(MS) GDF Suez : Mapping the rebound in 2016 EPS

We are updating our estimates for latest developments and commodity prices. The long-term story remains intact, with GSZ offering a mix of attractive dividend and reinvestment opportunities.
We add ESG valuation to our analytical framework.

New financial estimates: our ordinary 2015 EPS estimates go down 18% to €1.02 post nuclear tax and hybrid costs, largely reflecting delays in Belgium and the hydro situation in Brazil, but partly offset by lower D&A than we had
so far baked in. The latter largely explains the 5% increase in our forecasts from 2017, once operational delays have normalised.

Key market debate: How much of an EPS rebound in 2016? Investors' expectations seem to us to be appropriately discounting the short-term operational issues affecting 2015, even if sell-side consensus does not yet
reflect them. Our new 2016 EPS estimates point to a 27cts (27%) rebound, underpinned by the restart of D3/T2 in Belgium (7cts), partial hydro normalisation in Brazil (6 cts), new investments (11 cts) and cost savings (6
cts). Exhibit 1 at the bottom of page 2 shows a scenario analysis on bear/bull assumptions for EPS.

Valuation analysis: In this report we look at the valuation impact if we value the infrastructure and renewable businesses in line with more specialised peers. This would point to a higher NAV of €26, implying 40% upside potential.
This assumes no power market and commodity price recovery.

Introducing our new ESG Valuation framework: In this report we include an analysis of the material ESG risks and opportunities for GDF Suez, including the main ESG KPIs and a discussion of possible long-term valuation impacts
from the main ESG topics relevant to the group (p.5).

Some catalysts to come: Negotiations are ongoing between GSZ and the Belgian authorities regarding the nuclear business: management expects a decision in August – which should be a positive catalyst. Discussions with
employee representatives on group reorganisation will start in June – this has so far been a low-key process but it could help to unlock value over time.

Maintain OW. We see GSZ as one of the most attractive of the integrated utilities in Europe for its mix of relative growth, reinvestment opportunities and short-term valuation with a FCF-covered DY of 5.5%. De-risking and EPS
upgrades from Belgium would be an additional positive for the stock.

Key risks: Reinvestment risk; delay in commissioning or lower returns than anticipated; cost-cutting; closure of Doel 3/ Tihange 2 for longer than we assume in our base case; and commodity prices.

(GS) Spain : Real Estate : Initiate on Merlin(Buy PT€14.5) & Colonial (Buy PT€0.

* Recovering market driving growth: Initiate on Merlin and Colonial

Attractive commercial real estate market in Europe
Spain is one of the most attractive commercial real estate markets in Europe at present, with prospects for both solid rent growth and yield compression. We forecast Madrid prime office rents to grow by 18%/8% in 2015/16, respectively, driven by a lack of new supply and improving demand, helped by above-Euro-area average real GDP growth.

Growth potential driven by €3.6 bn of acquisitions
We believe Colonial, Hispania and Merlin are well-positioned overall to benefit from such recovery. With funding spreads rapidly decreasing and capital freshly raised, we see acquisitions as a key growth driver at Merlin, Hispania and Colonial, through either single-asset or portfolio opportunities. We forecast €3.6 bn of combined acquisition spend over 2015-16.

Avg 2014-17E NAV CAGR of 12% for three Spanish property stocks
We forecast an average 12% NAV CAGR over 2014-17 for Colonial,Hispania and Merlin. In addition to acquisitions, such growth is driven in particular by some further yield compression, market rent growth, as well as operational and financial leverage.

Different business models substantially impacting cost of capital
Colonial (focused on prime assets) and to some extent Merlin (with a large exposure to core retail) benefit from a low cost of capital, on our estimates. We see Hispania’s business model as more opportunistic, relying on asset management and execution to deliver returns outlined by management.

Merlin Properties: Balanced strategy, initiate at Buy, 12m PT €14.5
With a solid base of yielding properties and a more opportunistic pocket of investments, Merlin offers a good balance of risks and solid NAV growth prospects. We initiate with a Buy rating, 12-month price target of €14.5, a 2017E earnings yield of 4.5%, and 5% above our 2017 NAV estimate.

