Markets live chat transcript for the chat ending at 12:09 on 30 Mar 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
Hi there!
PM:
Welcome!
PM:
It’s Monday.
PM:
This is Markets Live – FT Alphaville’s daily market commentary
PM:
Neil’s has been distracted last few mins
PM:
Do concentrate Neil
NH:
morning all, just digesting some very important breaking news
PM:
its only Monday morning
PM:
What is this news?
NH:
this…
NH:
just trying to figure out what it means
NH:
Arsenal Holdings plc
NH:
Arsenal Holdings plc (the “Company”) has today been notified that Daniel
Fiszman, a Director of the Company, has on 27th March 2009 sold 5,000 ordinary
shares of £1 each in the Company (“Shares”) to KSE, UK, Inc, a company
controlled by fellow Director, Stan Kroenke, at a price of £8,500 per Share.
Following such transaction, Mr Fiszman has a legal and beneficial holding of
10,025 Shares (representing 16.1 per cent of the total issued share capital of
the Company) and Mr Kroenke has a beneficial holding of 12,756 Shares
(representing 20.5 per cent of the total issued share capital of the Company).
The Company understands that the parties to the Lockdown Agreement dated 18
October 2007 (to which Mr Fiszman is a party) gave their consent to the
transaction.
Fiszman, a Director of the Company, has on 27th March 2009 sold 5,000 ordinary
shares of £1 each in the Company (“Shares”) to KSE, UK, Inc, a company
controlled by fellow Director, Stan Kroenke, at a price of £8,500 per Share.
Following such transaction, Mr Fiszman has a legal and beneficial holding of
10,025 Shares (representing 16.1 per cent of the total issued share capital of
the Company) and Mr Kroenke has a beneficial holding of 12,756 Shares
(representing 20.5 per cent of the total issued share capital of the Company).
The Company understands that the parties to the Lockdown Agreement dated 18
October 2007 (to which Mr Fiszman is a party) gave their consent to the
transaction.
NH:
Commenting on the transaction, Mr Fiszman said:
“I am pleased that Stan Kroenke has made a further substantial commitment to
the Club by acquiring approximately a third of my holding. Stan’s long term
commitment to sport in general and football in particular has been well
documented. I am therefore delighted that he has shown this desire to deepen
his ties with Arsenal. I will of course continue to work for Arsenal with the
best interests of the Club at heart and have no intention of selling any more
of my shareholding.”
NH:
Mr Kroenke stated:
“After having been invited to join the Board last year I am delighted to be
able to increase my shareholding in Arsenal. I will continue to work closely
with my Board colleagues to maintain the stable environment in which the Club
operates and to preserve the self-sustaining business model enjoyed by the
Club.”
NH:
Peter Hill-Wood, Chairman, commented:
“Stan Kroenke has proved to be a valuable member of the Board and I am pleased
that he has demonstrated further commitment to the Club by adding to his
shareholding. Danny Fiszman remains a driving influence on the Board and is
fully committed to the Club’s long term future.”
PM:
Well what does it mean — and how does the Uzbek sea monster figure in this???
NH:
well, Stan the Man is making his play
NH:
and Fizman is selling
NH:
and the background here is that Usmanov recently increased his holding to 25%
NH:
now this was seen by many as giving a stake he could sell
NH:
25% gives you a lot of clout
NH:
as opposed to 16/17%
NH:
so Stan’s move might be a response to that
NH:
to block any moves to resale that holding
NH:
anyway, interesting times at that Arsenal
NH:
and I think our new CEO has links to Stan, who is playing the long game IMO
PM:
er, okay — thanks for that
PM:
Not being a football fanatic
11:08AM
PM:
Seen those pics of Myners linked to below?
NH:
no, but I have been looking at this memo from Graham Williams mentioned below
NH:
March 30 (Bloomberg) — Graham Williams, an insurance
company director, has a warning for protesters planning to bring
London’s financial district to a standstill this week: “We’re
not all pansies.”
As officials in the City of London advise financial workers
to dress down and avoid confrontation with demonstrators from
groups such as the Laboratory of Insurrectionary Imagination and
Anarchist Federation, some bankers and brokers are pledging to
keep their suits crisply pressed and ties firmly knotted.
“Most us have played rugby or boxed,” said Williams, 66.
“If any of those guys do get violent against us individually
because we’re wearing a suit, we will take action.”
company director, has a warning for protesters planning to bring
London’s financial district to a standstill this week: “We’re
not all pansies.”
As officials in the City of London advise financial workers
to dress down and avoid confrontation with demonstrators from
groups such as the Laboratory of Insurrectionary Imagination and
Anarchist Federation, some bankers and brokers are pledging to
keep their suits crisply pressed and ties firmly knotted.
“Most us have played rugby or boxed,” said Williams, 66.
“If any of those guys do get violent against us individually
because we’re wearing a suit, we will take action.”
NH:
Protesters plan to target London bankers for their role in
the financial meltdown as G-20 leaders gather in the city to
discuss their response. Police estimate 1,500 campaigners will
try to block roads and prevent people from getting to work in
central London, home to the London Stock Exchange, Bank of
England and the European headquarters of JPMorgan Chase & Co.,
on April 1, which demonstrators have dubbed Financial Fools Day.
“What we’re seeing with these groups is certainly an
intention to cause us problems or to cause the city’s
institutions problems,” Commander Bob Broadhurst of the
Metropolitan Police said in a written statement.
the financial meltdown as G-20 leaders gather in the city to
discuss their response. Police estimate 1,500 campaigners will
try to block roads and prevent people from getting to work in
central London, home to the London Stock Exchange, Bank of
England and the European headquarters of JPMorgan Chase & Co.,
on April 1, which demonstrators have dubbed Financial Fools Day.
