Markets live chat transcript for the chat ending at 12:12 on 22 Feb 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Hi there. Welcome to Markets Live
PM: This is FT Alphaville’s daily discussion on stocks and other stuff.
PM: Stocks and stuff.
PM: Good name for a site.
PM: Name’s not taken.
PM: There’s a sticks & stuff.
PM: That’s a DIy building materials operation in Vermont. But not stocks n stuff.
PM: Anyway, Neil is here to enlighten us generally.
PM: I’ve been distracted by other stuff – like this repossessions blog that Helen found.
NH: morning
PM: http://repossessions.wordpress.com/
PM: Cheery site
I can tell you they don’t like Kensington
NH: ah
PM: About Kensington
Kensington is a leading specialist lender, offering Prime, Self-cert and Buy to Let mortgages. Regarded as a pioneer in the specialist market, Kensington is the only mortgage lender ever to win the Queen’s Award for Enterprise, collecting the honour in the category of Innovation in 2006. And Kensington has been recognised for its products, service and technology with a number of other high profile honours, including the title of Best Non-Standard Lender at the annual Your Mortgage Awards in 2007.
PM: Says the Repossessions blog – which, ive got to say, seems to be a rather professional affair.
Kensington are well known on the online forums for their heavy handed tactics and the huge charges they add as soon as a borrower misses a payment.
This sudden rise in calls for help regarding Kensington repossessions seems to suggest that maybe Kensington are looking to get as much cash back from their borrowers as possible before house prices (and their asset values) tumble.
NH: being hearing some rumours on Kensington
NH: they are owned by Investec
NH: and some people think a big write down could be on the cards
PM: Well there is evidence of stress onthis blog, i can tell you
PM: Hair raising tales
PM: helen is doing a post on the matter — including negative equity
PM: But she has jsu said: Yeah but it is not going to say much.”
PM: Which is encouraging
NH: FX trader
PM: 
NH: outsources the column today
NH: got a few people off today
NH: but don’t worry I came up with a good idea
NH: just being written by someone else
PM: Which is? idea?
NH: credit market and equity market decoupling
NH: and whether they will realign
PM: Wot, copy it from the GS note?
NH: no I have got another one
NH: been three pieces on this subject this week
NH: and it needs further investigation
PM: Hmmm
PM: Im feeling a bit decoupled today
PM: 
PM: Let’s go straight to AM’s question below
PM: Would Anheuser B counterbid for S&N
PM: We saw the story
NH: right, if anyone counter bids they have to offer 850p
NH: in order to break irrevocables
NH: but as for a bid from Busch
NH: just don’t know
NH: I suspect a merger with Inbev is more likely
NH: in fact I think that will be the next mega deal in the sector
NH: other point to make is that 850p is a very full price to pay
PM: InBusch
NH: indeed, the only reason Carlsberg and Heineken could justify is 800p is because of their share structure
NH: both have family trusts, other trusts backing them
NH: so they can afford to pay ‘strategic price’
PM: Or in other words, overpay
PM: That’s why SAB decided not to press the button — could make a deal work at more than 800p
PM:
PM: rahodeb
PM: cant agreee more re Chinese and the US
PM: Quite extraordinary — blocking takeover of 3Com by Bain with a minority chinese partner
PM: its jsut networking kit afterall
PM:
NH: post below on Rio
PM: How’s Rio Tinto doing this morning?
NH: down 80p at £57.40
PM: And Xstrata?
NH: up 54p at £41.14
PM: I noticed Reuters were reporting this morning that Chinalco – the Chinese aluminium group that bought into Rio – says the first purchase will not be its last.
PM: Not immediately clear whether the company’s president – Xiao Yaqing – was talking specifically about Rio or about other miners.
NH: So have Dow Jones rushed out a story saying Chinalco NOT to make more overseas purchase?
PM: Not yet. But we presume they are on the case.
PM: We are referring to the situation in Xstrata yesterday, when Reuters reported that a source had seconded an earlier report in the Brazilian press, saying an increased offer was on its way for Xta from Vale.
NH: DJ put out a story 20 minutes later saying an increased offer had NOT been tabled.
PM: I’m sure they felt terribly smug.
NH: I seem to remember you doing something similar regarding Bloomberg a while back
NH: Earth to Bloomberg – the Gold Fields story is a hoax!?!
