The Weekender

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Includes: ADDYY, APOL, ASHTY, BAYRY, BNTGY, BUD, CGEMY, CHYHY, DTEGY, ESYJY, EU, EXPGY, FSNUY, GREK, HEINY, HELKF, HVSYY, LNEGY, MDIUY, MKGAY, NVZMY, PSMMY, PSO, RHHBY, RYAAY, SDXAY, SGPYY, SYIEY, TI, TKAMY, VOD
by: Aviate

Greece and Europe

It is not over-exaggerating to say that all eyes are on Greece this weekend as the Greek people vote in the referendum. Where it was once seen as the most unlikely of outcomes, there now seems to be a real risk of Grexit, particularly given the tone of some of the rhetoric from both Yes and No campaigns. We are still of the view that Greece leaving the Euro is far from inevitable, and so too is a default, the definition of which seems confined to private creditors. Despite days of confusing messages being presented via multiple channels of communication, what remains clear is Europeans still want to do a deal. It seems the Greek people probably want one too and we cannot ignore the influence of the United States of America (think NATO and geo-politics). The EC have said repeatedly '…the door remains open…' as has the IMF: "If the July 5 vote produced "a resounding yes" to remain in the euro and fix the Greek economy then the creditors would be willing to make an effort" (Christine Lagarde). Although it is difficult to forecast just how the Greek people will vote once they're cloistered in the anonymity of the voting booth, we think it remains likely the 'Yes' vote prevails. A 'Yes' is the most palatable, least-disruptive option and accords with self-interest once the implications of default are spelt out: i.e. loss of wealth/purchasing power/pensions, hyper-inflation, civil unrest etc. (see Argentina). Why would you vote to lose what little wealth you have left? You wouldn't. Regardless of the outcome on voting day, Greece does not dictate our view on the wider European market.

Looking through Greece

Europe is in recovery mode and is therefore increasingly immune to shocks. The activity gap between periphery and core has closed; corporate earnings are trending up; as is credit availability and the euro is materially weaker. These combine to make the European area far more competitive. Italy is undergoing supply-side reform, Spain is largely through its reform phase and even France is showing signs of life. Germany is robust, with full employment. Banks have little exposure to Greece and are beyond their stress tests, which explicitly tested robustness in the face of a Greek default. Depositors in peripheral banks have not felt inclined to withdraw their money whereas there's been a bank run in Greece. Credit spreads have widened a little but nothing like 2011 and it is very important to remember Europe now has a functioning lender of last resort. Should the need arise, the ECB can print money - essentially without limit - to support both banks and governments. Assuming more ECB action, a weaker Euro and relative safety, money flows will favour the DAX. As such, we buy weakness in: Fresenius, adidas, Henkel, Bayer, Linde, ThyssenKrupp, Deutsche Telekom, HeidelbergCement, Symrise.

High Quality Growth and a weaker Euro

With macro uncertainty, the scarcity of growth may re-rate further. Notwithstanding our views on the cycle (above) for those seeking to find increasingly rare through-cycle compounders which express the scarcities of quality, growth and yield and also REMAIN cheap, we produced our sixth High Quality Growth basket this month. One of the consequences of being HQG in general is having substantial international exposure. This means many names will reap double benefits should the ECB act. Those with big US$ exposure include: Experian (OTCQX:EXPGY), Brenntag (OTCPK:BNTGY), Roche (OTCQX:RHHBY), Sodexo (OTCPK:SDXAY), Havas (OTC:HVSYY), Sage (OTCPK:SGPYY), Cap Gemini (OTCPK:CGEMY), AB-InBev (NYSE:BUD), Heineken (OTCQX:HEINY), Merck (OTCPK:MKGAY).

Pension reform in China

A volatile week in China, to put it mildly. With intraday roundtrips of up to 18% in the SHCOMP and with the index having fallen 30% from the peak, we observe a great deal of anxiousness about China. This week's volatility may well have obscured further key announcements in China. Not least of these was the not-insignificant step of permitting the state government's pension fund to invest up to 30% of its net-asset value to buy domestic stocks - a staggering amount of capital, estimated today to be c.$580bn. This move is very bullish for the stock market, coming as it does at a time of growing scepticism, and effectively settles the question about where the marginal buyer will come from. It will unleash the second wave of equity demand as trillions of dollars of pension assets are converted from cash or cash-like instruments into other asset classes. One of those assets is destined to be shares.

