Markets live chat transcript for the chat ending at 11:52 on 25 Jun 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Welcome to Markets Live, FT Alphaville’s daily markets chat.
PM: Neil Hum is with me again today
PM: And he’s looking to complain about technology
PM: BUT!
PM: We’re gonna ring the changes this morning
PM: We are going to complain about someone else’s technology
NH: that’s right
NH: this is a message to Tom Glocer
PM: Chief executive of Reuters
NH: please, please, please get the RNS feed sorted out
PM: That’s the regulatory news service
PM: Formal announcements from companiest etc
NH: the sort of stuff we and the rest of the City live off
NH: for the past week, Reuters has been unable to provide all of it
NH: for example looking at our screen this morning you would never know that Patientline had issued another frim set of results
PM: Have they!?!?
NH: I don’t know. I can’t tell.
PM: Why are Pendragon down?
NH: don’t know. there is no news
NH: have the LSE made an acquisition?
PM: We could go on…..
PM: And we will !
NH: until it is fixed
PM: 
NH: Reuters have promissed me an update by the end of the day
NH: and we will report on this tomorrow
PM: 
PM: Ok — let’s get on with it
PM: What’s going on Neil? — seriously
PM: You do have sources other than Reuters RNS
NH: I do
NH: anyway, just like the weather over the weekend it is pretty gloomy out there this morning
NH: FTSE 100 down again
NH: if it closes in the red today then that will be six down days in a row
NH: according to our stats department that will be the worst run since November 2006
NH: the last time it fell 7 days in a row was July 04
NH: and the worst sequence we can find on record is 11 days back in January 03
NH: As of Friday the index had lost 165 points in 5 days
PM: Ouch !
PM: Footsie is down 9.4 points at 6558. Was down to 6522 earlier — rallied a good bit
NH: yeah, the US futures have moved up a touch, taking London with it
PM: So what’s doing the damage today?
NH: Well, Wall Street’s dreadful performance on Friday night is the main reason
NH: at the stock specific level, mining stocks are doing most of the damage
NH: Cazenove have cut their ratings on a couple of stocks – Anglo American and Antofagasta – although they remain positive on the sector
PM: What are they saying?
NH: that both stocks look expensive compared with their peers
NH: apparently AA is now trading at a 25% premium to both Rio Tinto and BHP Billiton on 2008 earnings
PM: Ok
PM: But you mentioned Caz are still positive on the sector
NH: they are, just becoming a bit more selective
NH: after all, the mining sector has outperformed the wider market by around 25% since the start of the year
PM: So what are their favs ?
NH: hang will paste a little bit of the note
PM: Ta
NH: We remain happy with our OUTPERFORM recommendations for Xstrata, Rio Tinto and Vedanta. XTA’s valuations are still compelling given its asset quality and management. The same applies to RIO’s with iron ore exposure a particular draw. VED’s now more diversified superior growth path since it has entered/prepares to enter the iron ore, coal and power industries should command a higher PER multiple. We have decided to upgrade BLT to an outperform recommendation premised on an attractive relative valuation (it is over 11% cheaper than both AAL and RIO on spot multiples)
PM:
NH: aside from the weakness in the mining sector today the other reason for the gloomy mood this morning is a nasty profits warnings from Pendragon
PM: That’s the car dealer
NH: the UK’s biggest
NH: trades under the Stratstone, Evans Halshaw and Chatfields brands
NH: now, what better barometer of consumer spending can there be than car dealers???
PM: Retailers?
PM: Only joking, I take your point
PM: If consumers are feeling the squeeze because of rising interest rates then one of the first people to suffer will be those selling big ticket items.
NH: Yes
NH: anyway the shares are down 17p to 81p this morning
NH: that’s a fall of 17.3%
PM: nasty
PM: What is the company saying??
NH: here’s a bit of the statement
NH: slowdown in consumer spending will continue into next year and
will adversely affect our operating profits this year by £20 million and by £10
million in 2008. Of the £20 million reduction this year, approximately £5
million is due to a reduction of four per cent in the number of new and used
vehicle unit sales and the remainder is due to a reduction in vehicle operating
margin of approximately £50 per unit
NH: In previous downturns in the sector we have been very successful in identifying opportunities for further consolidation. We expect to be able to continue to do so as smaller dealers seek to exit this difficult trading environment. We will announce our financial results for the period ending 30 June 2007 on 7 August 2007.
PM: The consolidation stuff is interesting
NH: it is given Pendragon’s track record
NH: this company has been very aggressive
NH: in the last three years it has acquired CD Barmall and Reg Vardy
NH: and last year it tried to acquire Lookers
PM: Do we have a quick bit of analyst comment?
