linc-week-51.pdf
TRANSCRIPT
WEEK 51
This week’s headlines • Bright future for the Swedish Labour market • Overall weakness in global equity markets • Oil keeps falling • The downside of a Federal Reserve interest rate hike • OMXS30 approaching strong support at 1383SEK • MACD indicates that the market are still bearish towards Oniva Group
Distress in the high-‐yield bond market The bond market is in turmoil as junk bond yields have continued to spike leading to falling bond prices. CCC rated high yield bonds recently reached a yield of 17 percent, the highest since the financial crisis. High yield fund outflows reached record levels for 2015 in December as investors begun to pull their money out of the bond market. Distinguished high yield funds have decided to close up shop and liquidate their funds because of the carnage in the market. However, as the market continues to fall, illiquidity becomes a bigger and bigger issue as the underlying assets have become remarkably illiquid. The high yield market is being pressured by a higher default rate among US companies as the rising dollar takes a toll on industry profits. The problem in the junk bond market however, is primarily linked to the oil slump. The US bond market has been overheated for a long period of time, with record issuance taking place in recent years and increasingly complacent investors. During the “good times” investors got complacent and bonds were issued to companies that should never have received any financing. The easy credit environment resulted in a market susceptible to exogenous events, like the recent decline in the price of oil. Today a big chunk of the high yield market is exposed to oil companies. As has been discussed previously, it is likely that the price of oil will be low in the short term as long as the supply glut remains unresolved. If the price of oil remains low for much longer, it can lead to mass defaults in the US energy sector, with huge consequences for the high yield market. With persistent low oil prices and a slowing US economy, the situation could easily turn from bad to worse in the high yield market. As more and more investors start to realize that the underlying assets are illiquid, it becomes increasingly likely that a
stampede to the exits will occur, which could result in a complete meltdown. This stampede seems to have already begun, and it can affect the stock market adversely as the US credit cycle turns.
Sweden Bright future for the Swedish labour market The net of the Swedish central government payments gave a surplus of SEK 21.8 billion in November, according to the National Debt Office. The Debt Office's forecast was a surplus of SEK 14.6 billion. Higher tax revenues mainly explain the difference. It also indicates that tax revenues for the full year could be higher than the Debt Office's forecast. It is offset by the fact that even the expenditure is expected to be higher, primarily due to additional government grants to municipalities as a result of the refugee crisis. Elsewhere it was announced that the Employment Service's new forecast signed a bright future for the Swedish economy and the labour market due to the fact that Sweden has a strong international position. But there is no lack of challenges since we have increasing matching problems and the labour market is about to be more divided, said Tord Strannefors, Forecast boss at Employment Service. The number of people employed is increasing while the workforce continues to grow with the great asylum immigration. This increased range is very positive for the Swedish economy in the long term, but contribute to a higher unemployment rate in the short term, Strannefors went further to say. The Employment Service expects that the trend of unemployment will continue to be concentrated to vulnerable groups, and that the division in the labour market therefore will become clearer. Approximately 75 percent of the registered unemployed belong to the vulnerable groups and the proportions of unemployed with demand skills decreases, which is making the matching between employers and employees even more difficult.
