Markets live chat transcript for the chat ending at 11:55 on 20 Jun 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Good morning and welcome to Markets Live – Alphaville’s daily markets commentary.
PM: Neil is with me
NH: hello
PM: Right — let’s get going
PM: We could start with Greenback’s suggestion — Standard Life
NH: yes, the move in the SL share price has puzzled quite a few people this morning
NH: stock currently up 13.75p at 353.75p
NH: biggest riser in the FTSE 100
PM: Certainly has puzzled people — but you’ve made some headway on this, Neil. no?
NH: a little
NH: been calling round
NH: and it seems the company is on a US roadshow this week
NH: apparently they are presenting in Chicago today
PM: yeah, but this is big move — almsot 4%
PM: That on the back of an investor roadshow?
NH: yep and to a record high – the share price that is
PM: Im wondering whether some shrewd money is moving in
PM: This sector has been abuzz of late
NH: not heard that. none my top men have bought it or go anywhere near it
PM: Hmm.
NH: of course the company might be trying to drum up some support ahead of July 10
PM: Which is when what happens?
NH: former policyholders get their bonus stock
PM: Ah, yes
NH: 1 for 20 are terms
NH: should incresase shares in issue by around 3.5%
PM: Thanks for that
NH: of course it is not impossible somebody is looking at them
NH: they other thinh I have heard this morning is talk of a deal with resolution
NH: and remember these two companies did talk before SL was de-mutualised
PM: But I thought Resolution had ruled out any big deals when their ceo left
PM: Also, do remember that when SL was recently looking at hooking up with JC Flowers to bid for Friends Prov, it was worried that it itself would become the target.
PM: Think Old Mut was mentioned in that context
NH: Old Mut for SL then??
PM: Well, who knows. Just clear that this sector is threatening to explode into a frenzy of deals
PM: 
PM: Let’s go straight on to Premier Oil — for Scramble below
NH: just lookin at the mid cap top performers table on reuters
NH: and it is dominated by E&P stocks
NH: this suggest to me that it has something to do with the oil price
NH: which has crept up in recent weeks without anyone noticing
NH: crude price hit a 10-month high of $72 earlier this morning
PM: Thats London brent
NH: actually as regards Premier there is speculation that Dubai Energy could retirn with another offer
NH: they were last year’s mystery bidder by all accounts
PM: Should mention here that shares in Premier Oil are up 49p at 11.21 currently
PM: Rise of 4.6%
NH: but that looks pretty pathetic against Tullow Oil
PM: 
NH: these things are off to the races again this morning
NH: its share are up nearly 12%
NH: currently ahead 53p at 500p
PM: wow — quite a move — coming on the back of two days of big gain
NH: shares were trading at 380p a week ago
PM: Should add quick back story here — Neil highlighted Tullow on Friday — rumours of a drilling report
PM: In the event he got the wrong bit of Africa, but the right bit in terms of upbeat news
NH: better to be lucky than smart
PM: What’s prompted this morning’s move?
PM: More news on the big find in Ghana?
NH: nah
NH: a big push from the oil desk at Merrill’s
NH: who have made some good calls recently
PM: So what are they saying??
NH: hang on will tell you what they have done first
NH: added Tullow to their Europe 1 list
NH: upped their target price by 35p to 560p
NH: now this is all based on what Merrill says has been the “lazy consensus” view on Tullow’s drilling projects in Uganda
NH: and the fact that Monday’s drilling success in Ghana makes Tullow the hottest M&A play in the mid cap oil sector
PM: Even hotter than Premier?
NH: yep
PM: Can we have a look at this note?
