Markets live chat transcript for the chat ending at 11:55 on 2 Jan 2008. Participants in this chat were: Neil Hume (NH) Paul Murphy (PM)
NH: Good morning and welcome to Markets Live – FT Alphaville’s daily markets commentary.
PM: WE ARE BACK
PM: We are refreshed and relaxed
PM: Sort of, anyway
PM: Neil Hume is with me.
PM: Hope everyone had a good break…
PM: …from us.
PM: Deserved break.
PM: Neil has come to the equity market in the new year with clear eyes
PM: Clarify of vision
NH: And that has nothing to do with giving up drink for January.
PM: Have you?
NH: No.
PM: You almost surprised me then.
NH: Hmm. You know the rule on that one very well.
PM: Yes – true market professionals – and true professional drinkers – only give up February.
PM: Because it’s the shortest month.
PM: So let’s have no more of this New Year abstemiousness! Wot’s moving?
NH: we start this year where we finished the last – talking about the banking sector
PM: Yep
NH: Alliance & Leicester
NH: AL:LSE
NH: ALLL:LSE
NH: sorry about that just trialing our new technology
NH: which should give us price quotes
NH: but does not work
PM: Prob does — we jsut have to get the codes right
NH: anyway, A&L shares up 76.5p at 724.5p
NH: that’s a gain of nearly 12%
NH: has been as high as 751p
NH: and in case you missed that follows the FT’s scoop on Monday, that Grupo Santander held takeover talks with a UK mortgage lender during December
PM: And the mortgage lender was A&L
NH: that’s right
NH: but the discussions ended because of a squabble over price
PM: here’s Monday’s piece
PM: by out correspondent in Madrid LESLIE CRAWFORD
PM: Grupo Santander, the owner of Abbey National, was in talks this month to buy another UK mortgage lender but negotiations stumbled on price and came to nothing, according to people close to the bank.
The Spanish lender is also understood to have turned down the assets of Northern Rock, the UK bank that ran into trouble with the credit crunch.
The talks were part of Santander’s desire to complete its global footprint that has led it to examine the current turmoil in the financial markets for buying opportunities.
“We are very close to our ideal size now,” Emilio Botin, Santander chairman, told the Financial Times after a year in which the Spanish group became the world’s eighth-largest bank.
PM: so what do we make of it all??
NH: well, it looks very much to me that this was an opportunistic move by Santander
NH: as we know the A&L share price was crushed last year – fell 43%, the second worst performance in the banking sector behind you know who
PM: the bank that dare not speak its name
NH: Northern Crock
Readers may also know this former bank as Northern Rock.
PM: argh — the anti-bank thought we might be shot of that one
NH: anyway at the time these talks were happening, A&L was putting together that jumbo loan package
PM: refresh my memory
NH: well, A&L took out new liquidity facilities including on for more than $4bn with Credit Suisse
NH: and those new facilities should enable the bank to meet all its liabilities until the third quarter of this year
PM: so, while A&L was on its knees, Santander attempted to pick up a bargain
NH: not sure I would call A&L a bargain
NH: but it seems they were trying to pick it up at a reduced price
PM: how much of a reduced price??
NH: the word in the market this morning is that Santander offered around 650p
NH: although the current share price would suggest that not everyone is aware of that RAW market info
PM: 650
PM: NOT 730
NH: and given the dire liquidity position A&L found itself in back in Dec I am not surprised they offered less than 700p
NH: equally it is not surprising that A&L refused to recommend an offer at that time
NH: furthermore, the board of A&L would have been hard pressed to recommend an offer having rejected the overtures of Credit Agricole in May 2006
NH: A&L shares were trading at £12 back then
PM: OK All that makes sense
PM: but can u explain one thing
PM: Why the extended hike in the price today?????
NH: first, there is our follow up story saying Santander could return
NH: here is a snippet
NH: Santander, the Spanish bank that held abortive takeover talks with Alliance & Leicester last month, has not ruled out resuming negotiations with the mortgage lender.
NH: Santander, which owns Abbey National, broke off negotiations with A&L after a weekend of intense talks in mid-December. The negotiations stumbled on price, according to people with knowledge of the talks.
