Markets live chat transcript for the chat ending at 11:45 on 23 Aug 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Welcome to Markets Live, FT Alphaville’s daily markets commentary
PM: Neil Hume is with me.
PM: All the tech seems to be operational
PM: 
NH: I am up and running on time this morning.
PM: Should quickly say that we both need to go slightly early today
NH: still no working mouse on my reuters terminal though
PM: Neil’s got a meeting — and I ve got some other stuff to do…
PM: irritatingly
PM: Cos we do enjoy these sessions
PM: So long as Greenback doesnt ask us anything too challenging
NH: So, its time to take the tin hats off then?
PM: whoooa. Not sure about that.
NH: why not?
NH: Dow up 145 points overnight, FTSE 100 up 65.6 points at 6,261.6 this morning
NH: Big rises in Tokyo and Hong Kong overnight
NH: carry trade looks to be back on
NH: relative calm in the money market
PM: As Yona notes below
NH: Rio Tinto completing a $40bn loan issue
NH: Bank of America taking a stake in Countrywide
NH: going to invest $2bn
NH: Japan keeps rates on hold
NH: private equity group Electra managing to refinance a portfolio company. One that specialises in electronic animal identification tags no less
PM: 
NH: Commodity prices rising
NH: and bid rumours doing the rounds again
PM: Hang on hang on hang on
PM: I’m not going to let you kiss this squall goodbye,just like that.
PM: Who do you think you are, Ken Fisher?
NH: that’s the chairman of Fisher asset management, quoted in the FT this morning
NH: saying we have simply witnessed a typical bull market correction.
PM: I was reading some analysis from the top economist at UBS this morning – saying the impact on the so called real economy could amount to 2.6% off growth in the US
PM: And – overall – one per cent of world GDP.
PM: And that’s quite a bit of growth.
PM: But ive got to admit these currency moves are arresting
NH: Seeing some wild and wacky moves this morning
NH: Yen has collapsed to 116 – particularly weak against the euro
NH: Oh and the NZ dollar has shot up against the Yen – think its up two per cent.
PM: So that’s the carry trading being put back on.
NH: Well it would seem that way – a fresh appetite for risk
NH: have also seen sterling
NH: agains the dollar
NH: that is
NH: currently trading at $2.00
NH: Aren’t you the one who is always saying “The Trend is your friend”???
PM: Hmm
NH: Well this morning the trend is UP.
NH: and the tin hats are coming off
PM: just looking at the Yen — not far off 117 to the dollar now
NH: that’s v weak
PM: Ok — we should mvoe to some stock specific stuff
PM: But just note Ralph’s comments below — which i. for one, am minded to agree with
PM: 
PM: OK, so what’s moving out there this morning??
PM: Oh, and Ralph — had forgotten we were on hols.
NH: Northern Rock biggest riser in the FTSE 100 – up 43p at 770p. That’s a rise of 5.9%.
PM: More bid rumours?
NH: yep
NH: On Tuesday, Lloyds was linked with a bid, yesterday it was HSBC and this morning ING is the name in the frame
PM: Hmmm
NH: not really much more to add on this.
PM: I just dont buy this story
PM: What about Sainsbury?
PM: any movement this morning??
NH: stock up 1p at 531.5p at the moment. Had traded at high at 541p amid rumours that Delta Two was set to inject a further £500m of equity into its bid
PM: I heard that rumour yesterday
PM: Do you think that would be enough to get the Sainsbury family on board??
NH: eh… not sure
NH: I think an increased offer of 620p is more likely to get their support
NH: but then our understanding is that Delta Two has no intention of raising its 600p offer
NH: actually, Numis have put a note on Sainsbury this morning
PM: What does it say?
NH: they reckon Delta will need to increase its bid in order to get the backing of the family
NH: they also say that if the deal falls through, then Sainsbury shares could fall to around 460p
PM: So at 531p the risk reward profile looks evenly balanced
NH: It does
NH: just going to paste a bit of the note
NH: Valuation. We have cut our target price from 700p to 682p. We have maintained our opco/propco valuation method but have increased the rental yield from 4.5% to 5%.
NH: We believe this is a fairly conservative move as demand for supermarket space is still very strong given that the main supermarket chains are still very eager to increase their space in the UK, whilst tight planning restrictions are still in place. We estimate the group’s property value to be worth £8.6bn.
