November 13, 2009
News from Danske Research
We present the November version of the Emerging Markets Briefer with updated FX forecasts Emerging Markets Briefer - 13 November 2009
News from Danske Research
The key events in EMEA next week will be the rate decisions in Turkey and South Africa. We expect the South African Reserve Bank (SARB) to keep its key policy rate unchanged at 7.0%. This is also the consensus expectation. At the same time we expect the Turkish Central Bank (TCMB) to cut its key policy rate by another 25bp to 6.50%. We think that this cut will mark the end of the Turkish monetary easing cycle and while we do not expect the TCMB to announce the end of the easing, it will most likely twist its communication in a less dovish direction, which might add moderate upside risk to Turkish market rates and yield next week.
New Europe Weekly, Week 47
New Europe Weekly, Week 47
News from Danske Research
This presentation provides our script for the ECB exit strategy
The ECB exit strategy How and when
The ECB exit strategy How and when
WSJ TOP NEWS
November 12, 2009 -- 4:30 p.m. EST
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1. Betsy McCaughey: What the Pelosi Health Care Bill Really Says
Here are some important passages in the 2,000 page legislation.
2. Confessions of an ObamaCare Backer
A liberal explains the political calculus.
3. Dorothy Rabinowitz: Dr. Phil and the Fort Hood Killer
His terrorist motive is obvious to everyone but the press and the Army brass.
4. The Lords of Entitlement
Every medical insurance decision will be subject to rationing by politics.
5. Life on Severance: Comfort, Then Crisis
Unemployed Americans who have used severance pay and savings to maintain their lifestyles are still out of work, and running out of funds.
• Photos: A Former Bank CEO's Story
• Discuss: Prospects for getting hired
• News Hub: When Severance Runs Out
Most Viewed Articles
1. Betsy McCaughey: What the Pelosi Health Care Bill Really Says
Here are some important passages in the 2,000 page legislation.
2. In Fort Hood, 4 Minutes of Chaos
Victims and witnesses came forward to describe the Fort Hood shootings, as authorities gathered information about alleged assailant Nidal Malik Hasan.
3. Can the Snood Save Christmas?
This holiday season, retailers are betting on the snood, a scarf-hood hybrid to warm up sales.
• Photos: A Snood for the Ages
4. Is It Time to Retire the Football Helmet?
While hard-shell helmets have reduced the chances of death on the field, they also created a sense of invulnerability that encouraged players to collide more forcefully and more often.
• Video: Time for Helmets to Come Off?
5. Life on Severance: Comfort, Then Crisis
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• Photos: A Former Bank CEO's Story
• Discuss: Prospects for getting hired
• News Hub: When Severance Runs Out
Most Commented Articles
1. Opinion: Dr. Phil and the Fort Hood Killer418 comments
2. Opinion: The Economic Uses of Al Gore337 comments
3. Life on Severance: Comfort, Then Crisis292 comments
4. Army Wasn't Told of Hasan's Emails268 comments
5. Bill Clinton Presses Senators to Pass Health Bill230 comments
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China reportedly plans strategic coal reserve
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Natixis (Hold, TP=€4.20) - Rating downgrade - The party is over. Time to get down to business (3p)
Please find below our latest publication:
Natixis (Hold, TP=€4.20) - Rating downgrade - The party is over. Time to get down to business (3p)
Update
Natixis reported Q3 earnings at €268m below our estimate of €386m. Nevertheless, these results included several exceptional items (GAPC +€66m, CDS -€319m, capital gain +€463m, revaluation of the spread on own debt -€143m and +€309m taken from collective provisions). Restated for exceptionals, earnings broke even, in line with our estimates. We were disappointed by the 5% increase in costs, as we had been expecting a decline like during the past 1.5 years, particularly as the deterioration was mainly attributable to Corporate & Investment Banking (+20% after -16% in Q2 and -19% in Q1). Conversely, risk weighted assets are still well under control, down -3.5% quarter on quarter, notably thanks to Corporate & Investment Banking (-8%).
Impact
The company reported Q3 results based on its new strategic orientation (CIB, Services and Asset Management) which reduced visibility. The group was slightly impacted by GAPC in Q3, only because of provision write-backs on its monolines (€500m). Q3 performances were in line with our projections in most businesses except for Asset Management, which remains disappointing compared with peers (outflows of €1bn vs inflows of €10.9bn at CASA). The cost of risk restated for part of the Q2 sector provision allocation was up sharply (196bp for the group) mainly on LBOs and real estate financing. Thus, we see no reason to raise our earnings estimates at this stage.
Target price & rating
The orientation of the strategic plan is positive but lacks visibility and the numerous exceptionals may cloud the visibility of the accounts over the medium term. Following an excellent performance (68% over three months), the low valuation (1x 2010e tangible book value) reflects this poor visibility. In our opinion, the market today discounts factors that are much too uncertain, such as the use of €3.9bn in deferred tax over an unknown period of time. We downgrade our rating to Hold vs Buy. Our SOP-based target price is unchanged at €4.2.
Next events & catalysts
The group will not provide details on the progress of its plan until the full year results publication at end-February.
Natixis (Hold, TP=€4.20) - Rating downgrade - The party is over. Time to get down to business (3p)
Update
Natixis reported Q3 earnings at €268m below our estimate of €386m. Nevertheless, these results included several exceptional items (GAPC +€66m, CDS -€319m, capital gain +€463m, revaluation of the spread on own debt -€143m and +€309m taken from collective provisions). Restated for exceptionals, earnings broke even, in line with our estimates. We were disappointed by the 5% increase in costs, as we had been expecting a decline like during the past 1.5 years, particularly as the deterioration was mainly attributable to Corporate & Investment Banking (+20% after -16% in Q2 and -19% in Q1). Conversely, risk weighted assets are still well under control, down -3.5% quarter on quarter, notably thanks to Corporate & Investment Banking (-8%).
Impact
The company reported Q3 results based on its new strategic orientation (CIB, Services and Asset Management) which reduced visibility. The group was slightly impacted by GAPC in Q3, only because of provision write-backs on its monolines (€500m). Q3 performances were in line with our projections in most businesses except for Asset Management, which remains disappointing compared with peers (outflows of €1bn vs inflows of €10.9bn at CASA). The cost of risk restated for part of the Q2 sector provision allocation was up sharply (196bp for the group) mainly on LBOs and real estate financing. Thus, we see no reason to raise our earnings estimates at this stage.
Target price & rating
The orientation of the strategic plan is positive but lacks visibility and the numerous exceptionals may cloud the visibility of the accounts over the medium term. Following an excellent performance (68% over three months), the low valuation (1x 2010e tangible book value) reflects this poor visibility. In our opinion, the market today discounts factors that are much too uncertain, such as the use of €3.9bn in deferred tax over an unknown period of time. We downgrade our rating to Hold vs Buy. Our SOP-based target price is unchanged at €4.2.
Next events & catalysts
The group will not provide details on the progress of its plan until the full year results publication at end-February.
MARKET DATAPOINTS
1) S&P 500 -0.5% after the EU close - closing -1.0% at 1087. In spite of breaking through 1100 twice yesterday morning on the back of better than expected jobless data, a weak holiday outlook from Macy’s and bearish DOE stats weighed on shares, causing US equities to close at their lows of the day. Volumes remained particularly light with NYSE volumes trending 20% below 20-day average. Commodities seemed to be leading the equities market yesterday, with oil down -3.1% on the day at $76.82 after DOE stats showed a bigger than expected buildup in oil stockpiles. Treasuries were stronger, in line with the pullback in equities, despite a weaker than expected $16 billion 30-year auction. Tech (-0.4%), Consumer Staples (-0.5%) and Healthcare (-0.5%) underperforming. Energy (-2.0%) and Financials (-1.8%) underperforming.
2) Obama announcing jobs summit in December, and Senate likely to consider jobs bill in early 2010, suggest more explicit focus on jobs creation, and significant upside risk to our forecast of $75 bn additional fiscal stimulus in 2010. Alec Phillips: Momentum behind additional fiscal support for the economy appears to be building, with two recent developments implying a greater likelihood of further stimulus than even a few weeks ago: (1) comments from Senate Majority Leader Reid that the Senate was likely to consider a “jobs” bill in early 2010; and (2) the announcement today by President Obama that the White House would convene a “jobs summit” in December. A more explicit focus on job creation would: (1) increase the likelihood of new polices, rather than simple extension of existing ones; (2) raise the odds of additional fiscal assistance for states and infrastructure spending; (3) incrementally increase the probability of additional tax relief in 2010; (4) push health reform and energy legislation down the agenda for 2010 and probably increase the likelihood that Congress scales back the legislation it is contemplating in these areas; and (5) places even more pressure on the administration to demonstrate a path to medium-term fiscal consolidation. We continue to assume that Congress enacts $250 billion in additional fiscal measures to support growth over the next three years, including $75 billion more in 2010. However, recent developments – including the $45bn bill enacted last Friday – make this assumption look more conservative than ever.
3) DOE stats - inventories higher than expected across the board - distillate demand has yet to rebound. See first attachment.
4) Initial jobless claims continue to decline at a modest pace. Initial claims -12,000 to 502,000 in week ended November 7, vs. consensus 510,000, as the layoff pace has apparently eased up.
5) Industrial production, car sales, credit growth & construction output are pointing to sharper than expected acceleration in Euroland GDP in 3Q. Our Euroland GDP tracker, based on IP, car sales, credit growth and construction output, suggests GDP rebounded sharply to c. +0.8% qoq in Q3, imparting upside risks to our forecast of +0.5%qoq (see second attachment).
