Markets live chat transcript for the chat ending at 12:10 on 9 Oct 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: We are off!
PM: Welcome to Markets Live, FT Alphaville’s daily markets chat.
PM: All go this morning.
NH: morning
PM: Not only have we had the excitement of launching our new game on FT Alphaville – Click or Clunk – Neil and Lina Saigol have been busy gathering some real news.
PM: As a result I can reveal that Neil is in something of a lather at this end.
NH: i am, i am
PM: You going to share the news?
NH: ok. SAB miller are preparing to announce a joint venture with Molson Coors
NH: focused on their respective US operations
NH: will be worth about $10bn
PM: Ah, so the gable of bandits we had on here yesterday turned out to be on to something — big.
NH: and should be announced before the US market open this afternoon
NH: of course we brought you the rumours first yesterday
NH: but the details were a bit vague. we had a heard a bid was coming for Molson
NH: and out understanding is that a bid was considering over the summer
NH: but the Molson price ran away and what we know have is a JV
NH: this should be good news for both sides
NH: SAB has been struggling in the US
NH: it has been its only real area of weakness
NH: combining with Molson will allow both sides to cut costs and bulk so that they can take on market leader Anhuser Busch
NH: SAB shares are currently down 3p at £14.63
NH: Molson shares were really strong performers overnight as rumours of the deal filtered into the market
NH: obviously the deal will raise expectations of further consolidation in the sector
NH: will leave SAB looking very vulnerable
NH: and it is interesting to note that its shares are up 16p at 637p
NH: 
NH: ok, we have another guest contributor this morning
NH: paul is trying to get our retail correspondent Tom Braithwaite up on the site
PM: Well we hope to
PM: Trying to log him in — but this web thingy is giving us jip
NH: he wants to talk about the developments at Carpetwrong this morning
NH: sorry I mean Carpetright
NH: shares up 57p at £12.18
PM: This is after Lord Harris of Peckham finally produced some terms
PM: for taking the business he founded private
PM: He’s offering 12.50 a share
NH: He has. Piched his offer at £12.50 as part of a consortium that also also includes fellow directors Martin Harris, Ian Kenyon, John Kitching and Christian Sollesse
NH: They control 25.7 per cent, while Lord Harris control a further 5.9 per cent of the company.
NH: A group called Crescent Holding has also pledged its support – so that’s a further 14.7 per cent.
NH: so the question is this a good price
NH: over to Tom
NH: It’s a premium to last night’s closing price it’s not quite on a par with the deal that Lord Ashcroft managed to strike yesterday. A about 8 per cent premium to last night close of £11.61.
PM: Well not quite — he’s still trying to log in
NH: Analysts think to think it’s a decent price – although given the nature of the discussions they could probably be tempted to go higher.
PM: Tom — just use the comment box below
NH: First offer in these situations can often be seen as a starting point – Panmure Gordon for instance thinks they can go to £13.50.
PM: Chaos here — apols readers
NH: First offer in these situations can often be seen as a starting point – Panmure Gordon for instance thinks they can go to £13.50.
PM: Tom — thanks for that
PM: Do you think he’s going to get it at this price 12.50????
NH: see below for answer
PM: Hmmm
PM: Seems a bit mean on all the other minority holders
NH: see below for next answer
NH: here’s a bit of broker comment. from Panmure Gordon. they reckon the offer is generous
NH: Carpetright
Generous offer – will it be enough? Buy.
NH: UK sales have slowed, but the improvement in the gross margin and a larger
contribution from new space than we anticipated is leaving our forecasts
unchanged. The European performance continues to be excellent. Lord
Harris’s potential offer of 1250p per share appears relatively generous given the
extent of the sector’s de-rating over the past 6 months. However, rightly or
wrongly, the first offers in a buyout are rarely accepted, shareholders may,
therefore, hold out for more. We retain our Buy recommendation and 1350p
target price.
