TheChek News Flow

Aluminium premiums “higher for longer” was a key part of (fairly recent!) upgrade thesis. Premiums have started to come under pressure driven by Chinese exports & the prospect of further LME warehousing rule changes. We note that European premiums are down $80/t (c. 20%) from a peak of US$430/t. Our Metals strategist, Michael Widmer, lowers his aluminium price & premium assumptions today. We downgrade earnings for Hydro. 2015E EBITDA –25% to NOK12bn. 2015E EPS - 36% to NOK2.12. We set a new price objective of NOK40 based on 0.9x our 2015E DCF. At our target shares would trade on about 9x EBITDA.

We previously forecast a supply demand deficit of c. 1 Mtpa for 2015 on the assumption that Chinese would not be a material net exporter of primary aluminium. As with steel, Chinese exports are surprising to the upside, with sellers apparently exploiting a loophole to achieve VAT rebates from exports. Current exports imply a market in closer to 1 Mt surplus. We lower 2015E aluminium price 8% to US$1818/t / US$0.82/lb. We also lower assumed premium by $85/t (-22%) for 2015 & $139/t (41%) in 2016. As a reminder, a “premium” is paid on top of the quoted LME price for prompt physical delivery. Historically, these figures reflected “convenience yield” and potentially delivery from the next closest delivery point. More recently premiums have been distorted by long queues at metal warehouses and warehousing deals.

Premiums: At a recent analyst meeting, Glencore’s head of aluminium suggested that it wasn’t inconceivable that aluminium premiums could halve on a 12 month view. Currency: A weaker/weakening NOK was another driver of our positive view on Hydro. While not strengthening (yet) the stability in the oil price has led to a stabilization of the NOK at around 7/USD. With these headwinds, we struggle to see the earnings upgrade momentum continuing for Hydro, Q1 could be peak earnings.

In this report, we publish our list of most/least preferred stocks in the Basic Materials sector. The list is consistent with our fundamental 12 month opinions, but is intended to appeal to investors with a shorter-term time horizon. The full rationale for our recommendations on each stock is contained in the most recent stand-alone research for each company, which you are advised to read.

Following our double downgrade of Norsk Hydro to Underperform yesterday, we are removing Hydro (PO NOK40) from our Most Preferred List and replacing it with cash.

Vedanta, Syngenta, and cash

Rio Tinto, Voestalpine, Umicore.

- Prior MoM revised higher from 4.2% to 4.4%

- Prior YoY revised higher from 3.4% to 3.9%

Dow-0,59% S&P-0,44% Nasdaq-0,26% Russell-0,45 VIX @ 14.23 (+2.67%)

US Market closed lower, S&P 500 losing 0.4% but managed to cut its loss in half by the closing bell while the Nasdaq Composite (-0.3%) outperformed. The tech-heavy Nasdaq remains higher by 0.1% week-to-date while the S&P 500 is down 0.3% since the end of last week...volume continue to be light, below average @ 703mil shares...US After Hours : RNDY +12.7%, PEIX +11.6%, BIOL +10.3%, ECR -16.6%, PCOM -9.8%, ALSK -5.3% following earnings/guidance...PCYC +3.1% on Report of potential JNJ Bid...Abbvie announced a deal early this morning bidding $21bil for Pharmacyclis (mix of cash & Stock for $261.25/sh)...China National People's Congress opened today, and instead of waiting for the conclusion of the summit to unveil 2015 targets, Premier Li pulled the curtain on govt forecasts from the start. As anticipated, China is forecasting 2015 GDP at "around 7%" - a new 11-year low and a softer (more vague) target than "about" 7.5% tipped for 2014. CPI is now seen at around 3.0% vs 3.5% in 2014, while trade growth projections were knocked down to 6.0% from 7.5% in 2014. 2015 M2 is estimated at 12.0%, also a notable downgrade from 13% last year. Among the quantitative objectives, policymakers also outlined a range of qualitative initiatives - progress on cross-border yuan payment system, convertibility on capital account, broader use of FX reserves, more freely floating yuan, a deposit insurance system, land reform to stabilize housing consumption, end of price controls for pharmaceuticals, and curbing of overcapacity in the outdated coal industry to help reduce CO2 emissions. Pharma names and Yuan are among the early beneficiaries of this ambitious agenda, even though the broader mainland market is down by about 1%. Separately, PBoC adviser Chen also forecasted continued monetary policy easing in H1 of 2015, but no widening of Yuan trading band....BOJ dissenter Kiuchi spoke at length about his continued opposition to the latest round of easing implemented last October, noting the costs of current policy have exceeded the benefits. Kiuchi expects private consumption to remain firm and exports to increase gradually, though he also admitted to holding a more cautious view on Japan's economic, price outlook than median BOJ projections. On inflation, Kiuchi said the 2% target is above appropriate levels for Japan economy and should instead be made more flexible. USD/JPY was up modestly on the session, rising about 20pips above 119.80.