6) Euro-zone lending to households, and housing investment, leading GDP by 1-2 quarters - pointing to recovery in Euro-zone GDP in 2H09 & 2010 - Germany best placed - Spain worst. While lending to non-financial corporations tends to lag the Euro-zone business cycle by some 2–3 quarters, lending to households leads it by one quarter (see third attachment, p. 4, Chart 1). Moreover, housing investment turns 1–2 quarters before the rest of the economy (see third attachment, p. 4, Chart 2). In this sense, the pick-up in mortgage lending since May (see third attachment, p. 5, Chart 4), and the timid turnaround in housing investment growth in Q2 can be seen as a forerunner of further momentum in investment and of a broader recovery in the second half of this year and, if maintained, in 2010. A better performance of housing investment, however, is unlikely to be uniform across countries. Germany appears to be best-placed to benefit from the contribution of housing investment to overall growth: the supply of new homes in recent years has not been excessive while house prices look rather cheap; household net worth has improved relative to its recent history; labour market prospects are less gloomy than in other countries, and banks have tightened credit standards only moderately over the past year. Spain appears to be worst-placed.
7) Strong India industrial production in September points towards continued recovery. India industrial production Index rose 9.1% yoy in September compared to an upwardly revised 11% yoy growth in August. The IP reading was significantly higher than consensus forecast of 7% yoy. The quarterly momentum softened to 4.6% qoq in September, from 6.1% qoq in August. Leading indicators such as our Goldman Sachs India Financial Conditions Index and several business and consumer confidence indices suggest that data over the next few months will continue to tread gradually higher.
8) Corporate equity flows have been extremely bullish so far in November. TrimTabs: So far in November, announced corporate buying (new cash takeovers + new stock buybacks) of $47.0 billion has been almost five times higher than corporate selling (new offerings + net insider selling) of $10.0 billion. Having said that, the breadth of activity has been nowhere near as impressive as the volume. All but $12.6 billion of the announced corporate buying has come from the Burlington Northern Santa Fe buyout, the Cisco buyback, and the IMS Health buyout.
9) Warren Buffett - BBC's Evan Davis meets the world's greatest money maker in his office in Omaha. Part 1: http://www.youtube.com/watch?v=MuR7XcDJw0I. Part 2: http://www.youtube.com/watch?v=LH03WyBpgjU. Part 3: http://www.youtube.com/watch?v=nc1HAG4sMD0. Part 4: http://www.youtube.com/watch?v=XgCv5CqRws0. Part 5: http://www.youtube.com/watch?v=ljOH1j7emWw. Part 6: http://www.youtube.com/watch?v=jE-nbeqjqiI
10) Research focus today...
Lloyds...................................................Buy: Life without GAPS: Focus on pre-provision profits and credit quality
Bouygues..............................................Buy: Conviction Buy: Margin visibility increases post in-line 3Q revenues
Acciona.................................................Buy: Reiterating Conviction Buy after 9M results: at inflection point
Dividend Swap Monitor............................Assessing up- and downside risks to short-dated Nikkei 225 dividends (November 2009)
Capital Goods........................................UK: 3Q IMS wrap-up; Cookson remains Conviction Buy, IMI Buy Utilities..................................................Water: Reiterate CL Sell on UU ahead of final determination (November 26)
Aveva.....................................................Buy: Focus shifts from resiliency to structural growth potential; CL Buy
Gamesa.................................................Upgrading estimates and target price on solid margins, remains Buy
CEZ.......................................................Weaker EBITDA, better net income at 9M09; guidance confirmed RWE......................................................Sell: Reiterate Sell: Premium rating undermined by low earnings growth
Danieli....................................................First Take: Continued margin improvement, positioning for upturn
Have a good weekend!
2) Obama announcing jobs summit in December, and Senate likely to consider jobs bill in early 2010, suggest more explicit focus on jobs creation, and significant upside risk to our forecast of $75 bn additional fiscal stimulus in 2010. Alec Phillips: Momentum behind additional fiscal support for the economy appears to be building, with two recent developments implying a greater likelihood of further stimulus than even a few weeks ago: (1) comments from Senate Majority Leader Reid that the Senate was likely to consider a “jobs” bill in early 2010; and (2) the announcement today by President Obama that the White House would convene a “jobs summit” in December. A more explicit focus on job creation would: (1) increase the likelihood of new polices, rather than simple extension of existing ones; (2) raise the odds of additional fiscal assistance for states and infrastructure spending; (3) incrementally increase the probability of additional tax relief in 2010; (4) push health reform and energy legislation down the agenda for 2010 and probably increase the likelihood that Congress scales back the legislation it is contemplating in these areas; and (5) places even more pressure on the administration to demonstrate a path to medium-term fiscal consolidation. We continue to assume that Congress enacts $250 billion in additional fiscal measures to support growth over the next three years, including $75 billion more in 2010. However, recent developments – including the $45bn bill enacted last Friday – make this assumption look more conservative than ever.
3) DOE stats - inventories higher than expected across the board - distillate demand has yet to rebound. See first attachment.
4) Initial jobless claims continue to decline at a modest pace. Initial claims -12,000 to 502,000 in week ended November 7, vs. consensus 510,000, as the layoff pace has apparently eased up.
5) Industrial production, car sales, credit growth & construction output are pointing to sharper than expected acceleration in Euroland GDP in 3Q. Our Euroland GDP tracker, based on IP, car sales, credit growth and construction output, suggests GDP rebounded sharply to c. +0.8% qoq in Q3, imparting upside risks to our forecast of +0.5%qoq (see second attachment).