NH: UK LFL sales for 23 weeks declined by 0.8%, versus an increase of 2.4% in Q1, implying
a c5% decline in LFL over the past 10 weeks. Gross margin, however, increased by over
100bp, largely reflecting improved terms from suppliers, which, once again, indicates the
strength of Carpetright’s negotiating position. Overall sales were up 9.8%, including
Storeys. European sales continued strongly, with LFL up 8.1%, albeit a decline on the Q1
run rate of 13.4%.
NH: The introduction of Navision has enabled staffing reductions (100 fewer people since end
January 2007) and the transfer to the new national distribution centre is proceeding to
plan. This, plus Storey’s integration, will lead to one-off integration costs of £7-10m.
NH: The combination of an attractive retail offer, good operating cost control,
restructuring the cost base through moving to lower cost premises, and a European
growth platform, has lead us to regard Carpetright as one of the best UK retail
investments for some time, and our target price is at a substantial premium to the
sector as a result.
NH: At the current 1161p share price, Carpetright is trading at 19.2x calendarised 2007
estimates, falling to 18.2x calendarised 2008 estimates, against the sector on 15.9x and
13.0x respectively. Given our caution on the outlook for the consumer and the derating of
the sector (which is down around 16% since the end of May) our target price may appear
aggressive, implying around a 60% premium to the sector on calendarised 2008 estimates.
A 1250p price, as potentially offered, is a premium of 50% to calendarised 2008 estimates
for the sector, reflecting the quality of the business. This is a generous offer, in our view,
however shareholders rarely accept the first offer on the table, and it’s possible that a
small increase may be required before management finally get their way. We retain our
Buy rating and 1350p price target.
PM: Thanks for that Tom
PM: Tom’s off — next time we’ll make sure he can access the system properly
PM:
PM: Anyway, lots of readers wont have logged on this morning just to listen to you break news of an transatlantic deal in the brewing sector.
NH: ?????
PM: They’ll have logged on to get an update on Click or Clunk.
PM: This is the new daily FT Alphaville game where you vote to save your favourite City columnist.
PM: Each morning, beginning today, we are publishing short excerpts from the various City columns in other papers – cols from Nils Pratley in the Guardian, James Harding in the Times, Jeremy Warner at the Indie and Damian Reece at the Telegraph.
NH: It’s Big Brother meets the FT. a frightening thought
PM: Yep – we are counting the clicks and each week we will evict a columnist.
PM: We wanted to have Alex Brummer on from the Mail and Anthony Hilton from the Standard, even tho it’s just a regional paper. But their website is JUST USELESS.
NH: So how’s it going this morning – who is getting clicked on??
PM: Well I can reveal that Jeremy Warner took an early and commanding lead within moments of the game going live.
PM: But then I sent him this email:
PM: Er, Jeremy
You in the office yet?
You seem to have a dedicated fan. Someone has read our Click or Clunk game and immediately voted for you THIRTY ONE TIMES.
They’ll get rsi by the end of the week.
Murphy
NH: Don’t tell me – the clicking on Warner stopped.
PM: Well, almost
PM: Actually, less than three hours into the game I can reveal that the ranking is as follows:
PM: Warner
Pratley
Harding
Reece
PM: Reece is doing particularly badly. Either they get in very late at the Telegraph or they don’t know how the internet works or they are too busy doing podcasts for their 80 year old readers to click.
NH: You’re just expecting other hacks to vote
PM: No No! Want everyone to vote – do visit the post
PM: And click away – as many times aas you want
PM: http://ftalphaville.ft.com/blog/2007/10/09/7937/click-or-clunk-cast-your-vote-on-the-city-pundits/
PM: Ah – just got a mail from Warner –
PM: No it’s not me – honest
NH: Yeah, yeah.
NH: Let’s move on.
NH: before Paul starts a war on Fleet Street
PM:
NH: How’s the share support operation at the former, former bank going this morning?
PM: Swimmingly!
NH: Oh yeah – price is up 21 per cent !!!!!!!!!!!!
