Markets live chat transcript for the chat ending at 12:02 on 28 Aug 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM:
Ok – welcome to Markets Live
PM:
This is FT Alphaville stock knock about.
PM:
Neil is here, but just cranking up his machine
PM:
So i will share some hurricane stuff with you
PM:
GUSTAV IS MOVING TOWARD THE SOUTHWEST NEAR 8 MPH…13 KM/HR. A
TURN TOWARD THE WEST IS EXPECTED LATER TODAY AND TO THE WEST-
NORTHWEST ON FRIDAY. THE CENTER OF GUSTAV IS EXPECTED TO PASS VERY
CLOSE TO JAMAICA LATER TODAY.
TURN TOWARD THE WEST IS EXPECTED LATER TODAY AND TO THE WEST-
NORTHWEST ON FRIDAY. THE CENTER OF GUSTAV IS EXPECTED TO PASS VERY
CLOSE TO JAMAICA LATER TODAY.
MAXIMUM SUSTAINED WINDS ARE NEAR 50 MPH…85 KM/HR…WITH HIGHER
GUSTS. STRENGTHENING IS FORECAST OVER THE NEXT 48 HOURS AND
GUSTAV COULD REGAIN HURRICANE STRENGTH BY FRIDAY.
TROPICAL STORM FORCE WINDS EXTEND OUTWARD UP TO 50 MILES…85 KM
FROM THE CENTER.
THE LATEST CENTRAL PRESSURE JUST REPORTED BY AN AIR FORCE RESERVE
RECONNAISSANCE PLANE WAS 988 MB…29.18 INCHES.
GUSTAV IS EXPECTED TO PRODUCE TOTAL RAINFALL ACCUMULATIONS OF 2 TO 4
INCHES OVER SOUTHERN CUBA…AND 6 TO 12 INCHES OVER HAITI…
JAMAICA…AND THE CAYMAN ISLANDS…WITH ISOLATED MAXIMUM AMOUNTS OF
UP TO 25 INCHES POSSIBLE. THESE RAINS WILL LIKELY PRODUCE
LIFE-THREATENING FLASH FLOODS AND MUD SLIDES
PM:
COASTAL STORM SURGE FLOODING OF 1 TO 2 FEET ABOVE NORMAL TIDE LEVELS
CAN BE EXPECTED IN AREAS OF ONSHORE WINDS IN THE TROPICAL STORM
WARNING AREA.
CAN BE EXPECTED IN AREAS OF ONSHORE WINDS IN THE TROPICAL STORM
WARNING AREA.
REPEATING THE 500 AM EDT POSITION…17.8 N…75.6 W. MOVEMENT
TOWARD…SOUTHWEST NEAR 8 MPH. MAXIMUM SUSTAINED WINDS…50 MPH.
MINIMUM CENTRAL PRESSURE…988 MB.
AN INTERMEDIATE ADVISORY WILL BE ISSUED BY THE NATIONAL HURRICANE
CENTER AT 800 AM EDT FOLLOWED BY THE NEXT COMPLETE ADVISORY AT 1100
AM EDT.
NH:
morning. machine very slow today
PM:
That’s from the US national hurricane centre
PM:
THEY PUT OUT THESE ALERTS IN BLOCK CAPS
PM:
LIKE THEY ARE STILL USING TELEX MACHINES OR SOMETHING
NH:
well maybe they are
PM:
oh, hello Neil
NH:
what shall we look at this morning
NH:
banking sector is flying
NH:
look at these moves
PM:
Rejoice!
HBOS (HBOS:LSE): Last: 308.25, up 15 (+5.12%), High: 309.50, Low: 290.75, Volume: 12.65m
Royal Bank of Scotland Group (RBS:LSE): Last: 229.00, up 7.25 (+3.27%), High: 230.50, Low: 219.50, Volume: 22.48m
Barclays (BARC:LSE): Last: 340.50, up 10.25 (+3.10%), High: 343.00, Low: 326.75, Volume: 11.24m
PM:
Seems to be a bit of read across from the Credit Agricole numbers, which were not as bad as some had feared.
PM:
Pirce up almost 5% at 13.84 in Paris
NH:
Well that will cheer Bruce Packard at Pali, he’s a buyer of HBOS.
PM:
Solid guy, obviously – the authorities must be proud of him.
PM:
Actually, go hold of a very interesting note by him where he goes through the arguments about whether the banks should be trading at book value – and whether this presents a floor for prices, as it did during the last recession
NH:
Which it does?
PM:
Well, not easy question to answer for the simple reason that accounting procedures have change
PM:
from historical cost basis to fair value.
PM:
I’ll print his summary, but there are some interesting charts in there, which I cant print here.
PM:
Show that relative to book HBOS has vastly underperformed.
PM:
Also, it is just startling to see how the banks that have not had cash calls or right downs have outperformed.
PM:
So while Hflop has been trading at less than 80% of book value, we’ve had Lloyds and HSBC at more than two times book value – and Standard Chartered at more than three times.
NH:
So he’s a seller of STAN I assume.
PM:
Correct
PM:
Anyway, here’s the summary
PM:
Using book value as a guide, the current valuations of HBOS, BARC and RBS
suggest that bank share prices are already anticipating a 1990s-style
recession. There is theoretical justification for seeing ‘book value’ as a floor
to valuation (cost of equity equalling long-run returns) combined with a
historic validation (Barclays during the last recession). However, this
measure does not adjust for leverage, a significant flaw. All the banks for
which we have 1991 data (RBS, STAN, BARC) had equity/total asset ratios
above 4%, versus 1.5% for BARC and RBS in H1 08.
suggest that bank share prices are already anticipating a 1990s-style
recession. There is theoretical justification for seeing ‘book value’ as a floor
to valuation (cost of equity equalling long-run returns) combined with a
historic validation (Barclays during the last recession). However, this
measure does not adjust for leverage, a significant flaw. All the banks for
which we have 1991 data (RBS, STAN, BARC) had equity/total asset ratios
above 4%, versus 1.5% for BARC and RBS in H1 08.
► The adoption of IFRS may mean that book value today reflects early loss
recognition. So price to book value now could currently disadvantage
banks relative to the last recession (a positive for the sector).
► However, system-wide leverage is greater (a negative for the sector). The
IMF notes that the ten largest publicly listed banks in the US and Europe
saw their assets double to €15trn over the last five years. Regulatory
capital requirements grew by only a third as much.
► Book value does not equal cash, which varies considerably by bank and
accounting definition. Banks also hold large liquidity portfolios, which are
intended to be equivalent to cash (for instance, accepted by Central Banks
as collateral).
► Our key recommendation is HBOS (BUY, TP 360p), given the discount to
book and the relatively high (2.9%) tangible equity to total assets ratio.
► We are reducing our LLOY TP to 300p (maintain Neutral), given the
price/tangible book of 1.74x (2008e).
► We reiterate our SELL recommendation on STAN (TP 1300p) as it is trading
on 2.75x 2008e tangible book.
NH:
You know when I came back from holiday I thought you were joking when you said you wanted to adopt a more bullish attitude – celebrating stocks that go up.
NH:
And now you’re even celebrating a bounce in HBOS.
NH:
When’s this rot going to stop!?
PM:
PM:
Ah, I like HBOS. Pensioners’ bank.
NH:
Pensioners and MBO financiers.
PM:
PM:
NH:
just going back to Credit Ag
NH:
have we got any comment on the results??
PM:
Got some stuff from Citi
PM:
Kimon Kalamboussis there
NH:
impressive spelling
PM:
oh yes
PM:
Actually — they dont look so impressed
PM:
Kimon doesnt
PM:
2Q08 Miss ― Net profit of €76m was worst than consensus of €200m.
Revenues, down 5% yoy (like for like), were 11% below consensus. Costs, up
7% yoy (like for like), were in line with consensus. Provisions of €365m were
low (consensus: €403m). Markdowns of €1.1bn were in line with consensus.
CIB hit by Writedowns ― The net loss of €855m was larger than our forecast
and also bigger than the €795m loss in 1Q08. 2Q markdowns include €1.0bn
for monoline exposure and €109m for syndicated loans inc LBOs (in financing
unit). The marks are in-line with consensus expectations of €1.1bn marks.
CIB 2Q loss of €852m or loss €162m ex marks ― Underlying performance ex
marks in the cap mkts unit revenues and net loss in 2Q was slightly better than
1Q but even ex-marks the cap mkts unit would have made a net loss in 2Q as
in 1Q. CASA refers to “good resilience” in fixed income commercial business,
so we believe the trading performance was poorer.
French Retail Banking LCL Ahead ― Net profits of €217m, up 11% yoy, were
ahead of our estimates. The beat was driven by higher than expected revenues
(up 3% yoy) and stable costs (up only 0.5% yoy). Provisions of €39m were in
line with our estimates. Lending was up 9.5% yoy, driven by an increase of
19% in SME loans. Deposits were down 1% yoy, mainly due to a fall
insecurities and mutual funds heal by customers.
Revenues, down 5% yoy (like for like), were 11% below consensus. Costs, up
7% yoy (like for like), were in line with consensus. Provisions of €365m were
low (consensus: €403m). Markdowns of €1.1bn were in line with consensus.
CIB hit by Writedowns ― The net loss of €855m was larger than our forecast
and also bigger than the €795m loss in 1Q08. 2Q markdowns include €1.0bn
for monoline exposure and €109m for syndicated loans inc LBOs (in financing
unit). The marks are in-line with consensus expectations of €1.1bn marks.
CIB 2Q loss of €852m or loss €162m ex marks ― Underlying performance ex
marks in the cap mkts unit revenues and net loss in 2Q was slightly better than
1Q but even ex-marks the cap mkts unit would have made a net loss in 2Q as
in 1Q. CASA refers to “good resilience” in fixed income commercial business,
so we believe the trading performance was poorer.
French Retail Banking LCL Ahead ― Net profits of €217m, up 11% yoy, were
ahead of our estimates. The beat was driven by higher than expected revenues
(up 3% yoy) and stable costs (up only 0.5% yoy). Provisions of €39m were in
line with our estimates. Lending was up 9.5% yoy, driven by an increase of
19% in SME loans. Deposits were down 1% yoy, mainly due to a fall
insecurities and mutual funds heal by customers.
PM:
International Retail Banking Mixed ― Pre-tax income of €201m was in line with
our estimates. The results were driven by solid revenues (up 17% yoy) but
offset by weak income in the equity affiliates (€1m vs €40m in 1Q08) due to a
fall in the contribution from BES (the Portuguese bank). In Italy net income of
€67m was up 15% yoy, while in Greece Emporiki made a loss of €2m in 2Q08.
Asset-gathering businesses, insurance and private banking down ― This unit
posted revenues of €1,058m, down 8% yoy and 4% qoq, while net profits of
€415m declined 9% yoy but was flat qoq. Among the business lines, the asset
management unit posted better revenues and profits, which is a surprising
positive given the weak market environment, whereas insurance and private
banking units recorded qoq revenue and profit declines.
our estimates. The results were driven by solid revenues (up 17% yoy) but
offset by weak income in the equity affiliates (€1m vs €40m in 1Q08) due to a
fall in the contribution from BES (the Portuguese bank). In Italy net income of
€67m was up 15% yoy, while in Greece Emporiki made a loss of €2m in 2Q08.
Asset-gathering businesses, insurance and private banking down ― This unit
posted revenues of €1,058m, down 8% yoy and 4% qoq, while net profits of
€415m declined 9% yoy but was flat qoq. Among the business lines, the asset
management unit posted better revenues and profits, which is a surprising
positive given the weak market environment, whereas insurance and private
banking units recorded qoq revenue and profit declines.