The animal biome

Science could be about to help feed the world again. Enhanced nutrient take-up and natural antibiotic production could significantly improve meat production yields and efficiencies. In a world getting hungrier, healthier and more interested in provenance, we observe all the hallmarks of a mega-trend. As such, the "animal biome" represents one of the more exciting secular opportunities in markets, and companies exposed to this mega-trend are likely to enjoy superior earnings growth for years to come. One of these companies is Chr. Hansen (OTCPK:CHYHY) who have the largest library of probiotic bacteria strains in the market. They reported very good numbers this week, ahead of consensus and such is their confidence in the future, they have increased the lower half of their forecast range. In a world still struggling to deliver escape velocity in terms of growth, a stock giving you 9% organic top-line growth is rare. It deserves to trade on the multiple it does and will continue to compound its earnings at an inevitable rate for the foreseeable. Stay long CHR and companies like it, Novozymes (OTCPK:NVZMY), DSM.

Aviate Shorts

The last time Ashtead's (OTCPK:ASHTY) net debt and asset growth outpaced profit growth was prior to the GFC (see below). Whilst we don't expect another crisis is around the corner, we do think investors should keep their eyes peeled for weak pricing. It's not happening yet. AHT is so confident about the future, it is currently betting all the operating cash flow AND the balance sheet on there being no slip-ups on the horizon. Speedy and recent IPO HSS have already warned - which says more about the UK election than anything else - and the UK is only 12% of AHT EBITDA. If we see any issues in the US hire equipment market, especially pricing pressure, then there is plenty of downside risk. A stock loved by the sellside because of EPS growth expectations, Apollo Education (NASDAQ:APOL) warned on 2015 FY but the real disappointment is the enrolment forecast for FY16. The company forecasts a 25% enrolment drop in 2016 Y/Y because of a decision to change the structure of degree programs to favour short term programs aimed at "helping students get a better job now". Higher Education is the biggest contributor to Pearson's (NYSE:PSO) profit, contributing over 40% of Pearson's operating income. Adding structural challenges in the HE sector Pearson's struggles in attempting to digitize without cannibalising its core business means we continue to see further downside risk for Pearson.

Aviate stocks in the news

Cap Gemini completed their i-Gate acquisition this week. We view this deal positively and expect to see more supportive commentary in coming weeks. Cap Gemini remains high quality name and this deal should be viewed positively. Persimmon (OTCPK:PSMMY) provided a sales update this week, noting an improvement in sentiment and solid demand in the current competitive mortgage environment. The absence of coherent policy means the UK's structural shortage of housing will remain a factor for some time. Activity looks likely to remain robust and fears over rising rates should be offset by corresponding income growth. Accordingly, we remain a buyer. French consumer confidence made a new post crisis high this week and we are reminded of the merits of owning Kingfisher with its large consumer exposure. It's not just France - confidence is rising elsewhere too. U.K. GfK Consumer Confidence figure for June came in at highest level since 1997 @ +7 vs. +2 est., and +1% prior…Buy more UK consumer stocks: Next, ITV, Sky, easyJet (OTCQX:ESYJY), Ryanair. Ryanair (NASDAQ:RYAAY) this week reported a 93% load factor for June (88% in Jun-14, 92% in May-15) which implies 15% passenger growth YoY. These good numbers are not unexpected but do serve to highlight the benefits of a change in strategy from, in the CEOs words, "a crap website", high ancillary charges and flight schedules posted very late in the season to a much better customer experience overall. Sky/Mediaset Premium deal has been on and off the cards a few times. Reports on Bloomberg suggest the obstacles have been valuation and Mediaset's control post any deal. Interesting then that (according to this article) Mediaset turned down a EUR1.1bn offer from Sky for 100% which is a 22% premium to the 11.1% stake sold to Telefonica for EUR100m as recently as Jan 2015 (EUR900m valuation.) We view all this as the early dance around the eventual break-up of Mediaset. We would buy the ultimate beneficiaries: Mediaset (OTCPK:MDIUY), Telecom Italia (NYSE:TI) and Sky. Reports in Asia this week suggest the first SoFIA chip for mass production due next month, Intel's 28nm SoFIA 4G application processor (NYSE:AP) is unlikely to be launched until the beginning of 2016 due to software issues. This delay is good news for our long term buy call on ARM (NASDAQ:ARMH). Euskatel's IPO in Spain this week has highlighted the demand for cable assets with the IPO of Euskatel (EKT SM) today. Needless to say we remain extremely positive with respect the prospects for NOS. More reports confirming Dish/TMUS is on the cards this week - the deal makes complete sense, it's just a matter of time. The question is what does DT do after cashing out of the US? It was the first European incumbent to talk about major cross-border consolidation. And choosing to retain a 12% stake in BT post the EE sale is telling. The early movers in any major consolidation phase could also benefit from more regulatory leniency. Our favourite plays on European Telco consolidation are Altice, Deutsche Telekom and Vodafone (NASDAQ:VOD). We remain buyers of them all.