NH: Trading at 208p – up 36p
PM: This is after the treasury has come out and extended the guarantee to depositors – now covers new savers as well as old ones.
NH: All seems designed to allow Crocket to continue operating as a normal bank over a number of months.
NH: Obviously this gives Wreck an unfair advantage over other banks, that cant guarantee their depositors – but it is supposed to pay some penalty to the Treasury to compensate for this.
PM: Yes – but you’d say it is other banks that should be compensated not the treasury.
NH: Hmmm – well I can’t actually see why people would not say – oh and will go and place my money in the Pebble.
PM: But if Pebble stock is now up 30% is that saying that a takeover is now more likely?
PM: Seems that if you’ve pushed the price higher – -you will have made it more difficult to sell the thing
NH: especially as the Northern Rock Foundation is entitled to a 15% stake in the event of a takeover
PM: Pebble up 21% not 30% of course
NH: so that’s another short 65m shares thay will have to be paid for
PM: hmm
PM: Just remembered — we took a short in Crock that we havent covered
PM: 
PM: 
NH: hmmm. almost as bad as Rab Capital’s position in the Crock
NH: actually they could be close to break even
PM: We sold a crocket and they bought a crock
PM:
NH: talking of RAB just got some news on one of their other investments
NH: Subsea resources
PM: this is the salvage business
PM: Submerged investment
NH: and its the one where RAB gazed into its crystal ball, bought a load of stock and days later the company was bid for
NH: eat your heart out mystic meg!
PM: 
PM: What’s today’s news?
NH: last month, the company said it had found a 19th century bullion wreck code-named Ella
NH: but further investigation has shown that the wreck might not be ella after all
PM: So what is it?
NH: in fact subsea are saying that they have found the ship’s bell and ……..
NH: its is not that of ella
PM: Oh dear
NH: looks like a bit of disaster
NH: still managing to hold on to their penny share status
PM: yes — the price is off 0.12p at 1.12
PM: it’s jsut a penny dreadful
PM:
PM: Viktor was asking earlier about Wolseley — any thoughts Neil?
NH: been hit by a big share placing this morning
NH: Citigroup looking to offload 9m shares for a client
PM: So that’s why the shares are off
NH: in fact think they have done it at 837p
PM: Price is currently down 34.5p at 839p
NH: actually construction and building materials stocks right across Europea are taking a whack this morning
NH: big note out from UBS and its pretty gloomy
NH: housebuilders in the UK have reacted really badly to it
PM: Do you have a copy of this note?
PM: See Redrow are down 12.5p at 394
PM: SIG is off almsot 5%
PM: Down 54p at 10.34
NH: got the note. pasting now
NH: Is the seven year sector out performance
over?
NH: Strong head wind building
NH: UBS has recently cut GDP forecasts modestly for both US and Europe and has
lowered our forecast for US housing starts to 1.24m FY08E. The UK financial
crisis has led UBS to take a more cautious view of UK bank lending for mortgages.
Given construction is GDP sensitive and housing pressures are clearly building in
several markets, these trends have led to EPS forecast cuts throughout the sector.
NH: Negative trends now outweigh the positives
NH: While the many positive trends of the last 7 years puts the sector in good shape to
face choppier waters, negative trends now outweigh the positives. While UBS is
not forecasting recession, trends have moved negative / growth rates are slowing.
NH: Sector weighting cut from overweight to neutral
NH: We have had an overweight stance for seven years (80% materials and 188%
construction out performance vs Eurotop). Given UBS’ outlook for FY08, we think
this period of out performance has ended. We move from overweight to neutral
NH: We conclude that the sector is now moving into a strong headwind which
should impact negatively on overall sector performance prospects. The key
negative trends at work – and which need to be monitored carefully – are US
house prices, US non – residential work put in place, Irish and Spanish housing
starts, UK house price trends and general European construction output trends.
