Markets live chat transcript for the chat ending at 12:13 on 12 Nov 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Welcome to a Markets Live, FT Alphaville’s daily chat around London stocks.
PM: Neil Hume is with me.
PM: He came in to the office wearing his tin hat this morning.
PM: Hat it on on the train and the tube - which was brave of him.
PM: But then had to whip it off in the morning . everything ‘s up in London.
NH: Yes, but this is a temporary thing – just for the morning
NH: We’re not giving the readers carte blanche to take their tin hats off, are we?
PM: No of course not.
NH: But then the FTSE100 is up 22.6 points at 6,327.5
PM: Hmm. Quite extraordinary given Asia overnight and Wall St again on Friday – late on.
NH: yes a bit all over the place
NH: was up at 6,365 earlier
PM: And i see it has been as low as 6276
PM: So what is it??
NH: we’ve got the Dead Cat Banks this morning.
PM: ![]()
PM:
one?
NH: Barclays up 26.5p at 501p
PM:
two?
NH: RBS up 18p at 420.75p
PM:
three?
NH: HBOS 22p better at 774.5p
PM:
four?
NH: Bradford & Bingleu 3.25p stronger at 266.25p
PM: great — that’s enough ![]()
NH: the background here is the soft briefings the banks have been giving the media over the weekend
PM:
oh yes — lots of explanatory stuff in the weekend press
PM: Also - -guess they had all taken such a beating last week
PM: due some sort of bounce
NH: lots of reassuring noises in the weekend press
NH: Sunday Times for example carrying a piece claiming that Barclays has brought its auditors in and asked them to produce a through report for this month’s trading statement
PM: Yes of course — to give the numbers credibility
NH: hmm, not sure the market is in the mood to believe anything at the moment
PM: That’s true
NH: but full marks for trying
NH: so
NH: what do we think in these banks
NH:
today
NH: and losses tomorrow
NH: must be a huge short in Barc and RBS
PM: Do try and find that out
PM: I was looking at the Wachovia numbers from the US earlier
NH: on the case. trying to get hold of some short interest data now
PM: They said then that the value of their CDO subprime assets had fallen from $1.8bn to $676bn in october
PM: Stuff fell in value by TWO THIRDS in ONE MONTH
NH: scary
PM: ![]()
NH: now, there is one bank we have not mentioned yet
PM: Former bank stock
PM: Crocket was first to roar – up 10 per cent at the opening – hit 161p
NH: This was on the back of news at the weekend that Luqman Arnold might come to the rescue – ex-Abbey chief.
PM: Hmm – this is very interesting. Talented chap.
NH: But you will have noticed that the stock has come off the top. Crockies are currently up 5.9p at 151p. The 10% gain has shrunk to 4%.
NH: This is after people have looked at Arnold’s statement – issued by his channel islands vehicle, Olivant.
PM: What does Olivant mean?
NH: Well it’s just a deviant of olive, I guess.
NH: Anyway – for those of you who haven’t seen the actual wording, here’s the statement
NH: Olivant, an independent investment group, today announces that it is preparing a
proposal for the Board of Northern Rock. The proposal would involve the
immediate introduction into Northern Rock of a core team of Olivant’s
experienced principals, led by its chairman, Luqman Arnold, to work intensively
alongside its existing Board and management, together with a subscription of a
minority stake in Northern Rock, intended to ensure Olivants alignment with the
Board and shareholders. Olivant is not proposing an offer for the shares of
Northern Rock.
NH: So – no price, no idea of the size of stake Arnold might want for his services. And, most worryingly, he’s happy to see Adam Applegate stay in his job.
PM: Ah, but you know I think there is real value to the expertise Arnold could lend in this matter.
NH: Such as??????
PM: Well, Arnold is one of the few people on the planet who has actually rescued a stricken British mortgage bank.
PM: He was the guy that stopped Abbey National going bust five years ago.
NH: Bust?
PM: Yeah – bust. No one has every properly acknowledged the fact, but Abbey national – as it was then called – got itself so overstretched there had to be a board clear out, with Arnold and team parachuted in to repair the balance sheet.
NH: I can feel a history lesson coming on here…
PM: RIGHT – you’ve got one!
PM: First roll back to circa 1998. We get a tip that the Bank of England has discovered something nasty in Abbey’s treasury department – worried about it’s risk management.
PM: Phone call to Abbey is met with a threat of an injunction, claiming we were in receipt of confidential documents.
NH: This was at the Guardian.
PM: Yeah.
NH: But we didn’t have any documents.
We didn’t even have a story – just a tip that something was wrong.