6) Euro-zone lending to households, and housing investment, leading GDP by 1-2 quarters - pointing to recovery in Euro-zone GDP in 2H09 & 2010 - Germany best placed - Spain worst. While lending to non-financial corporations tends to lag the Euro-zone business cycle by some 2–3 quarters, lending to households leads it by one quarter (see third attachment, p. 4, Chart 1). Moreover, housing investment turns 1–2 quarters before the rest of the economy (see third attachment, p. 4, Chart 2). In this sense, the pick-up in mortgage lending since May (see third attachment, p. 5, Chart 4), and the timid turnaround in housing investment growth in Q2 can be seen as a forerunner of further momentum in investment and of a broader recovery in the second half of this year and, if maintained, in 2010. A better performance of housing investment, however, is unlikely to be uniform across countries. Germany appears to be best-placed to benefit from the contribution of housing investment to overall growth: the supply of new homes in recent years has not been excessive while house prices look rather cheap; household net worth has improved relative to its recent history; labour market prospects are less gloomy than in other countries, and banks have tightened credit standards only moderately over the past year. Spain appears to be worst-placed.
7) Strong India industrial production in September points towards continued recovery. India industrial production Index rose 9.1% yoy in September compared to an upwardly revised 11% yoy growth in August. The IP reading was significantly higher than consensus forecast of 7% yoy. The quarterly momentum softened to 4.6% qoq in September, from 6.1% qoq in August. Leading indicators such as our Goldman Sachs India Financial Conditions Index and several business and consumer confidence indices suggest that data over the next few months will continue to tread gradually higher.
8) Corporate equity flows have been extremely bullish so far in November. TrimTabs: So far in November, announced corporate buying (new cash takeovers + new stock buybacks) of $47.0 billion has been almost five times higher than corporate selling (new offerings + net insider selling) of $10.0 billion. Having said that, the breadth of activity has been nowhere near as impressive as the volume. All but $12.6 billion of the announced corporate buying has come from the Burlington Northern Santa Fe buyout, the Cisco buyback, and the IMS Health buyout.
9) Warren Buffett - BBC's Evan Davis meets the world's greatest money maker in his office in Omaha. Part 1: http://www.youtube.com/watch?v=MuR7XcDJw0I. Part 2: http://www.youtube.com/watch?v=LH03WyBpgjU. Part 3: http://www.youtube.com/watch?v=nc1HAG4sMD0. Part 4: http://www.youtube.com/watch?v=XgCv5CqRws0. Part 5: http://www.youtube.com/watch?v=ljOH1j7emWw. Part 6: http://www.youtube.com/watch?v=jE-nbeqjqiI
10) Research focus today...
Lloyds...................................................Buy: Life without GAPS: Focus on pre-provision profits and credit quality
Bouygues..............................................Buy: Conviction Buy: Margin visibility increases post in-line 3Q revenues
Acciona.................................................Buy: Reiterating Conviction Buy after 9M results: at inflection point
Dividend Swap Monitor............................Assessing up- and downside risks to short-dated Nikkei 225 dividends (November 2009)
Capital Goods........................................UK: 3Q IMS wrap-up; Cookson remains Conviction Buy, IMI Buy Utilities..................................................Water: Reiterate CL Sell on UU ahead of final determination (November 26)
Aveva.....................................................Buy: Focus shifts from resiliency to structural growth potential; CL Buy
Gamesa.................................................Upgrading estimates and target price on solid margins, remains Buy
CEZ.......................................................Weaker EBITDA, better net income at 9M09; guidance confirmed RWE......................................................Sell: Reiterate Sell: Premium rating undermined by low earnings growth
Danieli....................................................First Take: Continued margin improvement, positioning for upturn
Have a good weekend!
November 12, 2009
China: Appreciation pressure intensifies
News from Danske Research
The political pressure on China from within Asia has increased with the finance ministers from both Indonesia and Singapore yesterday calling for yuan appreciation and APEC finance ministers today pledging to embrace flexible exchange rates. The Peoples Bank of China in its quarterly report yesterday prepared the ground for a change in China's exchange rate policy. With China's exports recovering, the Chinese leadership is sounding more confident about growth, and with political pressure intensifying, we believe the conditions are ripe for a change in China's exchange rate policy. We still expect the gradual appreciation of the yuan to be resumed by mid 2010. However, the risk it could start earlier has increased. A major one-off revaluation cannot be ruled out, while a complete float is highly unlikely.
OECD in Figures 2009
OECD's original, simple to use, pocket-sized data book. As ever, this year’s edition contains key data on the OECD-wide economy, society and the environment. There are comparable tables covering the entire spectrum of the organisation's work.
The e-Book - PDF format is Free.
The e-Book - PDF format is Free.
Flash Comment - G20-meeting: Tobin tax steals headlines
News from Danske Research
With G20 countries on a time schedule for coordinating and reviewing individual countries' economic policies, the process already revealed some weakness as G20 was not able to agree on more specific policy goals. UK Prime Minister's proposal to tax financial transactions is dead on arrival. However, a special tax on financial institutions to finance future bailouts remains on the agenda. Exchange rates issues were avoided in the final communiqué. However, IMF believes CNY is significantly undervalued and it will be hard to avoid exchange rates issues in the review process starting early next year. In addition, IMF put forward seven basic principles for exit policies.
