Matter of Fact – w/c 18th May 2015

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1. Kingfisher PLC share price down on back of negative UK Retail Sales

2. C&C writes down value of US arm by €150m

3. REGAL BELOIT (RBS US) – BEATS Q1 EXPECTATIONS, QMG DATA REMAINS POSITIVE

4. KUBOTA Q4 EARNINGS – IN LINE WITH QMG DATA

5. Verizon Agrees to Buy AOL for $4.4 Billion

6. Syngenta rejects blockbuster Monsanto offer

7. Eagle Materials Inc. Reports Record Fiscal Year

 

CONSUMER DISCRETIONARY

    1. Kingfisher PLC share price down on back of negative UK Retail Sales

Source – Bloomberg

Company: Kingfisher PLC (KGF LN)

QMG product view: DIY Retailers – UK52.46

Event: Share price drop post macro-economic announcement

Highlights:

  • Kingfisher PLC share price down 3.5% after UK Retail Sales figures disappointed on Monday however pull back was observed up until most recent observation (-0.44%) on Thursday 14th May.

QMGI comment:

This stock is reporting on 28th May and per our read on the UK DIY Retailers (UK52.46), Sales are only growing at 0.36% and Margins contracting at 64bps. Analyst currently sit at -4.2% Sales growth and +70bps margin growth and the company next reports in September. Our data points to a declining product group with volumes rapidly on the decline (1.12%) and weak pricing power (-0.75%).

 

CONSUMER STAPLES

  1. C&C writes down value of US arm by €150m

Source – Irish Examiner

Company: C&C Group PLC (CCR LN)

QMG product viewProducers of ciders & other fruit wines – UK15.94

Event: Earnings announcement

Highlights:

  • Net revenue up 10.3% to EUR683.9m YoY
  • However UK net revenue down over 2% in Ireland, 18% in England and Wales and 20% down in the US markets
  • C&C Group PLC (on our Euro watch list) reported a pretax loss in its recently ended financial year as it made investments in the US and was hit by challenging trading conditions.
  • Pretax loss for the year ended February 28 of EUR67.8 million, compared with a pretax profit of EUR95.5 million the year before, despite an increase in revenue to EUR986.5 million from EUR912.9 million

QMGI comment:

This drinks company, which produces brands including Bulmers, Magners and Gaymers ciders, also reported volume decline and intense pricing completion in a “deflationary pricing environment” on its way to an increased loss, all of which are reflected in our data for Producers of Ciders (UK15.94). We see prices currently declining at -3.7%, volume -5.7%, and margins at -2.5% on a downward trend.

C&C Group were light on guidance going forward. “Operationally, FY2016 is a period of stabilisation and investment. We have made a decent start in the early part of the year.” Looking at the direction our data is heading, even such modest expectation setting looks challenging.

 

INDUSTRIALS

  1. REGAL BELOIT (RBS US) – BEATS Q1 EXPECTATIONS, QMG DATA REMAINS POSITIVE

Source – Seeking Alpha

Company: Rega-Beloit (RBC US)

QMG product view: US29.11

Event: Qx 15 Earnings

Highlights:

  • $912m (+14% yoy)
  • Operating income: $89m (+19% yoy)
  • Operating margin: +40bps to 9.8%
  • Company guidance: EPS Adjusted: $5.45-$5.75 (+26% to +33% yoy), Sales guidance unchanged: FY2015, $3.78b (+16%)

QMGI comment:

  • QMG sales at +18.6% for March

A recent addition to our US focus list, Regal Beloit posted a solid set of Q1 results, topping market estimates with revenue of $912m (+14% yoy vs. cons $895m) and adjusted EPS $1.21 (vs. cons +$1.16). In spite of headwinds from weakness in oil and gas, net sales for the Power Transmission segment rose 179% to $175m (driven by acquisition growth), while Commercial and Industrial systems rose 1% to $456m. Climate Solutions was the laggard, falling 2% to $280m. QMG data remains positive on US producers of engines and turbines – sales growth remains very strong (+19%), driven by +17% volume growth and consistent pricing trends. In addition, margins continue to expand (+695bps), with our latest data showing costs -5.8% yoy. RBC manufactures electric motors and generators along with gearboxes and automotive transmissions. With approximately 70% of group activities in the US, QMG’s product level data provides detailed insight on RBC’s sales and margin trends. Post 1Q 15 results, we see further upside to consensus estimates, and with the shares trading at a discount to historic EV/Sales and EV/ EBITDA multiples – we see scope for further upgrades. We retain our positive view on RBC in our US focus list.