PM: Yeah, but they had been stupid.
PM: Anyway, there’s another interesting story coming out of China. – from Blookmberg
PM: Feb. 22 (Bloomberg) — Chinese steelmakers, the largest buyers of iron ore, will reject Rio Tinto Group’s demand for a minimum 71 percent price increase in the raw material, two people familiar with the negotiations said.
The mills will only accept a 65 percent price gain for ore from London-based Rio’s mines in Australia, said the people, who declined to be identified because the talks are confidential.
Rio, the world’s second-biggest iron ore exporter, wants a higher price because of its premium ore and proximity to China, which reduces shipping costs. Chinese mills have failed to arrest advances in prices that have risen to records in each of the past five years, driving up costs.
“It’s inconceivable to me that they could not achieve some higher outcome,” Ken West, who helps manage the equivalent of $2.8 billion at Perennial Investment Partners Ltd. including Rio shares, said by phone from Melbourne. Rio Tinto “would be disappointed with 65 percent,” he said.
Rio dropped 72 pence, or 1.2 percent, to 5,750 pence at 10:03 a.m. on the London Stock Exchange. BHP Billiton Ltd., the world’s third-largest iron ore exporter, slipped 8 pence, or 0.5 percent, to 1,638 pence.
Australian producers are in a “strong position” to match the 71 percent gain in price for premium Carajas ore won by Brazil’s Cia. Vale do Rio Doce, the biggest exporter of the raw material, because it is of similar quality, Merrill Lynch & Co. analysts led by Vicky Binns said in a Feb. 18 report. Cash prices in China for the ore have more than doubled in the past year and are trading at four times Australian annual contract prices.
NH: interesting stuff
NH: and of course these prices rises will have some bearing on the Rio/BHP deal
PM: certainly
PM: I am still convinced that Chinalco stand ready to buy another 12%
NH: sure but they would need permission from the Aussie’s would they not
PM: yes, of course
PM: Anyway, lets move on from the miners
PM:
PM: Biffa? — mentioned below
PM: you got in early with your counterbid story on that one
NH: being trying to get hold of Martin Arnold
NH: our PE correspondent
NH: he penned a detailed piece this morning
PM: Terra Firma and Suez are preparing a £1.5bn counterbid for Biffa which would involve breaking up the waste management and landfill company with a bid expected to exceed the 350p a share offer already accepted from a rival buy-out consortium.
Terra Firma, the UK-based private equity firm, would take the landfill operations of Biffa, while Suez, which is in the process of merging with France’s state-owned Gaz de France, would take the waste management operations.
PM: Goldman Sachs is advising Suez, while Morgan Stanley is advising Terra Firma.
The two banks are understood to have agreed to provide financing for a buy-out of Biffa at a price above the 350p a share offer accepted from Montagu, the UK buy-out firm, and Global Infrastructure Partners, the US-based infrastructure investment firm.
Suez requested financial information on Biffa after January 24, when Biffa confirmed that it intended to recommend the Montagu-GIP offer. A person close to Terra Firma, the private equity firm run by Guy Hands, on Thursday confirmed that it was planning to submit a joint £1.5bn bid for Biffa, which would involve splitting the company into two.
PM: Should Biffa switch its recommendation to a rival, Montagu-GIP would gain a £12.3m break fee, representing 3.5p a share.
PM: So cue all those jokes about guy Hands shouting TURN THAT RUBBISH DOWN
NH: but this looks to be quite serious
NH: if they have finance and advisers in place
NH: and a carve up is logical
NH: i reckon they will make a move
NH: question what will they pay
NH: market price os 369.5p
NH: up 4.5p
NH: I reckon they would not offer much more than 385p
NH: but we will have to wait and see
PM: Ok thanks for that
PM:
PM: on to lloyds
NH: It’s been five years
NH: but the wait is finally over for Lloyds shareholders
PM: that’s right
PM: has finally raised its dividend
PM: not by much
PM: just 5% to 24.7p (that’s the final payout, the total for the year is …..
PM: cant find it
PM: but it is still a pretty powerful signal!
NH: yep, Lloyds seems to have come through the credit crunch unscathed
NH: although that’s because it is a pretty dull bank
PM: still credit where credit is due
PM: SuperSmartarseSiv says the raise din H1
PM: We stand corrected
PM: Let’s have a closer look at the numbers
NH: OK
NH: underlying PBT £3.9bn – in line with consensus.
