Sika - Takeaways from UBS conference with Sika
* China sales decrease 2H'15E: -20% (UBS est.)
CEO Jan Jenisch presented at UBS’s 2015 Best of Switzerland conference. Jenisch clearly flagged the
difficult market environment in China for 2015 expecting to also last into 2016. Even though Southeast
Asia for Sika is still growing strongly, we expect Sika China to suffer a sales decrease of c20% in 2H.
Reducing our sales estimates for APAC plus factoring in a further FX devaluation in LATAM, we derive an
EPS'15-17E cut of -5% p.a. and a new PT of CHF3,550 (prev.: 3,650). Buy rating maintained.
* LATAM FX impact 2H'15E: -20% (UBS est.)
We estimate that China accounts for c25% of APAC, i.e. c5% of Group sales. We now assume a -20%
sales decrease for China in 2015. We reduce our FY'15 sales est. for APAC by 2% and 10% for FY'16.
As Sika does not participate with price rebates introduced by local competitors, Sika's margins in China
are little affected by the sales decrease. We furthermore increase our neg. FX impact for LATAM to -20%
(prev.: -15%). Our FY'15 LATAM sales est. are 6% down. On Group level, we derive a FY'15 sales est.
decrease of -1% (FY'16: -3%). As many raw materials for LATAM are being purchased in USD, the FX
devaluation also negatively affects profitability. Jenisch was however positive on Eastern Europe which he
expects to grow double digit in 2H. For Africa (c3% of Group sales, UBS est.) he expects a double digit
sales growth over the next few years.
* FY'15 Group sales growth (in LC): 6% vs. co guidance of 6-8%
For FY'15 we now estimate a 6% LC sales growth, i.e. the low end of the company guidance of 6-8%.
In org. terms our lowered estimates represent an org. 2% sales growth for FY'15 and 1% for 2H (1H'15:
4%). Our FY'15 sales est. are now 2% below cons. (3% below for FY'16).
* Valuation: PT down to CHF3,550.
We derive a new CHF3,550 PT (DCF). Buy rating confirmed.
Japanese telecoms groups hit by Shinzo Abe directive
Shares in Japanese wireless carriers fell sharply on Monday following an unusual directive by Prime Minister Shinzo Abe urging a reduction in what are some of the world’s highest mobile phone bills.
The government does not have a direct say in mobile phone rates but Mr Abe’s remarks come as smartphone fees account for a rising portion of Japan’s household spending, which has remained sluggish despite stimulus efforts to lift the economy.
NTT DoCoMo, Japan’s largest mobile phone carrier by subscribers, was hit hardest with a drop of 9.8 per cent while KDDI fell 8.6 per cent and SoftBank slid 5.5 per cent. The broader Nikkei was down 1.6 per cent.
Analysts said it was highly unusual for the prime minister to intervene in the pricing of mobile phone rates, which are set independently by the carriers. Questions also remain on how effective lower phone rates would be in boosting overall consumer spending.
Monday’s share price declines came after Akira Amari, economy minister, disclosed on Friday that Mr Abe had instructed the telecommunications minister to study lowering mobile phone fees.
“Some people say the three-player structure [in Japan’s mobile phone industry] has become so solid that the competition strategy is not working,” Mr Amari said in explaining why Mr Abe wanted lower rates.
Government figures show that telecom costs including mobile phone fees accounted for 4.9 per cent of annual household spending in 2014, up from 4.1 per cent a decade ago.
Monthly bills for smartphones users in Tokyo — averaging a total of around Y7,500 ($62) — are among the highest in the world, compared to Y7,000 in London and Y5,400 in Seoul, according to a recent government white paper. Tokyo prices are lower, however, than monthly bills in New York and Düsseldorf at Y8,700 and Y9,000 respectively.
Satoru Kikuchi, an analyst at SMBC Nikko Securities, said it was unlikely that carriers would lower fees in response to Mr Abe’s remarks, especially for multi-function smartphones where higher costs are justified to some extent.
However, he added that “it’s a sensible debate. It’s not about lowering pricing, but diversifying the plans available”.
He said companies should consider offering cheaper packages for people shifting from old-fashioned “feature phones” to smartphones, who still only use the devices for simple functions such as chatting and messaging.
