Markets live chat transcript for the chat ending at 12:12 on 11 Nov 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM:
Morning, welcome to Markets Live
PM:
This FT Alphaville’s daily markets chat.
PM:
Obviously we are a little late this morning
PM:
That’s on account of Remembrance Day of course.
PM:
We had our two minutes silence this end.
PM:
We were going to open up the chat and let everyone have their silence together.
PM:
I said we could trust everyone not to destroy the moment would a load of thoughtless pixels.
PM:
But Neil said, “No, we can’t risk it”
PM:
Neil still logging in
PM:
he was locked out of his Dell earlier
PM:
now fixed
NH:
right am in
NH:
That’s complete rubbish Murphy
NH:
You’ve only just swanned in to the office. What was your excuse?
PM:
Oh don’t ask – kids, new school, deepest south east London.
PM:
IN fact it was Kent.
PM:
Anyway – im catching up fast
PM:
Which direction are we moving 2 or 3 per cent today then? Lurch upwards, lurch downwards.
PM:
It’s as though no one knows what the real price of stocks should be.
NH:
Limey – it wasn’t the machine it was a network access prob this morning
NH:
a conflict no less
NH:
then we had probs putting stuff up on the site
PM:
Monkey — i hae lunch with the editor no less
PM:
Not just me — all assistant/associate editors
NH:
er, that does not sound good
PM:
Oh usually interesting
PM:
NH:
where shall we start?
PM:
Wider market?
PM:
Footsie off 71 points I note at 4332
NH:
it has been lower
NH:
touched 4,279
PM:
Cause?
NH:
for me it was a pretty worrying session in the US overnight
NH:
OK, the Dow only finished 73 points lower
NH:
but the newsflow was just unremittingly negative
NH:
obviously we had the stuff on GM – Deutsche calling the stock worthless
NH:
which was followed later in the session by news that
NH:
lenders have the right to demand repayment of $6 billion if it break its banking covenants
NH:
and if that happens it is game over I suspsect
NH:
this was contained in a regulatory filing
NH:
and the precise details are or were
NH:
if its independent auditors conclude in their year-end review of the company’s finances that there is “substantial doubt” about GM’s “ability to continue as a going concern” in 2009, the company will be in violation of debt agreements, including a $4.5 billion secured revolving credit facility and a $1.5 billion loan.
NH:
and if that were not enough
NH:
credit insurer credit insurer, Euler Hermes, canceled insurance protection for suppliers of GM and Ford
PM:
Will CM make it to Xmas do you think?
NH:
well, it certainly won’t see in the new year
PM:
GM even
NH:
there was also some worrying news from Fannie Mae
NH:
specifically
NH:
that it is losing money so fast it might need to cap hand in hand to the Fed again
NH:
that followed news that Fannie has lost $29bn in Q3
NH:
largely due to credit related losses and a $21.4 billion charge to reflect the likelihood that the company won’t be able to make use of tax credits listed on its balance sheet as assets.
NH:
but this was the really scary bit
NH:
Fannie said its net worth totaled $9.4 billion
NH:
and to remain a going concern its net work can’t fall below zero, but if “if current trends in the housing and financial markets continue or worsen” that coudl well happen
NH:
on top of all that
NH:
people cannot even afford a Starbucks
NH:
judging by the figs out last night
NH:
Q4 figures down 97%
NH:
and then Goldman got thumped on the back of downgrades
PM:
No way!
PM:
Starbucks
NH:
on worries that it might need to raise more capital
NH:
GS ended at a five and half year low
NH:
fueled partly by Barclays Capital analyst Roger Freeman’s forecast that GE will post net loss of $2.50 a share, or $1.2 billion, for its fiscal fourth quarter
NH:
previously BarCap had been looking for a profit of $2.71
PM:
Thaks for that — really cheered me up
NH:
sorry
NH:
but flicking through the overnight news
NH:
I was just struck by how bad things are out there
NH:
and I come in this morning and here about more brokers cutting jobs
NH:
and that trading volumes are dropping off a cliff
NH:
yesterday only 1.9bn shares changed hands in London
NH:
and with it being Veterans Day in the US I reckon volumes will remain poor today
PM:
NH:
just going back to GM
NH:
was sent a very interesting report this morning
NH:
detailing the impact of a big 50 percent reduction in overall Detroit
Three employment and production in the U.S. economy, an event that probably would
involve a contraction by two of the domestic automakers.