NH: However, a few analysts reckon the figure has been flatted by the inclusion of charge for overdraft fees,
PM: so it could be a slight miss
NH: but given the carnage in the rest of the sector, investors are probably willing to over look that
NH: we also got some clarity on the assets in its wholesale bank
NH: probably the most interesting fact is that ABS CDO gross exposure at £1.9bn is 15x higher than net exposure.
NH: Of the hedges around a quarter (£470m) is hedged with monolines, the rest with ‘major global bank cash collateralised’.
NH: as for charges
NH: the “Effects of market dislocation” have cost LLoyds £280m
NH: that’s 40% higher than the number given at the end of October
NH: but that’s small beer compared with the £2.2bn reported by Barclays
NH: as for the retail bank at Lloyds
NH: margins are OK
NH: thanks to weaker competition
PM: that’ll be Northern Rock then
NH: yep
NH: also Lloyds is not as dependent on the wholesale money markets as say A&l
NH: so that helps support margins
NH: The impairment charge has not changed since the first half of the year
NH: that’s in the retail bank
NH: So all in all a solid set of figures
NH: and the shares up are 17p to 453p in response
PM: a relief rally
PM: ??
NH: I would say so
NH: although the ironic thing
NH: is that Lloyds is no longer the highest yielding stock in the banking sector
NH: it held that title for year and years
NH: but its 8% yield at the moment looks pretty punny compared with some of the others on offer
PM: yeah but at least this one is safe
PM: some analyst comment please
NH: this from Alex Potter – Collins Stewart
NH: Safe Pair of Hands. Dividend growing but premium valuation
NH: Results broadly in line
Revenues +6% (headline) following the surprise 9% growth at the interims;
this is a slowdown but still a good number by the standards of Lloyds’
recent history. Costs only up 1% (very sharp 2H07 slowdown from c.6% in the
first half). Underlying PBT ex-write-downs is £4,199m (CS: £4,318m and cons:
c.£4,200m) is broadly in line with expectations.
Write-downs higher than guidance but remain minimal
NH: December guidance was for £201m of write-downs; bank has reported £280m
here. However, this is tiny by sector standards – Barclays reported £1.6bn,
even A&L reported £185m and its balance sheet is five times smaller than
that of Lloyds TSB. Residual exposures appear relatively small.
NH: Dividend and capital both positives
Having grown the interim dividend by 5% (first increase in over four years),
management has now increased the final by the same amount. Importantly, the
guidance is now for a growing dividend (this is new) albeit at a level less
than EPS growth such that cover rebuilds. Further, Tier 1 capital is now
9.5% (Basel II) which is very comfortable for a bank with such a
conservative balance sheet, in our view. Business sales and capital return
from Scottish Widows have been material positives for capital in 2007.
NH: Outlook statement gives little firm guidance
CEO indicates the group is well positioned for future growth but gives
little in the way of further indications – this is not unusual for Lloyds.
NH: A safe pair of hands… but at a price
We do not feel estimates will move materially following today’s release.
What was once simply a low-growth bank is now showing the benefits of
conservatism in its business model and balance sheet. However, with the
stock trading on 7.3x 2008E estimates (domestic sector: 6.2x), price-book of
1.9x (vs 1.8x) and a yield of 8.5% (vs 8.7%), Lloyds is not cheap. The
growing dividend should obviously be a source of comfort but we do not feel
more positive than a HOLD recommendation.
NH: and this is from MF Global
NH: Our theme for the large cap UK banks through the results is grow the dividend, grow the book, then buy the shares.
Lloyds grew the 1.6x covered dividend 5% and book value rose 8% to 215p
even after a GBP413m write-down of reserves for available-for-sale assets.
Underlying profit before tax grew 6% to GBP3.9bn, while EPS rose 17% to 58.3p helped by a 17% tax charge down from 32% last year. Revenue rose 5% and costs just 1%, while delinquency ex treasury assets was stable at 0.82%.
NH: Lloyds’ hits from the credit crunch are measured in 100s millions rather than
billions, its risk weighted assets grew more slowly than loans as its balance sheet is not being stuffed with unwanted securities and impaired assets rose less than RWA.