 

  1. KUBOTA Q4 EARNINGS – IN LINE WITH QMG DATA

Source – Kubota Global

Company: Kubota Corp (6326 JP)

QMG product view: Producers of machinery for mining, quarrying & construction – JA29.52

Event: Q4 15 Earnings

Highlights:

  • ¥1,586,937m  (+5.2% yoy)
  • Operating income: ¥204,145m (+19% yoy)

QMGI comment:

QMG sales at +7.35% for March 2015. We highlighted the strength in this product group in last week’s newsletter, particularly Kubota’s strength in demand/volumes that was not being picked up by the street. The positive result here reflects this view and whilst analysts were expecting +3.9% growth prior to announcement, that has now changed to +4.1% for the upcoming reporting period (more in line with QMG’s view).

 

INFORMATION TECHNOLOGY

  1. Verizon Agrees to Buy AOL for $4.4 Billion

Source – Wall Street Journal

Company: Alcatel Lucent (ALU FP)

QMG product view: Manufacturers of telecom equipment – FR32.2

Event: Customer Merger

Highlights:

  • Verizon buys AOL for $4.4bn – positive for Verizon as new revenue stream
  • Alcatel Lucent attributes 14% of revenues to Verizon.

QMGI comment:

This was one of the major M&A news stories out this week and with a new, and lucrative, line of business for Verizon (ad revenue), the news bodes well for Alcatel Lucent (ALU FP). QMG data has been positive on FR32.2 in terms of Sales growth (+11.5%). We note that analyst expectations which were sitting at 5.5% mid-April are now more in line with QMG at +7.2%.

 

MATERIALS

  1. Syngenta rejects blockbuster Monsanto offer 

Source – Financial Times

Company: Syngenta AG (SYNN VX)

QMG product view: Manufacturers of pesticides & agro-chemical products – FR24.2

Event: Rejected takeover bid

Highlights:

  • The Swisse company rejected a $45bn takeover bid from its largest rival Monsanto (MON US)
  • Rejection was based on Syngenta seeing the offer as too low compared to the growth prospects of the company.
  • On the back of this the share price of Sygenta rose rapidly and have gained over 20%+ since the news was announced.

QMGI comment:

Whether or not the deal eventually goes through, QMG sees this chemicals product group as one to watch. A takeover bid from rivals affirms their positive view on opportunities available in this group. We had been negative on these ag chem manufacturers in France until recently. This is on the back of excellent volumes this month (9.9%) versus last month (1.2%) and cost improvement (-5.1%) versus last month (-0.3%). Pricing did fall sharply however the positive volume play saw us change our view on the back of these favourable conditions.

  1. Eagle Materials Inc. Reports Record Fiscal Year 

Source – Bloomberg

Company: Eagle Materials (EXP US)

QMG product view: Producers of cement, lime & plaster – US26.5

Event: Q4 15 Earnings

Highlights:

  • Record Q4 revenues of $223.8 million, up 18% (cons $247m)
  • Fiscal year 2015 revenues of $1.1 billion, up 19%
  • Fiscal year 2015 net earnings per diluted share of $3.71, up 49%

QMGI comment:

We highlighted recently the positive trends which are becoming evident across US cement/aggregate producers (Eagle Materials Q2 earnings preview) on the back of strong QMG US homebuilder data. EXP reported record Q4 revenues of $223.8m (+18%, vs. cons $247m) – this print was in line with QMG’s sales growth figure of +17%. The company’s fourth quarter sales volumes improved across nearly all businesses, reflecting improved construction fundamentals in the US. In addition, improved pricing was achieved across all businesses units.

 

NOTABLE UPCOMING RESULTS

QMG VIEW TICKER SECURITY_NAME EXPECTED_REPORT_DT
POSITIVE TPT LN Equity Topps Tiles PLC 19/05/15
POSITIVE TCG LN Equity Thomas Cook Group PLC 20/05/2015
POSITIVE DCG LN Equity Dairy Crest Group PLC 21/05/2015
POSITIVE AAP US Equity Advance Auto Parts Inc 21/05/2015

 

MACRO EVENTS COMING UP

  • US Housing Starts – 19th May 2015
  • UK PPI Output – 19th May 2015
  • GE PPI Output – 20th May 2015
  • Jobless Claims – 21st May 2015
  • Philadelphia Fed Business Outlook Survey – 21st May 2015
  • Existing Home Sales – 21st May 2015
  • Consumer Price Index – 22nd May 2015

 

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