Flash boursier

Key data

Highlights:

1° Encouraging economic data
2° UK due to trigger Article 50

La La (Eng)Land

Almost a decade after the global financial crisis broke, and for the first time since the flash-in-the-pan recovery of 2010, the world economy really looks like it’s turning the corner. Not just economic data but also financial markets in the US, Europe as well as Asia and emerging economies have all chalked up solid performances. Unfortunately, the ambient political mood can be qualified as raging against the system, that is to say, hostile to the established order. And political risks are looming charge in Europe.

In the US, the mood of euphoria resulting from the incoming administration, combined with a slew of upbeat economic data, suggests that growth is firmer today. This has also led to new record highs in equity markets. But since the vote on Trump’s new healthcare bill was cancelled, doubt has set in among equity investors regarding his ability to push through reforms – especially the prospective changes to taxation and investment expenditure. Markets are on edge, revealing initial signs that the so-called ‘Trump trade’ may be running out of steam. A correction could well in the pipeline.

Celebrating the 60th anniversary of the Treaty of Rome over the weekend, European leaders reaffirmed their commitment to continuing European construction, encouraged by recent economic data. Europe is at the moment seeing a broad-based improvement in growth and employment as well as quickening inflation, which has risen to 2%. But even though the turmoil has died down and economic activity is picking up pace, the EU still faces some huge challenges.

This week the UK will set in motion its Brexit by triggering the famous Article 50 of the Lisbon Treaty. Thus will end a partnership with the EU that could have been so much more. The challenges facing the UK are huge and concern not only ties with EU countries - which represent the largest trading bloc in the world - but also economic and financial relations with outside countries. The next two years of talks are fraught with uncertainty. Expect the UK economic to react negatively.

Emmi AG (ISIN: CH0012829898, price: CHF 669.50)

Full-year results showed net earnings rising by 16%. Emmi has recommended an increased dividend but the end-amount in still low (0.88%). The group has deep pockets and continues to grow via acquisitions. Scope for expansion in Switzerland is today limited and most acquisition opportunities are situated abroad. Accordingly, non-Swiss sales shot up by 44% in the period under review.

Despite respectable 2016 results, the group sees only pedestrian organic growth of 1.5% for the current year. This seems to be accurate as the news year to date would suggest only a moderate uptrend. Sales in Europe are under some pressure while the Swiss market is flat relative to 2016.

Although Emmi has solid fundamentals and lower net debt than its sector average, the share is trading on a rather rich 23x 2017e earnings. On technicals, the share is being repelled by the resistance at CHF 675-680. All of the above presages price weakness any time from now.

Buy on a dip around CHF 570.

Nike (ISIN: US6541061031, price: USD 53.36)

The group’s third-quarter revenue rose 5% to USD 8.4bn but this was slightly short of the consensus. In contrast, earnings per share (which came to USD 0.68) were far higher than expected (USD 0.53).

Gross margin (44.5%) was lower than in the prior-year period (45.9%), due to higher materials costs, detrimental exchange rates and huge discounts on selling prices. The group is guiding for sales growth in all regions and margin expansion outside the US. The North American market remains challenging, with sales stagnating and inventories still plentiful despite a recent drop.

Competition between brands has become fiercer, especially in the US basketball market. At the same time, consumer tastes are shifting. Nike has pledged tighter management of new products by investing in innovation, speeding up times to market for new products and boosting online sales.

The current buyback scheme, which has USD 8.4bn left, is propping up the share price.

Recommended as Hold with a target price of USD 62.

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