Markets live chat transcript for the chat ending at 12:07 on 30 Jan 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder, FT (BE)
NH:
Good morning
NH:
and welcome to Markets Live
NH:
please bear with us
NH:
few email problems
NH:
which should be fixed in a jiffy
NH:
and it’s our last day of freedom
NH:
before the Murph returns
NH:
and you will all no doubt be relieved to hear – he is safe and well
NH:
I got this email earlier this morning
NH:
Am in South Africa. Near Kruger so BB coverage a bit patchy.
NH:
I see it”s been quiet on the news front…
BE:
Morning all
NH:
sorry, Bryce is just having some issues now
NH:
is it fixed yet?
BE:
No.
NH:
so Murph is making his way back from Mozambique
NH:
he emailed to say well done on the Roche/Genentech takover story
NH:
not that we can really claim credit for this
NH:
because Roche have decided on a completely different strategy/approach
NH:
although I suppose we can say that the thrust of the story
NH:
that Roche was readying a fresh offer was for Genentech was right
NH:
it seems we have issues with the comments as well
NH:
loads are being backed up
NH:
and then coming through in a torrent
11:10AM
NH:
anyway back to Roche
NH:
it all seems rather desperate
NH:
they have launched a tender offer at a discount to their previous offer
NH:
86.5 a share vs $89 previously
NH:
background here – Roche owns 56% of Genentech already
BE:
er, what’s the sense in that?
NH:
I suppose they are hoping that by acting tough
NH:
they can get the independent directors of Genentech to the negotiating table
NH:
because there is no way in the world any Genentech shareholder is going to sign up for this
NH:
and that’s because there is some very important trial data about to come
NH:
for Avastin in colon cancer
NH:
now, if this is positive
NH:
DNA – that’s the Genentech ticker
NH:
get’s re-rated
NH:
and the trial data could be out mid-April
BE:
hmmmm
BE:
I think Roche has just highlighted their desperation with this move
NH:
that’s my reading of it
NH:
and they only way I can see shareholders tendering is if they believe this data is poor
NH:
but if it is
NH:
why would Roche – which surely must have a decent idea of what’s going on in side Genentech – move now
NH:
surely they would have just wait until the data is out and launch an even lower offer
NH:
Anyway, I suspect the only way the deadlock will be broker is if Roche increases its
NH:
offer
BE:
that’s the view of analysts
BE:
here’s a bit from Oddo Securities
BE:
When the Swiss see red: “hostile” offer of $ 86.5 per share for Genentech minority interests
BE:
Faced with the apparent impossibility of reaching an agreement with
Genentech’s board on the company’s valuation and the price for its minority
interests, Roche has taken the bull by the horns. It has announced a direct offer
to shareholders at $ 86.5 per share. This is less than the initial offer of $ 89 and
represents a premium of only 3% to the last closing price. Good news for
Roche’s finances, but will minority interests accept? There is no certainty they
will, and a return to $ 89 is highly likely. Buy (1) recommendation maintained.
Genentech’s board on the company’s valuation and the price for its minority
interests, Roche has taken the bull by the horns. It has announced a direct offer
to shareholders at $ 86.5 per share. This is less than the initial offer of $ 89 and
represents a premium of only 3% to the last closing price. Good news for
Roche’s finances, but will minority interests accept? There is no certainty they
will, and a return to $ 89 is highly likely. Buy (1) recommendation maintained.
BE:
Offer made directly to minority shareholders
Faced with the apparent impossibility of reaching an agreement with
Genentech’s board with a view to buying out the company’s minority interests,
Roche has made a hostile bid at $ 86.5 per share.
This is less than the initial bid of $ 89 per Genentech share. Roche will try to do
without the approval of Genentech’s board.
Faced with the apparent impossibility of reaching an agreement with
Genentech’s board with a view to buying out the company’s minority interests,
Roche has made a hostile bid at $ 86.5 per share.
This is less than the initial bid of $ 89 per Genentech share. Roche will try to do
without the approval of Genentech’s board.
BE:
Good news for Roche’s finances, but will the price go down well?
We are unsure
While the new price is obviously more attractive for Roche’s finances, it is highly
likely that minority interests will hold out for a better deal, hoping to get at least
the $ 89 offered initially.
If this were so, it would be a very good deal for Roche. A buyout would be
accretive in both cases.