Flash Comment - G20-meeting: Tobin tax steals headlines
With G20 countries on a time schedule for coordinating and reviewing individual countries' economic policies, the process already revealed some weakness as G20 was not able to agree on more specific policy goals. UK Prime Minister's proposal to tax financial transactions is dead on arrival. However, a special tax on financial institutions to finance future bailouts remains on the agenda. Exchange rates issues were avoided in the final communiqué. However, IMF believes CNY is significantly undervalued and it will be hard to avoid exchange rates issues in the review process starting early next year. In addition, IMF put forward seven basic principles for exit policies.
Flash Comment - G20-meeting: Tobin tax steals headlines
Flash Comment - Latvia: decline has bottomed out
News from Danske Research
Latvian GDP dropped 18.4% y/y in Q3 09, slightly up from minus 18.7% y/y in Q2 09.
Flash Comment - Latvia: decline has bottomed out
Latvian GDP dropped 18.4% y/y in Q3 09, slightly up from minus 18.7% y/y in Q2 09.
Flash Comment - Latvia: decline has bottomed out
Flash Comment - Baltics: on a deflationary trend
News from Danske Research
Lithuanian inflation decelerated to 1.3% in October, from 2.7% y/y in September. Latvian inflation entered negative territory, with CPI dropping to -0.9% y/y in October, down significantly from 0.5% y/y in September.
China: A more balanced recovery
News from Danske Research:
Today's economic data suggest that China's recovery is becoming more balanced with private domestic demand and exports substituting public investments as the main growth engines. However, the October data is not as strong as today's press headlines suggest. Growth in domestic demand and imports have slowed and Chinese imports of important commodities declined substantially in October. However, some of this weakness is probably explained by an extended holiday in October and should prove temporary. Underlying inflation has stabilised around 2%, suggesting no imminent need for substantial monetary tightening.
Flash Comment - China: A more balanced recovery
Today's economic data suggest that China's recovery is becoming more balanced with private domestic demand and exports substituting public investments as the main growth engines. However, the October data is not as strong as today's press headlines suggest. Growth in domestic demand and imports have slowed and Chinese imports of important commodities declined substantially in October. However, some of this weakness is probably explained by an extended holiday in October and should prove temporary. Underlying inflation has stabilised around 2%, suggesting no imminent need for substantial monetary tightening.
Flash Comment - China: A more balanced recovery
What the obscure Vopak says about the oil market
LONDON (MarketWatch) -- The financial world isn't preoccupied with oil at the moment, not with issues like Goldman Sachs bonuses or Federal Reserve exit strategies to consider.
But it wasn't that long ago that oil was the number-one topic in the market, and should black gold resume prominence, the update on Thursday from a relatively obscure Dutch firm called Vopak /quotes/comstock/24s!e:vpk (NL:VPK 54.19, +2.62, +5.12%) should be eyed.
Vopak is the world's largest independent tank terminal operator, so when it comes to storing oil, liquefied natural gas and the like, they know a few things.
And on Thursday, the group raised earnings guidance for the second time this year.
The reason? There are a few, but the main one is that demand for storing oil is strong.
A major reason to store, rather than sell, oil is if there aren't buyers for it. (Another would be a bet that prices in the future will grow significantly, but the futures complex at the moment is pricing in a 7% rise in 12 months and a 16% rise over five years -- hardly an irresistible siren song.)
Also take a look at what A.P. Moller-Maersk /quotes/comstock/23u!0lqm (UK:0LQM 0.00, 0.00, 0.00%) , the shipping giant, said in its nine-month report on Thursday: "There are no short-term prospects of higher demand for oil and gas transports." About the only good news they reported in the third quarter from that division came as vessels were increasingly used as offshore storage facilities.
And what those European firms are saying tracks with what the admittedly-not-always-truthful OPEC has been maintaining all along -- the market is very well supplied.
And similarly, while the International Energy Agency on Thursday hiked its 2009 and 2010 oil demand outlook, it pointed out that demand for gasoil used in railways and trucks is still pretty weak.
And, as the IEA also pointed out, the current price itself could derail recovery.
What it all suggests is that while demand for oil is certainly on the upswing, fundamentals aren't entirely behind the more than doubling in oil from February lows. Speculators getting ahead of themselves? Nah, it couldn't be.
In a market where oil reached as high as $147 a barrel, predicting prices is a fool's game. But know this -- there's plenty of oil sloshing around without a home.
But it wasn't that long ago that oil was the number-one topic in the market, and should black gold resume prominence, the update on Thursday from a relatively obscure Dutch firm called Vopak /quotes/comstock/24s!e:vpk (NL:VPK 54.19, +2.62, +5.12%) should be eyed.
Vopak is the world's largest independent tank terminal operator, so when it comes to storing oil, liquefied natural gas and the like, they know a few things.
And on Thursday, the group raised earnings guidance for the second time this year.
