Markets live chat transcript for the chat ending at 12:24 on 24 Oct 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Good morning and welcome to Markets Live – FT Alphaville’s daily markets commentary.
PM: Neil Hume is with me
PM: Neil
PM: is
PM: a
PM: Arsenal
PM: supporter
PM: So he’s looking quite contented this morning.
NH: morning
PM: ok — let’s test you Neil
PM: VP is asking about BP and Cairn — can you riff instantly on that one?
NH: i can
NH: Shares spiked yesterday on rumours it could be a takeover target for BP
NH: think a price of £28 was mentioned
NH: given BP announced results yesterday and its new CEO is just starting to get to grips with the company a lot of people were sceptical
NH: but not Merrill Lynch
NH: they have been pushing the stock this morning and reckon a bid from a large integrated oil company like BP makes sense
PM: Cairn shares currently up 124p at £24.04- that’s gain of 6%
NH: now we should point out here that Merrill have been pushing Cairn for a while on a number of stories
NH: Nonetheless the broker makes some interesting points
PM: Which are?
NH: that Cairn is vulnerable to a bid
NH: as the company has a huge undeveloped oil basin in Rajasthan India
NH: that Cairn India (the holding company) is not wedded to independence
NH: and apparently Tony Hayward at BP recently told the broker that getting into India was a strategic imperative
PM: Right, we had better have a peak at this note
NH: Bid speculation resurfaces for Cairn Energy
NH: Yesterday Cairn Energy’s share rose 8% on speculation of an imminent take-over
bid (possibly from BP). As we have highlighted several times in recent research
we view Cairn as by far the most potential M&A candidate in the European E&P
sector, given:
NH: (1) the company’s world scale undeveloped resource base in
Rajasthan;
NH: (2) deep value discount to our 2850p/sh PO;
NH: (3) a Cairn India management team that we do not view as overly wedded to the company’s independent status;
NH: and (4) the company’s more generic status as the only significant upstream ‘starter-kit-in-India’.
PM: Starter Kit – like that phrase
NH: In this latter vain, we would also highlight BP CEO’s recent comments at an investor meeting arranged by Merrill Lynch whereby he highlighted one of his key long-term challenges as being the need to establish a significant foothold in India.
NH: That said, historically we have seen the company as a more likely to bid target for
once the pipeline and Cess tax issue have been resolved and a greater degree of
clarity exists as to first Rajasthan oil timing (issues which we expect to be
resolved over the next 6 months).
NH: However, given we have consistently argued
that the first two issues are relatively immaterial from an equity investment
perspective and that we remain bullish that management will make their first oil in
2009 production guidance, we se no reason why a corporate bidder would take a
different stance.
NH: On take-out price, we would typically expect a long-term implied oil price of
US$70/bl+ and a willingness to take a more aggressive view than consensus on
reserve/production capacity potential of the company’s Rajasthan resource base.
We therefore see a take-out price in the range of £28 – £32 as being required to
receive a management recommendation.
PM: 28 to 32?!?!
PM: I’m just watching the price as we type — this feels a little wild to me 
NH: well is it???
PM: Market price now up 8 per cent — gain of 183p to 24.52
PM: This is a broker note — not firm market info
NH: the majors need to find oil
PM: Hey — anyone listing??
NH: cairn needs a partner to develop its assets in india
NH: and there is consolidation in the sector
PM: It’s a broker note !!! Cairn up two quid!!
NH: Eni has bid for Burren energy
NH: as have about three other companies
NH: including the Koreans
NH: why would someone not bid for Cairn??
PM: Shares still rising
NH: what are they now???
PM: Just up 214p at 24.84 — gain of 9.4%
NH: above 10% now
PM: Put on a quid since you raissed this eight mins ago
NH: is there a statement coming???
NH: above 11%
PM: No — IT’S A BROKERS NOTE!
NH: and rising
NH: up 250p now
PM: Ok — coming back now
PM: current quote is 25.07 — up 238p
PM: this stock will should be back below 24 quid soon
PM: 
PM: Made me feel rather queasy that
NH: an explosive start to today’s ML session
NH: thanks to our friends at ML
PM: That’s Merrill Lynch
NH: and Markets Live
PM: Anyway — note Greenback’s note about Plender this morning in the FT
NH: pull screen has gone dead
PM: Back — v good column from Plender talking about the coming China crash
PM: I might mention that Warren Buffett also agrees with Plender, apparently
PM: This is running on reuters
PM: DALIAN, China, Oct 24 (Reuters) – Berkshire Hathaway Inc’s Warren Buffett said on Wednesday he is scouring the world for big businesses, but is doubtful about finding a good buy in China because the market is too hot.
Hong Kong-listed shares in mainland companies have risen 89 percent so far this year, while the main Shanghai index has surged more than two-fold in 2007 and has jumped five-fold since the start of last year.