NH: here you go
NH: We are taking this opportunity to add Tullow to the ML European Focus 1 List of recommended stocks, while also increasing our NAV-based price objective by 35p/sh to 560p/sh, as we move to incorporate Operator Heritage’s revised Ugandan reserve guidance and make other small changes. Tullow remains our core European E&P holding. Key investment themes:
NH: Lazy consensus way too low on Uganda, in our view. Our risked valuation of Tullow’s Ugandan portfolio at a risked 176p/sh (un-risked 664p/sh) remains materially ahead of the sub-100p/sh consensus. Specifically, we believe the market: (1) is materially too low on both Ugandan reserve size and US$/bl valuation estimates; and (2) missed Operator Heritage Oil’s bullish Ugandan reserve update published Monday night (see Heritage Activity Overview ), which provided an implied valuation for the company’s Ugandan portfolio at a risked 442p/sh (un-risked 1215p/sh) or a total Tullow NAV of 782p/sh.
NH: 2H07 E&A campaign sector leading. Tullow’s highly diversified 2H07 E&A campaign contains c17 medium-to-high impact wells targeting an un-risked 5.5x 2P reserves. We value this campaign at a risked 61p/sh (un-risked 303p/sh) and continue to highlight its diversity as a key investment positive
NH: Transformed M&A profile. We believe the market has failed to appreciate that Monday’s announcement of the successful Mahogany-1 exploration well has transformed Tullow into one of the strongest-in-sector M&A candidates.
PM: Excellent
PM:
PM: Let’s have a look at the wider market
NH: but first what were you doing wandering round the newsroom this morning
NH: you looked like the Pied Piper
NH: school visit??
PM: What do you mean?
NH: were you showing a local school round the newsroom??
PM:
PM: No, we had a load of top traders from the iShares etf trading game who had come in for breakfast and I was just showing them the newsroom.
NH: Breakfast, eh? Talking about??
PM: Oh, they were rather knowledgeable. Everything from China to the environment, Russia, etc etc.
PM: And all discussing their various personal trading strategies.
NH: Goodness.
PM: And, of course, they had various suggestions for us — here on Ft Alphaville
NH: Such as?
PM: Well, that we should do this chat at lunchtime rather than 11, when they would have more time to watch.
NH: Lunchtime? But 1 – You’d be at lunch. And 2 – I’d be out meeting people.
NH: I have to meet people otherwise wouldn’t get any stories.
PM: Well, exactly, I told them that.
PM: Slippery slope. This was always one of my biggest fears when making the decision to move from old fashioned newspaper journalism to the dedicated online world.
What – no lunch in cyberspace.
NH: Exactly. The pixels never sleep.
NH: Nor does money – Money Never Sleeps – that’s the working title for Wall Street, the sequel.
PM: Yes, we did a post on that earlier. The script writer, Stephen Schiff, is in London this week – meeting various moguls of our acquaintance.
NH: Like who?
PM: 
NH: Hmm. I guess he’s got a few story lines he could suggest.
NH: So what’s the link up between FT Alphaville and Wall Street II ?
PM: Still working on the contract, so I’d better not say.
NH: script adviser??
PM: 
PM:
PM: Ralph — below — you’ve stumped us
PM: Wider markets — what’s the Footsie doing??
NH: ok. FTSE 100 recovered a little of yesterday’s loss
NH: currently up 26.5 points at 6,676.7
NH: hit 6,692 earlier
NH: yesterday’s fall looked a bit overdone. think there was big program trade in the market late on
NH: that results in a lower close than probably should have been the case
PM: Ok, thanks for that.
PM:
PM: Busy day in the retail sector
NH: yep. had figures from Sainsbury but i reckon the stuff from DSG International is more interesting
NH: stock second biggest faller in the FTSE 100 at the moment
NH: down 3.2p at 167.3p
PM: What’s wrong with the figs?
PM: Further margin pressure?
NH: No.
NH: the company has said that it will not exercise an option to buy into Eldorado
PM: remind me. What’s that?
NH: Russia’s leading electronics retailer
NH: DSG had an option to buy it in 10% tranches
NH: each tranche would cost £100m
NH: had to excercise the first one by the end of the year
PM: And now they are not going to bother
NH: no
NH: and it all looks a bit odd
NH: Analysts thought the decision would be left to DSG’s new chief executive John Browett
NH: But it looks like they have discovered something nasty during due diligence
PM: Hmm
NH: Given the problems DSG have had in Italy and France I am not surprised they are being cautious
PM: Yes, im sure Russia is a pretty lively market to operate in
NH: Nonetheless this is disappointing
PM: Why?