The reason? There are a few, but the main one is that demand for storing oil is strong.
A major reason to store, rather than sell, oil is if there aren't buyers for it. (Another would be a bet that prices in the future will grow significantly, but the futures complex at the moment is pricing in a 7% rise in 12 months and a 16% rise over five years -- hardly an irresistible siren song.)
Also take a look at what A.P. Moller-Maersk /quotes/comstock/23u!0lqm (UK:0LQM 0.00, 0.00, 0.00%) , the shipping giant, said in its nine-month report on Thursday: "There are no short-term prospects of higher demand for oil and gas transports." About the only good news they reported in the third quarter from that division came as vessels were increasingly used as offshore storage facilities.
And what those European firms are saying tracks with what the admittedly-not-always-truthful OPEC has been maintaining all along -- the market is very well supplied.
And similarly, while the International Energy Agency on Thursday hiked its 2009 and 2010 oil demand outlook, it pointed out that demand for gasoil used in railways and trucks is still pretty weak.
And, as the IEA also pointed out, the current price itself could derail recovery.
What it all suggests is that while demand for oil is certainly on the upswing, fundamentals aren't entirely behind the more than doubling in oil from February lows. Speculators getting ahead of themselves? Nah, it couldn't be.
In a market where oil reached as high as $147 a barrel, predicting prices is a fool's game. But know this -- there's plenty of oil sloshing around without a home.
News from Danske Research
Estonian GDP declined by 15.3% y/y in Q3 09, up from -16.1% y/y in Q2 09. Flash Comment - Estonia: decline in growth decelerates
E.ON (Buy, TP=€36.8) - Quarterly results - Better-than-expected results against a still difficult backdrop (3p)
Please find below our latest publication:
E.ON (Buy, TP=€36.8) - Quarterly results - Better-than-expected results against a still difficult backdrop (3p)
Update
The group reported Q3 adjusted EBIT of €1,959m, up 1% (vs €1,920m for the Inquiry Financial consensus and €1,848m for our estimate). We believe that this is an excellent performance against a deteriorated economic backdrop (and lower volumes), which notably reflects the company's ability to cut costs. Moreover, E.ON discussed at length certain aspects of its gas contracts and stated that it expects a pick up in gas volumes for 2011e.
Impact
For now, we maintain our estimates which, although prudent on Q3, discount a rebound in Q4, notably thanks to access to the Russian gas field Yussno Rhuskoye (management specified that this was effective from October 2009), which in our opinion will allow E.ON to reduce its gas supply costs. We note that E.ON is the second-largest “beneficiary” of take-or-pay contracts in Europe (behind ENI – see our preview). E.ON indicated it had sold its network for €0.9bn but that this disposal (as well as that of Tüega) would reduce debt only in 2010.
Target price & rating
We maintain our Buy rating on the share. The positive momentum from 2008 results (in March 2009) appears intact: debt reduction and restructuring are under way, and the company's repositioning on the gas value chain is partially complete (giving it more consistent upstream access). The company should soon present new 2012 guidance, potentially reducing capex and boosting its cost-cutting plan (March 2010? at the 2009 full year earnings publication). We maintain a target price of €36.8, as established in our note published on 17 September.
Next events & catalysts
The finalisation of the agreement between electricity producers and the government coalition should prompt a rally of about 5% (prices rose after the German general elections). Management may update guidance as of March 2010, which could take into account reduced capex and stronger cost-cutting. Further disposals (North American assets) are expected to complete the €10bn asset sale programme.
E.ON (Buy, TP=€36.8) - Quarterly results - Better-than-expected results against a still difficult backdrop (3p)
Update
The group reported Q3 adjusted EBIT of €1,959m, up 1% (vs €1,920m for the Inquiry Financial consensus and €1,848m for our estimate). We believe that this is an excellent performance against a deteriorated economic backdrop (and lower volumes), which notably reflects the company's ability to cut costs. Moreover, E.ON discussed at length certain aspects of its gas contracts and stated that it expects a pick up in gas volumes for 2011e.
Impact
For now, we maintain our estimates which, although prudent on Q3, discount a rebound in Q4, notably thanks to access to the Russian gas field Yussno Rhuskoye (management specified that this was effective from October 2009), which in our opinion will allow E.ON to reduce its gas supply costs. We note that E.ON is the second-largest “beneficiary” of take-or-pay contracts in Europe (behind ENI – see our preview). E.ON indicated it had sold its network for €0.9bn but that this disposal (as well as that of Tüega) would reduce debt only in 2010.
Target price & rating
We maintain our Buy rating on the share. The positive momentum from 2008 results (in March 2009) appears intact: debt reduction and restructuring are under way, and the company's repositioning on the gas value chain is partially complete (giving it more consistent upstream access). The company should soon present new 2012 guidance, potentially reducing capex and boosting its cost-cutting plan (March 2010? at the 2009 full year earnings publication). We maintain a target price of €36.8, as established in our note published on 17 September.
Next events & catalysts
The finalisation of the agreement between electricity producers and the government coalition should prompt a rally of about 5% (prices rose after the German general elections). Management may update guidance as of March 2010, which could take into account reduced capex and stronger cost-cutting. Further disposals (North American assets) are expected to complete the €10bn asset sale programme.