PM: This was a Friday – so we sat back and thought for a bit, trying to work out how we could get at the real story. Then the Sunday Telegraph comes out with a carefully moulded story about how Abbey had had a purely technical hitch in its Treasury dept TWO YEAR previously – and that everything was fine now.
NH: So a soft, carefully managed piece which basically said “No story”.
PM: That’s right – and from that moment – Abbey and its chief executive Ian Harley was in my little black book. Everyone else thought Abbey was brilliant – they even had their own plans for world banking domination.
PM: So we kept writing about how Abbey was basically raising oodles of cash in the Euromarkets – principally through FRNs – and then punting the money on anything and everything
PM: There were train assets, airplanes, Korean corporates, paper issued by a thing called ENRON.
PM: The lot. – well over £100bn of stuff – and much of it was about to go toxic.
PM: Dot comedy bubble bust, Telecoms crashed, 9/11, Enron crashed, world com – etc etc.
PM: Arnold and his technician – Stephen Hester (now at British Land) had to move in fix it. Literally, over about 18 months they unwound the whole lot. It was an extraordinary feat – and largely unacknowledged because the powers that be did not want to draw attention to the fact that one of the biggest banks in the country almost went bust.
NH: So you are saying Arnold is therefore the perfect person to sort out the Wreck.
PM: He could well be.
NH: Well I think you are missing something here.
PM: ![]()
PM: What’s that?
NH: Arnold is rubbish at running retail banks – and he’d probably admit it.
PM: Eh??
NH: I hear you on his success in unwinding Abbey’s toxic treasury operation – but look what happened next.
NH: He and Hestor tried to re-invent high street banking with Abbey – they rebranded, changed all the customer service, outsourced stuff like fund management. All sorts of “radical” changes.
NH: wasn’t one of the marketing lines “turning banking on its head”??
PM: Er, yes
NH: And it was a DISASTER. Bascially they had to put the bank up for sale – the plan just did not work.
PM: Hmm. That’s true.
NH: They put it up for sale – Santander came along – Arnold tried to organise an auction – but no one else wanted to buy it?
NH: Or at least no one who would not have been snared by the competition authorities.
PM: Yeah that is all true.
PM: But look – he’s just talking about “intensive” work. He has a plan for sorting out this Granite thing—the unstable reactor core at Crock. Others will run the bank.
NH: And another big difference – he was largely able to unwind Abbey’s toxic stuff out of the public eye.
PM: That’s also true.
PM: We will just have to watch and see what happens. The Crockadory story is not done yet
PM: let’s move on — but should also acknowledge points below on this from VP and JB
PM: ![]()
PM: OK, we need to take a look at Rio Tinto
NH: sure
NH: shares up again this morning
NH: 153p higher at £57.77
NH: went as high as £59.30
PM: BHP has issued a very detail statement this morning
PM: In which it puts forward the rationale behind its approach
PM: and why Rio shareholders should back it
NH: and basically the argument seems to be that
NH: there are massive cost savings and synergies on offer
NH: and because the deal is structured as an all share offer, Rio shares get to share in the upside
NH: here are some of the figures BHP has put out this morning
NH: This combination is expected to generate material synergies - the total being
unique to a combination of BHP Billiton and Rio Tinto due to the substantial
overlap in neighbouring and jointly-owned operations, combined with the usual
areas of duplication. In particular, BHP Billiton expects:
NH: * US$1.7 billion nominal per annum of cost savings in the third full
year following completion, achieved through removal of duplication as well as
procurement and operating efficiency savings; and
NH: * further EBITDA enhancement of US$2.0 billion nominal per annum in the
seventh full year following completion, driven primarily by the acceleration of
volumes to customers.
NH: In the seventh full year following completion this, therefore, gives a total
incremental EBITDA of US$3.7 billion nominal per annum of quantified synergies.
NH: The total one-off implementation cash costs related to achieving these synergies
are expected to amount to US$0.65 billion over the first two full years
following completion.
NH: This estimate of cost savings and further EBITDA enhancement has been reported
on under the City Code on Takeovers and Mergers by KPMG and by BHP Billiton’s
financial advisor Goldman Sachs International
PM: So big numbers in there
NH: yep
NH: and its interesting that BHP have wasted no time in getting this document out there
NH: and meeting shareholders
PM: yes, they are taking the initiative
NH: sure are
NH: but the market still thinks they are going to have increase their offer
NH: this figure of £70 a share that we laughed at on Friday is now being taken seriously
PM: Really?
NH: yep
NH: even analysts reckon £65 a share is possible
NH: take a look at this note from UBS
NH: Reiterate Buy - Raising price target to £65
We estimate Rio is worth £55/share excluding Alcan, £58/share with Alcan We believe that Rio Tinto is worth £55/share on a standalone basis, based on a market PE multiple for 2008E of circa 13x; our base case EPS estimate is US$8.77.