NH: We then apply a 5% rental yield to this which gives an additional
rental bill of £430m and gives a rent-adjusted March 08 EBITDA of £673m. We apply a 7.0x multiple to this which gets us to a value for the opco of £4.7bn and an enterprise value of £13.3bn. We then subtract net debt of £1.5bn and £55m from the pension deficit. This gets us to an equity value of £11.7bn and 682p per share.
NH: Risk/Reward. We believe there is a higher probability of this deal crystallising than of falling apart. If the deal were to fall apart, we believe the shares could fall to around 460 leaving 15% downside to the current share price. Delta 2 will have to offer around 620p in order to get the Sainsbury’s family on board. This would leave over 15% upside to the current share price.
PM: Thanks for that
PM:
PM: Right a little earlier you mentioned that the City rumour mill was starting to crank back into life
NH: yep
PM: So what are they?
NH: well, we have already mentioned Northern Rock and Sainsbury
NH: the other rumour concerns Abbot Group
PM: That’s the oil field services company
NH: yep and the shares are up 9p at 281p this morning
NH: the word in the market is that there is a 370p a share bid on the table
PM: Have we any idea who from?
NH: well, there has been chatter that Amec could be interested. But I think that is probably rubbish
NH: the name we on the markets desk keep hearing is Nabors
PM: Who?
NH: it’s a US company.
NH: claims to be the world’s biggest drilling contractor
NH: and it is on the lookout for acquisitions
PM: OK. So would Abbot fit the bill?
NH: it would. Here’s a recent research note from ABN Amro, which follows Abbot quite closely
NH: Given the size, mix and location of Abbot.s rig fleet, we view the company as
potential prey, particularly from North American drilling contractors seeking
international expansion and diversification from the more cyclical North American
drilling markets.
NH: Attempting to replicate Abbot.s competitive position would require
significant time (perhaps up to five years) and capital investment. We are aware of
several US-based drillers who have expressed an interest in expanding their
international operations.
NH: The world.s largest drilling contractor, Nabors Industries, is
currently reviewing a potential international acquisition. Nabors CEO Eugene Isenberg
was quoted recently (AGM, 5 June 2007) as saying Nabors was looking at a .pretty
good-sized. acquisition that would allow entry into new markets.
NH: We interpret this as growth into international markets and therefore believe Abbot would be an ideal fit. Given Abbot.s underperformance and de-rating over the past 12 months, this could
be appealing to Nabors and other potential predators.
NH: should point out that this note was issued at the back end of July
PM: Very interesting tho
PM:
PM: Another interesting thing is Carlomagno’s comments below
PM: Can you explain it?
NH: i can’t. unless the clients were really toxic.
PM: Some one also posed the question here the other day as to what happens to this discount window debt after the 30 day term expires?
NH: can they roll it over for another 30 days
PM: I’m not sure — and the question is — does the debt rest with the arranging bank of with the sucker/desperate client?
NH: hmmm. good point
PM: — thanks Carlomagno
PM: Your name — it is Spanish?
NH: now that’s a good a conspiracy theory
PM:
PM: Back to some individual stocks
NH: going back to the oil sector
NH: Carin Energy have spiked 76p, or 4.4%, to £17.93 this morning
PM: Why’s that?
NH: well, got report early this morning that its Indian subsidiary, Cairn India, had got permission for a pipeline to take oil from its large Rajasthan field to the coast
PM: obviously that would be good news
NH: yep
NH: However, there is some doubt whether this story is correct
NH: Retuers are claiming that the Indian govt has yet to give its approval to the pipeline
NH: here’s the story
NH: India is yet to decide how to move crude oil from a Rajasthan oil field operated by Cairn India
NH: No final decision has been taken by the government on various options to evacuate crude oil from Barmer,” Dinsha Patel told lawmakers, referring to the area where Cairn’s Mangala field is located.
NH: Cairn India said in July it was confident of agreeing with India on a pipeline to move the crude to the market, but state-run Oil and Natural Gas Corp.
NH: Cairn has a 70 percent stake in the field, and is sticking to a target start-up date of 2009, while ONGC owns the remaining 30 percent.
