>>> US Early premarket gappers

Early premarket gappers
Gapping up: AMBI +86%, EXEL +27.6%, DWA +25.2%, ATHL +24.4%, ALIM +21.7%, RSH +11.1%, PSDV +10.5%, CYTR +6.8%, ECYT +4.9%, LAS +2.3%, KOOL +1.7%, BIDU +1.6%, YHOO +0.8%

Gapping down: NXTD -8.3%, PBR -4.1%, VALE -2.4%, HSBC -2.3%, NBG -2.3%, BBRY -1.9%, RIO -1.7%, BHP -1.5%, BCS -1.5%, LUV -1.2%, DB -1%, TOT -1%, AAPL -0.9%, JNS -0.8%

(Santander) Inditex: Strong August Spanish Apparel Sales

Inditex: Strong August Spanish Apparel Sales

Buy/TP:€25.80/CP:€21.87



Spanish retail sales fell 0.4% nominal/rose 0.4% constant rices in August, seasonal and calendar adjusted, INE data show. This compares with -1.0%/-0.5% respectively in July (YTD average +0.2%/+0.2% vs. July's +0.2%/+0.1%). Excluding service stations, sales fell 0.8% nominal/0.3% constant (vs. July's -0.8%/-0.5%). Within this, food sales fell 0.6% nominal and grew 1% constant (-0.9% and +1% July) taking food YTD growth to 0.2% and 0.4%, vs. 0.3% and 0.3% in July.

Non-food sales were flat nominal/+0.7% constant (down 0.9%/ 0.5% July). Apparel outperformed at +1.8% nominal/+1.9% constant (July +0.3%/+0.5%). In contrast, Home decreased 0.6% current/0.1% constant (July -0.4%/+0.2%), while "Other" (including expenses such as utility bills) fell 0.8% nominal (-0.1% constant). By distribution class, large chain store sales increased 0.4% nominal/0.9% actual, suggesting a reversal of the previous two months' underperformance (July  -2.1%/-1.6%), perhaps thanks to the end of more intense promotional activity at the smaller chain stores and independents over the summer sales period (rebajas).

In terms of the read-across to Inditex, ITX's current trading update (1 Aug to 12 Sept), at its 1H14 results on 17 Sept, showed constant currency sales up 10% (SANe 3.5% LfL vs 4.5% 1H14). We note this period extends beyond the INE data, which is, therefore, somewhat backward looking. That said, incorporated within the +10% CC growth, we estimate that the 1H14 Spain strength (6% LfL) continued, albeit at a slightly more moderate pace given the tougher comp. More broadly, at group level we expect a stronger-than-average August and a slightly weaker-than-average first two weeks of September, as has been the case in many apparel markets, given the warm weather. We note that Inditex's comps ease significantly in the second half of 3Q.

Although there is nothing particularly new to take from this INE update, the continued momentum in Spanish retail sales is encouraging and contributes to our constructive view on ITX (Buy TP EUR25.80/share).

FT : SJP removes Pimco as manager of Multi Asset mandate

St James’s Place (SJP) has removed Pimco as the manager of its £944m SJP Multi Asset fund, changing the mandate so that it is sub-advised by three different management teams.

The SJP Multi Asset fund had been run by Mihir Worah, Curtis Mewbourne and Vineer Bhansali at Pimco since it was launched in 2012.


But as of November 10, the fund will be split into three parts, which will be run separately by Invesco Perpetual, Schroders and US firm Payden & Rygel.

The Invesco portion will be run by its Global Targeted Returns team, led by David Millar, and will consist of a portfolio of between 20 and 30 thematic positions.

Mike Hodgson, head of risk managed investments and structuring at Schroders, will run a separate equity portion of the multi-asset fund, while Scott Weiner, Brian Matthews and Brad Boyd at Payden & Rygel will run a fixed income portion.

The management change is another blow for Pimco, which saw co-founder and chief investment officer Bill Gross leave to join rival Janus Capital last week.

SJP has also closed to new investement the two UK equity income mandates that are sub-advised by Axa Framlington’s George Luckraft and opened a new SJP UK Income mandate to be run by Majedie Asset Management’s Chris Reid.

Mr Reid currently manages the £540m Majedie UK Income fund with Yuri Khodjamirian, as well as co-managing Majedie’s UK Focus and UK Equity funds.