1. A deal is still the most likely option

The Europeans still want to do a deal, the Greeks probably want this and so too the Americans (think geo-politics, how close is Greece to Tunisia?). The EC have said the door remains open. So too the IMF: "If the July 5 vote produced "a resounding yes" to remain in the euro and fix the Greek economy then the creditors would be willing to make an effort" (Christine Lagarde). It is likely the 'yes' vote prevails. It's the most palatable and in line with self-interest once the implications of default are spelt out: i.e. loss of wealth/purchasing power/pensions, hyper-inflation, civil unrest etc. (see Argentina). Why would you vote to lose what little wealth you have left? You wouldn't. So, self-interest suggests we should get a "yes", and a new deal will get negotiated and either Tsipras will implement these measures - now with the authority of the people - or they fall (as Tsipras has suggested) and a technocratic government will preside until elections can take place. What then for markets, for investment, for capex?

"Get prints".

2. Greece/forced selling aside, there is reason for optimism

Europe is in recovery mode and is more immune to shock. The activity gap between periphery and core has closed, corporate earnings are trending up so too is credit availability and the euro is materially weaker making the area far more competitive than it was then. Italy is undergoing supply-side reform, Spain's already there, even France is showing signs of life and Germany is robust, with full employment. Banks have little exposure to Greece and are past their stress tests, one that explicitly tested robustness in the face of a Greek default. Depositors in peripheral banks have not felt inclined to withdrawal their money whereas there's been a run on banks in Greece. Credit spreads have widened a bit but nothing like 2011 and most importantly we now have a functioning lender of last resort. The ECB can print money, essentially without limit, to support both banks and governments. Given the lesson learnt these past few years, the greater the quantity of this money, the lower its quality, the € is likely to weaken further offsetting any liquidity constraint, helping European competitiveness and boosting export margins.

Remember the ECB's balance sheet target is €3.2trillion.

They are only at €2.5tr today…

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…and could take it even higher if they so wished.

As such, we would be adding to reflation assets, although probably no need to rush!

3. Give me time, not timing

Our discussion from June 16th is still relevant from a longer-term trading perspective.

"A Greek default might indeed occur, but only if it doesn't really matter. If it does, an inevitable panic will ensue, one that will ultimately get bought by stronger hands (see our US investor feedback on this point). If it doesn't, the market will rally on relief. Either way, for those of you with a longer-term horizon we would use some of that large cash-balance you've recently accumulated and start buying where you have conviction - there is always opportunity in crisis. You may have to weather a little short-term pain should the worst case ensue, but ultimately you will be rewarded. Moreover, you also protect yourself from the alternative - and more likely scenario - that a deal is done".

Get prints, layer in on weakness.

4. The greater the quantity, the lower the quality of money

Assuming more ECB action, a weaker Euro and relative safety, money flows will favour the DAX.