NH: Malaysia’s Petronas [PETR.UL] owns 10 percent of Cairn India, which has targeted peak oil production of 150,000 barrels per day (bpd) from the Rajasthan block, expected to produce oil for 25 years.
PM: Hmm
PM: this pipeline stuff has been rumbling on months
NH: it has
NH: and I am not sure we are getting closer to resolution
NH: oh, there is one more story in the oil sector this morning
NH: : but it is concerns a stock that is a wee bit toxic
PM: Go on
NH: Regal Petroleum!
PM: Toxic. This stock is radioactive
NH: I know, I know.
NH: Company recently appointed advisers to find a partner to help develop its gas fields in the Ukraine
PM: oookay
NH: well, the tittle tattle in the market is that that plan has been abandoned and Royal Dutch Shell is set to offer 300p a share for those assets
NH: apparently it does not want to bid for the whole company because it is worried about possible liabilities
PM: Given Regal’s track record that would be a wise move
PM: what are the shares doing??
NH: up 14p at 206p
NH: but remember this stock comes with a serious wealth warning
NH: also, broker reckon this morning’s move might just be a rally following recent weakness
NH: Regal shares were changing hands at 240p around a month ago.
PM: 
PM:
PM: Any European stuff this morning?
NH: before we go over to Europe, just had some US futures numbers in
PM: Go on
NH: DOW: UP 83 POINTS – 13358
S&P: UP 12.40 POINTS – 1480.90 – (+3.74) – 1467.81
NASDAQ: UP 13.50 POINTS – 1958.50
PM: Hmm — London already pricing that in, it seems
NH: looks that way
PM: Europe?
NH: Euroope, yes.
NH: very odd story in Deutsche Telekom
PM: Oh yeah
NH: apparently Blackstone and Goldmans Sachs are looking at bidding for T-Mobile USA
PM: Hmm, that would be a big deal
PM: Any flesh to that big bone???
NH: No. Story seems to be coming out of the credit market
NH: been some movement in DT CDS’s this morning
PM: Right — those CDS things are certainly rumour driven
NH: what, unlike the equity market!
PM: Ah, but the CDS market doesnt give off “shrewd” or “tommytheguessor” type signals
PM: A rumour moves prices whether or not it has any plausibility
PM:
PM: Anyway — anything to say today about Tui???
NH: well, the shares up a further 2.3% to e18.56 this morning
NH: bu the company trying to play down the John Fredriksen stake building news
NH: spokesman was quoted on Reuters last night as saying that it had received no indication from Fredriksen that he was considering a break-up
NH: he went on to say that all meetings with Fred and his representatives had been in a “good atmosphere”
PM: And we believe them
PM: I mean, I cant imagine Fredriksen and his representative fronting up at a meeting and saying “by the way our intention is to try and force a break up and buy your shipping business.”
NH: Nor can I
NH: anyway most of the brokers who follow Tui seem to a break up could eventually happen
NH: that process is already in train given that they are merging their travel ops with First Choice Hols
NH: here’s a story that went up on Bloomberg
NH: TUI AG, Europe’s largest travel
company and the owner of the Hapag-Lloyd shipping line, climbed
for a second day in Frankfurt stock trading on speculation the
company may be broken up.
NH: TUI shares rose as much as 3 percent to 18.69 euros, after
gaining as much as 6.1 percent yesterday. The two-day gain was
the steepest since March 20. The stock traded at 18.59 euros as
of 11:05 a.m. local time.
“The rumors are the possible split up of the company,”
said Thomas Nagel, a trader at Equinet AG in Frankfurt. “The
possibility could be into shipping and tourism.”
NH: Shipping billionaire John Fredriksen’s Geveran Trading Co.
Ltd., based in Limassol, Cyprus, said in an Aug. 21 filing it
held 7.72 million TUI voting shares, or a 3.1 percent stake.
Fredriksen has used acquisitions and mergers to build the oil-
tanker company Frontline Ltd. and the salmon farmer Marine
Harvest ASA into the world’s biggest in their industries. He
also leads Golden Ocean Group Ltd., a commodities-shipping line.
“Geveran or other players could buy more in TUI and split
up the company,” Nagel said.