PM: Goodness — been bullish on the sector for eight years — but not any longer
NH: hang on just going through the note. worth putting up the comments on the UK housebuilders. explains some of the share price weakness you can all see this morning
NH: UK housebuilders – earnings have been reduced for new (lower)
volume and price assumptions in all our models. Our price targets are
set using a sector multiple target of 9x 2008E PER (adjusted for a
European Construction 9 October 2007
UBS 6
UBSE intra sector relative weighting), compared to 9.3x previously.
Berkeley estimate changes reflect strength of recent figures. Berkeley is
alone in being London centred, and has very good visibility by selling
forward by up to 12 months. Redrow moves from Neutral to Sell, as, in
addition to the changes we applied across the sector, we take a more
cautious view on Redrow due to relative underweight in South East, and
recent miss on volumes. We discuss the details of our rating change on
Taylor Wimpey in a separate company note.
PM: ok thanks for all that gloomy stuff
PM:
PM: But wider market is not gloomy at all!
NH: it’s not
NH: FTSE 100 is up 54.5 points at 6,595.4
PM: What’s driving it???
NH: and that’s because deals are back
NH: the logjam has broken
PM: Ah yes
NH: we mentioned Carpetwrong earlier and about an hour ago we got news of another mid cap bid
PM: This is for Burren Energy
NH: by my reckoning that is the fourth in a week
PM: ENI bidding for Burren
NH: offering £1.5bn
PM: What does that equate to in share price terms
NH: values Burren at about £10.50 a share
NH: and Burren is currently trading 185p higher at £11.07
PM: so its through the terms already
NH: yep and that’s because it is a hostile offer and the market expects Burren to hold out for a higher offer
PM: excellent. Hostile bid for a second line oil exploration stock
NH: and there is the possibility of a counter bid
NH: Yep, the deal logjam really is breaking
NH: four mid cap and small cap bids in a week
NH: as I said earlier, ENI bidding for Burren is not really surprising
NH: Burren big assets are in the Congo
NH: in fact its M’Boundi field is operated by Eni, so it’s probably only natural that they want to take them out
NH: anyway, the bid approach for Burren has set the rest of the oil exploration sector on fire
NH: Tullow Oil has jumped 13p at 599p, while Premier Oil has added 54p to £10.89 and Dana Petroleum has added 46p to £11.67
PM: interesting
PM:
PM: Let’s cut to SAB — as Scramble notes below…
PM: Price is flying on this Molson news
NH: yeah, i think it will be taken really positively
PM: Stock is up 71p at £15.40
NH: hearing rumours that we will get an announcement at midday
NH: just think about the cost cutting potential here
PM: People piling into the stock
NH: could be significant and it will free up SAB to concentrate on emerging markets
NH: does seem like the management of Molson will control this JV
NH: SAB management talk very higly of them
PM: Set off consolidation hopes across the sector
PM: Scottish & Newcastle is the fav elsewhere
PM: Price is currently up 16.5p at 638
NH: yes, S&N just looks to small to survive
NH: this sector is rapidly consolidation and they have to join in
PM: Neil’s on the phone
PM: We are having to deal with a lot of calls here
NH: also sorts of rumours flying around on this one
NH: hearing structure of deal may be SAB selling Miller into a JV in return for shares. could even take a stake in Molson
PM: Hang on a mo — people might be getting carried away a little
NH: let’s wait for midday
PM: Nothing announced yet. We dont know the structure
PM: In fact SAB stock coming off the boil — currently up 58p at 15.25
PM:
NH: anyway there is another deal that’s come out this morning
NH: yep. It’s one we had exclusively in our European market report this morning
PM: when you say exclusive does that mean that CityAM did not have it 8 months ago
NH: yep, don’t think they have a sniff of this one
NH: it’s a Dutch company called Hagemeyer, which specialises in the glamorous world of electronic parts distribution
PM: yeah, CityAM is rubbish on the electronic parts distribution sector
NH: bear with us a mo, Paul’s reuters screen has just died
NH: anyway back to Hagemeyer
NH: been massive trading in its shares over the past two sessions
PM: It really has — dead
NH: and this morning the market found out why
NH: as we put in our Euro market report this morning it has received a takeover approach from a privately owned French group called Sonepar
NH: it has offered EUR4.25 a share for Hagemeyer
NH: and Hagemeyer shares have smashed through the terms of the offer
NH: stock trading up 10% at EUR4.57
NH: two reasons for this
NH: as with Burren it is a hostile offer. so people expect Sonepar to hold out for another bid
PM: makes sense
NH: but we just have had news of a potential counter offer
NH: despite ruling themselves out the other day Rexel has said that it is
NH: “reviewing all stragtegic options after offer from Sonepar for Hagemeyer”.