Buffett, speaking to reporters at the opening of a factory owned by an Israeli company he controls, had been asked about Berkshire’s investment in PetroChina Co Ltd, the country’s largest oil and gas producer.
[10:58:29] Helen Thomas says:
PM: Question below asking why Cairn should come back below 24 quid….
PM: Point i was trying to make is that sudden flurry looked illogical – as tho people treating bid story as 100% true — rather than a broker note
NH: anyway the Merrill note has been around all morning and broked to clients
NH: so anyone getting in now is a bit of a tail end charlie
NH: still the consolidation theme has a lot further to run in the mid cap oil space
NH: the burren was only the start
PM: Hmm — seriously Neil — we had better be careful here. If people are jumping on stuff without actually reading the text — that is dangerous
NH: well the ML note is up for everyone to see
PM: Yeah — and it was all VP’s fault — as he has now admitted!
PM: 
PM:
PM: But look — while we are in speculative mod — let talk about Enodis — because while we keep mentioning it I also know that you are getting some interesting vibes
PM: This is RAW — but it is coming from usually reliable sources
NH: it is
NH: not sure what to make of it
NH: obviously there is a big bull position in this stock now
NH: but it is worth repeating what I have heard this morning
NH: and i guess it should be fairly to check out
PM: Yes — so beware of the stale 
NH: very aware. remember this stock traded as high as 222p yesterday
NH: so there will be some people wanting to get it moving
NH: anyway here’s what we have picked up this morning
NH: Manitowoc spent monday in a huddle with their advisers
PM: (v v funny Philip — below)
NH: and apparently MTW advisers approached advisers to Enodis yesterday
NH: annd apparently they indicated that they were prepared to pay a price 40% above Friday’s closing price
NH: which comes out at about 264p
PM: Ok — but of course this is RAW untested information coming from typically “shrewd” market sources
PM: Right Neil — come on– let’s firm this up
PM: Do you know which banks might be working on this alleged deal????????
NH: yep – JP Morgan for MTW and Credit Suisse for Enodis
PM: Oh, right
PM: Well we should be able to check this out – using semi-official sources
NH: yep. i think we need to try and put this story to bed once and for all
NH: either its right or wrong
NH: simply as that
PM: sure
PM: i will wait for you to report back later
PM:
PM: Greenback asking about Carphone — been strong morning
NH: they have been
NH: shares up 14.2p at 344.5p
NH: that’s a rise of 4.3%
NH: basically the company has got together with Vodafone to launch a broadband joint venture
NH: called Talkmobile
NH: CPW is not going to put out a press release on this
NH: but it is obviously very good for sentiment
PM: Can you explain what you mean?
NH: well, CPW and Vod fell out in spectacular style last year
NH: Vod don’t do any pre-pay through CPW
NH: it all went to Phones4U
PM: Of course — so what do we think is actually happening now
NH: obviously relations are thawing
PM: Hmm
NH: here’s a quick bit of comment from Collins Stewart
NH: Talkmobile http://www.talkmobile.co.uk launched yesterday, piggy backing on the Vodafone network. There is no formal press release from CPW – nor will there be.
It is aimed at lower spend contract customers (or higher spend prepay) who want low contract lives (9; 12 and 18mth contracts all offered).
I find this interesting: Vod UK doesn’t sell its OWN contracts through CPW but is happy for CPW to sell it’s own-branded services which piggy back on Vod network.
It is obviously immaterial now, but it is evidence that the relationship between CPW and Vod is far from broken, and could heighten speculation that the contract to sell Vodafone subscriptions in the UK could return to CPW from Phones4U.
Underowned, and high growth, we reiterate our Buy rating on CPW. Interims 8 November. CEO presenting here at CS 12 November.
NH: sorry that was by Mark James
NH: teleco analyst at Collins Stewart. but you may remeber him from his time at Nomura
PM: Ok — thanks for that. Let’s move on.
PM:
PM: Let’s get breath back — what’s the wider market doing
NH: FTSE 100 is up 29.7 points at 6,543.7
PM: See its firmed progressively as the morning has moved on
PM: No one fretting about Merrll Lynch and these recently discovered ABS losses?
NH: don’t seem to be
PM: As carlomagno wonders below
NH: think the equity market is more interested in the strong performance of the dow overnight
PM: Hmm — Carlomagno hasnt been around much recently
PM: Think he might have missed the introduction of the new financial order
PM: Where bad is good
NH: and good is good
NH: so any news good or bad is good news
NH: and so the market goes up
PM: Welcome to Draaismaland – C
NH: a bit like Alice in wonderland
NH: similar sort of logic
PM: Hello Alice land
NH: still some things don’t rally
PM: Like wot?