NH: The negotiations were well advanced, with Spanish bankers in the UK informing Emilio Botin, Santander’s chairman, hourly on the advance of the talks. The deal fell through because the price the Spaniards were prepared to offer was not attractive enough for A&L. But Santander has not ruled out making an improved offer, according to people close to the Spanish bank.
NH: personally I am sceptical that Santander will come back
NH: but they would be stupid to rule themselves out so I am not surprised that they would make comments along these lines
NH: anyway, I reckon the rise has more to do with short covering
NH: as mentioned earlier, A&L was one of the dogs of 2007 and a shorting the stock became pretty much a free lunch
NH: and it seems those shorts have not been closed
NH: in the last week of December, 21% of A&L’s free float was on loan
NH: and to buy back that position would take 11 days of average trading volume
PM: ha!
PM: That points to quite a hefty short position
NH: yep and probably explains why the stock is up 12% this morning
PM: has the sector followed suit?
NH: to a degree
NH: BB:LSE
NH: BB.LSE
PM: BB : LSE
NH: Bradford & Bingley up 12.2p at 280.25p
PM: BARC:LSE
Barclays (BARC:LSE): Last: 515.50, up 11.5 (+2.28%), High: 517.00, Low: 498.25, Volume: 8.68m
NH: Barclays 10.5p better at 514.5p
PM: Hey!!!
NH: it works
PM: Works for Barclays anyway
NH: what about RBS:LSE
NH: RBOS:LSE
NH: HBOS:LSE
HBOS (HBOS:LSE): Last: 743.50, up 8.5 (+1.16%), High: 751.00, Low: 725.00, Volume: 2.96m
NH: another hit
PM: Hwy!
PM: Anyway — any analysts comment?
NH: not much about this morning
NH: seems that most of the scribblers are still on hols
NH: except for those following the retail sector – we have trading updates due from Next and M&S in the next seven days
NH: but I have got something from MF Global on A&L
NH: here it is
NH: FT reports Santander (SAN SQ) is still interested in acquiring A&L (AL/ LN)
- We do not believe that this is due to funding constraints at A&L and more reflects SAN’s desire to build scale in the UK
- We are Buyers of AL/ with a 1030p price target
NH: - On 29/11 AL/ announced that it had pre-funded its maturing wholesale funding, commercial paper and certificates of deposit into Q3 2008
- Assuming some moderation of Libor, but rates still above base rate all of 2008, this was forecast to reduce net interest margin by 0.1% in 2008
NH: We expect Libor to be below base by H2 2008 and thus margins to be flat for the year as a whole (H1 07 1.25%; H2 07 1.10%; H1 08 1.10%; H2 08 1.23%)
- SAN is finishing the installation of its Partenon IT system in Abbey
- This three year project should make bolt on acquisitions easier
- Given the UK is SAN’s lowest RoA business, acquisitions aimed at boosting scale and efficiency are necessary to justify a continuing presence in the UK
NH: - A deal in the UK may reflect that returns in Latam are peaking
- We believe that expectations for RoA in Latam are too high based on consensus numbers for the group and the likely slowdown in the UK and Spain
- A UK deal is also more likely given the collapse in the share price of Sovereign in the US and of SAN’s call option over that bank
At our 1030p target AL/ would be worth 2x 2008 book value and 11x 2008 EPS
PM: Oh right - returns from latam slowing down…
PM: Brazil — growth is slowing — so lets look at the next growth market, British mortgages 
NH: its obvious really
PM: How daft is that
NH: why did I not think of that
PM: I am deeply sceptical of all this, you know.
NH: What – you think our colleague Leslie Crawford made it all up or something?
PM: No no no
PM: That was clearly an accurate report – picked up on Botin’s hints – and drawing the full story out.
PM: No – I mean Santander itself. It SMACKS of risk.
NH: Go on
PM: Well, you know, one of the quickest growing banks in Europe – cos from an overhyped economy – constantly talking about acquisitions – further growth.
NH: And?
PM: Well, think back – when did it buy Abbey?
NH: 2004 – cost £9.5bn.
PM: Exactly – back then, when it was stalking Abbey, it flew all the UK banking correspondents over to Madrid.
PM: And they all came back and wrote glowing pieces about how Santander had this brilliant customer relationship banking software that was going to revolutionise Abbey.
NH: er yeah, i was on that trip
NH: you sent me
PM: And where are we? 