“What we’re seeing with these groups is certainly an
intention to cause us problems or to cause the city’s
institutions problems,” Commander Bob Broadhurst of the
Metropolitan Police said in a written statement.
NH:
lan Cornelius, 81, who was wearing a red tie and blue-
striped shirt, vowed campaigners wouldn’t make him change the
sartorial habit of a lifetime in a city where Savile Row tailors
hand stitch bespoke suits for princes and financial royalty.
“I’ll be wearing a suit all next week,” said Cornelius,
who described himself as a company director. “All I’ve got
otherwise is my gardening clothes.”
Britain got a sample of the protests last week when vandals
smashed windows at the Edinburgh home of Fred Goodwin, the
former chief executive officer of Royal Bank of Scotland Group
Plc. Someone claiming responsibility e-mailed the Edinburgh
Evening News, saying “Bank bosses should be jailed. This is
just the beginning.”
striped shirt, vowed campaigners wouldn’t make him change the
sartorial habit of a lifetime in a city where Savile Row tailors
hand stitch bespoke suits for princes and financial royalty.
“I’ll be wearing a suit all next week,” said Cornelius,
who described himself as a company director. “All I’ve got
otherwise is my gardening clothes.”
Britain got a sample of the protests last week when vandals
smashed windows at the Edinburgh home of Fred Goodwin, the
former chief executive officer of Royal Bank of Scotland Group
Plc. Someone claiming responsibility e-mailed the Edinburgh
Evening News, saying “Bank bosses should be jailed. This is
just the beginning.”
NH:
Jonathan Van Der Molen, a managing director of Your
Development Partner, an asset recovery business focusing on
property, will avoid the financial district this week and work
out of his office in Mayfair.
“We’re by the American embassy so will be well
protected,” he said. “I suspect it will just turn into the
usual anarchic nonsense that we tend to see from people who have
got nothing better to do with their time.”
Development Partner, an asset recovery business focusing on
property, will avoid the financial district this week and work
out of his office in Mayfair.
“We’re by the American embassy so will be well
protected,” he said. “I suspect it will just turn into the
usual anarchic nonsense that we tend to see from people who have
got nothing better to do with their time.”
PM:
NH:
what about Myners then
NH:
how recent are these pictures??
PM:
Ancient
PM:
Embarrassing all the same
PM:
News of the screws
11:11AM
PM:
While we are being completely distracted
NH:
the knives are out for Myners
PM:
You seen these No 10 Q&As?
PM:
Downing Street Live
PM:
Mark Malloch-Brown, the Prime Minister’s Special Envoy for G20 and Minister for Africa, Asia and the UN, has arrived for the webchat. We’ll be starting the session shortly.
11:12AM
PM:
Right — done our best to avoid the market so far
PM:
But give us a picture Neil
PM:
How are stocks doing?
NH:
FTSE 100 is off 97 points at 3,801
NH:
that follows a weak close on Wall Street on Friday. of course
NH:
and given the recent run we have had some profit taking was probably in order
PM:
hmmm
PM:
so, what do we think?
PM:
can the bear market rally continue??
PM:
or is the beginning of the end
NH:
well, those great folk over at Nomura reckon it can keep going
NH:
here’s their top strategist Ian Scott this morning
NH:
While there are several reasons we think this current rally in stocks is likely to continue – low valuations, improving economic data, and analysts’ earnings revisions to name a few – so far it appears to be driven to a large extent by short covering.
NH:
There is little evidence of a meaningful asset allocation shift towards stocks having taken place, yet if the factors mentioned above are right and the market continues to recover, we think there will be.
NH:
Retail investors in particular have not participated in the rally. US data indicates they have sold an average US$5bn per week over the past six weeks (US$3.6bn excluding ETF flows).
While money has been taken out of money market funds (US$3.7bn on average over the past six weeks) to the extent that it has moved into assets, credit markets appear to have been the main beneficiaries (US$2.2bn per week).
NH:
That said, cash holdings remain very high indeed – with US$3.6tr still in US money funds – together with time deposits, this represents 140% of US equity market capitalisation, well above a similar ratio calculated at the bottom of the last bear market.
Unless things head back to either the high (nominal) interest rate regime of the 1970s, when cash holdings in the US were worth twice the value of the stock market, or deflation fears increase (unlikely given the current policy stance), we believe that there remains considerable scope for asset allocation flows to support the stock market.
Unless things head back to either the high (nominal) interest rate regime of the 1970s, when cash holdings in the US were worth twice the value of the stock market, or deflation fears increase (unlikely given the current policy stance), we believe that there remains considerable scope for asset allocation flows to support the stock market.
NH:
Although most indicators suggest equity markets are overbought in the short term, we
believe that there are several reasons why we regard any pullbacks will prove to be short lived and why this recovery ultimately has further to go – low valuations, an improvement in economic fundamentals, a turn in earnings revisions, the determined stance of policy makers, the still rather bearish sentiment – the list goes on. However, there is an additional aspect of the rally that suggests to us that there may be more life in it.
believe that there are several reasons why we regard any pullbacks will prove to be short lived and why this recovery ultimately has further to go – low valuations, an improvement in economic fundamentals, a turn in earnings revisions, the determined stance of policy makers, the still rather bearish sentiment – the list goes on. However, there is an additional aspect of the rally that suggests to us that there may be more life in it.
NH:
There is little evidence of any significant asset allocation shift away from bonds and cash and into stocks. This suggests that the rally – at least so far – includes a heavy dose of short covering activity, while the sector level performance this year suggests that fund managers are more bullish than asset allocators. If the fundamentals continue to improve as we suspect they will, we would expect to see some of the cash that has hitherto been held on the sidelines returning to equities. Interestingly, there is some evidence that this shift is now taking place in the credit market
NH:
so, all short covering thus far, but there is a wall of cash waiting to come into the market
PM:
that’s all very bullish
PM:
Well, pretty bullish
PM:
not sure that has a place here 
PM:
Even if he is from Nomura
11:15AM
PM:
Looking at the damage in more detail…
PM:
Barclays
PM:
Some piece of weirdo maverick research out of SocGen this morning
PM:
What re they saying? Sell? Huh???