Our target price will likely fall for the hits to equity and guidance that retail provisions will be flat rather than down in H1 2008, but still leave generous double digit upside.
We are BUYers of Lloyds TSB, albeit with a
preference for Barclays and HSBC over 2008.
NH: Lloyds is a steady, UK focused commercial bank, with a generous and supportive yield. It is unlikely to be either the worst performing bank in a continuation of the crisis, nor the best recovery stock. However, over the next twelve months we expect strong double digit returns from owning the shares.
NH: so buy dull boring Lloyds
NH: that’s the message
PM:
PM:
PM: To the wider market — are up 1 per cent or down 1 per cent today??
NH: down 21.6 points at 5,912.1
NH: Wall Street was weak overnight
PM: yes, big turn around on the street yesterday — rather caught London on the hop
NH: you say that, but I would have thought we would be weaker
NH: but the banks seem to be holding us up along with a few miners
PM: BREAKING CROCK NEWS
Readers may also know this former bank as Northern Rock.
NH: *U.K. TO ESTABLISH NORTHERN ROCK HOLDER COMPENSATION PROGRAM
*U.K. TO ESTABLISH SHAREHOLDER COMPENSATION PROGRAM `SHORTLY’
*U.K. SAYS SANDLER, GODBEHERE HAVE TODAY JOINED BOARD :NRK LN
*U.K. SAYS NORTHERN ROCK OPEN FOR BUSINESS AS USUAL :NRK LN
*TREASURY BUYS ALL SHARES IN NORTHERN ROCK :NRK LN
NH: no details on who the valuer is yet
NH: and lets hope the govt provide them with an indemnity
NH: coz Jon Wood will be after them we they say the Crock is worthless
NH: who wants that job??
PM:
NH: valuing Northern Crock??
PM: Well, we could do it. Im not scared for Wood
NH: in order for taking that on you would either want a gong or a promise of other consultancy work from the govt
PM: Or lots of 
NH: indeed
PM: Should mention Cantor’s greay spreadbet price
PM: Wot was it — 25/35
NH: but you can only do it up to £3 a point
PM: That’s rubbish
NH: its a marketing ploy
PM: As was ponited out here, if sell you can only make 75 quid
NH: trying to make a gain out of the misery of northern rock shareholders
NH: they should feel ashamed
PM: This is one of David Buik’s thingies
PM: Just marketing guff
NH: we would never do that!
PM: Wot make capital out of the demise of Northern Rock
PM: No way. Even the suggestion would be a libel
NH: quite
PM: We should have a spreadbet on D Buik
PM:
PM: Right — neil has gone off to look for something for a mo
PM: In the meantime I can share this with you
PM: it appeared in the FT this morning — a part of the FT that we are now going to keep a close eye on
PM: Global Trader Europe Ltd
Stephen Cork and Joanne Milner, the joint
administrators of Global Trader Europe Limited,
offer for sale the business and assets of the
company as a going concern.
The business provides high-quality CFD and
spread trading execution to small hedge funds,
professional investors and high-net-worth
individuals, focusing on providing access to
both emerging and developed markets for
its clients, both through its Asian and United
Kingdom offices.
The business consists of offices in London and
Bangkok, with an associated office in Toronto.
Interested parties requiring sales particulars
should contact:
Jeff Stower
Smith & Williamson
25 Moorgate, London EC2R 6AY
t: 020 8492 8682
f: 020 8492 8601
e: jeffrey
PM: That’s a free extra ad for Smith & Williamson
PM: Let’s all try and find a buyer for this blown up cfd house
NH: contacts below
PM: GT has offices in Toronto and London!
PM:
NH: sorry just been of checking something
NH: concerns Minerva
NH: we wrote in the paper this morning that rumoured bidder LeFrak had quietly built a 2.3% stake
NH: and has been seeking advice from Morgan Stanley on a possible deal
NH: anyway getting calls this morning that there could be problems at one of their big sites
NH: called the Walbrook and it is just across the river from us
PM: Yes, opposite cannon st station
NH: company has denied reports that the construction company Skanska has been told not to do anymore work
NH: but now we are hearing a big development next door has been shelved
PM: good story
NH: however, further investigation leads to a story in Property Week
NH: which is not neccesarily that bearish for Minerva
PM: yeah — slap it up
NH: pasting
NH: y Deirdre Hipwell
Legal & General is locked in talks with a Spanish property company over the completion of the £240m purchase of the City of London’s most important development site.