Three employment and production in the U.S. economy, an event that probably would
involve a contraction by two of the domestic automakers.
NH:
and it makes for pretty unpleasant reading
NH:
its from CAR
PM:
What’s car – as referrred to by rewethereyet? below?
NH:
Centre for Automotive Research
NH:
Should one or more of the Detroit Three fail in 2009, initially all U.S. automotive
operations would be affected, including international producers and suppliers. In this
scenario, the remaining Detroit Three and international producers recover in 2010.
operations would be affected, including international producers and suppliers. In this
scenario, the remaining Detroit Three and international producers recover in 2010.
NH:
The first year total employment impact would be a loss of nearly 2.5 million jobs in the U.S. economy—comprised of 239,341 jobs at the Detroit Three, 795,371 indirect/supplier jobs and over 1.4 million spin-off (expenditure-induced) jobs. The employment picture recovers in 2010 (1.5 million lost) and 2011 (1.0 million jobs lost), due to the resumption of U.S. production by the surviving Detroit Three producer and international automakers, and the process of dislocated workers finding new employment
NH:
In economic terms, a 50 percent cut in Detroit Three U.S. operations would reduce personal income by over $125.1 billion in the first year, and a total loss of $275.7 billion over the course of three years. The impact of this personal income loss on fiscal government operations at the local, state and federal levels include an increase in transfer payments, a reduction in social security receipts and personal income taxes paid. The net impact of all three of these categories results in a loss to state and federal government of $49.9 billion in 2009, $33.7 billion in 2010, and $24.5 billion in 2011—a total government tax loss of over $108.1 billion over three years.
NH:
there’s loads more in the report
PM:
Blinking eck
NH:
including the doomsday scenario where all three US carmakers go down
NH:
might put this up in the LR later
PM:
(Ehwotay — go to the HSBC post on AV yesterday — you will find links to the Q10 and 8-K — theres enough numbers in there to keep anyone busy)
PM:
FXtrader — we missed that!
PM:
Sounds a bit far fetched to me tho
PM:
NH:
I hope the evil short seller quaffing champagne in a Mayfair eaterie
NH:
if not it would just be a work of pure fiction
PM:
Top Gear mentioned below — it is true…
PM:
America now building cars that can go round corners
NH:
ah, we have some petrol heads amongst ML readers
PM:
PM:
High octane
PM:
PM:
So is there any reason to be positive?
NH:
not really
NH:
this is clutching at straws a bit
NH:
but I was talking to one broker this morning
NH:
and he reckons there is a fair sized open interest in the market of protection bought to the end of November
NH:
now if the market was to really through these protection levels this could cause by delta-hedge buying
NH:
and that could suck in long only funds
PM:
(Throg — that’s very good)
NH:
but that’s about the only positive i can find
NH:
NH:
have you seen the Great British Krona this morning??
PM:
i have now — sit that price right?
PM:
1.5522
PM:
Against a rubbish dollar????
PM:
$ at 97 against the yen
PM:
Euro?
NH:
against the dollar it is 1.27
NH:
Euro sterling is 0.8187
NH:
ouch
NH:
I suppose that’s down to the fact that high street sales suffered their sharpest annual fall in nearly four years in October and home purchases fell to a record low
PM:
We won’t be going skiing this Xmas
NH:
what you go skiiing??
PM:
No
PM:
cant afford it
NH:
nor me
NH:
here’s a quick bit of wire copy on this morning’s UK data
NH:
British house prices fell slightly less sharply in the three months to October than in the three months to September
NH:
The Royal Institution of Chartered Surveyors said its house prices balance rose to -81.8 last month from -84.5 in September, above forecasts for a decline to -85.6, but still indicative of widespread declines in prices and a very weak housing market.