NH: If we incorporate Alcan into our earnings estimates, we would increase our base case EPS by 7.7% to US$9.45. Placing this on a 13 PE would raise our price target to £58.
NH: Rio’s share of the cost savings is worth another £6.50/share In addition, we estimate combined cost savings of US$39bn from a merger of Rio
Tinto and BHP Billiton. The US$39bn is 13x after tax cost savings of US$3bn (or 7% of the combined cost base).
NH: We believe Rio’s share of those combined cost savings is circa 45% (based on respective market caps). This equates to US$14/share or £6.50, which we add to our base case (including Alcan) of £58, giving a new price target of £65 assuming that BHP and Rio do merge
NH: Range of valuations – £58-78/share We have also considered some scenario analyses and believe that Rio could be worth between £58 and £78 per
share. We have also looked at earnings accretion and run various scenarios – our range is 38% accretive (all cash at £55/share) to 5% dilutive (all
paper at £65/share
NH: Valuation: Maintain our Buy rating Rio remains our top pick in the UK mining sector. We believe a merger with BHP has a strong industrial rational.
In our view the question is less one of logic than price.
PM: Hmmm — 58/78 valuation range!!
PM: Gives us an idea of what the Rio defence document is going to say
NH: but the interesting point to make here is that the two sides are not arguing over the rationale of the deal
PM: No — already come down to price
PM: But look — what do you make of all these suggestions that China is going to interfere directly
PM: Even bid??????
NH: well, they could build a stake
NH: and they could try and block the deal
NH: if say they could get 20%
NH: but a bid?
NH: can’t see that happening
NH: no way in the world the Aussie govt are going to let anyone othher than BHP buy Rio
NH: and the Chinese probably know that
NH: they know all about resource nationalism
PM: maybe the Chinese could just bid for Australia![]()
PM: the country
NH: found this snippet earlier in the Western Australian
PM: As you do
NH: gives you an idea of what a foreign bidder would be up against
NH: The Western Australian reports that former resources development
minister Colin
Barnett has called on the WA Government to block the proposed merger in
the
interests of the State. Barnett said any move by BLT and RIO Rio to
merge their
Pilbara iron ore operations would require the approval of State
Parliament
because it would involve reassigning ownership of resources covered by
State
Agreements. He said the Government should not grant those approvals
because
reducing competition in the Pilbara iron ore industry was not in the
State’s
best interests. A spokesman for the Premier said that …”the Government
would
not anticipate any major rewrites of State Agreements,”.
PM: ![]()
![]()
PM: This is all going to be about competition issues
PM: Regulators in all four corners of the globe
PM: Does China have a competition regulator??
NH: haven’t got a clue
PM: I bet they dont — but this could be the trigger to its formation
PM: If the EU can block mergers between US companies, why shouldnt the Chinese be able to do the same?
NH: well, China is part of the WTO now
PM: Sure
NH: they could bring this up
NH: I just think the market is being too sangine over the poss regulatory problems with this deal
PM: i agree — but would dare go short of Rio at 58
NH: no, too volatile for that
PM: ![]()
PM: FX trader — Sam is just digging a link out for you
NH: Fitzsimons
NH: we have some stuff on Bellway for you
PM: And a snippet on Land Secs
NH: we picked up a little story late on Friday
PM: After the Trillion news — I am hearing that the restructuring at Land Secs is rather more extensive
PM: I dont have the detail yet — but hope to get it soon
NH: now Bellway has been touted as a takeover target for quite a while
NH: and late on Friday an investment vehicle called Instow declared a holding of 3.5%
NH: now Instow is controlled by Delta Three
PM: So that Qatari money –
NH: it is QIA money run by Paul Taylor
PM: The abortive Sainsbury bidder
NH: yep and even though he failed with SBRY this is an potentially interesting move
PM: It is
NH: look the housebuilders have been pumelled this year
NH: there must be some value
NH: just look at Berkeley Homes
NH: Saad Investments has built a 29% stake
PM: that’s true
PM: Do you think this is the prelude to a bid for Bellway???
NH: way too early to say
NH: but certainly worth keeping an eye on
NH: Bellway shares up 21.5p at 999.5p
PM: ok thanks for that
PM: ![]()
PM: I know what I meant to ask you
PM: See this story at the weekend about Vallourec?
