Société Générale led Europe’s banks lower on a profit warning. The French lender blamed market conditions for a 20 per cent decline in revenue from its capital markets division, compared with the 10 per cent drop analysts had expected. Management also flagged up one-off hits to its capital buffer from disposals, set the dividend at the minimum level of €2.2 per share, and announced a scrip alternative to help preserve cash.
While weak global markets estimates should largely be expected following the US results this week, the dilution from the stock dividend is the largest negative to our estimates. The decision to offer the option to take up the 2018 dividend in shares should also highlight the risk going forward . . . The fact that French retail banking trends in the fourth quarter are in line with guidance is of some comfort
RBC
Sage rallied after the software maker delivered an unexpectedly strong fiscal first-quarter update. Organic revenues were up 7.6 per cent to £465m, far exceeding the 5.7 per cent analysts had expected for the first half, thanks to an acceleration in subscriptions and recurring revenue.
Analysts noted that year-on-year comparisons were much tougher for Sage’s second quarter.
We do not expect consensus numbers to materially change on the back of these results. For the stock to work, we believe management needs to deliver consistent execution across multiple quarters, and in this context, the first quarter represents a step in the right direction
Citigroup
Sellside stories
Merrill Lynch downgraded ITV, Mediaset and ProSieben to “underperform” based on evidence that the shift to online video was accelerating. It forecast TV advertising spend to decline by 2 per cent to 3 per cent by 2025 and argued that terrestrial broadcasters in the UK and Germany were the most vulnerable to the trend.
TV consumption is declining by 8 per cent year on year among adults under 35, two-to-three times faster than average, said Merrill. By 2020 these “digital natives” would represent more than 50 per cent of the labour force, up from around 35 per cent in 2015, so would be key targets for advertisers, it said. The cost of TV advertising aimed at this cohort has doubled or trebled in the past five years, whereas online video is now 30 per cent to 40 per cent cheaper, the broker estimated.
The unsustainable inflation means the terrestrial broadcasters need to make big investments to recapture online space and, with content costs spiralling, operating margins are likely to compress by 500 basis points by 2025, Merrill forecast. Its note also downgraded both Atresmedia and RTL to “underperform” and moved TF1 down to “neutral”.
Barclays downgraded easyJet to “underweight” with a £12 target in a European airline sector review.
2019 looks to . . . be the height of aviation demand uncertainty in recent years. Whilst indications for supply growth are supportive, it is still too early to know if summer capacity growth will be disciplined enough. Meanwhile, whilst oil has pulled back, given hedging profiles, all airlines still face a fuel headwind in their upcoming financial year that covers summer 2019. Our analysis shows that the unit revenue growth needed to offset this unit fuel headwind is higher than our and consensus current expectations. Therefore other levers, including ancillary growth and ex-fuel unit cost reductions, are needed to support profit growth
Barclays
EasyJet looks vulnerable due to UK demand uncertainty and a strategy focused on holidays, said Barclays. Its network is focused on constrained airports so organic growth opportunities are limited, and delays caused by operating constrained infrastructure erase the benefit of holding premium landing slots, it said.
In brief: Aegon cut to “sell” at Citigroup; Alfa-Laval upgraded to “buy” at Pareto Securities; Axa upgraded to “buy” at Citigroup; Bulten cut to “hold” at Kepler Cheuvreux; BNP Paribas rated “underweight” at Barclays; Crédit Agricole rated “equal-weight” at Barclays; Generali downgraded to “sell” at Citigroup; InterContinental Hotels raised to “buy” at Berenberg; Just Eat upgraded to “overweight” at Morgan Stanley; Munich Re downgraded to “sell” at Citigroup; Natixis rated “overweight” at Barclays; RWE downgraded to “equal-weight” at Morgan Stanley; SocGen rated “equal-weight” at Barclays; Sodexo upgraded to “hold” at Berenberg; Stora Enso cut to “hold” at Jefferies; Suedzucker upgraded to “hold” at Berenberg; Takeaway upgraded to “outperform” at RBC; Ubisoft cut to “hold” at Jefferies; William Hill upgraded to “buy” at Berenberg
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