Scottish & Southern Energy (Sell, TP=960.0p) - Half-year results - No major surprises in the interim release (3p)
Please find below our latest publication:
Scottish & Southern Energy (Sell, TP=960.0p) - Half-year results - No major surprises in the interim release (3p)
Update
Scottish & Southern reported interim results (H1 09/10) close to our expectations: underlying pre-tax profit of £396m vs SGe £402m and adjusted operating profit of £579m vs SGe £523m. Note that all businesses contributed to growth with production/supply of electricity contributing £227m vs SGe £200m. The group reported net debt of £5.1bn and guided for full-year net debt of £5.5bn by year-end (March 2010).
Impact
We reiterate our full-year forecasts. The conference call on the results presentation did not provide any data to lead us to change our approach. We continue to believe that the group is overinvesting (with a five-year plan amounting to £6.7bn out to 2013) and £1.4bn projected for the current year. This policy could force the group to make a capital increase (an eventuality management has ruled out for the moment). Such a move would most definitely be required if the group opts to buy the network assets up for sale by EDF Energy (regulated asset value of £3.6bn)
Target price & rating
We reiterate our Sell rating on the share, as its main strengths are also likely to act as obstacles to any rerating: high net debt (3x 09/10e EBITDA), diversified contributions to operating profit (electricity, networks, telecoms, gas storage), large customer base (but likely increase in defaults on payment) and investment in electricity production (although, for some time, the group persisted in maintaining that it had an even spread between supply and production). We reiterate our 960p TP (see our 2 July 2009 report).
Next events & catalysts
SSE is continuing with its plans to build electricity generation facilities (wind and gas) which should come into service over the current year and subsequent years. EDF's regulated network assets are to be sold during H1 10. SSE should also start to consider construction of one or more nuclear power plants in the UK, as part of a consortium.
Scottish & Southern Energy (Sell, TP=960.0p) - Half-year results - No major surprises in the interim release (3p)
Update
Scottish & Southern reported interim results (H1 09/10) close to our expectations: underlying pre-tax profit of £396m vs SGe £402m and adjusted operating profit of £579m vs SGe £523m. Note that all businesses contributed to growth with production/supply of electricity contributing £227m vs SGe £200m. The group reported net debt of £5.1bn and guided for full-year net debt of £5.5bn by year-end (March 2010).
Impact
We reiterate our full-year forecasts. The conference call on the results presentation did not provide any data to lead us to change our approach. We continue to believe that the group is overinvesting (with a five-year plan amounting to £6.7bn out to 2013) and £1.4bn projected for the current year. This policy could force the group to make a capital increase (an eventuality management has ruled out for the moment). Such a move would most definitely be required if the group opts to buy the network assets up for sale by EDF Energy (regulated asset value of £3.6bn)
Target price & rating
We reiterate our Sell rating on the share, as its main strengths are also likely to act as obstacles to any rerating: high net debt (3x 09/10e EBITDA), diversified contributions to operating profit (electricity, networks, telecoms, gas storage), large customer base (but likely increase in defaults on payment) and investment in electricity production (although, for some time, the group persisted in maintaining that it had an even spread between supply and production). We reiterate our 960p TP (see our 2 July 2009 report).
Next events & catalysts
SSE is continuing with its plans to build electricity generation facilities (wind and gas) which should come into service over the current year and subsequent years. EDF's regulated network assets are to be sold during H1 10. SSE should also start to consider construction of one or more nuclear power plants in the UK, as part of a consortium.
Unicredit Group (Hold, TP=€2.40) - Quarterly results - Mixed set of results, sound core tier 1 (5p)
Please find below our latest publication:
Unicredit Group (Hold, TP=€2.40) - Quarterly results - Mixed set of results, sound core tier 1 (5p)
Update
UCG reported weak core revenue (NII + net fees), 3% below market consensus and 5% below SGe. NII was weak (4% below consensus and 7% below SGe) on: 1) lower trading related income, 2) 3M Euribor drop (-45 bps qoq, and 3) a loan book reduction (-3.4% qoq). The overdraft fee impact on NII was negative by €131m, of which 50% was recovered in net fees. All divisions, but CEE and Poland, were sharply affected by the NII drop. Net fees were a touch below expectations, while trading income came in well above market consensus and SGe, thanks to the robust contribution of Rates & FX, Credit related business (former MIB division). LLP came in a touch better, at 150 bps (vs. 154 bps SGe - adjusted by the shrinking lending volumes). Without the one-off charge in Kazakhstan, LLP stood at 134 bps. LLP was better in all divisions, but CIB (148 bps vs. 144 SGe). The CEE LLP stood at 344 bps (vs. 388 SGe). Gross impaired loans grew by 8% q-o-q, with new inflows declining qoq. NPL coverage fell from 64.2% to 62.7%. Good news was the core tier 1 jumped by 70 bps qoq to 7.55% thanks to 1) earnings, 2) increasing AFS reserves, and 3) a sharp reduction in RWA (-6% qoq). The core tier 1 does not embed any dividend accruals. Net borrowing from banks was down 46% qoq.