The Majedie UK Income fund is in the top-quartile of the IMA UK Equity Income sector since its launch in December 2011, delivering a 74.5 per cent return compared to the average sector return of 47.8 per cent, according to FE Analytics.

(GS) US : IT Services - Resuming coverag today

* Resume on Services: We favor value & turnarounds as crosswinds develop

* Resume on Consulting & Outsourcing with Neutral coverage view
We see industry changes ahead, driven by a shift to cloud computing, increased outsourcing in Europe, and potential changes to US immigration policy. In the context of these crosswinds, we favor attractively-valued names with company-specific turnaround or margin expansion stories – and resume on Consulting & Outsourcing with a Neutral coverage view.

* Our stance on the key themes shaping the sector
1. Cloud computing represents a headwind for vendors most exposed to traditional systems integration and maintenance. We have developed a model to help quantify the potential negative impact to IT services vendors as clients migrate to new cloud-based application solutions. Although we see some positive offsets to spending on new technology areas like social,
mobility, and analytics, we remain guarded on vendors with high exposure to traditional client-server system integration and maintenance.
2. Continental Europe is in the early stages of a greater outsourcing trend. We believe continental Europe (particularly German-speaking countries) is in the early stages of a secular trend toward increased outsourcing driven by cost avoidance, which we see as independent of a macroeconomic recovery. We favor names with higher exposure to Europe (such as CGI).
3. Immigration reform on hold for now, but impacts likely to vary widely. The prospects for immigration reform appear temporarily on hold, but if enacted we think potential requirements on local hires at US client locations could have a negative impact for vendors like Cognizant, with potentially neutral-to-positive impacts for Accenture, CSC, and CGI. 
4.BPO companies: Is 2014 a year of inflection, or a new normal? We highlight that the majority of BPO companies under coverage are currently experiencing headwinds due to client transitions or other competitive dynamics. We examine whether these situations are temporary, or are in fact likely to become the new normal for the industry.

* Top stock ideas: Buy CSC, GIB, WSTC; Sell FIS and G
We recommend CSC and CGI as they have company-specific turnaround or margin expansion stories, and we think the stocks can re-rate higher as they unfold; CSC is our most out-of-consensus idea. We also favor West Corp. as we find its IP/Platform based approach to be differentiated in BPO and the stock’s valuation is compelling. We also assume coverage of Sabre from Heather Bellini with no change to rating, price target, or estimates.

(BofA-ML) One Region is stronger than US

* Global Earnings Revision Ratio is at long-term averages
The Global Earnings Revision Ratio remains near long-term averages as investors patiently wait for evidence of a global profit recovery to propel equity markets higher. Despite the Ratio moderating from 0.81 to 0.79, there are areas of particular
strength across the world, including Japan.

* Japan stands out
The Earnings Revisions Ratio is higher in Japan than any other region as earnings expectations continue to improve. Coupled with this, Japan has underperformed the world index year-to-date, is trading at a discount to the PE of the world, and
ROEs of Japan companies are rising. This is creating an attractive opportunity for investors. Elsewhere, the Ratio improved in Europe (0.57 to 0.70), but moderated in the USA (1.07 to 0.90), in Asia Pac ex-Japan (0.71 to 0.69) and in Emerging
Markets (0.75 to 0.71). Strong: Insurance,

* Strong: Insurance, Banks and Tech Hardware
The three-month Ratio of upgrades-to-downgrades is highest for Insurance (1.11), Banks (1.09), Utilities (1.08), and Tech Hardware (1.02). This continued earnings strength is one of the reasons the Global Quant Strategy team remains overweight
Insurance, Banks and Tech Hardware.

*Weak: Consumer Staples, Materials, Energy
The Global Consumer Staples sector continues to experience the lowest Earnings Revision Ratio across global sectors. Our models are underweight Consumer Staples as earnings expectations fall and valuations remain stretched. The
Earnings Revision Ratio also continues to fall meaningfully for Materials and Energy. It seems likely these late cyclicals could remain relatively weak until the global earnings recovery gathers speed.

WSJ : Fed Questions Bank Maneuver to Reduce Hedge Funds' Dividend Taxes

Fed Questions Bank Maneuver to Reduce Hedge Funds' Dividend Taxes
'Dividend Arbitrage' Helps Big Banks Generate More Than $1 Billion in Revenue, Draws Criticism

LONDON—Large banks generate more than $1 billion a year in revenue by helping hedge funds and other clients reduce taxes through a complicated trading strategy that has drawn criticism from U.S. authorities.