NH: property stocks
NH: they are diseased
PM: Ah yes, Greeper was distributing some stuff on them earlier
NH: seriously bearish note from Morgan Stanley
NH: and follows last week’s seriously bearish note from Cazenove
NH: brace yourself
PM: 
NH: MS sees further downside of 32% in UK property majors
PM: 
32%!
NH: they have set some really bearish price targets
NH: check these
NH: Hammerson EW to OW, PT from 1510 to 980p
Brixton OW to UW, PT from 550p to 300p
Land Securities OW to EW, PT from 2100p to 1400p
Liberty International OW, PT from 930p 1030p
British Land UW, PT from 1350p to 910p
SEGRO OW to EW, PT from 680p to 420p
PM: Ouch — but ive got to ask…
PM: Why is Liberty International spared??
NH: hang on let me get the note
NH: Property
‘Bear Case’ Would See Share
Price of UK Majors Slide by a
Further 32%
NH: Bear case’ would see further 32% to end-2008e.
Based on our revised UK capital growth projections, our
revised end-2008e ‘bear case’ fair value for UK property
majors is 32% below current share prices.
NH: Cyclical nature of sector argues for focus on
downside. Given the cyclical nature of the property
sector, we think it is important to focus quite heavily on
downside risks when the cycle has started to turn down.
NH: ‘Base case’ only 9% down, but expect further falls in
2009e. While our ‘base case’ only envisages a relatively
modest 9% further downside to end-2008e, we are
expecting a further 10% fall in NAVs in 2009e
NH: Prefer plays on shopping centres to central London
offices. Our Underweight on British Land and our
Overweights on Liberty International and Hammerson
partly reflect our expectation that values of big regional
shopping centres will hold up better than those of central
London offices.
NH: that’s the explanation for the positive view on Liberty
NH: can’t say i agree but there you are
NH: hang on here’s the conclusion of the MS note. analyst is martin allen
NH: highly thought of
NH: Crux of our argument is the turn in the credit cycle
Commercial property is a capital-intensive business that has
thrived over the last five or six years from plentiful and cheap
credit, but which we expect to struggle for some while now that
credit is relatively scarce and expensive. The impact of the
recent credit boom in the UK on lending to commercial property
and the distortions this has caused in the pricing of property are
of a similar magnitude to the two previous major peaks of 1973
and 1989, both of which were followed by significant cyclical
downturns in the commercial property market
PM: Great — cheers for that
PM: But one thing — Martin Allen works in Draaismaland
PM: Morgan Stanley that is — where Teun Draaisma is Euro strategist
PM: So MS say we are going into equity nirvana — but dont buy property
PM: or hosue builders
PM: or shops
NH: nope just buyer miners
PM:
NH: and anything else with emerging markets exposure
PM: And tech
NH: Voda, BP
PM:
PM: Ok — let’s ahve a look at a couple of deals with ahve been following closely
PM: Scottish & Newcastle and Friend Provident
PM: Let’s start with S&N
PM: what are the shares doing??
NH: down 5p at 765.5p
NH: nobody really seems to what to make of S&N’s counter punch
PM: Neil is of course referring to Tuesday’s after hours news that S&N believe it now has the right to buy Carlsberg out of its 50% shareholder in BBH
NH: that’s the fast growing Eastern European brewer
NH: this is all very complex and the lawyers have been brought in
NH: but basically S&N tclaim hat Carlsberg have triggered the shoot out clause in the BBH joint venture by teaming up with Heinken and working on a bid
PM: Will it stand up in court
NH: er good question
NH: Carlsberg obviously don’t think so
NH: they have rushed out a statement this morning
NH: very brief
NH: says the claims are rubbish
NH: and here it is
NH: Carlsberg A/S confirms that it has today received a letter from Scottish & Newcastle plc and Oy Hartwall Ab alleging breaches of the Shareholders Agreement between Oy Hartwall Ab and Pripps Ringnes Ab, which governs the parties’ joint venture Baltic Beverages Holding Ab. Carlsberg believes the claims made have no merit.
PM: Hmm — this is getting very dirty/complex v v quickly
PM: How exciting!
NH: the background on this statement according to my spies is that S&N have not got a leg to stand on
PM: Why’s that?
NH: well it’s complicated
PM: Oh right!
NH: but let me try and explain
NH: the legal owners of BBH are Hartwall (owned by S&N) and Pripps (owned by Carlsberg)
PM: ok
NH: if Carlsberg makes an offer for the whole of S&N the legal owners of BBH will not change
NH: it will still be Hartwall and Pripps
PM: ok
NH: and the evidence for this argument is that when S&N bought Hartwall a few years ago it did not trigger the shoot out clause
PM: Er, right — well that sounds logical — but what’s going on here?
PM: what are S&N’s motives???