NH: yep
NH: bid on the way from Ulisher Usmanov
PM: Russian steell magnate
NH: that should be Alisher
PM: and that should be steel
PM: ![]()
NH: apparently as a prelude to the bid he has bought the stake controlled by Groupe Bollore in the steel pipe maker
PM: Yes — the stock got terribly excited on this first thing this morning
NH: shot up to EUR206.35
NH: now at EUR201.5
NH: and the whole thing has got us puzzled
PM: Hmmm — certain colleagues were checking this story v v carefully last week
NH: that’s right
NH: and people in Paris, Moscow and here in London got nowhere with it
PM: Well — got knocked back, from what i heard
NH: but what is puzzling me is that there has been some many denials from all the parties this morning that the shares are still up
PM: Here’s one denial:
PM: This report has no foundation whatsoever,’ Usmanov’s spokesman told Interfax, according to Agence France-Presse.
NH: Bollore saying on Reuters that he has not sold stake to Usmanov
NH: “It is completely wrong”, says a GB spokesman
PM: Hmmm
PM: Do we think this is an orchestrated RAMP??
NH: dunno, but there is certainly something very strange going on
NH: you would think that the French regulator should have stepped in by now to clear this all up
PM: French regulator — clear things up –what are you saying Neil??
NH: alright, that was a stupid thing to say
NH: let’s move on
PM: ![]()
PM: ![]()
PM: We should look at the biggest riser in the footsie thismorning
NH: ah yes, Standard Life
NH: shares have rallied 23.5p to 267.25p
NH: That’s a gain of almost 10%
PM: on relief that it has pulled out of the bidding for Resolution?
NH: partly that
NH: but it also reflects that the fact that SL has made such a pigs ear of its bid for Resolution that it is now considered vulnerable to a takeover
PM: fair point!
PM: Ex Mutual from Edinburgh playing the M&A game
PM: ?????
NH: i know funny isn’t
NH: they never stood a chance against a real operator like Hugh Osmond
PM: Funny comment from JB below– couldnt agree of course
NH: anyway, the company now has a real struggle on its hands
NH: and it now has to rebuild its credibility with the City
NH: it has a lot of questions to answer on its strategy
NH: in the eyes of many it never really explained why it wanted Resolution
NH: a lot of people are assuming that it just wanted the company for its cash
PM: So SL has a funding problem?????
NH: some people might look at that way
NH: anyway, i reckon the shares will enjoy a good bounce today but will struggle to regain 300p
NH: unless of course it becomes a bid target
NH: i wonder if Mr Osmond will return for a tilt at the company when he has digested Resolution
PM: hang on a minute, he hasn’t completed that deal yet
PM: I don’t think he has even got a board recommendation
NH: true but he does own almost 25%
NH: and he has put 720p in cash on the table
NH: and Resolution will be under pressure to recommend the deal with its shares down 16p at 707p this morning
NH: furthermore, there are a number of European insurers who might take a look at the strategically weakened SL
PM: Any broker comment?
NH: got stuff from Cazenove and Panmure Gordon
NH: this is from Cazenove
NH: Standard Life - SL concedes defeat on Resolution (reduced to IN LINE), we expect Pearl to win it at 720p [SL.L, SL LN, 244p, IN LINE] [RSL.L, RSL LN, 723p, IN LINE]. SL has stated that it will not increase its offer for Resolution, which is currently worth just 691p, a 4% discount to Pearl’s offer of 720p. They say that “raising the offer would not create sufficient value for SL shareholders at a level that is likely to be successful” and that they do not expect the existing offer (which has not actually been withdrawn) to be successful. It looks like SL have been unable to get Swiss Re to provide more of the financing requirement, preventing them from making a cash offer.
NH: With SL stock having fallen by 12% since the offer was announced, the implied offer value had fallen by 3% to a 4% discount to Pearl’s offer. Presumably any offer sweetening in SL stock would have become increasingly dilutive and self defeating. We suspect that the decision not to wait longer (there was an effective deadline of 2 weeks for publication of offer details) may have reflected concerns that the share price could have fallen further, risking further reputational damage among IFAs. We assume Pearl’s 720p offer will now be recommended by Resolution’s board, given that they recommended SL’s offer when it was valued at 715p.
NH: This means that RSL.L shareholders will get 720p in cash, with money changing hands in late January or early February. We expect Pearl to switch their offer structure to a scheme of arrangement in order to save on stamp duty. A funding rate of 6% implies an NPV for the offer of 710p, implying 2% downside in RSL’s share price and we accordingly reduce our recommendation to IN LINE. We expect SL.L stock to benefit from a relief rally, driven by both short covering and the realisation that shareholders will not have to see EVPS diluted by 34p (13%) after all, whatever the longer term EPS benefits of the deal may have been. However, SL will still suffer from concerns that the mooted benefits of the proposed RSL deal will be seen as strategic challenges in future.