PM: Right — bid battle for Hagemeyer
NH: yep the world of electronic parts distribution. who’d have thought it could be so fascinating
PM:
PM:
PM: let’s have a quick look at LogicaCMG
PM: What do you make of this hiring they have made — replacement from Martin Reid
NH: I am completely stunned by it
NH: i just can’t believe this company, which has been a dog for years, has managed to poach someone of andy green’s caliabre
PM: You are too tough on Logica — Reid had a largely successful rein at the firm
NH: nah its a rubbish biz. has been for years. made loads of acquisitions. price gone nowhere. board dysnfunctional, can’t believe you are defending it
PM: Tell us about Andy Green
NH: Andy Green was the head of strategy and operations at BT
NH: he was talked about a potential CEO
NH: so this is a big hire
NH: why he wants to go to Logica i am not sure
NH: perhaps he can see easy wins.
NH: this biz has been poorly managed for so long perhaps he figures there is not much downside
PM: Hmm — how has the share price reacted?
NH: logica shares are up 9.4% at 165.5p
PM: Well that is a hell of a move for a ceo appointment
NH: it is and shows you how highly people think of green
NH: bit of a blow for BT
NH:
NH: just had an email from Tom Braithwaite
NH: it seems Lord Harris is a alphaville reader
PM: of course he is
NH: he has now agreed to talk about his bid for the company
PM: Oh yes, powerful platform this
PM: Just got an email from the Grim reaper
PM: *OVERNIGHT EURO LIBOR RISES TO 4.02% FROM 3.71%, BBA SAYS
PM: Evidence of fresh twitching amongst euro banks, perhaps
PM:
PM: To the comments below…
PM: James — we never reveal true identities of comment posters
PM: So no one knows your status as a rocket scientist
PM: And will pass on your complements to Ms Saigol
PM: V funny on FSA below — tend to agree
PM: Stone me — the former former bank
PM: nothing fresh on Erinaceous im afraid
PM: And as for metals …. ahh …. just too much to try and keep an eye on
PM: Will see whether we can recruit our new commodities corr for the ocassional appearance
NH: couple of bits of RAW market info before we go
NH: Debenhams
NH: shares up 6% at 107p
NH: rumours galore flying around and traders reckon the company is not returning calls
NH: Debs has tried to find a buyer in recent months
NH: think it was touting itself round Europe
NH: however, there could be a less exciting reason for today’s move
NH: positive note from Cazenove, which I have and will paste
NH: Debenhams – trading idea; [DEB.L DEB LN], 101.0p, Stock – In-Line, Sector – Neutral
NH: The share price chart looks awful, the shares have underperformed a falling retail sector by 40% in 2007 YTD, and sentiment towards a management team which was widely lauded prior to last year’s IPO is about as poor as it gets. Recently there has even been speculation about a breach of banking covenants, in spite of management pointing out that the August 2007 net debt position is likely to be some £50m or so below analysts’ forecasts and also that Deb’s capex (£150m pa) is very largely discretionary in nature. All this negativity is amply demonstrated by the headline valuation metrics for FY08E: EV/EBITDA 5.8x, PE 8.2x (33% below the sector) and a yield of 7%.