NH: because the market thought the Eldorado option could have been very valuable
NH: DSG had the chance to buy into the fast-growing Russian market on the cheap
NH: and a lot of analysts thought the option had not been fully factored into the DSG share price
PM: Well it won’t be now
PM: Where are the shares now?
NH: still down 3.2p at 167.3
NH: fortunately for DSG shareholders the results this morning are not too bad
NH: and DSG is going to spend the £100m it would have used on the Eldorado option buying back stock
PM: Any analysts comment?
NH: yep, Citi have downgraded
NH: pasting
NH: Rating reduced to Hold from Buy — We continue to value the DSG retail
operations at 13x adjusted 2008E earnings (adjusted for new market/initiative
start up costs), a 20% discount to sector peers, driving a 175p valuation.
Previously combining this with our 35p Eldorado valuation drove a 210p DSGI
target price. Given the termination of the Eldorado option agreement today, we
revert to our 175p group valuation. Rating reduced to Hold/Medium Risk.
PM: ta
PM:
PM: Staying with retail ….
PM: Sainsburys?
NH: yep. had Q1 numbers this morning
PM: Reaction?
NH: muted
PM: Share price?
NH: up 4p at 585p
NH: statement looks a bit weak to me
NH: company saying like for like sales rose 5.1% in the 12 weeks to June 16
PM: That does not look too bad to me
NH: I agree
NH: but like Tesco it is below expectations
NH: and like Tesco it is down on the previous quarter
NH: that said Sainsbury is up against tough comparatives
NH: Remember this time last year we were in the middle of a heat wave, the world cup was on we were all buying beers and stuff for the barbie
NH: anyway the results are a bit of sideshow
NH: and were never going to have much impact on the share price
NH: Sainsbury is in virtual takeover period at the moment and what will drive the price is what 25% shareholder Delta Two do or do not do yet
PM: Ok thanks
PM: Also on Sainsbury — colleague passed this para from a bloomberg story this morning….
PM: The third-biggest U.K. grocery company cut prices and offered recipes for barbecue pork to keep customers from defecting to Tesco Plc, which also missed sales estimates yesterday
PM: Made me laugh — barbecue pork to keep customers from defecting!
PM:
PM: OJ@home — that is just soooooo old media!
NH: anyway we have had a post on Hammerson
NH: was going to come to this one
PM: Ah, yes
NH: there are a number of spivvy stories doing the rounds today and Hammerson is one
PM: So, what’s the chit chat??
NH: talk of a £18 a share bid next week from a US REIT
NH: this rumour may have started because Morgan Stanley upped their stake in the Co to over 11% last night
PM: right …
NH: stock up 32p £15.35
NH: taken a real battering recently
PM: So could just be a bonce then
NH: certainly could
NH: speculators in the property sector have had their fingers very badly burnt
PM: Look at Slough estates
PM: Sorry, Segro
PM: Off a full pound from its highs
PM: Where it went on bid rumours
NH: yeah but i reckon there is more in the Segro story than there is in Hammerson
PM: Yep, i agree — Bandits are all over this one
PM: 
thru
NH: talk of British Land and Economic Zones World of Dubai joining forces to bid
PM: Hmm — Started as a pure Dubai plan. Now word that BL have been brought in
PM: Actually — what’s Segro’s price done?
NH: up 9p at 679.5p
PM: Let’s move on
PM:
PM: Where now — run thru other stories
NH: OK.
