E In Memoriam And Global Roundup

Sales at Daihatsu's Malaysian and Indonesian JVs were each down 5% on slowing economic growth and increased competition. This is worrying, as overseas sales accout for over half of revenue and had been cash cows. Indonesia particularly could be problematic, as car buyers there take out large loans which are harder to get when the economy slows.

BCE, despite acquisitions, expects to continue to boost earnings this year and I expect another dividend rise. BCE's earnings target is C$3.28-3.38/sh, or growth of about 4.7% from 2014 or more (at the high end). The driver will be revenue growth of 3% plus adjusted underlying earnings growth at a similar level. That means free cashflow can rise as much as 8% and perhaps hit 15%. BCE wrote:

“All our 2015 financial guidance targets reflect continued healthy projected wireless profitability and improving wireline growth as well as the privatization of Bell Aliant. Adjusted EPS and free cash flow [will provide] a strong and stable foundation” for the dividend. That's the good news.

The bad is that this dividend share is trading at a high 16.7x earnings with modest growth.

Novartis is changing its trial protocol for LCZ695, a chronic heart failure neprilysin-inhibitor scubitril drug, which dramatically cuts down on patient hospital stays and death but may lead to Alzheimer's disease. Scubitril inhibits an enzyme which cuts down sticky beta amyloid brain plaque, a mark of the disease. NVS has now added to the phase III trials tests for cognitive function. Ironically, neprilysin actually helps improve brain function by increasing blood flow. Additional data will help clinicians decide if the Alzheimer risk is too high to use LCZ695 short-term. It may cut the risk of death by about 20% and lead to quicker hospital exit for heart failure patients.

NVS was also suspended from selling all but the most vital drugs in Japan for 15 days next month because it failed to report to officials on the side-effects of many drugs it sold there. These violated regulations although the side-effects were minor and did not require warning labels. NVS officials have apologized to the Japanese regulators but are not committing hari-kiri.

• An update comes from Lisbon over the losses of Banco Espirito Santo (BKESF) and its offshore Rioforte entity which collected our Portugal Telecom cash of euros 896 mn (~$1 bn then). Former PT CEO Zeinal Mohammed Bava testified to a Portuguese Parliamentary investigation that he had no knowledge of the early 2014 Rioforte placement.

He said he was focused on integrating Oi (OIBR), the Brazilian telco, into PT, and was not informed of the Rioforte placement. He said he knew that BES was a key PT shareholder and was the company's banker. He knew that about 70% of PT cash had been deposited with BES for years.

His sworn testimony contradicts the report on the fiasco put out last month by PriceWaterhouseCooper, which called Bava “a knowing party” in the 2014 Rioforte investment.

Others are also filing claim in Lisbon over the BES krach last summer when Rioforte could not repay what it owed PT. Among them is the New Zealand Superannuation Fund, a pension plan which invested $150 mn (US) in BES debt issued in May 2014 with all required government guarantees. It is suing the Bank of Portugal (the CB) for refund. Another claimant is Goldman Sachs International over a euros 834 mn loan it arranged via Oak Finance, the Luxembourg vehicle the NZ pension plan also used to buy BES debt. In Aug., right after the bankruptcy, OF debt was put into the “good bank”, Banco Novo, able to tap healthy BES assets. Then the CB late last year reclassified Goldman to a BES “bad bank” creditor. This was because it owned over 2% of BES capital in the 24 months before the collapse, a rule imposed to stop Espirito Santo family insiders from tapping into Banco Novo. The US bank is being asked to prove that its OF sub was not investing for Goldman. Another court case.

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