Stocks Overall weakness in global equity markets Both the Nasdaq and the S&P ended the week about 4 percent lower than it closed the week before. The Swedish OMX index performed even worse than its American counterparty with a decline of 5.67%. One might get the feeling of ’Déjá vu’, as the decline is taking place as it once again looks as if the Federal Reserve is about to raise rates. Front running the FED’s decision is the Swedish Riksbank who, considering the less dovish than expected ECB-‐meeting and the resent strength in the Euro, now is less pressured to ease further. This will be an interesting decision, as Swedish growth figures are strong but inflation has remained low. If the Riksbank cuts the Repo-‐rate further, it would signal to the markets that it is mostly looking at inflation. While a decision not to ease further might hurt inflation expectations, and thereby also inflation in the long run and market participant might once again start to question whether or not the Riksbank will be able to reach its 2% target. Considering all this, we do expect the Riksbank to leave the Repo-‐rate untouched. Regardless which decision that eventually will be taken by both the Riksbank and the FED, one should probably expect increased market turbulence during the week. Commodities Oil keeps on falling It was a very tough Friday for oil since it was clear that Opec wont react to decrease the oversupply in the world. When the market closed at Friday the Brent oil had decreased 4,3 per cent to 38,00 dollars per barrel. WTI fell by 3,2 per cent to 35,58 dollars per barrel. This outcome meant that the past week was the worst week
of the year 2015 seen from a price trend perspective. According to the IEA there is no light in the tunnel for a long time ahead since they in an interview with the Marketwatch declared that they believe that the oversupply will stand until the end of next year. Also John Kilduff at Again Capital expressed his concern over Opec´s passive actions, when he in an interview with Bloomberg News claimed that the “hits on market will keep on coming. It was negative that Opec did not lower the production limits at the last meeting. Now we are seeing everyone fighting for market shares. Gold ended the week with a 0,6 per cent surge thanks to the weaker dollar. This meant that precious metal landed the week with a total fall of 1 per cent. This is the seventh time the last eight weeks gold ends up with a minus result. Bonds and Forex The downside of a Federal Reserve rate hike Two days ahead of the Federal Reserve interest rate meeting, a rate hike is heavily priced in. In spite of the fact that many may be in favour of such an event, there are still some that believe it would be most unpropitious. They argue that the labour market in the US still have a long way to go with wages as well as participation rates and that the inflation rate is too low to justify a rate rise. In comparison to the diverging opinions regarding the outcome for the US economy, most seem to be in agreement about the fact that a rate hike will leave China in a more perilous situation. Despite the increased amortization costs that China will suffer from the hike, a potential rate hike in conjunction with a stronger dollar may compound into another negative effect on the Chinese economy: Spurring capital outflows from the Chinese markets. Last week one could observe that this type of movement had already presented itself rather clearly. Besides repositioning the Renminbi in favour of
getting exposure to the more attractive US dollar, an important reason for withdrawing money seems to have been that nervous investors doubt the potential returns in the Chinese markets. The jitters are rooted in the overvalued Renminbi that probably is up for depreciation and the reserve of foreign exchanges that have been slashed to record low levels recently, making China less able to control the Renminbi exchange rate. A rate hike would likely prove troublesome for the Chinese economy, leaving the government with even emptier pockets. Small cap Episurf Historical low expectations provides big upside both short and long-‐term. Episurf raised about 120MSEK in Q3 to finance its progression from research and development into full scale commercialization of the company’s three ready products. By the end of Q3, 62 successful operations had been conducted using Episurf’s leading technology of anatomically shaped implants tailored for the individual. Episurf’s revolutionary technology and nonexisting fail rate has a good chance at establishing itself on the market. Episurf is planning on expanding to the European market, and within a two year period to continue to the North American market which is valued to 4,2 billion $. Their goal is that 100 new clinics will join the company’s own web based IT-‐system , μiFidelity, in 2015. By the end of Q1, 39 clinics had already joined. If these clinics on average perform three operations a year this equals a revenue of 6-‐7,5 MSEK for Episurf. With increasing sales cost the burn rate has increased by 10 MSEK per quarter but with a solvency of 95 % there is room for continuing expansion. This was a summary of Analyst Group’s analysis, read the full analysis on Episurf at: http://analystgroup.se/episurf/