BE:
A deal would be accretive, but would destroy value in the short term
While a buyout would enhance EPS, it would destroy a significant amount of
value in the short term. This is not a surprise, as this is always the case with
acquisitions of biotech companies, where it takes at least 10 years to turn a profit
on the investment.
Roche plans to finance the buyout using cash, new bonds and bank loans.
BE:
And, while we’re here, there’s a bit from SG
BE:
Impact is threefold: 1) Roche’s direct approach implies that the company is unwilling to let DNA’s independent board of directors impose the deal terms on Roche – previously a key concern. 2) We would expect more than one tender offer period to be necessary; we also would not be surprised if a negotiated agreement with DNA were reached eventually. 3) Consummation of the transaction prior to data from the C-08 study testing Avastin in adjuvant colorectal cancer (expected between mid-April and June) looks highly unlikely.
BE:
Positive data from the C08 study had been factored into the original
$89/share offer on a risk-adjusted basis. As we tag the US adjuvant colorectal cancer
opportunity at $2bn annually at the most, we estimate that positive data would add at
most $2 to the NPV of Genenetch shares (assuming $1bn in incremental sales beyond
the previous risk-adjusted estimate, which would translate to an NPV of c.$2bn, or
c.$2/share, based on the assumptions of an 8% WACC, 80% incremental EBIT margin and 40% marginal tax rate). However, positive C-08 data would likely spark a debate about the likelihood that Avastin will succeed in the potentially much larger, but far more heterogeneous, adjuvant breast and lung cancer indications, where we expect data in the 2010/2011 timeframe. Consequently, a drawn-out process looks possible to us. If the offer were consummated at $86.50/share, this would add approximately 1%age point to the mid- to high-single digit EPS accretion we would expect at $89/share.
BE:
Sal Oppenheimer
BE:
Given the increased uncertainty, we interpret the hostile bid
as initially negative, creating a cloud of uncertainty. However, the
acquisition is a perceived as a must for Roche but most probably
also winning deal over the long-term and makes sense also from the
perspective of DNA-shareholders; especially since in 2015 the
company would lose 1st opt-in rights for Genentech
compounds. More upside for Genentech shareholders at this point.
as initially negative, creating a cloud of uncertainty. However, the
acquisition is a perceived as a must for Roche but most probably
also winning deal over the long-term and makes sense also from the
perspective of DNA-shareholders; especially since in 2015 the
company would lose 1st opt-in rights for Genentech
compounds. More upside for Genentech shareholders at this point.
BE:
and finally Liberum Securities
BE:
Roche – In a surprise move Roche intend to commence a tender offer
for the 44.2% of Genentech they do not own at $86.50 per share. There
are four important aspects of this announcement. 1) Roche has thrown out
the procedure set out in the agreement it has with Genentech, which
stipulates a negotiation with the independent directors of Genentech. 2)
It can complete at 50% of the outstanding shares (Roche would own
77.9%), but Roche do not gain control until 90%. 3) This is still
conditional on financing. 4) The price adjusted down from $89 to $86.50.
Roche has left room to raise the price. We have argued that Roche has to
complete this merger with Genentech before the read out from the C-08
study (Avastin in adjuvant colorectal cancer) because a positive outcome
will push the value of the minority beyond the ability of Roche to
finance the deal. The Genentech minority and the market cannot, we
believe, fail to see the desperation in Roche to close before April.
Expect a better offer for Genentech.
for the 44.2% of Genentech they do not own at $86.50 per share. There
are four important aspects of this announcement. 1) Roche has thrown out
the procedure set out in the agreement it has with Genentech, which
stipulates a negotiation with the independent directors of Genentech. 2)
It can complete at 50% of the outstanding shares (Roche would own
77.9%), but Roche do not gain control until 90%. 3) This is still
conditional on financing. 4) The price adjusted down from $89 to $86.50.
Roche has left room to raise the price. We have argued that Roche has to
complete this merger with Genentech before the read out from the C-08
study (Avastin in adjuvant colorectal cancer) because a positive outcome
will push the value of the minority beyond the ability of Roche to
finance the deal. The Genentech minority and the market cannot, we
believe, fail to see the desperation in Roche to close before April.
Expect a better offer for Genentech.