NH: yep just got something through from KBC Peel Hunt
NH: it’s very good
NH: questions some of the claims made by Pendragon regarding the slowdown in consumer spending
NH: also it says Pendragon could be prey rather than predator
PM: Ok let’s see it
NH: The weak trading performance has continued, as we suspected it might, and profits for this year and next are downgraded by £20m to £45m and £10m to £68m respectively. This gives EPS of 5p and 7.5p. While understandable given the macro economic environment, commentary from Inchcape and Lookers has been relatively positive indicating the weaker performance may be more particular to PDG.
NH: We certainly have issue with the complex structure of the Group and the knock on this has on driving organic growth. Moreover, we understand a large number of ex Reg Vardy managers have departed the business in recent months, which may be having an impact – this could be compounded further by departures of favoured colleagues.
NH: The latest statistics from the SMMT show that May was the weakest since 1999 and the private registrations were down 3%. However, overall the market was viewed to be still on track to meet its forecast of 2.3m units (flat yoy). But, with interest rates set to rise further and an increasing squeeze on consumer finances, the prospect is for a weaker market in H2. Attractive products and enticing deals may continue to stimulate the market but retail margins may be affected.
NH: PDG’s gearing is coming down and is forecast to be in the 70-100% range by the year end and Mr. Finn is doing everything in his power to re-invigorate the shares – he has already hiked the dividend and announced a share buy-back programme. Further stimulation could come from rumours of an LBO or possible break-up of the Group into four (Property, Evans Halshaw, Stratstone, Pinewood), both of which are possible albeit we have yet to conclude what value would be extracted and the latter is a volte-face on the PDG strategy.
NH: Nonetheless the shares are expected to underperform with support likely at c.60p given the dividend (if maintained) and the sector is likely to be dragged lower. While we believe the market is challenging, the issues seem to be more directed at PDG and, although acquisition opportunities are likely to emerge, the scale of these deals may be insufficient to drive the profit performance while further disposals may be necessary to pay down debt. We were on a REDUCE recommendation and we move to a SELL given the likely protracted underperformance of the shares.
PM: Thanks for that
PM: You have brought me right up to speed with the motor dealer sector
NH: happy to help
PM:
PM: Mvoing to Ralph below ….
PM: Asking about GTL Resources…
NH: could you send us the statement, we can’t get it on Reuters
PM: He’s not kidding — we see the shares are off a couple, but havent got the news
PM: Daniel de Lange rings a cracked bell, tho
NH: GTL. far as I can remember this company has promised a lot but never really delivered
PM: just looking at the chart… flat liner
NH: if this was an ECG machine the patient would be dead
PM: Was once worth 450 quid a share — before the bubble
NH: thanks Ralph
NH: do you think we can rely on this Reuters graphic??
PM:
PM: OK, let’s move on
PM: any stories doing the rounds this morning?
NH: Vodafone has cropped up in a conversation
PM: Why’s that?
PM: Because of the interview in our paper with the COO of Verizon Communications?
NH: partly
NH: for those of you who did not see it Andrew Parker, our telecoms correspondent, interviewed Denny Strigl
NH: he questioned Mr Strigl about the company’s relationship with Vodafone
NH: Vodafone has a 45% stake in Verizon Wireless
NH: he made a couple of interesting points
NH: Verizon had moved on from buying Voda’s stake in VW
NH: and he refused to confirm that VW could resume dividend payments in two years time
NH: He said that VW was not close to paying down its debt that currently stands at $10bn
PM: That’s not great news for Voda
NH: if VW resumed dividends it could lift Voda’s payout to shareholders by 30%
NH: Of course these comments do not come at a great time for Voda
NH: The question of its stake in VW is one that John Mayo’s Efficient Capital Structures has seized upon
PM: So what are the shares doing?
NH: down 0.4p at 155.6p
PM: I’m surprised
PM: thought they would be weaker
NH: well, they would be
NH: but they are being supported by rumours that Voda could be selected as the sole European supplier of the Apple iPhone
PM: 
PM: The iPhone goes on sale in the States this week
NH: and apparently Apple will announce their European partner next month
NH: in the US, Apple awarded AT&T a five-year exclusive deal to sell the iPhone
PM: So who are the front runners in Europe
NH: Voda and Deutsche Tel
NH: But according to analysts Voda is just out in front
NH: this is because it is able to offer a presence in most European markets
PM: So what sort of impact would this have on the Voda share price
NH: according to Credit Suisse, which has issued a trading buy recommendation on Vodafone this morning, a significant one
NH: here’s a bit of comment from their teleco analyst
NH: The winner could sell more than 6m such devices over the next 3 years. Assuming half these were new customers, this could add 8p to our valuation to Vodafone if it were to win. If Vodafone were to lose it would share the downside with the 3rd/4th operators, potentially taking 4p off our valuation.
