom

Schneider Electric seeks buys in Brazil to expand solutions in process automation and energy efficiency, South America president says
Schneider Electric (SU: FP), the French energy management company, is seeking complementary acquisitions in Brazil to expand its product and service portfolio, said South America Zone President Tania Cosentino.

Speaking on the sidelines of an energy conference organized by the newsweekly magazine Carta Capital earlier this week in Sao Paulo, the executive noted that acquisitions have played a key role in helping Schneider Electric increase its global revenues from EUR 8bn around 15 years ago to EUR 25bn in 2014.

In order to keep fostering its growth, Schneider Electric will continue to carry out acquisitions in key markets, including Brazil, where it has bought a few companies in recent years, she noted.

The company´s M&A strategy is designed to strengthen its supply of products and services through the purchase of targets with complementary expertise, the executive said.

In Brazil, Schneider Electric is interested in targets operating in the software and services sectors that are specialized in providing real-time information to enhance its solutions for process automation, Cosentino said.

The executive explained that Brazil holds great opportunities for Schneider Electric because of its growing population and increasing energy consumption. The country´s old power grid also means good business opportunities for the company, as it will demand growing investments in energy management and automation.

Trends in Brazil´s energy management industry

The rise of the Brazilian energy tariff, which increased by roughly 70% over the past 12 months, combined with the country´s energy crisis caused by severe droughts, has forced local companies to become more concerned about energy management issues, said Carlos Alberto Schoeps, founding partner at the Sao Paulo-based energy consultancy firm Replace Consultoria.

“Most of these companies have the same budget to cover electricity costs so they have been turning to process automation and energy efficiency initiatives to make the magic happen,” Schoeps noted.

Companies within the industrial sector are the ones most concerned about enhancing their energy management because they are naturally more structured to take advantage of such initiatives than players in the services or retail spaces, Schoeps said. While an industrial facility can invest in process automation and cut its electricity costs right away, a supermarket chain, for instance, would need to implement process automation solutions in every unit to achieve such a goal, he noted.

According to Schoeps, IT solutions, such as software able to gather energy consumption patterns and generate analytical information to help design tailored energy efficiency programs, has been driving the interest of most players in the domestic energy management industry.

A couple of Brazilian players that provide remote energy management solutions similar to Schneider Electric´s platform Webenergy include the Sao Paulo-based Gestal, which holds a partnership agreement with Siemens (ETR: SIE), and the Sao Paulo-based ACS, Schoeps said.


M&A track record

According to the Mergermarket database, Schneider Electric has made at least two acquisitions in Brazil in the past four years. In 2012, it bought CP Eletronica, a company engaged in manufacturing power systems for data centers, hospitals, retail chains, offices, banks, and energy companies, for an undisclosed sum. CP Eletronica generated in 2011 revenues of BRL 33.4m (USD 17.9m at the time).

In 2011, Schneider Electric purchased Steck, a manufacturer and distributor of products and systems for electrical installations, which expected to generate sales of BRL 180m that year.

NY Post : Feds clear Intel’s $16B acquisition of Altera

Intel has won regulatory clearance from federal regulators of its controversial $16.7 billion acquisition of Altera, The Post has learned.
The Department of Justice cleared the deal without issuing a second request for information, sources close to the situation said on Friday.
Still, the deal has not cleared regulators in Europe or China, where it might face more opposition.
The growing part of Intel’s business is selling chips for data center servers for about $650 each. This represents 40 percent of Intel’s profits.
Intel might be making the acquisition in this related chip area to limit competition. That has led to speculation the merger could face regulatory scrutiny.

FT : Swiss watch industry finally moving into an era of self-reliance


Swiss watch industry finally moving into an era of self-reliance

After a decade of heavy investment, the Swiss watch industry is finally moving into an era of self-reliance. At this year’s spring watch fairs, a number of brands announced in-house calibres, demonstrating they are more independent of third-party movement suppliers than they have been for decades.
Brands have sunk vast sums into manufacturing these calibres, but with borrowing and investment levels at an all-time high and industry growth stalling, questions are being asked about when, if at all, brands will see a return.

The spate of investment goes back to 2002 and Swatch Group’s announcement that it would be seeking to overturn the Swiss law that obliged it to supply its movements and parts to third parties — even its closest competitors.
At the time, Nicolas Hayek, head of the Swatch Group until his death in 2010, claimed not only that this was limiting Swatch’s growth, but also that its monopoly was stifling competition. Brand self-reliance would spur innovation, he said, making the Swiss watch industry a more attractive proposition to its global consumer base.
The ensuing investigation by the Swiss Competition Commission into the group’s monopoly has since enabled Swatch to begin closing the door on rival brands, which have been forced to find alternative suppliers — or to invest in their own manufacturing facilities.
Producing movements from scratch is a slow and expensive process. But the market is now awash with “in-house” movements from high-volume brands, including Tag Heuer, Frédérique Constant and Tudor, which released the first in-house calibre in its 70-year history at Baselworld.
Jean-Paul Girardin, vice-president of Breitling, says: “There’s been a reshaping of the Swiss watch industry, from having one or two suppliers to everybody having to take responsibility for themselves.” The company has introduced seven in-house mechanical movements since 2009.
Its in-house movement programme began in 2004 and approximately a quarter of the 150,000 watches it produces annually are powered by in-house movements.
While Breitling has not released figures, Tag Heuer has stated that its investment in vertical integration has cost it SFr40m ($41.5m).
“What Nicolas Hayek said made sense, not just for Swatch Group, but for the whole industry,” says Mr Girardin. “The global Swiss watch industry is now much stronger than it was a decade ago.”
However, for all the aesthetic and technical benefits this reshaping has brought the industry, there is little evidence of financial reward as yet.
“There’s no short-term profit,” admits Aldo Magada, chief executive of Zenith, which produces around 50,000 movements a year and introduced a calibre with an improved 100-hour power reserve this year. Mr Magada adds: “But our shareholders want us to develop the brand, which means investing in movements with higher performance, which costs a fortune.”
Zenith is one of the industry’s long-time movement producers, with an established manufacturing facility. Others have been forced to build from the ground up.
Karl-Friedrich Scheufele, co-president of Chopard, says: “It’s taken us almost 10 years to get to a capacity of 15,000-20,000 movements a year.” The company began a volume movement production programme in 2007.
The question for those brands that have invested heavily in movement manufacturing is whether the consumer will buy into the product — or if they even understand it. Typically, an in-house movement watch is more expensive than one with a movement made by a third party such as ETA or Sellita, sometimes double the price.
Consensus among the brands is that although a significant return on their investment may not be imminent, it will come. This is despite the Federation of the Swiss Watch Industry recently announcing that the total value of Swiss exports — watches and movements — has fallen by 1.2 per cent in the first seven months of this year, prompting fears of its first annual decline since the annus horribilis of 2009.
Mr Scheufele says: “For the industry, the best way forward is to increase the number of aficionados and to increase awareness of fine watchmaking. And that’s what these in-house movements deliver.”