Known as "dividend arbitrage," the strategy is run largely from London, where the banks temporarily transfer ownership of a client's shares to a lower-tax jurisdiction around the time when the client expects to collect a dividend on those shares, according to people familiar with the matter.

The maneuver typically enables bank clients to reduce taxes from as much as 30% of the dividend payment to 10% or so—and sometimes to zero. The savings are divided between the client, bank and entities that take ownership of the shares. The business largely involves stocks listed in Europe and Asia.

Banks and hedge funds say dividend arbitrage is an attractive, legal way to shrink tax bills through the differences in withholding rates around the world. But Bank of America Corp. BAC +1.07% recently was questioned by U.S. regulators about potential legal and reputational risks from the maneuver, according to a spokesman for the Federal Reserve Bank of Richmond.

The Richmond Fed oversees Bank of America because it is based in Charlotte, N.C. Examiners asked earlier this year about the bank's dividend-arbitrage clients and trades, people familiar with the discussions said.

Bank of America is "responding to the risks that were raised," the Fed spokesman said.

The regulator's concerns with Bank of America haven't been disclosed publicly. Richmond Fed officials passed along their concerns to the broader Federal Reserve system. It isn't clear if other banks have been questioned about the strategy.

Other banks that arrange similar transfers of corporate stock include Citigroup Inc., C +1.02% Deutsche Bank AG DBK.XE -0.29% , Goldman Sachs Group Inc. GS +0.56% and Morgan Stanley, MS +1.26% according to clients and people involved in the business. Banks collect fees on the transactions.

Citadel, Lansdowne Partners Ltd. and Och-Ziff Capital Management Group OZM +0.36% LLC are among the firms that have benefited from dividend-arbitrage trades, as well as banks that work as custodians of pension-fund assets. The hedge-fund firms declined to comment.

Some clients benefit in the form of lower trading costs and financing rates on their overall business with major banks without explicitly telling the banks to shift a stock's ownership to a lower-tax jurisdiction.

Banks' tax-cutting moves are facing broad criticism. The Obama administration is cracking down on inversions, a type of corporate merger that can cut tax bills. Swiss banks have reined in offshore accounts.

Dividend arbitrage used to be an even bigger business than it is now, but criticism by Senate investigators in 2008 and the closing of loopholes by U.S. tax authorities made it much harder to shrink dividend taxes on U.S.-listed stocks. Other countries also have made it harder to use the strategy with shares of companies listed or based there.

Still, the strategy remains popular as part of a wider offering of services aimed at helping clients reduce their tax exposure. Dividend arbitrage remains attractive because of wide variations in tax rules throughout the world. Banks generally have shifted the focus of their dividend-arbitrage work to London.

"Banks see reputational issues in dividend arbitrage," said Nigel Feetham, a Gibraltar-based lawyer specializing in financial services and taxes. "Tax authorities themselves are increasingly challenging tax arbitragers."

Concerns about possible risks from the strategy spurred a meeting at Bank of America last year that was attended by investment-banking chief Thomas Montag, according to people familiar with the situation.

At the time, Mr. Montag also was co-chief operating officer at Bank of America. He now is the company's sole operating chief. He couldn't be reached.

Last year, Bank of America estimated that trades aimed at helping clients reduce withholding taxes on stock dividends generated more than $1.2 billion for the bank from 2006 to 2012, according to people familiar with the internal estimates. The bank projected it would get $100 million in revenue from the trades in 2013, mostly from Europe, these people added.

"It's still a very profitable trade for hedge funds and broker-dealers," said Ihor Dusaniwsky, head of research at trade-analytics company S3 Partners. The New York firm's Blacklight software program helps hedge funds assess dividend returns.

In one of the most common types of dividend arbitrage, a bank and client enter into a stock swap, a derivative transaction in which the bank takes possession of the client's shares of another company. The bank then transfers the shares to a subsidiary or third party in a country where the dividend would incur a lower tax compared with where the client is based—or no taxes at all.

When the dividend is paid on the shares, the dividend is subject to lower taxes and the holder of the shares pockets a much higher percentage of the dividend payment. The tax savings is divided among the bank, its client and the holder of the stock. Some clients then opt to take back the shares.

"From a financial point of view, it is a beautiful strategy," said Stephen Diggle, head of Vulpes Investment Management in Singapore. "From a public point of view, no one wants to draw down the ire of a government."

