Hold On Tight When Volatile DAX Member Reports

(Bloomberg) -- There are few companies that generate as much market buzz as Wirecard. So expect some noise when the German payment processor reports earnings on Wednesday.

As a member of the benchmark DAX Index, Wirecard’s gyrations always get plenty of attention. On the four separate occasions in February when the stock fell more than 10%, the DAX underperformed the rest of Europe.

Yet more recently, the stock’s wild swings have slowed. There hasn’t been a double-digit intraday movement since the end of May and the shares are up 10% in the last six months, recouping losses since a series of reports in the Financial Times alleging accounting irregularities at its Singapore division. The allegations have been denied by the company.

• Wirecard has been doing its part to instill positivity: in recent weeks, it announced a strategic partnership with Softbank company AUTO1, and another with German grocery discounter Aldi.
• The impact of these announcements sometimes divided the market, however the majority of sell-side analysts are keeping the faith and Wirecard scores the third-highest number of buy recommendations in the DAX: 23.

• While the shares have reclaimed ground and short sellers are scaling back their positions, the company still has work to do to fully regain investor confidence. Police investigations continue into the alleged irregularities in Singapore, while management might face another round of questioning on what it has done to improve corporate governance.

• With the stock 24% below the average analyst price target, it has room for upside should second-quarter numbers surprise positively and management be able to provide clarity on a planned $1 billion investment by Softbank.
• A mooted share buyback would provide a further sign of confidence.

• In the meantime, Euro Stoxx 50 futures are little changed ahead of the open, while S&P 500 futures are up 0.4%.

SECTORS IN FOCUS TODAY:

• European video-game developers may get a boost on Tuesday after Take-Two Interactive beat expectations. The maker of the Grand Theft Auto franchise, jumped as much as 7.5% in late trading after it beat 1Q estimates and raised its FY forecasts.
• With iron ore now in a bear market the focus might once again be on European miners and steelmakers. Worsening trade relations between the U.S. and China, a pick-up in iron ore supplies and signals that demand is softening have all weighed on iron ore, which had surged in the first half of the year on supply concerns and expectations of increased demand.

COMMENT:

• “The trade conflict’s proportion between China and the U.S. is increasing and highlights the complexity of the matter. Now, the good old topic of yuan devaluation is coming up again and thus has a lasting effect on the U.S. dollar’s value,” Comdirect Bank strategist Andreas Lipkow said in emailed comments. “That brings the Fed back into the game and the trio infernale is complete. The coming trading days will determine the further direction while investors take cover in the supposed safe havens of sovereign bonds and gold for the time being.”

NOTES FROM THE SELL SIDE:

• Morgan Stanley says it’s bullish on Puma and upgrades the shares to overweight from equal-weight, with price target boosted to EU72 from EU59, according to note. Analyst also raise price target fro Adidas from EU180 to EU240.
• Lonza’s track record is strong, with a world-leading position in contract development and manufacturing organization, while growth drivers are now as good as ever, Berenberg says in note initiating at buy.
• Air France-KLM upgraded to market perform with advantageous fuel hedges and a benign fuel environment more than offsetting any cost pressures or weakness in revenue, Bernstein says in note.
• Surging trade tensions between the U.S. and China and the increased prospects of a hard Brexit mean the Federal Reserve will cut its benchmark interest rate three times this year, according to a revised outlook from economists at Goldman Sachs.