NH: SL.L must regret having said that RSL’s capital was attractive, as we are sure they will now be asked about capital adequacy in every meeting for at least the next year until they can unequivocally demonstrate their capital strength. Likewise, they are likely to be dogged by questions about protection market entry. SL’s growth credentials have been further undermined by the weak Q3 sales, and the sooner they can demonstrate that SIPP momentum is not sagging, the better for their share price.
NH: Finally we note that this marks the end of a truly remarkable interlude in the UK life market. In just four years, Clive Cowdery’s Resolution has swallowed RSA Life, Britannic, Abbey National Life, Scottish Mutual and Scottish Provident, has spat out both FP and SL, and ultimately been acquired by Pearl. We have not computed the returns but we feel confident that he would be welcomed back into the sector with open arms by investors who have profited from his dealmaking and strategic nous.
NH: and here’s Panmure Gordon
NH: Standard Walks away from Resolution auction
Last night Standard Life effectively walked away from the auction process for
Resolution given that the sell of its shares meant that the part cash part share
offer equated to 691p vs. Pearl’s at 720p cash. The move on Resolution will
have damaged its stand alone credibility and it will face questions on strategy
going forward. However, trading at 2007F 0.9x EV the shares more than
discount these concerns and, at these levels will be vulnerable to corporate
activity. We consequently have changed our recommendation from Hold to
Buy and have set a target price of 320p (346p).
NH: Standard Life have effectively walked away from the auction process for Resolution Life
citing its share price fall as a key factor bearing in mind its offer was a part share part cash
offer. It could be that it was unable to get Swiss Re to contribute any more for the offer
but the reasons why are now pretty academic.
NH: Going forward we believe that Standard Life will face a barrage of questions relating to
the need or otherwise to do the deal, especially given the previous conservative mantra of
steady organic growth post its IPO. In particular investors will want reassurance that that
it does not need additional cash, that there was no split on the Board, why the Q3 new
business figures were so disappointing and what is the strategy for the Group going
forward. We believe that management credibility will have taken a knock following the bid
both because of the reasons for it and the handling of the bid itself – but not a fatal one.
NH: We are changing our recommendation from Hold to Buy on valuation grounds. The
whole of the financials sector has been sold in the last few weeks amid concerns of the
banking sector woes spilling over. That said Standard Life’s share price has been hit
additionally hard given its unexpected offer for Resolution. We have lowered our target
price to 320p (346p) to reflect the lower valuation of the sector and some of Standard Life
specific concerns mentioned above.
NH: In terms of valuation, Standard Life is now trading at a 10% DISCOUNT to 2007F
Embedded Value (EV). We forecast 2007 year end EV at 267p/share which implies that
the shares are currently trading at 0.9x EV and that no value whatsoever is being placed
on the new business. We believe that although there remain a number of uncertainties
over issues such as policyholder persistency, Standard Life will be highly vulnerable to a
take over approach if the shares were to remain at the current share price. We
consequently move our recommendation from Hold to Buy.
NH: ![]()
NH: just been watching the share price of BHP Billiton
NH: now outperforming Rio
PM: it is price is currently up 56p at 16.84
NH: Companies editor Charlie Pretzlik has just popped over and made a good point
PM: Think its Charles Pretzlik Esq to you Neil
NH: fair enough
NH: his point was on the buyback BHP have announced this morning
PM: have promised if th deal happens
NH: US$30 billion post-completion buy-back intended
NH: that’s a lot of money
NH: and is quite smart
NH: instead of adding a cash sweetener to their all share offer
NH: BHP are promising this jumbo buyback
NH: obviously this is good news for BHP shareholders
NH: and any BHP shareholders who are also Rio shareholders as well
NH: and it gives Rio shareholders another reason to back the bid
PM: ![]()
PM: Right — anything a bit more racy for us this morning Neil?
NH: been keeping a close eye on Mitchells & Butlers
NH: hearing a statement is coming
PM: Why?
NH: I hear the Coolmore mafia are going to announce an increased stake
PM: that’s JP McManus and John Magnier
NH: yep
NH: they already own 3.4 per cent of the company through an investment vehicle called Elipda
NH: I believe that they bought a further 600,000 shares on Friday
NH: which will take their holding through another percentage level and trigger an announcement
PM: Interesting![]()
NH: and all of this comes as M&B continues to look at how it is going to unlock value from its property portfolio
PM: and we reckon what?
PM: that the company is going back to its original plan for a tax-efficient REIT??
NH: yep
NH: now, we are not sure how many of M&B’s 2,000 pubs will be put into this REIT
NH: it could be just the 1,300 they were going to put into joint venture with Robert Tchenguiz
NH: but it could be more and it could be less
PM: So how would this deal work?