Mr. Diggle is battling Bank of America over returns he claims he is owed by the bank on dividend-arbitrage trades involving European stocks several years ago, according to people familiar with the matter. The dispute involves claims of about $10 million, these people said.

Because of the dispute, he has stopped pursuing the strategy. "We haven't stopped for moral reasons," Mr. Diggle said.

The continuing fight with Mr. Diggle was one reason for the meeting that Mr. Montag attended last year. Bank of America investment-banking executives met at the bank's midtown Manhattan offices to debate the pros and cons of dividend arbitrage, people familiar with the meeting said.

Mr. Montag wanted to understand more about which clients were doing the trades and how much revenue they produced for Bank of America.

Bank of America's stock-financing desk was told to be careful about how it works with clients, these people said. Executives decided the business was too lucrative to walk away from, and Bank of America has continued to arrange the transactions.

(BofA-ML) Dragon, DNO, EnQuest, Tullow Are 4 E&P Buys at End-2014

Tullow (+2.4%) rises most since April after BofAML raises to buy; EnQuest (+3.4%) also rises with upgrade to buy at BofAML.
  • Ophir down as much 3% after cut to underperform vs buy; PT cut 16% to 240p
  • Says Tullow, Enquest both making progress towards positive FCF over next 18 months; notes shares at 6, 2-year lows, respectively
    • Sees Ophir as overleveraged to “fickle” farm-down market as it undergoes strategy shift
  • DNO, Dragon top picks on cash flow, growth
    • Sees DNO as discounted vs pre-Islamic State levels as Tawke ramps up; main catalysts after Western campaign against extremists to be cash receipts for exported crude, alternative marketing arrangements
    • Dragon’s $1.9b cash pile offers scope for cash returns; likely to complete 10-12 wells in 2H, will be drilling in more productive part of reservoir
  • EnQuest (PT cut 7% to 140p) trading at discount due to disappointment over Alma-Galia startup delay, risk on Scotland vote; both risks subsided, factored in with shares at 50% to European E&P peers on 2015 ests. for P/E
  • BofAML says farm outs not generating shareholder value currently; of 5 “sizeable” farm outs in past 2 years, average share price drop has been 7% over subsequent 3 months, citing Salamander (Thailand), Ophir (Tanzania), Rockhopper (Falklands), Petroceltic (Algeria), Heritage Oil (Iraq) deals

FT : Rocket Internet prices shares at market capitalisation of €6.2bn (23/09)

--> Worth Reading...

Rocket Internet, the German start-up conglomerate, has priced shares for its initial public offering at a midpoint market capitalisation of €6.2bn, in what is set to be the largest flotation for a European technology company in years.
The company said on Tuesday it would sell shares for between €35.50 and €42.50.

Founded by brothers Oliver, Marc and Alexander Samwer in 2007, Rocket is a hybrid venture capital group and incubator that claims to have industrialised the process of building start-ups. The brothers are set to become billionaires, holding a 52.3 per cent stake that is set to be valued at €3.2bn.
Detractors have described Rocket as a “clone factory”, but the Berlin-based company makes no secret of adapting successful business models to Europe and emerging markets, focusing on three sectors: ecommerce, online marketplaces and financial services.
The company expects to raise €1.477bn from the offer at the midpoint of the range, assuming the maximum number of shares is placed.
The cash will be used to fuel Rocket’s expansion, launching new ventures and raising stakes in its existing companies so that it can retain majority ownership as they mature. This marks a change to its existing business model, since Rocket has funded much of its growth with outside investors and does not own controlling stakes in most of its companies.
The challenge for fast-growing companies such as Rocket is to make sure that what they spend on marketing and infrastructure does not swallow up all of the value they are getting from consumers.
Rocket’s most mature companies, 11 businesses which it refers to as “proven winners”, generated net revenues of €757m in the last fiscal year for which data are available. They made net losses of €442m.
The prospectus notes: “Nearly all of our companies have limited operating histories, are significantly loss making, have a negative operating cash flow, require significant capital expenditure and may never be profitable or cash generating.”
Financial data published on Tuesday evening showed that Rocket Internet had sales revenues for 2013 of €72.5m, though this does not capture all the businesses in which Rocket has a stake.
The holding company burnt through €117m of cash in the first six months of this year on its operations and investments, compared with €25.2m in the first six months of 2013.
It swung from a net profit of €22.3m in the first half of last year to make a net loss of €13.3m in the first six months of 2014. It said this deterioration was due to a decrease in income from its companies and “increases in other operating expenses and personnel expenses”.
Insiders argue that this is not an accurate reflection of the company’s performance as the income statement does not cover revenues from its most established businesses.
Rocket said cornerstone investors including JPMorgan Securities and an investment trust managed by Baillie Gifford Co had committed to purchase €582.5m of shares.
All shareholders, including cornerstone investors, have committed to a 12-month lock-up period. The offer period will commence on Wednesday, September 24, and Rocket will list on the Frankfurt stock exchange on October 9.
The news comes as investors are flocking to ecommerce stocks. Last week Alibaba, the Chinese internet company, pulled off the biggest public flotation in history by listing on the New York Stock Exchange and raising $25bn.
Oliver Samwer, founder and chief executive, said in a statement: “Through our operating platform, we are building and scaling the internet giants of tomorrow. We are taking proven ecommerce business models to over 75 per cent of the world’s population and around 75 per cent of its mobile users, who all live in countries outside the United States and China.”
Rocket is best known for successfully launching Zalando, now Europe’s biggest online fashion retailer and also planning an IPO. Rocket has largely divested itself from Zalando though the Samwer brothers retain a personal stake of 17 per cent.