As such, we buy weakness in:

Fresenius (OTCQX:FSNUY), adidas (OTCQX:ADDYY), Henkel (OTCPK:HELKF), Bayer (OTCPK:BAYRY), Linde (OTCPK:LNEGY), ThyssenKrupp (OTCPK:TKAMY), Deutsche Telekom (OTCQX:DTEGY), HeidelbergCement, Symrise (OTCPK:SYIEY).

5. High Quality Growth and a weaker Euro

With macro uncertainty, the scarcity of growth may re-rate further. Notwithstanding our views on the cycle (above) if looking for those increasingly rare, through-cycle compounders, that express the scarcities of quality, growth and yield and that REMAIN cheap, we produced our sixth High Quality Growth basket this week. One of the consequences of being HQG, in general, is having a large amount of international exposure, so many will get double benefits of ECB action. Those with big US$ exposure include: Experian, Brenntag, Roche, Sodexo, Havas, Sage, Cap Gemini, ABI-InBev, Heineken, Merck.

See full note here: http://europe.aviatelive.com/eu-high-quality-growth-basket-6/

6. Stay long UK Consumption

Consumer confidence hit the highest levels in 15 years in June, and a level not consistently recorded since the late 1990s. With wage rises likely to continue, and essential item inflation contained we expect further real-income growth and greater consumption going forward. Stay long our UK consumer favourites: Next, Ryanair, easyJet, Sky, ITV, Sports Direct etc.

As an aside, according to JPM US retail sales are 18% above '08 highs, Eurozone is 4% below. This gap should now close….

7. Increase exposure to French consumption

FRENCH Consumer Spending Beats: May MoM +0.1% vs Mkte -0.2%

Most exposure to UK and French consumer, Kingfisher and Havas.

We are a buyer of Havas (OTC:HVSYY).

8. Pension reform in China to buoy inflows into stock markets

Just imagine if the FED announced they were going to invest $170bn in the S&P?

Well, that is exactly what the Chinese have just done, by allowing the government's pension fund to buy domestic stocks up to 30% of its net-value, estimated today to be at $580bn. This is something our Asian strategist has been writing about for a while (see link below). It is very bullish for the stock market as it comes at a time of growing scepticism, and question marks over where the marginal buyer will come from. We now have the answer.

It will unleash the second wave of equity demand.

There is trillions of pension assets sitting in cash, which is fine as the pension is in surplus but post demographic peak and as retirees numbers grow that could turn into a deficit quickly save re-investment in higher-return assets. One of those assets is destined to be shares. For context we note the amount of excess cash on SOE's balance sheets is ~100tn RMB vs. 25tn in LGFV liabilities economy wide. There is $5tr in Bank SoE's themselves.

Get long China.

9. Ryanair (buy): great load factors coming through, as expected

Ryanair this week reported a 93% load factor for June (88% in Jun-14, 92% in May-15) leading to 15% passenger growth YoY. These goods numbers are not unexpected, but it serves to highlight the benefits of a change in strategy, from a "crap" website (the CEO's words), high ancillary charges and flight schedule posted very late in the season, to a much better customer experience overall. Of course the test will be the load factors in the low Winter season.

Some things don't change - Ryanair continues to grow fast, fill seats profitably and generate enough cash to give to shareholders to make it worth owning the shares. Bouts of overcapacity will come and go, but there is enough market potential and cost headroom for growth to continue for years. Stay long.

10. Agriculture: Chr. Hansen, Novozymes, Bayer, CNH and Exor

K+S bid, new highs. Agrium up 3.2%, Deere new all-time highs, CF Industries, new all-time highs, Syngenta's rejection of Monsanto's offer Corn +20% since mid-June. USDA planting data points to lower supply - Clearly there is something going on in the Ag-Chem space. Within the supply-chain we are excited by the mega-trend in animal biome (especially Chr. Hansen, Novozymes) and wonder if Bayer deserves to trade higher (given over 20% comes from Crop Science and they are also exposed to animal biome), it has weakened with the market, is a large DAX constituent (and so will benefit from in-flows) and has large US$ exposure (so will benefit from ECB printing). Another name to consider, one we are kicking ourselves for only coming to this week, is CNH, which Riccardo has added to his buy list. Finally, we wonder if EXOR is worth more investigation, they own a lot of CNH and other things in Italy, a market we believe to offer the most risk for positive surprise in Europe.