RICS said the average number of sales per surveyor over the three months to October fell to 10.9 from 11.5 — the lowest since the series began in 1978 and 53.6 percent lower than the same period last year.
RICS said the average number of sales per surveyor over the three months to October fell to 10.9 from 11.5 — the lowest since the series began in 1978 and 53.6 percent lower than the same period last year.
NH:
“The general lack of mortgage finance remains a major blockage in the housing market for a large majority of would-be buyers,” said RICS spokesman Ian Perry.
RICS said the sales to stock ratio, a gauge of future price moves, fell to its weakest since December 1992 at 13.5 compared with 14.1 in September.
The figures reinforce a raft of evidence depicting a slumping housing market — after a decade in which house prices trebled — as the credit crisis drives Britain into its first recession since the early 1990s.
RICS said the sales to stock ratio, a gauge of future price moves, fell to its weakest since December 1992 at 13.5 compared with 14.1 in September.
The figures reinforce a raft of evidence depicting a slumping housing market — after a decade in which house prices trebled — as the credit crisis drives Britain into its first recession since the early 1990s.
NH:
also Peter Garnham, our currency correspondent, has dug out an interesting note this morning
NH:
it is from Bank of NewYork Mellon
NH:
earlier this year there call on sterling was that there was a close relationshiopn between GBK and the UK financial services sector
PM:
sounds an interesting theory
NH:
well, they say that drove the intial leg down in sterling
NH:
what is hitting it now is cash coming out of fixed income instruments
NH:
UK fixed income instruments
NH:
here’s the note
NH:
Regular readers of this briefing may remember the close relationship we highlighted late last year between the performance of GBP against a wide range of currencies and our own flow data showing outflows of foreign capital from the UK’s financial services sector.
NH:
In light of the nationalisation of Northern Rock and the likelihood that other institutions would suffer as the housing market imploded, this was logical. Certainly, it seemed entirely understandable that the collapse in GBP/USD from above USD2.10 in November of last year coincided with the sharpest outflows from this sector and that its subsequent stabilisation at the start of this year came as the pace of outflows from financial service stocks started to slow down.
NH:
A new driving factor for GBP , however, appears to have emerged in recent months. With flows either into or out of UK financial services stocks remaining stagnant (hardly surprising given the news-flow since the summer) the focus appears to have shifted to the fixed income markets
NH:
After a twelve month period of relatively stable flows of foreign capital into and out of UK fixed income instruments (which followed on from several years of sustained inflows), since mid-September we have been registering extremely heavy outflows which seem to have matched closely to the growing downward pressure on GBP (at least against the USD).
NH:
). To put this into context, we estimate that the outflows seen from UK fixed income instruments since September 10th of this year have offset around 75% of the inflows seen since the start of 2004.
PM:
Seems extraordinary
PM:
NH:
it does
NH:
but rememerb Bank of NYM
NH:
are large custodians so if anyone has a grip on what is happening, they should
PM:
True
PM:
Got more on this?
NH:
These numbers contrast with our fixed income flow data for the Euro-zone, the US and Japan. Although our flow data for some individual countries within the Euro-zone (Italy, Greece, Spain most notably) show some very significant selling, our data for the region as a whole shows only relatively modest outflows since mid-September (equating to about 25% of the inflows seen over the previous four years). Similarly, the outflows from US and Japanese fixed income instruments over the past two months equate to around 15% of the inflows seen since the start of 2004 into their respective markets.
NH:
All this would seem to indicate a fundamental shift taking place in what investors are worrying about. If the majority of the concerns for GBP over the past fifteen months were driven by specific worries over the outlook for the economy, it seems that over the past two months that the focus has shifted to how government support for the economy (whether from the bailout of the banking industry or a possible fiscal stimulus package) will be paid for.
NH:
This shift is entirely understandable given the increased scarcity of pools of international capital that the government may previously have hoped to draw upon. For example, a large proportion of Russia’s FX reserves have already been earmarked for supporting expanded domestic spending programmes over the next year or so as the revenue from oil starts to diminish. Equally, the announcement by China of a USD 586 Bn economic stimulus plan must surely reduce the amount of Chinese capital available to be lent overseas.
