(CS) Capital shortfall analysis & re-rating potential

GLENCORE (OP, TP GBp235,0): Glencore has underperformed by c30% in the past 4 weeks alone. 
In an outright commodity price collapse nothing can be ruled out and there is no denying the company has more debt than it would like in the crt pricing environment. We think a company that generates annualised FCF pre dividend of c$4bn (FCF yield of 14%) with a BBB credit rating has more time and options than the market is giving credit for. Communication from the company has been less than perfect, but on the assumption that prices do not get materially worse (or better) and the market receives a clearer path to debt reductions we see a 30-60% re-rating opportunity. At spot prices the company is trading on an implied industrial EV/EBITDA 2016 of 5x and FCF
yield of 14% vs peers on c7.5x and 5%; a return to peer multiples (where it traded pre Q315) would imply 60% upside. A more modest re-rating (to a 15-20% discount) would imply 30% upside.

>>> What to look at today - 4th of September 2015

Dow +0.14% S&P +0.12% Nasdaq -0.35% Russell -0.08% VIX 25.61 (-1.84%)
US Market closed on a cautious note ahead of today NFP report for Aug. (Cons 217k). Equities climbed steadily through the first hour of action as global investors rushed into risk assets after European Central Bank President Mario Draghi indicated the ECB's quantitative easing program may be extended. To that point, the ECB made no changes to its policy course, but the central bank will now be allowed to buy up to 33.0% of any particular issue, up from the previous limit of 25.0%. On a related note, the ECB lowered its 2015 GDP forecast for the eurozone to 1.4% from 1.5%. Euro$ was underpressure the all day.Large didn't manage to close in +ve territory. Energy closed slightly higher +0.3% as crude closed higher...volume were in line with average @ 860mil shares...US After Hours ENVI +9.0%, STRM +8.1%, BLOX +0.9%, VNCE -30.2%, UTIW -16.1%, PAY -2.7%, GPS -2.2% following earnings/guidance. In spite of the ongoing market holiday for the Shanghai Composite and modest gains on Wall St, sentiment in Asia has turned progressively more cautious going into Friday's potentially pivotal for the Fed non-farm payrolls. Nikkei is very volatile as the Hang Seng. Hong Kong PMI contraction reached new depths, sliding nearly 4 full points to 6-year low of 44.4. Fed's resident non-voting dove Kocherlakota reiterated his opposition to the liftoff this year on the grounds of delaying the return of inflation to target. Kocherlakota also noted labor markets stand to benefit from rates remaining low, particularly in the absence of wage inflation. Recall that Kocherlakota has made similar comments in the recent past at the Jackson Hole summit, while Fed watcher Hilsenrath observed that his views are not attracting much support inside the Fed....S&P Fut are trading down -0.81%

Nikkei-2.25% Hang Seng -0.90% Shanghai - closed

Eur$ 1.1136 CNY 6.3559 JPY 119.34 GBP 1.5247 EURCHF 1.0814 RUB $67.1851 WTI $46.25 (-1.05%)

S&P -0.80% EuroStoxx -1.62% Dax -1.70% SMI -1.35%

Macro :
- Hedge Fund Manager Hall Says World Market ‘Not Awash in Oil’
- EU Commission Plans to Make Stock Listings Cheaper: Reuters
- UBS Cuts Hong Kong Stock Target 25% as Black Sky New Reality
- G-20 Draft Sees Possible Fed Rate Hike as Risk to Global Markets
- Bridgewater All Weather Fund Said to Drop 4.2% in August (1)


Keep an eye on :
- AZN LN : AstraZeneca Says FDA Expands Indication for Brilinta
- BPTY LN : Bwin.Party Board Said to Switch Support to GVC Bid: Telegraph
- DAI GY : Daimler Plans Digital Formula1 Channel, Handelsblatt Says
- DAI GY : Daimler, Nissan Start Construction of $1b Joint Plant in Mexico
- DB1 GY : Deutsche Boerse Selling EU200m of Treasury Shrs in Bookbuilding
- HEN3 GY : Henkel Plans to Buy 26% Stake in India’s Jyothy Laboratories: ET
- NEO FP : Neopost Narrows 2015 Organic Revenue Forecast
- SAB LN : SABMiller shares gain on renewed talk that AB InBev is working on cash bid - Daily Mail
- SPM IM : Saipem Gets New Contract in Chile Valued at $560m
- SOW GY : Software AG Says to Buy Back Up to EU70 Mln in Shares by Yr-End
- SAN FP : Sanofi Unit to Pay $32.5m to Resolve U.S. Criminal Liability
- STL NO : Statoil to Decide on Bressay Concept Early 2016, Upstream Says
- TEF SM : Telefonica to Give Television Sets to Clients: Expansion
- TIT IM : Telecom Italia Chairman Says Italy Reforms Show in Results: Sole
- FP FP : Total to Supply Gas to French Public Sites, Figaro Says
- WKL NA : Wolters Kluwer in Pact to Divest 55% Stake in Russian Entity

