TheChek News Flow

Vivendi’s Q1 results were slightly ahead thanks to growth at UMG. While there is no denying that sustainable growth in music would be a clear positive, quarterly trends can be volatile and Canal+ faces structural headwinds in their French pay-television business. We still see limited growth when combining the two businesses. Vivendi currently trades at 10-11x EV/EBITDA on an underlying basis, close to the sector. We feel this is generous but the dividend yield provides downside protection (9% including announced extraordinary). With 2015 forecasts underpinned and with the uncertainty on cash returns lifted, Vivendi is now a market call in our view. With average operating trends and no buyback uplift, we see the shares hovering at €21- 22. For investors still seeing upside in the market, Vivendi is a good source of funds.

For investors thinking the market is fully valued, the dividend yield has some attraction. We increase our sum-of-the parts to €20.50

--> Vivendi has €7.3bn of cash at their disposal post C+ deal – Our analysis of Vivendi cash

flow, cash return and future disposal yields €7.3bn (see Figure 4 for full moving parts).

There were few pointers in the call on what management intend to do with the cash

above and beyond the €0.5bn contemplated C+ bid. The only point raised by CEO

Arnaud de Puyfontaine was that they “would not go back to telecoms” but if they were

“given a stake in a telecom company” and it lead to “benefits in media” then they would

“look at it”.

--> Commentary on Mediaset Premium – Multiple press articles have linked Vivendi with

getting involved with Mediaset Premium, either through full control or as a partner (e.g.

Reuters 29 April 2015). Vivendi commented it was too early to make any comments, but

that they were following the situation, as they do in many countries with many different

assets.

Synergy potential: Retail deals typically aim for synergies of 1.0-2.0% of sales. We think that may be difficult here as we assume: i) buying synergies achievable in the US would likely be limited by the Robinson-Patman Act; ii) this possible merger would likely be a combination of adjacent chains rather than a root-and-branch integration. Assuming synergies are 1.0% of sales and that half is reinvested into price, we can foresee c13% accretion to combined EBIT and c15% to net income. This may be cautious and – unlike many retail mergers – might come with relatively limited execution risk.

--> Full note attached

BMW's Chinese business, especially given the sharp (-43%) decline in JV profits in Q1,

negative sentiment is likely to prevent the stock outperforming in the near-term.

Management also stated on last week’s Q1 call that costs are back-end loaded in

2015E, leaving H2 profits likely down on H1. This may well be traditional management

caution so consensus downgrades will likely be overplayed but in a sector so driven by

earnings momentum, we expect the shares to struggle to outperform during this

period. We therefore downgrade the shares to Equal Weight and reduce our PT to €115.

However, in the longer term we believe BMW still offers plenty of opportunity, especially

when key model momentum accelerates and also given how low sentiment has already

fallen on China earnings.

Product cycle lull: While BMW has plenty of new niche products to help smooth peaks

and troughs in its cycle, mix is likely weak near-term and until key series launches

come, we think its Stuttgart peer (Daimler: OW, PT €95) will have the edge on volume

growth. All new 7-er due to be unveiled later this year will be key as it marks the start of

new styling for the other series ranges too, but for full earnings lift from new product

we think investors must await the new 5-er in late 2016E. With product cycle a clear

drag in China, we think fears over a more complete collapse in China earnings will

weigh on the stock, although we remain confident that this is merely a near-term hiatus

until new product arrives. We also think the weaker EUR continues to benefit BMW as a

net exporter (we update our FX sensitivities in this note) and note that the peak for

technology spending has likely passed and cash should therefore build from here. But

stock outperformance is likely on hold until earnings upgrades return.

Risks to our new rating: In the longer term we still see plenty of upside opportunity as a

result of BMW's management expertise, strong cash generation, attractive yield

valuations and technological leadership, and given how low sentiment has currently

fallen. However, we expect a near-term pause in the share's outperformance until China

margins show signs of improvement. We reduce our 2016E EPS forecast by 13% and

2017E by 6% but note that consensus estimates already bake in plenty of caution on

China and leave room for clear upside on 2017E in our view.