Five months after Metrovacesa agreed to buy the 1m sq ft Walbrook Square development site opposite Cannon Street station the two sides have still to complete the deal.
Property Week understands Legal & General is under pressure to satisfy a string of complex conditions attached to the sale before July.
Metrovacesa, for its part, is also under pressure, having agreed to pay £240m for the 250-year leasehold interest in the site after bidding just before the onset of the credit crunch last July.
Since then, City land values have plummeted. Knight Frank research published earlier this month said values had fallen from £350/sq ft to £175/sq ft because of falling rents and rising construction costs.
Legal & General’s head of specialist property funds Mark Creedy told Property Week: ‘This is a private contractual matter, but it is public knowledge that there are conditions we have to meet. The onus is on us.
‘We are confident that we are going to meet these conditions and as far as we are concerned the deal is on track.’
Click here to find out more!
Creedy and L&G won plaudits after appointing architects Jean Nouvel and Lord Foster to design the radical scheme, dubbed ‘the cloud and plinth’, as a redevelopment of the fund manager’s own Bucklersbury House headquarters.
To win consent L&G had to negotiate hard over viewing corridors around St Paul’s Cathedral, but its work has not stopped there.
Having chosen Metrovacesa ahead of Helical Bar and Carlyle, which together bid £210m for the site, and Canary Wharf Group, which bid £180m, it still has responsibility for a series of ‘conditions precedent’.
These include, among others:
* an agreement with London Underground over a new Bank Tube station entrance
* settling rights of light held by various parties, including Heron International
* archaeological reviews
* planning conditions around the relocation of the Roman Temple of Mithras
* demolition agreements.
Metrovacesa, for its part, has recruited CB Richard Ellis to advise on its position, after already paying £12m as an initial payment.
It is now faced with a very different office market to that envisaged in September, when it said the completed scheme would cost it ‘a maximum of €1.4bn’ (£1.06bn).
Demand has fallen away, and Knight Frank also estimated that supply of speculatively developed City offices would reach 3.9m sq ft in 2008 and 4.3m sq ft in 2009.
PM: Actually that doesnt look particularly good for Minerva
NH: yeah, looks like they might struggle to get a tennant for the Walbrook and even if they do
NH: they aren’t going to pay up
PM: thanks for that
PM:
NH: let’s go to the pub
PM: it is friday, after all
NH: pubs stocks
NH: taking a bit of a pounding this morning
NH: Enterprise Inns off 15.75p at 414p
NH: JD Wetherspoon down 18p at 309.25p
NH: Punch Taverns off 15.5p at 640.5p
PM: What’s happening?
NH: big, bearish note from Goldman Sachs this morning
PM: And its thesis??
NH: right…
NH: the smoking ban and the consumer spending has hit pub profits
PM: ok….
NH: and will continue to do so
NH: as a result this will lead to lower rental income from pubs
NH: and therefore lower freehold values
NH: and lower freehold values
NH: mean the pub company’s will not be able to borrow as much debt
NH: and use to it to buy back shares
NH: and boost earnings
PM: sounds sensible enough
PM: this should hit the tenanted operators more
NH: yep
NH: but as well as the sell rating it has on Enterprise, goldman also has a sell rating on Wetherspoon
PM: WhY?
NH: hang on
NH: let me get the note for you
NH: The smoking ban and weaker consumer spending
have reduced UK pub profits over the past six
months. We expect this to lead to lower rental
income and a decline in pub freehold values over
the next 12 months, threatening the virtuous circle
of higher asset values, a greater ability to take on
debt, and a rapid rate of earnings-enhancing
acquisitions. We reduce our estimates to reflect
this weaker trading and our expectations of a
weaker rental environment. Our price targets also
fall significantly, as we now value the stocks on
historical average P/B and P/E ratios, vs. our
previous DCF/REIT methodology.
NH: …but some positive catalysts on the horizon
Based on the experience of other countries, we
believe that the impact of the smoking ban should
lessen after the anniversary of its introduction in
July. We also highlight that the UK bond market
continues to discount further interest rate cuts: on
past occasions when rates have fallen by 1%, the
pub sector has tended to outperform the stock
market over the following six months.