COMPANY NEWS AND M&A:

• Germany’s Deutsche Bahn Is Said to Eye Amsterdam for Arriva IPO
• Deutsche Post Lifts Lower End of Profit Forecast on German Unit
• Deutsche Bahn Looks to Amsterdam for Arriva IPO -Bloomberg
• GEA Group Second Quarter Oper Ebitda 1.1% Above Estimates
• SGL FirstHalf Sales From Continuing Operations EU561.5 Mln
• Pfeiffer Vacuum FY Sales View Midpoint Meets Est.
• Pfeiffer Vacuum CEO Sees Demand Increase in Coming Months
• Lehto Group Cuts 2019 Outlook After ‘Strongly Negative’ 1H
• Heidelberger Druck Mulls Selling Smaller Business Areas
• Nedbank 1H Net Interest Income Rises to 14.8 Billion Rand
• Sanofi’s Dupixent Wins EU Approval for Dermatitis in Adolescents
• Galenica Sees Full Year Sales +1% To +3%
• Technotrans First Half Net Income EU2.7 Mln
• Oerlikon Cuts Full-Year View, Citing Trade Dispute Concerns

TECHNICAL OUTLOOK for Stoxx 600 index:

• Resistance at 370.3 (200-DMA); 383.4; 395.1 (July high)
• Support at 365.5 (50% Fibo); 356.5 (38.2% Fibo) (200-DMA)
• RSI: 26.5

TECHNICAL OUTLOOK for Euro Stoxx 50 index:

• Resistance at 3,403 (61.8% Fibo); 3,445 (50-DMA)
• Support at 3,308.76 (50% Fibo); 3,293 (200-DMA)
• RSI: 27.3

MAIN RESEARCH AND RATING CHANGES:

UPGRADES:

• Air France-KLM upgraded to market perform at Bernstein
• Brunello Cucinelli upgraded to buy at Jefferies; PT 34 Euros
• Carel upgraded to buy at Goldman; PT 13 Euros
• Europcar upgraded to buy at Goldman; PT 8 Euros
• Kloeckner upgraded to buy at Bankhaus Lampe
• Puma upgraded to overweight at Morgan Stanley; PT 72 Euros
• Siemens Gamesa upgraded to buy at Goldman; PT 15.30 Euros
• Spectris upgraded to buy at HSBC; PT 32.50 Pounds

DOWNGRADES:

• AB InBev downgraded to neutral at UBS
• Cobham downgraded to hold at Jefferies; PT 1.68 Pounds
• Computacenter downgraded to hold at Berenberg
• Direct Line cut to equal-weight at Morgan Stanley
• Eutelsat downgraded to hold at HSBC; PT 18.50 Euros
• Ferrexpo downgraded to equal-weight at Barclays; PT 2.45 Pounds
• Fiat Chrysler downgraded to reduce at AlphaValue
• IMI downgraded to hold at HSBC; PT 11.35 Pounds
• Netcompany downgraded to hold at SEB Equities; PT 280 Kroner
• Spectris downgraded to sell at Berenberg

INITIATIONS:

• Guala Closures rated new hold at Kepler Cheuvreux; PT 6.70 Euros
• Lonza rated new buy at Berenberg; PT 410 Francs
• OKEA rated new buy at SpareBank; PT 33 Kroner
• SolGold rated new buy at Peel Hunt; PT 70 Pence

MARKETS:

• MSCI Asia Pacific down 1%, Nikkei 225 down 0.8%
• S&P 500 down 3%, Dow down 2.9%, Nasdaq down 3.5%
• Euro up 0.01% at $1.1204
• Dollar Index up 0.05% at 97.57
• Yen down 0.73% at 106.72
• Brent up 1% at $60.4/bbl, WTI up 1% to $55.3/bbl
• LME 3m Copper up 0.3% at $5699.5/MT
• Gold spot down 0.1% at $1462.1/oz
• US 10Yr yield up 5bps at 1.76%

ECONOMIC DATA (All times CET):

• 8am: (GE) June Factory Orders MoM, est. 0.5%, prior -2.2%
• 8am: (GE) June Factory Orders WDA YoY, est. -5.2%, prior -8.6%
• 9:30am: (GE) July Markit Germany Construction PMI, prior 50

* For a wrap on developments in Europe’s equity capital markets, click here.

To contact the reporter on this story: Jan-Patrick Barnert in Frankfurt at jbarnert3@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Paul Jarvis, Beth Mellor

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