>>> Ariad draws interest from others besides Baxalta -

Ariad draws interest from others besides Baxalta - sources

Ariad Pharmaceuticals (NASDAQ:ARIA) has fielded acquisition interest from other larger pharma companies -- aside from Baxalta (NYSE:BXLT) -- but has not gotten a valuation it considers attractive, according to a source familiar with the situation.

The Cambdrige, Massachusetts-based company, being advised by JPMorgan and Lazard, has evaluated proposals from prospective bidders interested in expanding their oncology franchises, the source said, adding that it has no formal auction process underway.

On Wednesday, Bloomberg News reported that Baxalta, the recently listed pharma company that is being pursued by Shire (NASDAQ:SHPG) in a USD 30bn all-stock hostile offer, offered close to USD 2bn for Ariad, which the target’s board rejected as undervaluing the company.

The company has been rumored in previous years to have received approaches from such companies as Eli Lilly (NYSE:LLY) and GlaxoSmithkline (NYSE:GSK).

However, the source said Baxalta has not shut the door on its pursuit of Ariad, which could bolster the former’s franchise in cancer medications and also potentially serve as a defensive move to ward off Shire.

Ariad, which sells cancer medicine Iclusig and is developing other cancer drugs, has a current market cap of about USD 1.43bn.

According to an industry banker who recently pitched Ariad proposals from large pharma companies, the Ariad board does not appear to be averse to selling, but would expect well above USD 2bn to agree on a deal, which the banker characterized as a challenge.

The valuation floated by prospective acquirers “will not go much higher,” the banker said. “It will not go for more than USD 2.5bn.” The valuation could depend on data expected in coming months on Ariad’s second developmental drug, brigatinib, which is in Phase II clinical trials and for which the company hopes for Food and Drug Administration (FDA) approval next year. In addition, its lead product Iclusig is not without flaws, the banker said, having been pulled from the market last year for sometime.

Another industry banker said Ariad is “not cheap” though it generates growing sales and is an apparently willing seller with activist involvement. It has been on “everybody’s radar screen, so if there was tremendous excitement in it, somebody would have already bought it,” the banker said.

These views were echoed by a third industry banker who suggested that if Baxalta reaches an agreement to acquire Ariad, Shire could be willing to acquire both Baxalta and Ariad and has the financial heft to do so. Shire, which has been acquisitive, has expressed interest in expanding its hemox franchise, or treatments for hematology and oncology, both of which Ariad has in various stages of development, the banker noted.

Previously Ariad was advised by Goldman Sachs, but the bank was conflicted this time around because it represented Baxalta in its defense against Shire, the source added.

An Ariad spokesperson declined to comment. Baxalta spokesperson Geoffrey Mogilner said the company’s strategy is to pursue disciplined M&A transactions but declined to comment on Ariad. A Shire spokesperson could not be reached for immediate comment.

Ariad earlier this year resolved a proxy contest with activist investor Sarissa Capital by agreeing to replace long-time CEO Harvey Berger by the end of 2015 or earlier.

Sarissa, the second largest shareholder in Ariad with a 6.8% stake, previously accused the company of overcompensating its CEO and mismanagement, particularly in the wake of last year’s pulling of Iclusig from the market for some months at the behest of the FDA.

