Monday, June 13, 2011

Morning Note

Equity futures are trading slightly above fair value, having traded in a narrow range either side of unchanged, following 6 consecutive weeks of losses for the Dow Industrials and S&P 500.

The Nasdaq Composite and Russell 2000 are now negative for the year. There has been little direction from Europe as concerns relating to peripheral Europe's debt crisis weighed on sentiment and there has been no significant news flow. There are no major economic or earnings releases expected in the US.


Libor fixings 

- Overnight Libor: Dollar: 0.127% vs prior 0.127% ; Sterling: 0.569% vs prior 0.569%; Euro: 1.461% vs prior 1.708%
- 1-month Libor: Dollar: 0.187% vs prior 0.189%; Sterling: 0.624% vs prior 0.624%; Euro: 1.234% vs prior 1.224%
- 3-month Libor: Dollar: 0.247% vs prior 0.249%; Sterling: 0.824% vs prior 0.824%; Euro: 1.418% vs. prior 1.413%


Jul WTI crude ($1.27) to $98.02

Natural gas +$0.025 to $4.814

Gold ($5.44) to $1525.59

10-year yield 2.984%
30-year yield 4.194%


Asian Markets

Most Asian markets fell today, discouraged by Wall Street’s performance and lower oil prices. In low turnover, developers fell in Hong Kong as the government instituted new measures to rein in property prices. But banks ended higher, leading the market to a slight gain. South Korea finished flat. Banks led China down slightly on weaker-than-expected lending and money-supply data. Caution reigned on fears of further tightening; inflation data is due tomorrow. April core machinery orders came in far below expectations, pushing Japan to a loss. Taiwan fell on global economic worries. The tourism subindex gained after China said this weekend that it would let its citizens visit Taiwan as individual tourists this month. Australia was closed for the Queen’s Birthday. The yen is trading at 80.35 to the US dollar. Japan April core machinery orders (3.3%) m/m vs cons +1.2%. China May new loans CNY551.6B vs cons CNY650B. M2 +15.1% y/y vs cons +15.5%.

European Markets

European equity markets trade mixed having found little direction since the open. The periphery remains in focus with Greek, Portuguese and Irish bond spreads vs Bunds and CDS's widened, in some cases to record levels. With little significant corporate or economic news, broker rating changes and M&A talk influenced indices. A number of markets including Greece, Switzerland, Austria and Norway are closed for public holidays. No significant releases scheduled. The pound and the euro are trading at $1.6251 and $1.4332 respectively.


No key economic releases scheduled today.

Monday's Key Events (Eastern Time)

12:00 Copa Holdings Analyst Day
13:00 Echo Global Logistics Investor Day
—:— Bank of America Merrill Lynch UK House Builders 1-1 Forum
—:— CAPP Oil & Gas Investment Symposium
—:— Italian referendums; questions will include if to stop reintroduction of nuclear power
—:— Nanotech 2011 


Company Specific News

M&A
HZN.LN (Horizon acquires APR Energy for $855m (£527m) equity value)
RNO (Rhino Resources announces acquisition of Elk Horn Coal company for ~$120M cash with no assumption of debt)
TRH, AWH (Allied World agrees to acquire Transatlantic Holdings for $51.10/share in stock)
VFC, TBL (VF Corp to acquire The Timberland company for $43 per share)
WEN (Wendy’s/Arby’s group announces definitive agreement to sell Arby’s to Roark Capital group)

Positive News
NAV (Navistar awarded $357.1M USMC order for MaxxPro Dash vehicles)

Negative News
GILD (Gilead Sciences received a subpoena from the US Attorney’s Office for the Northern District of California)
MET (MetLife (MET) estimates $160-180M, after tax, in catastrophe losses in its Auto & Home business during Apr/May 2011)


Newspaper Articles / Headlines

All Things Digital
Spotify signs deal with Universal Music group. All Things Digital reports that Spotify has signed an American distribution deal with Universal Music group (VIV.FP). The article notes that the deal means that Spotify is likely to come to the U.S. this summer, now that it has U.S. deals in place with three of the four largest labels. People familiar with the matter tell All Things Digital that Spotify still doesn’t have a pact signed with Warner Music group but that the two are optimistic a deal will happen. The article notes that if the deal happens, Spotify will unlikely come to the states a before July.

