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Markets live transcript 12 Sep 2008

Posted by Paul Murphy on Sep 12 11:01.

Markets live chat transcript for the chat ending at 12:01 on 12 Sep 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)

PM:

Hi
PM:

Welcome to ML form AV
PM:

N here
PM:

Tis rush rush rush
NH:

I NEED ANOTHER HOLIDAY
PM:

What a week this has been
PM:

We are just as bemused as everyone.
NH:

Couple of days ago we were listening to the Lehman conf call – and thinking Fuld – he sounds so so so down.
NH:

We talked about the Lehman death watch.
NH:

The firm’s in its final hours as we type.
NH:

And what happens – prices soar.
NH:

Better to arrive than travel in this upside down market.
NH:

mad, mad market
PM:

Some people reduced to pray.
NH:

Not surprised
PM:

This is going round
PM:

Your bank, which trades on Wall Street,
Tarnished is your name,
My cods have been done,
In equities and fixed income,
Give us this day our yearly divi,
And forgive us our stupidity,
As we forgive those who traded sub-prime,
And lead us not into temptation,
But deliver us from junk bonds,
For I am much poorer, the children are hungry, for ever and ever.
Amen
NH:

so what do think is going to happen with Lehman
NH:

just saw Charlie Gasparino on CNBC
PM:

Their top on guy
NH:

dragged out of bed at 5.00am to talk Lehman
PM:

on air
NH:

he looked awful
NH:

shaking, bleary eyed
NH:

but he managed to talk
NH:

and his view was the Lehman is heading for a break up
NH:

buyers for three bits of it
PM:

That was the flavour form the Washington Post thi smorning
NH:

and the don’t write business unless they KNOW
PM:

yes — it had politcal finger prints all over it
PM:

talking about a multiple break up
PM:

Dick Bove — the analysts who has been calling for a takeover says it would be great for BoA
NH:

sorry for the pauses – system running very slow this morning
PM:

But Im with gasparino on this — I dont see how Bank of American could swallow all of Lehman
PM:

The’d be Fuld up with problem assets after countrywide
NH:

but they could buy bits
NH:

as could Barclays, which could go for the IMD
PM:

Yep
PM:

Lots of Leh notes and stuff up on the Alphaville home page
PM:

Just to Amanda’s point below on the Wall St at the close
PM:

it is funny the way people have started with conspiracy theories
PM:

And also the case that this is self-fulfilling
PM:

But i would note that Wall Street has a long history over moving violently during the last half hour
PM:

In fact, that is far and away the most important period of the day — i think
PM:

PM:

being in London
NH:

NH:

to some comments below
NH:

we are going to deal with Ciba in a minute
NH:

but someone asked about Michael Page
Michael Page International (MPI:LSE): Last: 309.75, down 0.25 (-0.08%), High: 314.75, Low: 290.50, Volume: 2.25m
NH:

and whether the demise of Adecco’s biggest shareholder – Kluas Jacobs
NH:

means they wikll not come back with a higher offer
NH:

a 400p bid was rejected
NH:

Kean Marden, analyst at Kaupthing (who we rate) reckons it is is unlikely
NH:

The likelihood of a bid for Michael Page from Adecco (currently under a Takeover
Panel order to announce whether it has an intention to bid by 30 September)
receded in our view with the news that Klaus Jacobs (the honorary chairman and
largest shareholder in Adecco, family holding of 22.6%) had died.
NH:

We believe that Mr Jacobs was a driving force behind Adecco’s interest in Michael
Page and, in the absence of his influence, a formal bid above the previous
rejected 400p level is unlikely.
NH:

hope that helps
PM:

So, re posters’ identity below — is Len Len, or is Len Amanda, or is Amanda Len, Or is Amanda Len using Amanda’s name to register?
PM:

NH:

Right now – complete change of tack now
PM:

Some readers will be aware that here at AV HQ we noticed some sort of wet trickle falling on our heads from a very great height this morning.
PM:

Yesterday here – we suggested that after weeks of speculation we believed that CIBA of Switzerland had finally received a firm takeover bid.
PM:

The name we put in the frame was BASF and the price we had heard was CHF50.
PM:

Now , we tried to leave ourselves a couple of escape shutes – and issued all the usual disclaimers.
NH:

RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
PM:

But, yeah, we accept we are on the hook for this one since we attributed it to NO1.
PM:

PM:

What happens?
PM:

The shares are suspended?
NH:

No – just the spreadbetting firms in the UK stop people punting on the story.
PM:

An announcement out of CIBA?
NH:

No – radio silence from the Alps
PM:

So what have we got?
NH:

A whithering note from Goldman Sachs.
NH:

Clock this:
NH:

Ciba SC (CIBN.VX) Sell: Speculation overdone, challenges remain: Add to Sell List 4
CIBN.VX, SFr36.98
Richard Logan, CFA (London): richard.logan@gs.com, +44(20)7552-1801
Goldman Sachs International
Geoff Haire (London): geoff.haire@gs.com, +44(20)7774-2447
Goldman Sachs International
NH:

Ciba’s shares have rallied by c.26% on M&A speculation and comments from an activist shareholder calling
for a change of chairman (Reuters/Dow Jones, September 5, 10). As discussed in our report (M&A back in
focus, published Sept. 3) we expect speculation but believe it is unlikely Ciba will become a target in the near
term due to its high leverage and weak competitive position. Further, its provisions may restrict a takeover
including limiting voting rights to 2%, Novartis owning the Ciba brand and certain environmental provisions
passing to Ciba from Novartis in the event of a change in control. As a result, we downgrade to Sell (Neutral).
NH:

Catalyst
NH:

Ciba is facing significant ongoing structural challenges (elevated raw materials, lack of pricing power, low
cost emerging market competition commoditising its product portfolio, etc.) We believe the economic
downturn in N.America and Europe will lead to weakness in Ciba’s profitability in 2H08 and into 2009. In our
opinion, there will likely be a downgrade to guidance in 2H08 either at the 3Q results on November 5 or
ahead of the 4Q results on February 10. We also expect a cut to Ciba’s 2008 dividend to SFr1.5 (vs. SFr2.5
in 2007). We believe bid speculation will likely ease, leading to underperformance of the shares.
NH:

Valuation
Our 6-month EV/GCI to CROCI/WACC and M&A probability weighted price target remains SFr26. Ciba is
trading on 8.8x 2008E EV/EBITDA compared to the traditional chemical sector average at 6.5x (excluding
Ciba) and is now close to our estimated takeout valuation of SFr40/share.
NH:

Key risks
The main risks to our price target and view are: bid speculation on Ciba may intensify; and a change in
chairman may lead to positive sentiment, combined with a high level of short interest on the shares.
PM:

Ouch ouch ouch
PM:

GS v NH
PM:

place yer bets
NH:

er, yeah. bring it on
PM:

So we come out with our hands out here do we.
PM:

Hands in the air, tail between the legs
PM:

Cant win em all, etc.
NH:

Well, I think Richard Logan at GS makes some very good points.
NH:

He’s clearly an analyst with his head screwed on.
NH:

But I don’t think we should capitulate right away.
PM:

Er, why not? AV has effectively said “buy” – Goldman Sachs, most powerful investment bank on the planet has said “sell” – bid story over cooked.
PM:

Do we really want to go toe to toe with Goldman Sachs.???
PM:

Tell me why we should?
NH:

Well look at the price – CIBA came rattling back 8 per cent on this GS downgrade.
NH:

And now its up 5%
PM:

NH:

that’s a big turnaround
NH:

sure it was weak yesterday
NH:

but the price action is surely telling us something
NH:

anyway my source has not changed his story
NH:

and here’s some more interesting stuff
NH:

Ciba studiously refused to comments on the rumours when we approached them yesterday
NH:

said absolutely nothing
NH:

which is very odd
NH:

easy story to knock down if you want to
NH:

of course
NH:

it could be that Goldman made the downgrade yesterday
NH:

and that’s why the stock is weak
NH:

and the rest of the world and the press has only found about it this morning
NH:

but I still think something is going on
NH:

on top of what I have been saying
NH:

there are some other rumours in the market this morning
NH:

these have not been checked so are extremely RAW
PM:

raw rumours — untested uncheck
NH:

one is that the company has received a numbers of offers
NH:

Some cash and some cash and shares
NH:

then there is talk that Ciba could merger with rival Clariant
NH:

which I personally think is unlikely
NH:

anyway, if this story does not come to pass
NH:

NH:

will suffer a downgrade
NH:

at the moment he has an umblemished record
NH:

but like Amir Khan that could change
PM:

We are standing by
PM:

Even tho there are two s
PM:

That will confuse people, sorry
PM:

get like the prisoner soon
NH:

NH:

a new comment from DOG
PM:

NH:

who calls themselves DOG
NH:

Monkey is one thing
NH:

Tuna another
NH:

but Dog
PM:

NH:

still good point on the spreadbetters
NH:

wider market??
PM:

PM:

yeah
NH:

FTSE 100 off its best
NH:

up 54 points at 5372
NH:

hit 5,400 momentarily this morning
NH:

obviously
NH:

a rescue bid for an ailing US financial institution is great news for equity markets worldwide
PM:

but why is it
NH:

and one has to wonder how many more of these there will be
NH:

and who’s next??
NH:

Merrill
NH:

WaMU??
NH:

AIG??
PM:

Just more toxicity on the US gov books
NH:

poor Hank Paulson can’t get a weekend off
NH:

every week there is another finanacial institution to rescue from oblivion
NH:

and that’s good news
PM:

Yep, we re going to have to go seven days a week
PM:

re Taxloss
PM:

People have been looking for the cathartic moment since the Crock run
Readers may also know this former bank as Northern Rock.
PM:

IS TODAY THE ANNIVERSARY???
NH:

and we are still looking. like the search for the holy grail
NH:

WHAT THE DAY – Peston broke the greatest story in British banking history??
PM:

I think it is
PM:

Dont knowkc Peston — it ws a good story
NH:

and don’t we know it
PM:

NH:

PM:

So what is leading this bull market higher??
NH:

tour operators
NH:

and one man’s misery is another man’s….
PM:

you must be talking about the collapse of XL Leisure
NH:

I am
NH:

UK’s third largest tour operator
NH:

here’s our story from this morning
NH:

NH:

anyway
NH:

big cheer from the market on news it had been placed into administration
PM:

(zoomy boy, please calm down. We will need to get the Ritalin out)
PM:

Why the cheer?
NH:

because it takes out 5% of the market
NH:

admittedly that’s not much consolation if you have booked a holiday with them
NH:

and work for Lehman Bros
NH:

but its great news for Tui Travel, which is up 13.25p at 235p
NH:

a rise of 6%
NH:

and Thomas Cook which is up even more
NH:

16.5p higher at 251p
NH:

a gain of 7%
PM:

that’s not very chartitable
NH:

no
NH:

but the package holiday industry has been plagued by over capacity for years
NH:

this news
NH:

combined with a falling oil price
NH:

is clearly good news for the sector
NH:

although longer term the economic slowdown will not be good news for the industry
NH:

here’s some analyst thoughts
NH:

the first is from Landsbanki
NH:

Holidaybreak (Travel & Leisure, Buy, Mkt Cap £185m, 355p)
We reiterate our Buy recommendations on TUI Travel, Thomas Cook and Holidaybreak, following the news this morning that XL Leisure Group (the third largest tour operator in the UK) has gone into administration.
NH:

Since the group announced it was pulling its Caribbean programme a couple of weeks ago this has been a perceived risk. While this does highlight the obvious challenges from a slowing consumer and rising fuel costs facing the industry, crucially it is likely to result in a further material cut in industry capacity.
NH:

This is similar to the experience in the early 1990′s when International Leisure Group collapsed. In the years following the collapse Airtours grew profits throughout the economic downturn and its share price materially outperformed.
NH:

It is our central proposition that supply will fall by more than industry demand and that the two giants will prosper while smaller operators go bust or materially cut back capacity as they lack the necessary critical mass. We estimate that the two large operators need price increases of c6% to offset cost pressures, while the smaller operators probably need closer to 15% as they lack the buyer power, probably haven’t hedged fuel to the same extent and have weaker balance sheets.
NH:

It is worth noting that XL as well as providing tour operating packages themselves also provide flights for other operators. As such this could see a domino effect on other smaller tour operators, thereby reinforcing the supply cuts. This has an obvious benefit to the remaining players. Note Holidaybreak should benefit from lower competition in its Camping business, which competes with mainstream tour operators for family holidays. Other than the direct impact of lower capacity the big two should also benefit from a flight to quality and size by customers, who have seen the collapse of many small airlines in recent months.
NH:

and this is from Investec
NH:

XL Leisure goes into administration
NH:

We see TUI Travel and Thomas Cook as clear beneficiaries of today’s
announcement that XL Leisure, the UK’s number three operator, has gone into
administration. The removal of XL will reduce UK package holiday capacity by
c.7% – clearly helpful in an industry that faces obvious consumer uncertainty
next year. We also think that bookings remain positive to date and retain our
positive view on the sector.
NH:

XL Leisure, the UK’s third-largest tour operator, has this morning gone into
administration following an unsuccessful attempt to financially restructure the
business.
NH:

Why has it gone bust? We think there are two reasons why XL has gone into
administration. First, the high fuel price has had a major impact on the group’s
scheduled flying operation, which flies c.1.3m passengers per year. Second, we
believe the group is highly geared following a recent MBO and investment in its
airline fleet. Based on previous statements from its management, we do not
think XL has faced difficulties because of booking weakness.
NH:

Will it be the last? We think not. There have been a number of similar issues
recently of smaller tour operators hitting financial difficulties. At this time of year,
working capital reverses for tour operators as they begin to pay suppliers such
as hoteliers.
NH:

Implication for others. We think this is a clear positive for the “big two” tour
operators (TUI and Thomas Cook), which compete head to head with XL. Their
strategy has been to slice their own capacity in an attempt to tighten the market
and have each announced plans to reduce their summer 2009 package holiday
capacity by c.8%. We understand that XL has c.7% of the UK package holiday
industry so, clearly, the removal of this from the industry as well is very helpful,
tightening the market further.
NH:

The historical precedent for today’s news occurred during the last recession of
1991, when ILG, owner of Intasun, went bust. ILG also had c.7-8% of the UK
tour operating market and its problems pushed margins upwards in the tour
operating industry. First Choice margins hit a historical high of 5%, only
subsequently falling back as the industry lost a grip on capacity in the following
years.

Valuation and our view. Overcapacity has usually been the greatest threat in
the European tour operating industry. As such, XL’s withdrawal is a clear
positive for a sector that faces obvious consumer uncertainty next year. After
synergies, both TUI Travel (rated Hold) and Thomas Cook (Buy) both trade on
c.7.0x P/E for FY09, on our forecasts. We think this is inexpensive given the
improved long-term fundamentals and we retain our positive view on the sector.

PM:

Thanks for that
PM:

Ive got some analysis also:
PM:

“This is proof positive that passengers should not book their holidays with flaky, financially stretched airlines such as XL. Passengers should only book reservations with financially strong airlines such as Ryanair whom they know will be here for the long term. We are pleased to be able to rescue these passengers and facilitate the CAA in their efforts to repatriate them. We strongly advise passengers to be more discerning when they book their holidays and look first at the financial position of the airline with which they book”.
PM:

Michael Cawley, Ryanair’s Deputy Chief Executive,
NH:

ah, that’s nice
NH:

another charming member of the Ryanair staff
PM:

PM:

Libor rates are out — no real change
PM:

We are waiting for a Postbank announcement at 2pm
NH:

and of course the news from LEH
PM:

Trichet is talking — do not judge us on policies of other central banks
PM:

Whatever that means
PM:

And we MAY get a LEH announcement at 12 noon
NH:

and what a pity the Crock anniversary is tomorrow
NH:

we could have done a special
NH:

anyway back to market stuff
PM:

NH:

been looking at Lonmin this morning
NH:

and making a few calls
PM:

And?
NH:

stock is well below the Xstrata offer price
NH:

even after a small rally this morning
NH:

xstrata offer is £33 cash
NH:

shares up 57p at £29.86
PM:

What is the latest intel??
NH:

well, Xstrata are giving the impression that the deal remains on
NH:

in spite of the fact that they have not bought more stock in the market
NH:

got this from a broker earlier
NH:

Xstrata IR made the following comments to us yesterday:
NH:

“Last thing we said was the actual announcement. We expect to make an offer.
The only update since has been the ‘Put Up or Shut Up’ and thats pretty
much where we stand.
NH:

There has been a lot of newsflow/speculation but in
essence nothing has changed. We still stand by the offer and by 2
october we expect to do that once we’ve got the financing. But, we’re of
course not obligated to put an offer on the table… We can of course
buy shares below 33 in the market but we have to make an offer at 33″
PM:

Hmmmm
UPDATE – 13.50
Another analyst, who met Xstrata this week, has been in touch. He thinks the above comment is wrong. Says the company has an “open mind” about making an offer for Lonmin and nothing has been ruled in or out.
In addition, this note from Merrill Lynch has just landed on the Alphaville desk
“The recent downward share price move in Lonmin seems to be indicating market
uncertainty regarding Xstrata lodging a formal offer to acquire Lonmin by the
takeover panel deadline of October 2nd. We believe that Xstrata will lodge a
formal bid for Lonmin and that these market worries are overdone. We suggest
that investors stay long Lonmin shares. A bid at £33 indicates around a 10%
potential return over two weeks, not insignificant in the current volatile markets.”
“According to the company, because it now owns >10% of Lonmin, walking away
from the deal would mean a 12 month “cooling off” period (i.e. no offer allowed)
rather than a standard 6 month cooling period. With Lonmin shares trading below
Xstrata’s offer price, Xstrata could currently buy shares in the market. However, it
is hard to imagine that it could buy a material volume of shares without shares
gapping back to at least the £33 level. There may well be option value for Xstrata
in not buying more shares before launching a formal offer.”
PM:

odd that they have not acquired more
PM:

would lower their average price
NH:

yup
NH:

of course the current Lomin price suggests the market is pricing in a 30-40% probability that the deal does not happen
NH:

now Michael Rawlinson, the top rated analyst at Liberum reckons that is way too high
NH:

although he can see why
NH:

Lonmin shares have been propped up by the prospect of a bid
NH:

if it’s off they have a long way to fall
NH:

a very long way
NH:

so the risk reward is not great
NH:

especially as there is next to no chance of a counter bid
NH:

Aquarius Platinum, for example, yesterday said they were not interested in Lonmin
NH:

here’s what Mr Rawlinson has been telling his clients this morning
NH:

Asymmetric price risk from here
NH:

Aquarius Platinum (AQP LN) announced late yesterday that they are not
considering an offer for Lonmin (LMI LN).
NH:

We expected the efforts would come to nothing and we still feel that the probability
NH:

White Knight coming in above £33/share in these markets is close to zero.
NH:

On balance we feel Xstrata will ‘put up’ on 2nd October, but the risk that they walk away rises as market conditions deteriorate. Our analysis shows that Lonmin is
discounting a 30-40% probability that they walk – which we see as high at today’s
market levels and our basic view that the sector is very oversold and has a high
probability of rallying. The problem for Lonmin shareholders is that the shares are a
levered play on a falling sector from here with muted upside on a rally. This
asymmetric risk profile means we prefer other names in the sector here, particularly
XTA and Anglo.
NH:

Will Xstrata walk away…?
Xstrata has refrained from buying more Lonmin shares in the market at £33/shr. This
was a smart move by them as they have changed the mentality of the institutions
from one where they are holding out for a bump to one where they are begging for a
confirmed bid by the put up or shut up date on 2nd October. How credible is it that
Xstrata walk away?
NH:

Lonmin is worth less now. It is clear the short term value of Lonmin has been
impinged by the slide in platinum prices. The stock prices of its two bigger peers
Impala and Amplats have fallen 24% and 30% The crunch in pricing means the
PGM basket price is now c.$1172 versus $1558/oz in H1 to March, implying an
EBITDA margin deterioration of a surprisingly low 55% to 48% based on their
R5000 cash cost guidance given in their last release (currencies have helped).
Whilst this is a consideration, we feel Xstrata will look through what they see as a
temporary slide in prices.
NH:

As in other cycles, the industry leaders will slow down
production ramp-ups and supply/demand tightness will re-emerge. Long term
pricing and margins have not been impacted materially by the sell off;

The opportunity cost of bidding has risen. The 18% sell off in the UK mining
sector since the bid (26% in US dollars) has been characteristic of a slide in all
other resource equities. With capital market mainly shut more opportunities are
becoming available and $10bn of cash simply buys far more assets now. We
believe the debt finance for the deal is still available but that it would take Xstrata
to the limit of its investment grade status. With no post-deal fire-power for buy
backs or other deals, many non-transformational corporate options will be
unavailable post deal;

NH:

One of the best buys around is Xstrata stock. $10bn would buy 26% of
Xstrata’s outstanding equity base on a PER less than half of that of Lonmin. The
EPS accretion from a buy back is clearly immediate and the management stress
of achieving value creation is clearly nothing relative to integrating a failing
platinum producer with 21,000 employees. That said, On the Lonmin deal analyst
call on the day of the bid the Xstrata CEO confirmed that they saw strategic deals
like this differently from buy backs. The long term optionality created by buying a
tier one asset in a complementary metal cannot be achieved in a buy back.
NH:

We obtained a transcript from the call and Mick Davis answered a question on this:
NH:

“But at the same time, I really can’t inhibit the growth of my businesses by simply saying to them, well, I’d much rather buy Xstrata. What I’d like to do is I’d like to achieve a fullrealization of Xstrata’s value through doing what we do well, and that’s through operating businesses very effectively, transforming them and buying businesses effectively as well. So I didn’t see it as an either/or situation.”
NH:

One alternative would be to go to 29.9% and come back another day? One
interesting hypothetical scenario would be ditching the existing bid in favour of a
tender offer to Lonmin shareholders to own up to 29% ownership PLUS an
Xstrata buy back. The advantages are that Lonmin will achieve greater flexibility
and provide a return to shareholders without running the gauntlet of the South
Africa regulatory authorities; the disadvantage being they would have to wait a
year before another offer could be tabled. In this respect, Xstrata’s view on 1)
the timing of SA competition approval may colour a decision (a short time frame
would favour a deal now, while a long approval period could favour opting for a
buyback) and 2) when they feel equity markets will return to sanity (remember
they remain bullish on fundamentals);
NH:

on balance we think Xstrata is committed to the deal: We view the
company as a believer in the longevity of the cycle and although there is
currently a great deal of uncertainty in the markets about the cycle – Xstrata are
still bullish.

What to do?
If the deal breaks, we see a best case scenario where Lonmin falls to the pre-bid
price (£23.21/share). Or perhaps more likely, the stock will fall to a c.20% discount
to the pre-bid price, slightly better than the post-deal sector performance. Although
there will be a nasty arb share overhang we feel investors won’t bail out knowing
there is an interested buyer in XTA with at least 11%. .

NH:


For Xstrata we are relaxed and have faith in management to do right thing. With the
stock currently trading at 2009E PER of 4.1x and EV/EBITDA 3.2x we see a great
buy here. For Lonmin, we see a company that is slightly cheap here on our view the
sector deserves a rally. That said, its better buying a stock with proper leverage to
the upside – current large cap picks being Xstrata and Rio Tinto.
PM:

thansk for all that
PM:

NH:

Paulson on CNBC
NH:

not sure if it was from the library or fresh comment
NH:

nothing on the wires
NH:

so must be old
NH:

ut lots of people gathering round the news desk
PM:

The main news desk have patched Gillian Tett in for a news meeting
NH:

it must be serious
PM:

The Tett Offensive is off writing a book at the mo
PM:

Best nickname in fin journalism that
PM:

PM:

What else Neil?
NH:

we should take a quick peak at Wolseley
NH:

biggest faller in the FTSE 100 at the moment
NH:

down 15p at 451p
NH:

a loss of 3.2%
NH:

stock has enjoyed a really big dead cat bounce in the past couple of months
NH:

NH:

hit 285p mid July
NH:

stock closed at 466p last night
PM:

Bounce of 60% in two months
PM:

whoa
PM:

Thaat’s will be on the back of the snap recovery in the US construction sector i guess
NH:

unsurprisingly a few analysts reckon that has been overdone
NH:

especially as there has been no improvement in trading
NH:

and the US house market is still dreadful
NH:

and remember Wolseley does most of its business in the US
NH:

and the company has a stretched balance sheet
NH:

and one has to wonder if it might look to use the rally
NH:

to launch a cash call
NH:

anyway, as I said earlier a couple of downgrades
NH:

the one from Citi is interesting
NH:

they can find no reason for the rally, and nor can I
NH:

apart from short closing
NH:

and reckon weakness is going to spread from the US to Woseley’s UK and European business
NH:

analyst Clyde Lewis still thinks a rights issue a possible
NH:

and reckons that on 15 times prospective
NH:

wolseley is a slot
NH:

We are cutting our recommendation on Wolseley to Sell from Hold —
Essentially we think the bounce (+89%) in the share price over the last couple
of months is too far ahead of the curve and that the next 12 months will be
harder for profits than the market expects. Target Price of 310p maintained.

Recent US road trip confirmed no signs of recovery — Even with housing
stabilising, the run rate is still down on the previous 12 months and nonresidential
is only now starting to slow, while State spending is under pressure.

Increasing concerns about UK activity — With housing starts on their knees,
ongoing concerns about inflation, and weak consumer confidence, there is a
large concern about the RMI levels in the coming 12-18 months.

NH:

Not good on the continent either — With French and Danish housing activity
also slowing sharply, the group has nowhere to hide from the softer residential
markets.

Lower forecasts highlight ongoing balance sheet pressure — We have cut our
forecasts for 2009 by 14% and 30% for 2010. This puts the balance sheet
under more pressure and increases the risk of a rights issue.

Longer-term fundamentals look sound — We continue to believe that the
building distribution market offers good long-term returns for the major players
as they benefit from economies of scale and an increasing need for
refurbishment.

NH:

PM:

thanks for all that
PM:

Note Monkey is off to Cyprus next week
PM:

Clearly not with XL
PM:

Hoe the weather is good
NH:

and Politik you have hurt our feelings
PM:

Promethus asked about ryainair this morning
PM:

earlier — on banking covenants
PM:

Tracy – our new Alphaviller — says theyve got about 2bn of cash on the balnace sheet
PM:

Tracy has escaped from Bloomberg, where she was doing transport
NH:

where you are a number not a name
PM:

So Ryanair v v strong — even if it is an airline people loath
PM:

Thank you C for that news on Postbank
PM:

late approach from santander didnt work
PM:

NH:

got a bit of RAW
NH:

in the airline sector
NH:

forgive the pun but SAS has just taken off
PM:

NH:

rumours of a 75krona a share offer from Lufthansa
PM:

Just a rumour at the mo — going round
PM:

Untested, unchecked etc.
NH:

*SAS SHARES RISE 11.7 PERCENT AFTER NEWS LUFTHANSA EXAMINING A TAKEOVER
PM:

Its a reuters report
PM:

Quoting “sources” as saying SAS is one option being looked at by Lufthansa
NH:

looks like it must be right
NH:

excellent
PM:

PM:

Okay we are done
PM:

in
PM:

after a busy week
PM:

Been fun tho
PM:

Thank you for joining us today
PM:

And thanks for most of the comments below
NH:

and if Leh is acquired over the weekend we will try and have some posts up on the site
PM:

We will
NH:

like Paul did with Fred and Fran last weekend
NH:

thanks for all the comments we must have had a record week
PM:

seeya
NH:

goodbye everyone

This entry was posted by Paul Murphy on Friday, September 12th, 2008 at 11:01 and is filed under Uncategorised. Edit this entry.

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