Moncler reported sales of €201m up 38% y/y (30% constant, 8% FX) which were 11%

ahead of company-gathered consensus (€181m). Adjusted EBIT of €57.3m was 15%

ahead of consensus (€50m) with an adjusted EBIT margin of 28.5% up 120bps y/y

(consensus 27.4%). The EBIT beat was driven by the topline beat coupled with

operating leverage on the G&A line (-200bps y/y), while both selling expenses and A&P

as a percentage of sales developed in line with our expectations. Net income of €39.6m

climbed by 69% y/y (€16.1m higher y/y in EUR-terms) and was 32% ahead of

consensus (€30m), helped by net financials which included an FX gain of €5.3m.

The majority of the highly impressive 25% Retail same store sales growth (UBSe 10%)

was achieved in January/February from the end of the Fall/Winter collection and

facilitated by better availability of stock this year (last year key lines sold out early)

leading to a strong price/mix benefit (volumes were also up well). The new

Spring/Summer collection has been off to a very good start in all regions, albeit it at a

more 'normalised' level, with the Long Season jacket supported by a bigger

contribution this year from Knitwear and Mens Rainswear. The brand was strong across

all regions, led by Asia +48% constant with Japan/China/Hong Kong all enjoying good

traffic in stores, Americas +61% constant, EMEA +19%, and even Italy posting +7%,

driven by both locals and tourists.

We build the majority of the Q1 beat into our full year forecast though assume some

degree of reinvestment into G&A as the business ensures the infrastructure keeps pace

with the growth. We now forecast 9.5% retail SSSG (implies 6% SSSG for Q2-Q4) and

update for the 25 secured locations for FY15 (UBSe previously at 24).

Our price target is based on ~28x P/E which reflects ~35% premium to the soft luxury

peer group (in step with the superior earnings growth outlook).

VIV saw EBITA grow +14% on an underlying basis to €218m (vs cons €218m). Within

the mix, Canal+ was €13m light vs cons while UMG was +€14m ahead. Canal+ was

impacted by the dropping out of a one-off benefit from Q1-14 as well as programming

inflation. However, a strong release schedule and FX benefits helped boost UMG. The

y-o-y growth for VIV was driven by lower losses in Other given reduced losses from

operations such as Watchever (German OTT).

VIV stated it would make a tender offer for the 51% of SECP (Canal+ SA) that it does

not own. SECP is the listed ‘shell’ company that holds the broadcasting licence for

Canal+ (VIV owns 100% of the operating assets) and the structure was originally put in

place given prior restrictions that limited ownership of broadcasting assets to <49% but

these restrictions were removed in 2009. VIV is offering €7.60 per SECP/Canal+ SA

share (+20% premium) and acquiring 51% will cost VIV around €0.5bn. Assuming all

shareholders tender, we estimate the deal will reduce the minority charge with a

limited cost of financing leading to low-single digit earnings accretion.

VIV has retained its guidance of a slight increase in underlying revenue and stable

margin to give ~10% growth in adj. net income. VIV has also stated that the strong

Q1 performance at UMG should not be extrapolated and it is cautious ahead of the

launch of Apple’s new music streaming service later this year. We do not expect

significant changes to underlying cons estimates, but cons adj. net income could nudge

up marginally to reflect the SECP buyout.

Recent press reports suggested VIV was considering a range of M&A scenarios

(acquisition of Mediaset/increasing its stake in TI). In the end, Q1 results were relatively

uneventful, and VIV avoided any explicit comment on its interest in free-to-air assets

and whether it will increase its stake in TI.

Dow-0,20% S&P-0,30% Nasdaq-0,35% Russell-0,22%

US Market closed lower but managed to recover from lows of the day. energy space (+0.4%) outperformed throughout the day thanks to a 2.5% gain in crude oil ...volume were just below average @ 70mil shares...Asian indices are mixed as the global bond market rout takes a breather on technical consolidation. Investors are also awaiting the upcoming China April trade data to gauge whether additional policy easing will be required. Industrial production, retail sales, and fixed investment figures will be out in early European hours. Shanghai Composite is one of the weaker indices in the region, following reports that regulators are moving to allow local government debt as collateral for borrowing to help stimulate investment demand. Separately, Fitch noted that high margin lending activity poses an indirect risk to banks and raises their exposure to volatility in the stock markets.