Barron's
The Trader: Highlights the longest market slide since the financial crisis, International Paper's (IP) $3.38B cash bid for Temple-Inland (TIN) and discusses McDonald's (MCD) and Red Robin (RRGB)
- International Trader (Europe): Discusses why Greece's troubles overlook a potential situation with Europe's central bank
- International Trader (Asia): Highlights San Miguel (SMC.PM), a Philippine based brewer, as a play on growth in the Southeast Asia nation
- Current Yield: Notes that the risk aversion that sent equities down again last week also was felt in the bond market, specifically treasury yields and investment-grade and high-yield corporate bonds
The Striking Price: Discusses the markets potential reaction to the end of QE2
- Commodities Corner: Notes that futures for corn are high and likely to remain high due to tight supplies
- Up and Down Wall Street: Warns investors about scarecasts
- StreetWise: After the markets sixth week down, investors question whether 2011 will be more like 2010 or 2005
- D.C. Current: Discusses why President Obama's lack of ideas to boost the economy could effect his re-election
- Technology Trader: Apple (AAPL) and Google (GOOG) battle over the smartphone market while Motorola Mobility (MMI), Nokia (NOK) and Research in Motion (RIMM) struggle
- Plugged In: Discusses Apple's (AAPL) new operating systems and the iCloud
Gadget of the Week: Reviews Seagate Technology's (STX) GoFlex Satellite, a palm-sized, battery-powered hard drive that has a Wi-Fi transmitter built in
- ETF Focus: Highlights BlackRock (BLK)
- Fund of Information: Highlights last weeks Morningstar conference where speakers predicted tougher times will follow the end of QE2
- Speaking of Dividends: Mentions Target (TGT), Wal-Mart (WMT) Nordstrom (JWN), Kohl's (KSS), J.C. Penney (JCP), Marshall's, a unit of TJX Companies (TJX), Caterpillar (CAT), Bucyrus International (BUCY), and U.S. Home Systems (USHS)
- Economic Beat: This year's summer quarter should bring a rebound
- Follow- up: Positive on BorgWarner (BWA), discusses Fujitsu's (FJTSY) ADRs, negative on Aeropostale (ARO)
- Barron's profile highlights portfolio managers Tim Hartch and Michael Keller of BBH Core Select. Barron's notes that Hartch and Keller run $601M BBH Core Select (BBTEX), a no-load, large-blend fund. The article points out that Keller and Hartch won't buy any stock unless it's trading for at least a 25% discount to their intrinsic valuation and they start to trim as it gets within 10% of that valuation.
- Barron's feature positive on Carrefour. Barron’s argues that Carrefour’s (CA.FP) recent strategic troubles give investors a chance to bet on a profitable company with increasing presence in China and Brazil, motivated store ideas and a strong balance sheet. The article notes that shareholders have not bought into the company’s plan to decrease operations and increase earnings but argues that shareholders might be missing a bargain. Barron’s notes that conservative estimates say the stock could go to the low-to-mid 40s based on signs of a successful turnaround over the next year or so. The article highlights shareholder Todd Lowenstein of HighMark Capital, who estimates Carrefour could jump to €44 a share by 2013 and says investors could gain €60 per share in breakup value.
- Barron's feature positive on big investment banks. Barron’s argues that given the recent selloff in the sector, it could pay to buy profitable financial companies at these discounted levels. Barron’s points out that the book indicates liquidation value, which means that investors pay very little for franchises and earnings power. The article points out that regulations, weak economy and loan growth mortgage woes as well as slower institutional trading activity cause investors concern regarding financials. The article notes that some stocks, specifically Bank of America (BAC), Citigroup (C) and Morgan Stanley (MS), trade below tangible book. Barron's argues that based on book value and earnings, with the shares having the potential to rise 25% or more in the next year, the big financials might be worth a closer look. The article notes that if the shares rose 25%, several banks, including Goldman, Citi and Bank of America, would be about where they began 2011. The article also points out that the big U.S. financials, such as Citigroup, JPMorgan (JPM), Goldman Sachs (GS), Morgan Stanley and Wells Fargo (WFC) are better capitalized than most European peers.