NH: well, basically M&B is spilt into two co’s
NH: an operating company and a property company
NH: the property company would adopt REIT status and take on all the company’s debt
NH: which stands at around £2.5bn
NH: then there would be an operating company running the pubs
NH: now from what I am being told the hedge M&B took out earlier this year to protect the shelved property JV from rising interest rates and inflation is very wide ranging
NH: and it looks like it could be used by the op-co and prop-co
NH: the op-co could be protected against the impact of inflation on its rents
NH: while the Prop co could use the hedge to protect the £2.5bn of debt against rising interest rates
PM: ok
NH: now this is by no means a done deal
NH: yet
NH: market conditions are way to volatile for that
NH: and a lot of things could change
NH: for example would M&B debt holders be happy for the debt to be transferred to another vehicle
PM: good point and I imagine most of this debt has been securitised and carries covenants
NH: exactly
NH: but there is no doubt that if M&B can pull a deal off – its would be the first pub reit – it would highlight the valuation of its property portfolio
NH: got a couple of notes this morning that highlight the potential valuation upside
NH: this is from Nigel Parson at Evo Securities
NH: REIT time?
EVO TAKE - The FT has again trailed the M&B/REIT story and we think it is increasingly likely that M&B will announce plans to convert at the prelims on 29 November. The key share price driver of a REIT is dividend yield and the yields of British Land (3.6%) and LandSecs (4.2%) suggests that there could be 30% upside to M&B’s current share price.
NH: DETAILS - Last week Tchenguiz denied that he needed to sell any MAB stock to cover losses at Sainsbury’s but it is increasingly clear that he is impatient to realise value from his MAB investment. The original JV plan is unlikely to be resurrected soon due to the conditions in the debt markets and this has pushed REITs to the top of the agenda again. MAB is the easiest pubco to split, it has the best quality estate, it already has GBP2.5bn of debt and there is a growth strategy for both PropCo and OpCo. The key is the growth in catering and the pipeline of ex-Whitbread pubs awaiting development. It makes sense to leave them in the OpCo until trading matures before selling the freeholds into the REIT.
NH: VALUATION AND RECOMMENDATION - When we commented last week, we used a 6.5% dividend yield in our assumptions to drive an indicative price of 780p. The share price increases rapidly on more aggressive assumptions: a 6% yield pushes the share price to 795p, 5% to 832p and 4% to 889p….
NH: and this is from Oriel Secuirities
PM: REIT time - v funny
NH: Saturdays FT indicated that M&B is looking to split the group into an OpCo and a REIT.
Apparently an update will be given with the finals due 29 November
• The plans may involve a significant distribution to shareholders
• This deal would placate Tchenguiz by proving an uplift in the share price and a cash
return
• Details on the transaction are unclear including the proportion of the group’s properties
that would be injected into the REIT
• Assuming that £4.5bn of property is injected into the REIT (the same figure as proposed
for the joint venture) and that no more debt is raised (i.e. the current debt is merely
transferred to the REIT) we arrive at a valuation of 878p per share before costs
• This highlights the undervalued nature of the group’s properties (see our note of 9
October)
• The shares have significant upside potential (BUY). This will also highlight value
elsewhere in the sector, notably Greene King (BUY)
PM: Little plug for you in there![]()
PM: ![]()
NH: VP - I echo those thoughts on Man Utd
PM: Jezzman — interesting question — dont know the answer
PM: Did have load of PIK notes in the original financing which must be up for being sorted out
NH: perhaps they could sell Rooney and Ronaldo to pay down the PIKS
NH: and Rio Ferdinand as well
PM: And break up one of the most elegant attacking formation n th epremier ship?
NH: the second most elegant
PM: yeah right
PM: ![]()
PM: Watch a bit of ITV??
NH: this transmission is coming after the 9.00pm watershed
PM: ![]()
NH: not for children or the sqeamish
PM: Do share — we are adults
NH: shares down 2p to 87.1p
PM: Ouch — Sky’s 17% investment looking rther sad
NH: certainly is
PM: very bearish note from Morgan Stanley
PM: analyst Patrick Wellington has downgraded to underweight and has set a target price of just 83p
PM: Wellington is a class act — as well
NH: the downgrade is on valuation
NH: reckons ITV is by far and away the most expensive broadcaster in Europe despite its recent share price weakness
NH: here’s the note
NH: We downgrade ITV to Underweight from EW as it is by far the most highly rated of the European broadcasters.
The stock trades on: a 50% P/E premium to the group in 2008 and a 32% premium
in 2009; an EV/EBITDA premium of 70% in 2008 and 57% in 2009; and on a FCF yield discount of 30% to 40% in either year and an ordinary yield discount of 50%.