Currently, monthly bills for feature phone users in Tokyo are among the cheapest in the world, at less than Y2,000.
The fall for NTT DoCoMo shares was exacerbated by Mizuho Securities on Friday lowering its rating on the stock to underperform from neutral, taking the view that profits will be hit hard if it follows KDDI in lowering monthly fixed rates for voice traffic.
Dow-0.38% S&P-0.41% Nasdaq-0.34% Russell-0.37% VIX 24.25 (+4.44%)
US Market start this week on a lower note ahead of the lon awaited FED Meeting, volume were light at 800mil shares (below the 20d average of 984mil). Asian session was weak, after China and Japan both released disappointing industrial production report. Nine sectors registered losses while the utilities space (+0.3%) eked out a slim gain, which was aided by strength in Treasuries that sent the 10-yr yield lower by two basis points to 2.17%. energy (-0.8%) and materials (-1.3%) spent the day behind the remaining sectors, responding to general weakness in the commodity market. To that point, crude oil gave up 1.5%, sliding to $44.07/bbl while copper (-1.6% to $2.41/lb) and silver (-1.0% to $14.36/ozt) also posted losses. Gold was an outlier, climbing 0.4% to $1107.70/ozt. Solera (SLH 53.66, +4.21) spiked 8.5% after agreeing to be acquired by Vista Equity Partners for $55.85/share in cash, which translates to roughly $6.50 billion. US After Hours UNIS -3.0% following earnings/guidance, GTN +10.7% (acquired all of the television and radio stations of Schurz Communications for ~$442.5 mln; expects that the Schurz transaction will be immediately accretive to Gray's free cash flow)...After a near 3% drop yesterday, Shanghai Composite has entered midday break down another 2.5%, Nikkei225 has pared its earlier gains tracking JPY strength after the BOJ statement...Bank of Japan maintained its annual monetary expansion target at ¥80T as widely expected, but also cut its assessment on both Exports (as speculated) and Industrial Production to "more or less flat due to effects of slowdown in emerging economies"...In China, the PBoC reduced its open market operations to CNY50B from CN150B prior - the smallest injection in just over a month. China Banking Association (CBA) official said financial risks are manageable and overall asset quality is stable, also acknowledging the rise in non-performing loans as inevitable as a result of aggressive credit expansion since the GFC. China's National Energy Administration (NEA) also put out its data for power consumption in August, rising 1.9%
Nikkei +0.81% Hang Seng -0.30% Shanghai -2.47%
Eur$1.1322 CNY 6.3685 JPY 119.83 GBP 1.5429 EURCHF 1.0952 RUB$67.65 WTI $44.17 (+0.39%)
S&P -0.03% EuroStoxx -0.03% Dax +0.06% SMI +0.08%
Macro :
- ECB Is Too Pessimistic on Greek Bank Review, Wilbur Ross Says
- Get Used to Volatility, Says Hedge Fund That Called August Rout
- BOJ Forgoes Additional Easing, Bets Economy Will Turn Around
- Japan Mobile Carriers Drop $21 Billion on Abe Rate-Cut Call (1)
Keep an eye on :
- AC FP : AccorHotels to Sign Two Contracts in Iran, Les Echos Says
- AIR FP : Airbus’s Bregier Sees 2015 Decision Likely on Production Rates
- ALT NA : FT Article on tougher regulation for mobile operqtor merger in europe --> -ve as merger will be more difficult
- BMW GY : BMW Sees China Market Mainly ‘Flat’ This Year, Sales Chief Says
- CON GY : Continental CEO Ready to Work With Apple on Electric Car: FAZ
- EDP PL : EDP Renovaveis Suspends Plans for Possible YieldCo Listing
- EOAN GY : Utilities Lack as Much as EU30b for Nuclear Provisions: Spiegel
- CSGN VX : Credit Suisse Said Near $80m Settlement Over Dark Pool
- DAI GY : Daimler CEO Sees Co.’s China Growth Momentum Lasting Through ’16