11. Animal Biome / Chr. Hansen Holding

Enhanced nutrient take-up and natural antibiotic production could significantly improve meat production yields and efficiencies. In a world getting hungrier, healthier and more interested in provenance, this has all the hall-marks of a mega-trend. As such, the "animal biome" represents one of the more exciting secular opportunities in markets, and companies exposed to this mega-trend are likely to enjoy superior earnings growth for years to come. One of these companies is Chr. Hansen who have the largest library of probiotic bacteria strains in the market. They have reported very good numbers this week, ahead of consensus and have increased the lower half of their forecast range, such is their confidence in the future. In a world still struggling to deliver escape velocity in terms of growth, a stock giving you 9% organic top-line growth is rare, and deserves to trade on the multiple it does and will continue to compound its earnings at an inevitable rate for the foreseeable. Stay long CHR and companies like it, Novozymes, DSM.

12. Mediaset, Sky made offer for Premium, rejected

A Sky/Mediaset (OTCPK:MDIUY) Premium deal has been on and off the cards a few times. Reports on Bloomberg suggest the obstacles have been valuation and Mediaset's control post a deal. Interesting then that (according to this article) Mediaset turned down a EUR1.1bn offer from Sky for 100%, which is a 22% premium to the 11.1% stake sold to Telefonica (NYSE:TEF) for EUR100m as recently as Jan 2015 (EUR900m valuation).

What does it mean? Probably that they think Sky can and will pay more. The industrial logic makes sense, given rising content costs and the ability to consolidate Pay-TV in Italy. But there is no mad rush either, with other options on the table and ongoing investigations re the two parties sharing Series A football rights.

We view all this as the early dance around the eventual break-up of Mediaset. The three players driving change, Bollore, Murdoch and Berlusconi, should find a path at some point - there is opportunity for value creation through consolidation of Pay-TV and development of quad-play in Italy. We would buy the ultimate beneficiaries: Mediaset, Telecom Italia and Sky.

13. Deal activity hotting up in Italy? Stay long Mediobanca

We believe Mediobanca is best placed of all Italian banks to benefit from an increase in corporate activity in Italy, especially if that activity involves Vincent Bollore, who is their second largest holder.

Finally, we note Riccardo has the following to say on UBI:

"Now things could turn interesting again for this stock: the OBV indicator is in clear accumulation phase with prices stuck in a very tight trading range. Watch for a close above 7.825 for momentum to really build."

14. Deutsche Telekom (buy): DISH/TMUS looking more likely

More reports confirming Dish/TMUS is on the cards - the deal makes complete sense, it's just a matter of time. The question is what does DT do after cashing out of the US? It was the first European incumbent to talk about major cross-border consolidation. And choosing to retain a 12% stake in BT post the EE sale is telling. The early movers in any major consolidation phase could also benefit from more regulatory leniency. Our favourite plays on European Telco consolidation are Altice, DTE and Vodafone. We remain buyers of them all.

15. Further endorsement for cable, for NOS

In a turn of form for IPO's, we note the Spanish cable IPO Euskatel (EKT SM) has traded up 9% since listing (yesterday) in what provides great endorsement for the theme generally, and NOS - our preferred play- specifically. NOS is threatening to break-out to new highs, impressive price action in what's been a turbulent week for European stocks not least those in the more southern regions.

We remain a buyer of NOS.

16. Ashtead, we see little reason to own this

The last time Ashtead's (OTCPK:ASHTY) net debt and asset growth outpaced profit growth was just before the GFC (see below). We don't think it's right to expect another crisis around the corner, but what investors should keep their eyes peeled for is weak pricing (not happening yet).

Assets and debt growth means returns on assets are peaking (blue line below). Most of the improvement in RoA looks history.