NH:
NH:
Other thing to watch with the UK banks is that Bradford & Bungle come out with their interims tomorrow.
PM:
Bit small isn’t it?
NH:
Well, people still looking for read across in things like mortgage arrears
PM:
Oh, of course.
NH:
could have implications for Paragon
NH:
where we reckon bid talks are in big trouble
PM:
yes
NH:
Here’s Alex Potter on the subject – at Collins Stewart
NH:
Bungle that is not Paragon(e)
NH:
Results out tomorrow are more about the laterals: HBoS & BKIR
HBoS has £65bn of specialised mortgages (14% of the book) and BKIR
£13.2bn or 13% of its book. The arrears performance from B&B (which is
mostly specialised mortgages) will be good indicators to HBoS and BKIR
(though we have already seen their results) so this will be more about the
more contemporary outlook comments that mgmt can make.
HBoS has £65bn of specialised mortgages (14% of the book) and BKIR
£13.2bn or 13% of its book. The arrears performance from B&B (which is
mostly specialised mortgages) will be good indicators to HBoS and BKIR
(though we have already seen their results) so this will be more about the
more contemporary outlook comments that mgmt can make.
NH:
B&B is almost a binary situation
The rate of increase in arrears within the covered bond programme (the
most contemporary data we have for B&B) has been remarkable (see chart
overleaf). Arrears reached 200bp in Jul-08 and one of the key issues is the
unproven nature of credit performance of buy-to-let and self-cert mortgage
books in a downturn. It is not inconceivable that more capital becomes
required if such mortgages turn out to perform like unsecured lending. This
may simply drive B&B into the arms of a larger competitor
The rate of increase in arrears within the covered bond programme (the
most contemporary data we have for B&B) has been remarkable (see chart
overleaf). Arrears reached 200bp in Jul-08 and one of the key issues is the
unproven nature of credit performance of buy-to-let and self-cert mortgage
books in a downturn. It is not inconceivable that more capital becomes
required if such mortgages turn out to perform like unsecured lending. This
may simply drive B&B into the arms of a larger competitor
NH:
The alternative is survival and therefore value
Alternatively, if arrears plateau soon and the bank can look to RoE reversion
in the medium term, then the bank is trading on 0.4x post-rights tangible
book value (a c.£900m discount) and would therefore see a sharp positive
snap-back in the stock price.
GMAC situation complicates
The bank is still contractually obliged to take c.£350m per quarter of GMAC
loans to end-09 though is trying to exit this situation. These loans perform
very badly relative to B&B s own book arrears were 504bp (Apr-08) against
187bp for B&B s originated loan book. GMAC could be the tipping factor
between B&B s independent survival or otherwise.
Alternatively, if arrears plateau soon and the bank can look to RoE reversion
in the medium term, then the bank is trading on 0.4x post-rights tangible
book value (a c.£900m discount) and would therefore see a sharp positive
snap-back in the stock price.
GMAC situation complicates
The bank is still contractually obliged to take c.£350m per quarter of GMAC
loans to end-09 though is trying to exit this situation. These loans perform
very badly relative to B&B s own book arrears were 504bp (Apr-08) against
187bp for B&B s originated loan book. GMAC could be the tipping factor
between B&B s independent survival or otherwise.
NH:
We would avoid such a volatile situation
B&B is being implicitly backed by the major UK banks and the government,
in our opinion but this remains a volatile situation and we can see far better
returns in larger, more liquid stocks, such as HBoS.
B&B is being implicitly backed by the major UK banks and the government,
in our opinion but this remains a volatile situation and we can see far better
returns in larger, more liquid stocks, such as HBoS.
Bradford and Bingley (BB:LSE): Last: 50.00, up 0.5 (+1.01%), High: 51.00, Low: 49.00, Volume: 3.79m
PM:
That’s the great unknown here — how do buytoflip and liarloan customers react…
PM:
Anyway – that’s enough banks — to0 many other results today…
PM:
NH:
yep loads and loads of results today
NH:
and it’s all done to some new EU directive
NH:
this says results must be 2 months after a year or half year end
NH:
in the past that used to be 90 days
NH:
at the moment all those companies with a June half year and scrambling around trying to get results about before the end of August
NH:
in the past the results would have been spread over three months
PM:
What a stupid directive
PM:
Ruins august for people
NH:
so we must have something upwards of 40 companies reporting today
NH:
and yet most of the City is still on hols
NH:
volumes have been truly shocking this week
NH:
2.2bn on Tuesday
NH:
1.7bn yesterday
NH:
and all these results are coming out and there is no one around to look at them
NH:
that said, there are no real shockers out there today
NH:
the worst would appear to be Premier Foods (debt worries) and Premier Oil
Premier Foods (PFD:LSE): Last: 89.50, down 7.75 (-7.97%), High: 96.00, Low: 88.50, Volume: 5.19m
Premier Oil (PMO:LSE): Last: 1,246, down 82 (-6.17%), High: 1,324, Low: 1,201, Volume: 511.92k
PM:
PM:
Well how’s the picture wider market wise..
PM:
As people digest all these interims
PM:
Footsie is up 13.9 at 5542 currently
NH:
as we said earlier the banks leading the way
NH:
although one of the other top performers is RSA Insurance Group
PM:
that’s the old Royal & Sun Alliance
NH:
shares up 6.2p to 152p on more bid rumours
NH:
no new to add
NH:
talk in the market seems to be that a European rival – possibily Zurich Financial Services
NH:
is studying a bid and has even appointed advisers
NH:
now that is RAW
NH:
but a bid rumour has been doing the rounds for quite a while in RSA
NH:
in fact some would say they have been around for ever
NH:
for what it is worth, I am sure RSA will get taken out one day
NH:
RSA is probably a bit too small to remain independent
NH:
and it recently cleared up a big lawsuit with GM
NH:
which put an end to its nightmare experience in the US
NH:
so the company is pretty clean
NH:
anyway
NH:
our insurance correspondent Andrea Felsted did a good piece a couple of weeks agon on the bid rumours
NH:
and for those of you who missed it
NH:
here it is
NH:
RSA has long been a takeover target but the 5 per cent rise in the share price over the past week suggests investors believe a deal is moving closer.