NH: Valuation: On our above-consensus forecast 3 year 9% eps CAGR, Vodafone is worth 170p per share relative to UK peers (15-16x 07E P/E). Winning the iPhone contract could raise this valuation to 178p per share, whilst losing would bring our valuation to 166p per share, still 6% ahead of the current share price. We are reluctant to upgrade our rating for this issue alone (the iPhone won’t actually be selling in Europe until Q4 2007) but we see Vodafone as a Trading Buy at these levels
ahead of potential news of the European iPhone contract in the coming weeks.
PM: I reckon there is going to be loads of speculation around this iPhone decision
NH: yep, especially as the hype from the US comes over here
PM: Right
PM:
PM: Just dug Ralph’s statement from GTL …
PM: Very brief — just says Daneil de Lange — md of asia — is off
PM: Looks rather suspicious
NH: it does
NH: very brief
NH: almost as brief as the trading statement from Centrica this morning
NH: that came in at 4 – 1/2 lines
PM: Continues to trade strongly
PM:
PM: What else have you been looking at this morning?
NH: Enterprise Inns
NH: shares were biggest faller in FTSE 100 on Friday
NH: recovered this morning
NH: currently up 2.5p to 676.5p – one of the biggest risers in the FTSE 100
PM: Why?
PM: Reit conversion rumours?
NH: no
NH: Citigroup have upgraded to buy this morning
NH: argument is pretty simply
NH: if the company gets right Reit status it reckons the shares are worth 60% more than current levels
NH: if it doesn’t then Citi only sees 10% downside in the share price
PM: Why?
NH: a share buyback programme
NH: the broker says a buyback worth £1bn is expected
over the next 18 months, which is equivalent to a quarter of the market capitalization of the company
PM: OK
PM: but this Reit stuff is not very likely it is?
NH: i don’t think so
NH: here is the backstory
NH: Enterprise wants to convert to a Reit without splitting into two
NH: that’s without splitting into an operating company and a property company
NH: it believes it can get round this by convincing HM Revenue and Customs that wholesale beer contracts with landlords are “wet rent”
NH: if it can convince the taxman about wet rent then over 75% of its revenues will come from rent and it will be eligible to convert to a Reit
NH: and pay no tax
NH: all of which sounds goods in theory but in practice
PM: we believe the company is struggling to convince the taxman
NH: that’s right
NH: at an industry conference last week the guy handling Enterprise’s tax affairs, Mr Croker at CMS Cameron McKenna stressed that despite talks having been ongoing for six months, they were still at an early stage
PM: Now that does not sound good
NH: it doesn’t
NH: and the important thing to remember here is that Reits were not introduced by HMRC
NH: this was the Treasury’s baby
NH: and HMRC does not care if REITs succeed
NH: it is however concerned that there is a level playing field
PM: And it does not sound as though allowing Enterprise to adopt Reit status it would help that
NH: exactly
NH: that’s the view of many analysts
NH: that’s the view of many analysts
PM: thanks for that
PM:
PM: Thanks for that Bob below
NH: so cynical
PM: I try not to read my letters from the tax man for at least six months
NH: the point here with Enterprise is that if this situation drifts then so will the share price
NH: if consumer spending is slowing the main prop for share prices in the pub sector will be the property
NH: and if there is no movement on reits further share price weakness could be in prospect
PM: Hmmm
PM: back to Ralph briefly — on GTL
NH: paul has just talked to the company’s 
NH: that’s their PR company
PM: He’s saying there is nothing untoward here — no hidden story
PM: Says this Daniel de Lange chap helped set up the comapny’s plant in Illinois
PM: Which is where its main business is — be de Lange wants to work in Asia, which is where he is from
PM: But of course that’s from the
NH: so what do you mean by that last point???
NH: that the is out of the loop?
PM: No. But if it turns out that there is a story we’ll send his name to Ralph
PM:
PM: How’s Chrysalis doing this morning?
NH: down 1p at 127p
PM: Hmm – so the market is completely unmoved by news that it is selling its radio business – for 170m
PM: That means about £100m will be returned to shareholders, leaving Chrysalis as a pure music biz.
NH: People think that will go private at some stage – or be sold. But when you take the current value – 215m, add in debt, — then take off the 70m from the radio deal and then 100m going back to shareholders….
PM: There’s not expected to be much upside.
NH: Think the more interesting side of this deal is who is buying it – new vehicle chaired by Charles Allen – of ITV fame.