PM:
Underweight?
PM:
Price target of 46p.
PM:
What planet are these French bank analysts on??
PM:
Barclays is brilliant. I don’t know how Lord Varley tolerates this.
NH:
well that may be true
NH:
but the shares are still down this morning
NH:
an opportunity to pick up some stock on the cheap!
NH:
seriously though
NH:
given the run they have had in the past week or so
NH:
the fall is pretty small beer
NH:
moreover it is pretty unsurprising that punters are looking to book some profits
NH:
and of course
NH:
some people were expecting the sale of iShares to be announced this morning
NH:
in fact the weekend press were curiously quiet on the deal
PM:
hmmm
PM:
that’s interesting because there was loads of press last week
PM:
bidders dropping in and out and all the while the take out price risinig
PM:
I thought we’d be up to 8bn or so by now
NH:
at least., $9bn
NH:
even
NH:
anyway
NH:
a few analysts reckon the shares are up with event now
NH:
such as Michael Helsby at Morgan Stanley
NH:
Passed the FSA stress test: Prior to an assessment for the Asset Protection Scheme, Barclays has just announced that it has passed a detailed FSA balance sheet and profit and loss account stress test. The purpose of the stress test was to determine the resilience to stressed credit risk, market risk and economic conditions. As a result of the test, Barclays confirms that its capital
position, after the stress test, is expected to continue to meet the FSA’s 4% minimum.
position, after the stress test, is expected to continue to meet the FSA’s 4% minimum.
NH:
Results of the stress test are reassuring though we do not know the details of the tests. In our recent report, Lowering Earnings, Evaluating Capital Options, March 20, 2009, we suggested our own stress test. This allowed for our base case pre-provision forecasts, £7bn of structure credit marks and 203bp, 277bp and 210bp of bad debt in 2009, 2010 and 2011. Prior to management action, we saw the Core Tier 1 falling to 3.7% in 2010.
NH:
Improving capital options: While we remain sceptical that the market would be comfortable seeing Barclays Core Tier 1 ratio reaching 4%, we acknowledge that management clearly has options to help maintain its capital ratios above 4%. Selling iShares for £4.5bn would add 110bp to capital. Barclays also has £6bn of UT2 debt, which it could feasibly buy back in a similarprocess to Lloyds Banking Group. If we assume Barclays can tender 50% this would add a further
20bp.
20bp.
NH:
Up with events: As more clarity surrounding capital options has unfolded, the shares have aggressively been pricing in the news. We estimate that Barclays made a clean ‘normalised’ RoNAV of 13.3% in 2008 or 11.9% diluted for warrants. If we ignore the sub normalized returns likely over the next couple of years (a big if) and assume a 14% COE our fair value would be 186p. If we account for a sale of iShares at £4.5bn the book increases to 234p and the RoNAV
falls to 9.3%, suggesting a 167p fair value (13% COE). While we recognise that we were too cautious coming into this week, with the shares now standing at 174p, things look up with events.
falls to 9.3%, suggesting a 167p fair value (13% COE). While we recognise that we were too cautious coming into this week, with the shares now standing at 174p, things look up with events.
Risks look skewed to the downside.
NH:
and then there is the really bearish note around from Soc Gen
NH:
they have cut their Barclays target price to 46p from 100p as mentioned above
NH:
and reckon the bank needs to raise between £12bn-£15bn
NH:
and the only way to do that will be by going cap in hand to the govt
NH:
now whether you buy that analysis or not
NH:
and I don’t
NH:
the note contains one good point – Barclays remains a very highly leveraged bank
NH:
here’s the note
NH:
Investment case We are downgrading our recommendation to Sell (from Hold) and moving our target price to 46p (from 100p). Barclays is in a difficult position with limited options, in our view.
Despite passing the FSA’s stress test, we think it needs £15-20bn of tangible common equity (TCE) to adequately address its excess leverage and strengthen its relatively weak core Tier I capital ratio, on our estimates. We believe the bank has four options to address its issues:
NH:
1) undertake asset disposals 2) raise private capital 3) go cap-in-hand to the government and 4) do nothing. However given the material size of the capital deficit and developments over the past year, we believe the UK government is likely to be the main provider of the requisite funds.
The UK government could end up with a 60-67% stake in Barclays. This would trigger a material restructuring of the bank’s business model and balance sheet, particularly in relation to Barclays Capital.
NH:
Impact On our estimates, which incorporate a deep recession, there will be losses
through 2011e. This is mainly driven by contraction in pre-provisioning profits, rising bad debt and credit-market related writedowns. No dividends should be paid before 2012e.
through 2011e. This is mainly driven by contraction in pre-provisioning profits, rising bad debt and credit-market related writedowns. No dividends should be paid before 2012e.
12m target price and methodology We are moving to a Sell rating (from Hold) and
revising our target price to 46p (previously 100p). Our preferred sum-of-the-parts based valuation methodology is inappropriate given our expectation of losses through 2011e.
We have calculated a base case and stressed scenario for Barclays. Our 12m TP is
based on our assumption of a “stressed” 2011e TBV of 46p which incorporates a £20bn capital raising at 50p. Our target price implies a 0.25x 2011e P/TBV against our base case of 179p. This is in line with current sector multiples and appropriate given the material restructuring that might be required following the receipt of government funds.
NH:
Next events Applications to partake in the government’s Asset Protection Scheme
(APS) are due by 31 March. We believe Barclays will seek to avoid participating.