Andy Haste, chief executive of the group formerly known as Royal & Sun Alliance, has steered the once-troubled group through a radical restructuring.
Andy Haste, chief executive of the group formerly known as Royal & Sun Alliance, has steered the once-troubled group through a radical restructuring.
NH:
Indeed, Mr Haste last week delivered an increase in interim pre-tax profit and expressed confidence in the outlook, saying there were “encouraging early signs” that the insurance pricing cycle was turning up.
The odds on RSA being taken out narrowed considerably when Mr Haste offloaded the insurer’s US liabilities in 2006. But expectations of a deal are now rising once more.
A spotlight has been shone on UK general insurers by Royal Bank of Scotland’s decision to put its insurance assets, including Direct Line and Churchill, on the block. Some of the companies that looked at RBS Insurance are seen as potential acquirers of RSA. With RSA, the buyer would gain a UK retail insurance business, but it would also acquire a strong position in commercial insurance, as well as an international business, which accounted for almost 60 per cent of net written premiums in the first half.
The odds on RSA being taken out narrowed considerably when Mr Haste offloaded the insurer’s US liabilities in 2006. But expectations of a deal are now rising once more.
A spotlight has been shone on UK general insurers by Royal Bank of Scotland’s decision to put its insurance assets, including Direct Line and Churchill, on the block. Some of the companies that looked at RBS Insurance are seen as potential acquirers of RSA. With RSA, the buyer would gain a UK retail insurance business, but it would also acquire a strong position in commercial insurance, as well as an international business, which accounted for almost 60 per cent of net written premiums in the first half.
NH:
Some investors and analysts are also questioning whether Mr Haste, now that RSA is on an even keel, is looking at another, bigger challenge.
He is already seen as an ideal candidate to lead a big bank and earlier this week became a non-executive director of ITV, igniting fresh speculation that he was garnering experience for a heavyweight role.
Still fresh in investors’ minds will be the decision by Clive Cowdery, founder of Resolution, to take his first non-executive directorship – at British Land – just six months before selling the investor in closed-life funds to arch-rival Hugh Osmond for almost £5bn.
He is already seen as an ideal candidate to lead a big bank and earlier this week became a non-executive director of ITV, igniting fresh speculation that he was garnering experience for a heavyweight role.
Still fresh in investors’ minds will be the decision by Clive Cowdery, founder of Resolution, to take his first non-executive directorship – at British Land – just six months before selling the investor in closed-life funds to arch-rival Hugh Osmond for almost £5bn.
NH:
But RSA, with a market capitalisation of £4.8bn, would be a reasonable-sized deal and any acquirer would need to pay a full price.
Analysts estimated that at Friday’s closing share price of 145.3p, and assuming a 25 to 30 per cent premium for control, any bidder would need to pay about 200p a share, a significant premium to RSA’s net asset value of 94p.
Some investors and analysts also question why a potential bidder would want to buy RSA now when its shares have been much cheaper in the past.
However, perhaps the biggest hurdle is that the field of potential buyers looks limited – as has already been demonstrated by the muted interest in RBS Insurance.
“Buyers are few and far between,” says Roman Cizdyn, analyst at Blue Oar Securities.
American International Group, long seen as a predator for RSA, has its own issues to deal with after more than $30bn (£16bn) in writedowns and losses related to the credit crunch.
Aviva has looked at RSA in the past, according to people with knowledge of Aviva’s business, but did not make a move and it is now grappling with a poor share price performance.
Analysts estimated that at Friday’s closing share price of 145.3p, and assuming a 25 to 30 per cent premium for control, any bidder would need to pay about 200p a share, a significant premium to RSA’s net asset value of 94p.
Some investors and analysts also question why a potential bidder would want to buy RSA now when its shares have been much cheaper in the past.
However, perhaps the biggest hurdle is that the field of potential buyers looks limited – as has already been demonstrated by the muted interest in RBS Insurance.
“Buyers are few and far between,” says Roman Cizdyn, analyst at Blue Oar Securities.
American International Group, long seen as a predator for RSA, has its own issues to deal with after more than $30bn (£16bn) in writedowns and losses related to the credit crunch.
Aviva has looked at RSA in the past, according to people with knowledge of Aviva’s business, but did not make a move and it is now grappling with a poor share price performance.
NH:
Generali is another potential predator, but people who know it played down its interest in RSA.
Axa is always keen to pick up assets at an attractive price, but Henri de Castries, chief executive, insisted last week that the French insurer would not be rushed into deals.
QBE, the Australian insurer, is seen as a potential acquirer, although some investors and analysts doubt its interest, particularly given its acquisition this week of the Australian, New Zealand and Asian assets of US mortgage insurer PMI Group for A$1bn (£465m).
Zurich Financial Services and Allianz – which is keen to expand its presence in the UK – are seen as the most likely contenders, although they have refused to be drawn.
While RSA would be a useful addition, they have both recently shown restraint with acquisitions. Each looked at RBS’s assets but appear to have decided not to take their interest further
Axa is always keen to pick up assets at an attractive price, but Henri de Castries, chief executive, insisted last week that the French insurer would not be rushed into deals.
QBE, the Australian insurer, is seen as a potential acquirer, although some investors and analysts doubt its interest, particularly given its acquisition this week of the Australian, New Zealand and Asian assets of US mortgage insurer PMI Group for A$1bn (£465m).
Zurich Financial Services and Allianz – which is keen to expand its presence in the UK – are seen as the most likely contenders, although they have refused to be drawn.
While RSA would be a useful addition, they have both recently shown restraint with acquisitions. Each looked at RBS’s assets but appear to have decided not to take their interest further
PM:
okay thanks for that
PM:
PM:
How about some more RAW
NH:
OK
NH:
funnily enough the company was mentioned below
PM:
NH:
Uranium One
PM:
pharmatrader007
NH:
ticker UUU.TO
NH:
listed in Toronto
NH:
has a market cap of $1.725bn
NH:
this company may be familiar to readers
NH:
it was created a couple of years ago
NH:
when Aim-listed UrAsia Energy was reversed into SXR Uranium One
NH:
that deal was completed in April last year and at the time the company was worth almost $4bn
PM:
so it’s come back quite a way
NH:
yup
NH:
but over the past couple of days the stock has been on fire
NH:
last night it rose around 7% in heavy volume of around 11m shares
NH:
the talk in the market was of a $7 a share bid from ENRC
NH:
now, this could make sense Uranium One has assets in the Kazahkstan
NH:
althought it also has assets in the US, Canada and Australia
NH:
and ENRC are on the lookout for acquisitions
NH:
check this statement from their recent results
NH:
STRATEGY
Looking at the opportunities for the development of the Group it is worth reiterating our five strategic goals:
Looking at the opportunities for the development of the Group it is worth reiterating our five strategic goals:
* Maintain and improve on our low-cost operations;
* Continue expansion and development of the existing reserves and capacity;
* Add value and customer diversity by expanding our product portfolio;
* Expand our asset portfolio and footprint in the region’s natural resources sector and within our core commodities worldwide; and
* Commit to high standards of corporate responsibility.
The operational strategic goals will be realised through three main streams: enhancing our existing assets; organic growth; and acquisitions.
NH:
Acquisition opportunities are an important element of our strategy. We believe that our presence in the region and our operational capabilities in our core commodities leave us well equipped to successfully execute value-enhancing transactions in the years ahead. Nonetheless, a tight financial discipline will underpin our approach to any such opportunities.
PM:
I have called a certain ENRC source this morning, but no reply as yet
PM:
he may still be on the Cote dAzure
PM:
So this remain RAW, untested market info
PM:
Reader beware!
NH:
it is and ENRC could be the wrong name
NH:
but some very good people are convinced a bid is on the way for this company
PM:
looks like Uranium One jsut reproted results
PM:
just reported, even
NH:
and here is a bit of blurb from Uranium One’s website
NH:
: Uranium One Inc. is a Canadian-based uranium producing company with a primary listing on the Toronto Stock Exchange and a secondary listing on the JSE Limited (the Johannesburg stock exchange). The Corporation has a 70% interest in a Joint Venture in Kazakhstan that owns the Akdala Uranium Mine, which is currently in operation and the South Inkai Uranium Project, which commenced pre-commercial production in 2007
NH:
The Corporation also has a 30% interest in a Joint Venture in Kazakhstan that is developing the Kharasan Uranium Project. In addition, Uranium One owns the Dominion Uranium Project in South Africa, which is in pre-commercial production. In the United States, the Corporation is developing the Hobson-La Palangana ISR project in Texas and has applied for a licence to construct and operate an ISR facility at Moore Ranch in the Powder River Basin and at JAB/Antelope in the Great Divide Basin of Wyoming.
PM:
PM:
Where to now?
NH:
well, actually I have some more RAW
PM:
Oooh
NH:
rumours swirling that Sinopec has dropped out of Imperial Energy non-auction
NH:
and Deutsche Boerse is higher on rumours that it is set to sell Clearstream
NH:
however, that seems unlikely
NH:
as it’s one of DB’s biggest earners and is key infrastructure.
NH:
however, they could sell a stake
NH:
indeed we reported as much a couple of weeks
NH:
at the time the rumour was roughly 20pct stake to Asian sovereign wealth fund
NH:
and I am just picking up some fresh speculation on TNT
NH:
which as one reader noted below is up around 3%
PM:
TNT — the dutch mail group
PM:
Lot of stale bulls in that one i fear
PM:
while you were away there was a big story in one of the Sunday’s that UPS and private equity group CVC had hired advisers and were working on the deal
NH:
well that’s interesting because this morning’s rumour focuses on a director
NH:
who is on the board of both TNT and CVC, apparently
PM:
who is that?
NH:
name is Jan Hommen
NH:
Mr Hommen appears to have been a CVC adviser at some point
NH:
but I can’t find anything on the website at the moment
NH:
he is also on the TNT supervisory board
NH:
but
NH:
he has already announced he intention to retire
NH:
so I am not sure how much we can read into all of this
NH:
I got this from the TNT website
NH:
This was approved by the Supervisory Board in view of the fact that Mr. Hommen is planning to step down as chairman of the Supervisory Board as soon as a suitable replacement for his position as chairman will be available. He will resign from the Supervisory Board at the annual general meeting of shareholders in 2009, when his third term will expire.
NH:
obviously we are checking this out
NH:
and I stress this is COMPLETELY RAW AND UNTESTED MARKET INFO hat he has resigned
NH:
but TNT shares are slightly better this morning up around 3.2% at EUR26
PM:
Interesting — one to watch, clearly
PM:
NH:
can we turn back to the banks for a minute?
PM:
So long as it with a positive mindset
NH:
don’t worry, I am on message
NH:
it’s by redburn Partners
NH:
on Barclays
NH:
and they have turned buyer
NH:
Thesis: Upgrade to Buy. Barclays is the best-placed UK bank to cope with an
environment where lower leverage is demanded and loan impairments are rising. A
20% through-cycle ROE is possible with half the current asset base. A relatively small
and low risk loan book means earnings are less exposed to economic deterioration.
environment where lower leverage is demanded and loan impairments are rising. A
20% through-cycle ROE is possible with half the current asset base. A relatively small
and low risk loan book means earnings are less exposed to economic deterioration.
NH:
20% through-cycle tangible ROE is achievable, even if Barclays deleverages
substantially, by shedding BarCap’s lower returning assets and by improving the
profitability of commercial banking assets (classic end-of-cycle bank behaviour).
substantially, by shedding BarCap’s lower returning assets and by improving the
profitability of commercial banking assets (classic end-of-cycle bank behaviour).
NH:
That robust ROE is: (1) in line with its 20-year average, (2) 15% on a cumgoodwill
basis, (3) consistent with a bank that generates 55% of earnings from
oligopolistic UK banking and asset/wealth management (BGI’s 2005-07 ROE
averaged 240%), and (4) well above the 13% currently discounted by the shares.
basis, (3) consistent with a bank that generates 55% of earnings from
oligopolistic UK banking and asset/wealth management (BGI’s 2005-07 ROE
averaged 240%), and (4) well above the 13% currently discounted by the shares.
NH:
Further shareholder dilution is unlikely thanks to Barclays’ inherent balance
sheet flexibility which enables it to deleverage by cutting assets rather than issuing
new equity. Doing so will also improve the bank’s liquidity position. Deleveraging in
this way is certainly not an option available to all of Barclays’ peers.
sheet flexibility which enables it to deleverage by cutting assets rather than issuing
new equity. Doing so will also improve the bank’s liquidity position. Deleveraging in
this way is certainly not an option available to all of Barclays’ peers.
NH:
50% upside in Barclays shares is implied. A 20% normalised tangible ROE
easily justifies a fair price/book of 2x and thus a fair value for the shares of 500p.
easily justifies a fair price/book of 2x and thus a fair value for the shares of 500p.
NH:
Overplayed concerns about asset quality explain the discount. We calculate
that BarCap’s writedowns are £2bn below its peers, though there is evidence that
this actually reflects better risk management. Barclays is also less sensitive than its
peers to the inevitable rise in commercial banking loan losses.
that BarCap’s writedowns are £2bn below its peers, though there is evidence that
this actually reflects better risk management. Barclays is also less sensitive than its
peers to the inevitable rise in commercial banking loan losses.
PM:
Goodness, that is perhaps a bit too upbeat — even for me
NH:
here’s a bit more
NH:
There is no getting away from the fact that Barclays is a cyclical business. It is after all
a bank, and thus risk-taking is at the heart of its business. Whilst this report contains our
deep analysis of Barclays’ £1.4trn balance sheet, it is obviously not possible to know
exactly what risks lie therein. However, based on what we can see (and – notably –
disclosure is amongst the industry’s best), Barclays has a relatively flexible and low-risk
asset mix compared with its peers.
These qualities will allow Barclays to adapt more easily than its peers to a lower leverage
banking model, thus reducing the risk to shareholders of further dilution through new
equity issuance. They also mean that Barclays is well positioned to weather the inevitable
economic downturn.
a bank, and thus risk-taking is at the heart of its business. Whilst this report contains our
deep analysis of Barclays’ £1.4trn balance sheet, it is obviously not possible to know
exactly what risks lie therein. However, based on what we can see (and – notably –
disclosure is amongst the industry’s best), Barclays has a relatively flexible and low-risk
asset mix compared with its peers.
These qualities will allow Barclays to adapt more easily than its peers to a lower leverage
banking model, thus reducing the risk to shareholders of further dilution through new
equity issuance. They also mean that Barclays is well positioned to weather the inevitable
economic downturn.
NH:
Deleveraging is inevitable, but a 20% tangible ROE is compatible with this
These days, it is not regulators or bank managements that will determine ‘the right
amount’ of bank gearing, it is wholesale funding markets. At present, the message is
unequivocal: banks, including Barclays, must continue to deleverage.
Our detailed analysis shows that Barclays has the balance sheet flexibility to do this
through the less painful route of paring assets rather than raising (more) new equity, but
what will this mean for profitability? We calculate that a 20% normalised ROE is
achievable with a balance sheet that is half the current size (excludes derivatives). Firstly,
most of the deleveraging will come in BarCap’s low return-on-assets balance sheet
(two thirds of the Group balance sheet), and secondly, Barclays will do what all banks
do as the cycle turns down: it will widen margins and cut costs in the commercial
banking businesses.
These days, it is not regulators or bank managements that will determine ‘the right
amount’ of bank gearing, it is wholesale funding markets. At present, the message is
unequivocal: banks, including Barclays, must continue to deleverage.
Our detailed analysis shows that Barclays has the balance sheet flexibility to do this
through the less painful route of paring assets rather than raising (more) new equity, but
what will this mean for profitability? We calculate that a 20% normalised ROE is
achievable with a balance sheet that is half the current size (excludes derivatives). Firstly,
most of the deleveraging will come in BarCap’s low return-on-assets balance sheet
(two thirds of the Group balance sheet), and secondly, Barclays will do what all banks
do as the cycle turns down: it will widen margins and cut costs in the commercial
banking businesses.
PM:
He’s targetting a 50 per cent hike in the price
NH:
NH:
Just picking up some rumours on TNS
NH:
looks like this one may not go Martin Sorell’s way
PM:
Really?
PM:
Sir Martin to you
NH:
sorry, Lord Sorrell
PM:
NH:
one report this morning claimed Cedar Capital was going to vote against his offer
NH:
and now we are picking up talk that TSC will do likewise
NH:
that would total around 15%
NH:
of TNS
PM:
Hmm — the register of TNS is full of hedgies now
NH:
could throw a spanner in the works
Taylor Nelson Sofres (TNS:LSE): Last: 265.25, down 1.75 (-0.66%), High: 265.50, Low: 264.75, Volume: 1.71m
PM:
Or we could just get a standoff — Sorrell likes that sort of thing
PM:
I dont think he will raise
NH:
i wonder what the views of other shareholders are
PM:
I think the hedgies are just making public noise to try and get a few more pennies
PM:
They should already have made good money on this
PM:
bids have come in 220/240/260…
NH:
NH:
RSA motoring now
NH:
up 6.9p at 152.4p
PM:
So is Admiral as well — could just be a sector move
PM:
And — just looking at the leaders — see BT is on the move again
PM:
Was mentioned below earlier
PM:
More stake building rumours??
NH:
they are around and seem to be based on the fact that former BT boss, Sir Peter Bonfield
NH:
is a non executive director at Dubai International Capital
NH:
however, the real reason for the move today
NH:
is a big upgrade from Goldman
NH:
just been looking at the note
NH:
basically saying recent share price weakness – BT has underperformed the sector by 20% YTD and by 40% over the past year – has created a decent buying opportunity
PM:
I see
NH:
Goldman reckons most of the bad news is, as they say, “in the price”
NH:
on top of that Goldman is not expecting a divi cut with Q2 results in November
PM:
Do you have the note to hand?
NH:
yup
NH:
here it is
NH:
With BT now trading at 4.2x 2009E EBITDA and at an adjusted FCF yield of 11.2% on our revised forecasts (with our revised pension deficit assumption included in the EV calculation on the same basis as debt), we believe that substantial downside risks are priced into the stock and that there is significant potential upside if management is
able to execute through its difficult patch successfully. More solid reassurance about
the security of consensus dividend estimates and pension funding will have a
compounding effect in our view, given the risk discount that we now see in the stock.
able to execute through its difficult patch successfully. More solid reassurance about
the security of consensus dividend estimates and pension funding will have a
compounding effect in our view, given the risk discount that we now see in the stock.
NH:
This is the first time we have rated BT Buy since October 2000.
NH:
We expect a greater focus on cost and capex control
From here, we believe that the company has the opportunity to address its cost base
more aggressively.
From here, we believe that the company has the opportunity to address its cost base
more aggressively.
Slowing LLU volumes and bedding in of the key new IT systems in Openreach should reduce workload pressure following a tough period of adaptation to equivalent servicing of external carrier customers.
NH:
Since March 2004, BT’s total staff numbers have growth at 3% pa with 12,000 staff added, all outside the UK (more than the total employed by Vodafone Germany).
Although UK staff numbers fell during 2007/8 the numbers are still above the level of March 2005 even though BT has engaged in extensive offshoring, a service that it also provides for its global customers.
One of the benefits of 21CN is supposed to be reducing labour intensity in the core
network as BT moves its complex legacy networks up to the technology deployed by its leaner, blessedly legacy-free competitors. We expect Mr Livingstone to increase his focus on labour productivity in the UK, given the company’s sustained high level of capital intensity, the benefits of its investment programmes, notably 21CN.
NH:
The Financial Times reported on August 27, 2008 that BT might sell its stake in Tech
Mahindra, which we value based on market prices at £396m. This could provide some additional financing flexibility.
Mahindra, which we value based on market prices at £396m. This could provide some additional financing flexibility.
PM:
PM:
Oh — Prometheus is with us
PM:
Neil?
PM:
Did you manage to remember you shorts?
NH:
no, no. I have not forgotton
PM:
Thank goodness for that
PM:
PM:
Let’s see em then
NH:
courtesy of those kind people at DataExplorers.com here they are
NH:
Market cap on loan
NH:
HMV – 37.75%
Persimmon – 29%
Sainsbury – 28%
DSG – 28%
Bovis – 25%
Barratt – 23%
Imagination Technology – 22%
LSE – 22.5%
Trinity Mirror – 21.5%
Aberdeen Asset Management – 19%
British Airways – 19%
Rightmove – 18.4%
JD Wetherspoon – 18.25%
Yell Group 18.1%
Redrow – 18.1%
Signet – 17.5%
Debenhams – 17.2%
Woseley – 17.2%
Persimmon – 29%
Sainsbury – 28%
DSG – 28%
Bovis – 25%
Barratt – 23%
Imagination Technology – 22%
LSE – 22.5%
Trinity Mirror – 21.5%
Aberdeen Asset Management – 19%
British Airways – 19%
Rightmove – 18.4%
JD Wetherspoon – 18.25%
Yell Group 18.1%
Redrow – 18.1%
Signet – 17.5%
Debenhams – 17.2%
Woseley – 17.2%
NH:
that’s percentage of market cap on loan
PM:
Leaders across the 350
NH:
now, one must remember that some of those figs are high for technical reasons
NH:
hedging convertible bonds and borrowing stock for divi washes
PM:
And some are high for reasons of common sense!
NH:
yup
NH:
pretty sicklical bunch
NH:
anyway hope that helps
NH:
for more info check out this site put together by DataExplorers
NH:
http://shortstories.typepad.com/globalequities/2007/06/index.html
NH:
NH:
and here are some more stats
NH:
Quarterly index review is coming up
PM:
when is that?
NH:
announced on Sept 10
NH:
but the decisions will be based on the closing markets cap of Sept 9
NH:
now, if the review happened last night
NH:
the following stocks would be in and out
NH:
Potential FTSE 100 Changes
Relegation
ALLIANCE TRUST
LONDON STOCK EX.GROUP
ICTL.HTLS.GP.
THOMAS COOK GROUP
NEXT
WHITBREAD
CARPHONE WHSE.GP.
ITV
ENTERPRISE INNS
FERREXPO
NH:
Promotion
FRESNILLO
AUTONOMY CORP.
INMARSAT
PENNON GROUP
STAGECOACH GROUP
HOME RETAIL GROUP
SERCO GROUP
TATE & LYLE
LOGICA
WEIR GROUP
FRESNILLO
AUTONOMY CORP.
INMARSAT
PENNON GROUP
STAGECOACH GROUP
HOME RETAIL GROUP
SERCO GROUP
TATE & LYLE
LOGICA
WEIR GROUP
NH:
Potential FTSE 250 Changes
Relegation
RANK GROUP
ADVANCE DEVP.MKTS.TST.
