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Good morning,
Markets are called to open lower in Europe this morning. This is what's happening today:
Markets are called lower this morning as investors wait for March's non farm payroll out of the US on Friday.
Bank of Japan Governor Haruhiko Kuroda gave himself two years to do “whatever it takes” to end deflation and revive the world’s third-largest economy. He may have less than half that time to produce results. Kuroda needs price rises in six to 12 months or the market may lose confidence in his ability to reach a 2 percent inflation target by 2015, say Goldman Sachs Group Inc. and JPMorgan Chase & Co. The BOJ will boost monthly bond purchases by about 50 percent to 5.2 trillion yen ($55.5 billion) at a two-day meeting starting today, according to economists.
HSBC Holdings Plc is leading the drive to convert companies to bonds from loans in Asia, helping it enter the global top 10 for junk issuance. Europe’s largest bank managed $5.3 billion of high-yield debt globally in the first quarter, moving up to 10th place after ranking 13th in the previous three full years. HSBC led junk bond underwriting in Asia, excluding Japan, in 2012 and says 12 of its 19 deals came from commercial bank clients, or 58 percent of the $2.3 billion it managed in dollars, euro or yen. Last week, it handled offerings by Citic Pacific Ltd. and Sunac China Holdings Ltd.
Convertible bond sales reached a record in Europe in the first quarter as a stock market rally pushed equity prices toward all-time highs, encouraging companies to issue debt that can be handed over for shares. Companies including Air France-KLM Group, Europe’s largest airline, Eni SpA, Italy’s biggest oil company, and Spanish hotelier Melia Hotels International SA, raised $10.1 billion. It’s the biggest first- quarter tally since the first three months of 1999 when Bloomberg began compiling records.
Vodafone (Rallied 24% so far this year)
Vodafone rose as much as 6.1% after a Financial Times blog reported that AT&T and Verizon may jointly bid for Vodafone. However, Verizon denied that it’s considering a bid for Vodafone. While Verizon reiterated interest in buying Vodafone’s stake in the companies’ Verizon Wireless joint venture, it doesn’t currently plan to go after the whole company, according to a filing yesterday.
Deutsche Bank Research have a HOLD rating on Vodafone with a price target of 173p. The shares are currently trading at 192p.
VOD continues to battle a combination of macro, regulatory and competitive pressures across its consolidated markets such that growth should continue to slow in the near-term, and this could tarnish guidance for FY March 14 during which we forecast deterioration in FCF and negligible EPS growth. Add on higher than expected spectrum costs through the end of Calendar 2012 and through 2013 and VOD is unlikely to forecast any improvement in dividend, and could even choose to scale back its buyback to ensure that Net Debt does not move above the sensitive 2x EBITDA gearing level. This already includes an assumption that VZW dividends increase, and earnings growth in the associate remains strong enough to keep VOD Group in +ve territory. From a strategic stand point 2013 could also find VOD under scrutiny as quad-play growth accelerates across Europe and forces selective fixed line M&A. This need for a more convergent, sticky offer is increasingly apparent in recent churn data. Investors might also begin to worry that the restructuring of the US market could signal the beginning of the end to Verizon Wireless' 'honeymoon period' during which a deal for VOD's stake might yield maximum valuation, while its contribution to VOD earnings growth could slow. Recent talk of a deal has been intense, but still faces material hurdles from funding, tax and valuation perspectives. Nevertheless valuation appears reasonable vs. Telco and FTSE peers and consensus forecasts already reflect slowing growth. Add on the spectre of a VZW deal and an UW position would seem reckless, nevertheless we advocate choosing other European incumbents over VOD in the near-term, with a view to returning to the investment case after FY results, ahead of improving prospects. HOLD.
For more information on Vodafone or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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