Markets live chat transcript for the chat ending at 11:59 on 1 Nov 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
NH: morning
NH: Day of the Midfid today
PM: New Eu rules
PM: That make like more complicated
NH: yep I think i found a new Vod Midifd quote on reuters this morning
NH: seemed to offer a better price than the LSE
PM: Vodafone
PM: But where is this price????
PM: Who is making it????
NH: no – still getting to grips with it all
NH: give me a chance
PM: yeah — Mifid is boring — tell us something price sensitive
NH: just had a piece of raw market info wing its way to me
PM: 
PM: Completely RAW
NH: expect to see the wires running it soon
NH: here goes
PM: Go on what is it?
NH: SABMiller to launch knockout 850p a share bid for S&N
PM: Right…..
PM: Do we have any evidence at all for this supposed move???
NH: no
PM: What’s S&N stock doing — and this is Scottish 7 newcaslte — not Smith 7 Nephew
NH: down 4p at 779p
NH: for what’s it worth
NH: what we are hearing is that Carlsberg and Heineken will up their offer
NH: but only to something around 775p
NH: could be a few disappointed punters out there
NH: unless of course SAB or someone else steps up
PM: Well we certainly know that SAB looked very hard earlier in the year — at S&N
PM: But their whole focus was on the emerging market assets
PM: If they bid now — do you think they would want to off load the European beer biz to someone ??
NH: yep
NH: SAB have been quite clear that they have no interest in mature beer markets
NH: and to that end they recently folded their US Miller ops into a JV with Coors
PM: Of course
NH: they would want BBH but would look to offload the European ops of S&N to someone else
PM: Hmm — one to keep a v close eye on certainly
PM: 
PM: Time to take a quick look at the wider market
NH: despite Wall Street’s bullish reaction to the 25 basis point rate reduction
NH: and gains in Asia overnight
NH: the London market is lower this morning
NH: FTSE 100 down 32.5 points at 6,688.5
PM: that’s puzzling
NH: it is
NH: until you consider why we are falling
PM: Go on
NH: banks – they are rubbish this morning
PM: 
NH: Northern Crockett down 7.5p at 177p
NH: Barclays off 18.5p at 585.5p
NH: royal bank of Scotland 14.5p cheaper at 502p
PM: So what’s going on??
NH: seems that hedge funds are taking out short positions again
NH: a lot were closed yesterday ahead of the month end
NH: and we also have a pretty bearish note from Merrill Lynch
NH: its on UBS
NH: predicting another $8bn of writedowns on its CDO’s
PM: Jeepers — 8bn!!
PM: I think we had better take a look at the note
NH: OK, here it is
NH: UBS likely to have further subprime write downs
Three weeks ago we upgraded UBS from Neutral to Buy. Our investment thesis
was that UBS would put subprime losses in the past and investors would refocus
on a restructuring story with an attractive valuation case. In light of further
subprime disclosure, it seems unlikely that investors will move past potential
losses on subprime in the near term. Traded indices, such as TABX, imply that
UBS could have a further US$ 8 billion of write downs on its Mezzanine CDOs.
NH: Fall in Tier 1 hints at why UBS may have delayed pain
Why wouldn’t UBS have ‘kitchen sinked’ its mezzanine CDO exposure? If UBS
had marked its mezzanine CDOs using TABX prices, for example, the additional
US$ 8 billion write down would have lowered UBS’ Tier 1 ratio to ~8.8%.
NH: Share compensation makes IB restructuring story harder
We believe extra equity compensation will have a negative impact on the IB cost
income ratio of between 1.5pp and 2.7pp in 2009-2011. Furthermore, if UBS has
future right downs on subprime, future use of additional equity compensation can’t
be ruled out. We think this drag on cost income hurts the IB restructuring story.
NH: Downgrade recommendation to Neutral, downgrade EPS 4%
Even after 4% EPS downgrades, we think UBS is inexpensive. However, we are
downgrading UBS to Neutral because our investment thesis no longer stands up
and following recent share price corrections the entire bank sector is inexpensive.
PM: V interesting — and v funny
PM: If you applied the TABX index to Merrill Lynch’s numbers I am pretty sure they would have bust through double digits in the billion-write-downs
NH: and what about Bar Cap
NH: can it really have emerged from credit crunch with no losses
NH: everyone else has taken hits
PM: What are you talking about !!!! Barcap is brilliant — asked Bob Diamond
NH: what Diamond Bob??