TRINITY MIRROR
MORGAN SINDALL
HEADLAM GROUP
GRAINGER
NORTHGATE
SPEEDY HIRE
WORKSPACE GROUP
QUINTAIN ESTATES & DEV.
SOUTHERN CROSS HLTHCR. GP.
GALIFORM
Promotion
BH GLOBAL GBP
SYNERGY HEALTH
HSBC INFRASTRUCTURE CO.
GOLDMAN SACHS DYM.OPPS.
AXON GROUP
THAMES RVR.MLT.HEDGE PTG
ELEMENTIS
BABCOCK & BROWN PBPART.
EAGA
BTG
SPICE
FIDESSA GROUP
NH:
Potential FTSE Small Cap Changes
Relegation
PRINCIPLE CAPITAL IT.
MORSE
LONDON & ASSOCS.PROPS.
BLACKS LEISURE
VISLINK
EMBLAZE
SUPERGLASS HOLDINGS
NORCROS
SKYEPHARMA
ALIZYME
Promotion
SPICE
GLOBAL MENA FINL.ASSETS
MEARS GROUP
CADOGAN PETROLEUM
BLUECREST ALLBLUE FD.GBP
SCOTTISH ORIENTAL SMCOS.
CAZENOVE ABSOLUTE EQUITY
KEWILL
THE BIOTECH GROWTH TST.
ALTERIAN
GAMES WORKSHOP
ARTEMIS ALPHA TRUST
PM:
PM:
We wont encourage the stuff about gambling stocks below
NH:
NH:
right have a quick update on Imperial Energy
NH:
this just appeared on Deal Reporter
NH:
China Petrochemical Corp, the state-owned unlisted parent company of listed Sinopec, will not make a bid for London-listed Russian oil producer, Imperial Energy, according to sources.
“I have not heard that CPC is looking to make a bid for Imperial Energy,” said a source at CPC, who claimed to be closely involved with every overseas bid made by the company. The source expressed surprise at a report this morning that suggested State-owned Sinopec remained interested in buying Imperial Energy. The source was aware of other similar reports and said there seemed to be an increasing trend whereby foreign vendors spread rumours about potential Chinese counter-bidders, such as Sinopec, to lift share prices in sale situations.
“I have not heard that CPC is looking to make a bid for Imperial Energy,” said a source at CPC, who claimed to be closely involved with every overseas bid made by the company. The source expressed surprise at a report this morning that suggested State-owned Sinopec remained interested in buying Imperial Energy. The source was aware of other similar reports and said there seemed to be an increasing trend whereby foreign vendors spread rumours about potential Chinese counter-bidders, such as Sinopec, to lift share prices in sale situations.
NH:
Talk of a possible rival bid followed yesterday’s recommendation by Imperial Energy of a GBP 1.4bn offer from ONGC. Insiders at both companies said Sinopec had been given access to Imperial Energy’s data room but that the Chinese company was not intending to make a bid.
The insiders and a minority Imperial Energy investor added that the Russian government effectively controlled who would buy Imperial Energy. They said that Russia’s relationship in these matters was far stronger with India than with China. The insiders noted that ONGC already had an oil project on the go in Russia (ONGC has a 20% stake in the Sakhalin-1 project alongside a number of co-investors who include Rosneft affiliates RN-Astra and Sakhalinmorneftegas-Shelf) and had recently “been given the nod by Moscow” to acquire Imperial Energy. The insiders said Sinopec had probably realised it was unlikely to gain approval from the Russian government and had decided to walk away
The insiders and a minority Imperial Energy investor added that the Russian government effectively controlled who would buy Imperial Energy. They said that Russia’s relationship in these matters was far stronger with India than with China. The insiders noted that ONGC already had an oil project on the go in Russia (ONGC has a 20% stake in the Sakhalin-1 project alongside a number of co-investors who include Rosneft affiliates RN-Astra and Sakhalinmorneftegas-Shelf) and had recently “been given the nod by Moscow” to acquire Imperial Energy. The insiders said Sinopec had probably realised it was unlikely to gain approval from the Russian government and had decided to walk away
NH:
NH:
and now time for something a little more hearted
NH:
this email is going round the City this morning
NH:
it concerns the profits warning from Paddy Power yesterday
NH:
and buried in the figures are some interesting stats
NH:
In a tone reminiscent of March 03′s famous inflection turnaround point, buried within Paddy Power’s figures yesterday showed the open interest amongst private investors…
NH:
In their financial spread betting division, 68% of money is short the FTSE vs 32% long. 92% short Dow Jones & S&P vs 8% long. 19% short oil vs 81%long & lastly, 10% short cable vs 90% long ( expecting a stronger £)
NH:
Almost in echo of this, IG Index reported that their client base had remained Long through out the last 6 mths, but had finally thrown in the towel and their private client exposure was 90% short.
PM:
92% short of the Dow!
NH:
In short, magnify these figures for the whole of the ‘institutinal world’& you have the basis for a turnaround and the foundations for a PROPER RALLY!!
NH:
amazing, isn’t it
PM:
It certainly is
NH:
right, Paul has an important meeting to go to at midday
NH:
so we will wrap things up
NH:
unless there is anything more to say
NH:
thanks ARB. Does look like that report is a day old.
PM:
Right — we are done
PM:
Thanks for joining
PM:
And happy birthday Justin
PM:
thanks for the comments
NH:
RNS on Imperial just out
NH:
urther to press commentary regarding a possible offer for Imperial Energy Corporation PLC (“Imperial”), Sinopec International Petroleum Exploration and Production Corporation (“Sinopec”) announces that they are no longer considering making an offer for Imperial.
This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.
The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.
NH:
Imperial shares falling
NH:
down 39p at £11.55
NH:
that’s a big discount to the offer price
NH:
of £12.50
PM:
True
PM:
But we are off…..
PM:
Back tomorrow at 11am.