Source: S&P Capital IQ

If, and it's and if, pricing does start to weaken, the risks are high. Not only is AHT expanding capex aggressively (meaning no FCF generation for shareholders), it is funding a decent amount of it with debt. Any whiff of a slowdown and overcapacity, the balance sheet means it will be time to rush for the exits.

AHT net debt vs. NOPAT

Source: S&P Capital IQ

For now, the most relevant point to make is AHT's outperformance vs. URI needs some explaining. Especially since URI is actually generating some FCF and using it to buy back shares - AHT is not.

AHT is so confident about the future, it is currently betting all the operating cash flow AND the balance sheet on there being no slip-ups on the horizon. Speedy and recent IPO HSS have already warned, this says more about the UK election than anything and the UK is only 12% of AHT EBITDA. But if there are any issues in the US hire equipment market, especially pricing, then there is plenty of downside risk. Loved by the sellside because of the EPS growth expected.

17. Persimmon (buy): confirms our view on UK consumption

Talks of sentiment improving from a resilient level post election, says demand supported by competitive mortgage market, employment growth and some welcome improvement in disposable incomes (ref our comments on UK consumption). Completions +7%, Total revs +12% to £1.34bn (inline), ASP's +4%, total fwd sales value +15%. H1 FCF £191m, due to strong liquidity cash holdings now £278m. With the structural shortage of housing likely to remain for some time, activity looks likely to remain robust and any fears over rising rates should be offset by corresponding income growth. Accordingly, we remain a buyer.

18. Havas (HQGB): a lot to like

Havas has underperformed the European media sector YTD which we believe is now unwarranted. Last week CEO Bollore forecast 4.5-5% organic growth and 15% revenue growth for 2015. Both measures are slightly ahead of the 4%- 4.5% and 14% respective estimates in street forecasts. And this before improving associated macro indicators in their key markets, U.S., France and the U.K. Yesterday UK consumer confidence came in at the highest level since 1997. French consumer spending for May +1.8% Y/Y and +0.1% M/M (versus -0.2% exp) and U.S. retail sales are significantly higher than the pre crisis peak and consumer confidence in the US rose to 101.4, higher than estimates at 97.4.

Havas has a strategy to become the world's leader in cross-media marketing convergence. The best evidence of this success is the global partnership with Facebook, expanded through Facebook Atlas earlier this year. Facebook's Atlas offers superior targeting and post campaign measurement compared to all other players. Perhaps this is why Microsoft (yesterday) has announced plans to exit web display advertising. Havas has, in our view, embraced the digital change ahead of Western peers (Dentsu is, like Havas, a differentiator) with a geographical focus and depth of client usage which sets it apart from peers.

Havas has a more conservative balance sheet and cash management policy than WPP. WPP is highly acquisitive and has spent half of the cumulative free cash flow over the last ten years on acquisitions and although pays a higher dividend much of this is funded from debt. In contrast, Havas is far less acquisitive, meaning much less of the shareholder payout has been funded with increased debt on the balance sheet. Havas possesses the key metrics of high quality; resilient margin history with general trend of EBIT margin expansion, growth in sales and earnings and attractive free cash flow yield:

Despite all this, Havas is cheaper than rival WPP on the key media metric of EV/EBITDA. Havas trades on 8.3x FY16 EV/EBITDA, versus WPP on 9.8x and has 30% buy ratings, versus 60% for WPP. With Havas's more successful focus on digital solutions (as evidenced by its global partnership with Facebook), social transformation and ability to overcome economic headwinds to grow operating margins from 8.3% in 2009 to 14% in 2014, Havas has an opportunity to re-rate higher.

We remain a buyer.

19. Pearson (sell): APOL closed down 17%

The Street seems to be ignoring this. We don't think they can for much longer. From yesterday:

Apollo Education warned on the FY but the real disappointment is the enrolment forecast for FY16, where they see a 25% enrolment drop in 2016 Y/Y. The key contributing factor was the decision to change the structure of degree programs to more short term programs to "help students get a better job now". This is clearly, in our view, a pre-emptive strike ahead of the new rules which come into force TOMORROW. Namely, the "gainful employment" rule which will take away schools' access to federal funds if they fail to provide adequate tools for their students to find work. For profit colleges will be at risk of losing their federal aid should a typical graduate's annual loan repayments exceed 20% of their discretionary income or 8% of total earnings. At the last count some 840,000 students in U.S. HE would not pass the accountability rule.