NH:
Writing in today’s FT, Chris Giles (the papers Economics Editor) argues that the big test of the UK government’s apparent plan to launch a major package of tax cuts funded by increased government borrowing “will come in the bond market.” The evidence from our own flow data suggest that international investors may have already made their decision. In the circumstances we therefore suspect that the announcement of the stimulus package will also provide investors with a fresh reason to sell GBP.
PM:
hmm — very interesting
PM:
So we are going to be looking at parity with the euro if we are not careful
NH:
perhaps we may end up joining the euro
PM:
What would Larry Elliott say?
NH:
it was the end of the world
PM:
(Tomansoc – Jeff Randall)
Jeff Randall, the Telegraph’s Editor-at-Large is available for speaking engagements through The Gordon Poole Agency, the UK’s premier talent and speaker bureau. Fee group: £5k – £10k.
NH:
and he will be even richer following his recent transfer to Sky
PM:
yep
PM:
PM:
OK, let’s move on to some stock specific stuff
NH:
well Vodafone
NH:
is the main focus on the corporate reporting front
NH:
and the stock has rallied hard
NH:
up 10.2p, or 9.4%, at 118.45p
PM:
What a move! — that’s a big shift for Voda
NH:
biggest riser in the FTSE 100
NH:
and that’s on relief that half year figures were not the car crash some people had feared
NH:
but make no mistake they aren’t by any stretch decent
NH:
that said, the new CEO has made a good impression
NH:
and it looks like he will be tough on costs
PM:
Vitorio …..
PM:
Cant find it immediately on reuters
PM:
And dont want to embarrass myself by spelling it incorrectly
PM:
PM:
Colao
PM:
and what about guidance
PM:
wasn’t that what everyone was working themselves up into a lather about
NH:
it was
NH:
and the news here is mixed
NH:
Voda has revised its 2008/9 guidance.
NH:
At the headline level, revenue guidance is lowered to £38.8bn-£39.7bn (from ‘around £39.8bn’).
NH:
However, adj EBIT guidance is unchanged at £11.0bn-11.5bn;
FCF guidance is raised to £5.2bn-£5.7bn (from £5.1bn-£5.6bn).
FCF guidance is raised to £5.2bn-£5.7bn (from £5.1bn-£5.6bn).
PM:
so a mixed bag
NH:
yeah, but nowhere near as bad as people feared
PM:
and how is Voda meeting its underlying earnings forecasts
NH:
cost cutting
NH:
here’s a couple of notes
NH:
the first is from Cazenove
NH:
H1 results – Solid figures, 2% above for operating profits. Operating profit guidance unchanged with small underlying reduction offset by currency
NH:
Solid figures, revenues 0.8% above consensus at £19.9bn (+17%, +0.9% organic), EBITDA 0.5% below at £7.24bn (+10%, -3.2% organic), total operating profits 2.1% above at £5.77bn (+10%, -1.0% organic).
NH:
Adjusted EPS 7% above consensus at 7.52p (+17%, organic not stated) supported by lower than expected tax rate (26.5% vs 29%). Underlying equity free cash flow at £3.101bn (+16%), 11% above consensus.
NH:
Key divisions: Italy (15% of operating profits) and Germany (12%) looks to have improved. Spain has stabilised (11%). UK (4%) and Turkey (0% of operating profits, 3% of revenues, value written down by £1.7bn) much weaker. India (1% of operating profits, 7% of revenues) has slowed but Egypt and South Africa still strong.
NH:
New guidance: Updated for currency, acquisitions and trading. Underlying changes are a 2.5% (£1.0bn) reduction to revenue and a 3.5% (£0.4bn) reduction to operating profits. These are offset by a 3.6% (£0.2bn) reduction to capex with a 1.9% (£0.1bn) increase in free cash flow. Currency offsets these changes, giving a 2% increase in free cash flow guidance with operating profits unchanged.
NH:
New guidance is: Revenues from “around £39.8bn” to £38.8-39.7bn
Adjusted operating profits unchanged at £11.0-11.5bn – Note consensus currently £11.25bn on comparable currency assumptions.
Adjusted operating profits unchanged at £11.0-11.5bn – Note consensus currently £11.25bn on comparable currency assumptions.
NH:
Capex from £5.3-5.8bn to £5.2-5.7bn
NH:
Free cash flow, before spectrum and licence payments, from £5.1-5.6bn to £5.2-5.7bn.
NH:
New strategy looks sensible: Given changing economic and market conditions, the focus will be on execution and free cash flow generation. Intends to improve operational performance with a focus on customer value as opposed to revenue stimulation and targetting £1bn of operating cost reduction. Looking for growth in mobile data, enterprise and broadband. Emerging market focus on execution not expansion. Strengthen capital discipline; limited debt capacity for acquisitions, although would support in-country consolidation. Management notes that this would require funding through disposals. Management appears more open minded regarding Verizon Wireless, which continues to perform strongly.
NH:
the last point here is interesting
NH:
the new management team seem to be more open to flogging Verizon
PM:
Ah — moving from potential buyer of Verizon wireless to potential seller
PM:
We caused such a stink last year when we got all that detail about their strategy re VW
PM:
Verizon wireless — not volkswagen
NH:
more from Caz
NH:
Estimate changes: We were already 4% below guidance for operating profits, room for 1% upgrade due to currency. Tax rate and capex commentary suggests 5% upgrades to EPS and free cash flow estimates.
NH:
Revised dividend policy: “A progressive dividend policy”, with growth reflecting the underlying trading and cash flow performance of the group as opposed to a 60% payout ratio that refers just to EPS. Interim DPS grown by 3.2% to 2.57p. Comparable full year figure would be 7.75p, against consensus of around 8p. This suggests a yield of 7.2%. Dividend cost c. £4.1bn out of annual free cash flow generation target of “£5bn-6bn”.
NH:
Valuation summary
On our initial changes for 2008/09E, Vodafone trades on an EV/EBITDA of 3.8x with a PE before amortisation of acquired intangibles of 7.0x (7.8x reported) and a dividend yield of 7.2%. Reported equity free cash flow yield is 9.2%; adjusting for Verizon Wireless, this is closer to 13%.
On our initial changes for 2008/09E, Vodafone trades on an EV/EBITDA of 3.8x with a PE before amortisation of acquired intangibles of 7.0x (7.8x reported) and a dividend yield of 7.2%. Reported equity free cash flow yield is 9.2%; adjusting for Verizon Wireless, this is closer to 13%.
NH:
Given both a progressive dividend policy and a focus on cash flow generation, this looks too low. Furthermore, we sense a more open-minded approach to Verizon Wireless. Even valuing this business at 6.0x EBITDA compared with the 8.3x multiple Verizon has agreed to pay for Alltel (and assuming a 20% tax rate), would imply a value of 45p per share for Vodafone’s stake in Verizon Wireless. Stripping this out of Vodafone’s valuation would imply Vodafone’s core business is valued at c. 5-6x PER with a dividend yield of 12%.
NH:
i suppose the key thing here is Vodafone are cutting costs by around £1bn
NH:
that probably means job losses
NH:
anyway
NH:
here’s another note from MF Global
NH:
Given both a progressive dividend policy and a focus on cash flow generation, this looks too low. Furthermore, we sense a more open-minded approach to Verizon Wireless. Even valuing this business at 6.0x EBITDA compared with the 8.3x multiple Verizon has agreed to pay for Alltel (and assuming a 20% tax rate), would imply a value of 45p per share for Vodafone’s stake in Verizon Wireless. Stripping this out of Vodafone’s valuation would imply Vodafone’s core business is valued at c. 5-6x PER with a dividend yield of 12%.
NH:
Importantly, at the EBITDA level, most of the group’s key EU
assets came in ahead of expectations (Germany +6%, Italy +4%, Spain +5%); the exception was the UK
where EBITDA missed by 16%. The group’s assets in India, Turkey and South Africa all delivered an
EBITDA either in-line or ahead of expectations. Associates (mostly Verizon) came in nearly 9% better
than expected.
assets came in ahead of expectations (Germany +6%, Italy +4%, Spain +5%); the exception was the UK
where EBITDA missed by 16%. The group’s assets in India, Turkey and South Africa all delivered an
EBITDA either in-line or ahead of expectations. Associates (mostly Verizon) came in nearly 9% better
than expected.
NH:
. Interim DPS of 2.57p was 3% light vs consensus.
> The group has revised its 2008/9 guidance. At the headline level, revenue guidance is lowered to
£38.8bn-£39.7bn (from ‘around £39.8bn’). However, adj EBIT guidance is unchanged at £11.0bn-11.5bn;
FCF guidance is raised to £5.2bn-£5.7bn (from £5.1bn-£5.6bn). We note that aside from fx and
acquisitions, operational reasons caused: a 2.5% cut in the mid-point of revenue guidance; a 3.6% cut in
the mid point of adj EBIT guidance; a 2% increase in the mid point of FCF guidance.
> The group has revised its 2008/9 guidance. At the headline level, revenue guidance is lowered to
£38.8bn-£39.7bn (from ‘around £39.8bn’). However, adj EBIT guidance is unchanged at £11.0bn-11.5bn;
FCF guidance is raised to £5.2bn-£5.7bn (from £5.1bn-£5.6bn). We note that aside from fx and
acquisitions, operational reasons caused: a 2.5% cut in the mid-point of revenue guidance; a 3.6% cut in
the mid point of adj EBIT guidance; a 2% increase in the mid point of FCF guidance.
NH:
Today’s results are the first major reporting day for Vodafone with Mr Colao as CEO. Within the
statement he details some of his thoughts on the future strategy for VOD; we see his thoughts as positive.
Under Mr Colao’s stewardship VOD will focus more on boosting revenues from existing customers and
cutting costs (a £1bn cost cutting programme has been announced today). Also, VOD has no appetite for
further material M&A in emerging markets; the focus now is on execution in their existing assets.
statement he details some of his thoughts on the future strategy for VOD; we see his thoughts as positive.
Under Mr Colao’s stewardship VOD will focus more on boosting revenues from existing customers and
cutting costs (a £1bn cost cutting programme has been announced today). Also, VOD has no appetite for
further material M&A in emerging markets; the focus now is on execution in their existing assets.
NH:
Today’s results are the first major reporting day for Vodafone with Mr Colao as CEO. Within the
statement he details some of his thoughts on the future strategy for VOD; we see his thoughts as positive.
Under Mr Colao’s stewardship VOD will focus more on boosting revenues from existing customers and
cutting costs (a £1bn cost cutting programme has been announced today). Also, VOD has no appetite for
further material M&A in emerging markets; the focus now is on execution in their existing assets.
statement he details some of his thoughts on the future strategy for VOD; we see his thoughts as positive.
Under Mr Colao’s stewardship VOD will focus more on boosting revenues from existing customers and
cutting costs (a £1bn cost cutting programme has been announced today). Also, VOD has no appetite for
further material M&A in emerging markets; the focus now is on execution in their existing assets.
NH:
VOD trades on a 3/2009 PE of 6.7x vs the sector on 9.3x. The company will host a conference call at
NH:
a forward p/e of 6.7
NH:
if u believe the numbers Voda looks cheap
PM:
VOD has always looked good value when dipping down towards 100p
PM:
Cash machine
PM:
City has always hated it tho
PM:
ry since Lord Gent slotted em
PM:
With a truckload of stock for Mannessman
NH:
I think we should mention here Michael Fowke is a financial shamen
NH:
he is not an average ML commenter
PM:
NH:
he takes these things very seriously
NH:
this is not like having a joke with Zoomy Boy
PM:
Posted by Michael Fowke [report]
I’d rather be poor, than a traitor.
NH:
the man is a financial mystic
NH:
he is out there
NH:
way out there
PM:
PM:
back to stocks
NH:
well I think we should have a quick look at the results from Taylor Wipeout
NH:
almost into penny share territory
PM:
it’s not a proper stock any more — just about a penny dreadful
PM:
market price 11.5p, down 2p
NH:
and this morning’s statement really takes us no where
NH:
trading in the UK and US no worse of better than expected
NH:
debt is up due to seasonal swings
NH:
and crucially there is no update on the debt discussions
PM:
CEO quoted on reuters as saying discussions with banks “tad disappointing”
PM:
A tad disappointing??