NH: TUI has “had talks with Geveran and representatives of the
company,” TUI spokesman Kuzey Esener said today by phone. “We’ve
had talks with them in recent months, as with any other investor.”
Esener said Geveran had given “no indication” that it
intends to seek a breakup of the company. Asked whether the
investor plans to raise its stake, he declined to comment.
NH: Tor Olav Troim, a director at several companies controlled
by Fredriksen, declined to comment on whether Geveran plans to
increase the stake.
Shares of TUI have gained 22 percent this year, helped by
speculation that Germany’s billionaire Oetker and Herz families
may consider buying Hapag-Lloyd. TUI has no plans to sell the
shipping business, Handelsblatt reported May 15, citing Chief
Executive Officer Michael Frenzel. Frenzel rejected speculation
that the Oetker family may buy a stake in TUI.
NH: “I hear rumors about a possible break up of the company
every two to three months,” said Oliver Caspari, an analyst at
Bankhaus Lampe in Dusseldorf with a “hold” rating on TUI.
Geveran’s stake may be fueling the stock’s gains, he added.
“I have also heard that container shipping rates are going up
which is good for TUI and Hapag Lloyd.”
PM: Ok thanks for that
PM:
PM: Let’s try and address some of these questions/comments below
PM: Do we have info on Silence Therapeutics?
NH: yep
PM: Short answer — yes
NH: Silence was one of a number of stocks with huge CFD positions that got smashed last week
NH: margins went up and there were loads of forced sellers
PM: Forced out by spreadbetting firms
NH: other stock affected by this were Max Petroleum, Artilluim
NH: i think the market makers have cleared up most of the sellers
NH: and surprise, surprise there has been some bid chatter in Silence this morning
PM: Price of Silence Therapeutics up 11.7p at 120p
NH: something about a bid fromPfizer i think
PM: So, the chatter is probably hopeful — but will come as a relief to stale bulls
NH: i think the move is purely technical. and you can bet the market makers have loaded their books with loads of cheap stock that they are now letting go
PM: Hmm
PM: How about OJ’s comment on vol — and Icap in particular?
NH: its a good point. i was looking at the FTSE 100 vols since the rally started on Friday
NH: they have been well below average
PM: Neil is just digging out couple of stats
NH: 1.7bn traded on the FTSE 100 yesterday. The current average about 2.2bn and the recent high is 3.4bn.
NH: obviously the high came last Thurs when the market plunged
PM: Hmmm
PM:
NH: before we go, there is a small cap company we should take a look at
NH: one we have followed before
NH: Renesola
PM: Ah this is one of the Chinese wonder stocks
NH: yep, it makes the solar wafers that go into solar panels
NH: taken a bit of tumble this morning
PM: Oh dear
NH: down 82p, or 22%, at 288p in the middle
PM: Crikey – its LOST more than a fifth of its value. Why?
NH: issued a disappointing results
PM: Suspect that is an understatement
PM: can we have the details
NH: well, Q2 revenues have come in short of expectation, as have margins
NH: but the real damage was done by the outlook statement
NH: company now expects production for 2007 to reach 120-125MW, down from its previous estimate of 150MW
NH: blaming delays in the delivery of crucibles for its new furnaces
NH: but that’s not all there is also a little warning about rising raw material costs
PM: Hmm, just bringing up the Renesola chart
PM: this has been a bit of a disaster in the past month
PM: Shares were trading at 500p before the market shake out
PM: and look at them now — all but halved
PM: must be causing quite a bit of pain amongst punters
NH: I reckon it is
NH: while we are on the subject of solar panels there is another company in the sector on the move this morning
PM: Go on
NH: called Solar Integrated Technologies
NH: shares are currently quoted 8.5p, or 12%, higher at 80p
PM: Why?
NH: rumours that the McAlpine family trust want to buy a 30% stake
NH: I must stress that this is RAW market info, even though it comes from a highly rated market participant
NH: There is also talk that one of Europe’s largest solar companies is interested in bidding for the company
NH: But I stress again this is all RAW market gossip at the moment.
PM: RAW — untested market chatter
PM: OK — we are done for today
PM: Thanks for joining us. And thanks for all the comments
NH: apologies for the early finish
PM: We will be back tomorrow at 11am — do join us
NH: bye