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HB Markets Breakfast Today including: AstraZeneca, Carnival Corporation, National Express
The markets
Market opening: The FTSE could rise today in anticipation that ECB's long-term, ultra-cheap loan to banks would be well received and help relieve the strain on financial markets.
New York: The S&P 500 surged 3.0% yesterday as Wall Street celebrated positive US housing data and US Federal Reserve’s new, easier than expected, capital requirements for banks.
Asia: Data indicating a recovery in the US housing market and improving business confidence in Germany lifted markets (see below). The Nikkei closed +1.5%, while the Hang Seng was trading at +1.4% at 7.00 am UK time.
Continental Europe: Upbeat business sentiment in Germany and falling yields on Spanish bonds pushed European markets higher. While DAX 30 gained 3.1%, CAC-40 closed 2.7% higher.
UK small caps: The FTSE AIM All-Share closed 1.0% higher yesterday.
Today's news
ECB's inaugural three-year tender today
The European Central Bank (ECB) will issue three-year loans to banks for the first time to fend off an impending credit crunch and build trust among regional banks. ECB foresees some of this money being directed to Italian and Spanish debts, and relieving stress on bond markets. The loan's interest rate over its maturity period will be indexed to ECB's main refinancing rate of 1.0%. The demand for these cheap, long-term loans is expected to be high; analysts believe an offtake of €350bn or more could be a positive sign for strained countries.
UK's AAA rating threatened by Euro crisis - Moody's
The Euro debt crisis is straining UK's economy, and the government's efforts to balance the budget could fail in the event of further shocks, Moody's said. This could threaten UK's AAA rating, Moody's added after an assessment of the country's ability to repay debt.
Breakfast Today is taking a holiday
Breakfast today is taking a break for the festive season. Today’s issue is the last for 2012. We will be back again on 4th January. We wish our readers a Happy Christmas and a Prosperous New Year.
Company news
National Express released a pre-closing trading update for the year ending 31st December 2011 yesterday. The management said that the company is likely to meet revenue and profit expectations for the year. All five divisions of the company are expected to report revenue growth between 4-8%. Revenue from operations in Spain is expected to grow by 5%. In North America, operating profits are expected to double from the 2009 levels. As budgetary pressures shift focus to outsourced school bus services revenues for the company could increase 8% for the year. In the UK, revenue growth in the bus, coach and rail services is anticipated to be 4%, 5% and 6%, respectively.
Our view: National Express seems fairly priced at a 2012 P/E ratio of 8.8x compared to peers at 9.2x and we do not think the inline trading statement will cause material upward revisions to change the relative valuation enough, if at all, to warrant a higher rating. First Group (P/E 8.2x, dividend yield 7.7%) is our preferred stock in the group and we give National Express a Hold rating.
AstraZeneca said that it will take a pre-tax impairment charge of US$ 381.5m in Q4 2011 as a result of discontinuation of trials for two drugs in its pipeline. The core EPS is expected to be at the lower end of the US$7.20-7.40 range expected by analysts. The company will not take olaparib, the investigational compound for serous ovarian cancer, to Phase III trials. AZN will also discontinue the Phase III studies of TC-5214, which it licensed from Targacept for treatment of patients with major depressive disorder, after the drug failed to meet "its primary end point" in the second of four Phase III trials.
Our view: Olaparib studies for serous ovarian cancer have been discontinued; however the company plans to explore its effectiveness against other forms of cancers. The impairment on licensed TC-5214 compound (US$96.5m) is due to a lower probability of success in the two remaining trials. The company has a weak pipeline of new drugs and is struggling to replace its blockbuster drugs as patent expiries draw near. A change of strategy through acquisitions and licensing deals could be a way forward for the company, until then we reiterate our Hold recommendation.
Carnival (LON:CCL)
Cruise and vacation company, Carnival, released results for Q4 2011 and FY 2011 ended 30th November 2011 yesterday. Annual revenues increased 8.9% y-o-y to US$15.8bn up from US$14.8bn in FY 2010. Net income, however, dropped 3.3% y-o-y to US$1.9bn primarily due to a 32% increase in fuel prices. For the quarter, revenues increased 5.7% y-o-y to US$3.7bn and net income declined 12.5% to US$217m. As per advance bookings till date, occupancy rates are slightly lower in 2012 whereas prices are higher, the management said. Nonetheless, the management is positive about Carnival's performance in 2012 as the company is focusing on attracting first-time customers to the cruise experience.
Economic news:
Germany Producer prices
Factory gate prices in Germany increased 0.1% m-o-m and 5.2% y-o-y in November, data released by Destatis showed. Energy prices, which rose 0.1% m-o-m and 11.2% y-o-y, caused the overall prices to increase. Excluding energy, producer prices fell 0.1% m-o-m and increased 2.6% y-o-y. Food prices increased 0.3% m-o-m and 5.5% y-o-y in November. The rise in producer prices was broadly in line with economists' expectations.
Germany IFO
Munich-based IFO said its business climate index rose to 107.2 in December from 106.6 in November. The current conditions sub-index remained unchanged at 116.7 while business expectations gauge increased to 98.4 from 97.3 in November. The institute surveys about 7,000 companies across various sectors in Germany, to gauge the current business situation.
Our view: The IFO surprised on the upside for the second month in a row and its recent downward trend could be broken, signalling that German businesses do not believe 2012 will be as weak as first feared. If Germany continues to be positive and produce growth, albeit at a slower rate, the rest of the region could at least catch some of this positivism.
US Housing starts
Housing activity in the US gathered momentum, increasing 9.3% m-o-m and 24.3% y-o-y in November, the US Department of Commerce said yesterday. Seasonally-adjusted annual housing starts increased to 685,000 units in the month, the highest rate since April 2010. This was significantly higher than the economists' expectation of a 1.1% m-o-m increase to 635,000 units.