>>> Europe : Brokers upgrade & Downgrade - 4th os September 2015

>>> Up
*ALTICE RAISED TO NEUTRAL VS SELL AT CITI
*DEUTSCHE TELEKOM RAISED TO HOLD VS SELL AT BANKHAUS LAMPE
*ENI RAISED TO OUTPERFORM VS NEUTRAL AT MEDIOBANCA
*HIKMA RAISED TO BUY VS NEUTRAL AT GOLDMAN
*INFINEON RAISED TO OVERWEIGHT AT JPMORGAN
*KINGFISHER RAISED TO OUTPERFORM VS NEUTRAL AT EXANE
*NATIXIS RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
*NEOPOST RAISED TO BUY VS HOLD AT SOCGEN
*ORKLA RAISED TO BUY AT DNB MARKETS
*VIENNA INSURANCE RAISED TO MARKET PERFORM AT KEEFE BRUYETTE


>>> Down
*BP CUT TO UNDERPERFORM FROM NEUTRAL AT BOFA MERRILL LYNCH
*KERING CUT TO SELL VS NEUTRAL AT GOLDMAN
*UNICREDIT CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*YOOX CUT TO NEUTRAL VS OUTPERFORM AT EXANE

>>> Initiate
*ABB RATED NEW SELL AT BERENBERG, PT CHF17
*ACERINOX RATED NEW NEUTRAL AT CITI
*ALSTOM REINITIATED HOLD AT BERENBERG, PT EU29
*APERAM RATED NEW BUY AT CITI
*GJENSIDIGE FORSIKRING RATED NEW HOLD AT HSBC
*HSS HIRE GROUP RATED HOLD VS UNDER REVIEW AT BERENBERG
*LEGRAND RATED NEW BUY AT BERENBERG, PT EU60
*NEXT CUT TO UNDERPERFORM VS NEUTRAL AT EXANE
*OUTOKUMPU RATED NEW BUY AT CITI
*REXEL RATED NEW HOLD AT BERENBERG, PT EU14.5
*SAMPO OYJ RATED NEW BUY AT HSBC
*SCHNEIDER RATED NEW BUY AT BERENBERG, PT EU72
*SIEMENS RATED NEW HOLD AT BERENBERG, PT EU95
*TOPDANMARK RATED NEW BUY AT HSBC, PT DKK206
*TRYG AS RATED NEW HOLD AT HSBC

>>> PT change


>>> Call
>> Stock
*HIKMA ADDED TO CEEMEA FOCUS LIST AT GOLDMAN
*RICHEMONT EXITS GOLDMAN CONVICTION BUY LIST, STAYS BUY

>>> SABMiller shares gain on renewed talk that AB InBev is working on cash bid

SABMiller shares gain on renewed talk that AB InBev is working on cash bid - report
SABMiller’s [LON:SAB] share price gained 1.5% yesterday, 3 September on renewed speculation that listed Belgian rival Anheuser-Busch InBev [EBR:ABI] is preparing a knockout cash offer for the FTSE-100 brewing company, The Daily Mail reported. The newspaper’s market report section did not cite a source for the rumour.

Analysts at Investec doubted the bid speculation, slapping a sell recommendation on SABMiller shares and reducing its target valuation for the stock to 2900p, the article noted.

SABMiller shares closed at 3039p in London yesterday, giving the company a market capitalisation of GBP 49.16bn (EUR 67.32bn).

Background:

A Sunday Times report on 30 August said SABMiller had hired the investment bank Robey Warshaw to advise on M&A strategy. The article noted persistent talk of an offer from AB InBev, and that the Belgian brewing group has backing from 3G Capital Partners.

Daily Mail

>>$ Asian Update Nikkei-1.63% Hang Seng -0.18% Shanghai closed

Asian Mid-session Update: Hong Kong PMI contraction deepens; Markets brace for critical non farm payrolls


***Economic Data***
- (HK) HONG KONG AUG PMI SERVICES: 44.4 V 48.2 PRIOR (lowest since Apr 2009)
- (JP) JAPAN JULY LABOR CASH EARNINGS Y/Y: 0.6% V 2.0%E; REAL EARNINGS (Ex-inflation) Y/Y: +0.3% V -3.0% PRIOR (first increase in 2-yrs)
- (PH) PHILIPPINES AUG CPI M/M: 0.1% V +0.1%E; Y/Y: 0.6% V 0.7%E; CPI CORE Y/Y: 1.6% V 1.9%E

***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 -1.1%, S&P/ASX -0.1%, Kospi -0.8%, Shanghai Composite closed, Hang Seng +0.3%, Sept S&P500 -0.4% at 1,938

***Commodities/Fixed Income***
- Dec gold flat at $1,123/oz, Oct crude oil -0.4% at $46.56/brl, Dec copper -0.7% at $2.36/lb
- (JP) BOJ offers to buy ¥70B in JGBs with maturity less than 1-yr, ¥240B in 10-25yr JGBs and ¥140B in JGBs with maturity over 25-yr as well as ¥600B in T-bills
- (AU) Australia MoF (AOFM) sells A$600M in 4.25% 2026 bonds