Colonial: Prime asset exposure, initiate at Buy, 12m PT €0.77
We see Colonial as best positioned to benefit from prime rent growth and operational leverage. Based on our M&A framework, we think it could be viewed as an attractive target. We initiate with a Buy rating, 12-month price target of €0.77, a 5.2% 17E earnings yield and a 19% premium to 17E NAV.

>>> What to look at today - 3rd of June 2015

Dow-0.16% S&P-0.10% Nasdaq-0.13% Russell+0.17% VIX 14.24
US Market closed slightly lower. Not much action in the US. Greece continue to be in play, a short squeeze in the euro sent the single currency higher by 2.0% against the dollar to 1.1145. Contributing to the euro strength was some chatter that the European Central Bank could stop its quantitative easing program early due to inflationary pressures. the S&P 500 found early support in the neighborhood of its 50-day moving average (2,100) and returned to its flat line shortly after noon ET. In all likelihood, some of the money leaving Treasuries found its way into stocks, but the benchmark index could not stay above its unchanged level into the close. large cap tech names were mixed with Apple (AAPL 129.96, -0.58) and Microsoft (MSFT 46.92, -0.31) losing close to 0.5% apiece while Google (GOOGL 553.95, +4.74) and Facebook (FB 80.44, +0.15) advanced. energy sector was supported by a rally in crude oil, which climbed 1.7% to $61.28/bbl. Volume were in line with 712 mil shares...US After Hours GIII +6.5%, AMBA +1.0%, VMEM -12.0%, NCS -3.9%, GWRE -2.9%, MIND -1.2%, GES -0.5% following earnings/guidance...Asia indices initially tracked mixed sentiment in the US markets but have rolled over in the afternoon session. China is finally being pressured by high IPO activity on the mainland this week, Nikkei225 is on the defensive amid a bounce in Japanese Yen from multi-year lows, while S&P/ASX is down after stronger than expected Australia GDP justified a more neutral than anticipated RBA statement overnight. China Services PMI from HSBC recovered from last month, offsetting deteriorating conditions in manufacturing, HSBC called for further stimulus just to achieve the target GDP of about 7%. In Japan, BOJ's Shirai was somewhat cautious in terms of inflation outlook, forecasting 2% objective to be achieved only at the end of 2016

Nikkei -0.41% Hang Seng +0.70% Shanghai -1.05%

Eur$ 1.1174 JPY 123.86 GBP 1.5370 EURCHF 1.0419 RUB $52.6675 WTI $60.85 (-0.67%)

S&P +0.07% EuroStoxx +0.03% Dax +0.15% SMI +0.10%

Macro :
- HSBC China May Services PMI 53.5 vs 52.9 in April
- Markit/JMMA Japan May Composite PMI 51.6 vs 50.7 in April
- Qatar Stock ETF Falls 1.8% in NY as Blatter Resigns From FIFA
- ECB Said to Raise Greek ELA Ceiling to EU80.7b From EU80.2b
- HSBC India May Composite PMI 51.2 vs 52.5 in April
- OPEC Won’t Cut Production at Vienna Meeting, Al-Hayat Reports

