Good morning,

Markets are called to open lower this morning. This is what's happening today:

  • Apple, the world’s largest company by market value, announced yesterday forecasts on earnings that fell short of projections for the crucial holiday quarter. Apple expected profit in the current period will be about $11.75 a share on sales of about $52 billion, the company said yesterday in a statement. That compares with $15.49 a share on sales of $55.1 billion;
  • Samsung, the world’s biggest maker of TVs and mobile phones, reported record profit that beat analysts’ estimates and said competition likely will intensify this quarter as the global economy slows;
  • Inc., the world’s largest online retailer, reported revenue that missed analysts’ estimates and posted the first quarterly net loss since 2003, hurt by higher expenses and its investment in;
  • BNP, the nation’s biggest bank, had its long-term counterparty credit grade lowered one level to A+ from AA- by S&P. The ratings company also revised its outlook to negative from stable for 10 other French banks, including Credit Agricole SA and Societe Generale SA;
  • 10-year Italian debt is trading at 4.856%, 10-year Spain is trading at 5.592% and 10-year Portuguese debt is trading at 7.736%;
  • Brent is trading at $107.55;

Not a good day for the markets today after Apple and Amazon missed estimates and S&P cut the rating of French Banks. Here are more details on all three issues concerning the markets today.


The results were good they were not bad. The miss in margins is acceptable because IT ALWAYS HAPPENS before they issue new products. Lets start off with the iphone 5. The markets were really worried about demand for this phone because of the initial reported problems. However, Tim Cook yesterday confirmed that demand for the phone is exceptionally strong. In fact 26.9mln iphones were sold before results were out compared to expectations of 25.4mln. BUT you have to appreciate that for Q412 the iphone was on sale for only 10 days! In fact the iphone 5 was only available in 9 countries when they started selling the phone on Sept. 21 and increased another 22 countries on September 28. By the end of the December quarter, Apple believes the iphone 5 will have launched in 100 countries with 240 carriers.

Then there is the slowdown in the sales of the ipad. Apple shipped out 14mln compared to the markets expectations of 17.3mln. And this is also exceptable because the markets were expecting the launch of the new ipad and the mini ipad. This is the same story we hear year after year. Sales slow down in one quarter because a new product is coming out and make up for the sales in the following quarter. Infact, Barclays are expecting ipad sales to increase 51% in the December quarter comparing qoq.

The Mac is doing well and now Apple just launched a new iMac. Barclays strongly believes that iPhones and iPads drive a halo effect, making more customers opt for the Mac in order to complete their digital ecosystem.

But the bottom line is all about margins. Because Apple launched its new products this quarter and there was a obvious slowdown in sales in the previous quarter, Apple reported a gross margin of 40% when the market was expecting 40.8%. However, Barclays are expecting margins to improve in the December quarter and long term EPS estimates are largely maintained as demand remains intact.

But there's more! Apple announced plans to ultilize its growing cash pile with a new dividend and share repurchase program. The company declared a cash dividend of $2.65 per share that would be payable on November 12, 2012. The buyback authorization for $10bln is expected to be executed over three years primarily to neitralize the impact of dilution from future employee equity grants and employee stock purchase programs. Combined, Apple expects the new programs to utilize about $45bln in the first 3 years.

Barclays maintain their price target of $800 because they believe that Apple can demonstrate upside to top line estimates and realize gross margin expansion from current levels. This target applies a P/E multiple of about 13x on 2014 earnings.


Given what appears to be a modest revenue slowdown, coupled with a lack of visibility around margin expansion, multiple compression is possible for Amazon, which trades at a rich valuation versus peers.

Main points from Results:

  • Amazon sees 4Q operating profit loss $490m to profit $310m vs est. $354.1m
  • AMZN sees 4Q sales $20.25b-$22.75b vs est. $22.8b
  • AMZN 3Q GAAP EPS loss 60c with 37c loss Living Social loss vs est. loss 8c
  • AMZN 3Q sales $13.81b vs est. $13.9b
  • Shares down c4%

S&P Downgrades French Banks (Extract from the Financial Times)

The loss of France’s long-cherished triple A sovereign debt status spilt over into its banking sector on Tuesday as Standard & Poor’s cut its long-term ratings for Société Générale and Crédit Agricole, two of the country’s top three banks.

Shares in the two banks tumbled as they were downgraded by one notch from A plus to A and placed on a stable outlook, along with smaller rival BCPE.

S&P said: “The downgrade of some of these banks follows the downgrade of France to AA plus and factors in the relationship under our criteria of our ratings on systematically important banks to sovereign ratings, as well as our assessment of their standalone credit profile

Stock to watch: Eutelsat Communications (Price E24.34, Price Target E30)

Barclays Research: After disappointments at the 3Q and FY results, there is relief in a more familiar set of Eutelsat results – a modest beat vs consensus and guidance reiterated. We believe that a series of solid quarters is required to rebuild confidence and to support a rerating for the shares. So this is a decent start. We leave EPS forecasts broadly unchanged, although we tweak down revenues due to FX. We reiterate our Overweight rating, with an unchanged €30 price target. We see Eutelsat as a rerating story as they rebuild confidence through the launch of new satellites, a return to growth at Multi-Usage and KA-SAT revenues starting to come through.

For further information on Eutelsat Communications or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli