Markets live chat transcript for the chat ending at 12:16 on 9 Feb 2009. Participants in this chat were: Neil Hume, FT (NH) Paul Murphy, FT (PM)
NH:
Okay – welcome everyone
NH:
This is Markets Live, the FT Alphaville’s daily markets chat.
NH:
A rare thing has happened here at AV HQ this morning.
NH:
Murphy’s come in to the office.
PM:
Ho
PM:
Ho
NH:
Nah, I’m serious Murph, it’s kind of you to grace us with your presence.
PM:
You’ve been doing very well without me actually. Must say I have been impressed.
PM:
you and Bryce
NH:
Catch up for new readers: Murphy swanned off to New York last week, just 48 hours after returning from 10 days in Southern Africa
NH:
How long you sticking with us on this occasion – all the way to lunchtime perhaps?
PM:
Look Neil.
NH:
Your airmiles account must be looking pretty healthy.
PM:
Actually, I have exhausted the video selection on BA.
PM:
I have no further travel plans for the foreseeable future.
NH:
Will do some old-fashioned work – like actually writing something?
PM:
Look, im here, okay?
PM:
Talk me thru the Barclays numbers – where did these £900bn of new assets come from??
PM:
11:05AM
NH:
Right – Barclays it is.
PM:
annual results out
PM:
and the reaction so far is positive
NH:
yep
NH:
shares up 7.7p at 112.5p
NH:
second best performed in the FTSE 100
NH:
everything is pretty much in line with the Varley/Aguis letter o f Feb
NH:
and the emergency trading statement of January
NH:
ie Statutory PBT ahead of the market expectations – £6.1bn vs £5.6bn
NH:
and a pretty confident outlook statement
NH:
look at this
NH:
We expect 2009 to be another challenging year with continuing downturns or recessions in many of the economies in which we are represented. In 2008 our profits were reduced by the impacts of substantial gross credit market
losses.
losses.
NH:
In 2009, we expect the impact of such credit market losses to be lower. Whilst we are confident in the relative quality of our major books of assets, we also expect the recessionary environments in the UK, Spain, South Africa and the US to increase the loan loss rates on our loans and advances.
NH:
Our planning assumption for 2009
reflects an increase in impairment charges as a percentage of loans and advances to a range of 130-150bps. Official interest rates in the UK and elsewhere have reduced significantly in response to the emerging recession. This will have the impact of substantially reducing the spread generated on our retail and commercial banking
liabilities, particularly in the UK. We expect this to endure while interest rates are low.
reflects an increase in impairment charges as a percentage of loans and advances to a range of 130-150bps. Official interest rates in the UK and elsewhere have reduced significantly in response to the emerging recession. This will have the impact of substantially reducing the spread generated on our retail and commercial banking
liabilities, particularly in the UK. We expect this to endure while interest rates are low.
The impact on Barclays will be reduced to an extent by our interest rate hedges, which we expect to mitigate around two thirds of the impact.
As well as interest rate reduction, governments in the UK and elsewhere have taken significant measures to assist borrowers and lenders. We expect the combined impact of these measures and the lower interest rate environment to be positive for the economy in time.
NH:
on top of that
NH:
there is some greater clarity on the banks’s balance sheet and assets
NH:
in fact there is 43 pages on Risk Management
NH:
and the head of risk
NH:
the wonderfully titled Robert Le Blanc
NH:
is co-presenting the figures
NH:
actually wasn’t Robert Le Blanc in Friends?
PM:
NH:
anyway, I digress
NH:
so all of that is good
NH:
and the market likes it
NH:
but
PM:
I knew there would be a but
NH:
the headlines figures don’t tell the full story
PM:
Smog Bank
PM:
Copyright Itzman — in the Long Room
NH:
indeed
NH:
first the headline PBT figure is flattered by all sorts of one off’s
NH:
and there are
NH:
Gains on acquisitions of £2,406m, including £2,262m relating to Lehman Brothers North American business
NH:
– Profit on disposal of the closed life assurance book of £326m
PM:
so strip that out and profits are much lower
NH:
yep
NH:
and it all rather makes a mockery of what Varley was telling Peston on Radio 4 this morning
NH:
he was trying to say Barclays had been responsible
NH:
cutting bonuses sharply
NH:
even though annual profits were only down 14% on last year
NH:
but they weren’t really down 14% last year
NH:
they were down a lot more
NH:
why can’t barc admit that?
NH:
they could still say they made a profit last year
NH:
and did better than everyone else
NH:
but don’t try and kid us with this £6bn figure
NH:
and let’s not forget the fact that Barclays was also forced to take this hit
NH:
Gross credit market losses and impairment of £8,053m
PM:
quite
PM:
actually, if you want to hear more from Varley
PM:
and Bob White
PM:
go to the Barclays website
PM:
the investor relations section
PM:
very amusing Q&A session
PM:
Barclays grilling, very lightly of course, Barclays
NH:
how funny is that?
NH:
bet they asked some really tough questions
PM:
the whole thing is comic
PM:
the interviewer looks like he is off a Head and Shoulders commercial
PM:
and Varley et al are all bathed in this lovely light
NH:
no doubt they were at the top of the Barclays tower
NH:
anyway
NH:
back to the figures
NH:
the other thing everyone in the market is mentioning is the massive growth in the Barclays balance sheet
NH:
up £800bn in H208 and Barc is now boasting GBP 2 trillion in assets.
PM:
PM:
i’ve tried to get Sam to explain this to me, but i still don’t fully understand it
NH:
now, the Barclays IR team and management have been hitting the phone this morning
NH:
trying to reassure the market
NH:
and explain this is all down to the impact of volatility levels on the derivs book and that liabilities and assets have grown in tandem.
NH:
But £2 trillion is still £2 trillion
PM:
it is certainly an eye-catching number
PM:
What do the analysts make of it all?
NH:
they seems surprisingly relaxed about the balance sheet growth
NH:
here’s Cazenove
NH:
Increase in balance sheet footings will surprise initially, but is largely explained by IFRS gross-up of derivatives positions. In our view, better than expected capital ratios and commitment to reducing leverage are both positive, but impairment is rising faster than we had anticipated.
NH:
and this is Alex Potter of Collins Stewart
NH:
Headline figures in line with last month’s disclosure
PBT of £6.1bn was “well ahead of the consensus estimate of £5.3bn”, to quote last month’s open letter from management. No dividend is being paid by mgmt does reiterate its commitment to recommence dividends in 2H09.
PBT of £6.1bn was “well ahead of the consensus estimate of £5.3bn”, to quote last month’s open letter from management. No dividend is being paid by mgmt does reiterate its commitment to recommence dividends in 2H09.
Several large exceptionals broadly net off
The above PBT figure includes £2.6bn of acquisition gains (the Lehman gain of £2.2bn is larger than previously expected) and £1.7bn of own-debt gains. Offsetting these positives are £5.1bn of credit market write-downs. So, underlying PBT is c.£6.8bn.
NH:
Outlook is pretty bleak
As expected, the outlook statement makes for grim reading alluding to downturns and recessions. Guidance is for credit market write-downs to be lower in 2009, though we would attach little confidence to this. In the “core bank” loan loss rates are rising with corporate credit conditions described as “sharply worse”. The loan loss rate is guided to increase from 95bp to 130 to 150bp in 2009.
As expected, the outlook statement makes for grim reading alluding to downturns and recessions. Guidance is for credit market write-downs to be lower in 2009, though we would attach little confidence to this. In the “core bank” loan loss rates are rising with corporate credit conditions described as “sharply worse”. The loan loss rate is guided to increase from 95bp to 130 to 150bp in 2009.
Balance sheet quality remains relatively low
The accounting rules applying to Barclays’ balance sheet are unhelpful to say the least. Increased volatility in markets means that the grossing-up of derivative books becomes larger – this alone has driven Barclays’ balance sheet from £1.4trn to £2trn at end-08. Underlying leverage has fallen marginally (from 33x to 28x using the US GAAP definitions). The equity Tier 1 ratio is 6.7% which does mean Barclays remains the most weakly capitalised of the UK banks, in our view.
NH:
Stock is obviously cheap but has quality issues
If we take the £6.8bn of pre-tax profit generated in 2008, subtract £1-2bn for increased loan losses, we can expect 2009 profits to be c.£5bn. If we give zero credit for the c.£1.5bn contribution from BarCap in this number, tax the profits, it generates a rough 2009 EPS estimate of 20p. This means the stock is trading on sub-6x “trough earnings” excluding BarCap. This is obviously cheap, we feel but thin capital means higher risk too.
If we take the £6.8bn of pre-tax profit generated in 2008, subtract £1-2bn for increased loan losses, we can expect 2009 profits to be c.£5bn. If we give zero credit for the c.£1.5bn contribution from BarCap in this number, tax the profits, it generates a rough 2009 EPS estimate of 20p. This means the stock is trading on sub-6x “trough earnings” excluding BarCap. This is obviously cheap, we feel but thin capital means higher risk too.
NH:
Here’s Oriel Securities
NH:
Goodwill write-up on Lehman acquisition looks substantially higher than expected which will prompt bears to raise issue of underlying profit strength and sustainability
However results were struck after gross credit write-downs of £8.1bn offset by fair valuing of own credit of £1.7bn and hedges of £1.4bn.
BARC expects lower gross write-downs in 2009, inspite of continued deleveraging
Global Retail and Commercial PBT +6% to £4.4bn
Capital ratios in line with our forecast and slightly ahead of guidance two weeks ago (tier 1 =9.7% and core tier 1% = 6.7%)
Trading in Jan 2009 was strong with good performance in BarCap
However results were struck after gross credit write-downs of £8.1bn offset by fair valuing of own credit of £1.7bn and hedges of £1.4bn.
BARC expects lower gross write-downs in 2009, inspite of continued deleveraging
Global Retail and Commercial PBT +6% to £4.4bn
Capital ratios in line with our forecast and slightly ahead of guidance two weeks ago (tier 1 =9.7% and core tier 1% = 6.7%)
Trading in Jan 2009 was strong with good performance in BarCap
NH:
and finally
NH:
The headline PBT figures are above our expectations, which is positive. However, in our view the main features of the figures are the growth in the balance sheet and the cautious outlook statement, which we would argue illustrates the pressures on the sector. We remain negative on the shares and on the domestic UK banks.
Tier 1 ratio 9.7% pro forma for recent capital raise, compared with 9.5% disclosed in the recent trading statement. Total assets have risen to £2053bn at year-end, up from £1366bn at the half-year, although some £900bn relates to the gross-up of derivatives. However, RWAs have also risen to £433bn from £353bn, of which £60bn was owing to fx movements, ie the fall in sterling. Nevertheless, this still implies that pro cyclicality effects have added over £20bn, or 6% to RWAs in H2 alone; ex fx and pro cyclicality, the balance sheet would have shrunk.
NH:
Management recommits to reducing balance sheet over time and to recommence dividend payments in H2 2009.
Total PCRLs rose to £18.2bn from £13.2bn at the half year. Gross of write-offs, this implies £7bn of new NPLs in H2 alone, 1.5% of the loan book.
Outlook statement indicates 2009 is expected to remain ‘very difficult’ and that the impairment charge is likely to remain at a high level.
NH:
Impairment guidance is for 130-150bp in 2009, against 95bp in 2008, implying £6.1-7bn of charges; we currently have £5.2bn in our estimates. The 2008 impairment charge in 2008 of £5.4bn, of which £1.7bn was on credit related assets ie £3.7bn was for non credit market related exposures. This is an indication of the speed of deterioration in credit costs for the industry as a whole.
PBT of £6077m compared with the latest indications of ‘well ahead’ of the market consensus expectation of £5.3bn.
NH:
Gains on acquisitions/disposals were £3.0bn against our assumption of £1.7bn. The inclusion of these gains distorts comparisons with expectations.
However, net write-downs in BarCap were some £5bn, in line with the trading statement and our assumption of £3.2bn. Management expects further, though lower, write-downs in 2009.
Most operating divisions are well ahead of our expectations, notably UK Retail Banking at £1369m, against our estimate of £1183m. BarCap profits of £1.3bn were after the £5bn in net write-downs, partly off-set by £2.3bn of Lehman related gains, implying £4bn if these are excluded. We would have expected £3.4bn on this basis.
Early trading in 2009 has been ‘good,’ including a ‘very strong’ performance at BarCap.
NH:
oh and Sam’s has just sent over a flash from JP Morgan
NH:
Stated earnings ahead of our estimates – Barclays reported FY net
attributable profit of £4,382mn (£4,417mn FY 2007) significantly ahead
of our estimates of £3,607mn mainly as a result of a lower tax rate of
13% compared to a JPMe tax rate of 23%. Pre tax profit came in at
£6,077mn (£7,076mn FY 2007) slightly stronger than JPMe £5,775mn -
note Barclays had pre announced ‘pre tax profits well ahead of £5.3bn’.
attributable profit of £4,382mn (£4,417mn FY 2007) significantly ahead
of our estimates of £3,607mn mainly as a result of a lower tax rate of
13% compared to a JPMe tax rate of 23%. Pre tax profit came in at
£6,077mn (£7,076mn FY 2007) slightly stronger than JPMe £5,775mn -
note Barclays had pre announced ‘pre tax profits well ahead of £5.3bn’.
NH:
Other Group highlights – (i) gross write-downs of £8,053mn., partly
offset by gains on own credit of £1,663mn and also £1,433mn of gains
from ‘related income and hedges’. Note Barclays expects to see further
write-downs in 2009 even though the gross level is expected lower than
2008; (ii) total assets grew to £2.0trillion from £1.2trn (FY 2007) and
£1.36bn at H108 – annualised growth rate of 90%. Derivative assets
came in at £985bn vs. £248bn (2007 FY) – note these exposures are
netted so net exposure less collateral came in at £67bn vs. £32.6bn; (iii)
Barclays is pointing to 130-150bps of loan loss provisions (ex write
downs) compared to our 133bps 2009E. (vi) there is also talk of a
‘substantial reduction’ in liability spreads, due to the low interest rate
environment, with no balancing asset margin benefit mentioned which
offset by gains on own credit of £1,663mn and also £1,433mn of gains
from ‘related income and hedges’. Note Barclays expects to see further
write-downs in 2009 even though the gross level is expected lower than
2008; (ii) total assets grew to £2.0trillion from £1.2trn (FY 2007) and
£1.36bn at H108 – annualised growth rate of 90%. Derivative assets
came in at £985bn vs. £248bn (2007 FY) – note these exposures are
netted so net exposure less collateral came in at £67bn vs. £32.6bn; (iii)
Barclays is pointing to 130-150bps of loan loss provisions (ex write
downs) compared to our 133bps 2009E. (vi) there is also talk of a
‘substantial reduction’ in liability spreads, due to the low interest rate
environment, with no balancing asset margin benefit mentioned which
NH:
Given the pre announcement, stated earnings are not a surprise.
Nevertheless, the underlying trends continue to indicate lower
profitability going forwards with risk that the free capital generation
is still not enough to absorb the cost of scheme and potential further
losses. We remain UW.
Nevertheless, the underlying trends continue to indicate lower
profitability going forwards with risk that the free capital generation
is still not enough to absorb the cost of scheme and potential further
losses. We remain UW.
11:20AM
NH:
Right, Paul has a little bit of RAW on Barclays
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:
Well….
PM:
This has not been verified, but we are told that some very aggressive conversations took place between PWC and Barclays AFTER the open letter statement late last month
PM:
Specifically over the timing of write-downs
PM:
BUT — i hasten to add that today’s statement has PWC’s stamp of approval
PM:
In fact we are told that Bob Diamond had to cancel his trip to Davos because of this
NH:
OK, thanks for that
11:23AM
PM:
OK, let’s move on to the wider market
NH:
well, it is all a bit quiet out there
NH:
we are in suspended animation ahead of the US Bad Bank announcement
NH:
which has been put back until Tuesday so that Geithner/Obama can try and push the stimuls package through Congress
NH:
so that leaves us drifting around
NH:
down 13.5 points at 4,279
NH:
and that’s where it has been for most of the morning, pretty much
NH:
the banks and the property stocks
NH:
offsetting weakness in Rio and some of the other miners
NH:
which had a very, very good run last week
PM:
So a bit of profit taking there?
NH:
yep
NH:
and in BSKYB
NH:
they are off 18.25p at 468p
NH:
actually it is Cazenove who triggered the profit taking
NH:
they reckon the stock is pretty priced for perfection at the moment
NH:
and while the company is trading well
NH:
the valuation is a bit rich for their tastes
NH:
here’s the note
NH:
BSkyB – [BSY.L BSY LN] 486p, Outperform, sector – Neutral
We are downgrading our recommendation on Sky to In-line:
Sky’s very strong recent share price performance combined with short-term pressure on earnings has led to a further increase in its relatively high valuation metrics. As a result, Sky’s rating reflects that of a growth stock rather than a defensive one. Sky’s recent results support this rating but it leaves little margin for error in terms of near-term operating performance.
We are downgrading our recommendation on Sky to In-line:
Sky’s very strong recent share price performance combined with short-term pressure on earnings has led to a further increase in its relatively high valuation metrics. As a result, Sky’s rating reflects that of a growth stock rather than a defensive one. Sky’s recent results support this rating but it leaves little margin for error in terms of near-term operating performance.
NH:
We acknowledge that Sky’s results provide strong evidence of the strength and resilience of its business model, together with superb execution. In addition, we note that the pressure on earnings reflects sensible investment in the long term strength and profitability of the business.
However, there is a risk that near-term results will be more affected by the current economic backdrop with Sky’s business being “late cycle” in nature. This reflects the nature of a business where customers are under contract combined with the lag between economic activity deteriorating and unemployment picking-up.
NH:
There is also a risk that regulatory concerns re-emerge. Following its pay-tv investigation, Ofcom is proposing Sky wholesales its premier channels on a “must-offer” basis to other distribution platforms. Whilst Sky already provides some of these channels to Virgin Media, the tone of Sky’s recent response to the Ofcom consultation suggests real concern over Ofcom’s proposals. It now looks more likely that the issue will be referred to the Competition authorities. This will lead to further delays in any eventual outcome but also uncertainty during the process.
We are in the process of revising our estimates following Sky’s results. However, its investment plans (HD and LLU), dollar strength and recent football rights auction all lead to pressure on forecasts over the next few years. Based on our current 2008/09 EPS estimate of 30p (Reuters consensus 28.5p) and 2009/10 of 39p (Reuters consensus 35p), we estimate that Sky is trading on a December 2009 PER of 14x (consensus 15x) with a dividend yield of 3.8%.
NH:
Co is also recognising negative margin impact of the UK low rate policy. So, a mixed bag; shares were strong last week, and we think they give some of that back today. We recently cut price target after running new stress test work – HOLD.
PM:
thanks for that
11:25AM
PM:
We should look at Rio — extraordinary situation
NH:
yeah
NH:
amazing board room bust-up
NH:
Jim Leng
NH:
the ex-Corus CEO
NH:
well, he had been lined up as the new chairman
NH:
to replace Skinner, who we think is off to BP
NH:
at some point
NH:
but last night we got news that Leng has resigned
NH:
here’s the statement
NH:
Rio Tinto announces that Jim Leng, a non-executive Director, has resigned from the Boards with immediate effect and will therefore not take up the post of Chairman of the Boards in April as previously planned.
At the request of the Boards, Rio Tinto’s current Chairman, Paul Skinner, has agreed to remain as Chairman until mid 2009, by which time it is anticipated that a successor will be appointed. The process to appoint a new Chairman is underway.
At the request of the Boards, Rio Tinto’s current Chairman, Paul Skinner, has agreed to remain as Chairman until mid 2009, by which time it is anticipated that a successor will be appointed. The process to appoint a new Chairman is underway.
PM:
goodness me
PM:
this sort of thing just does not happen
NH:
the background here is of course
NH:
is that Rio is looking to cut its debt
NH:
which is huge
NH:
and that Leng is opposing plans by the board of Rio to reduce its debt pile via a with the Chinese
NH:
specifically its 9% shareholder Chinaclo
NH:
the sort of thing there were/are talking about is asset sales
NH:
a convertible bond issue
PM:
so a bit like Barclays then
NH:
or a MCN issue
PM:
sweetheart deal with a overseas investors
NH:
yep and the suspicion in the market
NH:
yep and the suspicion in the market
NH:
is that Rio wants to do this deal rather than a cash call
NH:
because it would cost some senior managers their job
NH:
like Tom Albanese, the company’s CEO
NH:
who let us not forget made a top of the cycle acquisition that saddled Rio with all of its debt
NH:
and also
NH:
shareholders are concerned that the Chinese
NH:
will be able to exert an increasing influence over Rio
NH:
will put pressure on the company to drop prices and the like
PM:
Well, I’d say that Leng’s resignation in this manner has the effect of executing Albanese
NH:
yep, Skinner has got a really big call to make on Alabanese now
NH:
does he stay
PM:
in any case — the CEO is dead
NH:
or does he go
PM:
i think he’s finished
NH:
toast
NH:
and I suppose we should also mention here the fact that rights issues are being well received at the moment
NH:
anyone that bolsters their balance sheet
NH:
is seeing their shares rise
NH:
look at Xstrata, Cookson
PM:
And hammerson this morning — as previewed by your good self
NH:
yes, we will come back to Hammerson in a bit
NH:
actually
NH:
on Rio
NH:
check this story from the FT on Sat
NH:
this is how investors see it
NH:
and in that context it is not surprising Leng has gone
NH:
Rio rights issue plan welcomed
NH:
Institutional investors are warming to the idea of a multibillion-pound rights issue from Rio Tinto, reflecting concerns about its alternative option for raising cash, a deal worth up to $20bn (£13.5bn) with Chinalco of China.
Rio has pledged to reduce its $37bn debt burden by $10bn this year. Although it is slashing costs and selling assets it still faces a funding gap, and Tom Albanese, chief executive, is under pressure to unveil a solution on Thursday, when the company publishes annual results.
Rio has pledged to reduce its $37bn debt burden by $10bn this year. Although it is slashing costs and selling assets it still faces a funding gap, and Tom Albanese, chief executive, is under pressure to unveil a solution on Thursday, when the company publishes annual results.
NH:
Rio is preparing documents for a multi-billion pound rights issue with its advisers, JPMorgan Cazenove, and at the same time is locked in talks with Chinalco, the Chinese state-owned aluminium group, about a cash injection. Chinalco is Rio’s biggest shareholder with a 9 per cent stake, and is considering raising that through the purchase of convertible bonds, as well as taking minority stakes in some of Rio’s best assets including its Western Australian iron ore mines and bauxite mines in Queensland.
NH:
As the talks with Chinalco have intensified, some big UK investors have expressed concerns that Rio should not issue shares or sell assets cheaply to Chinalco in a way that would harm existing shareholders.
They have warned the company against doing anything that would resemble what they see as Barclays’ mistake last year when it launched a £7bn capital raising at preferential terms to new Middle Eastern investors without giving existing investors pre-emption rights.
One investor said: “We would much prefer a fully underwritten rights issue.”
Rio has not yet decided which funding option to pursue but talks with Chinalco will come to a head in the next few days.
They have warned the company against doing anything that would resemble what they see as Barclays’ mistake last year when it launched a £7bn capital raising at preferential terms to new Middle Eastern investors without giving existing investors pre-emption rights.
One investor said: “We would much prefer a fully underwritten rights issue.”
Rio has not yet decided which funding option to pursue but talks with Chinalco will come to a head in the next few days.
PM:
Got any anlaysts comment on this?
NH:
yep, this is from Evolution
NH:
EVO Take: The departure of Jim Leng shows which way the wind is blowing in the Rio Tinto boardroom – speeding the ship to China. Until we know the details it is impossible to say if this will be a good or a poor deal for the group. However, selling growth assets, or stakes therein, to repay debt reduces potential returns to the group and means that Rio Tinto loses full control of cash flow. We view this negatively and so, for now, we retain our Sell recommendation.
Details: Jim Leng has decided not to take on the role of Chairman at Rio Tinto and has stepped down from the board – revealing the extent of the boardroom split within the group. On one side of the equation will be those who recognise the extent of the group’s distress and who want to raise cash, perhaps at any price. On the other side will be those who believe that selling off significant stakes in the group’s high growth assets destroys the attractions of the group to equity investors. Moreover, as we have highlighted, it is not just this year’s debt repayments that are a concern as there is another US$10bn or so that is scheduled for repayment in 2010. If cash flow generation remains constrained by weak metals prices the market’s attention will move 12-months out.
Details: Jim Leng has decided not to take on the role of Chairman at Rio Tinto and has stepped down from the board – revealing the extent of the boardroom split within the group. On one side of the equation will be those who recognise the extent of the group’s distress and who want to raise cash, perhaps at any price. On the other side will be those who believe that selling off significant stakes in the group’s high growth assets destroys the attractions of the group to equity investors. Moreover, as we have highlighted, it is not just this year’s debt repayments that are a concern as there is another US$10bn or so that is scheduled for repayment in 2010. If cash flow generation remains constrained by weak metals prices the market’s attention will move 12-months out.
NH:
Valuation and Recommendation: Until we know how much Rio Tinto is to receive, and what assets it is to sell, it is not possible to comment on the potential Chinalco deal with any authority. However, loss of cash flow and a leakage of value within high-growth assets to minorities would reduce value for equity shareholders, and their options for growth, as and when the global economic backdrop shows some signs of recovery. Sell.
PM:
BTW Rio shares are down 52 at 19.04 currently
NH:
it will be interesting to see how this develops
PM:
Been lower this morning
NH:
basically the new chairman delivered a huge vote of no confidence in the CEO
NH:
and his plan to strike a deal with the Chinese
NH:
a deal that a lot of shareholders don’t like
NH:
what a mess
PM:
hmm
NH:
couple of questions from below
NH:
Tuna – what’s your issue with Mr leng?
NH:
and Itzman what is Section 457
PM:
Is that company’s act responsibility to shareholders??
11:37AM
PM:
We note the mentions of Prudential below
PM:
And the Chinese
PM:
We note this rumour is going round — but we have NO idea of its value
NH:
yeah it is doing the rounds. But I have heard nothing on it. None of our bandits have been in touch
PM:
Whether it is true or not
PM:
Probably rubbish
NH:
we will look into it
NH:
but there are a couple of other bits of RAW around
NH:
Now, Friday was black bin liner day at Dresdner
NH:
and things looks pretty grim for the London based employees
NH:
or so we thought
NH:
but it seems 25-50 of them
NH:
mainly analysts and sales guys
NH:
are set to join Evolution Group
NH:
which should give their operations a big boost
NH:
also
NH:
Chaucer
NH:
LLoyds of London insuer
NH:
finally confirmed what had been rumoured for a week or so
NH:
that the bid from Novae had flushed out other interested parties
NH:
one name in the frame is Amlin
NH:
and brokers tell me one of the offers is 60p
NH:
so this could get interesting
NH:
and make no mistake this company is up for sale
Chaucer Holdings (CHU:LSE): Last: 45.25, up 5 (+12.42%), High: 46.00, Low: 44.75, Volume: 1.89m
PM:
thanks for that
11:42AM
PM:
Now we should advertise the fact that we are planning a special early session tomorrow
PM:
Slated for 9.45 — to cover the Treasury Select Committee eharing
PM:
Early start
NH:
it is a two parter
NH:
Tues and Weds
NH:
but tomorrow is more interesting
NH:
Fred the Shred is coming
NH:
and could be pelted with scallops on his way in
NH:
BANKING CRISIS – BANK CHIEF EXECUTIVES
Tuesday 10 February, Thatcher Room, Portcullis House, at 9.45am
• Sir Fred Goodwin, former Chief Executive, Royal Bank of Scotland
• Sir Tom McKillop, former Chairman, Royal Bank of Scotland
• Andy Hornby, former Chief Executive, HBOS
• Lord Stevenson of Coddenham, former Chairman, HBOS
NH:
Wednesday 11 February, Wilson Room, Portcullis House, at 2.30pm
• Eric Daniels, Group Chief Executive, Lloyds Banking Group
• John Varley, Group Chief Executive, Barclays
• Stephen Hester Group Chief Executive, Royal Bank of Scotland
• Antonio Horta-Osorio, Chief Executive, Abbey Bank
• Paul Thurston, HSBC UK Managing Director
NH:
I should also mentioned that we may do a US ML edition
NH:
if Team Obama announce the Bad Bank/Aggregator Bank tomorrow
PM:
i was reading some of the US converage on that — according to the NYT we shouldn’t call it a bad bank — or a bail out
PM:
ive no idea why not
NH:
and I also want to quickly mention something my colleagues on the Markets desk are doing this afternoon
NH:
They have got Roubini for a live Q&A this afternoon
PM:
Oh yes — it’s all go!
PM:
Roubini on FT.com
PM:
Get your questions in
NH:
So, is the worst nearly over? Or is there still a way to go? Recently returned from Davos, Nouriel Roubini, chairman of RGE Monitor and professor of Economics at New York University, will answer readers’ questions on the outlook for the global economy and its impact on markets from 1400 GMT on Monday February 9.
Post a question now to ask@ft.com or use the online submissions form below.
11:47AM
NH:
Right we have found out where this Pru story came from
NH:
TAIPEI (Dow Jones)–Chinatrust Financial Holding Co. (2891.TW) is looking into
acquiring a foreign insurer to expand its business, the Apple Daily reported
Monday, citing unnamed sources.
acquiring a foreign insurer to expand its business, the Apple Daily reported
Monday, citing unnamed sources.
Chinatrust is looking at Allianz SE (AZ), Aegon N.V. (AEG) and Prudential PLC
(PUK), the Chinese-language newspaper reported, without specifying whether the
potential acquisition involves only the Taiwan operations of the three firms or
their whole business.
NH:
so that’s the Apple Daily
NH:
not Apple Dubai
Prudential (PRU:LSE): Last: 359.75, up 5.75 (+1.62%), High: 361.50, Low: 342.25, Volume: 5.00m
PM:
11:48AM
NH:
Actually, how did the NY thing go?
PM:
It was very good.
PM:
To re-cap, we had a mini-conference in new york – to publicise AV a bit and generally shoot the breeze.
PM:
I had been due to appear at a big conference out there called Money Tech – but it was cancelled at the last minute.
NH:
So Stacy-Marie, being a super-hero, teamed up with the US PR, Darcy, and basically nicked the conference
PM:
They got a venue – the Paley Centre, and speakers, and 60 or 70 guests – and generally had a snap conference – all for free.
PM:
Well, actually, I had to turn up and buy a load of booze, but then I always have to do that.
NH:
I heard one of the speakers – Richard Bookstaber – hates bloggers and said so.
PM:
Well yes, that’s his view – which is fair enough.
PM:
He basically thinks that serious journalism is being eroded – that bloggers will never do the hard toil investigative work that generally improves the planet.
PM:
Actually, Bookplugger has his own blog, which is here
PM:
So there’s generally a debate on the matter underway at FelixSalmon.com, incorporating Portfolio Magazine
NH:
So do you agree with Bookplugger or what?
PM:
Well actually, I don’t think his point is really about blogs – it’s about a possible decline in deep, serious investigative journalism.
PM:
On many levels that is self-evident, but there is the danger of some bacon-counter nostalgia creeping in.
PM:
A lot of the “deep investigative journalism” – certainly of the American variety – is/was simply vanity publishing which never has been supported by economic model.
NH:
And blogging is?????
PM:
Well, yeah, loads of it is vanity publishing and none of it is economically viable!
PM:
Anyway, we should move on.
11:50AM
NH:
But HOW was New York?
PM:
Very interesting – A LOT more upbeat than over here.
NH:
stay at the usual place?
PM:
Morgan — nice enough
PM:
And quite affordable
NH:
Really?
PM:
yes, NY upbeat
PM:
economic devastation, obviously, but the natural American optimism shows thru. It was very impressive.
PM:
It was also very cold – minus 10 on occasion.
NH:
That is cold. Snow like us?
PM:
Well yeah, except they know how to deal with it there – it all gets cleared away and everything works.
PM:
Not like SouthEastern.
Is this the worst train operator in Britain? It’s got competition, sure, but the pitiful way it responded to recent weather makes it a scandal in our book.
11:52AM
PM:
What else can we discuss
PM:
thanks to baz below for putting LIBOR up
NH:
what about Hammerson
PM:
Well, putting the figures up — not pushing LIBOR higher
PM:
Hammerson? Go on
NH:
big, deeply discounted rights issue, pitched at a huge discount to the share price and NAV
NH:
and yet
NH:
the shares go up
NH:
42p higher at 439p
NH:
and the company is not even bullish on the outlook
NH:
and also
NH:
the cash might not be enough to get it through
NH:
and a big disposal could still fail
NH:
oh did I mention the fact that they needed this cash call because
NH:
they were in danger of breaching their banking covs
NH:
of course
NH:
this could all be down to the huge position
NH:
22% of the company on loan
NH:
but I think it is something more than that
NH:
rights issues are going down well
NH:
investors are buying on them
NH:
as concerns about the balance sheet fade
NH:
investors buy in
NH:
this will probably encourage
NH:
British Land to go
NH:
and Land Secs
NH:
and definiately Liberty Intl
PM:
There is the cathartic effect of the rights
PM:
Facing up to reality
PM:
Quite logical really
NH:
and I don’t know yet if a clause has been inserted into the underwritting agreemtne to prevent the subbers shorting
NH:
true
NH:
but did you see Xstrata last week
NH:
up something like 50% post its cash call
NH:
OK, debt is no longer a problem but
PM:
Any analyst comment on Hammerson?
NH:
yep,
NH:
Hammerson announced a deep-discounted rights issue, at 150p per share,
far below what we would have expected.
The dilution is huge, and we reduce our forecasts substantially, but this is not all
negative for Hammerson. Raising close to £600m, the company can now repair its
balance sheet – and the dilution is so great we can be sure that the Issue will be
covered. However, we would have much preferred to see a statement of intent to
augment this capital-raising with further property sales with which to raise cash and
reduce leverage. Hammerson notes that sales have slowed because of the lack of
debt finance available to potential buyers.
far below what we would have expected.
The dilution is huge, and we reduce our forecasts substantially, but this is not all
negative for Hammerson. Raising close to £600m, the company can now repair its
balance sheet – and the dilution is so great we can be sure that the Issue will be
covered. However, we would have much preferred to see a statement of intent to
augment this capital-raising with further property sales with which to raise cash and
reduce leverage. Hammerson notes that sales have slowed because of the lack of
debt finance available to potential buyers.
NH:
Hammerson announced a deep-discounted rights issue, at 150p per share,
far below what we would have expected.
The dilution is huge, and we reduce our forecasts substantially, but this is not all
negative for Hammerson. Raising close to £600m, the company can now repair its
balance sheet – and the dilution is so great we can be sure that the Issue will be
covered. However, we would have much preferred to see a statement of intent to
augment this capital-raising with further property sales with which to raise cash and
reduce leverage. Hammerson notes that sales have slowed because of the lack of
debt finance available to potential buyers.
far below what we would have expected.
The dilution is huge, and we reduce our forecasts substantially, but this is not all
negative for Hammerson. Raising close to £600m, the company can now repair its
balance sheet – and the dilution is so great we can be sure that the Issue will be
covered. However, we would have much preferred to see a statement of intent to
augment this capital-raising with further property sales with which to raise cash and
reduce leverage. Hammerson notes that sales have slowed because of the lack of
debt finance available to potential buyers.
NH:
Revised forecasts to 31 December 2009:
As detailed in our separate Real Estate Weekly today (9 February), we have again
cut our forecasts across the sector. Yields at the majors now reflect around 8% in
our sixth cut since the cycle peak. The dilution of the rights issue substantially
reduces our forecast.
NAV per share: 393p (cycle low point) down from 732p
EPS: 20p
Dividend: 18p
As detailed in our separate Real Estate Weekly today (9 February), we have again
cut our forecasts across the sector. Yields at the majors now reflect around 8% in
our sixth cut since the cycle peak. The dilution of the rights issue substantially
reduces our forecast.
NAV per share: 393p (cycle low point) down from 732p
EPS: 20p
Dividend: 18p
NH:
Despite the deep discount, Hammerson is not a company in distress, nor
does it have looming debt refinancing requirements. This issue allows it to repair
its balance sheet, while shares will continue to trade at a discount even postrights.
As such, we recommend Hold.
does it have looming debt refinancing requirements. This issue allows it to repair
its balance sheet, while shares will continue to trade at a discount even postrights.
As such, we recommend Hold.
NH:
Here’s Collins Stewart
NH:
Despite the deep discount, Hammerson is not a company in distress, nor
does it have looming debt refinancing requirements. This issue allows it to repair
its balance sheet, while shares will continue to trade at a discount even postrights.
As such, we recommend Hold.
does it have looming debt refinancing requirements. This issue allows it to repair
its balance sheet, while shares will continue to trade at a discount even postrights.
As such, we recommend Hold.
NH:
TERP is around 12% discount to our trough NAV
The issue price of 150p is at a 62% discount to Friday’s close, 41% discount to our estimated theoretical ex-rights price of 253p and a 27% discount to our adjusted trough 2009/2010 NAV of 286p. The reduction in covenant risk (particularly from bond holders in relation to Hammerson) combined with these discounts is likely to be seen as a positive for the Hammerson shares who are one of the most heavily shorted UK property stocks with around 22% short interest.
The issue price of 150p is at a 62% discount to Friday’s close, 41% discount to our estimated theoretical ex-rights price of 253p and a 27% discount to our adjusted trough 2009/2010 NAV of 286p. The reduction in covenant risk (particularly from bond holders in relation to Hammerson) combined with these discounts is likely to be seen as a positive for the Hammerson shares who are one of the most heavily shorted UK property stocks with around 22% short interest.
NH:
EPS dilution raises ex-rights 2009 EPS multiple to 14x
Our ex-rights 2009 EPS is now 18 pence per share, a 14x multiple to the theoretical ex-rights price and well below historic multiples for Hammerson of above 20x.
Our ex-rights 2009 EPS is now 18 pence per share, a 14x multiple to the theoretical ex-rights price and well below historic multiples for Hammerson of above 20x.
11:58AM
NH:
¦ 2008 full year results in line with expectation
Along with the rights issue Hammerson also released their 2008 full year results. NAV was slightly ahead of our estimate at £10.36 per share, EPS was 38.1p and dividend at 27.9p per share. The portfolio was written down 20.9% and is now valued off an overall Initial yield of 5.5% and an Equivalent yield of 6.3%. We estimate further out ward yield shift in both the UK and French portfolios during 2009.
Along with the rights issue Hammerson also released their 2008 full year results. NAV was slightly ahead of our estimate at £10.36 per share, EPS was 38.1p and dividend at 27.9p per share. The portfolio was written down 20.9% and is now valued off an overall Initial yield of 5.5% and an Equivalent yield of 6.3%. We estimate further out ward yield shift in both the UK and French portfolios during 2009.
NH:
and finally Arbuthnot
NH:
Hammerson has announced full-year figures and a highly dilutive rights issue. Dealing with the full-year figures first, the NAV was better than we expected, at 1036p against our forecast of 928p. The principal reasons for the difference were that UK shopping centres were down by 26.7% against our expected fall of 30% and also that shopping centres in France were down by 6.2%. Gearing on a net debt to equity basis was 118%.
NH:
The rights issue consists of 7 shares for 5 at a price of 150p. The pro forma NAV is 516p and we estimate the theoretical ex-rights price to be 227p. The company has a debt-to-equity covenant of 150% which we estimate it would have been close to breaching next year. We had thought that the company would seek to avoid having a highly dilutive rights issue, through a combination of sales and persuading the lenders to change the covenant to a debt to value basis. However, it is clear that any renegotiation of loans would have meant a substantial increase in the cost of borrowing, currently at 5.4%. Now that the issue has happened, we would expect the shares’ performance to improve. It does not look like very good news for other companies in the sector and we reiterate our Reduce recommendation on British Land, ahead of its Q3 results on Thursday.
11:58AM
PM:
How about whether DSGI might test investor nerves — as mentioned below
PM:
repeatedly
PM:
Does Britain need currys
PM:
Or whatever it is called this week
NH:
did the world need Woolies?
PM:
No
NH:
here’s the background to the DSG rights issue story
NH:
Currys owner prepares for rights issue
DSG International, the owner of the Currys and PC World electrical goods retailers, has begun preparations for a rights issue to raise hundreds of millions of pounds.
DSG International, the owner of the Currys and PC World electrical goods retailers, has begun preparations for a rights issue to raise hundreds of millions of pounds.
NH:
that was from the Sunday Tel
NH:
here’s what Nick Bubb made of it
NH:
DSG: 27p (DSGI LN): Sell (TP increased from 12p to 16p)
The Sunday Telegraph reported that DSG is looking at a rights issue of several hundred millions, which will crush the hopes of those who thought it could stay out of trouble by just selling off the freehold of its Swedish warehouse for £40-50m. The fact is that, with trading under great pressure, debt covenants are going to get quite stretched this autumn and it could well cost DSG up to £300m to get rid of the loss-making European disasters (Spain, Italy and Eastern Europe). We have re-looked at our “Sum of the Parts” model and been a tad more generous, pushing it up from 12p to 16p (an EV/EBITDA of 3.5x for 09/10), but we still think the group will move into loss in the new year and at this level we still think the shares are seriously over-valued and maintain our Sell.
PM:
DSI down 1.25 at 25p, btw
PM:
i think Bubb is right on this
PM:
I really wonder whether theree is the appetite to rescue the business
NH:
£300m to get out of Europe. wow
PM:
test
NH:
we are back in
NH:
right
NH:
I was just talking about Coffeeheaven
NH:
the eastern european coffee bar operator
NH:
rumours on Friday that most of the coffee world was looking at them
NH:
Lavazza, Costa, Starbucks
NH:
well, amusingly
NH:
the story has been deined by the company
NH:
in their biggest market
NH:
Poland
PM:
NH:
typically Izy is not around to translate
NH:
Coffeeheaven znalazło się na celowniku konkurencji
Aleksandra Biały 09-02-2009, ostatnia aktualizacja 09-02-2009 04:20
Gwałtownie wzrosły obroty i cena akcji notowanej w Londynie spółki. Wśród zainteresowanych przejęciem wymienia się włoską Lavazzę i brytyjskiego właściciela Costa Coffee
Aleksandra Biały 09-02-2009, ostatnia aktualizacja 09-02-2009 04:20
Gwałtownie wzrosły obroty i cena akcji notowanej w Londynie spółki. Wśród zainteresowanych przejęciem wymienia się włoską Lavazzę i brytyjskiego właściciela Costa Coffee
źródło: Rzeczpospolita
Właściciel Coffeeheaven twierdzi, że akcji nie sprzedaje. Ktoś jednak to robi, bo obroty należą do rekordowych. Fuzja Coffee- heaven i Costa Coffee zmieniłaby sytuację na polskim rynku.
+zobacz więcejTakie informacje „Rzeczpospolita” uzyskała od giełdowych maklerów w Londynie. Richard Worthington, prezes i jeden z głównych udziałowców Coffee-heaven, ucina jednak w rozmowie z „Rz” wszystkie pytania.
– Bez komentarza – mówi. W końcu wyjaśnia, że jego sieć nie jest na sprzedaż. – Dlaczego miałbym sprzedawać coś, co się rozwija i dobrze prosperuje? – pyta retorycznie.
NH:
Akcje Coffeeheaven notowane na rynku dla mniejszych spó-łek londyńskiej giełdy (AIM) podrożały w piątek o ponad jedną czwartą (maksymalnie do 16,5 funta za sztukę). Dzień wcześniej spółka odnotowała rekordowe w ostatnich miesiącach obroty. Właściciela zmieniło prawie 6 procent akcji Coffeeheaven. Nic dziwnego, że znów pojawiły się spekulacje, iż sieć jest celem przejęcia. Podobne informacje podgrzewały atmosferę wokół sieci już w czerwcu minionego roku. Wówczas inwestorzy w Londynie spekulowali, że swojego konkurenta (m.in. w Polsce) przejąć chce brytyjski koncern spożywczo-gastronomiczny Whitbread, do którego należy sieć barów kawowych Costa Coffee. W Polsce liczy ona 16 kawiarni. Do końca 2011 roku Brytyjczycy zamierzali zwiększyć tę liczbę do 100. Z kolei Coffeeheaven jest firmą działającą wyłącznie w regionie Europy Środkowej i Wschodniej. Najbardziej dynamicznie rozwija się właśnie w Polsce, gdzie ma 55 lokali (plus 36 w regionie).
Krzysztof Gryczman, przewodniczący rady nadzorczej spółki eCoffee, która odpowiada u nas za rozwój Costa Coffee, jest sceptyczny wobec powyższych informacji. Jego zdaniem czeka nas okres mniej dynamicznego rozwoju branży. – W Polsce jako franczyzobiorca Costa Coffee zamroziliśmy rozwój kawiarni – ujawnia „Rz”. Wyjaśnia, że należące do sieci kawiarnie notują wzrost przychodów, spada jednak dynamika tego wzrostu.
Jest to już kolejna z kawowych sieci, która zdecydowała się na ograniczenie rozwoju w Polsce. Na jesieni ubiegłego roku Ruch ogłosił zahamowanie rozbudowy swojej sieci „i coffee” (przejmując wcześniej sieć Mercer’s i część Tchibo).
PM:
Ah, that’s clear
NH:
Czy podobne plany ma również Coffeeheaven? – Przeciwnie, do końca marca planujemy otworzyć w Polsce cztery nowe kawiarnie – mówi „Rz” Paweł Wasiljew, dyrektor zarządzający
Coffeeheaven. Ma nadzieję, że Polacy, tnąc wydatki na konsumpcję, nie zrezygnują z picia kawy w kawiarniach jako „odrobiny luksusu”. Wcześniej jednak sieć poinformowała, że zamierza skupić się na rynkach w Polsce, Czechach i na Węgrzech, wycofując się z inwestycji w Rumunii i na Słowacji.
Na rynku kawiarnianym w Polsce ruch trwał przez cały miniony rok. Wywołało go zapowiadane otwarcie pierwszej kawiarni Starbucksa, największej światowej sieci tej branży. W ciągu zaledwie półrocza doszło do trzech fuzji i przejęć: Empik połączył siły z HDS Polska (właściciel sieci Voyage), Ruch przejął kawiarnie Mercer’s, zaś firma Dominanta, zarządzająca lokalami W Biegu Cafe, przejęła Daily Cafe.
Rzeczpospolita
NH:
so, I hope that’s has cleared up that little matter
NH:
shares up 0.75p at 16.25p at the moment
PM:
Right
PM:
We wil be back tomorrow EARLY
PM:
ML at 9.45 for the select com
NH:
at the Select Comittee
NH:
I have a translation of that C Heaven story
NH:
Coffeeheaven were targeted competition
09-02-2009 Alexander White, last updated: 09-02-2009 04:20
Sharply increased the share price and turnover of listed companies in London. Among the takeover of the listed Lavazza Italian and British owner of Costa Coffee
09-02-2009 Alexander White, last updated: 09-02-2009 04:20
Sharply increased the share price and turnover of listed companies in London. Among the takeover of the listed Lavazza Italian and British owner of Costa Coffee
Source: The Republic
Owner Coffeeheaven says that shares are not sold. Someone does, however, because the turnover among the record. Merger-Coffee Costa Coffee heaven and change the situation on the Polish market.
+ see więcejTakie information “Rzeczpospolita” obtained from the stock exchange brokers in London. Richard Worthington, President and one of the main shareholders of Coffee-heaven, but cut the interview with the “government” all the questions.
- No comment – she says. Finally, explains that his network is not for sale. – Why would I sell something that is well developed and prosperous? – Asks retorycznie.
NH:
NHAkcje Coffeeheaven listed on the market for smaller companies-drug London Stock Exchange (AIM) podrożały on Friday by more than one-quarter (up to a maximum of 16.5 pounds per item). The day before, the company recorded record sales in recent months. Owner changed almost 6 percent share Coffeeheaven. Not surprisingly, again, speculation emerged that the network is the goal of acquisition. Similar information podgrzewały atmosphere around the network as early as June last year. Then in London, investors speculated that its competitor (eg in Poland) wants to take over the British group Whitbread spożywczo-catering, for which the network of Costa Coffee coffee bars. In Poland, it has 16 cafes. By the end of year 2011 the British wanted to increase that number to 100 Coffeeheaven The company is acting solely in the region of Central and Eastern Europe. The most rapidly growing in Poland, where polling is 55 (plus 36 in the region).
Krzysztof Gryczman, chairman of the board eCoffee company, which is responsible for the development of our Costa Coffee, is skeptical about the above information. In his opinion, we are waiting for less dynamic development of the industry. – In Poland, as a franchisee Costa Coffee cafes zamroziliśmy development – reveals the “government”. He explains that the network of cafés record growth in revenues, however, decreases the growth dynamics.
This is the next coffee with the network, which has decided to limit development in Poland. In the autumn of last year, halting the movement announced its network expansion “and coffee” (over the network in advance of the Tchibo Mercer’si).
NH:
Isaac – its above
NH:
no it is not
NH:
we thought we would put the comment up above so it was easier to view
PM:
yeah — but Neil you should have mentioned that before deleting!
NH:
sorry
PM:
PM:
it’s okay
PM:
Z-boy – welcome to the club
NH:
I only have one thing to say on Arsenal
NH:
in fact it is about Eboue
NH:
and that is
NH:
PM:
We are done.
PM:
back tomorrow at 9.45
PM:
Thanks for all your comments today
NH:
see u tomorrow