NH:
thanks for all that
NH:
plenty to cheq over there
NH:
and one more thing on this before we move on
NH:
Roche are being pretty defensive on this move today
NH:
here’s something a kind broker sent me
NH:
their chat with the company
NH:
IR refused to give any details
whatsoever on this apart to say it was “confident” it would receive the
necessary funding. Asked how investors could get comfort on the funding
of the deal, he said they wouldn’t have put the statement out if they
weren’t confident of it…..
whatsoever on this apart to say it was “confident” it would receive the
necessary funding. Asked how investors could get comfort on the funding
of the deal, he said they wouldn’t have put the statement out if they
weren’t confident of it…..
Re talks with Genentech, again the IR declined to give any extra details
on how the talks proceeded, whether they were still holding talks in
January. IR said that this is the offer on the table, they are not
speaking with the Genentech board, shareholders have to decide whether
to accept this “attractive offer”. Asked whether Roche was open to
further talks/negotiations with Genetech, IR would not be drawn and just
reiterated that this was the offer on the table etc etc.
NH:
Asked if this is a “final” offer – IR repeated the above.
BE:
What a surprise. They’re not saying if the offer’s final or not.
NH:
yep, I am with Lemmy this is just an opening gambit. to shale things up and get Genentech to the table
NH:
i suspect the $95 they were targeting in our original story
NH:
will prove close to the market in the end
NH:
on to the wider market
11:18AM
BE:
FTSE’s a touch lower
BE:
down 0.3 at 4190
BE:
Bit of a reversal
NH:
yeah, was up around 15 points a little earlier
BE:
looks like most folk are waiting for the US GDP reading to come out at 1.30pm.
NH:
oh yes, had forgotten about that
NH:
what are people going for?
BE:
That’s been the main subject of the comments …
BE:
Haven’t you been watching?
NH:
no, no too many this morning. everyone seems to be demob happy as its Friday
BE:
Anyway, here’s a bit of comment from Deutsche.
BE:
Today is another busy day for US economic data with the main highlight the advanced reading of Q4 08 GDP. Our economists are going for a below consensus -6.5% (annualised), which would be the lowest QoQ reading since Q2 1980. The consensus forecast of -5.5% would be the lowest reading since Q1 1982. Our US economists note in their daily that economic output dropped abruptly at the end of 2008 and has continued to do so in the current quarter and therefore today’s GDP data should help us understand the trajectory of the economic decline (in other words how the collapse is distributed between the two quarters).
BE:
Other data out today includes the Chicago
PMI and the final reading for January of UofM consumer confidence. In terms of
earnings it is on the whole a much quieter day with just 8 S&P 500 companies
expected to report. However given the fact that those 8 companies include 3 of the 5 biggest components of the S&P 500 [Exxon (Hold, $77), Procter & Gamble (Hold, $58.22) and Chevron (Hold, $70.62)] today’s results may have a significant bearing on overall market sentiment.
NH:
thanks for that
NH:
while we are on the markets stuff
NH:
just picked up the latest report from Smithers & Co
BE:
oh yeah – what’s their take?
NH:
world stocks markets are round about fair value and should give good long term returns
NH:
but
BE:
I knew there had to be a caveat …
NH:
that doesn’t mean 2009 won’t be another stinker
NH:
here’s the note
NH:
• Our basic view is unchanged. World stock markets are around “fair value”, and they should therefore give good long-term returns. But value provides no guide to the short-term outlook and we expect 2009 to be a year of poor equity returns. Our main reason is that we expect companies to be issuers of shares in place of the large scale buyers that they have been in recent years.
NH:
• As opinions swing from hope to fear, market prospects improve and in this perverse sense things are getting better. Dire and improbable forecasts are getting increasing space in the financial columns. On the other hand, resistance to the policies needed to restore growth has also become more vocal.
NH:
• It is widely and correctly recognised that cut-backs in bank lending to individuals and non-financial companies will probably prevent recovery. Two conditions are needed to stop this occurring: (i) banks must have sufficient capital to be able to lend1 and (ii) output must be stabilised by fiscal stimulus so that banks are willing to lend.2
• Opposition to the first comes both from both the general public, who feel that banks have already been privileged receivers of public funds, and from the banks, who don’t want additional equity which they fear will constrain future returns and be accompanied by constraints on pay and dividends. Opposition to fiscal stimuli comes from voters who, wrongly, fear that budget deficits merely increase debt rather than shift it.
NH:
Politicians are nervous of voters’ opposition and attend from ignorance and habit to bankers’ views. We are therefore still some way from a satisfactory solution for the banks’ capital needs or for a sufficient fiscal stimulus to stabilise demand. We expect, however, that the lack of alternatives combined with continued economic weakness will lead to solutions for both problems being found in 2009, leading to recovery some time in 2010.