Keep an eye on :
- AC FP : Accor Changes Name to AccorHotels, Will Raise Digital Investment
- ACS SM : SNC-Lavalin Said to Have Been Approached By Possible Buyers: (ACS Mentionned)
- ALCLS FP : Weill Cornell, Cellectis Report 3-Year Pact for UCART123
- AREVA FP : EDF’s Areva Nuclear Bid Is Favored by French Govt., Figaro Says
- AH NA : Ahold, Delhaize Talks Said to Advance With Deal Sought for June
- AZN LN : AstraZeneca May Consider Buying Immune-Therapy Company
- BMW GY : BMW’s Record May Trims Gap With Mercedes for U.S. Luxury Crown
- CPINV BB : Care Property Invest to Raise up to EU40.3m in Rights Offering
- DTE GY : German Mobile Spectrum Auction Reaches EU2.3b After 58th Round
- DGE LN : Ex-Diageo CEO Walsh Has Not Taken F-1 Board Seat: Sky News
- DUFN SW : Dufry to Raise at Least CHF2.2b in Rights Offering for WDF Buy
- ERICB SS : Ericsson is unlikely to buy Juniper Network due to price - Arvopaperi
- GFC FP : Gecina in Prelim. Pact to Pay EUR1.24b for 2 Office Assets
- HSBA LN : HSBC Investor Day May Disappoint With Focus on Costs: Barclays
- HUSQB SS : Husqvarna CEO Reiterates 10% Op. Margin Target: Dagens Industri
- NOK1V FH : Nokia unlikely to sell Here for less than USD 4bn - Kauppalehti Online
- RMG LN : Royal Mail to Name TUI Boss Peter Long Chairman Tomorrow: Sky
- SHP LN : Shire could finance another multi-billion dollar acquisition - CFO
- SGO FP : BPIFrance May Buy 10-30% Stake in St-Gobain’s Verallia: Monde
- SSH1V FH : SSH, the Finnish security software company, could be a takeover target - Talouselama
- SYNN VX : Monsanto, Syngenta Said to Discuss Regulatory Hurdles to Deal
- TEF SM : German Mobile Spectrum Auction Reaches EU2.3b After 58th Round
- VOD LN : German Mobile Spectrum Auction Reaches EU2.3b After 58th Round
- VOE AV : Voestalpine FY Beats Earnings, Sales Estimates on U.S. Growth
- VOLVB SS : Volvo Cars Reports Decline of 1.3% in Global Retail Sales in May
- VOLVB SS : May Prelim. Class 8 Truck Orders Slightly Weaker Than Est: JPM

>>> Europe : Brokers Upgrades & Downgrades - 3rd of June 2015

>>> Up
*CREDIT SUISSE RAISED TO OUTPERFORM AT RBC
*HUGO BOSS RAISED TO BUY VS HOLD AT BANKHAUS LAMPE
*INFINEON TECH RAISED TO HOLD VS SELL AT BANKHAUS LAMPE
*MELROSE RAISED TO BUY FROM NEUTRAL AT UBS
*ROTORK RAISED TO ADD VS HOLD AT NUMIS
*TELEFONICA DEUTSCHLAND RAISED TO BUY VS NEUTRAL AT NOMURA
*UNILEVER RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS

>>> Down
*HENKEL CUT TO EQUALWEIGHT AT BARCLAYS
*MORGAN ADVANCED MATERIALS CUT TO SELL FROM NEUTRAL AT UBS
*NUVASIVE CUT TO NEUTRAL VS BUY AT GOLDMAN
*ROTORK CUT TO NEUTRAL FROM BUY AT UBS
*SPECTRIS CUT TO SELL FROM NEUTRAL AT UBS

>>> PT Change


>>> Initiation
*COLONIAL RATED NEW BUY AT GOLDMAN, PT EU0.77
*INVESCO RATED NEW OVERWEIGHT AT PIPER, PT $50
*MERLIN PROPERTIES RATED NEW BUY AT GOLDMAN, PT EU14.5
*SOUTH32 RATED NEW OVERWEIGHT AT MORGAN STANLEY, PT A$2.55

>>> Call

>>> Asian Update

Asian Mid-session Update: China Services PMI recovers; Australia GDP surprises to the upside

***Economic Data***
- (CN) CHINA MAY HSBC SERVICES PMI: 53.5 V 52.9 PRIOR; COMPOSITE PMI: 51.2 V 51.3 PRIOR
- (AU) AUSTRALIA Q1 GDP Q/Q: 0.9% (1-year high) V 0.7%E; Y/Y: 2.3% V 2.1%E
- (AU) AUSTRALIA MAY AIG PERF OF CONSTRUCTION INDEX: 49.6 V 49.7 PRIOR (2nd straight contraction)
- (HK) HONG KONG MAY HSBC PMI: 47.6 V 48.6 PRIOR (3rd consecutive month of contraction)
- (JP) JAPAN MAY MARKIT SERVICES PMI: 51.5 (2nd straight expansion) V 51.3 PRIOR; COMPOSITE PMI: 51.6 V 50.7 PRIOR
- (NZ) MAY ANZ COMMODITY PRICE M/M: -4.7% V -7.4%% PRIOR; 2nd straight decline
- (UK) UK MAY BRC SHOP PRICE INDEX Y/Y: -1.9% V -1.8%E

***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 -0.4%, S&P/ASX -0.9%, Kospi +0.4%, Shanghai Composite +0.1%, Hang Seng +0.9%, Jun S&P500 flat at 2,107