PM:
NH:
but I suspect something will get done here
NH:
it might Taylor Wipeout shareholders
NH:
but Wipeout is “too toxic to topple”
PM:
PM:
Excellent
PM:
Who said that?
NH:
Robin Hardy at KBC Peel Hunt
NH:
good analyst
NH:
here’s his snap reaction to the Wipeout numbers
NH:
The IMS really takes us no further forward. Trading in the UK and US are no better or worse than expected, debt is up through seasonal swings and although further land provisions are alluded to there are no numbers. We will be making some slight downward revision to the PBT for 2008 but only by around £10m, which given that PBT is set to fall from last year’s £500m+ to just £20-30m this is no relevant.
NH:
For 2009 we are already forecasting a loss and that remains the case.
NH:
Debt and settlement of new facilities or new covenants with existing lenders remains the only issue and the statement talks only of continued progress and no deal this side of the new year.
NH:
We still hold the view that TW is likely to prove ‘too toxic to topple’ and all parties are more likely than not to agree some kind of lifeline. However, any new debt facilities are likely to be short in term and eye-wateringly expensive. This remains a straight bet on a series of discussions with no visibility to the market and so risk remain high. However, so do the returns from a favourable outcome and if a deal can be struck the shares are likely to push well past 50p
PM:
Anymore on Wipeout??
NH:
this is from Singer
NH:
The IMS makes suitably depressive reading on day when the RICS survey records its lowest ever period for industry sales volumes/transactions. TW is at least seeing some success in its sales policy with H2 to date volumes in UK only down 27% (industry rate 40%-50% lower) and it has secured its expected quota for the year. However this has clearly been achieved by selling aggressively on price and with scant regard for profit only cash flow.
NH:
Outlets have shrunk from c500 at the start of the year to c400 now which gives an indication of the de-scaling taking place at TW.. It notes increased competition for sales over the last few weeks as the industry replicates pricing aggression, but with sales in the bag TW will hold steady for now
NH:
Outlets have shrunk from c500 at the start of the year to c400 now which gives an indication of the de-scaling taking place at TW.. It notes increased competition for sales over the last few weeks as the industry replicates pricing aggression, but with sales in the bag TW will hold steady for now
NH:
The market is still difficult (industry stocks are reduced but repossessions an issue) and has weakened again in recent weeks in terms of sales rate and cancellations. Site outlets, 15% lower, and order book stands at 3818 volume – virtually the same as a year ago – but off c15% by value. It is cash positive and modestly profitable in the US (EBIT line) but flags that it may need more write-downs on land at the year end although these are not seen as material at this stage. On the crucial financing point, TW cites net debt of £1.9bn which is above our hopes but in line with company expectation given the unfavourable $ move.
NH:
Discussions are ongoing but “complex” since embracing the Bond holders too and it still sees next year Q1 as the time-frame. So overall a bit worse on trading and no comfort on financing yet. Our numbers for 08e are £88m/6p (no DPS) and 09e £50m/4p. The range is wide but the £52m consensus for 08 is closer than ours given the continued price deterioration hitting margins. (EPS c4p).
NH:
It now seems almost certain that 2009e will post a pre-tax loss. With no EPS, no DPS and a very debatable NAV ahead of a “complex” refinancing, the shares at 14p are a punt, no more no less. Volatility is likely to remain the order of the day. Note our price target of c50p is on the basis of a going concern assuming obviously a successful refinancing. An alternative view on the refinancing would de-facto imply zero value for the equity.
