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Good morning,
Markets are called to flat in Europe. This is what's happening today:
Markets keep on climbing higher as investors continue to put risk back on the table. Today is an important day for the markets because we get the FOMC meeting minutes out in the US and there are also some interesting companies reporting results in Europe today. Not to mention the elections which are going to take place in Italy in 5 days time. Three companies i'd like to talk about today: Agreas, Credit Agricole and Lafarge.
I'll start off with Credit Agricole. Deutsche Bank have a HOLD recommendation on the stock with a price target of E7.40 (close to the current price of E7.32) – The recent debt crisis did not leave Crédit Agricole unscathed and we believe the difficulties may not be over yet. While the sale of Emporiki was a positive catalyst and the refocusing of CASA on its domestic market should allow a re-rating of the shares, several problems remain, in our view. First, we continue to think that the Basel 3 solvency of CASA is too low as we calculate a large shortfall vs. the 9.5% we think most investors require. The risk of shareholder dilution therefore remains high (the shortfall represents around a third of current market cap). Secondly, we continue to see some downside risk to earnings coming from French retail banking (c.55% of CASA earnings, revenues under pressure, downside risk to provisions) and from the Italian consumer credit business (Agos portfolio). Last, while we think that the repositioning of CACIB towards FICC & Financing and out of Equity was a positive move, we believe it will likely lead to market share losses in the short to medium term, especially as CASA lacks scale in FICC. We acknowledge that CASA trades at particularly low multiples but also point towards a RoE much below the sector average (5-6% only in 2013/14E, largely below the cost of equity). When considering the RoTE though, CASA fares much better (RoTE of c. 10% in 2013/14E) but this is due to the large amount of goodwill (CASA has 1x its market cap in goodwill).
Ageas is an interesting stock to watch. The shares are trading at E26.05 and JP Morgan have a price target of E32.29. The following is what JP Morgan have to say about Ageas – Ageas will report its 4Q12 earnings today. We expect 4Q12 to be a normal, flat quarter in terms of insurance earnings (we forecast insurance earnings to be €144m versus an average quarterly run rate of €140-150m). We expect book value to increase by 4% driven by lower Belgian bond yields. We reiterate our OW recommendation as believe that the market is implicitly valuing its General account assets at -€0.6bn versus our valuation of €1.3bn i.e. there is a €1.9bn valuation gap. Its shares are trading at 0.6x book value with 8.4x 2014e PE and offer a 3.8% 2012e dividend yield.
Lafarge is trading at E46.72 and Deutsche Bank have a price target of E65. This is what they have to say about the stock – With one of the more substantial developed market exposures of the larger cap cement stocks, earnings at Lafarge offer strong leverage to any cyclical recovery in Europe and/or the US. In the meantime earnings should be supported by the significant restructuring which is already showing signs of coming in ahead of expectations. Through 2013 we anticipate Lafarge to return to investment grade ratios and further control of its balance sheet in the following years could lead to a sector leading dividend yield and possibility of discussions of the potential of cash return to shareholders in the longer term. BUY
For more information on Lafarge, Ageas and Credit Agricole or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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