• The risk of inflation and a deterioration in the US current account will rise sharply with recovery. Both will lessen the more fiscal stimulus is seen in China, Germany and Japan
BE:
Ta
11:24AM
NH:
how is Xstrata doing.
NH:
hostile reaction in the press to the rights issue this morning
BE:
Unsurprisingly
BE:
Shares down 28p at 617p
NH:
right, they had an amazing spike/recovery late yesterday
BE:
Stunning turnaround
NH:
it was
NH:
and the same things happened with Cookson
NH:
drilled out of sight first thing
NH:
and then they recovered to close above 100p
NH:
and we think we know why
BE:
NH:
I posted on this a little earlier
NH:
but JP Morgan Cazenove slipped a clause into the sub-underwritting agreements of both cash calls
NH:
this said the subbers could not hedge their exposure
NH:
now
NH:
this came as something of a surprise
NH:
to the subbers
NH:
who had bashed the stock out in the morning
BE:
And prompted the mother of all short squeezes
NH:
it did
NH:
and as someone noted below, there was also someone else who got themselves in a pickle with Cookson
NH:
actually it could have been a subber
NH:
nonetheless, I think Xstrata are pretty pleased with the share price reaction
NH:
and in spite of claiming they got one over on Glencore – I mean who really does that
NH:
Glencore have come out of this well
NH:
the CDS is coming in
NH:
and the reason being
NH:
Glencore have a – negotiated a big capital call that the CDS market was clearly expecting
NH:
and not only have they survived
NH:
but they have kept their majority holding in Xstrata
NH:
and they have done it by using coal assets as collateral
NH:
which they can buy back next year
NH:
when things might have improved
NH:
pretty sweet deal for Glencore I would say
BE:
Yup
NH:
costs 12.5% pls a year of earnings from the coal assets
NH:
to keep control of Xstrata
NH:
which is VITAL to its marketing and trading operations
NH:
and it is has alll been effectively financed by Xstrata shareholders
NH:
a stroke of genius I would say
BE:
Certainly is
BE:
Unsurprisingly, the sellsiders take a rather more measured view of the whole thing
BE:
Nomura “buy”
BE:
Our view remains unchanged that the beginning of
the strengthening process for Xstrata’s balance
sheet would likely mark an inflection point for the
company’s share price. We did not expect the
process to begin with a rights issue, but the form
of any strengthening is less important than the
process itself, in our view. We reiterate our Buy
recommendation for the stock
the strengthening process for Xstrata’s balance
sheet would likely mark an inflection point for the
company’s share price. We did not expect the
process to begin with a rights issue, but the form
of any strengthening is less important than the
process itself, in our view. We reiterate our Buy
recommendation for the stock
BE:
The market is beginning to reward miners taking
pre-emptive action to repair distressed balance
sheets. We believe this may also encourage debtladen
peers such as Rio Tinto to opt for a rights
issue.
We estimate Xstrata’s 2009 gross debt/EBITDA
will fall from 2.1x to 1.7x post rights issue,
providing additional headroom to the 3x covenant.
Aggressive cost-cutting measures support our
view that unit costs can be reduced by an average
of circa 30% y-o-y in 2009
The proposed US$2bn coal acquisition from
Glencore appears fair compared to our DCF
valuation of US$2.1bn. However, we recognise
the opportunity cost in failing to capitalise on
trough valuations elsewhere in the sector.
pre-emptive action to repair distressed balance
sheets. We believe this may also encourage debtladen
peers such as Rio Tinto to opt for a rights
issue.
We estimate Xstrata’s 2009 gross debt/EBITDA
will fall from 2.1x to 1.7x post rights issue,
providing additional headroom to the 3x covenant.
Aggressive cost-cutting measures support our
view that unit costs can be reduced by an average
of circa 30% y-o-y in 2009
The proposed US$2bn coal acquisition from
Glencore appears fair compared to our DCF
valuation of US$2.1bn. However, we recognise
the opportunity cost in failing to capitalise on
trough valuations elsewhere in the sector.
BE:
UBS “neutral”
BE:
… actually, that notes too boring to post.
