Live Markets: Value in banks?

Xior Student Housing NV

05/11/2019 15:07

* European shares turn positive in choppy trade
    * STOXX 600 at July 2015 highs
    * Pandora, Siemens Gamesa dive after guidance cut
    * US futures gain on trade deal optimism

Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters and anchored today by Danilo Masoni. Reach him on Messenger to share your
thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net
    
    VALUE IN BANKS? (1503 GMT)
    Could it be that the case for value has been driving European banks' stocks for the past
three sessions? 
    The banking sector is facing plenty of structural headwinds with ROEs struggling to grow but
this doesn't seem to matter to the market today: European banks  .SX7P  are up 1% and at their
highest levels since May. 
    A Bernstein note states that "managers that are able to tactically position for the next 3-6
months should tilt their portfolio towards a modest value exposure".  
    There is more than one reason why it has upgraded value, especially banks, to overweight
both in the U.S. and in Europe. 
    
    Here are its six reasons to pick value:  
    1) There are signs of a trough in the earnings revisions that make up the value factor. This
mirrors a slight improvement in its market-wide earnings indicators
    2) Bond yields have moved up and yield curves steepened 
    3) Value stocks, including banks, had not-too bad earnings revisions in Q3
    4) The outflows from global equities, which was huge for most of the year, appear to have
slowed down 
    5) Hedge funds have lowered their momentum exposure, but they can still drop it further. 
    6) Value spreads are very wide 
    
    The charts below show that European value stocks have not been doing bad at all.    
    
    
    (Joice Alves)
    *****
     
    
    
    
    WHAT ABOUT REAL ESTATE? (1327 GMT)
    Real estate isn't the most headline-grabbing sector but prospects of lower-for-longer rates
in Europe could support the industry, fuelling fresh investor interest.
    "Definitely there is more attention because of interest rates going down again and slower
growth," said Rogier Quirijns, the head of Europe real estate at Cohen & Steers.  
    "The good thing is that real estate offers stable income, predictable cash flows, it's less
cyclical, and you have a bond-like investment which is yielding higher than a bond. It also
offers at least inflation growth," he added.
    He said an investment in real estate in a healthy economy can generate a benchmark return of
at least 8%. Active management should add at least 2% - so 10% over longer term after costs is
not unthinkable – the US REITs market has even done better over last 30 years.
    According to Quirijns, however, positions need to be kept for a while to avoid short term
discrepancies between the share prices and the underlying value of the assets. 
    "Correlation between real estate and REIT stock prices is close to 100% based on 3-year
horizon. If you don't have that investment horizon don't invest in listed real estate," he said.
    He also pointed that listed real estate companies can exploit differences between share
prices and their assets' value, giving them an advantage over private real estate companies. 
    "If a listed real estate trades at a premium to its book value, it's very good because these
companies can grow externally by issuing stock at a premium and buy assets," he said.
    "If you trade at a big discount to your NAV, you can sell real estate in the private market
at NAV and then buy back your stock at a discount. It's an important arbitrage opportunity to
generate extra shareholder return both in a positive/bull market or a negative/bear market".
    Quirijns said Belgium was an interesting market because of its large and stable retail
investor base, attractive income yield, and external growth prospects based on premiums to NAV –
which makes it comparable to the successful US REITs market.
    This chart shows three top-performing Belgian real estate stocks:  Warehouses de Pauw
 WDPP.BR , Aedifica  AOO.BR  and Xior Student Housing  XIOR.BR . As you can see they have easily
beaten both their sector index and the broader market in the last 3 years.  
    
    (Danilo Masoni)
    *****
        
    
    OPENING SNAPSHOT: GAINS OVER? (0819 GMT)
    Confounding earlier indications of a positive open, European shares are off to a more
uncertain start with the STOXX 600  .STOXX  trading just below parity along with other country
benchmarks.
    It looks that rally triggered by the improved optimism over a possible Sino-U.S. trade deal
has run out of steam, at least for the time being.
    Below the surface of rather flat open, there are big stock movers. 
    Take wind energy company Siemens Gamesa  SGREN.MC  or Danish jeweller Pandora  PNDORA.CO ,
which are down 13% and 12% respectively after both cut their guidance.
    On the positive side, shares in Dufry  DUFN.S , Teleperformance  TEPRF.PA , Oerlikon
 OERL.S , Evonik  EVKn.DE , Hugo Boss  BOSSn.DE , and AB Foods  ABF.L  are gaining after well
received updates.
    SAP  SAPG.DE  however is down, contrary to calls for a positive start on news that Europe's
most valuable tech company would return an extra 1.5 billion euros to shareholders next year.   
  