NH: ITV is also markedly more expensive than BSkyB. Meanwhile its earnings growth (-2.5% in 2006-9) is the worst among the group. The market has tended to look through this short-term valuation premium on the basis that there is room for a structural earnings upturn at ITV.
We think this is ill-advised. CRR abolition is now unlikely to boost earnings until 2010, and then by just 3.5%. Also, there is unlikely to be incremental uplift to forecasts from additional PSB relief until 2009.
Morgan Stanley & Co. International plc is corporate broker to British Sky Broadcasting Group Plc.
PM: Broker to Sky!!! Wellington talking down his client’s investment. nice one
PM: ![]()
PM: Now to finish off — something sticky
NH: a bit of goo
PM: GOO
PM: stands for Gold Oil
PM: Better be good Neil
NH: GOLD OIL PLC is an independent oil and gas exploration and production company looking for oil and gas interests in several South American and Central American countries.
NH: now i stress the word looking
PM: ![]()
PM: Acutally it has producing assets — in Colombia i think
NH: anyway, the shares are up a short 10% at 7.53p this morning
PM: Pays for them looking
NH: and that’s on the back of a very, very bullish broker note
PM: Oh — do share
NH: its from Growth Equities and Company Research
PM: Right…..
NH: Gold Oil - Initiation of coverage with a speculative buy recommendation at 6.875p – Target price 28p
NH: rading in the shares of Gold Oil (AIM: GOO) resumed on 2 November after a three week suspension as the company announced that it had sold its shares in fellow AIM-listed resource play Minmet. The transaction leaves Gold Oil with strong cash backing and as a pure oil and gas exploration play focused on Central and Southern America, where it has established a number of significant licence positions. Gold Oil’s strategy is to build a portfolio balanced between higher risk/reward exploration plays and low risk cashflow generators in a few concentrated areas in Peru and Colombia. It also owns less significant assets onshore in Spain and offshore Cuba. Our sum of the parts valuation for Gold Oil is £135.74 million or 28p per Gold Oil share on a fully diluted basis and at 6.875p we initiate our coverage with a stance of speculative buy.
NH: In North-Western Peru, the company is the operator of a 100% owned onshore exploration licence Block XXI, and a 50% owned offshore exploration licence - the Z34 Permit. In Colombia, Gold Oil owns a 40% participating interest in two onshore blocks, namely Burdine-Maxine-Nancy (referred to interchangeably as BMN Block in this report) and Rosa Blanca. The first block is operated by Union Temporal II&B, where the Nancy-1 well has been in production since September 2006, producing around 650 barrels of oil per day (bopd). After Royalties, Gold Oil has an 18.88% effective net revenue interest in the BMN Blocks. Recent remapping and review of logs suggests that reserves and exploration potential of the Burdine-Maxine-Nancy fields are greater than commentators and, indeed, the company itself had originally expected.
NH: he second block in Colombia, Rosa Blanca, was awarded to Gold Oil in June 2007 and is operated by Gold Oil’s subsidiary, Gold Oil Colombia SAS. Osage Inc. of the United States has farmed-in to a 50% interest by carrying Gold and its local partner, Empresa Petrolera de Servicios y Asesorias S.A. (Empresa) – holds the remaining 10%) through a first exploration well to a depth of 5,000 ft in a work programme, including testing, likely to cost in excess of US$3.5 million.
NH: Our sum of the part valuation for Gold Oil is £135.74 million or 28p per Gold Oil share on a fully diluted basis. There are obvious exploration risks in Peru, Colombia and Cuba however any exploration success as the company fast tracks its most promising plays in North-Western Peru or in Cuba would increase our conservative valuation significantly. Evidently, the prospect of more farm-out agreements would also have the potential to reduce our heavy risk weightings and therefore increase our valuation materially. With a strong cash position and an experienced management team with excellent regional contacts, at 6.875p, Gold Oil is greatly undervalued. Gold Oil has sufficient cash reserves and oil revenues from the BMN and Spanish blocks (approximately US$3.3 million or £1.7 million) to cover its corporate overheads in the near term future. Hence at 6.875p, we initiate coverage of Gold Oil with a speculative buy recommendation and a target price of 28p.
PM: NO WAY — PRICE TARGET OF 28 ???
PM: And the market quote is 7p or something??
NH: i know
NH: but i thought u would like that
PM: Four fold projection ???????
PM: Silly.
PM: But fun
PM: And hey! it might happen
PM: One for the brave
NH: the very brave
PM: Reckless, even
PM: ![]()
PM: Just before we go — notice lots of discussion on currenceis below
PM: But has anybody looked at the real opportunity in FX????