PM: Hmm – nice to see him edging back towards the corporate stage. Was such great copy when him and Michael Green (from Carlton) were throwing china at each other.
NH: Yes, but this radio business is really being run by a pop producer called Ashley Tabor.
NH: Aside from his own antics involving things like the X factor, Ashley T is the son of Michael Tabor.
PM: Ooh, serious lolly then.
NH: You bet. And the whole Coolmore Mafia are coming in behind him on this one. JP, Magnier, the Barchester crew
PM: Barchester is a heathcare company backed by the Irish.
NH: They wont just be backing Allen and Ashley T to run Chrysalis radio as it is. There will be more deals.
NH: gotta think that they might look at Gcap or the radio business of Emap, which seems to be up for sale
PM: Guardian might sell its radio division as well — at some point
PM: You know I had lunch once next to JP McManus’s man on earth once – at Cheltenham.
NH: Good tips?
PM: Sort of. Cos he was so comically in the know I just decided to bet against him – and walked away 300 quid heavier.
PM: He gave me his business card. It had two offices listed – Geneva and Limerick.
NH: Let’s move on
PM:
PM: Iberdrola – the Spanish utility – what’s happened there?
NH: Er, dunno. I think we might have caused a stink. Radio silence from my man this morning.
PM: Im not sure whether the boys have got the date wrong, or whether its been delayed or pulled.
NH: Backstory here – for readers who weren’t with us on Friday
NH: Spanish press had a story that Iberdrola was poised for a big American deal, possibly in renewables. – something in the €5bn range.
NH: We understood that a cash raising was being planned for this morning to help fund the deal.
PM: And it hasn’t appeared – neither the deal nor the cash raising.
NH: All very mysterious…
PM: Bandits haven’t got it wrong, have they?
NH: Er, don’t think so. This was locked down. Something has obviously changed over the weekend
PM: All v v strange. We will get an update as soon as we can.
NH: Anyway, shares in Iberdrola are off again in Madrid – trading 0.8% lower at just over €42.
PM: For what it’s worth, people say the thing Iberdrola is looking at in the US is privately held – possibly by private equity. So there’s not a lot of point routing around for the target company.
PM:
PM: Go to goo … for John Clarke below
NH: Notice your stock of the month is up again – the glorious Gold Oil.
PM: It’s not my stock of the month. I did not issue any buy signs or anything.
PM: Just pointed out that through an Irish associate company it has struck a deal to prospect for oil in and around Cuba.
PM: Which is a novelty.
NH: Well, it’s up rather sharply today – up more than a penny
NH: So someone must be listening to you
PM: Look, I didn’t say buy it. I said it was interesting. That’s all.
PM: Price is currently up 1.3p at 8.48
NH: And the spread’s shrunk! Now quoted at 8.35 – 8.6p.
PM: Shrunk a bit
PM: Hmm – just to be clear here – this is a small, HIGH RISK oil play.
PM: I like it cos it’s ticker symbol is GOO.
NH: right, think it is time to move on.
PM:
PM: I was thinking, it might be fun to introduce a regular “Why does this company bother to exist” feature.
NH: Wot, Dog of the Day, or something?
PM: No, something more fundamental – there are so many stocks on the market where you wonder why they both to retain a listing.
NH: Like?
PM: UBET2WIN
NH: Oh, right, now I get you.
PM: UBET2WIN – member of the “sub-penny” sector
NH: Yes, used to trade at about 10p a couple of years back, but it’s fallen and fallen and fallen and fallen and fallen
PM: And down the quote stands at 0.35p in the middle, down 0.025p today
NH: Why bother? The spread is 0.2p – 0.5p. So if you buy the shares you have immediately lost 60% of your money.
PM: Before dealing costs.
PM: So what does UBET2WIN do?
NH: UBETULOSE you mean?
PM: So what does UBETULOSE do?
NH: Well, it was set up with a view to operating betting pitches at various race courses – and also developing an online business.
PM: And has it?
NH: Well it did, lost money, and ending up selling the British pitches at a big loss
NH: Still runs pitches at big Irish meetings, but that’s just about it.
I’ve just pulled up a statement from Friday – now see why the price is down this morning.
PM: I’ve just pulled up a statement from Friday – now see why the price is down this morning.
PM: Look at this ….
PM: Placed 7.5m shares last week And, wait for it…..
PM: Raised £30,200 — and £30,000 after expenses.
PM: So, raised money at 0.4p
PM: must have a kindly stockbroker, tho, to do the issue for 200 quid.
PM: One to avoid
PM: Right — we are done for the day. Thanks for joining us on Markets Live — do come back for the next session at 11am tomorrow
NH: bye