    (Danilo Masoni)
    *****
    
    WHAT'S ON OUR RADAR AT THE OPEN (0754 GMT)
    European shares are set to rise further today after briefly hitting a 4-year peak yesterday
on growing optimism over a trade deal between the U.S. and China. Futures on main euro zone
benchmarks are trading up 0.2% while FTSE futures are up 0.3%.
    In corporate news, shares in SAP  SAPG.DE  are up 1.8% in premarket trade after Europe's
most valuable technology firm said it would return an extra 1.5 billion euros to shareholders
next year. 
    Some positive earnings update could also provide support.
    Hugo Boss  BOSSn.DE  reported falling sales in the United States and Hong Kong but said
sales and operating profit would recover in the Q4, helped by more modern stores and growth in
mainland China and ecommerce. Its shares are up 1.4% in early trade. 
    Germany's biggest residential property firm Vonovia  VNAn.DE  posted a positive outlook for
2020, sending its shares up more than 1% in early trade. 
    Post-result gains are expected also for meal-kit delivery company Hellofresh  HFGG.DE ,
Primark owner AB Foods  ABF.L , Dufry   DUFN.S  and automotive parts supplier Schaeffler
 SHA_p.DE . 
    Pandora's  PNDORA.CO  update however is a big disappointment. Its shares are seen diving
15-20% after the Danish jewellery maker warned of a steeper fall in sales this year than
previously expected while its Q3 adjusted operating profit lagged forecasts amid weakness in key
markets and turmoil in Hong Kong. 
    Imperial Brands  IMB.L  is seen opening down as much as 4% after its FY operating profit
fell short of analyst estimates. Traders said its outlook was cautions but on the positive, the
tobacco company kept its dividend policy.
    More than half of European companies have already reported results and most of them have
beaten significantly-lowered analyst estimates. According to UBS, a net 10% of companies beat
forecasts, broadly in line with the long run average of 11%.
    (Danilo Masoni)
    *****
    
 
    
    
    EYES ON SAP AND MORE EARNINGS UPDATES (0656 GMT)
    Turning to the corporate front, SAP  SAPG.DE  is likely to be on the watch-list after the
German business software group said it would return an extra 1.5 billion euros to shareholders
next year, while there are also a few results including from Hugo Boss and Vonovia to digest.
    The German fashion house  BOSSn.DE  took a hit from falling sales in the U.S. and Hong Kong
but said it expects sales and operating profit to rise in Q4, while Vonovia  VNAn.DE , Germany's
biggest residential property firm,  posted a positive outlook for 2020.   
    Here's your early morning headlines roundup:     
    SAP to return 1.5 bln euros to shareholders in 2020  urn:newsml:reuters.com:*:nL3N27K40Z
    Hugo Boss predicts recovery after Hong Kong hit  urn:newsml:reuters.com:*:nFWN27K17K 
    Vonovia forecasts 7% growth in 2020 operating earnings  urn:newsml:reuters.com:*:nASP001969    
    Adecco Q3 revenue drops as slowdown weighs  urn:newsml:reuters.com:*:nFWN27K11X
    Dutch DSM's Q3 core profit rises 9% despite weak demand in China  urn:newsml:reuters.com:*:nL8N27L0V9
    Evonik confirms 2019 guidance despite gloomy economy, weaker Q3  urn:newsml:reuters.com:*:nL8N27L0SJ
    Oerlikon Q3 results miss estimates amid tough market conditions  urn:newsml:reuters.com:*:nL8N27L0XX    
    ArcelorMittal to hand Ilva plant back to Italian state over legal row  urn:newsml:reuters.com:*:nL8N27K4NH
    Norwegian Air to sell six aircraft, boosting cash by $55 mln  urn:newsml:reuters.com:*:nFWN27K17I
    Watchdog warns UK fund managers to avoid Woodford liquidity trap  urn:newsml:reuters.com:*:nL8N27K69U
    Boeing's MAX likely to return to European service in Q1 - regulator  urn:newsml:reuters.com:*:nL8N27K60Q
    Santander buys 1.3 bln euro Nordics car loan portfolio from Ford  urn:newsml:reuters.com:*:nL8N27K5YR    
    (Danilo Masoni)
    *****

    TRADE DEAL OPTIMISM TO LIFT EUROPE FURTHER (0634 GMT)
    European shares are expected to rise slightly at the open today as trade optimism continues
to lift spirits and after the STOXX 600 regional benchmark closed at its highest since Jan 2018.
    People familiar with the talks told Reuters that China is pushing Trump to remove more
tariffs imposed in September as part of a "phase one" trade deal, while the Ft earlier reported
that Washington House was considering whether to roll back the Sept. 1 tariffs.  urn:newsml:reuters.com:*:nL2N27K1VK    
    Spreadbetters at IG expect London's FTSE to open 17 points higher at 7,387, Frankfurt's DAX
to open 7 points higher at 13,143 and Paris' CAC to open 14 points higher at 5,839.
    (Danilo Masoni)
    *****    

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open    https://tmsnrt.rs/2CdXf7R
Belgian real estate outperformers    https://tmsnrt.rs/2qppBJs
Bernstein     https://tmsnrt.rs/2rb6PGc
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 (Reporting by Danilo Masoni, Joice Alves, Julien Ponthus and Thyagaraju Adinarayan)