Barclays may also announce the disposal of iShares which we value at £3bn, leaving a
£12-£17bn shortfall versus its capital needs. If the bank does decide to participate in the APS, we would expect further details to emerge prior to the AGM on 23 April.
(APS) are due by 31 March. We believe Barclays will seek to avoid participating.
Barclays may also announce the disposal of iShares which we value at £3bn, leaving a
£12-£17bn shortfall versus its capital needs. If the bank does decide to participate in the APS, we would expect further details to emerge prior to the AGM on 23 April.
PM:
So SocGen only value iShares at £3bn?? Eh??????????
PM:
havent they read their STRNS?????
PM:
right let’s move on from our favourite bank
11:22AM
PM:
Legal & General
PM:
What they doing?
NH:
er, they are down
NH:
off 2.9p at 43.1p
PM:
Just thought id draw attention to this that Sam published on Friday.
PM:
For those who missed it
NH:
very good piece
PM:
I think it’s rather interesting – and I think you mentioned that in the wake of last week’s figures from L&G none of the analysts seem to mention the CDO issue.
PM:
It’s kinda just treated as a non-issue. Assumption that there is not much money involved.
NH:
and there’s a series of questions at the bottom of that post.
PM:
L&G were strangely reluctant to answer those on Friday.
NH:
Can’t think why.
PM:
L&G maintains it has disclosed everything relevant, of course
NH:
that’s a moot point
NH:
and why should we believe them
NH:
after all this is the first time they have broken out the CDO
NH:
previously this thing was hidden in the ABS portfolio
NH:
and this CDO is a home made affair
PM:
yep — very odd
NH:
and the point on analysts is a good one
NH:
no one seems to care about this CDO
NH:
a mere footnote in the results
NH:
we think it is more significant
NH:
and would love to know more about it
NH:
who are the counterparties
NH:
what bonds does it reference
NH:
is this is a balance sheet arbitrage
NH:
is this a synethic CDO
11:26AM
NH:
while we are talking about the insurers
NH:
Aviva are under pressure again
NH:
off a further 22p at 215p
NH:
they really have performed poorly sinice going ex-dividend last week
NH:
seems that was one of the few things propping the stock up
NH:
actually, all a bit messy in the insurance and banking sector today
NH:
probbaly profit taking but the news out of Scotland and Spain on those to local banks
NH:
serves as a reminder that surprises, nasty ones, can still emerge
Old Mutual (OML:LSE): Last: 46.90, down 4.5 (-8.75%), High: 49.90, Low: 46.60, Volume: 7.35m
Royal Bank of Scotland Group (RBS:LSE): Last: 24.50, down 2.1 (-7.89%), High: 26.00, Low: 24.40, Volume: 43.60m
Lloyds Banking Group (LLOY:LSE): Last: 69.70, down 6.4 (-8.41%), High: 73.90, Low: 68.90, Volume: 22.94m
HSBC Holdings plc (HSBA:LSE): Last: 368.00, down 34.5 (-8.57%), High: 391.50, Low: 367.50, Volume: 54.87m
NH:
actually on HSBC
NH:
just had an interesting note sent through
NH:
from a broker
NH:
looks at what happens if long only funds reweight
NH:
HSBC up to BUY: Critical to your benchmark
* After a ~15% underperformance YTD (vs Banks and FTSE), we see value in
HSBC
and upgrade to buy. I think that investors (particularly Long funds)
that are
underweight or not invested will worry that it performs in a similar
way to
StanChart or Santander post their issue. If benchmarked against the
FTSE
(7%, 2nd) or SX7P (17%, 1st), chances are that this concern will lead
many to
at least move up to market weight driven by the fear that THE INDEX
HEAVYWEIGHT KILLS YOUR PERFORMANCE if not invested and it rallies.
NH:
1) Given underperformance relative value has emerged
2) post meeting with Standard’s CFO it would seem that the start of
’09 has
been extremely strong for CIB Asia, carrying over well to HSBC
3) AFS losses may have troughed, with slight reversal in January as it
matures
4) better capitalised post rights (+150bps, to a 8.5% CT1 headline)
5) performed well in KBW sector provisions’ stress note published
today due to
a) reasonable capitalisation
b) high pre-provision profit
c) low cost/income
d) great loans/deposit ratio meaning de-leveraging is not a major
concern
e) positive diversification
6) finally, realisation that HFC should be run-off, and able to absorb
the
huge arrears pain
7) FEAR (given its massive index weight), it performs like StanChart &
SAN,
with strong outperformance post their issues
2) post meeting with Standard’s CFO it would seem that the start of
’09 has
been extremely strong for CIB Asia, carrying over well to HSBC
3) AFS losses may have troughed, with slight reversal in January as it
matures
4) better capitalised post rights (+150bps, to a 8.5% CT1 headline)
5) performed well in KBW sector provisions’ stress note published
today due to
a) reasonable capitalisation
b) high pre-provision profit
c) low cost/income
d) great loans/deposit ratio meaning de-leveraging is not a major
concern
e) positive diversification
6) finally, realisation that HFC should be run-off, and able to absorb
the
huge arrears pain
7) FEAR (given its massive index weight), it performs like StanChart &
SAN,
with strong outperformance post their issues
NH:
Value: If I Present Value the run down the 2010 NAV of HFC and value
at 70%,
and add that to the remaining NAV (adjusted for the HFC losses) at
1.5x
(Standard’s current 1.7x), I come to a price target of 460p / share,
offering
25% upside (KBW officialrice target 520p or 1.5x Group NAV, 35%
upside).
at 70%,
and add that to the remaining NAV (adjusted for the HFC losses) at
1.5x
(Standard’s current 1.7x), I come to a price target of 460p / share,
offering
25% upside (KBW officialrice target 520p or 1.5x Group NAV, 35%
upside).
* Asian Performance: I extract comments post my CFO meeting with
Standards,
which should broadly apply to HSBC. Note of Group (ex-HFC losses), CIB
Asia
represents 45%, and Consumer Asia represents 15% of PBT excluding US
losses.
> WHOLESALE: Pan Asian service providers include
Citi/RBS/WB/HSBC/Stan. With
many pre-occupied, STAN & HSBC are very active. Trade finance was
off 26% in
Jan but only ~15% for STAN thanks to share gain, but revs up.
Gaining
clients for products such as cash management often sees other
business flows
like FX hedging. FX margins are 4-5x wider than they have been. All
this is
driving a tremendous start to the year, hence the strength witnessed
in Jan
(record) & Feb in the wholesale bank. Wholesale Bank revenues in ’09
could
grow on the strong ’08 (we had broadly flat).
> RISK: Of consumer 60% is mortgages and with LTVs of 50%-60%.
Meanwhile 60%
of the SME book is secured. In 1Q09 they expect consumer charges of
255-275mn (vs 579mn 2H08 which was ~50% of Group provisions).
Meanwhile the
Govt in each of SC’s main footprints are offering guarantees on SME
risk.
In HK, 80% matures in 12 months (3/4 within 6 months); it is likely
that
much will be rolled into the Govt guarantees (albeit at some revenue
cost).
They never believed in an Asian de-coupling and so have had time to
move
down the risk curve in many countries since the crisis began.
Overall they
expect to see asset quality deterioration but no blow-out. There has
certainly appeared to be no acceleration YTD from what I gather.
NH:
One of the major concerns is the $21.4bn negative AFS which is
deducted from
NAV but not capital (equal to 190bps of CT1). The company guides to
$2-2.5bn
impairments with $6-800mn of expected losses. Few investors that I
have spoken
to would give much credit to that flex. However, sentiment should
improve if
the AFS portfolio troughs. I understand that January showed a slight
improvement as $1bn matured without impairment (although the average
maturity
is 10 years).
deducted from
NAV but not capital (equal to 190bps of CT1). The company guides to
$2-2.5bn
impairments with $6-800mn of expected losses. Few investors that I
have spoken
to would give much credit to that flex. However, sentiment should
improve if
the AFS portfolio troughs. I understand that January showed a slight
improvement as $1bn matured without impairment (although the average
maturity
is 10 years).
* HFC: we assume 25% cumulative charges and a further 10% reserve
protection,
broadly consistent with the fair value deficit in the HFC book; this
leads to
$14bn of PTP losses cumulative at HFC. We see these losses absorbed by
Group
level profitability.
* BELOW I INCLUDE AN EARLIER BLOOMY WHICH GOES INTO MORE DETAIL ON THEIR
CAPITAL
AND NAV COMPOSITION: A UK NOTE PUBLISHED TODAY INCLUDING THE UPGRADE
IS
ATTACHED
PM:
Note to those below
PM:
Yellow card is out
NH:
The Hoof’s yellow card
PM:
Bit of mild zapping
PM:
Be good to keep the discussion vaguely out of the gutter
PM:
etc
NH:
we have not used the red yet, have we???
PM:
Nope
PM:
Pretty sure we won’t have to
PM:
A few people got the red the week before last
PM:
Think we encouraged them to go elsewhere
PM:
back to muppetstockland
PM:
moving on…
NH:
I have some strategy stuff
11:32AM
NH:
this time from Goldman
NH:
they reckon the bear market rally will fade
NH:
before staging a more sustained recovery
PM:
(Tuna — dunno, they were just “user xxxx)
NH:
this is from Peter Oppenheimer
NH:
Just another bear market rally
We expect the market to fade this rally, but think it unlikely that we will
break the February lows, before staging a more sustained recovery
supported by fundamental improvements in activity and banks’ balance
sheets later in the year. Longer-term, we think that attractive valuation
levels should lead to strong real returns for shareholders.
Recent rally has paid for risk/reward improvement
We remain very focused on data and policy developments, but believe the
recent rally has paid for the near-term risk/reward improvement. Catalysts
that have the potential to drive the market down near-term: next week, we
will get the ISM and March unemployment report, news surrounding the
G20 and banks’ stress tests, and first quarter earnings.
We expect the market to fade this rally, but think it unlikely that we will
break the February lows, before staging a more sustained recovery
supported by fundamental improvements in activity and banks’ balance
sheets later in the year. Longer-term, we think that attractive valuation
levels should lead to strong real returns for shareholders.
Recent rally has paid for risk/reward improvement
We remain very focused on data and policy developments, but believe the
recent rally has paid for the near-term risk/reward improvement. Catalysts
that have the potential to drive the market down near-term: next week, we
will get the ISM and March unemployment report, news surrounding the
G20 and banks’ stress tests, and first quarter earnings.
NH:
“Inflection Detection” update
We have updated our four signposts that we are watching to indicate a
sustainable turn: (1) valuation looks attractive, even after the rally; (2)
economic data has turned slightly better, but one month isn’t a trend. We
would rather be late and have the trough confirmed as we think the risks of
being early are significant; (3) given the amount of data that will come
through over the next few weeks, we worry how the market will interpret
it, especially after the rally; (4) the credit market has tightened, especially
in IG, but economic and credit concerns may drive credit wider.
Thinking ahead: where we would be positioned
An appropriate strategy to position for the sustained recovery, after a
possible near-term market setback, is a barbell approach of a basket of
operationally and financially leveraged companies that should benefit in
initial recoveries (GSSTRCOV) coupled with a core holding of long-term
strategic winners (GS SUSTAIN). We are not recommending the Recovery
basket yet, as we think the market may be vulnerable in the short-term, but
continue to monitor progress, waiting for a better entry point.
We have updated our four signposts that we are watching to indicate a
sustainable turn: (1) valuation looks attractive, even after the rally; (2)
economic data has turned slightly better, but one month isn’t a trend. We
would rather be late and have the trough confirmed as we think the risks of
being early are significant; (3) given the amount of data that will come
through over the next few weeks, we worry how the market will interpret
it, especially after the rally; (4) the credit market has tightened, especially
in IG, but economic and credit concerns may drive credit wider.
Thinking ahead: where we would be positioned
An appropriate strategy to position for the sustained recovery, after a
possible near-term market setback, is a barbell approach of a basket of
operationally and financially leveraged companies that should benefit in
initial recoveries (GSSTRCOV) coupled with a core holding of long-term
strategic winners (GS SUSTAIN). We are not recommending the Recovery
basket yet, as we think the market may be vulnerable in the short-term, but
continue to monitor progress, waiting for a better entry point.
11:34AM
PM:
right — where now
PM:
?
PM:
time to have a look at the mining sector??
PM:
any reaction to the reports that BHP shareholders have given management the green light to pursue acquisitions, including Rio??
NH:
well, it has all been pretty muted
NH:
the Aussie press were really lukewarm
NH:
they noted a number of sticking points; Rio’s $40bn debt burden, which would have to be repaid or refinance under a change of control – and regulatory issues – BHP’s first bid never cleared the European Comission.
NH:
take a look at this, it’s from the Sydney Morning Herald
NH:
BHP BILLITON is unlikely to attempt to resurrect its bid for Rio Tinto
while the target continues to proceed with its $US19.5 billion ($28
billion) investment deal with Chinalco.
while the target continues to proceed with its $US19.5 billion ($28
billion) investment deal with Chinalco.
Rio shares rose 4 per cent in London on Friday evening after Liberum
Capital circulated a note to clients suggesting it made sense for BHP to
revisit its plans for a merger.
BHP’s chief executive, Marius Kloppers, held investor briefings in
London last week and reportedly found many shareholders were receptive
to the idea of a revived bid.
NH:
But any deal struck before November would have to be an agreed merger
under UK Takeover Panel rules. As part of its agreement with Chinalco -
which carries a $US195 million break fee – Rio Tinto is not able to
solicit any competing proposals or enter discussions with a third party
unless a superior proposal is clearly outlined.
under UK Takeover Panel rules. As part of its agreement with Chinalco -
which carries a $US195 million break fee – Rio Tinto is not able to
solicit any competing proposals or enter discussions with a third party
unless a superior proposal is clearly outlined.
The Herald understands BHP thinks there is limited room to manoeuvre
unless the Chinalco deal is rejected by the Foreign Investment Review
Board or Rio shareholders. BHP believes a merger with Rio remains
attractive, but the hurdles have increased since it dropped the deal
last November.
NH:
Apart from the need for the Chinalco deal to fail, a revived bid for Rio
would be complicated by the target’s $US39 billion debt burden, which
would have to be repaid or refinanced under a change in control.
would be complicated by the target’s $US39 billion debt burden, which
would have to be repaid or refinanced under a change in control.
BHP’s bid for Rio never cleared the European Commission and would
require the renewal of that process and divestments of iron ore and
coking coal assets. Sources who saw the documents told the Herald the
competition regulator wanted iron ore mines sold to a party that could
take part in benchmark price negotiations, which would rule out Chinese
groups and other steelmakers.
The best candidate to buy the assets, Anglo American, is still
struggling with its debt load and has abandoned its dividend for the
first time since World War II.
NH:
Any resurrected offer for Rio also would have to be struck at a
different exchange rate than last time. BHP first approached Rio with a
3-for-1 bid and then raised it to 3.4-for-1, but Rio’s management team
steadfastly insisted that undervalued the company.
different exchange rate than last time. BHP first approached Rio with a
3-for-1 bid and then raised it to 3.4-for-1, but Rio’s management team
steadfastly insisted that undervalued the company.
Now Rio shares are trading at an historically low ratio of 1.6-for-1
over worries about its debt load and uncertainty over whether it will
need to issue $US10 billion in a rights issue if the Chinalco deal does
not proceed.
A Liberum analyst, Michael Rawlinson, said an agreed bid from BHP at a
ratio of 2.6-for-1 would compare favourably to the Chinalco transaction.
He said the Chinalco deal represented a competitive threat to BHP
because it gave Rio favourable access to cheap debt from Chinese banks
and potentially favourable access to Chinese offtake contracts and
mineral rights in China and Africa.
NH:
“We believe the contrast between how the average Rio shareholder feels
about the merits and pricing of a bid now relative to the early days of
the BHP bid is stark,” Mr Rawlinson said.
about the merits and pricing of a bid now relative to the early days of
the BHP bid is stark,” Mr Rawlinson said.
“We have gone from ‘No way, except for an extreme price’ to ‘Put
something reasonable on the table and get on with it.’ ”
PM:
thanks for that
NH:
and on other point to pick up from that piece
NH:
is whether the deal will be blocked
NH:
everyone seems to think after the Australian Treasurer shot down the Chinese bid for Oz Minerals, that Rio Chinalco will got the same way
NH:
that is not yet clear
NH:
and in any case, the Chinese are still keen to go ahead with the Minmetals deal
NH:
even if it means, selling the key asset
NH:
again from the SMH
NH:
via a broker
NH:
The Sydney Morning Herald reports that Minmetals last night put a proposal to OZ Minerals to acquire the bulk of the company, excluding the Prominent Hill mine, in a move that could help save it from administration. The newspaper said it understands an offer was given to OZ after a weekend of ‘frantic work’ by advisers from both sides. Newspaper cites OZ’s executive manager of business support, Bruce Loveday as saying “We would respond to any proposal we receive as soon as we evaluated it”.