NH: whistle stop tour of madrid
PM: Well – they are still promising to install this magic software – BY 2009.
NH: including real madrid match
PM: And this bleeding software??
PM: How long does it take to install a banking system – five years????
NH: where at half time we met the president of Real Madrid and the spanish finance minister
PM: Clearly – complex job.
PM: Forget the football…
PM: if you read some of the financial agony aunt columns you will see that Abbey’s name crops up again and again and again.
PM: There seems to be a particular problem with it delivering quite large amounts of money to people when they seek to withdraw substantial sums?
NH: Like what???
PM: Well, if you real the Jessica Investigates column in the telegraph.
NH: Sorry missed that.
PM: Well she crusades on behalf of readers – and one particular Abbey prob there seems to involve those with bereaved accounts – people waiting for money that they have inherited.
PM: Lots of examples of it taking months and months.
NH: Sounds like a short term administrative thing.
PM: Oh no – there are examples going on for MONTHS.
PM: We also had a caller here, saying she had spent more than two months trying to get £150k out of Abbey.
NH: What did you say?
PM: Said write directly to the CEO.
NH: Did she?
PM: Yes – and got her money back.
NH: Fantastic – fighting for the people eh Murph
PM: No – point is – Abbey either has chronic administrative problems which it is failing to sort out or…..
NH: Or what?
PM: Or…..
NH: Or what?
PM: I’m not saying – im just saying “Or….”
PM: Let’s move on.
PM: Anyway – A lex is due on this soon – will pub if I get it.
PM: What’s that latest price for A&L??
NH: up 85p at 733p
NH: puzzled by the move
PM: Very puzzled
NH: tempted to say it is a good shorting opportunity
NH: but given the size of the existing bear position
NH: and the expansionist tendancies Senor Botin
NH: perhaps this is one for th brave
PM: 
PM: time, now I think, to have a look at the wider market
NH: before we do worth having a quick look at the money markets
NH: which will also have boosted the A&L share price
NH: while we have been off air there has been a continued fall in the Libor rate
PM: Really?
NH: back below 6% - three month sterling Libor that is
NH: first time it has been at these levels in 6 months
PM: So the central bank liquidity injection has worked
NH: not sure I would go that far
NH: worked over the xmas break
NH: and three month libor has fallen for the past 11 sessions in a row
NH: so it would be fair to say that there is some confidence returning to the market
PM: OK, we should keep an eye out for this morning’s fix
PM: right, wider market??
NH: London was supposed to open around 50 points lower
NH: but now up 40.7 points at 6,497.4
NH: tracked US futures higher
NH: also got a boost from the banks
NH: the other big riser so far today is Next
NH: nxt:lse
NH: NXT:LSE
Next (NXT:LSE): Last: 1,675, up 51 (+3.14%), High: 1,682, Low: 1,611, Volume: 737.09k
Next (NXT:LSE): Last: 1,675, up 51 (+3.14%), High: 1,682, Low: 1,611, Volume: 737.09k
PM: YEs!
NH: As I mentioned earlier, trading statement tomorrow
PM: what’s happening?
PM: more short closing?
PM: 
squeeze?
NH: i think so
NH: I can’t believe that Next has a good Xmas but then again I reckon a lot of the downgrades that are likely to materialise after tomorrow’s statement are already in the price
NH: I didn’t know this but Next is trading on prospective PE of just 9
PM: really?
NH: yep, so as the old cliché goes a lot of the bad news is already in the price
NH: but the key to the statement will be the performance of the Next Directory
NH: this has propped up the poor performance of its retail business in recent years
NH: and if that is starting to wilt under competition from other online retailer then it could be trouble
NH: got a good note from Nick Bubb that came out last week
NH: Stocks in Focus: We look below at prospects for Sports Direct, DSG,
Debenhams and Carpetright, after last week’s news, and preview next
week’s news from Next, together with a re-look at Home Retail. As we note
above, the strong John Lewis sales figures seem to be the exception to the
rule of a tough Xmas for all but the best multi-channel retailers
NH: Given the
low stock market ratings now being given to retailers, the question now is
how big the downgrades will be after Xmas. PE’s of below 10x look
tempting, but with a 50% chance of a “hard landing” for the economy next
year we remain cautious overall on the General Retail sector in the shortterm.
