Markets live chat transcript for the chat ending at 11:52 on 3 Apr 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Welcome to Markets Live, Alphaville’s daily discussion of what’s moving and why.
PM: Neil Hume is here again.
PM: He’s here, but is now “with us” so to speak.
PM: he is on the phone — and i know from stuff he has jotted down on his pad …
PM: That is is worth being patient for a moment
PM: Certainly worth being patient
PM: For a little while at least
PM: Think we have a good story here ….
PM: Muzak
PM: Stockmuzak
PM: Stockmuzak
PM: Stockmuzak
PM: COME ON NEIL !!!!!!
PM: 
NH: OK. Think this could be a hot one
PM: Give it too us straight
PM: Tell us first whether it is RAW
PM: Risk factor 1 thru 10 etc etc
NH: It’s RAW market info alright but it comes from a top-rated bandit.
PM: Excelent. Rating pse?
NH: 
PM: Ah, he’s been rather spot on too many times to ignore
NH: he has and this story is a little different from the ones we have been hearing recently
PM: Wot not a bid?
PM: Surely a piece of news about private equity running the numbers
NH: no. this is a bear story.
PM: 
NH: it involves chip designer ARM Holdings
PM: Ah, yes, mobile chips
PM: Not a fish & chip van — chips for mobile devices
NH: there was heavy trading in the stock yesterday
NH: and apparently the explanation is that trading has taken a turn for the worse
PM: 
NH: Arm is due to report results on April 24
PM: Ok….
NH: it February the company issues a bullish outlook statement
PM: Very up beat
NH: the company guided to flat sales in q1, following a strong Q4
PM: And …. what are we saying here.
NH: that the £69m of revs investors are looking for may not be met
PM: Right — revenue shortfall forecast at ARM
PM: That’s forecast by market speculators — NOT by the company itself
PM: As yet
NH: indeed. the dollar is a problem for ARM
PM: yes, we’re back looking at the two-dlar-pound again this week
NH: and ARM has surprised the market on a few ocassions before
PM: It has — and the semi-conductor market (chips) is notoriously volatile
NH: yeah, nobody seems to have any real visibility.
PM: This will be a double shock tho, given the amount of stock the company has been buying back recently at levels around 130p.
NH: just taking a look. last time ARM bought shares was back in mid March
PM: Hmmm.
PM: So, let’s be clear — ARM’s first quarter ended at March 31.
PM: So if there is a revenue shortfall you would expect the company to say something this week.
NH: yes. if they don’t then this is just more market tittle tattle
PM: Confident enough to get out the sell sign, Neil — this one
NH: eh. problem is i am no real expert on the chip sector. but i do know the stock has had a good run since the start of the year
PM: Fair enough
PM: ytd up 5.3%
NH: obviously not everyone is taking this story seriously as the shares are up this morning
NH: currently 0.25p better at 132.75p. but this will be one to watch
PM: Let’s see whether the 
or hold sway
PM: Ok …
PM: Let’s turn to the wider market
PM: Neil?
NH: yeah. Nice rise for the FTSE 100 this morning
NH: Currently up 27.6 points at 6,343
NH: US markets closed near their highs overnight and there was pull back in the crude price which was also good for sentiment
PM: So what’s leading the way?
NH: Mining stocks
NH: Kazakhmys up 32p to £11.87, Xstrata ahead 66p at £26.60 and Rio Tinto 68p stronger at £29.57
NH: They are among the top five risers in London at the moment
PM: Why the sudden move in these?
NH: The copper price I guess
NH: it broke through the 7,000 tonne level this morning
PM: Presumably that has been a key resistance level
NH: it has. Last time copper was up here was back in December
NH: Utility stocks are also in demand this morning
PM: Ah, yes, talk us thru on that front
NH: The Endesa saga
PM: O f course
NH: now I can’t be bothered to go through the whole saga again – life is just too short – but suffice to say, Eon has agreed to buy euro 10bn of assets from Enel and Acciona, the two companies which look set to win control of Endesa
PM: 
NH: which means Eon could be back on the takeover trail
NH: in fact Eon’s CEO has said this morning that the company expects to play a full part in the consolidation of the European energy sector
NH: he also said the ex-the endesa deal EON will still be in a strong financial position
PM: So which companies are Eon likely to look at?
NH: Well, the market seems to think it might be another Spanish utility called Union Fenosa
NH: its shares are up 3.7% at 42.21 euro this morning
NH: personally I can’t see Eon being in hurry to return to Spain, even though they are acquiring some Spanish generating assets
PM: I agree. Surely they are more likely to look at a market that it open to foreign investment
NH: possibly and that’s why the shares of Scottish & Southern Energy, up 24p at £15.82, Centrica, 6.75p better at 392.75p and International Power, 9.25p stronger at 409.75p, are all higher this morning
PM: So — all the regular names then
NH: indeed
NH: Of course, the big corporate news of the morning are the annual results from Resolution
PM: Which ended takeover talks last week
NH: yes
NH: shares were up sharply earlier, but they have reversed and are now down 6.5p at 619.5p
PM: Yes, noticeds they had a run all the way up to 640p earlier
PM: So quite a reversal from earlier sentiment
NH: it is. I think people over-reacted to the news on the dividend
PM: Figures from insurance companies are usually very complex so what are the highlights
PM: So what’s the divi news?
NH: Resolution is guiding to a 38% increase in the 2007 dividend to 27.5p per share, which puts the stock on a prospective 4.4% dividend yield
PM: A chunky payout !
NH: it is and is also promising increase of at least 5% p.a. thereafter, which according to analysts signals confidence on the sustainability of cashflows flowing out of the back-book.
NH: however. some analysts reckon Resolution has simply pulled forward the increase into earlier years and that net, net, the increase is as expected
PM: Right
NH: so that seems to have taken the shine off things
PM: Fair enough — anything analyst comment?
NH: got this from Cazenove
NH: Resolution’s prelims contained slightly disappointing operating profits, but a strong EV per share, and an in line 06 DPS.
NH: However, the old DPS policy has been accelerated, and share holders will receive an additional 4.6p in 2007 and an additional 2.5p in 2008 before the old and new approaches coincide thereafter in 5% growth.
NH: In the absence of further deals, it is hard to see EV surprises in future, while the more generous dividend policy and talk of farming the back book do not inspire confidence that M&A is imminent.
NH: Now that M&A feels like it
has slowed down, Resolution’s premium multiple compared to the pricing of its targets is less likely to return. Clearly asset support and a 4.4% prospective yield provide comfort, but this stock will probably not benefit from fundamental surprises until it finds another deal.
PM: Quite downbeat that — in tone
NH: it is. basically i think Caz is saying that the Resolution biz model has run its course
NH: nobody is going to sell them a close life book at a large discount to embedded value as they did when the company started
PM: Hmm. Feels obvious with hindsight
NH: in fact some analysts have detected signs in this morning’s results that the biz model is changing
PM: That sounds interesting — in what way?
NH: this is from Andrew Crean, the top-rated insurance analyst at Citigroup
NH: this is from a note he sent out this morning
NH: The company is changing from a closed fund
acquirer, generating instant value by buying in-force books at a discount to face
value and then extracting additional merger benefits to more of a \’live\’ life
company — albeit with low new business profit gearing (less than 1% RoEV
even including new annuity initiative to harvest pension vestings).
NH: Better news on capital and dividends, together with the
RoEV target could lift the shares after last week\’s fall. However, the group still
appears in transition to a new business model and we remain holders until this becomes clearer
PM: A “live” life company — that’s a novelty
NH: it is and judging by the way the stock has reversed this morning not everyone knows what to make of it
PM: Hmm. OK
PM: Let’s run quickly thru some small cap stuff
NH: well before we do that can we look at some mid cap stuff
PM: Sure — what are the leading mpvers?
NH: well it was Inmarsat, and we will come to that one in a minute.
NH: but it has been knocked off the top by Rentokil Initial
PM: Ah, yes Rentokil — started to move suddenly yesterday on vague buyout rumours
NH: it did and the shares are up a further 9p to 177p this morning
PM: That’s more than five per cent
PM: Any names being linked with it yet?
NH: not to my knowledge
NH: but oddly there is a price
NH: 220p-a-share
PM: Ah — right . A price but no name. Not one to jump at, i suspect
NH: no, but the company does look a more likely target for PE now that it has found a buyer for its electronics security biz
PM: Ok, maybe
NH: Rentokil announced on Friday that it was selling that biz to United Technologies for just under £600m.
NH: and PE are interested in these types of businesses
NH: as i Have mentioned before a US version of Rentokil, called Servicemaster, was recently taken private by CDR in a $7bn deal
PM: True — you did highlight that
PM: But i’m still a little bit sceptical. As in the case of so many speculative bid features at the moment, much of it feels like educated guessing rather than hard info
PM: Still, what do i know
PM: What have got that’s a bit more exotic
PM: rather than security or rat catching
NH: Been taking a look at Clipper Windpower this morning
PM: Ooh. Clipper Windpower
PM: Whats that?
NH: it designs and manufactures wind turbines. also develops and operates wind farms across the US.
NH: in addition it has something of a celebrity as chairman
PM: Tell me more
NH: Colin Moynihan
PM:
NH: yep. he is the former Tory MP and Olympic silver medal winner
PM:
NH: hang on, don’t let politics cloud your judgement
PM: Well lets bring up the chart
NH: been a stealler performer this one
PM: Hmm. Guess it has Looks like the shares were trading around 350p this time last year
NH: and this morning they are 673p in the middle
PM: So what’s happened this morning?
NH: Moynihan has taken advantage of the strong run to lob out 400,000 shares at 690p
PM: Ah — I’ll get the Sell sign out again.
NH: that’s cool a £2.76m he has pocketed this morning
NH: and a third of his holding in the company
PM: BTW what did he win his silver medal for?
NH: He was a cox in the 8’s rowing team
NH: at the 1980 Olympics in Moscow, which most of the western world boycotted
PM: Alright — but he still did well
PM: So how has the market reacted to this sales news?
NH: down 8p at 673p
PM: Should everyone else be rushing for the exit — seriously?
NH: dunno, Moynihan is stepping down at the AGM later this year, so perhaps not
NH: and his is hanging on to large chunk of his shares
PM: Nnone the less — history says that when a big insider takes big profits, the best short-term advice for other investors is to follow suit.
PM: So if you own this clipper windpower thingy — sell some
PM: Seen this thing, Equator Exploration?
NH: Vaguely. It’s up sharply – up 3.25p at 31.5p in the middle – after a big fall on Monday
PM: Declared what looks like a big Cfd position late yesterday, after the market closed …
PM: Man financial holding a stake of 5% — 3.5m shares. Mystery.
NH: There was another announcement from the company earlier yesterday
NH: Said that in the early hours of Saturday an “incident occurred” on one of its Nigerian rigs – the Bulford Dolphin. Just says that a member of the crew was removed from the rig.
NH: The crew member was actually abducted. Been a big rise in oil rig violence and threats in Nigeria.
PM: That led to a 22 per cent drop in the price to 28p.
PM: So today’s move is a recovery?
NH: 
PM: But maybe not totally dead ….
PM: Not if someone lively is being a cfd position …
PM: Other stuff to finish off with Neil?
NH: Oxford Biomedica
PM: Oxford Biomedica up again sharply – currently trading at 49p, up 4p. Come up from the 20p level since December, although it has been higher than the current level in January.
PM: Had 
banging on about this earlier
NH: yeah. he reckons another big deal is in the pipeline
NH: can’t see it myself as the company announced last week that it had signed a deal with Sanofi-Aventis covering its experimental cancer vaccine TroVax.
PM: No — that’s why he’s !!
PM: Usually for Oxford Bio, the news flow has been rather positive. An FDA drug advisory panel in the US last week gave the nod to another cancer vaccine maker called Dendreon. That’s got people excited across the sector.
NH: yeah an FDA drug advisory panel in the US last week gave the nod to another cancer vaccine maker called Dendreon. That’s got people excited across the sector.
PM: You gotta be careful in these bio tech things.
NH: Certainly have
PM: I was looking at dear old Bodisen Biotech earlier. You seen the spread on it now?
NH: Just looking — 60 – 90p
PM: 60-90??????
NH: Well, 60-95p, now. It’s just moved . The “mid price” is 77.5p , down 9p.
PM: This is the Chinese thing where it is not clear who of the founders / execs actually own which amounts of stock.
NH: Yes, Amex has delisted it in the statest – now on the Bulletin board out there.
PM: Which is tantamount to a radiation warning. – the BB
NH: Certainly is.
PM: Still cruising along on our AIM market tho.
NH: Of course. With a comic spread of 60p to 90p.
PM: Right — before we go — we are still ON RISK on S&N
NH: we are, despite telling me this morning that we have got it all wrong
PM: Yes — the shares tanked?
NH: of course not
NH: there has been fresh buying this morning
NH: volume almost 10m, stock up 9p to 599p
PM: All ways good to listen to the markets …
NH: it is
PM: We will just have to be patient on this one. SAB Miller could well have gone back into its box, waiting for things to calm down
NH: from what i am hearing this morning, the proposed deal it quite complex
NH: with lots of moving parts
PM: Ok — let’s sign off
PM: Thanks for joining us today. We will be back with the next edition of Markets Live tomorrow at 11am
NH: bye