Berliner Zeitung
Adidas targets €17B in annual sales by 2015. In an interview, CEO Herbert Hainer tells the Berliner Zeitung: Adidas is aiming to grow its Outdoor division from €200M to €500M in annual sales over the period, organically
Adidas wants its current sales proportion of 30% women to become 50%

Daily Mail
Tesco registering names for in-house brands as precursor for expansion. The Daily Mail reports that the names have been "secretly" registered for a wide range of products that are expected to be priced high enough that they could compete directly with goods that top suppliers sell Tesco. The article notes that Tesco's existing own-brand ranges tend to be priced lower.

Financial Times
- Mortgages at US banks performing worse than those held by the government finance companies. The FT, citing federal data made available to it, reports that the rate at which the bank-held loans are going delinquent raises questions about the amount of reserves held roughly 20% of non-government guaranteed mortgages held by the banks are at least 30 days late compared to 7% for loans held by Freddie MAC (FMCC) and Fannie Mae (FNMA) the only sector worse is morgtages packaged by banks and sold to investors.
- In interview, Unilever CEO Paul Polman tells FT acquisitions will not be necessary to double revenues. On the assumption that the doubling will occur within ten years -- Polman does not give the timeframe -- the FT calculates that he is effectively saying the company will grow 7-8% organically each year.
UK banks only owe £37B out of £185B borrowed from government. The FT, citing a Bank Of England release, reports that the amounts have been repaid ahead of schedule, with an estimates GBP80b expected to be outstanding at this stage. The article notes this may make banks less profitable as low-cost funding is replaced by costlier deposits.
Goldman Sachs, Clive Capital to launch commodities index. The FT reports that Goldman has already started marketing the index to risk-averse investors, as it is designed to minimize the risk of large losses. The index will use the prices of 19 raw materials; the article does not get specific about the schedule for the launch.
- AT&T says deal block may delay network. The FT, citing a filing with the FCC, reports that the FCC cannot assume that if the merger is blocked then it would still deploy a 4G network to cover 97% of the population.
WSJ is somewhat perplexed by Deutsche Börse's special dividend. A "Heard on the Street" column notes: There wasn't an obvious need for the dividend, given that Nasdaq OMX (NDAQ) and Intercontinental Exchange (ICE) gave up their pursuit of NYSE Euronext (NYX). It is unusual to offer the dividend to some stockholders -- those who tender their stock to the current exchange offer -- rather than all stockholders.
Southern Cross asked to name homes it plans to surrender. The FT, citing a letter sent by an MP and statements by politicians, reports that the company is getting pressurised by politicians and landlords to reveal more details of its plan to surrender control of some of its homes.
Retailers square up over online sales tax. The FT reports that Walmart (WMT) and Sears (SHLD) have been lobbying for a Federal tax as internet retailers have an unfair advantage as many buyers avoid sales tax. Amazon (AMZN) has said it will support a Federal tax law if it was simple and applied even-handedly. Ebay (EBAY) is against any sort of catch-all legislation. The article notes that the issue is becoming more important as states are more cash-strapped and will also have wider implications for overall consumer spending.
- Tesco's sales back to normal after a good April. Philip Clarke, CEO told the FT on the sidelines of a conference, that May was "very much quieter" and had returned to a " more normal level" after a "terrific April".
Chilean volcanic ash grounds Pacific flights. The FT reports that hundreds of flights have been cancelled in Australia and New Zealand after ash from a Chilean volcano swept across the area. The New Zealand civil aviation authority said flights may be affected for a week.
Builders to benefit from supermarket build-out. The FT reports that builders will benefit from retailers increasing spending as they try to increase market share. Large retail developments have helped as other sectors have been hit by overcapacity and economic uncertainty.
the expansion is being driven by Tesco (TSCO.LN) and Sainsbuty (SBRY.LN)
- US banks to cut Treasury use. US bank chiefs tell the FT, that They are preparing to cut their use of US Treasuries in August in case there is any fallout from the debt ceiling limit not being agreed. One strategy is to have more cash to put up as collateral against derivatives and other transactions, decreasing reliance on Treasuries. The article notes that the use of Tresuries is widespread in the financial system and a default could have serious ramifications.