NH: Greene King upgraded to Buy from Neutral
On our estimates, Greene King is the least
expensive stock on both P/E and price to adjusted
book value. It also has a relatively strong balance
sheet, which should enable further acquisitions at
a time when we expect pub values to fall, and is
well exposed to the Southeast, which has the
highest population growth in England.
NH: Wetherspoon and Enterprise down to Sell
JDW’s 1H profit margins have held up as last
year’s one-off costs have fallen away, but we
believe margins could disappoint in 2H if LFL
sales do not recover quickly. JDW looks expensive
on both P/B and P/E (even adjusting for a higher
tax charge) and has among the lowest fixedcharge
covers in the subsector. We add it to our
Sell and Conviction Sell Lists (from Neutral). We
also downgrade Enterprise Inns from Neutral to
Sell, based on the risks we see to rental income.
NH: do you want to see some more??
PM: Yep
NH: We reduce our estimates for the managed pub businesses of JD Wetherspoon, Marston’s and Greene King to reflect the current
weak trading environment. While we continue to assume an improvement in LFL sales growth as the year unfolds, this is based on
our expectation that the impact of the smoking ban will lessen over time, as has been the case in other countries. The clear risk to
this view, and therefore to our estimates, is a further reduction in UK consumer spending.
NH: We also reduce our estimates for the tenanted/leased pub businesses of Greene King, Marston’s and Enterprise Inns. In our view,
the smoking ban has led to at least a 10% yoy reduction in profits for the average pub, significantly rebasing the fair maintainable
trade (profit) on which rental values are based (rent is usually calculated as 50% of fair maintainable trade). We cut our forecasts for
both beer sales and rental income; we now assume that rental income rises by 1% in the current year, declines by 2% next year and
is flat the year after.
PM: Thanks for that
PM:
PM: Now — we do of course offer a right to reply on Markets Live
PM: Some people use the comment box below
PM: Others email!
PM: And we’ve had David Buik on — correcting us!
PM: Greetings Gentlemen
So glad you enjoyed dispensing your terse and acid comments about me! I trust it gives you joy! Just to put the record straight! CANTOR SPREADFAIR is not a spread betting bookmaker. It is an exchange. You put something in and you get something out. If the exchange is not well populated then it’s hardly my fault. To call it one of my ‘Thingies’ is inaccurate! I just made people aware of the facility. It’s there to be used for those who have a view on the situation – no more, no less!
Have a pleasant weekend!
David Buik
PM: Happy to set the record straight David
NH: and David is right.
NH: we should have said it was him
PM: We shouldnt be so rude either 
NH: but we did think it odd that a PR company was pushing this story hard yesterday
NH: obviously that’s nothing to do with David
NH: whose daily mails are a source of amusement for us all
NH: apologies
PM: yeah well
NH: still good to know he is watching
PM:
NH: another apology
NH: we seem to have offended a lot of people this week
PM: While we are apologising
PM: Another thing ive got to do is APOLOGISE again for referring to non-posting readers of Markets Live as parasites.
PM: It was a mistake. I did not mean to. And I do not consider any readers of Markets Live to be parasites.
PM: Except certain market reporters at other newspapers of course.
PM: No, I was searching for the word LURKERS – and the wrong word came thru my fingers.
PM: Please forgive me. Ive been getting emails, etc.
PM:
PM:
PM: Anyway — the readers want to talk about GOLD
NH: before we do, just going back to the Cantor thing
NH: are comments were prompted by some pots from readers
NH: right, gold. dunno anything about that
PM: Nor do i really
PM: But there are all these mad sites on the web
PM: Blemishes On The Bears’ Elliott Wave Count
Dominick
February 19, 2008
Another week is now history and the bear case is looking worse for it. Not that the market can’t go down from here, but if it does, it won’t be the impulsive 3rd wave for which so many have been waiting and waiting and waiting.
Readers will remember I’ve never been completely convinced the October high is THE top in this market, though for a few months now it’s been practically gospel that it is. The market has yet to commit to one direction or the other, but the chart below shows the bullish and bearish cases and why unbiased Elliott wave analysis has to have at least serious doubts about the bear count.
PM: That’s from Gold Eagle
NH: Scottish & Newcastle, just issued their scheme doc
PM: Right –we are on safer territory with S&N
PM:
PM: EO.L — Encore Oil
PM: Mentioned below — up 4.25p at 50p
PM: We dont know anything about this either
PM: What else have you got neil?