Impact
De-leveraging actions and the reduction in the risk profile are the UCG short-term priorities, but this puts the P&L under pressure. Management is confident that the peak of LLP was touched in Q2 and that NII has bottomed, adding some ‘through the cycle' guidance: 1) €500m positive impact to NII – 1.7% of 2010e revenue- for a 100 bps parallel shift of the yield curve), 2) improving asset management mix, 3) 3,800 headcount cuts in 2010e, and 4) CEE GDP up 1% in 2010e.
Target price & rating
With €1.33bn earnings in 9M09, our €1.94bn net profit 2009e target could be demanding, but not impossible; 2010 will be another tough year if the cycle does not recover and rates don't rise: NII is the main issue. Our estimates and SOP €2.4 TP are unchanged. Hold.
Next events & catalysts
€4bn rights issue early 2010e. The lower visibility of the divisional reporting is a negative.
HSBC (Buy, TP=820.0p) - Rating upgrade - US burden easing and Asian recovery accelerating – upgrade to BUY (8p)
Please find below our latest publication:
HSBC (Buy, TP=820.0p) - Rating upgrade - US burden easing and Asian recovery accelerating – upgrade to BUY (8p)
Update
The US Finance division, which has been the group's Achilles' heel, booked much lower impairment charges in Q3 (35% lower than peak in Q4 08) and even surpassed HSBC's expectations. Elsewhere, asset quality in Asia and Latam is not an issue in our view, with impairment charges also falling in those geographies. Asia is showing signs of recovering and HSBC reported positive lending growth in the region, offsetting continuing pressure on deposit margin spreads. A core tier 1 ratio of 9% re-establishes HSBC as one of the better capitalised banks in Europe and the reversal of the AFS deficit from $18bn to $14bn should further enhance the group's capital position.
Impact
We have upgraded our earnings estimates by 8-13% for 2010/11 driven by a number of factors. Improving asset quality in the US and the absence of deterioration elsewhere should imply lower impairment charges in the near term. We are lowering our PFS US impairment charge by c.20% by 2011e. Although not immediately impacted, we expect an improvement in net interest margin from 2011 onwards as we estimate HSBC's margin is close to its trough in relation to the liability side of the balance sheet. Note that we remain cautious as we assume only moderate improvement, nowhere close to the recent peak in 2007. Looking elsewhere, we expect HSBC's investment banking division to perform in line with European peers despite its strong presence in Asian IB where economic growth could return the soonest in our view.
Target price & rating
We raise our TP by 20% from 680p to 820p on the back of (i) our earnings upgrade (c.10%); (ii) $/£ movements; and (iii) a lower cost of equity and higher growth given the improving outlook. At our TP, the implied P/TB is 2.1x 2010e vs 1.6x for Euro banks, a ratio we regard as undemanding given management's target ROE of 15-19%. A premium valuation is warranted in our view given HSBC's strong capital position, liquid balance sheet and genuine diversification in both geography and product mix – all without government support.
Next events & catalysts
HSBC will present at SG's Premium Review on 2/3 December
HSBC (Buy, TP=820.0p) - Rating upgrade - US burden easing and Asian recovery accelerating – upgrade to BUY (8p)
Update
The US Finance division, which has been the group's Achilles' heel, booked much lower impairment charges in Q3 (35% lower than peak in Q4 08) and even surpassed HSBC's expectations. Elsewhere, asset quality in Asia and Latam is not an issue in our view, with impairment charges also falling in those geographies. Asia is showing signs of recovering and HSBC reported positive lending growth in the region, offsetting continuing pressure on deposit margin spreads. A core tier 1 ratio of 9% re-establishes HSBC as one of the better capitalised banks in Europe and the reversal of the AFS deficit from $18bn to $14bn should further enhance the group's capital position.
Impact
We have upgraded our earnings estimates by 8-13% for 2010/11 driven by a number of factors. Improving asset quality in the US and the absence of deterioration elsewhere should imply lower impairment charges in the near term. We are lowering our PFS US impairment charge by c.20% by 2011e. Although not immediately impacted, we expect an improvement in net interest margin from 2011 onwards as we estimate HSBC's margin is close to its trough in relation to the liability side of the balance sheet. Note that we remain cautious as we assume only moderate improvement, nowhere close to the recent peak in 2007. Looking elsewhere, we expect HSBC's investment banking division to perform in line with European peers despite its strong presence in Asian IB where economic growth could return the soonest in our view.
Target price & rating
We raise our TP by 20% from 680p to 820p on the back of (i) our earnings upgrade (c.10%); (ii) $/£ movements; and (iii) a lower cost of equity and higher growth given the improving outlook. At our TP, the implied P/TB is 2.1x 2010e vs 1.6x for Euro banks, a ratio we regard as undemanding given management's target ROE of 15-19%. A premium valuation is warranted in our view given HSBC's strong capital position, liquid balance sheet and genuine diversification in both geography and product mix – all without government support.
Next events & catalysts
HSBC will present at SG's Premium Review on 2/3 December
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