Globe and Mail
Maple Group consortium gets more complicated. The Globe and Mail notes: The new members will dilute banks' control of stock and derivatives markets, if the bid for TMX Group goes through, which may help Maple get regulatory approval. The new members have different interests than do Maple's original members, and in any case, it is easier for nine voices to approve large decisions than it is for 13 to do so. The consortium has also become more complex in terms of the valuation of Alpha and CDS, since members that own shares have an interest in those assets' having higher values, while members that don't will benefit from those values' being lower.

Globes
- Noble Energy gets approval to develop Noa gas field. Globes, citing sources, reports that permission has been given to develop the gas reserve after the company told the Israel government that the field does not spill over into other parts of the reserve, partly under Palestinian jurisdiction. A letter from Petroleum Supervisor Michael gardosh states that the field contains 1.2B cubic metres of gas.

Los Angeles Times
Hulu obtains rights to three series to help it through summer; terms unrevealed. The LA Times reports that Hulu -- which faces the same seasonality issues that broadcast networks do -- will be showing Misfits, The Booth at the End, and Whites. Misfits and Whites are both British, which may mean they're not sure winners in the US.

New York Times
- NYT discusses whether Greece could be another Lehman event. The NYT discusses the fact that ECB officials and bond traders have argued that a restructuring of Greek debt would trigger investor panic while others argue that Greek's debts are too much for the country to bear but small enough to allow banks and others to take losses without such panic. The Greek crisis may trigger contagion in other countries. According to a recent Fitch report, around 44% of US money-market funds are invested in European short-term debt. American banks also have exposure to the region by selling credit-default swaps on sovereign debt, according to the BIS.
- Once he set up Ticketmaster's dominant system; now he seeks to destroy it. The NYT reports that Fredric Rosen's Outbox Enterprises is designed to cut Ticketmaster out of the equation, allowing venues to sell tickets et al directly to consumers. Rosen says the model that he created and Ticketmaster uses is 30 years old, and the unhappiness that the Live Nation-Ticketmaster merger engendered made him start thinking about an alternative system. The lengthy article spends a great deal of time describing Rosen's personality and history

SkyNews
Bank of China (601988.CH) interested in branches that Lloyds Banking Group is selling. Without citing sources, in his blog, Mark Kleinman says Bank of China has asked for information on the network, though a bid may not be forthcoming.

South China Morning Post
Macau casino licenses start to expire in 2020. Based on a conference held last week, the article breaks no news, but it reminds readers that casino licenses belong to the Macau government, and the existing ones expire in the following years: SJM Holdings (880.HK) and MGM China (2282.HK) - 2020
Wynn Resorts (WYNN), Melco Crown Entertainment (MPEL), Galaxy Entertainment Group (27.HK), and Sands China (1928.HK) - 2022

Sunday Business
- Doughty Hanson thought to have informally approached Greencore. The Sunday Business Post reports that the private-equity firm's interest was informal; sources close to Greencore say Doughty Hanson did not approach the company. The article says no talks are currently going on.

Sunday Telegraph
- Southern Cross faces rent bill of £5.78B. Citing the company's accounts, the Sunday Telegraph reports that the company's sale-and-leaseback deals last for 25 years, which ideally spreads the rent payments out, but they can't be canceled.

Telegraph
- Sale of MWB Business Exchange may be undone by dispute over ownership of subsidiary. The Telegraph reports that Paul Williams, a former partner, says that he holds 35% of MWB Executive Centres, and the development could affect the offers for MWB Business Exchange from both Regus (RGU.LN) and MWB (MWB.LN).
Barclays preparing to split its retail bank off if Independent Commission on Banking orders the move. Senior sources at Barclays tell the Telegraph the bank could proceed as soon as the report is published. The article says Barclays is suggesting: an internal payment platform to be funded with 90 days of cash by two broad operating subsidiaries. a corporate structure that would have a group holding company raise capital, allowing Barclays to allocate capital between a retail subsidiary and an "other" subsidiary
Barclays would like to issue a £250M trial CoCo after the FSA approves it to do so; the approval is expected within a month.

