- While today’s announcement does not radically mitigate the refinancing issue looming by 2011, it is certainly a much better outcome than might have been feared, i.e. profit downgrades and worries over covenant breaches, etc, hence we would expect the shares to trade higher even after yesterday’s rally.

1% increase in ASPs, mainly mix related (Designers at Debenhams effect).

Stock position clean across the board. Want to invest more in childrenswear. Online (+c.40%) could have been better if site had not crashed during promotion.

Westfield has performed very well- new stores generally do.

Aberdeen announced (on 31 December) the acquisition of £40bn (CHF 75bn) of AUM from Credit Suisse. Consideration will be satisfied through the issue of a maximum of 240m new shares in Aberdeen giving CS a stake of up to 25% in the enlarged entity. This valued the deal at £250m at Aberdeen’s pre-deal closing price. The final number of shares issued will depend on the level of revenues delivered at the closing date of the acquisition which should be by 30 June 2009. This will not be adjusted for market moves but will reflect any net fund redemptions prior to completion.

The acquired businesses have associated run-rate revenues of £118m (CHF 220m) and are expected to operate at a marginal cost:income ratio of 35-40%. This implies that the purchase price amounts to an equivalent P/E of around 4.5-5x. As such, the deal will significantly enhance EPS in year end September 2010 by around 20-33% depending on the level of revenues at the time of completion (and the current CHF:GBP exchange rate).

While the CS businesses currently employ some 550 staff, these numbers will be reduced (at CS’s cost) and no offices/systems are being acquired. As such, the marginal cost:income ratio is expected to be just 35-40% highlighting the benefits of consolidation. A £25m charge will be taken by Aberdeen this year of which £15m reflects the costs of the transitional services agreement with CS.

Our forecasts have been adjusted to reflect the deal completing at end June 2009 assuming that around 80% of the assets are transferred and a 40% cost:income ratio is achieved. Although GBP has depreciated against CHF some 17% since the disclosed figures were used (suggesting further upside) we have not adjusted for this in our proforma forecasts. On our revised September 2010 estimates, the shares are trading on 10.4x EPS, a premium to the sector average (9x). Aberdeen will be the largest quoted fund manager by assets and benefits from scale and diversity of assets by both type and geography. We upgrade our price target to 140p reflecting a premium but lower our rating from Buy to Fair Value.

The Nationwide data follow on from the Halifax reporting that house prices plunged by 2.2% month-on-month in December and by 16.2% year-on-year in the three months to December. Furthermore, house prices were down 18.9% year-on-year in December itself.

Meanwhile, the ongoing deep problems of the housing market maintains pressure on the Bank of England to deliver another deep interest rate cut on Thursday, although mortgage lenders are likely to be increasingly unwilling to pass on much of any further interest rate cuts.

You’ve got about a 14% spread at the mo – last day of trading for Lloyds (provided all goes thru ok) is the 14th, prior to short sell close, so I don’t think its going to get arbd in massively before then – Hedgies may stay away from now – but if you were a long only manager holding Lloyds I’d advocate the switch…….

One fly in the ointment is the pension fund news out over the last couple of days… could muck up life a little

Though the purpose of the consultation paper is to invite comment from
interested parties to be taken into account in reaching a final decision, the
FSA have made their current thinking clear in the document. The FSA proposes
that current disclosure requirements in respect of short positions
remain in effect until June 2009, but with parties only required to disclose
changes to short positions in excess of 0.1% over the 0.25% threshold.
Most importantly, the FSA proposes allowing the current ban on short selling
to lapse on 16 January – though naturally the Authority retains the right
to reinstate the ban should it deem this appropriate.

Man’s retail business is the core of EMG and AHL is its heart. It performed astonishingly strongly in 2008 with the monthly fund +25% net following a strong December (+5.5%). This leads us to upgrade our performance fee estimate for H2 09e from USD25m to USD225m (net of an estimated USD100m hit on principal investments in h2).

The fall out from the Madoff affair is difficult to quantify but is clearly going to put a spotlight on the fund of funds business; nevertheless we think some of the more extreme comment on the industry is bordering on hysterical. Many things about the industry need to be changed, including the FoF fee structures but the principle behind HF’s remain sound and the industry will survive and thrive in the future.

We are raising our performance fee PBT forecast for the half ending March 09E from $16m to $239m as AHL is now 6% above its previous performance fee high watermarks. We are raising our EPS forecast for the y/e March 09E by 19% to
59.1 cents. The growth in the size of AHL has also resulted in higher performance fees for coming years and a 7% upgrade to our EPS estimate for the y/e March 2010E.

Valuation up with events — This downgrade to Hold is valuation premised. Our
1250p target price is unchanged. At 15x calendar 2009E PER the stock is back to
its long-term average valuation and we believe no longer appears to be a good value
on a relative basis given the current earnings challenges. We also raise the Risk
rating to Medium to reflect the short-term risks in supplying the auto industry

Thirdly, PV Crystalox regards itself as one of the lowest cost producers in the solar market, with low price polysilicon contracts and its own poly plant due to
come on line in 1Q09. The shares trade on 6.2x Dec09F PER, and yield 5.4% from a balance sheet which we forecast to have EUR76m of net cash at FY09F.

Estimates and price targets updated
We have updated our earnings estimates and 12-month price targets for the four UK water companies. We have incorporated our economists’ new RPI forecasts into our earnings estimates and price targets, and also removed any allowance for possible M&A in the water subsector. Our price targets are now based solely on a SOTP approach.

United Utilities downgraded to Sell; reiterate Sell on Pennon
Based on our revised price targets, we see the most potential downside (11%) for United Utilities among the four UK water companies. We also forecast that United Utilities will have a dividend coverage ratio of less than 1x in 2010-2015E, and negative free cash flow for the same period. Our 12-month price target for Pennon implies 8% potential downside, and we reiterate our Sell rating on the shares. We maintain our Neutral ratings on Severn Trent and Northumbrian Water, as we believe the risks highlighted are already priced into the shares.