TheChek News Flow

- Guides Q3 equipment sales % y/y

BlackBerry is once again being pinpointed as a target for acquisition after it managed to swing back to profitability in the fourth quarter of fiscal 2014 (December 2014-February 2015) following its recent corporate restructure, according to industry sources.

Microsoft and a number of China-based handset vendors, including Xiaomi Technology, Lenovo and Huawei, are being indicated as potential investors, the sources noted.

Microsoft reportedly has commissioned investment companies to evaluate the possibility of taking overBlackBerry, aiming to enhance its competitiveness in the business mobile solution segment as well as its patent portfolio in the Internet of Vehicles (IoV), mobile platform and communications sectors, the sources indicated.

Microsoft has an advantage to take over BlackBerry since the Canada-based company has shifted its business focus to software products instead of hardware devices, which complements Microsoft's product lines, said the sources.

China-based handset vendors intending to acquire BlackBerry are aiming at improving their presence in the business sector in the US and Europe, while also expanding their platform products and patent portfolios, added the sources.

But it may be difficult for China-based vendors to pass the scrutiny of regulatory agencies in the US and Europe on concerns of national security, commented the sources.

{http://www.digitimes.com/news/a20150521PD213.html?mod=3&q=BLACKBERRY}

- Greece could be discussed on sidelines at upcoming G7 meeting in Germany next week

- Expects wage growth rise as confidence improves. 

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Music is to us the most undervalued content on the planet … The value of music has halved over the past 20 years while that of audiovisual content has tripled. Only a tiny fraction of our listening is being monetised. … Subscriptions will drive revenues from a very low base … Subscription services transform the monetisation of music and improve the quality of earnings. Take up is being driven by a better consumer experience and convergent offerings from telco, tech and internet companies using music to drive subscriber benefits, stickier ecosystems and share of much bigger adjacent markets with more than $1.5tn of revenues. Ad funded services seed the market and windowing will drive upselling to subscriptions (and a c30fold increase in revenues) with new releases, exclusive content and enhanced functionality restricted to premium tiers. Smart phones and telco bundles also open up c6bn customers in emerging markets, many of whom have not had the opportunity to purchase or play music in the past. n… on a largely fixed cost base; record labels own catalogue There is little cost associated with incremental digital revenues with the record label, artist, publisher and songwriter sharing in the upside. Music is unique given its concentration (UMG has a c35% market share vs Disney’s say less than 1% share of the AV market) and the importance of catalogue (to which UMG has the rights for more than 50 years) which increases with the monetisation of airplay rather than one off purchases. Vivendi is much too cheap – upgrade PO to €36 / share We upgrade our musicforecasts ahead of Apple’s re-launch of Beats and adjust our margins to reflect the importance of catalogue. We forecast 10 year recorded revenue growth of c8% and a 2025 margin of 27% (11% in 2014), and upgrade our 2020 group EBIT forecast by 60%. After stripping out stakes and applying sector leverage, Vivendi trades on just 13.5x 2016E EPS while it offers four year EPS growth of above 20%. Our SOTPs increases to €36 / share, implying c70% upside potential post 2015 dividends. Blue Sky upside … 40% subscription penetration of developed markets and $7/m of ARPU in 2025; 20% penetration of the ROW with $3.50/m of ARPU implies c€75/share.

Improvement so far in the EU has not been faster than we forecast 3 months ago but it has been more broadly based than expected, with stronger growth in Spain and Italy. On the back of that, we are revising them higher (Italy goes from

0.4%/0.9% in '15/'16 to 0.6%/1.5%, while Spain moves from 2.6%/2.1% to 2.8%/ 2.4%). Germany and France trimmed slightly (10bp on both). We also think that most of the benefit to output from lower oil and weaker EUR is still in the

pipeline and also expect Euro Area CPI to rise gradually in the months ahead (likelihood of sustained deflation as a whole remains limited). Political uncertainty (aka Greece) is the main risk to our benign view. See chart below

for complete GDP / CPI f'casts...

We have been underweight the Domestic Defensives of Utilities & Telecoms since H214. Even in a trickier overall market we continue to expect cyclicals (especially value cyclicals) to outperform. But what of the positioning within defensives? We compare and contrast the 2 sectors in this report.

The interest rate cycle is the dominant current dynamic for equity markets in our view. Telecoms come with greater technology risk, reducing mid-term visibility. However this also means they are less sensitive to discount rates than other defensives, including Utilities. With a clear directional risk to rates (even allowing for soft US data) over the coming months this may prove to be critical.

Anaemic maybe, but a recovery nonetheless. Whereas Utilities’ macro-sensitivity has waned in recent years with energy efficiency a notable drag, there is a possible converse scenario for Telcos. Our team believe that the take-up of 4G service, superfast broadband, and pay-TV should all benefit from positive disposable income trends. Evidence of cyclicality gives room for optimism.

A consolidating oligopoly is usually a good place to be. After 15 years of deflation, there are some signs of stabilisation in ARPU and regulatory pressure is easing. As with macro-sensitivity, pricing power appears to be moving in the right direction, a conclusion much harder to reach for Utilities.

We conclude with a clear preference for Telcos over Utilities. Telcos have performed well this year, matching the market’s gains. With the best attributes within defensives we see this continuing and upgrade to Neutral. We accordingly downgrade the highly rate-sensitive sector Personal & Household to Underperform. Our tactically cautious but pro-cyclical view on the market is unchanged.