NH: couple of things to round off the week with
NH: Ladbrokes
NH: stock has performed poorly this week
NH: which is surprising given that Joe Lewis is said to have built a 7% stake
NH: stock off a further 11.75p to 306.25p this morning
NH: Citigroup have waded in with a sell recommendation
NH: analyst Heidy Rehman reckon its recent outperformance is completely unjustified
NH: especially as the govt could be poised to crack down on Fixed odds betting terminals
PM: What about the takeover speculation??
NH: well
NH: Rehman points out the Lewis has stakes in lots of companies
NH: and he does not bid for all of them
NH: and anyway Ladbrokes looks to expensive to bid for at the moment
NH: Pasting the note
NH: UK Bookmakers — Ladbrokes premium looks unjustified, downgrading
to Sell
NH: While William Hill has been hit hard in 2008, Ladbrokes has faired well, down
only 1.7% (putting it up 11.9% relative to the market). This has left Ladbrokes
looking anything but cheap on a 2009E P/E of 13.1x, and on a 40% premium to
William Hill on 9.2x – we are 20% below consensus for Ladbrokes on ’09E
numbers, and only 8% below for William Hill, but even on consensus numbers
the premium is 25%.
NH: As stocks that offer little in the way of meaningful growth,
we see neither as a particularly attractive place to house your money at present
and indeed recent newsflow is likely to weigh on the shares still further. While
unlikely to present immediate obstacles, the government study into the use of
FOBT (Fixed Odds Betting Terminals) has the potential to be highly damaging if
they decide to restrict the number of terminals.
NH: We estimate a 10% decline in machine contribution could lead to downgrades of at least 5% to 2008E EPS for Ladbrokes and William Hill. Meanwhile, discussions over the validity of a
‘sports levy’ (i.e. a levy payable to sports bodies other than horseracing), while
again unlikely to materialise in the short term, it is likely to weigh further on
sentiment. Perhaps Ladbrokes’ saving grace has been bid speculation following
Joe Lewis’ reported 7% stake building.
NH: While we don’t think a bid can be ruled out, he does have many other similar-sized investments in other entities, and we feel it is unlikely it would occur any time soon. We believe that the punchy
valuation we are seeing for Ladbrokes (£3.18) already prices in the benefits of
narrowing the margin gap with William Hill, as well as success in its
international expansion plans (on which we remain dubious), and ignores the
potential downside. We maintain our 280p price target, but downgrade our
recommendation to Sell/Medium Risk.
NH: While we wouldn’t necessarily be chasing William Hill (£4.00) in the current environment either, we are happy to stick with our Hold but move our risk rating to Medium from Low to reflect
regulatory concerns. We keep our 410p price target
PM:
NH: I know we have a few readers are keen on Northumbrian Water
NH: so they might like to know that Cazenove has downgrade the stock this morning
NH: shares currently down 5.5p at 350.25p
NH: here’s the note
NH: Northumbrian Water – [NWG.L, NWG LN], 258p, UNDERPERFORM (from In-Line), sector: Neutral
Northumbrian Water has had a very strong run, up 17% in the past 3 months outperforming the UK water sector by 9%. We struggle to justify its outperformance other than the persistent takeover conjecture which in our view should also be reflected to a similar degree in the other water stocks. We therefore think that the valuation gap between NWG trading on a 22% premium to RAV and the rest of the sector on just 13% should begin to converge. With 12% downside to our unchanged fair value of 315p/share, we downgrade our recommendation from In-Line to UNDERPERFORM.
PM:
NH:
PM: We are being dragged back to Gold
PM: I can report that Javier is keen to come on ML and talk about commods generally
PM: But he’s in the US this week — back next week
PM: So we will wire him up
PM: Note the point below about an ounce of gold buying a good suite, shoes and a good meal
PM: That’s 500 quid, 300 quid, and 100 quid
NH: it might be for you!
PM: 1800 dollar price target
PM: Very funny below on decoupling
PM: Always said you lot know more than us
NH: and we get accused of making acid comments
PM: Anyway — we are done
PM: By all means hang around and continue your conversation
PM: But we have to go!
PM: Thanks for joining
PM: See you 11am on Monday, hopefully
PM: Hopefully we will also have a commods special then
NH: see ya