- China Lowers Growth Target to About 7% as Li Flags Headwinds

- China Sets 2015 Trade Growth at About 6%

- China Sets 2015 CPI Target at About 3% Increase

- JP Morgan global fixed income Michele: ECB will reduce Deposit Rate to -3.00%; Euro to test parity in 2015 - German Press

- ABE SM : CVC to Sell Remaining Abertis Stake in 3 Months: Expansion

- ADS GY : Adidas Sees 2015 Adj. Net Income Up 7%-10%, 2014 Div. Unchanged

- AIR FP : Emirates Says A380neo Would Mean ‘Quantum Change’ to Bottom Line

- ANDR AV : Andritz FY14 Net EU210.9m Beats Est.; Forecasts Higher Revenue

- ARCAD NA : FMR Reports 3.12% Stake in Arcadis: Dutch Regulatory Filing

- AKE FP : Arkema 4Q Ebitda EU162m, Est. EU157.2m; Confirms M/T, L/T Goals

- ASMI NA : ASM International Full-Yr Rev. Beats Est.; Adj. Net Misses

- BPI PL : Banco BPI board meets today for final chance to decide on CaixaBank bid valued at EUR 1.94bn

- BUCN SW : Bucher 2014 Net Income CHF189.7m, Est. CHF192.3m; Takes Measures

- CA FP : Carrefour 2014 Recurring Oper. Inc. In Line With Ests.

- DEC FP : JCDecaux 2014 Net Misses Ests.; Plans Share Buyback, JCDecaux China Business Doing Very Well in 1Q, CEO Says

- DL NA : State Street Reports 3.08% Stake in Delta Lloyd: AFM Filing

- DELB BB : Delhaize 4Q Adj. Ebit EU225m vs Prel. EU233m Reported; Div. Up ,Delhaize Names Philippe Dechamps as General Counsel

- ANN GY : Deutsche Annington 2014 FFO I, NAV Rise 28%; Plans Dividend 78c, plans share sales in coming days (CEO)

- EVK GY : CVC Sells 18m Evonik Shrs at EU29.15/Shr (3.9% stake

- FGR FP : France to Drop Idea of Ending Highway Contracts, Parisien Says

- FRA GY : Hesse Minister Doubts Fraport Needs Third Terminal: Rundschau

- GTO NA : Gemalto Full-Yr Rev. EU2.47b vs Est. EU2.51b, Gemalto Sees Strong U.S. Growth in Coming Quarters

- GFT GY : GFT Technologies to Replace Kontron on Germany’s TecDAX

- IAG LN : IAG: Qatar Airways wants to acquire additional stake; also interested in other carriers, including India's IndiGo - CEO

- ISS DC : End of Lock up of FS invest 19.3% stake on the 6th of March (Tomorrow)

- ITV LN : Talpa Said to Seek More Than EU1b in ITV Takeover Talks: FD

- KCO GY : Kloeckner Posts 2014 Profit, Sees 1Q Ebitda Drop on Steel Prices

- KBC GY : GFT Technologies to Replace Kontron on Germany’s TecDAX

- MS IM : Raiway and EI Towers networks may be transferred to newco involving CdP - Il Sole 24 Ore

- ONTEX BB : Ontex Sees 2015 Organic Rev. Growth 4%-6%; 2014 Adj. EPS EU0.95

- REP SM : Repsol shareholder CaixaBank prepares to sell 2.5% stake - Expansion

- RWE GY : Municipal Owners Urge RWE to Scrap Hamm-D Plant: Handelsblatt

- SFL IM : Safilo, Givenchy Announce Licensing Agreement for Eyewear

- SAND SS : Sandvik Sees Costs of SEK1.9b for Optimizing Supply Chain

- SCR FP : Scor 4Q Net Income EU135m; Est. EU130m; Plans Div. EU1.40

- DG FP : France to Drop Idea of Ending Highway Contracts, Parisien Says

*BOURBON RAISED TO BUY AT SOCIETE GENERALE

Qatar Airways, a state-owned flag carrier of Qatar, said it wants to acquire additional stake in International Consolidated Airlines Group (IAG), the British-Spanish multinational airline holding company, mint reported. This past January, Qatar Airways acquired 9.99% stake in IAG -- which was formed in 2011 following the merger of Iberia and British Airways.

Akbar Al Baker, Qatar Airways' CEO, confirmed in statements to the paper that the Qatari carrier wants to buy additional stake in IAG at a future date. But a possible time frame for Qatar Airways raising its stake in IAG was not disclosed.

Al Baker was further cited as saying that Qatar Airways will also continue to seek out other investment opportunities in other well-managed carriers. Al Baker referenced IndiGo, an Indian budget airline company, as a specific target in which Qatar Airways is keen on acquiring stake in.

Mint