Capacent Holding Capacent Holding is a recently listed management consulting company. High dividend yield and incentive programs to keep skilled employees provides a large potential upside with a limited downside. Q4 has an estimated revenue of 150 MSEK and an EBITDA of 15,6 MSEK for 2015. Capacent has a stated goal of achieving an organic growth greater than 4,7 % It aims to achieve its financial goal by organically building on its current strong market position and explore further geographical expansion. The company has historically acquired consulting firms with different specialisations to broaden Capacent’s expertise and provide consulting in different areas. The market risk and a current high goodwill post in the balance sheet should however be taken into consideration. This was a summary of Analyst Group’s analysis, read the full analysis on Capacent Holding at: http://analystgroup.se/capacent/ Verisec Verisec (VERI) is a company with focus on digital security. The company has its own digital security solution, Freja, which generates most of the company’s revenue. Mobile identification is a growing market and is expected to double its size to 2018. Combined with a continually growth in the IT-‐security segment of 15.5 % on a year basis indicates that Verisec operates on a market with strong underlying growth. Verisec’s most recent deal is with the Spanish bank BBVA that has implemented Freja in its systems. The bank has approximately 40 million customers. The deal will result in a great boost in Verisec’s future revenue. The Freja system is mostly sold by subscription to the banks and therefore generates income on a yearly basis. The customer, which usually is banks, does not change supplier of these services particularly often and
therefore becomes loyal customers. As an example has Verisec not lost a single maintenance deal since 2002. The hard competition on the Swedish market by the alternative Mobilt BankID has forced Verisec to expand internationally and made 2014 a public float that generated in 35 million SEK in new capital to finance the international expansion. The success of the company will depend on this expansion and has so far has been above expectations. This was a summary of Analyst Group’s analysis, read the full analysis on Verisec at: http://analystgroup.se/verisec/ Christian Berner Christian Berner (CBTT B) is a technology trading company that market, sells and deliver components, systems and services with a high level of technical content. The company provides quality products, support and solutions for customers in both the private and public sector. With an increased focus on value sales and control of expenditures has the profitability improved four quarter in a row. Combined with a improved turnover for the first nine month and a strong wallet gives space for strategic acquisitions with which Christian Berner intends to further strengthen its position as a niche player in their field of business. With a strong main owner in Christian Berner Invest AB that owns 61.4 % of the capital and 75.9 % of the votes. They are represented by the third and fourth generation in the Berner family that indicates a personal interest in the company’s success. The rest of the board has a broad range of experience in the technical trade market as well as the CEO Bo Söderqvist. Christian Berner is going to change stock floor and will be traded at small cap in 2016. This opens up for institutional investors that will make the stock more liquid. This was a summary of Analyst Group’s analysis, read the full analysis on Christian Berner at: http://analystgroup.se/christian-‐berner/
MACRO EVENTS WEEK 51 Monday: Japan: Tankan Large Manufacturers Index Q4, Industrial Production YoY Final OCT and Tertiary Industry Index MoM OCT Euro Area: Industrial Production YoY OCT, ECB President Draghi Speech India: WPI Inflation YoY NOV and Inflation Rate YoY NOV Tuesday: Sweden: Riksbank Rate Decision Great Britain: Inflation Rate YoY NOV Brazil: Business Confidence DEC Euro Area: Employment Change YoY Q3 United States: Inflation Rate YoY NOV, Nahb Housing Market Index Wednesday: Euro Area: ECB Non-‐Monetary Policy Meeting, Balance of Trade OCT and Inflation Rate YoY Final NOV Great Britain: Unemployment Rate OCT and Average Earnings incl. Bonus OCT United States: Fed Interest Rate Decision and FOMC Economic Projections Thursday: Japan: Balance of Trade NOV and Exports YoY NOV Sweden: Unemployment Rate NOV Norway: Interest Rate Decison Euro Area: Construction Output YoY OCT, Labour Cost Index YoY Q3 and Wage Growth YoY Q3 Friday: China: House Price Index YoY NOV Japan: BoJ Interest Rate Decision United States: Fed Lacker Speech
SPOT PRICES and one week change OMXS30 1 401,14 -‐5,67% NASDAQ 4 933,47 -‐4,06% S&P – 500 2 012,37 -‐3,79% DAX 30 10 340,06 -‐3,83% NIKKEI 19 230,48 -‐1,40% HANG SENG 21 464,05 -‐3,90% Gold spot 1 072,10 -‐1,19% Crude Oil (Brent) 39,91 -‐9,84% USD/SEK 8,496 +1,08% EUR/USD 1,099 +4,01% Bitcoin 434.11 +11,4% Writers: Tomas Nylén Emma Egnell David Ingman Olof Svanemur Johan Svensson Matilda Andersson Carl Dalerstedt Mark Thiong’o Technical analysts: Johan Lövstrand Emil Esbjörnsson
OMXS30
OMXS30 is for the moment trading in a long term down trend. The index moves in the current situation in the upper part of the trend channel although it has bounced back since it was testing the roof earlier last week. Friday the stock closed at the same level as the MA-‐50 line which can act as a distinct support/resistance level next week. The past few days, we have seen two large red candle sticks combined with increased volume which indicates a continued decline which follows the trend. Also the MACD indicator pointing in the same direction since it has broken through the signal line from above, which triggers a sell signal. Stop loss would in the current situation be recommended to around 1440 points. We are technically negative to the OMXS30 in the short and long term.
