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LIVE MARKETS-FANG+ and its stratospheric multiples

Mon, 31st Aug 2020 10:29

Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts with Joice Alves (joice.alves@thomsonreuters.com)
and Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) in Milan.

FANG+ AND ITS STRATOSPHERIC MULTIPLES (0925 GMT)

The 'Do not fight the Fed’ mantra is supporting stock prices, but how long can it last? And
what about FANG+ which are way above other shares in terms of valuation?

According to a BNY Mellon report, a basket which includes FANG+ stocks “is trading at
stratospheric multiples.”

“Even with a heroic earnings growth expectation of 22% per year over the next 3-5 years”,
the long-term P/E “is still 83 times,” the BNY Mellon note says.

And this compares with a below 10% annual EPS growth forecast as well as a P/E ratio at
around 30 for U.S. large caps, while Nasdaq stocks price in an about 7% increase in earnings and
a P/E of around 45.

So either prices “adjust downward” or “earnings growth can be ratcheted even further up from
the already high numbers currently bandied about,” it adds.

NYSE FANG+TM Index includes the 5 core FAANG stocks Facebook, Apple
, Amazon.com, Netflix and Alphabet, as well as Alibaba
, Baidu, Nvidia, Tesla and Twitter.

(Stefano Rebaudo)

*****

OPENING SNAPSHOT: OIL AND UTILITY STOCKS LEAD GAINS (0739 GMT)

European stocks are higher in early trade with oil and gas stocks supported by data from
China, while utilities benefit from fresh M&A activity.

Expectations for long-lasting fiscal and monetary stimulus are propping up market sentiment,
in thin summer trade with the UK market closed for bank holiday.

PMI data from China strengthen the line of thought that suggests China’s recovery remains on
track, supporting oil prices.

The STOXX 600 index is up 0.4%., with oil and gas stocks up 1.2%, while utility shares rise
1% after France's Veolia offered to buy a stake in its rival Suez.

Shares in Suez are the best performers in the STOXX 600, up 19.3%, as Veolia’s
announcement is seen as a prelude to a full takeover. Stocks in Veolia rise 3.2%.

Telecom Italia (TIM) shares are up 2.5% as an expected sign off on a deal with
U.S. private equity group KKR would lay the groundwork for plans to create a single
broadband network.

(Stefano Rebaudo)

*****

ON THE RADAR: M&A ACTIVITY, SANOFI (0638 GMT)

European stocks are set to open higher with investors expecting fiscal and monetary stimulus
to be in place for years to come, amid the Fed’s new strategy to lift employment with an
increased tolerance for higher inflation. UK markets are closed for bank holiday.

M&A is on the frontline with Nestle offering $34.50 per share for the remaining
74.4% in peanut allergy treatment maker Aimmune Therapeutics it does not already own,
valuing the company $2.6 billion.

French water and waste firm Veolia is offering to buy a 29.9% stake in its smaller
peer Suez from French gas and power utility Engie for 2.9 billion euros, saying it aims to
create a "world champion of ecological transformation".

Telecom Italia (TIM) is set to sign off on a landmark deal with U.S. fund KKR
today that could lay the groundwork for plans to create a single ultrafast broadband
network promoted by the Italian government.

On the coronavirus front, Sanofi's confidence in its vaccine candidates has
increased this summer as the French drugmaker prepares to start clinical trials, its chief
executive told Reuters.

Swissport will get new owners in a debt-for-equity swap that includes a 500 million euros
($595.20 million) long-term debt facility and a 300 million euros interim facility to help keep
it afloat.

(Stefano Rebaudo)

*****

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