NH: We still favour Next, WH Smith, Galiform and Kesa for the long-term,
but everything else in the General Retail sector looks unexciting. The Food
Retail sector looks a much safer bet, given helpful food price inflation and
better pricing power.
PM: Interesting — any more retail analysis — it is the moment for…
NH: yep this is from kaupthing
NH: Feedback from retailers about the all-important run into Xmas itself suggests that trade wasnt that much different to what we saw earlier in Dec, i.e. very tough for many (especially in clothing) and only okay/good for a few. Footfall was pretty subdued all the way through to the 25th, although clearly the timing of Xmas benefited retailers via the extra trading day. The general sense from retailers so far is that the post-Xmas Sales have started out very strongly with footfall up around 25% on Boxing day according to Experian, albeit then levelling out to flat y-o-y on the 27th
NH: We believe that the clothing sector in particular has seen some let up during this period. The strength of demand in the Sales may go some way to offsetting earlier LFL difficulties but we suggest will eat into gross margin gains. We remain concerned though that demand for this year’s Sales will be concertinaed into a much shorter period and that many retailers could see LFL sales and margin trends weaken again if this is the case.
NH: One particular unknown this year is the extent to which full price gifts bought before Xmas could be returned to enable consumers to take advantage of the discounts. Whilst the level of interest in the sales is good for many (overstocked?) high street players, a strong footfall response to high street discounting is typically bad news for the retail parks, and for big ticket retailers that start their Sales on Boxing Day
NH: Feedback from a few big ticket retailers suggests the market could still be down by as much as 10%. However with comparatives very distorted by the timing of Xmas and Boxing Day last year it may still be too early to determine any concrete trends. In terms of our key picks, we believe that ASOS, Mothercare, Findel, and Ideal Shopping have all continued to fare well over the key period. In addition, as per comments on Game above, HMV is likely to have traded well in both in the pre-Xmas peak and in the Sale, where stock and promotional management should be benefiting margins. We would continue to monitor stocks that have already warned with caution (Alexon, French Connection, Moss Bros) as well as others like Blacks Leisure, Clinton Cards, and ScS Upholstery .
PM: Ok — thansk for that.
PM:
PM: To some of the comments below…
PM: happy new year everyone
PM: bsb — thanks — will have a read
PM: Barratt — no update as yet — will try and get one but not before next week
PM: barretts down 8p at 447p this morning
NH: BDEV:LSE
Barratt Developments (BDEV:LSE): Last: 447.25, down 8.25 (-1.81%), High: 462.75, Low: 440.00, Volume: 1.92m
PM: Hey!
PM:
PM: So do you think we should do any of that 2007 in review stuff?
NH: Nah
NH: How about looking forward into 2008?
PM: That’s even more dangerous.
NH: Actually – there is a risk free way of doing this
PM: Hows that?
NH: Referr to Superking’s ready-reckoner
PM: Ah – this is from Ian King, City Editor of the Sun.
NH: Yes, helpfully he does an independent totting up of all the New Year newspaper and magazine tips – works out how everyone did over the past 12 months.
PM: And here are the results….
PM: Investor’s Chronicle UP 23.41%
Sunday Telegraph UP 14.67%
The Times UP 12.20%
Mail on Sunday UP 11.49%
Independent on Sunday UP 5.41%
The Sun DN 0.93%
Daily Telegraph DN 1.19%
Daily Express DN 1.33%
Daily Mail DN 2.60%
The Independent DN 5.04%
The Guardian DN 5.99%
Sunday Times DN 15.1%
The Observer DN 15.5%
NH: Right! Investors Chronicle – OUR SISTER PUBLICATION – were top of the pops for 2007.
PM: That’s Investors Chroncile, our brilliant sister publication.
NH: While obviously past performance is no guide to the future – you’e got to take some comfort in that. – gain of 23% in such a tough year.
PM: When the Obs fell 15.5% and the Sunset Times was off 15%.
PM: Actually, ive got some commentary here from Kingy:
PM: Best tip of the year was Tanfield in the Investors Chronicle which rose by 151%. The biggest faller was Rank which was tipped by both the Daily Mail and the Guardian - it fell by 60 per cent.