NH: he reason why we have no more than an In-Line rating on Debs (i.e. on our standard 3-6 month view) is due to a) the plethora of cheap, less troubled alternatives in the sector, b) some unresolved concerns we have about the core own bought womenswear performance and c) the likely timeframe for the credibility gap to be repaired. However, with the residual VC and management holdings plus the Baugur stake accounting for c.50% of the equity, presumably we would need to compare the net short position in the stock (which we assume to be sizeable) with a free float of less than 50%. Hence, perhaps like HMV earlier in the Summer, the shares could thus react sharply if the newsflow surprises on the upside…
NH: On this note, the prelims could prove to be an interesting catalyst. Debenhams last spoke to the market on 18 September with a pre-close update indicating that, after several material profit downgrades since last December, lfl sales (-5%), gross margins (-90bps) and PBT (low £130m’s net of IFRS rent adjustment) were all in line with market expectations. In spite of this outwardly reassuring announcement, the shares fell sharply on the day. We understand this was provoked by several brokers downgrading FY08 forecasts, interpreting the company’s reticence over forward guidance as a coded message, hinting at the need to reduce expectations.
NH: - We believe that this was a misread of a management that decided not to offer any guidance on the new financial year, then just two weeks old and against a background of the shares in freefall. The results are due on 23 October, and we suspect that very bearish views may well be wrong footed. Clearly there are macro risks potentially affecting the whole sector, but we have already factored in a negative (-1%) lfl sales assumption into our Debenhams FY08E PBT estimate of £135m (EPS: 12.2p). Meanwhile there are several company specific aspects which bode well for the P&L: a £10m PBT increment from last year’s Roches acquisition, where the stores should move towards Deb’s EBIT margins; the results of personnel changes in the menswear area, which underperformed badly in FY07; and hopefully a better gross margin outcome versus a year when Debs was reacting to contain stock levels against a sales line which was persistently below plan. Furthermore Debs’ August year end meant that it almost precisely bracketed some very unfavourable weather conditions in FY07.
PM:
PM: Right — the SAB Miller news is out….
PM: Will paste some of the statement
PM:
NH: huge cost savings
NH: $500m per annum
PM: SABMILLER AND MOLSON COORS TO COMBINE U.S. OPERATIONS IN JOINT VENTURE
PM: •Combination of complementary assets will create a stronger, more
competitive U.S. brewer with an enhanced brand portfolio
•Greater scale and resources will allow additional investment in brands,
product innovation and sales execution
•Consumers and retailers will benefit from greater choice and access to
brands
•Distributors will benefit from a superior core brand portfolio,
simplified systems, lower operating costs and improved chain account
programs
•$500 million of annual cost synergies will enhance financial performance
•SABMiller and Molson Coors with 50%/50% voting interest and 58%/42%
economic interest
PM: new company will be called MillerCoors
PM: Proforma beer sales of 69m barrels
PM: Net revs of 6.6 billion — dollars
NH: shares trading 50p higher at £15.10
PM: Nice hit by you and Lina, Neil!
NH: thought they should be higher on that news. big cost savings and SAB is free to pursue emerging markets deals
NH:
NH: last piece of RAW market info concerns Alfred Mcalpine
NH: company trying to break itself up
NH: word in the market is this will not happen
NH: bidder waiting to launch break-up bid
NH: stock up 23p at 521p
NH: doubtless CityAM have it already, but thought I would mention it
PM: So someone will step in and bid before the co breaks itself up
NH:
NH: thanks to the reaper for the EK post
PM: That’s Simon Cawkwell
PM: Guy who helped bring maxwell down
NH: reckons shorting NRK is free money
PM: Not today it isnt!
PM: Right — we are off
PM: Thanks v much for joining us. And thanks for all the entertaining comments
PM: We will be back tomorrow at 11am — or at least Neil will. I have a meeting i couldnt get out of –
PM: So Helen will be here instead!
NH: see ya