PM: He’s be on in a minute –w arning of better than expected profits
PM: You watch
PM: Barcap is just fine. It’s its customers that have had problems
NH: that’s alright then!
PM:
PM: Anyway — has this ML note on UBS hit the sector?
NH: seems to have
NH: although
NH: I would also make the point that the banks and all the other stock market dogs had a good session yesterday
NH: they all rallied sharply
NH: now we were told this was down to hedge funds closing shorting positions so they could book profits ahead of the month end
NH: and today they are going back on the short tack
PM: Let’s move on — just say to bsb — we are trying to dig a bit of stuff out
PM:
PM: Let’s go to Enodis — Elliot is asking below
PM: Neil — Enodis??
PM: Price is up 10.7p at 220p??
PM: 5% move!
NH: and the reason seems to be comments made by rumoured bidder Manitowoc last night
NH: MTW filed Q3 figures
NH: and in the statement there were a couple of lines that got tongues wagging
PM: Which say?
NH: Strategic Priorities
NH: ….exploring opportunities to grow our Foodservice segment through acquisitions and internal initiatives
PM: Interesting — and a little surprising that they would flag their intentions in such a manner
NH: yes but we reckon MTW have been actively exploring opportunities in recent weeks
NH: and as we have discussed before a bid for Enodis makes plenty of sense
NH: MTW are big in icemakers and fridges – the cold side of the industrial catering equipment market
NH: and Enodis has a big US operation that is fixed on the hot side of the industry
NH: So the two make a perfect match
NH: and furthermore, MTW is in a much better position financially to make a bid for Enodis than it was last year
NH: In fact MTW increased its earnings guidance last night
NH: and I must stress this point again we do not think there would be any competition problems
NH: MTW might have to sell some of Enodis’ cold side business but as they want to expand in the hot side, I can’t see this being a real deal breaker
PM: Nor can I
NH: just had a call
NH: broker claims MTW have scheduled a press conference for 2.00pm
NH: just checking if it is post results conference call or something else
PM: We must assume it is post results
PM: Neil is just having a root arond the MTW site
NH: Q3 2007 Manitowoc Earnings Conference Call (Live)
11/01/07 at 10:00 a.m. ET
PM: Earnings conference call it seems
PM: No need to get over excited then
NH: in fact there could be reasons to worry
NH: if MTW are questioned about Enodis and they deny it….
NH: this stock has a serious bull position now
NH: and could take a real battering
PM: 
PM: Just a warning there
PM: This situ is not without RISK
NH: anyway for those of you who want to tune in to the MTW conference call
NH: and learn all about catering equipment and their other big business – cranes
NH: it is at
NH: http://ir.manitowoc.com/phoenix.zhtml?p=irol-eventDetails&c=67844&eventID=1526356
PM: How helpful. Thanks for that
PM:
PM: To some questions/comments below….
PM: V funny on Mifid from rose
PM: Having to fill out a form when ever someone is dissatsified
NH: and great stuff from bsb on Las Vegas
NH: must get a copy of City Am
PM: Pick it up off some tramp or something
PM: No — actually let’s not pick on CityAM
PM: They do very well actually
PM: Interesting comment from sterling on RBS ABN
PM: That sounds extraordinary — when the deal is not complete yet
PM: ICAP — sorry Sterling — we are still ignorant on that front
PM: And BSB — see the stuff that Sam has posted
PM: Autonomy — up 8% — again we dont have any real insight.
PM: Google at fresh highs — some sort of weird follow thru?
PM:
PM: I should mention to readers that Neil has downed tools
PM: I’m serious here
PM: Ive just shown him a piece running on Mergermarket
PM: it’s about Rank
PM: Should explain that MM — a big and very important aggregation service — is owned by the Financial Times Group
PM: As well as aggregation they do their own work on other people stories — and they have had a go at Rank
NH: yep they have
PM: Oh — you’r eback!
PM:
NH: we reported rumours of stakebuilding by Genting a few weeks back
NH: and the guys at MM have come out and said Genting is unlikely to bid
NH: which I agree with
NH: but we never said that
NH: actually the MM piece goes on to attack the Dresdner Kleinwort note that suggested William Hill and Ladbrokes could bid
NH: they seem to be making a habit of looking at these market rumours and then trashing them
NH: anyway lets have a look at this piece
PM: Here’s a little taste:
PM: there are ill-informed articles being written about the situation.