Apollo would not be specifically drawn on the risk or impact of gainful employment on the call, claiming to still be waiting for internal data. But it clearly won't be a positive factor. And enrolment trends are a lead indicator for instruction costs and Higher Education is the biggest contributor to Pearson's profit, contributing over 40% of Pearson's operating income. Given the structural challenges in the HE sector together with the struggles Pearson faces in attempts to digitize without cannibalising its core business we continue to see further downside risk for Pearson.

On the media sector's main valuation metric, EV/EBITDA, PSON trades at 12.1x F12M multiple versus 9.6x trend. If nothing else, just a reversion to trend suggests fair value is closer to 975p, 20% lower than here. Group EBITDA is forecast to grow 27% in FY15, 8% in FY16. Given HE profit is 43% of group total, add in the fact Q1 #s were flattered by F/X, -1% organically whereas currency tailwind +5% (since when Cable has moved from 1.48 to 1.57) and the downside risk to numbers is accelerating.

Remain a seller.

20. Spain and deflation?

If there's one major difference between the Greek crisis of 2009-2012 and 2015, it's Spain. Spanish PMI came in this week down to a (still elevated) 54.5, a little weaker perhaps due to Greece? However, "Employment growth fastest in eight years" and as Markit notes, a key feature of June's PMI for Spain was signs of capacity pressures building, and in response to higher input costs, firms raised their prices charged for a second consecutive month.

Get used to higher rates.

Got banks?

21. China increasing renewables targets; GET-Clean

The GET-Clean thematic is another likely to reach mega-trend status as the world turns away from fossil-fuel energy. Just yesterday the Chinese raised their clean air ambitions with a pledge to cut carbon emissions 6-65% per GDP by 2030 and raise non-fossil energy to 20%by 2030. This will undoubtedly mean more orders for the likes of Vestas (seeing upgrades this week), Gamesa and other names within our GET-Clean basket.

While this has more exposure to Water, it's still geared to the clean environment initiative and is bouncing off a good level, its 100dma: Suez Environement.

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22. Dear Intel, thank you (again). Love ARM

Intel's efforts in IoT and mobile devices is about as strong as a chocolate teapot. Their latest "ARM killer" SoFIA has been delayed, again.

Reports in Asia this week suggest the first SoFIA chip for mass production due next month, Intel's 28nm SoFIA 4G application processor (AP) is unlikely to be launched until the beginning of 2016 due to software issues. It is the latest setback in Intel's attempt to improve positioning in mobile and IoT. Worse, the Intel 14nm SoFIA 4G is scheduled for late 2016 and there is either a chance this is delayed further or alternatively the two products will have short exclusivity windows leading to low yields and poor pricing dynamics. And price is an issue…

Intel currently only has solutions that pair an independent XMM baseband with an Atom AP for its 4G product line-up. Problem is the high prices have made no traction with Asian vendors or target customers. No wonder, the target market is low end smartphones. Intel has been working on integrating two chips into an SoC for its SoFIA product line since the end of 2014 to improve the BOM, without success.

The whole point of the SoFIA platform is a focus on low cost devices. Much was made of SoFIA in early 2014 and of Intel partnering with Rockchip (a well-known ARM partner) but much like other architectural changes (e.g. Broadwell 2013) Intel's mis-execution is, frankly, astounding. In contrast, ARM's leading edge processors continue to leap from strength to strength. Just ask Apple.

After all, from Ivy Bridge ("Intel's Tiny Transistor With "Fins" Is A Potential ARM Killer", 2009), through Haswell ("Intel plans to crush ARM", 2012) and Medfield ("Intel's Medfield will Dismantle ARM" 2012) to Silvermont ("The Empire Strikes Back") the over promise and under achievement of Intel's technology footprint is plain culpable. In the meantime, little £15bn "David" in Cambridge continues to hold its own against the $144bn "Goliath" in Santa Clara.

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