PM: Is this a negotiating tactic to get Carlsberg and Heinken to pay more?
NH: could be
NH: of course S&N management could be ambitious and might want to buy Carlsberg out of BBH
NH: but they would need a huge rights issue to do that and I am not sure shareholders would back that when there is a prospect of a cash offer on the table
NH: equally, S&N could buy out and Carlsberg and try and find another partner for BBH
NH: but then we are back to square one
NH: I suppose another angle would be to take control of BBH and then sell the whole thing on and get a better price
NH: there would doubtless be plenty of interested parties but I am not sure S&N shareholders would be happy
PM: Why not?
NH: they would be left holding a brewer focused on zero growth mature markets and one with a huge cash pile
NH: anyway one thing is clear – the only winners out of this whole wrangle will be the lawyers
PM: same as ever
PM: Any analyst comment?
NH: yep got good notes from Merrill Lynch and Kaupthing
NH: will paste now
NH: This is from Nico Lambrechts at Merrill lynch
NH: S&N is making all the right moves trying to maximise the price any bidders pays
for the company. We believe a price around 800p would be attractive for S&N
shareholders, but the legal battle may result in a delay before a firm bid in placed
on the table by Carlsberg/Heineken.
NH: We must remember that this deal is not about cost synergies, but about controlling/owning BBH. S&N group central costs are £40m (ex. BBH), and we assumed in our recent analysis that costs synergies could be £60m, as there are no market overlaps to the Carlsberg/Heineken bid consortium
NH: If costs synergies are £80m or £100m it does not materially change
the picture. Carlsberg with a partner is in the best position to buy S&N as it only has to pay a premium for BBH once in order to own 100% and control BBH, the prised
Russian asset.
NH: Any other buyer of S&N or S&N 50% interest in BBH would either
have to be content to own 50% or pay a premium for a second time to control the
business. The press yesterday speculated that a Russian oligarch might be
interested – we have no insight into this but it may be an interesting option for
S&N, as at the moment the market is not putting any discount on BBH, for the risk
that the Russian government could put limitation on the ability of a foreign owner
to expatriate dividends.
NH: We view the main risk of S&N selling BBH to another party, that it would then sit
with a cash pile and a portfolio of less attractive businesses (UK, France, Finland
etc). These will have to be sold at a discount.
NH: We remain of the opinion that a 800p bid price is attractive for S&N shareholders,
and compares to our stand-alone fair value of 630p, prior to the bid. We calculate
that a bid at 800p would be approximately 5% EPS enhancing for Heineken, and
5-8% dilutive for Carlsberg. Our end-08 fair value for Carlsberg prior to the bid
was DKK870. We believe paying a premium for BBH and using equity at DKK680
would dilute this fair value by 15% – this compares to a 10% drop in the Carlsberg
share price since the bid.
NH: and this is from Kaupthing
NH: Scottish & Newcastle – Statement regarding shareholder agreement in BBH
After the market closed yesterday S&N announced that it has given notice to Carlsberg of breaches by Carlsberg of the terms of the BBH Shareholders’ Agreement.
NH: The consequence (if correct) of this is that Carlsberg is obliged to offer its shares in BBH to S&N. Clearly if this is upheld then it would be very bad news for CARL and would derail the bid process. CARL itself has come out with a statement this morning saying that it believes the claims have no merit.
NH: Most people will probably take the view/hope that this is just a tactic by S&N to try and force the price of any takeover up to nearer 800p. In the very least it will probably delay any offer being made by CARL and if it does go to court then the delay in the whole process could be huge. Therefore in the very short term we can see S&N’s share price coming off a little until S&N’s real motives are clearer.
NH: However, there are several scenarios to consider if this is more than just a negotiating tactic by S&N:
NH: 1) That S&N buys Carlsberg’s stake in BBH and keeps it.
In this scenario S&N could end up paying about £4.3bn for CARL’s 50% stake in BBH. S&N’s resulting proforma EPS would be about 36p for cal’08 (this is about 10% dilution compared to current standalone EPS estimates for S&N) and would need a £3bn rights issue (plus an extra £1bn of debt).
NH: This would result in the bid collapsing. At the current share price (770p) the resulting P/E would be 21.4x. BBH would increase from 35% of profits (before central costs) to 52%. Some rerating would be appropriate but not from 16x to 21.4x. HEIN, CARL and SAB are on about 18x to 19x P/E for cal’08. Could see the stock go back to nearer 650p if the mkt was happy to put it on 18x. However, once S&N owned 100% of BBH it would then be a more interesting target for someone like SABMiller or A-B. In my view this would not be enough to stop the shares falling – could perhaps hold the stock nearer the 700p level.
NH: 2) S&N buys Carlsberg’s stake in BBH and then sells it on to another partner (for the same price) (eg SABMiller).