***Market Focal Points/FX***
In spite of the ongoing market holiday for the Shanghai Composite and modest gains on Wall St, sentiment in Asia has turned progressively more cautious going into Friday's potentially pivotal for the Fed non-farm payrolls. Nikkei225 is especially susceptible, falling over 3% upon returning from midday break as it tracks a rally in JPY - USD/JPY fell some 100pips to 1-week lows below 119.20. Other USD majors are more contained, with EUR/USD consolidating post ECB declines in a 20pip range above 1.1115, while AUD/USD registered another 60pip drop to fresh multi-year lows around 0.6960 just as TD Securities cut its 2015-end target for AUD to $0.68 from $0.74.

Hong Kong PMI contraction reached new depths, sliding nearly 4 full points to 6-year low of 44.4. Resident economist said this was the quickest deterioration since the GFC, also spotlighting the sharper rate of job cuts in August, with the latest fall in employment the fastest since April 2003.

G20 Communique draft ahead of this weekends meeting pledged continued commitment toward resisting trade protectionism, implementing fiscal policies flexibly, and maintain prior FX commitments. Japan Econ Min Amari noted G20 would discuss China in context for global economy, adding volatility in the markets does not reflect fundamentals.

Fed's resident non-voting dove Kocherlakota reiterated his opposition to the liftoff this year on the grounds of delaying the return of inflation to target. Kocherlakota also noted labor markets stand to benefit from rates remaining low, particularly in the absence of wage inflation. Recall that Kocherlakota has made similar comments in the recent past at the Jackson Hole summit, while Fed watcher Hilsenrath observed that his views are not attracting much support inside the Fed.

***Equities***
US equities / ADRs:
- AVOL: Bohai Leasing agrees to acquire Avolon for US$31/shr cash; Transaction valued at US$7.6B (reduced from prelim agreement of $32/shr announced on 8/10); +4.6% afterhours
- GPS: Reports Aug SSS -2% v -0.4%e; -2.3% afterhours
- PAY: Reports Q3 $0.47 v $0.46e, R$510M v $501Me; -3.4% afterhours
- ESL: Reports Q3 $1.33 v $1.47e, R$496M v $531Me, Cuts FY guidance; -6.0% afterhours
- VNCE: Reports Q2 $0.14 v $0.22e, R$80.8M v $86.0Me; announces new interim CEO and CFO; -31.5% afterhours

Notable movers by sector:
- Consumer discretionary: Chow Tai Fook Jewellery Group 1929.HK +2.6% (to close more stores); Belle International Holdings 1880.HK +2.2% (closes stores); Echo Entertainment Group EGP.AU +1.4% (update on Genting's investment)
- Financials: Guangzhou R&F Properties 2777.HK -0.9% (July result); Beijing Capital Land 2868.HK +1.0% (July result); Magellan Financial Group MFG.AU +2.1% (Aug update)
- Industrials: Sinotrans 598.HK +8.2% (merger speculation); Daewoo Shipbuilding & Marine 042660.KR +2.3% (job cut); Mitsubishi Motors 7211.JP +0.4% (vehicles recall)
- Technology: Mesoblast MSB.AU +7.1% (update on JCR); HTC Corp 2498.TW +1.7% (Aug result); Japan Display 6740.JP -2.9% (Apples increases orders); TPK Holding 3673.TW +6.1% (Aug result)
- Materials: Doray Minerals DRM.AU +1.2% (update on project)

>>> US After Hours Summary: ENVI +9.0%, STRM +8.1%, BLOX +0.9%,

After Hours Summary: ENVI +9.0%, STRM +8.1%, BLOX +0.9%, VNCE -30.2%, UTIW -16.1%, PAY -2.7%, GPS -2.2% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings: ENVI +9.0%, STRM +8.1%, BLOX +0.9%

Companies trading higher in after hours in reaction to news: TICC +4.0% (announced material changes to proposed new investment advisory agreement with Benefit Street Partners; new agreement includes a permanent annual base management fee reduction), VTL +3.5% (announced a workforce reduction of ~30% and plans to institute across the board expense reductions to conserve capital), RCL +1.5% (increased quarterly dividend 25% to $0.375/share from $0.30/share), AVOL +1.1% (to be acquired by Bohai Leasing for $31/share in cash in an ~$7.6 bln deal), FOGO +0.5% (to open five new Company-owned restaurant locations in the United States)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: VNCE -30.2%, UTIW -16.1%, ESL -6.0%, PAY -2.7%, GPS -2.2%