PM:
Cheers for that
NH:
NH:
just checking the Libor quotes
NH:
to see if there is anything at all interesting
NH:
keeps trending lower
NH:
*DJ 3-Month USD Libor Fixed At 2.175%, Vs 2.235% Monday
NH:
*DJ 3-Month Sterling Libor Fixed At 4.375%, Vs 4.42125% Monday
NH:
*DJ 3-Month Euro Libor Fixed At 4.32125%, Vs 4.39125% Monday
NH:
Three-Month Dollar Libor Falls to Lowest Since 2004, BBA Says
PM:
Overnights look a bit all overthe place tho
PM:
ON € is actually up
PM:
3.74 v 3.43
PM:
And $ IOS is not shifting lower
PM:
170 v 171
PM:
PM:
here’s a bit of smallcap stuff from JPMorgan
PM:
They’ve got themselves a DepthMeter
PM:
Pan-European Small/Mid-Caps
The SMid DepthMeter
Small/Mid-Cap Strategy
Eduardo LecubarriAC *
(44-20) 7325-1213
eduardo.lecubarri@jpmorgan.com
Mathieu P Bouthillier
(44-20) 7325-8867
mathieu.p.bouthillier@jpmorgan.com
Anders Bergman
(44-20) 7325-5346
anders.x.bergman@jpmorgan.com
J.P. Morgan Securities Ltd.
* Registered/qualified as a research analyst under NYSE/NASD rules
Figure 1: European CDS Indicators
80
100
120
140
160
180
200 02-Sep
09-Sep
16-Sep
23-Sep
30-Sep
07-Oct
14-Oct
21-Oct
2ct
04-Nov
11-Nov
400
500
600
700
800
900
1000
iTraxx Europe Main (5Y)
bps iTraxx Europe Crossover (5Y) bps
Source: iTraxx and J.P. Morgan Calculations
Data as of COB 10 Nov 08
The correction in the market is now 17 mths old (started in June of ‘07) and has
resulted in the MSCI Small Cap Europe declining by no less than 54%, with c.
20% of all Pan-European SMid-Caps losing more than 2/3 of their mkt cap! We
finally closed our UW recommendation on Pan-European SMid-Caps a few weeks
ago but have remained cautious on the space, recommending investors remain
focused on stock picking.
Today, we are launching the “SMid DepthMeter”, which is our attempt to quantify
the current landscape and place it the context of historical recessions. In other
words, it is a tool meant to signal when it is time to become OW. We will be
publishing periodical updates of it going forward. Below are the key take aways:
The SMid DepthMeter
Small/Mid-Cap Strategy
Eduardo LecubarriAC *
(44-20) 7325-1213
eduardo.lecubarri@jpmorgan.com
Mathieu P Bouthillier
(44-20) 7325-8867
mathieu.p.bouthillier@jpmorgan.com
Anders Bergman
(44-20) 7325-5346
anders.x.bergman@jpmorgan.com
J.P. Morgan Securities Ltd.
* Registered/qualified as a research analyst under NYSE/NASD rules
Figure 1: European CDS Indicators
80
100
120
140
160
180
200 02-Sep
09-Sep
16-Sep
23-Sep
30-Sep
07-Oct
14-Oct
21-Oct
2
ct04-Nov
11-Nov
400
500
600
700
800
900
1000
iTraxx Europe Main (5Y)
bps iTraxx Europe Crossover (5Y) bps
Source: iTraxx and J.P. Morgan Calculations
Data as of COB 10 Nov 08
The correction in the market is now 17 mths old (started in June of ‘07) and has
resulted in the MSCI Small Cap Europe declining by no less than 54%, with c.
20% of all Pan-European SMid-Caps losing more than 2/3 of their mkt cap! We
finally closed our UW recommendation on Pan-European SMid-Caps a few weeks
ago but have remained cautious on the space, recommending investors remain
focused on stock picking.
Today, we are launching the “SMid DepthMeter”, which is our attempt to quantify
the current landscape and place it the context of historical recessions. In other
words, it is a tool meant to signal when it is time to become OW. We will be
publishing periodical updates of it going forward. Below are the key take aways:
PM:
• Don’t expect a decoupling between the US and Europe. History shows that
the US economy comes out of recessions sooner, but the European equity mkt
troughed historically only one mth after the US mkt did.
• The scale looks fairly balanced.
the US economy comes out of recessions sooner, but the European equity mkt
troughed historically only one mth after the US mkt did.
• The scale looks fairly balanced.