This would also prevent bid from happening. Should result in no change to standalone EPS estimates of about 40p of EPS for Y/E Dec’08. No rights issue needed either (assuming banks provide bridging finance). However shares will also come back to nearer 630p area to leave stock on about 16x for cal’08.
NH: This all compares with an EPS figure of about 51p if S&N actually sold its stake in BBH for £4.3bn (o/w it then paid down £0.9bn of debt and returned £3.4bn to shareholders).
NH: good note the one from Kaupthing.
NH: analyst round there really knows his stuff
NH:
PM: Ok thanks for all that.
PM: Before we go on to Friends – comment below on RV Capital
PM: Right to raise it – rumour went round euro markets earlier that a big FX option trader had gone bust .
PM: Our colleague Paul Davies has been on the case – but in any case just getting a report out of Rueters
PM: Here it is …
PM: LONDON, Oct 24 (Reuters) – Pan-European financial and commodities derivatives market Liffe said on Wednesday it had declared market maker RV Capital LLP in default and barred members from doing business with it.
It was the first such move in nine years by the London-based exchange. Defaulting at Liffe means a member company is not considered capable of meeting its financial obligations.
The two parties declined to comment further but one source close to the issue said RV Capital had run into liquidity difficulties which surfaced after the recent global credit crunch.
The source said that the problem had come mainly in the short sterling interest rate market where RV Capital held positions in options.
London-based RV Capital was founded by Jerome Roussel and Duncan Valentine in January 2006 to provide liquidity in derivative products to banks and brokers on listed exchanges, according to its website.
It describes itself as “the number one market maker on fixed income options on Eurex and on Liffe”. Eurex, the European derivatives exchange, also had no comment.
A formal notice dated on Oct 23 and forwarded to Reuters by Liffe said: “The exchange has today declared RV Capital LLP to be a defaulter for the purposes of enabling action to be taken under … the rules.”
This means that another member of Liffe, which is also a member of a clearing house, must assume responsibility for RV Capital’s positions in options contracts, to manage them, to close them out or to sell them on.
The notice, issued to Liffe members, said that Liffe and LCH.Clearnet, a clearing house, were in “close contact with RV Capital’s clearing member who has confirmed that it will continue to manage the relevant open positions on the market”.
The source said that brokerage Fimat, owned by French investment bank Societe Generale, was RV Capital’s partner for clearing transactions.
Fimat was unavailable for comment.
An employee at RV Capital told Reuters that the company was not commenting about the issue “at this point”.
Liffe is owned by NYSE Euronext.
PM: first such default in nine yars — which seems to say something!
NH: according to the GR the problems at RV Capital have contributed to the weakness of the euro today
PM: Hmm — interesting — so we are still getting fresh victims pulled out of the credit wreck
PM:
NH: new post from FT Directors below
NH: we have been following the directors in the property sector
NH: seem to remember Mr Myners at Land Secs buying a load of shares
NH: and they have gone one way since
NH: and will give u a clue it has not been up
PM: Paul Myners that is — dont think he’s got a peerage yet
NH:
NH: right we had better had a look at Friends Provident
NH: Paul thinks this is a boring deal now
PM: Well well — and know there are lots of wrinkles — but its insurance
PM: but go on
NH: i know
NH: but we have a bidding deadline of tomorrow night for resolution
NH: and ahead of that RSL has sweetened the terms of its proposed marriage with FP
NH: have announced that the combined group will return £1bn of capital to Friends Financial shareholders in 2008 from existing and internally generated cash resources and new debt
NH: in addition to this the group will release further capital to shareholders by April 2009 through the disposal proceeds of certain lower return
PM: it’s a pretty bold move then
NH: it is but surprisingly the odds still suggest the merger won’t go through
NH: I reckon is about 40%-60%
NH: but if that ratio changes then we should see a sharp spike in the FP share price
NH: Under the merger terms its share should be trading at 217.6p
NH: but it is currently 3.9p higher at 177p
NH: of course the discount reflects that the fact that there are two possible bidders out there for RSL
NH: Hugh Osmond’s Pearl Group and Standard Life with its new best friends at Swiss RE
NH: and we got a very odd statement from SL last night, which sort of suggested that they had got cold feet
NH: For those of you who might have missed it here it is
NH: Standard Life plc (“Standard Life”) notes the press speculation regarding the
price at which a potential offer may be made by Standard Life for Resolution plc
(“Resolution”). Standard Life continues to monitor the situation and confirms
that there is no certainty either that an offer will be made for Resolution by
Standard Life or, if made, the terms of any such offer.