PM:
PM: But look — now Neil has come back to his keyboard — we are going to move away from MM and Rank
NH: no no people would be interested in this report
PM: Hey, look I need my job
NH: well I am pasting it
NH: Rank, the UK-based gaming business which owns the Grosvenor casino chain, is seen as an unlikely near-term takeover target, according to sources familiar with the company.
A source close to Rank said that “there are lots of people who think Rank is attractive. In fact, many of them have looked at Rank; however, there are ill-informed articles being written about the situation.” He mentioned that “if Ladbrokes or William Hill tried to buy Rank, their shareholders will massacre them” – the buy makes no sense, he concluded.
NH: It has been reported that Genting, the Malaysian company that owns Stanley Leisure, is rumoured to be building a stake. However, the source also downplayed a possible bid for Rank by Genting. He said that Genting’s focus is currently on strengthening its presence in its home market of Malaysia, which is “a massive undertaking for them.” The source also added that Genting owns UK-based casino and gaming outfit Stanley Leisure and, as such, a takeover offer of Rank could prove to be anti-competitive as the enlarged entity would own almost half of the existing casino licenses in the UK.
NH: A source familiar with Genting said, “never say never, but I think a Genting bid for Rank in the short term is unlikely.” He explained that they are slightly different businesses; Rank’s main business is bingo. Bingo has taken a big hit in the recent past with the introduction of the smoking ban in the UK.
PM: Blinkin heck Neil
PM: 
NH: A UK-based advisory source experienced in gaming M&A said that he is aware that William Hill tried to acquire Rank about a year ago, and that talks were understood to be at a fairly advanced stage. This source commented that he would be “shocked” if a company or financial sponsor made a move on Rank in the current gaming climate. He explained that the smoking ban is reaching its first winter, and it is difficult to predict just exactly how adversely smokers will react to smoking outside during the coming winter months. William Hill’s CEO earlier this year said the company had no intention of bidding for Rank.
NH: A UK-based banker said that gaming groups have historically attracted interest from financial sponsors, as they are very leverage-able businesses. Another gaming observer said that Rank is in need of a revival of its bingo business, which showed a drop in both profit and revenues in 2006 in comparison to its 2005 figures. A turnaround of the overall business could take a long time, the banker said, and this might dissuade a private equity bid.
It has been reported that Rank, and the gaming sector in general, has been hit hard by the Gambling Act, which forced Rank to remove approximately 950 gaming terminals from both its Mecca Bingo clubs and its Grosvenor Casinos. Under Section 21 of the Act, Rank is limited to housing only four machines, which pay out GBP 500, per venue, from the 11 terminals that each of its sites used to accommodate. The new jackpot limit on all other machines within the premises is GBP 35. According to an analyst, a casino or club could previously have up to 20 GBP 500 machines.
PM: Pack it in!
NH: The banker said that if the Rank share price continues to fall, it would be feasibly more tempting for predators to look at Rank as a genuine takeover target.
A spokesperson for Rank declined comment on market rumours.
PM: 
NH: think that’s it
PM:
PM: Neil — thats called a “separator” IT MEANS WE ARE MOVING ON
NH: oh Rank shares down 3.75p at 98.75p
PM: Where we going?
NH: Kingfisher
PM: Ah yes, for a few days now we have been trying to come up with a reason for the strength in its share price
NH: the surge started last Friday, when the shares were trading at 173.1p
NH: hit 195p earlier this week
NH: and this morning we get news that chief executive Gerry Murphy is standing down on Feb 2
PM: and that’s good news?
NH: I think it is
NH: it’s probably fair to say that Mr Murphy and the City never hit it off
NH: and the now a new CEO will get a chance to reshape the business
NH: and let’s be honest it probably needs it
NH: if the state of my local B&Q is anything to go by
PM: have they lined up a replacement ceo?
NH: not yet
NH: company says it will consider internal and external candidates
NH: but analysts have already identified the front runner
PM: And?
NH: it’s the chief Executive of its B&Q division, Ian Cheshire
PM: OK
PM: and how would that go down??