NH:
In fact
NH:
the PR Rio has been sending round notes this morning
NH:
which argue why there is limited read across from the Oz Minerals deal to Rio/Chinalco
NH:
not sure I agree with that
NH:
but
NH:
her’s morgan stanley
NH:
Quick Comment: Australian Treasurer Rejects
Minmetals Bid for OZL: The following extract was
taken from a press release by the Australian Treasurer
regarding the proposed China Minmetals bid for OZ
Minerals: “Under the Foreign Acquisitions and
Takeovers Act 1975, all foreign investment applications
are examined against Australia’s national interest. An
important part of this assessment is whether proposals
conform with Australia’s national security interests, in
line with the principles that apply to foreign government
related investments.
Minmetals Bid for OZL: The following extract was
taken from a press release by the Australian Treasurer
regarding the proposed China Minmetals bid for OZ
Minerals: “Under the Foreign Acquisitions and
Takeovers Act 1975, all foreign investment applications
are examined against Australia’s national interest. An
important part of this assessment is whether proposals
conform with Australia’s national security interests, in
line with the principles that apply to foreign government
related investments.
NH:
OZ Minerals’ Prominent Hill mining operations are
situated in the Woomera Prohibited Area in South
Australia. The Woomera Prohibited Area weapons
testing range makes a unique and sensitive contribution
to Australia’s national defence. It is not unusual for
governments to restrict access to sensitive areas on
national security grounds. The Government has
determined that Minmetals’ proposal for Oz Minerals
cannot be approved if it includes Prominent Hill. I have
informed Minmetals of this decision. Discussions
between the Foreign Investment Review Board and
Minmetals are continuing in relation to Oz Minerals’
other businesses and assets, and the Government is
willing to consider alternative proposals relating to
those other assets and businesses.”
situated in the Woomera Prohibited Area in South
Australia. The Woomera Prohibited Area weapons
testing range makes a unique and sensitive contribution
to Australia’s national defence. It is not unusual for
governments to restrict access to sensitive areas on
national security grounds. The Government has
determined that Minmetals’ proposal for Oz Minerals
cannot be approved if it includes Prominent Hill. I have
informed Minmetals of this decision. Discussions
between the Foreign Investment Review Board and
Minmetals are continuing in relation to Oz Minerals’
other businesses and assets, and the Government is
willing to consider alternative proposals relating to
those other assets and businesses.”
NH:
Rio/Chinalco Deal Implications: The ruling by the
Australian Treasurer on the OZL bid was due to
sensitive national defence issues. Rio’s assets being
considered under the Chinalco offer are not located
within Australian defence areas. We note that the
Treasurer has allowed Minmetals to revise its offer
excluding Prominent Hill.
Australian Treasurer on the OZL bid was due to
sensitive national defence issues. Rio’s assets being
considered under the Chinalco offer are not located
within Australian defence areas. We note that the
Treasurer has allowed Minmetals to revise its offer
excluding Prominent Hill.
NH:
and Deutsche Bank
NH:
Aus Government rejection of OZL bid asset specific not company specific
The Australian Government rejection of Minmetals bid for OZL appears asset and
not company specific. We assume the Chinalco deal will be approved, but
possibly with additional requirements around corporate governance (board
structure, “toll gating” of asset sales). Also, the asset ownership structures are not
dissimilar to JVs that already exist in the Australian mining industry. RIO remains
undervalued in our view, and with the stock trading below our PT, we maintain our
Buy rating.
The Australian Government rejection of Minmetals bid for OZL appears asset and
not company specific. We assume the Chinalco deal will be approved, but
possibly with additional requirements around corporate governance (board
structure, “toll gating” of asset sales). Also, the asset ownership structures are not
dissimilar to JVs that already exist in the Australian mining industry. RIO remains
undervalued in our view, and with the stock trading below our PT, we maintain our
Buy rating.
NH:
Asset control a key difference
Minmetals bid for OZL was rejected by the Australian Government because one of
the assets (Prominent Hill) is located in a military testing area. Importantly, the
Government is willing to consider alternative proposals. A key difference between
the Minmetals and Chinalco proposals is that Chinalco will hold minority stakes in
assets (except the 50% share in the Yarwun alumina refinery) and in all cases, it
will not control the assets. The asset ownership structures are not dissimilar to
JVs that already exist in the Australian mining industry such as Mitsubishi and
Mitsui’s minority stakes in BHP Billiton’s coal and iron ore assets. We also note
that Chalco (38.6% owned by Chinalco) already owns 100% of the Arukun bauxite
deposit next to RIO’s Weipa deposit with an obligation to construct an alumina
refinery.
Minmetals bid for OZL was rejected by the Australian Government because one of
the assets (Prominent Hill) is located in a military testing area. Importantly, the
Government is willing to consider alternative proposals. A key difference between
the Minmetals and Chinalco proposals is that Chinalco will hold minority stakes in
assets (except the 50% share in the Yarwun alumina refinery) and in all cases, it
will not control the assets. The asset ownership structures are not dissimilar to
JVs that already exist in the Australian mining industry such as Mitsubishi and
Mitsui’s minority stakes in BHP Billiton’s coal and iron ore assets. We also note
that Chalco (38.6% owned by Chinalco) already owns 100% of the Arukun bauxite
deposit next to RIO’s Weipa deposit with an obligation to construct an alumina
refinery.
NH:
Asset control a key difference
Minmetals bid for OZL was rejected by the Australian Government because one of
the assets (Prominent Hill) is located in a military testing area. Importantly, the
Government is willing to consider alternative proposals. A key difference between
the Minmetals and Chinalco proposals is that Chinalco will hold minority stakes in
assets (except the 50% share in the Yarwun alumina refinery) and in all cases, it
will not control the assets. The asset ownership structures are not dissimilar to
JVs that already exist in the Australian mining industry such as Mitsubishi and
Mitsui’s minority stakes in BHP Billiton’s coal and iron ore assets. We also note
that Chalco (38.6% owned by Chinalco) already owns 100% of the Arukun bauxite
deposit next to RIO’s Weipa deposit with an obligation to construct an alumina
refinery.