***Commodities/Fixed Income***
- Aug gold flat at $1,194/oz, Jul crude oil -0.6% at $60.91/brl, Jul copper +0.4% at $2.75/lb
- (US) API Petroleum Inventories: Crude +1.8M (2nd straight build) v -1.5Me; Gasoline +1.6M v 0e
- SLV: iShares Silver Trust ETF daily holdings rise to 9,896 from 9,862; highest since May 15th
- GLD: SPDR Gold Trust ETF daily holdings fall 4.2 tonnes (0.6%) to 709.9 tonnes; lowest since Jan 14th
- (JP) BOJ offers to buy ¥375B in 1-3yr JGBs, ¥400B in 3-5yr JGBs, and ¥400B in 5-10yr JGBs
- (AU) Australia MoF (AOFM) sells A$700M in 4.75% 2027 Bonds; avg yield: 2.9805%; bid-to-cover: 2.19x
- USD/CNY: PBoC sets yuan mid point at 6.1176 v 6.1225 prior setting; strongest Yuan setting since May 26th

***Market Focal Points/FX***
- Asia indices initially tracked mixed sentiment in the US markets but have rolled over in the afternoon session. China is finally being pressured by high IPO activity on the mainland this week, Nikkei225 is on the defensive amid a bounce in Japanese Yen from multi-year lows, while S&P/ASX is down after stronger than expected Australia GDP justified a more neutral than anticipated RBA statement overnight.

- Australia's Q1 GDP came in at a 1-year high of 0.9% q/q, topping consensus by 2 ticks. Consumption component saw modest growth and capital formation decline was less than feared after than disappointing quarterly CAPEX survey last week. Treasurer Hockey said the govt's economic objectives are working, with growth in tourism and exports. AUD/USD rose about 40pips on the release to test the upside of $0.78 handle.

- China Services PMI from HSBC recovered from last month, offsetting deteriorating conditions in manufacturing. Resident economist said "service providers saw the strongest upturn in new business for three years in May, which supported sharper growth of activity and employment. In contrast, manufacturing companies continued to trim their payroll numbers as both output and new orders contracted over the month." Weak momentum in growth remains a concern for HSBC, which called for further stimulus just to achieve the target GDP of about 7%. PMI out of Hong Kong was more troubling with a 3rd consecutive month of contraction. Markit economist said the "The downturn in Hong Kongs private sector intensified in May, with output falling at the quickest rate in three-and-a-half years amid a faster contraction of new orders. Furthermore, new business from Mainland China fell at the quickest rate since December 2008."

- In Japan, BOJ's Shirai was somewhat cautious in terms of inflation outlook, forecasting 2% objective to be achieved only at the end of 2016. Shirai did not moderate wage rises would support spending, and while current asset buying scale was appropriate, there is little chance for incoming data to justify expanded easing. USD/JPY retreated further on the comments, falling by over 40 pips as low as 123.80.

***Equities***
US equities / ADRs:
- SNCR: Company is exploring a sale; Drawn some interest from private equity names; Takeover may value company over $2B - financial press; +15.7% afterhours
- GIII: Reports Q1 $0.15 v $0.07e, R$433M v $405Me; +7.1% afterhours
- AMBA: Reports Q1 $0.71 v $0.58e, R$71M v $67.7Me; +1.0% afterhours
- ENR: Approves 10M share buyback program (16% of shares outstanding)

Notable movers by sector:
- Consumer discretionary: Fast Retailing Co 9983.JP -0.4% (May Uniqlo Japan sales); Fonterra FCG.NZ -0.8% (Global Dairy Trade auction)
- Financials: Ping An Insurance Group 601318.CN -0.6%, Industrial Bank Co 601166.CN -1.5% (halts margin financing by some brokerages); Guangzhou R&F Properties 2777.HK +1.0% (May result); Beijing Capital Development Co Ltd 600376.CN +10.0% (share placement); Beijing Capital Land 2868.HK +2.9% (May result)
- Industrials: China Railway Construction Corp 1186.HK +5.1% (to issue A shares); Honda Motor 7267.JP +1.4% (May sales); Nippon Sheet Glass Co 5202.JP +3.0% (plans to increase capacity in Malaysia); Mazda Motor Corp 7261.JP % (May US sales); Hyundai Motor 005380.KR +1.0% (Kia May auto sales); China Railway Construction Corp 601186.CN +4.2% (share placement)
- Energy: Karoon Gas Australia KAR.AU +0.4% (in talks with Petrobras)
- Materials: LIXIL Group Corp 5938.JP +3.8% (cuts FY14/15 guidance)