NH: Pretty well I think
NH: Chesire has been trying to get to grips with some of the problems at B&Q
NH: and while some of his ideas have been slightly wacky, he is seen as having done a good job
PM: I should mention that myself and Gerry Murphy are not related
PM: There are murphies everywhere — all over the world
PM: We breed like rabbits
PM: Anyway — do we have any brokers research on Kingfisher?
NH: got notes from Oriel Securities and Panmure Gordon
NH: this from Eithne O’Leary at Oriel
NH: With respect to his achievements, we always felt that this happening was one of the risks to our negative stance.
NH: Whilst Mr Murphy never really caught the City’s imagination, the more pressing worries surrounding the whole group remain.
NH: B&Q is fundamentally oversized and there are problems brewing elsewhere (as outlined in our note “lacking polish”).
NH: Short term the worries outlined by Humberts the other day will pressurise the shares and we expect a poor trading statement on the 29th November.
NH: There has to be a strong possibility that the new CEO arrives and has a good look at/cuts the dividend.
NH: At least we now know why the shares have been on a run: we would aggressively take
up short positions now this news is in the market.
NH: And this is from Philip Dorgan at Panmure
NH: The shares have bounced strongly in recent weeks and a move to a more
logical Board structure looks to be in the price.
NH: Turning B&Q around in the UK will be a long haul and, at 17x earnings, the shares no longer look particularly good value, although there is property support (134p per share).
NH: The Group Chief Executive, Gerry Murphy, is to stand down in February after five years in charge. Kingfisher will look outside the company for candidates, but we believe that the current Chief Executive of B&Q, Ian Cheshire, is by far the front runner.
NH: Given the shrinking of the company’s profits, the current Board Structure has looked top heavy for quite some time, so this news is not a surprise.
NH: The statement says that Kingfisher will report Q3 profits on 29 November and ‘expects to confirm continued positive performance from its international businesses but a tough environment in the UK’. We believe that this suggests that it has got tougher since last reported in the UK, but that this is reflected in current consensus pretax profits of £396m.
NH: At current levels, Kingfisher has strong property backing (134p per share) and a dividend yield of 5.4%, but turning B&Q round in the UK will be a long haul. At present, with an EV of nearly £6bn, the company looks to be off private equity’s radar screen and at 17x current year earnings, the shares do not look good value after their recent run.
PM: Ok thanks for that
PM: Should mention that Kingfisher stock is down 3p currently at 194p in the middle
PM:
NH: right just got a copy of the Merrill note on Autonomy
NH: here it is
PM: Great — we were looking a bit flat footed on that one
PM: What does it say?
NH: Upgrade to Buy from Neutral, price objective 1170p
We are upgrading Autonomy to Buy from Neutral with a price objective of 1170p,
offering 20% upside potential from current levels. Our price target would put the
company on 30x our 2009 estimate. We see 37% CAGR earnings growth for the
coming three years.
NH: The main driver for our call is better than expected profitability due to the
integration of Zantaz, while our top-line estimates remain conservative and do not
assume an acceleration of growth in 2008.
NH: Zantaz acquisition drives ongoing margin improvement
Once again Autonomy is delivering better than expected earnings due to the
smooth integration of an acquisition. Following the Verity acquisition in 2006 the
company managed to consistently beat earnings expectations with larger than
expected cost savings and faster than expected execution. We see a similar
scenario playing out again this time. We were already ahead of most analyst
models for 2008 earnings due to our lower operating cost estimates. The recent
Q3 results, which gave a first indication of the combined cost base following the
acquisition, show that these estimates were too conservative.
NH: As a result of the
lower than expected run rate of operating expenses we are upgrading earnings by
5% in 2008 ($0.60 vs. $0.57) and 8% in 2009 ($0.78 vs. $0.72). We are about 9%
ahead of consensus for 2008 and believe our numbers have upside potential.
PM: Thanks for that — very bullish
PM: Hope tht helps Scramble
NH: GKB
NH: Pinewood. Mr Whittaker has indeed confirmed a stake
PM: Any idea what it is?
NH: Goodweather Investment Management Limited
NH: which is Mr Whittaker
NH: owns
NH: 13.26%
NH: that declaration was made on Oct 8
NH: PWS shares currently down 1p at 290p
PM: Great — ta
PM:
PM: back to Kingfisher briefly
NH: what???