NH:
OK
NH:
shall we just stick up the share price
NH:
Xstrata down 34p at 611.5p at the moment
NH:
Cookson off 4.5p at 90.1p
NH:
but there is plenty of other stuff happening in the mining world today
NH:
BHP Billiton
NH:
under pressure because of rumours they are talking down numbers
BE:
Getting hit hard – down 5.6%
NH:
must admit we have not seen any evidence that is the case
BE:
And most of the miners are on offer this morning
NH:
except for Rio, which has added 54p to £16.04 on the back of a disposal
NH:
yes, it has actually managed to sell something
BE:
Yup – sale of Argentinean potash and Brazilian iron ore assets for $1.6bn
BE:
to Vale
BE:
And folk reckon it’s a decent price
BE:
Here’s Liberum
BE:
The assets to be sold are their undeveloped Argentinean potash project and their small Brazilian iron ore mine Corumba which we expect to make c.$82m in 2008 (vs. a loss in 07). We think this news is a major positive for RIO for a few reasons:
BE:
1. It’s a good price for not much loss of EBITDA (19x trailing EBITDA)
2. These assets were not the ones that the market had been focusing on as likely disposal candidates – perhaps now management will be trusted more when they insist the priority is to sell assets instead of resorting to equity
3. It is a bullish sign that the world’s number one iron ore producer is still buying iron ore assets at these prices. Perhaps again the market will begin to believe a sub 30% price settlement is a possibility?
4. Following yesterday’s drama on XTA, the theme that one should be buyers of de-leveraging event risk is playing out.
5. On our estimates using spot prices and JFY settlements for iron ore of -30%, coking at $140/t and thermal at $75/t Rio Tinto generates free cash flow after dividends of $5.9bn in 2009. With $1.6bn already in the tin from disposals, this leaves a debt reduction target of a further $2.5bn from either asset sales or equity.
6. Rio Tinto is a stand out cheap stock now and even after an increasingly unlikely $5bn rights issue. It has a PER of 4.7x in 2009E on spot assuming no rights issue, but a pro forma PER of 5.4x if it raises $5bn (15% dilution).
BE:
With the premier assets in the sector (alongside BHPB), soft banking covenants (Net Debt / EBITDA > 4.5x) limiting future debt concerns and with more managed non-strategic disposals likely to follow in future, we believe potential equity underwriters and existing investors would support Rio should it seek a rights issue. RIO remains our top pick in the sector. It has been the best performing mining major in the UK market this year but we would still be buyers now rather than wait for misplaced event risk.
BE:
And Cazenove
BE:
CASH IN FOR NO CASH OUT
BE:
Rio Tinto has sold its Corumba Brazilian lump iron ore operation and the Rio Colarado and Regina potash projects to Vale for $750m and $850m respectively, or a total consideration of $1.6bn. Corumbá produced 2mt of high grade lump ore in 2008 vs. total Rio attributable production of 153mt. Rio was in the process of expanding the asset to 12.8mt for capex of $2.11bn (a relatively high capex intensity of $211/t) by 2012, with a LT conceptual production target of 30-40mtpa. In terms of price, $750m looks favourable given the asset generated a cumulative EBITDA of $58m over 2004-7 cumulative, and compared to our NPV of $147m excluding the expansion. The asset is clearly a marginal contributor to the overall Rio iron ore portfolio, the expansion would have been in our view NPV negative, and the price achieved appears very favourable.
BE:
OPTION VALUE IN EVIDENCE
BE:
The Rio Colorado project was in feasibility for development, while the Regina project in Saskatchewan was at a very early stage of conceptual study although represents a significant landholding of 1200km2 in a prospective region where BHPB have been notably active. Whilst both had the potential to be world class we had attributed no value to these projects in our NPV so a sale price of $850m is clearly a value accretive move and highlights the huge option value existing within the Rio Tinto diversified portfolio
BE:
RECOMMENDATION AND VALUATION
BE:
mpact on earnings/cashflows: the Corumba assets were forecast to generate $29m of EBITDA in 2009 so there is next to no impact on our earnings forecasts from today’s sale. We estimate net debt to fall from $38.5bn at end of 2008 now to $31.9bn using our forecasts, and to $33.4bn using spot (post $1.75bn dividend). The company is therefore moving ever closer to its $10bn debt reduction target and this move provides, in our view, further evidence that Rio are trying to avoid coming to the market for cash if they can possibly avoid it. Rio Tinto’s share price is trading on PER and EV/EBITDA multiples of 6.7x and 4.5x for 2009 on our number with a c.15% EPS hit using spot pricing assumptions. Its noticeable it is generating 16% free cashflow yield on spot numbers. We believe, as the threat of a rights issue recede these are looking increasingly attractive valuation metrics.