PM: Latvia
PM: Economy is blowing up — literally
PM: Pegged to Euro — ERM sterling style
PM: it will have to break
PM: I might do a post on this on Alphaville later
NH: ![]()
NH: hey have you seen this blog fight that has broken out????
PM: What between the Guardian and the Telegraph?
NH: very funny
PM: yes — both are called “Market Forces”
NH: and this is the very catty comment put up by Ben Bland at the DT this morning
NH: Interesting to note that my counterpart at The Guardian has belatedly joined the blogging fray.
He’s also decided to call his blog Market Forces but I think it’s safe to say that the comparison ends there.
That’s enough sour-faced media bitchyness for one day. I’ll be drowning my sorrows with a glass or two (of water) over lunch so might not post until later today.
PM: Share!
PM: V funny — since the Telegraph copied its name from the Guardian newspaper
NH: Mr Bland needs a history lesson
PM: Here’s the history:
PM: Eight years ago we had a competition in the G City office to rename the market report
PM: Four bottle of champagne offered
NH: not water
PM: At the name Market Forces was suggested by one Clare Flowers — a talented sub
PM: And it has been called that in print and online ever since
NH: so its Mr Bland has copied the Guardian then
PM: But arent we able all this sort of stuff?
NH: we are
PM: ![]()
PM: no we are not
NH: but it is interesting to note how many of these live blogs are cropping up
PM: Hmm -
PM: Nick fletcher — that is
NH: no response from the Guardian yet to this monring’s unprovoked attack from the DT
PM: Ah — see ben has come on below
PM: ![]()
NH: ![]()
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PM: Right — it is 12.12 Neil
NH: quick bit of breaking news
NH: not sure it is that significant
NH: Pearl1 announces that it now has an aggregate interest in 177,983,359 Resolution ordinary
shares, representing 25.93 per cent. of the issued share capital of Resolution.
NH: through 25%
PM: Ok - ta — we are done
NH: bye
PM: Thanks for joining us. Thanks for the lively conversation below
PM: We will be back tomorrow at 11am
Thanks for the history lesson, kind sirs!
Yes Paul, you’re prob right. It’s also not the only country struggling with a peg to the Euro… you might want to call Norman Lamont for his views on the problem…
Fitz - my guess is a target of 220-220.
How much lower will the GBP go against JPY., anyone?
VP - can they afford Berbatov at £28M in jan more like!
Jezzman - I hope it involves selling most of the players.
any news on refinancing by the Glazers at Old Trafford yet?
so if commodities “super cycle” ends, they’ll cancel the buyback… very clever, but still would prefer cash upfront.
agreed… what was unreal was the strength of the GBP and the weakness of the Yen! The Euro might be overvalued, but I reckon it’s more justifiable. I think Eurozone will probably be hit less as debt levels have been much lower, mortgages tend to be fixed rates so will slow but repossessions should be less likely. And the ECB actually cares about inflation.
fxtrader - people are realising the credit market problems are not “contained” to the US. in fact i think they’ll hit us in the uk harder in the end as we’re more dependent on financial services in the economy.
as an example of what’s going on: GBP/USD: all time high last Friday in the morning sessiom: 2.1160 - currently 2.0770!!!!
fx - thanks
SL - will ‘invest’ your money until it is all gone!!
Well, all this is basically because the USD is strengthening - yes you heard me - strengthening!!! Also, yen significantly up over the last 5-10 trading days - so yes, investors taking profit off the table, and paying back their yen loans. As for USD, at these levels it must have been tempting for corporates & US fund mgers to bring back some foreign profits. (Sam - cheers for the Level 3 stuff.)
Oil off, £ off, E off, gold off . . . profit taking or change of sentiment expected
on Wall Street?
FXtrader, some detail of level three assets here:
http://ftalphaville.ft.com/blog/2007/11/06/8661/from-level-three-to-cloud-nine/
It’s still pretty unclear what exactly comprises most of these level three assets. For Goldman, there’s talk that level three assets could be derivatives hedging against MBS, for example.
Apparently, bloomberg claims Goldman had more Level 3 assets than either Citi or Merrill.. I wonder whether the fact GS pays bonuses earlier than most and put aside more than $16bn might have anything to do with it…
The Crock is in the politically sensitive Norh-East - perhaps it will end up like Rover gobbling endless amounts of taxpayer’s cash for ever!!
Luqman Arnold’s great; but exactly what does he think he can do with NRK’s brand? Let alone rescuing a co that owes the govnt c£24bn.
Land Securities up 1.33%? Thought that this would be a tough week given their revaluation figures are due out on the 14th. Any news on Bellway (BWY)? Thanks v. much.