Elous Vind B
Eolus Vind broke out if its downtrend by a breach of the roof of the trend channel. This results in an indication towards a more horizontal development of the stock and a slowdown in the rate of decline. MACD recently crossed the signal line from below, indicating a positive momentum. The stock recently tested resistance of 24.5 SEK, which meant a short term downward movement. The nearest support is at 21 SEK and a stop-‐loss is tentatively set just below this level. We are in total technically neutral to Eolus Wind in the medium term.
Avensia
Avensia has previously been trading in a long-‐term downtrend, but broke out of it in the end of October. The stock has since then had a strong upward movement, but is now on the decline. The stock is currently showing no clear trend, which does not give clear indications about the future. MACD has just broken the signal line from above and are moving towards the zero line. This indicates a slightly more negative view of the market and a negative momentum in the stock. It recently tested the resistance at 6.5 SEK, but is now approaching support at 5.0 SEK. We recommend a stop-‐loss below the support level at 5.0 SEK. In the total, we technically negative to Avensia in the medium term.
Oniva Online Group
Oniva Online Group has for a long time been traded at very low volumes within a falling trend channel. The stock has tried to break through the roof on several occasions, which it succeeded in one month ago but fell fairly straight back into the trend channel. The stock is now traded in the middle of the trend channel, while the MACD is below the signal line, suggesting a “bearish” view of the market. Furthermore, there is no support level for the stock since it’s traded close to the “all-‐time low” and thus it becomes difficult to identify a stop loss and caution is advised. The resistance level of the stock is around 10 SEK. In summary, the technical view of Oniva Online Group is negative in the short term and medium term.
BTS Group B
BTS Group has since the beginning of the year been traded in a positive trend. The stock has since the peak of 82.5 SEK, broken down and is now close to the floor of the trend channel, where the stock previously found support with higher volume. MACD is below the signal line indicating that a short-‐term rebound can be expected. The future direction of the trend will be determined whether the support level at 71 SEK will hold, where a stop loss is tentatively set slightly below this level. The resistance level is to be found around 76 SEK. The technical view of BTS Group is positive in the short and medium term.
Precio Fishbone B
Precio Fishbone has for the last six months been moving in a slightly positive trend, where the stock recently broke up through the trend channel after a rectangle formation triggered a buy signal. This gave a signal of further positive development with a target price of 16.5 SEK, which it also reached during high volume. The stock has now bounced down towards the trend channel and is about to break through. The stock can either find support at this level or it will break down and settle back within the trend channel. MACD is still above the signal line, but is close to break down, which in this case will provide a "bearish" view of the market. The support level is approximately at 14.5 SEK and a stop loss is tentatively set slightly below this level. The resistance level is found around 17.2 SEK. The technical view of Precio Fishbone is neutral in the short term and positive in the medium term.