(Makor) Special Sit.: SHORT Altice (ATC: NA) / LONG Numericable (NUM: FP)

Special Situations: SHORT Altice (ATC: NA) / LONG Numericable (NUM: FP)

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Since IPO’ed on January 2014, shares of Altice have soured due to a number of strategic initiatives and acquisitions carried out: (1) the acquisition of SFR, the second largest mobile and internet operator in France through its listed subsidiary Numericable; (2) The recent acquisition of Portugal Telecom assets which is expected to be completed in the second half of 2015; (3) The acquisition of a cable and mobile operator in the Dominican Republic; (4) the acquisition of Virgin Mobile; (5) in February 2015 Altice entered into a final agreement with Vivendi to repurchase its 20% stake in Numericable in a deal reflecting a share price of €40 to Numericable share, a discount of approx. 20% to current market price. Following this Altice will have a 78% stake in Numericable.

Through its acquisitions, Altice has demonstrated a proven ability to identify attractive acquisition targets with a track record of unlocking value through operational excellence, and the Company aims to continue to expand its business in the future through price-disciplined acquisitions.

Valuation & Investments strategy

We performed a NAV analysis of Altice shares based on the following assumptions and adjustments: (1) Net debt includes the Altice international net debt of €7.3 billion and holding company net debt of €5.4 billion; (2) Numericable shares were taken at market price of €51 per share; (3) Portugal Telecom assets were taken at 10x EV/EBITDA and a total debt of €5.7 billion was added to Altice net debt; (4) we assigned to Altice an additional €4 per share reflecting the added value from Vivendi deal (purchase price at a discount to market price); (5) the other unlisted cable assets were valued based on an average 9.2x EV/Ebitda; (6) we included a deferred Payment to Cinven and Carlyle by Altice S.A of €529 million which was paid in February 2015. Our NAV assigns Altice share a value of €82, a discount of approx. 20% to the current market price (€102).This indicates that the market is expecting more added value M&A deals to come.

In our view, most investors speculate on a Numericable-SFR acquisition of Bouygues Telecom in 2015, as Altice CEO stated a few months ago that "Numericable-SFR is the most natural buyer of Bouygues", and In February Bloomberg reported that Altice and Bouygues advisers had a formal discussion about a potential deal. A merger between Numericable-SFR and Bouygues should result with significant synergies and estimations in the market are for an NPV of €9-€15 billion. We do not take a view on the likelihood of such an acquisition but if it occurs we would prefer to be holders of Numericable share vs. Altice. Altice current market price reflects a stub value (Altice value-Numericable market value stake) of almost €11 billion while we value Altice stub at approx. 5.5 billion, based on an average of 9.2x EV/EBITDA on the projected Ebitda to FY15. This means the stub is significantly overvalued (even if we were to take 10x EV/Ebitda multiple). Therefore, we recommend to go SHORT ALTICE / LONG NUMERICABLE (we recommend to slightly over hedge Numericable vs. the corporate structure in order to be hedge against the more leverage structure of Altice).

Risks

Main risks include: (1) major acquisition made by Altice international outside of France with significant synergetic value which will exceed €5-€6 billion; (2) High financial leverage with current NET DEBT/FY14 pro forma EBITDA above 4; (3) the unavailability of high-yield debt markets at attractive rates; (4) Regulation and especially the French government which will probably want to limit job losses in the scenario of Numericable buying Bouygues.

(BarCap) European Banks : The Big Picture


*European Banks: The Big Picture
Loan growth remains weak, but with pockets of growth: Volumes remain subdued, but there are some signs of a recovery for corporate lending in France and Germany. Encouragingly, the loan shrinkage in the periphery could be showing signs of turning the corner. Loan demand continues to improve across Europe: Whilst actual loan growth remains weak, demand continues to improve, especially for corporate loans. On a footprint-weighted basis, Italian and Spanish banks, as well as ING in the core, appear most exposed to improving demand data. Deposit growth tepid, but with a pronounced mix shift: Deposit growth remains low in most countries, but the shift of term deposits into cheaper overnight deposits continues in general. We see this most strongly in Spain and the UK. Continued weakness in lending margins: New lending margins are falling fastest in Germany and the Netherlands, and appear to be tapering-off in the UK, Spain and Italy. Norwegian margins appear the most robust for now. It is possible that the ongoing shift towards cheaper overnight deposits is cushioning some of the margin headwinds from QE / low-rates.

(BarCap) Nokia, Alcatel - upgrade to Overweight

Nokia - upgrade to Overweight
*NOKIA – Upgrade to OW from EW. Raise PT to €8.75 from €6.70
*ALCATEL (OW) Raise PT to €4.80 from €4.25
We upgrade Nokia to Overweight and raise our target to EUR8.75, providing 20% implied upside from current levels. We view the combined Nokia and Alcatel-Lucent as a stronger force in the global networking space, one that should deliver both top and bottom line growth as well as increased shareholder returns. We have rated Alcatel-Lucent Overweight for its growth prospects in IP routing and transport combined with margin expansion from its restructuring plan. We were however more cautious on Nokia fearing patent revenue would not grow soon enough to offset declines in Networks revenue and profitability. A combined group should bring growth in IP routing/transport, synergies in wireless/corporate and an improved financial structure. We estimate material accretion of around 50% in 2017 vs. our prior Nokia estimates. While M&A in telecom equipment has historically been fraught with difficulty, we think things are different this time and find the risks manageable. Nokia shares are trading on 1.5x/1.4x 2017/18 NewCo EV/sales and 15x/13x PE, while delivering a high-teens earnings CAGR from 2016-19. We find these multiples compelling and upgrade to OW with an EUR8.75 PT.