NH: Looks like a case of wobbles in the SL boardroom
NH: well, it could be read that way
NH: as a result some people in the market dount that SL will be able to come up with an offer that the board of RSL can recommend
NH: a recommendation will probably require an offer in the region of say 750p
NH: Osmond looks stretched already at 690p
NH: while SL risks seriously annoying its shareholders if it pays 750p
NH: although Collins Stewart reckons the maths stack up at 750p
NH: here’s what there analyst Tim Young had to say this morning
NH: RSL has £1bn of surplus capital. Following the Friends Financial deal (which may or may not happen etc – we have tomorrow to find out, in effect), the combined group is now proposing a 2008 capital return of this quantum to shareholders. Obviously, RSL is generating a lot of cash and can augment this with new debt to finance the funding gap at Friends Provident.
NH: A further capital return of £1bn in 2009 will come from a predictable sale of assets (we think the sale of the Britannic and London & Manchester industrial branch books – but we await the companies’ comments in this regard). Then at least a 13% ROEV from 2009 – clearly better than RSL’s standalone target of 10% – but we always felt this understated the potential and the 13% is on a lower EV. So the team is fighting hard and The FF deal does look improved.
NH: But is it better than Standard Life-Resolution? We think not
NH: Standard Life is a better company than Friends Provident but its current weak returns are holding it back. We have explained previously how at 750p, the deal is immediately value-accretive to all shareholders and the combined group could undertake the same sort of capital returns through selling off the Britannic industrial branch book and the Wythall operating platform to, say, Pearl, and the closed Abbey books to Swiss Re.
NH: The capital returns could also probably be achieved more quickly as those transactions could be executed more or less immediately. With Pearl’s revised offer, it looks likelier that if Standard Life is serious, this will be the outcome.
NH: Where does this leave Friends Provident? Probably a buy
NH: Friends Provident is trading at embedded value, operates in the attractive UK market and is not the worst market participant by any means. Left jilted at the altar, it is highly likely that a bidder (Old Mutual, Zurich?) would swoop. On a 25% control premium, that would be circa 220p.
PM: Goodness — so he thinks SL could pay 750P??
NH: yep
PM: Where shares trading at the mo?
NH: SL are down 2.5p at 276.25p
NH: RSL off 8p at 710p
PM: Ok ta
PM:
NH: staying with the insurers there has been a bit of movement in the Aviva share price this morning
NH: currently up 14p at 715.5p – a gain of 2%
PM: Ok — what’s fuelling this?
NH: been triggered by reports in the Italian press
PM: which say?
NH: that TCI, the very activist hedge fund, has written to Italian insurer Generali pushing for governance changes and putting forward a couple of hypotheses”
PM: Which are ?
NH: bidding for Aviva and/or Prudential
PM: Goodness that would be quite a deal
NH: it would
NH: but would pose a lot of financial and operating risk for what has always been a relatively conservative company.
PM: What — Generali?
NH: yep
NH: that said, the Pru and Aviva both look cheap
NH: and Aviva must be glancing over its shoulder
PM: Why’s that?
NH: the lacklustre performance of its shares
NH: did you know that earlier this week
NH: the market cap of the Prudential became greater than that of Aviva
NH: which is quite a turnaround when you consider that Aviva bid for Pru what 18 months ago
NH: the gap between the two businesses back then was £3bn
NH: and that has now vanished
NH: probably because the Pru has outperformed
NH: that market considers it a emerging markets because of its large presence in asia
NH: anyway, the issues facing the new boss at Avia, Andrew Moss, have been nearly summed up in a note from JPMorgan this morning
PM: Can we have a look?
NH: Since the “Double the value” presentation in New York last
Wednesday there has been a sharp correction in the share price.
Management not revealing their eps targets for the group at this
stage has in our opinion created a buying opportunity.
NH: Our view is that Aviva may feel their hands are somewhat tied in
the near term on capital restructuring. The court case in Feb 2008
for Delta Lloyd could lead to a change in the structure of the
group. If they win this case management may feel more confident
regarding their ability to extract excess capital from this business
over time. In addition, the group will soon be addressing the
orphan estate, a process which is expected to consume significant
organically generated capital.
NH: If the share price continues to underperform, shareholders may
look for more aggressive strategic options, including breaking up
the group. However we believe that reinsurance of the non-life
business, spin off of Delta Lloyd or sale of the RAC could achieve
a share price rerating without a break up, as outlined in our CEO
for a day note “We recommend a capital restructure to release the
value of the back book”.
NH: We remain Overweight on Aviva; we believe that the current share
price will increase pressure on management to disclose their eps
targets and restructure the business to deliver value from the
existing business. We believe the bad news is already in the
current share price and more news on the strategy could cause a
rerating.
PM: Amazing stat on the Pru — thanks for that
PM:
PM: To Cornwall Trader on this Cit stuff
PM: Obviously the telegraph is way behind the curve on this
NH: note published on Oct 12
PM: here’s what Helen Thomas wrong about it earlier:
PM: http://ftalphaville.ft.com/blog/2007/10/22/8253/beware-the-maturing-bull-2/
PM: Beware the maturing bull
“Hold the front page — investment bank issues pertinent research.”