BE:
And that’ll do I think.
NH:
thanks for all of that. Any Columbian coal assets in there
BE:
Corumba iron ore, which may be a mispronunciation I guess.
11:40AM
NH:
right, a couple of bits of house keeping. If people really want to talk abouts house prices and other stuff that usually comes up a dinner parties, I can set a table up in the Long Room.
NH:
there you can discuss Property Ladder, Property Snake
NH:
what train you take to work
NH:
that sort of thing
NH:
what school the kids go to
NH:
and also
NH:
I would just like to wish Monkey all the best
BE:
Seconded
NH:
I hope you will still be commenting here and in the LR
11:41AM
NH:
back to the markets
NH:
and it has to be time for
NH:
a bit of banks
BE:
Yeah – prices look firm again this morning.
Barclays PLC (BARC:LSE): Last: 105.40, up 5.1 (+5.08%), High: 111.00, Low: 99.00, Volume: 30.87m
Lloyds Banking Group (LLOY:LSE): Last: 94.40, up 5.4 (+6.07%), High: 97.60, Low: 87.20, Volume: 27.48m
Royal Bank of Scotland Group (RBS:LSE): Last: 22.10, up 1.1 (+5.24%), High: 23.40, Low: 19.70, Volume: 158.01m
NH:
up they go as everyone takes the view that nationalisation has been postponed
NH:
anyway
NH:
have a note from merrill on the read across from Obama’s bad bank plan
NH:
or is it Aggregator Bank
NH:
European Banks: Progress on US bank bail-out
plan
plan
NH:
According to the WSJ, US officials are working on a hybrid bank support
plan. The scheme – which is still under discussion – could see a “bad bank”
set up by the US government to buy banks’ heavily written down toxic
assets. In addition the US could provide 2nd loss insurance to other
potentially difficult accrual-accounted assets held on the banks’ books (as
per the Citi example). The aim of such a possible package is twofold – (i) to
restore confidence in the system by cleaning up the banks’ books and (ii)
to allow cleaned-up banks to resume lending.
plan. The scheme – which is still under discussion – could see a “bad bank”
set up by the US government to buy banks’ heavily written down toxic
assets. In addition the US could provide 2nd loss insurance to other
potentially difficult accrual-accounted assets held on the banks’ books (as
per the Citi example). The aim of such a possible package is twofold – (i) to
restore confidence in the system by cleaning up the banks’ books and (ii)
to allow cleaned-up banks to resume lending.
NH:
While a composite “bad
bank”/2nd loss insurance scheme may be the most practical in the shortterm,
we believe there is the danger that it is not clear-cut enough to
achieve either (i) or (ii). Key for us is whether investors will be able to
determine with a very high degree of certainty what the banks’ books
values are post the implementation of such a plan. Possible claw-backs on
MTM values, uncertain usage of guarantees etc could all detract from any
such certainty. While we await further details of the possible US plans, we
retain our cautious stance on the European banks.
bank”/2nd loss insurance scheme may be the most practical in the shortterm,
we believe there is the danger that it is not clear-cut enough to
achieve either (i) or (ii). Key for us is whether investors will be able to
determine with a very high degree of certainty what the banks’ books
values are post the implementation of such a plan. Possible claw-backs on
MTM values, uncertain usage of guarantees etc could all detract from any
such certainty. While we await further details of the possible US plans, we
retain our cautious stance on the European banks.
NH:
BICKIE
Reminder to readers – you can scroll up to read earlier parts of the chat and the window will stop scrolling automatically. When you’re ready to continue, scroll back down to the bottom or click resume.
BE:
There’s a chance that the bickies break the system, but we’ll see what happens.
11:44AM
NH:
Anything else to look at?
BE:
Well, remember that Autonomy acquisition a week or so ago?
BE:
And I mentioned Daud Khan at Cazenove
BE:
the analyst who had in the past basically accused the group of making acquisitions to muddy the like-for-like figures and inflate growth?
NH:
Sure.
BE:
Well he’s had change of heart. Sort of.
BE:
A day after reporting strong results ahead of consensus, Autonomy announced its third major acquisition in three and half years. We have argued that an acquisition in excess of $500m was coming despite Mike Lynch’s comments at the Q3 results meeting “..in general, we think software acquisitions are a bad idea…..If there were opportunities that gave us strategic advantage then, yes I guess we’d do them….but I would predict that’s more likely in about six or seven months’ time”.
