TheChek News Flow

- OPEC crude output 30.47M bpd, +402K bpd

Iliad shares have shed 25% since the group announced its bid on T-Mobile US. However, in our view, the odds are now that the attempt will fail. This would bring instant relief on the stock and demonstrate that the group is financially disciplined. Conversely, if Iliad gets T-Mobile, the shares would fall in the short term and the equity story would be radically altered (becoming highly geared to US wireless) – but for us, a deal around USD34/share would not destroy value. In France, Iliad would benefit from an SFR-Bouygues tie-up (+EUR37/share). In the meantime, operational performance should not be amazing but not be bad either. Large risk but larger upside.

£695m in Aug-14 from £1.9bn in July, the lowest since Jan-13. Mixed Assets was the

best selling asset class with £232m net flows. Equity flows declined to £168m whilst

Bond flows remained minimal at only £36m. Overall, this is a significant slowdown

compared to recent months, but given seasonality and only one month of data, it is too

early to judge whether this represents a change in the trend of strong sales. Retail

investors have been very engaged with the market Apr-July, due to raised ISA limits and

the Woodford fund launch, so a pause would not be abnormal. We would remain

cautious on a September flow recovery given the equity market selloff, but we remain

more optimistic on Q4, especially if some of the IPO pipeline is deployed.

* UK Equity Income best selling sector once more: UK Equity Income retained top spot

as the most popular sector with £275m flows. Interestingly, we see Asian and GEM

Equity return to the top 10 best selling sectors table, which just 6mths ago were sitting

unloved in the top 10 worst selling list. The worst selling sector in Aug-14 was UK All

Companies, with -£258m net outflows. The rotation out of Midcaps seen since May

continued, with -£242m out of UK/European Smaller Companies in Aug.

* $28.8bn net flows in Europe: European mutual fund flows ex Money Markets was also

disappointing, down from $63bn in July to just $28.8bn in Aug. Equity flows were

minimal at just $365m, while Bond flows also declined from $25bn to $15bn. The top

seller was Asset Allocation; the worst selling theme was Bonds USD Corp High Yield.

* Individual fund manager data still shows net inflows: Lipper data showed most of

the Asset Managers still saw net inflows in Aug, with Schroders appearing most

resilient with inflows across a range of sectors. All our listed Asset Managers have sold

off in Q3 and appear to be trading cheaply at ~12x on avg, below historical avg 14-15x.

We are Overweight SDR and ADN (12.5x and 11x cal. 2015 PE respectively).

in both Emerging (volume) and Developed (price) markets for Q3 and into the yearend. We cut our FY1E organic sales growth (OSG) estimates by -34bps in this report and Q3 14E European Staples OSG by -84bps to +3.4%. Despite this further reduction in top-line growth, recent FX moves, particularly for euro reporting stocks, mean earnings

revisions are negligible, with FX tailwinds a 1-2% offset. With the challenging Q3 now well-flagged, we believe near-term Staples relative share price performance is likely to be driven by wider market trends rather than sector fundamentals themselves.

* Spirits, Cosmetics and mid-cap food our preferred sub-sectors: We reiterate our OW ratings on Pernod Ricard, L'Oréal, Kerry and Glanbia. Pernod Ricard is our top-pick in spirits. With de-stocking complete some signs of improvement in Cognac in China and the prospect of cost savings/Euro support underpinning F15E EPS. At L’Oréal,

disappointment around Nestlé's decision to only partially sell its stake in L'Oréal has led to a considerable de-rating of the stock, which is now at the very bottom end of its 5 year relative trading range. Although Q3 will remain tough, L'Oréal’s first class product and operating footprint bodes well for the medium/long term.

* Beverages – No respite as weather and US spirits deteriorate: In Beverages, the absence of Easter, the World Cup and a tough weather comp means beer sales growth is forecast to have slowed sequentially to +2.6% in Q3. Soft drinks sales are also suffering a weather impact, with the slowing rate of growth exacerbated by recent increased promotional intensity in Northern European markets. In spirits, destocking will be less of a drag on quarterly performance, and despite a still mixed message on China (Remy still cautious and Pernod slightly more benign) we expect sales declines to have moderated. The US spirits market is still tough and we expect cautious shipments trends ahead of the important Christmas holiday period. Moreover, with one-time issues such as beer tax changes in Kenya still impacting Diageo's beer business, we expect overall spirits organic sales growth rates to have remained lacklustre.

* Food and HPC – Deflation and EM price elasticity pressure: The deflationary environment in Europe is pressuring pricing, while rising price elasticity means incremental pricing is becoming more difficult to implement in Emerging markets. This will be an issue for those names with exposure to still-rising inputs costs, such as cocoa and coffee. In cosmetics, the North American mass market is not showing the Q3 rebound many hoped for back in July,

while Western Europe’s muted trends may be exacerbated by bad weather and lacklustre sun-care sales. We have lowered our OSG expectations for 2014 for both Food and HPC accordingly. At the EBIT level, due to the nature of their cost structures (lower gross margins/more operational gearing), we expect Food and Home Care margins to be less

resilient to pricing pressures and lower volumes growth than Cosmetics. However, self-help (SKU pruning, operational efficiencies), a favourable commodity environment, and a weaker euro may allow most to maintain FY guidance.