We didn’t say that, we hasten to add. It was fund manager Tim Price, at the Price of Everything blog. In the strategy note in question, Robert Buckland and Orrin Sharp-Pierson from Citi offer hint at an explanation for declining cyclical fortunes for the credit cycle but continued positive returns from equities – the “Maturing Bull.”
PM: Tim Price of the Price of Everything blog (which is v v good) did some interesting stuff on it
NH: we have a copy of the Citi note Cornwall trader. if u want it just mail me or paul
PM: Er — yeah — sure Citi wont mind
NH: they won’t its weeks old
PM: Liam — just on Enodis — we did some stuff earlier — scroll back thru
PM:
NH: right a few more bits of RAW market info before we go
NH: hagemeyer
PM: Ah, this is the Dutch electronics parts distributor you keep going on about
NH: yep
NH: a French rival called Sonepar indicated a few weeks ago it was prepared to pay EUR4.25 a share for the company
NH: but this morning we are getting indications that another French company is preparing to bid
PM: Who?
NH: rexel
NH: apparently the Rexel is lining up financing for a possible bid
NH: talking to six banks, including HSBC, Royal Bank of Scotland, ING and Credit Industriel et Commercial
PM: where are Hagemeyer shares trading??
NH: Up 1.44 at EUR4.94
PM: thanks for that
NH:
NH: right if u thought we would go a whole session without mentioned the Crock u were wrong
NH: paul has some interesting stuff
PM: Well the BIG news today is that the price has hardly moved
PM: Currently trading at 190.3p in the middle , up 0.5p
PM: But what i was going to say…
PM: Notice they’ve got a new hedgie on board – Grantham May Van Otterloo – got 1% or so.
PM: Interesting – these people have form – it’s Jeremy Grantham – better known as GMO
PM: He’s the guy who predicted the slow motion train wreck earlier in the year.
PM: http://www.gmo.com/websitecontent/JGLetter_ALL_APP_2Q07.pdf
NH: what do the hedgies see that the rest of us don’t???
PM: Well setting RAB cap aside — I think that people like Jon Wood and possibly GMO see a chance of shaping the rescue — when it arrives
PM: i think you might see some sort of blocking action at some point
PM: I wonder what they are doing in some of the other non-equity Elvis paper
PM: Just a suspicion
PM:
PM: Anything else?
NH: astrazeneca weak today. very aggressive sell note from Merrill Lynch. here are the highlights.
NH: shares off 72p at 23.86
NH: comment below
NH: Moving to Sell – poor growth outlook not reflected in price
We are downgrading AstraZeneca to Sell from Neutral. Recent share price
appreciation coinciding with EPS cuts to reflect loss of the Symbicort EU patent and
slowing growth of key brands Nexium and Crestor, have left the stock 15% above
our 2100p theoretical estimated fair value.
NH: The mid-to-long term outlook remains
poor with AZN having the highest generic risk, worst pipeline and slowest EPS
growth in our coverage universe. Nearer-term we see share-price downside as likely
as investor concerns increase over the 30% of 09E&10E EPS at risk from patent
challenges to Nexium and Seroquel as litigation comes to a head in 2008. Sell.
NH: also been keeping an eye on ASOS
PM: I see you featured them in the market report today?
NH: We did. And Asos shares have continue their phenomenal performance this morning
NH: shares were another 5p to a new record 189.5p early
NH: now 1p lower at 186p
NH: Take a look at the chart – shares are up more than 60 per cent in the last month alone.
PM: That’s quite remarkable. Flat as a pancake all year and then woosh!
NH: There has been volume behind it too – trading has been very heavy in recent days.
PM: What is this thing anyway – internet shopping?
PM: Just on the website now. . . . . .
PM: Internet clothes shopping for teenagers and 20 somethings
PM: Asos is an acronym for “As Seen On Stars” you know.
PM: As seen on someone from Hollyoakes would be more appropriate.
PM: Rumours of stakebuilding going round — all pretty raw — but Tesco and H&M mentioned
PM: we noticed a holding in company late last night tagged to Morgan Stanley Securities, which some suspect could be a hedge for a CFD position.
NH: What are the company saying?
PM: Nothing — as far as i know
NH: Surely after a rise on this size the Panel will be on to them.
PM: You would think so – perhaps we will hear something later today.
PM: You believe this one?
NH: Analysts we were talking to yesterday think it’s a good business and definitely a bid target.
NH: But with the shares up 60 per cent in a month it’s a lot more expensive than it was at the start of September.
PM: What’s the market cap tho . . . .