Nikkei +0.56% Hang Seng +0.08% Shanghai -0.08%

Eur$1.1245 GBP 1.5683 EURCHF 1.0432 RUB $50.2269 WTI $61.34 (+0.97%)

S&P +0.30% EuroStoxx +0.42% Dax +0.57% SMI +0.35%

Macro

- China April Industrial Output Rises 5.9% Y/Y; Est. 6%

- EU Hits U.S., Russia, Japan, China and Korea With Steel Tariffs

Keep an eye on :

- AGN NA : Aegon 1Q Underlying Pretax Drops 6%, Net Drops 19%; ROE Declines

- ALU FP : Nokia may have to raise price for Alcatel-Lucent, new bidders may emerge - Turun Sanomat

- SPR GY : Axel Springer Said to Have Made Unsolicited Approach for AOL: FT

- EN FP : Bouygues Confirms FY Outlook, Says Good Performance by Telecom

- CRG IM : Banca Carige 1Q Loss EU45.3m vs Net EU17m Y/y

- BOE IM :  Pop Emilia Romagna 1Q Net EU45.2m; Est EU46.6m  

- BC8 GY : Bechtle 1Q Sales Rise 6%, Confirms 2015 Guidance

- BMW GY : BMW Shrs to Pause on Concern About China Earnings, Says Barclays

- AN FP : Vivendi Bids $550 Million for Canal Plus Unit in Media Makeover, €7.60/ share vs 6.38 yest +19%

- CLN VX :  Clariant Will Remain a Target for Evonik, Berenberg Says  

- DTE GY :  Deutsche Telekom 1Q Rev. Beats Ests., Keeps Full-Year Outlook  

- DIA SM : Dia 1Q Adj. Ebitda Beats Ests., Sales In Line

- DRI GY : Drillisch Maintains Full-Yr Ebitda Forecast EU95m-EU100m

- EKTAB SS : Elekta Results ‘Significantly’ Below Guidance, CEO Steps Down

- RF FP : Eurazeo Targets Europcar IPO at End of 1H

- EXO IM : PartnerRe Preferred Holders May Be Key to Exor Deal: Macquarie

- OPERA NO : Opera 1Q Sales Rise; Opg Cash Flow Impacted by Delay, Payments

- RWE GY : RWE 1Q Recurrent Net Beats Estimate, Confirms 2015 Forecasts

- SZG GY : Salzgitter Probed on Bribery, Sueddeutsche Zeitung Says

- SZG GY : Salzgitter 1Q Profit EU32.7m vs EU13.3m Loss; Confirms Forecast

- SIK VX : Sika/Schenker-Winkler mediation talks fail to reach an agreement - Tagesanzeiger

- VIV FP : Vivendi 1Q Adj. Net Income Beats Ests., Makes Canal+ Offer

- WDI GY : Wirecard 1Q Rev. EU159.4m vs EU126.2m

Dow-0,20% S&P-0,30% Nasdaq-0,35% Russell-0,22%

US Market closed lower but managed to recover from lows of the day. energy space (+0.4%) outperformed throughout the day thanks to a 2.5% gain in crude oil ...volume were just below average @ 70mil shares...Asian indices are mixed as the global bond market rout takes a breather on technical consolidation. Investors are also awaiting the upcoming China April trade data to gauge whether additional policy easing will be required. Industrial production, retail sales, and fixed investment figures will be out in early European hours. Shanghai Composite is one of the weaker indices in the region, following reports that regulators are moving to allow local government debt as collateral for borrowing to help stimulate investment demand. Separately, Fitch noted that high margin lending activity poses an indirect risk to banks and raises their exposure to volatility in the stock markets.