Wall Street Journal
WSJ discusses spread between Brent and WTI. The WSJ notes that the spread between the two contracts continues to widen, hitting nearly $20/barrel. the spread may be due to people thinking US economy is slowing vis vis the rest of the world. This has had the effect of people trading the Brent contract more than the WTI benefiting the ICE (ICE) over the CME (CME).
Citi defends hacking disclosure delay. The WSJ, citing a person familiar with the situation, reports that the reason it waited so long was that it was conducting an investigation and producing replacement cards. StreetAccount notes the company disclosed 8-Jun the hacking which occured early May.
WSJ is unabashedly negative on CSC. A "Heard on the Street" column says the company is badly positioned, not making the right moves, encountering accounting issues that could lead to a write-off, and seeing problems signing contracts with its largest customers.
WSJ thinks pay ratios at investment banks will need to come down further. A "Heard on the Street" column says that compensation ratios are 40-45%, vs 45-50% pre-crisis, and if returns don't improve, a downward revision in pay ratios is an obvious way to recut the pieces of the pie that investors in and employees of the banks get.
- Pfizer aims to extend Viagra patent. The WSJ reports that the company could hold out against generic competition until 2019 if it wins a Federal court case beginning Wednesday. The patent trial is against Teva Pharmaceutical (TEVA) as Pfizer atttempts to stop Teva from selling generic Viagra after the first patent expires next year.
- Regions Financial investigating whether executives kept souring loans under wraps during financial crisis. Citing court documents and people familiar with the matter, the WSJ reports that the Fed had raised the issue before the bank began an internal probe. Sources also say that Regions is probably going to settle SEC charges over subprime securities fraud for about $200M.
IBM working on its plan to find a new CEO. The WSJ cites people familiar with CEO Samuel Palmisano's thinking, but the article doesn't actually break very far beyond the barrier of the purely hypothetical. The sources expect Palmisano will name a president or COO in 12-18 months, thus choosing a successor. Top candidates include: sales chief Virgina Rometty -- the leading candidate, who would be IBM's first female CEO; one source says she has recently been headhunted. Global services boss Michael Daniels -- second favorite at this point. SVP for hardware Rodney Adkins -- a longer shot, who would be IBM's first minority CEO
Chevron quits $1B project in Russia's Black Sea. The WSJ reports that Chevron is quitting a $1B project in Russia's Black Sea, creating a setback for Rosneft's efforts to increase its international profile through partnerships with foreign oil companies. The article notes that BP (BP) and Rosneft (ROSN.RU) recently pulled out of an Arctic alliance that originated on opposition from BP's partners in its existing Russian joint venture, TNK-BP (TNBP.RU). The WSJ reports that Rosneft CEO Eduard Khudainatov told reporters that the reason Chevron pulled out of the deal was to jointly explore for oil in the Shatsky Ridge, a deepwater region of the Black Sea rumored to contain 6B barrels of oil, although Khudainatov said geologists in the two companies had disagreed over the size of the resource.
The article notes that Khudainatov insisted the two were likely to work together on other offshore projects. The article also points out that Khudainatov said Friday that Rosneft no longer considered BP a partner in the Arctic, and is likely to name a new partner this year.
- Ford ordered to pay $2B to truck dealers. The WSJ reports that Ford Motor Co. (F) must pay almost $2B in damages to thousands of dealers. The article notes that a Cleveland judge ordered the payment in the class-action lawsuit, filed in 2002, on behalf of 3K dealers who claimed Ford overcharged them on commercial truck sales. The WSJ reports that, according to the order filed by Judge Peter Corrigan, Ford had dealers pay a total of $800M more than they should have for the 474,289 trucks that were sold. According to the WSJ, Ford plans to appeal the ruling and believes the trial court committed legal errors.


Research

Bank of America Merrill Lynch: upgraded SRCL, RJET
Barclays: upgraded BAP
Benchmark: upgraded ERT
FBR Capital: upgraded PCX
Goldman Sachs: upgraded GXP, PEG; downgraded BMS
KeyBanc: upgraded R, ATR
Morgan Stanley: upgraded PX; downgraded CE
Needham: upgraded TTMI
Nomura Securities: upgraded LULU
Piper Jaffray: downgraded SOMX
RBC Capital: downgraded UTHR
RW Baird: upgraded VRA; downgraded DIOD, FCS
Stephens: upgraded WNC
Sterne Agee: upgraded UA
SunTrust: upgraded BEXP
Susquehanna: downgraded NSTC



No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

No comments:

Post a Comment