FT : Italy targets Prada chiefs in tax probe

Italy targets Prada chiefs in tax probe

MILAN, ITALY - NOVEMBER 22: Patrizio Bertelli (L) and Miuccia Prada (R) attend the 2010 Carlo Porta Award held at Teatro Manzoni on November 22, 2010 in Milan, Italy. (Photo by Vittorio Zunino Celotto/Getty Images)©Getty
Italian authorities are investigating the personal finances of Prada’s co-chief executives, in the latest example of a crackdown on potential tax evasion that has already ensnared fellow fashion duo Domenico Dolce and Stefano Gabbana.
The Hong Kong-listed fashion group said on Monday that Miuccia Prada Bianchi and Patrizio Bertelli, its chief executives, had been told of an investigation “regarding the accuracy of certain past tax filings by them as individuals in respect of foreign owned companies”.

Prada, which also owns the Miu Miu, Car Shoe and Church’s brands, added that neither the company nor its subsidiaries were involved in the investigation.
The latest probe follows new Italian voluntary disclosure terms designed to encourage companies to return from tax havens in Luxembourg, Switzerland and the Netherlands – traditional harbours for assets away from Italy’s notoriously volatile tax regime.
Shares in the fashion house were 1.5 per cent lower at midday in Hong Kong, outperforming the blue-chip Hang Seng index, which was down 1.9 per cent.
In December, Prada struck a deal with the Italian tax authorities to bring the holding company behind the group back from Luxembourg to Italy. Mr Bertelli and Ms Prada paid €400m to tax authorities, according to people familiar with the matter.
Pursuing further investigations against the pair appears to be at odds with an earlier stance from the authorities.
The head of the Italian tax agency, Salvatore Lampone, had previously said that since Prada had paid all the taxes that are due on a voluntary basis, no further investigations should take place.
The more aggressive stance by Italy’s tax collectors comes as the country grapples with a €2tn debt pile and a deep recession. Other families that have already brought assets home including Diego Della Valle, the luxury tycoon behind Tod’s. He is not under investigation.
Apart from Prada and Dolce & Gabbana, Italian police targeted the Marzotto textile dynasty in 2012 and the Bulgari family in 2013, seizing assets in lieu of alleged evasion of taxes. Both families denied any wrongdoing. Investigations are continuing.

(BFW) Italy May Put Off Eni Stake Sale, Will Sell Enel Stake: Corriere


Italy May Put Off Eni Stake Sale, Will Sell Enel Stake: Corriere
2014-09-29 06:32:37.866 GMT


By Alessandra Migliaccio
Sept. 29 (Bloomberg) -- The Italian govt may put off the
sale of a stake in Eni, Corriere della Sera reports without
saying where it got the information.
* The govt will likely go ahead with the sale of ~5% of Enel
by 2015: Corriere
* State may also sell a stake in railways Ferrovie dello
Stato: Corriere
* Italy May Sell $7 Billion in Eni, Enel Stakes to Cut Debt
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To contact the reporter on this story:
Alessandra Migliaccio in Rome at +39-06-4520-6324 or
amigliaccio@bloomberg.net

To contact the editor responsible for this story:
Jerrold Colten at +39-02-8064-4261 or
jcolten@bloomberg.net