- LHN FP : LafargeHolcim Offers 9.45 LafargeHolcim Shrs for 10 Lafarge Shrs ,Lafarge Squeeze-Out Implementation Seen Oct. 23
- RWE GY : Utilities Lack as Much as EU30b for Nuclear Provisions: Spiegel
- TOM2 NA : TomTom Says Automotive Bookings Exceed EU250m Year-to-Date
- VRAP FP : Vranken-Pommery 1H Net Loss EU4.8m Vs Net Loss EU6.1m Resta
- VOW3 GY : VW Trucks Chief Says Improvement in Brazil Unlikely Next Year
>>> Up
*BP RAISED TO BUY VS HOLD AT LIBERUM
*BG RAISED TO BUY VS HOLD AT LIBERUM
*CLOSE BROTHERS CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
*GAS NATURAL RAISED FROM UNDERWEIGHT AT MORGAN STANLEY
*IBERDROLA RAISED TO MARKET PERFORM AT BERNSTEIN
*KUKA RAISED TO BUY VS HOLD AT BERENBERG
*KUONI REISEN HOLDING RAISED TO NEUTRAL VS SELL AT CITI
*NESTLE RAISED TO BUY VS REDUCE AT NOMURA
>>> Down
*COMMERZBANK CUT TO SELL VS NEUTRAL AT GOLDMAN
*EDF CUT TO UNDERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY
*SWISSCOM CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS
*UBS CUT TO NEUTRAL VS BUY AT GOLDMAN
>>> PT Change
>>> Initiation
*ALDERMORE RATED NEW EQUALWEIGHT AT BARCLAYS, PT 310P
*BANCO POPULAR RATED NEW SELL AT BERENBERG
*BANKIA RATED NEW HOLD AT BERENBERG
*BANKINTER RATED NEW HOLD AT BERENBERG
*CAIXABANK RATED NEW SELL AT BERENBERG; PT EU3.1
*DUERR RESUMED AT HOLD AT BERENBERG; PT RAISED TO EU77 VS EU71
*FORTE OIL PLC RATED NEW SELL AT RENAISSANCE CAPITAL
*P2P GLOBAL INVESTMENTS RATED NEW OVERWEIGHT AT JPMORGAN
*SABADELL RATED NEW SELL AT BERENBERG
*SHAWBROOK RATED NEW OVERWEIGHT AT BARCLAYS, PT 410P
*TENARIS RATED NEW BUY AT KEPLER CHEUVREUX; PT EU13
*VALLOUREC RATED NEW HOLD AT KEPLER CHEUVREUX; PT EU9
>>> Call
>> Stock
*CREDIT SUISSE ADDED TO GOLDMAN CONVICTION BUY LIST
*ELIOR ADDED TO JPMORGAN ANALYST FOCUS LIST
*MANZ REPLACES CANCOM IN BANKHAUS LAMPE SMALL-CAP ALPHA LIST
*NESTLE ADDED TO ANALYST FOCUS LIST AT JPMORGAN
*TUI AG UK REMOVED FROM JPMORGAN ANALYST FOCUS LIST
After Hours Summary: UNIS -3.0% following earnings/guidance
After Hours Gainers:
Companies trading higher in after hours in reaction to news: GTN +10.7% (acquired all of the television and radio stations of Schurz Communications for ~$442.5 mln; expects that the Schurz transaction will be immediately accretive to Gray's free cash flow), SLW +3.6% (announced it intends to make a normal course issuer bid to purcahse ~20.23 mln common shares on the Toronto Stock Exchange and NYSE), LNG +2.9% (Carl Icahn increased active stake to 9.59% from 8.18% in amended 13D filing), PRXL +0.7% (announced a $200 mln share repurchase program), AA +0.5% (to commercialize its Micromill technology through a Worldwide Licensing Deal with the Danieli Group)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings: UNIS -3.0%
Companies trading lower in after hours in reaction to news: MRTX -4.5% (announced proposed public offering of $80 mln of common stock), ANTH -4.4% (announced termination of blisibimod partnership in Japan by Zenyaku; No patients were enrolled in the BRIGHT-SC study or any other clinical study in Japan), JNP -3.3% (filed for $100 mln mixed securities shelf offering), PCTY -3.5% (filed for 3.74 mln share offering of common stock for selling stockholders), ZNGA -0.4% (acquired Rising Tide Games; terms not disclosed)
Asian Mid-session Update: BOJ on hold on policy but cuts Exports and Output assessment; RBA minutes lean more dovish
***Economic Data***
- (JP) BANK OF JAPAN (BOJ) POLICY STATEMENT: MAINTAINS ITS MONETARY BASE EXPANSION AT ANNUAL PACE OF ¥80T (AS EXPECTED); CUTS ASSESSMENT ON EXPORTS AND OUTPUT
- (CN) China Aug fiscal revenue CNY967B, +6.2% y/y, fiscal spending CNY1.28T, +25.9% y/y
- (AU) AUSTRALIA AUG NEW MOTOR VEHICLE SALES M/M: -1.6% V -1.6% PRIOR; Y/Y: 2.1% V 3.4% PRIOR
- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 105.3 v 106.7 prior; 14-month low
***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 +1.3%, S&P/ASX -1.3%, Kospi +0.2%, Shanghai Composite -2.3%, Hang Seng -0.3%, Dec S&P500 +0.2% at 1,947
***Commodities/Fixed Income***
- Dec gold -0.1% at $1,106/oz, Oct crude oil +0.7% at $44.32/brl, Dec copper +0.6% at $2.42/lb
- (CN) China may announce price cuts for gas in non-residential uses - Chinese press
- SLV: iShares Silver Trust ETF daily holdings fall to 9,981 tonnes from 10,017 tonnes
- (CN) PBoC to inject CNY50B in 7-day reverse repos (23rd consecutive injection, smallest injection in 1 month); Offer yield at 2.35%, unchanged from prior
***Market Focal Points/FX***
- The quiet before the Thursday FOMC storm on display in US hours is hardly echoed in Asia. After a near 3% drop yesterday, Shanghai Composite has entered midday break down another 2.5%, Nikkei225 has pared its earlier gains tracking JPY strength after the BOJ statement, and S&P/ASX fell to a 1-week low below 5,050 after a more dovish than anticipated RBA meeting minutes.
- Bank of Japan maintained its annual monetary expansion target at ¥80T as widely expected, but also cut its assessment on both Exports (as speculated) and Industrial Production to "more or less flat due to effects of slowdown in emerging economies". Overall assessment on economy was also altered slightly to reflect the exports and output shifts, while inflation expectations were maintained around 0% for the time being. LDP ruling party critic Yamamoto reiterated his preference for a more aggressive policy response shortly after the announcement, even as the BOJ dissenter Kiuchi maintained his call for a taper in annual expansion to ¥45T. USD/JPY fell in the wake of the BOJ statement by some 40pips to a low of 119.90. On Japan's corporate front, Toshiba was down sharply after reporting Q1 results after market close overnight, although those declines were later tempered.
- Australia's incoming PM Turnbull was formally sworn into office, while the prior leader Abbott departed with a pledge to make the leadership transition smooth. Moody's and Fitch both noted Australia's sovereign ratings will not be impacted, although the former noted the country's economic and fiscal challenges are rising, as political transition comes at a difficult time. RBA also released the minutes of its September policy meeting that featured a more dovish than anticipated tilt. Specifically, RBA said it saw a rising downside risk to global growth outlook, with headwinds coming from anticipated Fed rate hike and China capital outflows. RBA added growth would remain below average, though it was optimistic of improvement in non-mining business. RBA also reduced its concern over housing inflation, noting there was evidence that APRA measures "slowed the growth in lending for investment housing." AUD/USD fell over 20pips to session lows below 0.7125 after the RBA minutes.
- In China, the PBoC reduced its open market operations to CNY50B from CN150B prior - the smallest injection in just over a month. China Banking Association (CBA) official said financial risks are manageable and overall asset quality is stable, also acknowledging the rise in non-performing loans as inevitable as a result of aggressive credit expansion since the GFC. After the Sunday announcement of power output component of industrial production, China's National Energy Administration (NEA) also put out its data for power consumption in August, rising 1.9%. Recall July month marked the first decline in power consumption - one of Premier Li's preferred economic indicators - since March.
