Markets live chat transcript for the chat ending at 11:31 on 8 Dec 2006. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Welcome to Markets Live – Alphaville’s daily commentary on market movers.
PM: Neil Hume is with me and we are going to go straight in a talk about about Barclays
PM: Well, he’s sort of with me — still booting up his machine
PM: Anyway, Barclays have bucked the trend this morning after a note from Merrill Lynch saying Bank of America is going to move on Barclays – and sometime soon.
PM: Yeap, quite extraordinary note. Shares were strong yesterday and they are up another 7.5p at 715p this morning.
NH: am up and running now
PM: Helen did a Alphaville post on this earlier. Here’s a few quotes ….
PM: 1. Barclays is the perfect fit for BofA, given the latter’s international aspirations
PM: 2. Al de Molina, BofA’s finance officer announced his resignation last Friday. “The timing of his resignation is suspect to us,” says Merrill. “If if Mr. De Molina is aware that BAC is pursuing a large acquisition (as we suspect could be the case), he may have chosen to resign ahead of the deal because resigning after deal announcement would interrupt the perceived continuity of BAC’s senior management team in the midst of the largest financial services acquisition ever.”
PM: 3. BofA’s chief executive Ken Lewis cancelled a meeting on Wednesday with a group of institutional investors due to an impromptu business trip.
PM: 4. Barclays shares were up 3 per cent on Thursday on more than double average daily volumes.
NH: we should point out that the note is coming from ML in New York not ML in London
PM: Significance?
NH: i think the ML guys in London might have a different view
PM: Yeah, well the shares have come off the top this morning — hit 722p at one stage
NH: Didn’t you discuss the chances of a Barclays takeover with Rob yesterday?
PM: I did
NH: And didn’t you take a virtual short position of 100,000 shares at 712p
PM: I did
NH: Well you would appear to be £3,500 out of pocket this morning
PM: I would, except for the fact that it was a day trade – virtually closed at 4.30 yesterday afternoon, at which point the price was 707p. So I booked a two grand profit – virtually
PM: So yes i can be a bit smug
NH: Would you like to deal again?
NH: How many would you like to sell at 715p
PM: Hmm. Not so sure. Yesterday I was selling into the story that a Spanish bank was about to bid – supposedly printed in a Spanish paper though no one could find the actual piece. It just sounded like rubbish.
NH: And Bank of America doesn’t?
PM: No it doesn’t. BofA are definitely going to buy something big on this side of the pond
PM: But the question is when – and what
PM: Barclays just doesn’t feel as though it is in play right now. People I know round there are just too calm. They’re having their Xmas parties, getting on with life. Not running round having crisis meetings
NH: So how many Barclays should I sell on your behalf at 715p?
PM: Oh, go on then. Let’s go short of 200,000.
NH: Dealt. 200 sold at 714.5p
PM: Hang on, where did that ha’penny go?
NH: That’s the bid price
PM: OK. Close at 4.30. I’m not getting skewered on Monday morning after some tommy the guesser story in the Sunday press.
PM: What else is moving?
NH: Well, the mining sector is taking a real pasting this morning
NH: Of the 10 biggest fallers in the FTSE 100 today – 7 are from the mining sector
PM: Why?
NH: Merrill Lynch again. The Thundering Herd have turned negative on the sector – downgraded to neutral
PM: What’s the downgrade based on?
NH: Merrill have some very bearish forecasts for base metals – copper and nickel in particular
NH: In the first half of next year, Merrill sees copper at $2.40/lb (15% below consensus and 25% below the current spot price) and nickel at $10.75/lb (31% below spot and 22% below consensus)
PM: That really is quite bearish
NH: : it is. Merrill reckons stocks exposed to copper and nickel are unlikely to perform in the first half of 07
NH: Hang on I’ll paste some stuff from the note
NH: Downgrading XTA, BHP, RIO to Neutral; Anglo remains a Buy
NH: Xstrata (Buy to Neutral): re-rating post FAL acquisition largely complete, bulk of
synergy news-flow behind us, relatively high leverage to weaker Cu/Ni prices.
BHP Billiton (Buy to Neutral) & Rio Tinto (Buy to Neutral): both stocks have
attractive valuations but we do not see positive performance in declining copper
environment (Cu represents ~30% of FY07 earnings for both companies).
NH: Anglo American (maintain Buy): we raise our EPS forecasts today driven by a
positive outlook for platinum & gold; remains a potential M&A target in our view
NH: There’s more on the pure copper producers
NH: Downgrading pure-play copper (ANTO, KAZ, KGHM) to SELL
We are forecasting a significant correction in Cu prices in 1H07, driven by weaker
demand (slower growth, US housing, substitution) and significant supply growth.
Despite allowing for 600kt lost production (strikes etc) we forecast a surplus of
500kt, quite sufficient to replenish inventories which would lead Cu price down.
While copper is in decline, we expect the pure-play equities to underperform.
PM: Interesting. Can we just rewind and go back to the comments on Anglo.
PM: Merrill is saying it remains a buy because of bid speculation. Correct?
NH: and because of its exposure to gold, which it expects to rise in 07
NH: Allow me to paste some more
NH: Anglo American: BUY for precious exposure & M&A (price target 2750p)
Anglo American is our top diversified mining pick. We like Anglo’s exposure to
precious metals: 34% of forecast FY07 Operating Profit comes from PGMs, gold
and diamonds (all of which have strong fundamentals). Progress on portfolio
restructuring should continue to provide positive catalysts. We also see
opportunity for operational improvement and cost cutting. Ultimately we see AAL
as being involved in further sector consolidation.