Among the other clunkers - Oakdene Homes in the Mail (dn 41pc); RBS in the Mail, Times, Sunday Times, Independent and Telegraph (dn 33pc); Experian in the Indie (down 34pc); Debt Free Direct in the Guardian (dn 60pc); Libra Natural Resources in the Express (dn 61pc) and, to prove I’m not immune, Bellway dn 47pc in the Sun.
Biggest gainers were Concateno in the Mail on Sunday (up 85pc); ICI in the Mail (up 48pc); Gyrus in the Guardian (up 65pc) and Asos - tipped by both the Express and the Times and up 138pc. My best one on the Sun was Landore Resources…up 79pc.
NH: I see King is owning up to picking Bellway, which was one stock not to have your money in – but he more than made up for it with Landore Resources – up a short 80%.
PM: Actually, ive just got some news in on this…
PM: Apparently there’s a stewards going on about half way down the field.
PM: Superking puts the Express as being down 1.33%, but Steve Kahn – Express City editor – reckons his portfolio was up 1.9%.
NH: Oooh. You’d instinctively go for King’s numbers – him being an upright independent here. But then Steve Kahn is the world’s longest surviving City editor
PM: Bar Jeremy Warner
NH: Er, yes, bar Jeremy Warner
PM: Steve Kahn, world’s second longest-surviving City editor would not quibble with the numbers unless he was absolutely sure.
NH: Hmm. Anyway, the Express may or may not be above the Sun and the Daily Telegraph in the above table.
PM: But that doesn’t detract from the fact that the official Sun City tipsters league for 2007 is the FT Group’s insightful weekly, Investors Chronicle.
NH: So what are they tipping for 2008?
PM: I knew you’d ask that.
PM: Well – the IC is a subscription publication (cheap at £115 a year)
- so if people want to profit they can buy the mag and see.
PM: Either that – or as soon as I get them I will publish.
NH: Notice their top performer Landore resources – was one you used to go on about.
PM: Oh yeah – I did!
PM: Hang on, let me dig out our stuff from then.
PM: Transcript from April 17
PM: Hang with us for a mo — Neil’s on the phone
PM: In the meantime I’m going to give you a hot tip
PM: Genuine hotty this one
PM:
PM: Landore Resources
PM: Mining punt with a twist
PM: Had figs a couple of weeks ago. Nickel prospector in Canada
PM: the Junior Lake Nickel project, which is north east of Thunder Bay in Ontario. Also has zinc and copper hopefuls.
PM: They’re still at the “hope” stage. No production
PM: Which is where today’s news comes in …
NH: right i am off the phone
NH: you are talking about Landore
NH: the company’s had a placing this morning — 21m new shares issued at 10p apiece. Placing accounts for 17.5 per cent of Landore.
NH: That’s just a fraction above the market price, which is sitting at 9.75p.
NH: This is a penny punt.
NH: Proceeds — £2.1m – to be used for working capital and exploration expenditure on the Junior Lake nickel project.
PM: Now look at who the placing is with.
NH: Consolidated Press Group.
NH: Who they?
PM: Moments like this that it helps to be a bit long in the tooth.
PM: This is the Packer family – as in the late Kerry Packer.
PM: His son, Jamie Packer, runs the family business now.
NH: Ok
PM: But there’s important history here.
NH: Go on
PM: Landore is run by a British accountant called Richard Prickett and an Aussie mining expert called Bill Humphries.
PM: This is the management team behind a thing called Brancote Holdings. That was an Argentine gold play that was one of the first companies to list on AIM and was eventually sold to a Canadian buyer about five years ago.
NH: Right ….
PM: Well, its value went from about $30m to $370m – and Kerry Packer (now deseased) make a fortune on it.
PM: He invested $1m for a 17.5% stake and came out with about $65m.
NH: So, his son is now trying an identical punt with their new venture, Landore.
PM: Precisely – tho he’s paying £2.1m for a 17.5% stake.
NH: That’s $4.2m remember.
PM: Yes – but watch this stock. The market hasn’t cottoned on to the identity of Consolidated Press Group.
NH: They haven’t seen the Packer connections.
PM: This is headed up – and fast.
PM: that’s Landore Resources — currently 9.75p in the middle
PM:
NH: bullish stuff from Paul
NH: That’s pathetic.
PM: Wot?
NH: Well when you did that you immediately started back peddling over the next few days, worried that your were puffing an illiquid stock – you refused to give any further guidance.