BE:
Interwoven is listed as the seventh largest content management company by revenues (IDC 2008). The deal is expected to close in Q2.
BE:
While optically the acquisition makes financial sense ($40m of annual cost synergies, accretive in the first full quarter after acquisition) and strategically a strong case can be made for combining the companies, we retain our concerns about the stated level of organic growth achievable and the conundrum of lacklustre cash conversion. However, following an acquisition, which we had been predicting since September, and the positive reaction from investors, we are moving our recommendation to IN-LINE (from Underperform).
While optically the acquisition makes financial sense ($40m of annual cost synergies, accretive in the first full quarter after acquisition) and strategically a strong case can be made for combining the companies, we retain our concerns about the stated level of organic growth achievable and the conundrum of lacklustre cash conversion. However, following an acquisition, which we had been predicting since September, and the positive reaction from investors, we are moving our recommendation to IN-LINE (from Underperform).
NH:
“While optically the acquisition makes financial sense …”?
NH:
What does that mean?
BE:
Err … analyst speak for “It looks alright,” I think.
BE:
Or perhaps he wrote the note in the pub, while knocking back shots.
NH:
And the shares?
BE:
Not doing anything. Down tuppence at 10.94.
11:47AM
NH:
OK, another bit of house keeping. On the Webbys/Tarpy
NH:
Paul will correct me on Monday
NH:
but we did have an offer of sponsorship
NH:
not sure if has followed up
NH:
but am sure he will
NH:
which means the party could be soon
NH:
and we have to get our entry in for this year’s Webbys by the end of the day.
11:48AM
BE:
Ireland debt ratings revised to negative at Moody’s
BE:
Not a huge surprise I guess.
BE:
And how about a quick Libor hit, for old times?
NH:
hang on
NH:
*DJ 3-Month USD Libor Fixed At 1.18438%, Vs 1.17% Thursday
NH:
DJ 3-Month Sterling Libor Fixed At 2.16563%, Vs 2.16688% Thurs
BE:
(Monkey – pure coincidence. Honestly.)
NH:
DJ 3-Month Euro Libor Fixed At 2.09063%, Vs 2.10375% Thursday
NH:
The London interbank offered rate, or Libor, that banks say they charge each other for three-month dollar loans snapped two days of declines, according to the British Bankers’ Association.
The rate rose one basis point to 1.18 percent today, the BBA said. The overnight rate jumped nine basis points to 0.31 percent, the biggest increase since Nov. 28.
The Libor-OIS spread, a gauge of bank reluctance to lend, was little changed at 94 basis points.
The rate rose one basis point to 1.18 percent today, the BBA said. The overnight rate jumped nine basis points to 0.31 percent, the biggest increase since Nov. 28.
The Libor-OIS spread, a gauge of bank reluctance to lend, was little changed at 94 basis points.
11:51AM
BE:
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.
NH:
well, after the abusive comment from Large Yatch Owner below
NH:
don’t think I will bother
NH:
in spite of the fact that our record has been OK
NH:
given the paucity of deals
BE:
Xstrata, Cookson, Roche …
NH:
and I seem to remember us having Xstrata probably first
NH:
anyhow
NH:
not much about
NH:
just a rumour that Debnehams could be a week away from launching a £200m rights issue
NH:
which I think would be taken pretty well
NH:
even if it was deeply discounted
NH:
also hearing there is another huge cash call out there
NH:
one name that has been mentioned is Aviva
NH:
but I an more sure about that at the moment
BE:
Hm.
NH:
also some rumours around about a profit warning from Carpetright
BE:
NH:
which are a touch weaker this morning
BE:
Next update from Carpetright is scheduled for 3 February
BE:
Q3 to end Jan
NH:
shares down 24.7p at 385p.
BE:
Q2 was down 12.5%
BE:
Teathers talking today about -17%-18% LFL
NH:
hasn’t Lord Harris pledged a load of stock as collateral for a loan
BE:
12.7m shares, equivalent to 18.9% of the issued share capital and equivalent to an estimated 75% of the directors’ combined holdings.
BE:
One to watch, I feel.
11:57AM
NH:
OK, time to be winding down for the weekend
NH:
but before we do
NH:
Can someone tell me where that David Mayhew comment was?