PM: Presumably the sell-off in the mining sector has affected the wider market this morning.
NH: It has. FTSE 100 down 8.5 points at 6,123
NH: All very quiet out there this morning. No one wants to do anything ahead of the US payroll numbers.
PM: Of course all eyes will be on that figure at 13.30 GMT
NH: They will and any impact it has on the dollar
PM: What’s the dollar doing at the moment?
NH: Trading in a narrow range against most of the major currencies. but Against sterling it is up a fraction now trading at 1.9593
PM: Has the Merrill note had any impact on commodity prices this morning?
NH: Not really. Much like the dollar and anything else you can trade it is flat ahead of the US payroll numbers.
NH: That said, the crude price is up $1 a barrel to $63.57
PM: Any other features out there?
NH: Gallaher under a bit of pressure
PM: Down 25p at £11.65
PM: What’s the rumour? Talks with Japan Tobacco already off?!?
PM: 
NH: Nah. A few brokers have come out this morning and said that JT may not pay £12-a-share (as most of the press are assuming)
PM: OK. What’s the likely takeout price?
NH: depends who you talk to
NH: Cazenove are saying that yesterday’s 20 per cent rise was WAY overdone
NH: In our view, Gallaher.s share price has over compensated for the announcement that the company
has received a preliminary approach
NH: While it is possible to calculate that a bid from Japan
Tobacco, the widely discounted predator, could be earnings enhancing at levels above the
prevailing share price, we believe that any deal needs to make strategic as well as just financial
sense. In this respect the argument for an acquisition of Gallaher is rather weakened. The risk for
Gallaher shareholders is that JT either does not make an offer, or offers below the prevailing
market price. We also discount the idea of competing offers.
PM: ummmm. Any other comments
NH: Got some stuff from Deutsche Bank
NH: : We don’t see much upside in Gallaher beyond 1,200p
NH: The news that JT has made a preliminary bid approach to Gallaher has already
pushed the latter’s share price up to a point we think other bidders would not be
able to match. We see little reason why JT would pay much more than this price
in a bid, and consequently would advise investors to start locking in some profits
in Gallaher — not least because it is still not absolutely certain that a deal will be
completed.
PM: Very sensible.
PM: Anything else caught your eye this morning?
NH: We are keeping an eye on Britvic
NH: The private equity bid story has been dusted down and given a fresh airing this morning.
PM: Shares up 2.6 at 253p. No real volume though – just 730,000 traded
NH: Forth Ports also on the move – up 2.9 per cent to £21.67 on rumours of a bid approach from HBOS
PM: They won’t give up on this one will they.
NH: Nope. UBS has made some interesting comments on the rumours this morning
NH: Although they have upgraded to “neutral” from “reduce” they are sceptical of the bid rumours.
NH: UBS makes the point that FP has two very different businesses – ports and property
NH: As such they will appeal to very difference types of investors – infrastructure funds would want the ports and a property developer the land
NH: Of course a consortium bid is possible but these things are tricky to put together
PM: They certainly are.
NH: Can we just have a quick chat about Premier Oil
PM: Price got smashed yesterday as takeover talks collapsed
NH: Yeah the bidder was supposed to be Dubai Energy
PM: Apparently it all fell apart over price
NH: That’s what we have been hearing. DE offered £15 a share and Premier said no way – not enough
NH: Anyway the view in the City this morning is that if Premier knocked back £15 then it must have done because it has some good news on the way
PM: What? An upbeat drilling report
NH: Something of that order
NH: Interestingly, UBS has put Premier back on its buy list this morning
PM: what’s the reason?
NH: They are saying that while this approach has failed list of potential suitors for Premier is long and another bid “WILL” materialize
NH: On a more fundamental tack, UBS reckons there could be some good exploration news on the way from Guinea Bissau
PM: I suppose Dubai Energy could always come back with a hostile offer.
NH: They could
PM: Quick one on EMI — what’s the price?
NH: price up 8 at 294p
PM: We’re supposed to be near this Permira buyout
NH: Very close, according to the Wall St Journal. Talks v advanced although nothing signed yet and it could all fall apart
PM: But people also saying there will be no statement from EMI today.
NH: i reckon there might some comment in the weekend papers though
PM: Hmm. Sad to actually see EMI finally go. It’s been bid story copy for as long as i can remember
PM: Right — let’s rap up with Isoft, the health sofware group that had a MAJOR accounts meltdown earlier this year
PM: One of my cyber friends – another blogger – was asking this morning. Noticed the price has been ticking a little higher – and it’s moved this morning – up 2.5p at 41p.
NH: I can tell you what the story is
PM: Go on then
NH: well according to sources in the NHS, Dutch electronics group Phillips is set to bid
NH: apparently talks are quite advanced
PM: What’s the logic in them buying?
PM: And how sure are we on this — on a scale of 1-10
NH: anything concerning Isoft needs to carry a huge wealth warning so i would not want to give a rating
PM: My cyber mate has just mailed he says:
PM: Nothing of substance on a bid / jv; and v doubtful they can shore up the
cash hole on the b\s in a one-shot cash call…yes, something in the
recent vol/price but scratching around for info…
NH: will see.
PM: Ok, that’s it for today. Thanks for joining us. Do come back on Monday for Markets Live at 11am.
NH: see ya