>>> Ericsson is unlikely to buy Juniper Network due to price - report (translate

Ericsson is unlikely to buy Juniper Network due to price 

The Swedish telecom equipment manufacturer Ericsson is unlikely to buy the California - based tech company Juniper Networks, according to Arvopaperi. The Finnish language piece cited a report by the financial analysis company MKM Partners.

The analyst house believes that Juniper would be an expensive purchase for Ericsson with the price estimated USD 12-15bn, twice the company's turnover. Their comments come as many have estimated that Ericsson would acquire Juniper, since the Finnish Nokia acquired the French Alcatel-Lucent, it said.

Arvopaperi

>>> SSH could be takeover target (SSH1V FH) - Software inf.

SSH could be takeover target 

SSH, the Finnish security software company, could be a takeover target, according to Talouselama.

The Finnish language piece had carried an unsourced analysis on how certain Finnish IT security companies have been sold overseas, including how Finnish security companies are unable to enter the international market on their own.

The company's sales are likely to continue and many investors have been investing in SSH shares, hoping that it will be the next target.

The company had sales of EUR 10m last year.

Talouselama

>>> Nokia unlikely to sell Here for less than USD 4bn - report (translated)

Nokia unlikely to sell Here for less than USD 4bn 

Nokia, the Finnish mobile phone network company, is unlikely to sell its its mapping service Here for less than USD 4bn, Kauppalehti Online reported.

The Finnish language piece cited analyst Mikael Rautanen from Inderes who authored a report that indicated it is unlikely Nokia will sell Here for less than USD 4bn as the former is not desperate to dispose of the unit.

The China-based NavInfo is about to make an offer, backed by private equity players, for Here, the article added.


Kauppalehti Online

>>> BOJ's Shirai: expects core CPI to approach 2% at end of FY16; see core CPI a

BOJ's Shirai: expects core CPI to approach 2% at end of FY16; see core CPI around 0.5% on average in FY15 
- Sees wages to rise moderately to support spending.
- There is room for further policy if price trend weakens sharply but see the chance slim for now.
- Probability of further easing low based on personal outlook.
- Appropriate to maintain current asset buying scale for time being
- Not rule out 2% CPI in 3-yr forecast period.
- Possibility of weakening of CPI trend is low 
- Sees CPI to move around 1% in FY16 on average
- Reiterates some business people have said sudden fx moves are problematic
- Not in position to say positives, negatives of weak yen.
- BoJ must act if path towards hitting price target is clearly disrupted

>>> After Hours Summary: GIII +6.5%, AMBA +1.0%, VMEM -12.0%, NCS -

After Hours Summary: GIII +6.5%, AMBA +1.0%, VMEM -12.0%, NCS -3.9%, GWRE -2.9%, MIND -1.2%, GES -0.5% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings: GIII +6.5%, AMBA +1.0%

Companies trading higher in after hours in reaction to news: HRTX +6.5% (Chairman Kevin C Tang discloses purchase of 150k shares at average price of $20.62 (transaction dates 5/29, 6/1, 6/2)), LPTH +6.4% (provided update on its new infrared product line), CLLS +0.5% (co and Weill Cornell Medical College have entered into a strategic translational research alliance to accelerate the development of a targeted immunotherapy for patients with acute myelogenous leukemia)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: VMEM -12.0%, NCS -3.9%, GWRE -2.9%, MIND -1.2%, GES -0.5%

Companies trading lower in after hours in reaction to news: OPXA -5.9% (disclosed that it has requested an additional 180-day grace period to regain compliance with NASDAQ's minimum bid price requirement), ORIG -5.1% (announced offering of common stock), NOR -4.4% (disclosed receipt of a notice of termination from Ameren advising that, effective June 1, 2020, it is terminating the December 14, 2004 Agreement), RMTI -1.7% (filed for $200 mln offering of common stock), ENDP -1.2% (announced proposed public offering of $1.75 bln of ordinary shares)