NH:
am writting a column on cash calls for tomorrow’s paper
NH:
and if anyone is wondering why the property stocks are up
NH:
in spite of the fact that there are rights issue coming in this sector
NH:
and I believe Land Securities is at the front of the queue
NH:
it is down to a Morgan Stanley
Land Securities Group (LAND:LSE): Last: 670.00, up 36.5 (+5.76%), High: 683.00, Low: 635.50, Volume: 2.44m
Hammerson (HMSO:LSE): Last: 409.75, up 21.5 (+5.54%), High: 415.25, Low: 390.25, Volume: 1.46m
Liberty International (LII:LSE): Last: 372.00, up 12.75 (+3.55%), High: 374.50, Low: 363.00, Volume: 1.51m
BE:
Rebalancing pan-European stock ratings. We are
taking money off the table in continental Europe and
putting it into the UK. The reasons for this are threefold.
taking money off the table in continental Europe and
putting it into the UK. The reasons for this are threefold.
Firstly, UK stocks have significantly underperformed
recently as investors seem to have priced in rights
issues. Secondly, we believe there is a risk the euro is
set to weaken relative to Sterling during 2009, driving
underperformance of euroland stocks. Lastly, we
believe there is too much complacency on the prospects
for capital growth in continental Europe, fuelling scope
for disappointment, while in our view this is no longer the
case in the UK.
BE:
More downside risk in continental Europe. Based on
our price targets, which remain unchanged, we expect
around 20% downside risk for our pan-European
coverage universe from current levels. We anticipate
relatively more downside in continental Europe (25%)
than in the UK (13%). The absolute downside risk we
estimate for the UK highlights that we are making a
relative overweight call on the UK rather than
recommending absolute-return investors to buy these
stocks at current levels.
our price targets, which remain unchanged, we expect
around 20% downside risk for our pan-European
coverage universe from current levels. We anticipate
relatively more downside in continental Europe (25%)
than in the UK (13%). The absolute downside risk we
estimate for the UK highlights that we are making a
relative overweight call on the UK rather than
recommending absolute-return investors to buy these
stocks at current levels.
BE:
Upgrading mainly UK stocks … In the UK we are
upgrading Brixton, Hammerson, Land Securities and
Liberty International to Overweight, and we are
upgrading British Land to Equal-weight. In continental
Europe we are upgrading DIC Asset from Equal-weight
to Overweight.
upgrading Brixton, Hammerson, Land Securities and
Liberty International to Overweight, and we are
upgrading British Land to Equal-weight. In continental
Europe we are upgrading DIC Asset from Equal-weight
to Overweight.
BE:
… and downgrading continental names. We are
downgrading Klépierre and Gecina from Equal-weight to
Underweight, and we are downgrading Corio, Icade and
Unibail-Rodamco from Overweight to Equal-weight
downgrading Klépierre and Gecina from Equal-weight to
Underweight, and we are downgrading Corio, Icade and
Unibail-Rodamco from Overweight to Equal-weight
NH:
(Very funny Taxloss)
BE:
Big call from MOST, that.
NH:
Ronnie
NH:
I would like to do 1.25 mins
BE:
P&G results just out – look ok at the EPS level
NH:
but given the hours I have been doing here recently
NH:
and contact building
NH:
I would settle for 1.27mins
NH:
as for 1.50 – that’s only going to happen if I pull up injured
BE:
Should clarify that’s for the half marathon, not the average length of an ML session
BE:
And best of luck for that, Neil
NH:
as for training mileage I reckon i do what 40 miles a week
NH:
sometimes more, sometime less
NH:
i run to and from work every day
NH:
anyway, the timings should be on the Watford Half Marathon site
NH:
OK, that’s it from us
NH:
next week you will be back in the safe hands of Murphy
NH:
who we suspect will be sporting a very bice tan
BE:
Indeed. And apologies if anyone was holding out for the promised guest commentators.
NH:
and hopefully a gift for the team
NH:
actually, I think he is only back a few days before he jets off for some conference in NY
NH:
tough life
NH:
but you can all rely on me
NH:
and Bryce
BE:
Oh. Great.
NH:
we will still be at the coal face
NH:
in the engine room
BE:
As per …
BE:
Manhattan would’ve been nice, but …
NH:
bringing you the usual mish mash of market chat and comment
BE:
And on that note
NH:
goodbye
BE:
Have a good weekend.
NH:
jsut checked
NH:
Paul really is heading off the states next week
NH:
cya