TheChek News Flow

* A well-loved stock with two bull angles

RB is a very well-loved stock. Leaving optimism on near-term trading prospects aside, as we see it there are two main strands to the bull case: (i) RB gets acquired for its consumer healthcare business & (ii) it further morphs into a consumer healthcare play. In this note we explore each of these bull angles.

* A bid is already more than reflected in the valuation

While we view it as unlikely, we concede that it is not impossible that RB falls prey to a bid from either pharma or consumer majors. However to our mind this is more than in the price. Applying 21x CY15e EBITDA to Health (the take-out multiple for hotly contested Merck consumer healthcare), the remainder of Reckitt reverses out at c.15x (a material premium to Beiersdorf, Colgate, Estee Lauder and L’Oreal). In addition, let us not forget that RB has been so efficiently run that any acquisition synergies are likely to be somewhat offset by reinvestment to align the

business to acquirer practices. Finally, let us not forget the unique RB culture.

* Acquisitions will necessitate lowering the quality bar and raising the price bar

Picking up the other bull angle, while there are acquisition options for RB, quality assets are now few and far between (indeed, there are possibly no material quality assets available for sale). To acquire, RB will very likely have to lower its quality bar and raise its price bar.

* Yes near-term Health trading will be solid, but challenges lie ahead

That a good flu season is upon us is no secret, but challenges lie ahead: Mucinex generics, Nexium across Europe, Perrigo entering Europe.

* We get the story, but to us it feels more than in the price

c.25x CY15e P/E for a business with c.7-8% momentum earnings growth and to which the market sentiment is overwhelmingly positive. We reiterate our Underperform rating.

--> means we should see more, +ve for Spanish market

--> +ve for Spanish consumer...DIA could be the name, 50% of business from Spain

{DIA SM Equity SXRP Index GRT D<Go>}

QE, GDP Growth and the Value Conundrum

* Value = Key Macro Risk Diversifier — Of all our style composites, only Value appears to offer any diversification at present from a macro risk perspective.

* QE + Nominal GDP Growth Put = Good for Value — Historically, Value offers statistically significant average returns in excess of 1% when the street increases its year-on-year GDP growth forecast.

* Cheap != Cheap — Value does not look attractive on valuations. Relative to the benchmark, not only are cheap stocks trading around all-time highs, but expensive stocks are also trading around all-time lows.

* Value = Cyclical + Financials vs. Defensives — In the absence of sector neutrality, to be long Value at this point means essentially taking significant cyclical bias on Financials and Energy. Risk remains highly levered to Financials

* QE + De-Equitisation = Good for Value; but Prefer Defensive (Income) Over Cyclical — Our strategists suggest QE should benefit de-equitisers. This should in turn be a tailwind for Dividend Yield and companies returning capital to

shareholders.

* Stock Screen: Defensive Value & Quality at a Reasonable Price — We present a screen looking for potentially undervalued stocks in our High Quality portfolio and overlay this with defensive Value (income). 10 stocks pass the screen. Large Caps include: Snam, SEB, Next, WPP, Red Electrica.

after that transaction, they will stay with 5.1% stake

Press Release :

Altice announces agreement by Executives to buy shares in Altice S.A. from
Carlyle

 

February 2, 2015 - Altice S.A. (Euronext: ATC) today announced that certain
executives and senior managers of Altice S.A. and their affiliates ("The
Altice Managers") have reached an agreement ("The Sale") with Carlyle Cable
Investments SC ("Carlyle") whereby Carlyle will sell some of its ordinary
shares in Altice S.A. ("Altice") to The Altice Managers.

 

Carlyle has agreed to sell 4.4 million ordinary shares in Altice equivalent to
approximately 1.8% of Altice's ordinary share capital. Entities controlled by
Patrick Drahi, Dexter Goei and Patrice Giami are acquiring respectively 4.16
million shares, 200,000 shares and 40,000 shares.

 

Exclusively for the purpose of this transaction, J.P. Morgan Securities plc
and Goldman Sachs International have agreed to a partial waiver of the lock u

agreement entered into by Carlyle in connection with its sale of ordinary
shares in Altice on November 17, 2014 and due to expire on February 15, 2015.
Any ordinary shares in Altice owned by Carlyle and not part of The Sale will
remain subject to the terms of the aforementioned lock up agreement. For the
avoidance of doubt, the scope and terms of said lock up agreement remain
strictly unchanged unless explicitly mentioned otherwise in this press
release.

- ECB does not consider monitoring a European state its core priority

The bullish stances on Personal & Household Goods, Travel & Leisure and Media

are maintained from last month, as are the bearish signals in Banks and late-cycle

sectors. Average beta of ‘Bullish’ signals equals one; it had previously been <1

since Nov ’13. In contrast, ‘Bearish’ sectors remain cyclically biased – this will

continue until our Style Cycle signals ‘Recovery’ in Europe. Extremely low bond

yields and weak commodity prices keep any macro risk-appetite in check.

* Best monthly performance since inception

January was the strongest month for our Sector Signals model since inception in

June ’13. ‘Bullish’ sectors outperformed ‘Bearish’ sectors by 3.7% last month (see

Table 3). We attribute this to the importance of momentum factors in our sectorpicking

framework.

* Following the momentum

Longs are maintained in consumer sectors with strong price momentum: Personal &

Household Goods, Travel & Leisure and Media. Our core theme of avoiding Banks

and late-cycle cyclicals (Industrials and Construction) will remain in the absence of

persistent macro improvement. Poor earnings revisions, poor price momentum and

cyclical characteristics keep Oil & Gas at the bottom, despite lack of fund manager

positioning in the sector.

We see France as an attractive market; and Orange is well positioned to capture reemerging pricing power and monetise its premium quality/brand. We think a €19-22 range is realistic as Orange closes the valuation gap with the sector, with shares trading at 11.2x ‘15E EV/OpFCF and 7.1% FCFE, vs the sector at 13.8x and 5.9%, respectively. A rerating towards our €20 price objective would take the stock close to sector multiples at 13.1x EV/OPFCF and 5.6% FCF yield. We think stabilising earnings and domestic consolidation are key catalysts for the valuation gap to close, with the Dec 15 spectrum auction a potential trigger for consolidation.

In our proprietary survey of 1,000 mobile customers in France, Orange emerges as a quality leader both in mobile and fixed; and appears best positioned to capture data / high speed growth. We also see reduced churn risk due to higher convergent take up. We expect the pricing environment to normalise further post the Iliad-led repricing in 2012-14, especially in broadband as NUM cleans up SFR offers and high speed starts to be monetised.

We believe historical reasons for a lower valuation vs peers are largely behind, with a recovering pricing environment, consolidation potential, and a healthier balance sheet. In our view, Orange is well placed to benefit from incremental rotation into the Telecoms sector, with 1) improving revenue/FCF/earnings growth, 2) a healthy balance sheet position at 2.0x net/debt EBITDA, and 3) a dividend yielding 3.8% with potential to grow (50% FCF payout). Among EU majors, we favour BT, DT and ORA ahead of VOD and TEF, while in France we prefer Iliad and ORA over NUM.