Nikkei +0.56% Hang Seng +0.08% Shanghai -0.08%

Eur$1.1245 GBP 1.5683 EURCHF 1.0432 RUB $50.2269 WTI $61.34 (+0.97%)

S&P +0.30% EuroStoxx +0.42% Dax +0.57% SMI +0.35%

Macro

- China April Industrial Output Rises 5.9% Y/Y; Est. 6%

- EU Hits U.S., Russia, Japan, China and Korea With Steel Tariffs

Keep an eye on :

- AGN NA : Aegon 1Q Underlying Pretax Drops 6%, Net Drops 19%; ROE Declines

- ALU FP : Nokia may have to raise price for Alcatel-Lucent, new bidders may emerge - Turun Sanomat

- SPR GY : Axel Springer Said to Have Made Unsolicited Approach for AOL: FT

- EN FP : Bouygues Confirms FY Outlook, Says Good Performance by Telecom

- CRG IM : Banca Carige 1Q Loss EU45.3m vs Net EU17m Y/y

- BOE IM :  Pop Emilia Romagna 1Q Net EU45.2m; Est EU46.6m  

- BC8 GY : Bechtle 1Q Sales Rise 6%, Confirms 2015 Guidance

- BMW GY : BMW Shrs to Pause on Concern About China Earnings, Says Barclays

- CLN VX :  Clariant Will Remain a Target for Evonik, Berenberg Says  

- DTE GY :  Deutsche Telekom 1Q Rev. Beats Ests., Keeps Full-Year Outlook  

- DIA SM : Dia 1Q Adj. Ebitda Beats Ests., Sales In Line

- DRI GY : Drillisch Maintains Full-Yr Ebitda Forecast EU95m-EU100m

- EKTAB SS : Elekta Results ‘Significantly’ Below Guidance, CEO Steps Down

- RF FP : Eurazeo Targets Europcar IPO at End of 1H

- EXO IM : PartnerRe Preferred Holders May Be Key to Exor Deal: Macquarie

- OPERA NO : Opera 1Q Sales Rise; Opg Cash Flow Impacted by Delay, Payments

- RWE GY : RWE 1Q Recurrent Net Beats Estimate, Confirms 2015 Forecasts

- SZG GY : Salzgitter Probed on Bribery, Sueddeutsche Zeitung Says

- SZG GY : Salzgitter 1Q Profit EU32.7m vs EU13.3m Loss; Confirms Forecast

- SIK VX : Sika/Schenker-Winkler mediation talks fail to reach an agreement - Tagesanzeiger

- WDI GY : Wirecard 1Q Rev. EU159.4m vs EU126.2m

Cerberus was among the early U.S. investors along with Lone Star and Goldman Sachs to be drawn to Japan's failed banks and hotels following the bursting of the country's asset bubble in the early 1990s. Having turned the businesses around and sold them for a profit in initial public offerings, most have scaled down their Japan distressed investment operations in the absence of similar opportunities.

Now Cerberus has joined the exodus and sold off everything except its 35 percent stake in railway and property conglomerate Seibu, said the sources, who were not authorised to discuss the matter publicly. Cerberus is among the last remaining global distressed investors to pull back from Japan.

The sources said 15 senior officials including president Yoshiteru Suzuki left Cerberus Japan earlier this year. Brian Saunders remained as president, but he was overseeing a drastically reduced team.

"Cerberus is effectively pulling out from Japan," said one of the people.

In response to requests for comment, Cerberus referred Reuters to a statement to clients in which the firm said it would continue to look for investment opportunities in Japan under new management.

The firm led a bailout of Seibu in 2006 after a scandal involving falsified shareholder records resulted in its delisting. After clashing with the company over its IPO, the fund unsuccessfully tried to take control of its board.

Cerberus has not made new major investments in Japan in recent years and its activities have been mostly focused on reaping returns from past deals.

Last year, separate sources said Cerberus had completed a sale of its 55 percent stake in property operator Kokusai Kogyo Co for 140 billion yen ($1.2 billion). It also exited other investments in Japan, the people said.

The fund had been looking for new opportunities in Japan but decided to cut back on operations given the poor prospects, the people said.

Cerberus became widely known in Japan in the 2000s when it invested in companies including Aozora Bank Ltd.