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NEWS
th
00th
2014 2014
10 MONTH
Novemeber
Last week saw markets edge slightly higher, with European indices up ~0.5% on the week. We saw potential for markets
to gain a further 1-3% before meeting new resistance. As such, we continue to see the possibility for a small move higher
this week, though we remain selective with our stock picks. Modestly better earnings and dovish comments from Central
Banks have buoyed markets. However, we note that the rally since mid Oct has been on far weaker volume than the
selloff seen at the start of the quarter, suggesting a lack of conviction on the part of investors. This week will see some
key economic data, with Chinese PPI and CPI Monday, Bank of England Inflationary report on Wednesday, Chinese
Retail Sales & Industrial Production, German CPI and ECB Monthly report on Thursday, and the week concludes with
German GDP, Eurozone CPI, US Retail Sales and University of Michigan Business Confidence on Friday.
Equities Commentary
This week’s market events
Big Oil – Exxon Mobil and Royal Dutch Shell our preferred names
M
Despite the falling oil price, our two „Big Oil‟ plays from the core portfolio reported strong
earnings last week, and we reiterate our positive stance on these names. Royal Dutch
Shell (N/C) reported Q3 EPS of $0.923, ahead of consensus estimates of $0.875 as the
company continued its focus on high margin production and divestments from non-core
assets. The shares are trading on a FY15 EV/EBITDA of 4.2x, a discount to peers on 4.7x,
while offering an attractive FY15 dividend yield of 5.6%. Similarly, Exxon Mobil (N/C) also
beat market expectations, with EPS of $1.89 against consensus of $1.71. Strong
performance in the downstream division offset the impact of lower upstream realisations.
The shares are trading on FY15 EV/EBITDA of 6.4x with a dividend yield of ~3%.
T
W
T
Construction sector – Earnings this week
CRH (HOLD – TP GBp1500) is to release an IMS tomorrow. In our view, any progress on
asset sales should see a corresponding positive response in the share price. Our target
price of GBp1500 implies a 6.7% upside. Grafton Group (N/C) will release its IMS on
Thursday. The company‟s half year results in August highlighted the significant
improvement in fortunes at Grafton, as Profit Before Tax increased 88% YoY. We remain
very positive on its business model, and management‟s abilities. We would note however
the significant rally in the shares in recent weeks, resulting in an expensive FY14 PE of
20.4x. That said, this valuation falls to 13.6x on 2016 earnings, reflective of the significant
growth potential in the company. In addition this morning, Kingspan‟s (N/C) IMS showed a
5% YoY increase in revenue YTD, and noted the historical seasonal strength of Q4.
Vodafone (N/C) – H1/15 earnings on tap tomorrow
Ahead of H1 earnings tomorrow, we remain positive on the core portfolio stock. The
company is investing heavily in both its network and retail space, and is seeking to expand
in emerging markets as competition in Europe remains high. While there is scope for
beneficial M&A within Europe, Africa is becoming increasingly important. For example,
customers of the company‟s South African business, Vodacom (65% owned by Vodafone),
spent more time on the phone last year than the entire German market, Vodafone‟s largest
geography by sales. Vodafone is going through a transition since the sale of its Verizon
stake, and as such, 2015 earnings estimates have declined accordingly. However, we
believe there remains significant value in the shares, especially in light of the 5.45%
expected dividend yield for 2015.
Equities
Portfolio Management
Research
ECONOMICS
CH - PPI YoY
CH – CPI YoY
CH – New Yuan
Loans
Irish Recovery Story – Meeting with the NTMA, AIB and BOI
We held an institutional investor day at our Dublin offices last Friday, focusing on the Irish
economic recovery. Speakers included AIB CFO, Mark Bourke, Chief Economist from the
NTMA Rossa White, and Andrew Keating, CFO of Bank of Ireland. In our view, Bank of
Ireland (BUY, TP €0.35) continues its steady recovery, growing its loan book and improving
its capital generation. Despite a return to profit, AIB (SELL, TP €0.025) remains a
conviction sell, given the likely upcoming capital reorganisation. We expect this pricing
anomaly to be resolved in 2015 with both the Government and management noting the
elevated nature of the valuation. The NTMA completed a successful year of funding last
week, selling €3.75bn worth of 15 year bonds at a yield of 2.4%.
CORPORATE
AIB - IMS
Kingspan - IMS
F
CORPORATE
Vodafone – H1/15
CRH - IMS
Lufthansa – Traffic
Stats
ECONOMICS
GE – Wholesale
Price Index YoY
CORPORATE
ECONOMICS
Tullow Oil - IMS EZ – Industrial Prod
YoY
Barratt
Developments - UK – BoE Inflation
IMS
Report
E.ON – IMS
Burberry – IMS
Air France KLM –
Traffic Stats
Cisco – Q1/15
J Sainsbury - IMS
ECONOMICS
CORPORATE
Grafton Group - IMS CH – Retail Sales
YoY
UTV – IMS
Rolls Royce - IMS CH – Indust. Prod.
YoY
SAB Miller – H1/14
GE – CPI YoY
Premier Oil – IMS
FR – CPI YoY
Rexam - IMS
ECB Monthly
Report
CORPORATE
n/a
ECONOMICS
GE – GDP YoY
EZ – CPI YoY
US – Retail Sales Ex
Auto YoY
US – Univ. Mich.
Confidence
US – Business
Inventories
Upcoming Events
17/11/2014
18/11/2014
18/11/2014
18/11/2014
18/11/2014
18/11/2014
ICG - IMS
Prudential - IMS
Paddy Power - IMS
FBD - IMS
Hibernia REIT - IMS
easyJet – FY14
Bonds
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