PM: £134m. Drop in the ocean for Tesco. Or H&M.
NH: True. Seymour Pierce has just stuck out a note actually.
NH: Reduced stance to a “hold” – saying share price has just ramped up too far.
PM: Can you cut and paste some?
NH: Since the AGM trading update on 3 October, the ASOS share price has
soared from 124p to 193p, reaching (and bursting through) our 12-month
target price of 185p (25x 2009 earnings, equivalent to a PEG of 0.6).
NH: The chart has a faintly ridiculous look to it, having loitered (undervalued)
around the 120p mark for almost a year, and then, within 3 weeks, surging
over 50% on solid (but not exceptional) volumes.
NH: The initial catalyst for this move was undoubtedly the significant upgrades
(we moved from £6.6m to a cautious £8.0m for 2009) and positive broker
comment which accompanied the strong trading reported at the time of
the AGM. We believe that this was responsible for driving the price up to
around the 160p mark, a move compounded by the lack of natural sellers
in the marketplace.
PM: ta
NH: • However, towards the end of last week, rumours of bid interest from
Hennes & Mauritz, later extended to include Tesco, began and have
seen the share price continue its upward march. We would not entirely
dismiss the possibility of a bid. For either of these businesses, the cost of
acquiring ASOS would, at this stage, be a drop in the ocean. Furthermore,
we believe that the management team would be very attractive for anyone
looking to develop its own online offering.
NH: • However, despite the attractiveness of the business, we have no reason
to believe – other than market gossip – that a bid is on the way and, from
a fundamental perspective, nothing has changed since 7 October.
• Despite our view that any take-out would have to be well north of 250p
and our belief that the fundamental business will, down the line, be worth
significantly more than the current share price, we have little option but to
move our recommendation from buy (initiated at ‘buy’ on 27 September
2002) to HOLD.
PM:
PM: right before we go — PW is asking about Rank — but first….
PM: Back to friends / resolution — we’ve got some live stuff here
NH: yep Dresdner have just issued a rule 8 on FP
NH: Dresdner are financial adviser to Royal London
NH: which is Pearl’s bidding partner
PM: Of course
PM: What does it say?
NH: that DK bought 40.5m shares yesterday
NH: and then sold on 36.5m shares
NH: now, there were stake building rumours yesterday
NH: perhaps Zurich financial are building a position ahead of a bid
PM: Hmm — all very intriguing — thanks for that
NH: and Philip wants to know about rank
PM: the former Tank
NH: we are being told Genting has been quietly buying a few shares through HSBC
NH: now, we are not saying it will bid
NH: indeed Genting has its hands full at the moment
NH: spending £2bn on some development in Thailand i think
NH: and it is dependent on the short term money market for most of its funding
NH: nonetheless it has built strategic stakes in a number of gaming companies before
NH: Rank for all its woes still is the UK’s second largest casino operator
NH: and its only valued at £400m now
NH: admitedly it does have some debt
NH: but building a stake at 100p could prove quite shrewd
NH: not sure there is much mileage in the William Hill and Lads angle
NH: but Rank could be attractive to a las vegas casnio company
NH: harrah’s bought LCI last year
NH: as Philip points out there are not in the same class
NH: but….
PM: Great — thanks for that
PM: Rank price?
NH: off 0.5p at 100p
NH: and remember the CEO at Rank, Ian Burke, is a seller of assets
NH: he sold Thistle Hotels
NH: and i think the buyer there was from the far east
PM: ta
PM:
PM: GSK news is major job losses btw
PM: Glaxo Smithline Q3s out
NH: and Philip we have just googled. impressive CV!
PM: “GSK remains on track to meet its earnings guidance for the year,
despite significant challenges. We continue to strengthen our product portfolio with 15 products launched,
approved or filed so far this year, and we remain very focused on delivering more from our late-stage pipeline.
We are also increasing R&D investment in key areas of future growth, such as biopharmaceuticals, oncology,
vaccines and neuroscience.
GSK is also constantly seeking ways to adapt its operations and its cost base to remain competitive.
Operational Excellence is part of our culture and in our new programme we will be accelerating and expanding
many initiatives to improve GSK’s productivity. This will include streamlining our manufacturing, adapting our
selling model and improving efficiencies in R&D.
We are very conscious that these initiatives will impact our staff in certain areas of our business and we regret
that job reductions will be a necessary part of this programme. We will do everything we can to support those
employees who are affected. However, by making the changes we envision, GSK will be better placed to
address the challenges we face in 2008 and be in a stronger position to create long-term value for patients and
shareholders.”
PM: That’s JP Garnier’s statment
PM: Right — we have GOT to go. 1.21 is a record for us
PM: thank you v much for joining us. thanks for all the comments
PM: we will be back tomorrow at 11am
NH: see ya