Companies trading lower in after hours in reaction to news: ABIO -6.7% (disclosed that its common stock will commence trading on a post-split basis tomorrow following today's seven-for-one reverse split), IVAC -2.6% (announced the order of an INTEVAC MATRIX thin-film processing system, by a Tier 1 solar cell manufacturer), GPS -2.2% (Aug same store sales -2.0% vs -0.4% Retail Metrics consensus)

>>> US Close : Stocks Slide From Early Highs, End Litt

Closing Market Summary: Stocks Slide From Early Highs, End Little Changed Ahead of Nonfarm Payrolls

The stock market ended Thursday on a cautious note ahead of Friday's Nonfarm Payrolls report for August (consensus 217,000). The S&P 500 added 0.1% after being up as much as 1.3% while the Nasdaq Composite (-0.4%) underperformed throughout the session.

Equities climbed steadily through the first hour of action as global investors rushed into risk assets after European Central Bank President Mario Draghi indicated the ECB's quantitative easing program may be extended. To that point, the ECB made no changes to its policy course, but the central bank will now be allowed to buy up to 33.0% of any particular issue, up from the previous limit of 25.0%. On a related note, the ECB lowered its 2015 GDP forecast for the eurozone to 1.4% from 1.5%.

The news from Europe pressured the euro, sending the single currency lower by 0.8% against the dollar to 1.1125. The euro remained in the neighborhood of its low throughout the day while stocks reached their highs during the first 90 minutes of the day before pulling back.

The early advance was paced by the health care sector (-0.6%), but the influential group was also the first to retreat from its high while others followed suit. Biotechnology hinted at the impending weakness from the get-go as iShares Nasdaq Biotechnology ETF (IBB 338.63, -7.60) lagged throughout the session, ending lower by 2.2%.

Biotechnology's daylong underperformance also took its toll on the Nasdaq as the tech-heavy index spent the entire session behind the S&P 500. Meanwhile, large cap components like Apple (AAPL 110.37, -1.97), Google (GOOGL 637.05, -7.86), and Facebook (FB 88.10, -1.79) also struggled, which kept the technology sector (-0.1%) among today's laggards. That being said, high-beta chipmakers fared well, evidenced by a 0.8% gain in the PHLX Semiconductor Index. Only four index members posted losses while SunEdison (SUNE 11.94, +1.15) surged 10.7% after the company's Chief Executive Officer appeared on Bloomberg, saying the company expects to see positive cash flows later this year or early next year.

Elsewhere, the energy sector (+0.3%) was forced from its high by the late-afternoon weakness while crude oil jumped 1.0% to $46.30/bbl. Following today's advance, crude is set to enter the Friday session up 3.5% for the week versus a 1.4% week-to-date decline for the energy sector.

Treasuries entered the day with gains and settled near their highs after overcoming a brief intraday slip. The 10-yr note added four ticks, lowering its yield by two basis points to 2.17%.

Investor participation remained above average with more than 860 million shares changing hands at the NYSE floor.

Economic data included Initial Claims, Trade Balance, ISM Services, and Challenger Job Cuts:

  • The initial claims level increased to 282,000 for the week ending August 29 from a downwardly revised 270,000 (from 271,000) while the consensus expected an increase to 273,000
    • This was the first time the initial claims level exceeded 280,000 since the week ending July 11, but the overall trend supports a labor market that is at, or very near, full employment
  • The U.S. trade deficit narrowed to $41.90 billion in July from an upwardly revised $45.20 billion ($43.80 billion) while the consensus expected a decline to $42.70 billion
    • The goods deficit decreased to $61.40 billion in July from $64.80 billion in June while the services surplus was virtually unchanged at $19.60 billion
  • The ISM Non-Manufacturing Index declined to 59.0 in August from 60.3 in July while the consensus expected a fall to 58.4
  • The Challenger Job Cuts report for August showed a 2.9% increase to follow last month's 125.4% spike

Tomorrow, the August Nonfarm Payrolls report will be released at 8:30 ET (consensus 217,000).

  • Nasdaq Composite -0.1% YTD
  • S&P 500 -5.2% YTD
  • Russell 2000 -4.9% YTD
  • Dow Jones Industrial Average -8.1% YTD