NH: we have a handful of rumours this morning of varying quality
PM: Why not start with the biggest
NH: Lloyds TSB
NH: shares up 8p to 582p
NH: on talk of a bid approach from Soc Gen
PM: Hmmmmmm
PM: The last time I looked Soc Gen were a takeover target
NH: they were
NH: we are not getting carried away with this tale
NH: that said i would not rule out somebody looking at Lloyds
PM: Just not Soc Gen
NH: no
NH: actually was reading some funny comments from the chairman of BBVA
PM: As you do
NH: that’s the large spanish bank
NH: his name is Francisco Gonzalez and seems like he may have been at the sangria
PM:
PM: Do share
PM: Neil’s just digging out the quote
PM: You’ll like this
NH: BBVA’s Chairman Gonzalez said yesterday that he does
not
believe “there’s a management team in the world capable of creating more
value”
than the current BBVA management.
NH: He went on to say that “We’re like the
most
wanted girl of the party, there’s no doubt about it….. She’s very
pretty and a
great dancer, and as such, she’s not going to go out and marry just
anyone”.
PM: Excellent!
NH: can’t see John Varley or Fred Goodwin making comments like that
PM: Er, no. Shame really.
PM:
PM: What else is moving?
NH: Wood Group
NH: Shares have jumped 12.75p to 330p this morning
NH: amid talk that someone is crunching the numbers on a possible bid
PM: Interesting
PM: i sense you like the sound of this one
PM: Any idea who might looking at them now?
NH: well, there were reports last year that Wood could be a takeover target for Reliance Industries
PM: And that could finally be coming true?
NH: dunno needs more work on it.
NH: but there has defo been some interesting, or what I would call educated buying, this AM
PM:
PM: How about the small cap world?
NH: been taking a look at Thus today
PM: Big feature this morning
NH: United Utilities is selling its entire stake in the company
NH: has appointed Citi and HSBC to sell 41m shares, which is around 22.6% of the company
PM: How’s the placing going?
NH: from what my spies tell me, the books is already well covered
PM: Right — where’s the market price at the mo?
NH: down 6.35% at 184.5p
PM: That’s not a bad performance given that a quarter of the company is on offer
NH: no
NH: think the price is being supported by an upgrade from Cazenove
NH: they have moved to in-line from underperform
PM: What are they saying?
NH: that the sale removes an overhang risk
NH: traders are also telling me that it makes Thus a more credible takeover target
NH: they reckon the company could merger with Kingston
NH: remember that Hull City council recently sold out of Kingston Comms
NH: paving the way for a deal
PM: of course
NH: actually traders reckon this could have positive implications for United Utilities
PM: Why’s that?
NH: along with the sale of its electricity business it makes the company a clean water play
NH: and therefore vulnerable to a bid
NH: and don’t forget we had very strong rumours of a 900p a share bid on Monday
PM: UU shares off a penny at 766p currently
PM:
PM: Breaking news — on the Dobbbies bid front
NH: Seems like Sir Tom Hunter is determined to scupper Tesco’s bid
PM: Goodnes — he’s paying £18.54 — up from 17.50
NH: yes. that’s what he paid for a 10% stake last week.
PM: but he’s now aquired a further 102k shares at 18.54
NH: that takes his holding to 22.42
NH: he needs 25% to block Tesco’s offer as it is currently structured
PM: Extraordinary this — Hunter is out gunning the Tesco juggernaut
PM: The Tesconaut
NH: i reckon he could be angry with the comments Tesco made yesterday
PM: Tesco bid £15
NH: said they would not up their offer because there was only one bid on the table
NH: a sniffy response
NH: and a childish one
PM: Well if there’s a buyer in the market paying £18.53 nobody is going to be signing up for tescos measily £15
NH: the balls is in tesco’s court.
NH: just saying £15 quid is on the table is not going to be enough
PM: Makes wonder why Tesco didnt raid the market when they tabled their offer
NH: looks like they may have under estimated Mr Hunter
NH: usually don’t encounter such aggressive competition
PM: More effect than Sainsbury’s BBQ recipes
NH: or Morrison’s price cutting
PM: Anyway — Dobbies price is up 47.5p at 18.37
NH: game on
PM: 
PM:
PM: Right! We’re done
PM: Thanks for joining us today on Markets Live
PM: Do come back for the next session at 11am tomorrow
NH: see ya
PM: Thanks for comments — sorry we didnt get to Cadburys OJ