Last checked at 
* STOXX turned negative
* Q1 season kicks in
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 Thyagaraju Adinarayan
(thyagaraju.adinarayan@thomsonreuters.com), Joice Alves (joice.alves@thomsonreuters.com) and
Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) in Milan.
WINNERS AND LOSERS DURING CORONAVIRUS TIMES, CASH IS KING (1335 GMT)
The earnings season is up, but if we really want to bet on the winners of this huge pandemic
disaster we have to go back to basics: cash generation and balance sheet strength.
This is exactly what Jefferies did by stress-testing different scenarios to find out which
companies will really be able to weather the storm.
"Each team considered everything, from payable and receivable terms, factoring, loan
dynamics, rent reductions, employee furloughs, repayment schedules and more", the investment
bank says in a research note.
Here are the "Paid In Full" stocks, where the strength of balance sheets backstops "risks of
prolonged end market weakness":
Gedeon Richter
Persimmon
Spectris
Then, Jefferies lists six companies with "access to significant liquidity polls", which will
help smooth their short-term volatility:
Accor
AkerBP
Ashtead
CRH
Mondi
Rio Tinto
With the following shares, expect some weakness in the short term, but coupled with a
longer-term buying opportunity:
Ferguson
Land Securities
Stora Enso
Vodafone
In the red zone, find the "Get Money", which are affected by liquidity concerns, weak demand
and balance sheet:
ABI, Kier
Renault
Tarkett
Tullow
Weir
(Stefano Rebaudo)
*****
AEROSPACE: MORE TURBULENCE (1033 GMT)
Do not be fooled by their big P/E discount, there maybe further selling pressure coming on
European commercial aerospace stocks.
Investors often "underestimate the highly cyclical nature of multiples in this industry,"
Barclays says. So we should not forget that their price-to-earnings ratio was at 5-6x during the
2008 global financial crisis down from high teens to low twenties at cycle peaks.
Currently civil European stocks are trading on 8.4 times average 2019 actual EPS and are
around 45% below their historical "through-cycle multiples," Barclays says.
And if Covid-19 will have the same impact on ratios of the global financial crisis the
multiples are expected to erode by a further 30-35%.
Safran, MTU Aero Engines and Airbus are well above the global
financial crisis levels, while Meggitt and Senior are more close to it.
We will probably see these shares make their way back in positive territory, but we first
need the coronavirus outbreak to sound a retreat.
At least two quarters a traffic recovery at sustained levels is a precondition for these
stocks to outperform the market, Barclays adds.
(Stefano Rebaudo)
*****
IF STOCKS DERATE (0940 GMT)
One of the factors that helped the STOXX 600 bounce back about 25% from its March 16 lows is
price-to-earnings ratios clawing back their way to where they were about six months ago:
The PE curve has enjoyed a much faster pace than its index and as you can see below, it's
back to its historic levels.
But what happens if that rerating trend crumbles and PE ratios actually fall to the lows
experienced during previous recessions?
Have a look for instance at how low the STOXX' PE ratio fell during the last decade. It just
begs the question to how hard of an impact a derating could have on European stocks moving
forward.
On that note, TS Lombard Chief Economist Charles Dumas wrote this morning that S&P earnings
falling 25% in 2020 would put forward p/e at a "bubbly" 24.
"With S&P 'e' down 25% from 2019, forward p/e of 16 puts index at 1,900" against 2,874
points at the moment, he warned.
Here's a bit of reading on the valuation debate and on the Q1 earnings season
in Europe
(Julien Ponthus)
*****
OPENING SNAPSHOT: GLIMPSE OF Q1 MEETS CAUTIOUS MOOD (0836 GMT)
The good news: investors have not been spooked out by the Q1 earnings reports which have
started piling up this morning.
The bad news: the upward trend which was displayed by futures prior of the open has lost its
steam. The STOXX 600 which opened well into positive territory is now hovering up and down the
0% bar.
As a sign that sentiment has not soured yet, Travel & Leisure shares, the typical
coronavirus fear and greed gauge, are up 0.7%.
Among blue chips which have given a Q1 trading update, Vivendi is leading the CAC 40 with a
4.4% rise after publishing resilient growth in revenue in the first quarter.
Still in Paris, EssilorLuxottica is also up 1.5% after its earnings release.
In Amsterdam, Philips is also up after its Q1 update and its shares rising 2.8%.
Things went less smoothly for fish farmer Mowi which is down about 9% after it posted weaker
than expected first-quarter earnings and said costs were rising due to the impact on operations
from the COVID-19 outbreak.
(Julien Ponthus)
*****
ON THE RADAR: Q1 EARNINGS AND LOCKDOWN EASING HOPES (0649 GMT)
The somewhat arguably encouraging trend in new covid-19 cases and deaths coupled with some
lockdowns easing measures (or plans to) are helping sentiment.
As a sign that businesses are seeking to get back to “new normal”, IKEA aims to start
reopening shops in Europe in May, its chief executive said.
So far this morning in terms of earnings, Philips reported a 33% decline from a year earlier
in first-quarter core earnings while EssilorLuxottica, the spectacles company, said it would
scrap its dividend and would look to cut costs.
Vivendi reported a 4.4% growth in revenue in the first quarter but its advertising unit
Havas, as well as publishing subsidiary Editis, suffered a decline in their activities due to
the coronavirus outbreak.
French car parts company Faurecia reported a 13.5% drop in first-quarter sales.
Two retailers applied for state-backed loans: in Germany electronics retailer Ceconomy and
Fnac Darty in France.
Talking about state aid, KLM withdrew a proposed bonus increase for its chief executive
following public outrage that the company, which is trying to secure state support, should have
even considered the move.
Novartis has won the go-ahead from the U.S. Food and Drug Administration to conduct a
randomized trial of malaria drug hydroxychloroquine against COVID-19 disease.
Among smaller companies British sofa retailer DFS Furniture is negotiating an additional
debt facility and preparing an equity issue of up to 19.9% of its existing share capital to get
it through the coronavirus crisis.
Good news on the other hand for Premier Foods which expects annual trading profit to be at
the top end of market expectations, as the coronavirus pandemic fuelled a short-term peak in
volumes in March.
(Julien ponthus and Stefano Rebaudo)
*****
MORNING CALL: SLIGHTLY UP AS EARNINGS SEASON KICKS IN (0530 GMT)
European futures are trading cautiously in positive territory - +1.3% for the STOXX50 - as
investors brace for an earnings season like no other in financial history.
Reporting for the first quarter of 2020 is still thin this Monday but will gradually
accelerate from Tuesday and shed some light on the scope of the hit experienced by Europe Inc.
in March as most of the old continent went into lockdown.
So far this morning, Philips reported a 33% decline from a year earlier in first-quarter
core earnings while EssilorLuxottica, the spectacles company, said it would scrap its dividend
and would look to cut costs.
In the meantime, Asian bourses eased a tad overnight but it's the fall in crude oil futures
which is currently at the centre of attention.
(Julien Ponthus)
*****
(Reporting by Thyagaraju Adinarayan, Joice Alves, Stefano Rebaudo and Julien Ponthus)