***Equities***
US equities / ADRs:
- AA: Enters collaboration with Ford for next gen alloys; +0.4% afterhours
- MRTX: Offering $80M in stock (10% of market cap); -3.0% afterhours
Notable movers by sector:
- Consumer discretionary: Air China 601111.CN % -4.1% (bans low price tickets for travel websites); Wynn Macau 1128.HK -2.7% (comment on junket operation); Seven West Media SWM.AU +7.2% (share buyback)
- Financials: New China Life 601336.CN -3.5% (Aug result); China Pacific Insurance Group 601601.CN -2.7% (Aug result); Cathay Financial 2882.TW +0.8% (Ant Financial's investment)
- Technology: Toshiba 6502.JP -1.6% (Q1 result)
- Materials: Alumina AWC.AU -2.2% (curtailment of capacity); Tokyo Steel Mfg 5423.JP -5.0% (cuts Oct product prices)
- Energy: Woodside Petroleum WPL.AU -0.4% (speculation that may consider improve bid for Oil Search)
- Healthcare: Askul Corp 2678.JP +3.5% (Q1 result)
Icahn discloses stake increased to 9.6% from 8.2% - 13D/A filing
- Icahn entities acquired additional shares between 9/9-9/14 for prices between $52.81-54.75
A welcome redial for European telecoms
Commissioner is right to take a tougher line on mobile mergers
In the past two years, Europe’s mobile operators have raced to consolidate their industry. Encouraged by the indulgent attitude of the regulator in Brussels, they have launched a wave of deals across the continent. As a consequence, country after country has seen the number of networks in its market contract from four to three.
Germany, Austria and Ireland have all crossed this threshold, generally seen as the point at which competition ceases reliably to operate. They have done so in the teeth of opposition from national regulators. Because the deals involved supranational competitors they ended up with the European Commission, which approved them subject to undertakings. For all the advantages dangled by the purchasers, the result has been as simple as it was expected: prices have gone up.
Now, under a new commission, Brussels is thinking again. Last week, Margrethe Vestager, the Danish competition commissioner, halted plans that would have put together the Danish networks of the Scandinavian operators, TeliaSonera and Telenor.
Significantly, she said the deal could only have passed muster if the purchasers had shed sufficient assets to create a new mobile operator in the country. That, of course, would have rendered the whole exercise largely redundant. Her decision puts a host of similar mergers still lodged in the pipeline — including CK Hutchison’s purchase of O2 in Britain — firmly at risk.
Ms Vestager is right to toughen the rules on undertakings. Not only has Brussels been too liberal about those it has sought, it has neglected implementation. For instance, Hutchison pledged that it would bring in a new operator to piggyback on its spectrum after buying Orange Austria in 2013. More than two years have passed and the undertaking remains unfulfilled.
Part of the problem is that markets with a triumvirate of networks look unappealing to new entrants, who often come in as minnow-sized virtual operators, unable to drive pricing or service quality. Had the Danish merger gone through, for instance, it would have created a forbidding structure, with the two largest players holding almost 80 per cent.
Ms Vestager’s scepticism is also welcome when it comes to the operators’ argument that mergers are necessary to finance new networks and services. In the past, both Jean Claude Juncker, the commission president, and Angela Merkel, the German chancellor, have peddled this claim. But there is no evidence to support it. True, returns on capital employed have fallen in European mobile from a very high 20 per cent to 10 per cent in the past five years. But this still exceeds operators’ cost of capital — at least for those that are sensibly capitalised.
Ms Vestager should now turn her stringent eye to Britain. CK Hutchison’s planned merger of its Three network with that of Telefonica’s O2 demands serious scrutiny. Three is an excellent example of how competition can both spur and reward fresh thinking. Created explicitly as an additional operator in 2000 to hold prices down, it has built a profitable business. It has done so by innovating. Three was among the first operators to spot the importance of the smartphone and to design products and tariffs to support its expansion. It is alone in offering customers an upgrade to 4G without charge.
Regulation needs to preserve these incentives, not smother them by pursuing a nebulous policy of promoting European champions. If Ms Vestager’s policy genuinely resets EU regulation in a more open direction, European consumers will have reason to offer her their thanks.