PM: Well I was just on the FT.com home page
NH: oh yeah
PM: Pic of Gerry there
NH: nice tache
NH: he is giving it a bit of stroke
PM: Oh yeah — i cant remember seeing him with a moustache
PM: Where’s that pic from
NH: dunno
PM: Are these me related:
PM: http://newsimg.bbc.co.uk/media/images/44210000/jpg/_44210910_gerry_murphy_other_203.jpg
NH: hang on a mo
NH: he is clean shaven on the beeb
PM: And here’s FT.com’s pic
PM: http://media.ft.com/cms/6fceec54-885b-11dc-84c9-0000779fd2ac.jpg
PM: Oh — dear — it is lucky that we cant send pic out over this msging tech
PM: We might get into trouble
NH:
PM:
PM: Got any small caps for us this morning Neil?
NH: one interesting story
NH: company called Imperial Energy
PM: OK, so explain what it does
NH: oil exploration in Russia
NH: chaired by a guy called Peter Levine
PM: So it’s a proper company??
NH: yes
NH: started pumping oil through Russia’s national pipeline system
NH: market cap of just over £700m
PM: So what’s today’s news
NH: well, the company has issued a curious statement which says
NH: The Board of Imperial Energy announces that it has recently received an
unsolicited indicative proposal from a financial investor whereby the latter
would subscribe for newly issued shares which when issued would represent up to 25 per cent. of Imperial’s enlarged issued share capital at an indicative price which is at a discount to the current prevailing Imperial share price.
NH: The Board of Imperial Energy is currently reviewing this proposal and there is no certainty that any agreement will be entered into
PM: Hmm
PM: So this company is considering a huge share issue at a discount
PM: So this is a British listed oil punt, with Russian assets
NH: and it receives an unsolicited proposal from a “financial investor”
PM: “financial investor”
NH: who wants 25% of their company at a discount to the current share price
PM: Is this an offer the directors could not refuse?
NH: capitalism Russian style
PM: Surely not — it might be blackstone!
NH: yeah right
PM: Isnt Imps Energy one of those cos that was bitten by the Kremlin attack dog??
NH: It’s fair to say it has been encountering a little local difficulty on the ground
NH: the company has been repeatedly accused of exaggerating its reserves
PM: Oleg Mitvol,
PM: He’s the attack dog
PM: So what is happening here?
PM: So it is trying to bring on board of big partner that will protect from any more interference
NH: could be
NH: but then again it could be an offer its just can’t refuse
PM: Hmm — but if it issues 25% to this “financial investor” — that makes Imps pretty much bid proof
NH: it does and 25% is pretty much a controlling stake
NH: anyway the market seems fairly relaxed
NH: shares up 1p at £13.77
PM: i was looking at the chart on this one earlier — it has zoomed over the past two months
NH: it has
NH: company claims to have made some pretty big discoveries
NH: and I suppose if you have found oil in russia and lots of it this is the sort of thing that happens in the end
PM: Hmm
NH: got a good note from Richard Rose, the oil analyst at Oriel, on this
NH: He thinks a well connected Russian could be coming on board
NH: but he also notes that Imperial needs to raise some capital and refinance its debts
NH: Imperial have announced that they received an approach from a financial investor who is looking to subscribe for new equity equivalent to 25% of the company post financing. The offer is at a discount to the current price although the amount has not been disclosed
No information was given on the investor but we would have to assume it is a Russian party, long-term intentions unknown.
NH: The company is looking to refinance its debt facility given increasing capex requirements and an equity injection at some point in the future was always likely if it wanted to continue embarking on its aggressive development programme. Assuming the equity is issued close to the current share price then proceeds would be around £140mn.
NH: The size of issue would require shareholder approval, at the very least to waive pre-emption rights if the terms are not offered to existing shareholders
NH: At this stage it is difficult to have a firm view on the impact of a major new investor until their identity is known. A well connected Russian party with political influence could have material benefits however 25% represents in practice a blocking stake in and the ability to exert significant influence over the company.
NH: The shares have performed strongly in recent weeks but still trade a discount our conservative NAV of 1615p/sh based on risked 2P reserves and we retain our positive recommendation
PM: thankfs for that
PM:
PM: Right — we are going slope off
PM: Thanks v much for joining us. And ta for the comments
NH: time for a bit of lunch i think
PM: We will be back tomorrow at 11am