PM: Ah, shuddup. I said BUY at 9.75p – and the quote now is??
NH: 16/17p
PM: So a net gain of about 60 per cent?
NH: Minus dealing costs and shredded nerves – not to mention the RISK of holding a nickel prospect through market mayhem.
NH: I bet not a SINGLE reader took your advice and can now book a 60 per cent profit.
NH: And if they did – theyd probably be short of China and be wiped out by now.
PM: Hmm. Let’s move on.
PM:
PM: Anything on Xstrata for Sterling below?
NH: the latest market intelligence on XTA is as follows
NH: Vale - that’s the Brazilians
NH: are deliberately sitting tight and seeing where the price heads
NH: the view from their camp seems to be things got overcooked in the run-up to xmas
NH: so they will let a little bit of the speculative froth come out of the share price before making their next move
PM: XTR:LSE
Xtract Energy (XTR:LSE): Last: 5.88, no change, High: 5.88, Low: 5.88, Volume: 28.00k
PM: Price went as high 38.46 intra day before xmas
PM: Sorry — wrong quote above
NH: XTA:LSE
XSTRATA (XTA:LSE): Last: 3,514, down 36 (-1.01%), High: 3,569, Low: 3,478, Volume: 1.37m
PM:
PM: Ta
NH: that’s the right one
PM: Actually Remebr — these automated quotes are delayed
PM: real time quote is down 52p at 34.98
PM: well done ozbird !!!!
NH: i was not going to bring this up but….
NH: check Paul’s tipping record while at the Guardian
NH: stock called futuragene
PM:
NH: tipped it two years running and
PM: halved each year
PM: So i tipped again - on a sht or bust basis
NH: and the price now is????
PM: Er, 20p
PM: Mess — dont go near it!
NH: wise advice
PM:
PM: Any RAW to finish off today with?
NH: couple of bits I picked up over the Xmas break
NH: Evolution Group
NH: that’s the stockbroking firm
NH: price has risen around 20% in the past month
NH: on Dec 31st
NH: Deutsche Bank declared a 8.3% holding in the company
NH: looks to be a hegde for a CFD position
NH: but the question is
NH: who is the client
NH: one theory in the market is that a stake builder is at work
NH: another is that the holding belongs to a US bank that sees Evo as cheap
NH: also rumours that some shareholders have been sounded out to see if they would back a offer at 140p
NH: and remember at broker called Fairfax was interested in buying Evo last year
NH: EVO:LSE
NH: EVG:LSE
PM: Nah — too small
NH: Evo price unchanged at 123p
PM: Hmm — one to watch, clearly. Thanks for that.
NH: and the other one
NH: and I took quite a few calls on this over the break
NH: is forth ports
NH: FPT:LSE
Forth Ports (FPT:LSE): Last: 1,929, down 11 (-0.57%), High: 1,931, Low: 1,911, Volume: 36.76k
PM: hey!
NH: right the RAW info is as follows
NH: apparently Babcock and Brown, the Aussie finance house, has been sniffing around
PM: real time price is down 8p at 19.32
NH: made an offer in the region of £24
PM: Remember — this is V RAW
NH: but usually well connected sources say that another party is also interested
NH: Macquarie
NH: Forth Ports an interesting company
NH: as well operating seven docks in the UK, including Tilbury which is the nearst port to the olympic village in stratford
NH: it owns a huge chunk of property in edinburgh
NH: around the Leith area
NH: in November put in prelim planning permission for to redevelop the sire
NH: would be the biggest development project in the city’s history
PM: Thanks for all that
PM: that RAW stuff. Buyer beware — as usual.
PM: We’ve got to run now – Neil has to appear on Sky 
PM: So has to go into makeup etc first – and work out what he’s going to say.
NH: not sure about make up
NH: its round at the LSE HQ
PM: Stiff drink in the green room?
NH: what at the LSE???
NH: i doubt it
PM: 
NH: nothing stronger than Evian would be my guess
PM: Thanks for joining us today. And thanks for your comments - especially Ozbird
PM: We will be back tomorrow at 11am — do join us then!
PM: Oh — and A&L - dont chase it!
NH: suckers rally
NH: look at this comment
NH: just came through from a corporate broker I know
NH: why would they want more exposure (already have significant exposure) to UK mortgage market right now?
PM: ta — seeya!
NH: bye