(GS) Vivendi - Buy - PT €27.30

* Source of opportunity
We have removed the Not Rated designation from Vivendi shares. Vivendi is now on the Buy List, with a 12-month price target of €27.3 (c.15% upside). Our positive thesis is based on: (1) management discipline on capital allocation with scope for significant returns, (2) a more constructive view than the market on Canal+ given tempering cyclical/competitive headwinds in France and the strong structural growth of international Pay TV and
StudioCanal, and (3) a return to structural growth from 2016 and healthier margins for the music industry, driven by the migration to streamingservices. As a market leader, we see UMG as a key beneficiary.

* Catalyst
With firepower of >€10 bn, future deployment of cash will be a key driver of stock performance. Despite a lack of clarity over future M&A plans, we expect management to continue to show financial discipline given its track
record. We believe the outlook of Canal+ is better than perceived given lower macro and competitive headwinds in France, strong content differentiation protecting it from OTT threats and one-third of assets enjoying strong structural growth. We forecast UMG to return to growth in 2016 as streaming overtakes physical/downloads and improves the monetization of music content – a process that could accelerate with the
launch of Apple’s paid streaming service this year.

* Valuation
At 9x 2016E core EV/EBITDA vs. the media sector average of 12x, valuation looks undemanding given the turnaround potential and the optionality on cash uses. This is underpinned by a committed dividend of €2/share in
2015/16 (c.8% yield). Our 12-month SOTP-based price target of €27.3 is based on 9.6x EV/EBITDA for Canal+ and 12.7x for UMG. We reduce our EPS estimates, mainly to reflect the deconsolidation of GVT.

(BarCap) BG & Royal Dutch Shell: Better Together


*BG & Royal Dutch Shell: Better Together
BG Group is, for us, quite simply worth more as part of Royal Dutch Shell than it is on a stand-alone basis. BG was always set to become significantly FCF positive from 2016 but the challenge for its new CEO was how best to use that cash without what appeared to be meaningful further upstream growth opportunities outside of Brazil. Royal Dutch Shell through its acquisition should solve that problem for BG and, in doing so, enhance its own free cash flow generation and project portfolio. We also expect a combined group to achieve meaningful additional synergies over and above the $1bn pre-tax corporate savings and $1.5bn of lower exploration expenditure already announced. These incremental synergies for the combined group should come from optimising an even larger LNG business as well as operational improvements upstream but will only become evident once Shell is able to fully integrate the assets. There is a long way to go before the transaction closes and 2015 is set to be a difficult year for Shell given significant planned maintenance but as CEO Ben Van Beurden states "bold strategic moves shape the industry" and in making an offer for BG, we see Shell as a more robust business than it would be without it in almost any oil price environment. We rate the stock Overweight with an unchanged 2850p/sh price target. We rate BG Group as Equal Weight with a 1350p/sh price target.

>>> EI Towers and Rai Way may merge in government-guided process involving F2i

EI Towers and Rai Way may merge in government-guided process involving F2i 

EI Towers and Rai Way, the listed Italian transmission towers, could merge in a government-guided process, the Italian language Carlo Festa Blog reported. The unsourced report said that the process would involve the entry of Italian infrastructure fund F2i as a third shareholder.

Italian Treasury holding CdP holds a stake in F2i, the item said.

The operation is on the table after EI Towers withdrew its public offer for Rai Way following regulatory obstacles and the declaration by the Italian government that Italian state-owned TV and radio broadcaster Rai would not allow its stake in Rai Way fall under 51%, the report said.

EI Towers has a market cap of EUR 1.51bn, and Rai Way EUR 1.093bn.
Carlo Festa Blog

>>> Clariant rumoured to be bid target for Dow Chemical or Johnson Matthey - rep

Clariant rumoured to be bid target for Dow Chemical or Johnson Matthey

Clariant, the Switzerland-based listed chemicals company, is rumoured among traders to be in line for an imminent takeover approach from Dow Chemical of Midland, Michigan, The Daily Mail reported. The market report suggested a take-out price of approximately CHF 25 (EUR 24.40) per share.

The Daily Express reported that shares in the UK-listed catalytic-converter manufacturer Johnson Matthey were boosted by speculation it might table an offer for Clariant and a guardian.com market report said Johnson Matthey is believed to be among several parties eyeing the Swiss group.

Clariant has a market capitalisation of CHF 6.8bn and its shares were trading at CHF 20.500 by yesterday’s close.

Daily Mail, Daily Express, The Guardian