Minmetals bid for OZL was rejected by the Australian Government because one of
the assets (Prominent Hill) is located in a military testing area. Importantly, the
Government is willing to consider alternative proposals. A key difference between
the Minmetals and Chinalco proposals is that Chinalco will hold minority stakes in
assets (except the 50% share in the Yarwun alumina refinery) and in all cases, it
will not control the assets. The asset ownership structures are not dissimilar to
JVs that already exist in the Australian mining industry such as Mitsubishi and
Mitsui’s minority stakes in BHP Billiton’s coal and iron ore assets. We also note
that Chalco (38.6% owned by Chinalco) already owns 100% of the Arukun bauxite
deposit next to RIO’s Weipa deposit with an obligation to construct an alumina
refinery.
BHP Billiton (BLT:LSE): Last: 1,327, down 82 (-5.82%), High: 1,375, Low: 1,318, Volume: 4.21m
RIO TINTO (RIO:LSE): Last: 2,371, down 107 (-4.32%), High: 2,466, Low: 2,363, Volume: 3.01m
NH:
oh, before we move on
NH:
just got an Evolution Securities note on the Rio/BHP story
PM:
But then all the miners are donw
NH:
they reckon an outright bid is unlikely
NH:
EVO TAKE – Reports of BHP considering a bid revival for Rio Tinto appear wide of the mark in the short term, in our opinion. While we don’t dismiss the idea out of hand, we believe that BHP maybe looking at opportunistic acquisition that may include some of Rio Tinto’s assets.
DETAILS – We concede that while BHP and Rio major shareholders may support a revival of a bid, there are several stumbling blocks preventing this. Among other things, BHP cannot return to the table with a new bid before November without agreement from the Takeover Panel. Secondly, the bid with Chinalco has been set to resolve Rio’s ~US$20bn of debt repayment by the end of 2010 and any change in the terms could jeopardise Rio’s FY09 repayment schedule.
NH:
However, an alternative to this could involve BHP buying stakes in Rio’s copper assets in Chile (including Escondida) and Hammersley iron ore operation in Australia as per the Chinalco deal for around US$10bn+. This could alleviate Rio’s FY09 debt payment problems, leaving a further US$10bn rights issue as on the table as per our recommendation from our “Third time lucky?” report” on 16 March. BHP has recently raised two separate bond facilities, a two tranche US$3.25bn Global Bond and a two tranche EUR2.25bn Euro Bond. We believe that this will be spent on increasing the company’s liquidity and provide additional working capital to finance its US$14.6bn capex programme over the next 18 months. We also point out that it has around US$1.6bn of debt maturing in FY09 and a further US$500-600m in FY10 and has committed to a US$2.3bn interim dividend. Despite this BHP has a very strong balance sheet reporting net debt to net debt plus equity of only 7% at the end of December 2008 that could support a US$10bn+ acquisition.
NH:
VALUATION AND RECOMMENDATION – We are in the process of updating our FY09 forecasts for BHP and recognise that commodity prices during the last quarter point to further upside in our estimates. The above deal could be NPV accretive, however, we continue to expect further weakness in most commodity prices over the coming year as global industrial production continues to plummet. On this basis earnings will be negatively impacted and we see further downside to the current share price. Sell.
PM:
thanks for all that
11:40AM
PM:
How about some RAW — got any today??
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:
I have some rumourtrage
NH:
Liberty International
NH:
rumours of a fund raising on the way
NH:
to be pitched at 250p
NH:
no idea of size although there was plenty of speculation in the weekend press
PM:
RED raw rights chatter
NH:
traders seem to think it would go down well
Liberty International (LII:LSE): Last: 400.50, down 32.5 (-7.51%), High: 435.25, Low: 396.75, Volume: 663.23k
NH:
Carphone Warehouse are under pressure
Carphone Warehouse Group (CPW:LSE): Last: 118.75, down 7 (-5.57%), High: 126.25, Low: 117.00, Volume: 849.99k
NH:
following stories like these
NH:
Carphone Warehouse is considering a last minute bid for TIS’s UK broadband business after withdrawing from talks last year. There is also speculation that BSkyB is considering renewing talks. Carphone’s TalkTalk home broadband division hopes it will be able snap up TIS for a bargain basement price. TIS shareholders could decide on plans for a capital increase when they meet at the end of April, reports La Stampa.
NH:
meanwhile, a few buyers around for Premier Foods
Premier Foods (PFD:LSE): Last: 30.25, up 0.25 (+0.83%), High: 30.75, Low: 29.50, Volume: 3.02m
NH:
the story now seems to be that Prem might sell Mr Kipling cakes
PM:
okay — there was a request below on this
PM:
But just to be clear — we jsut think Premier has had an approach for one or more of its brands
NH:
just for a division
NH:
Kraft was the name in the frame
NH:
although, a few rival services seem to be quite cool on the story
NH:
anyway
NH:
there are couple more RAW related things to look at
NH:
such as Bowleven
PM:
Ah, yes saw the statement on friday
NH:
yep, the bidder tha offered 150p
NH:
decided to offer 100p
NH:
and Bowleven said it did not know why
NH:
and then added the 100p offer, was not conditional on DD
NH:
all very mysterious
NH:
and we still have no idea who the bidder is
NH:
unsurprisingly the shares are now trading at a big discount to the offer price
NH:
down 7.75p at 78p
NH:
and Evo Secuirities reckon it is a punt
NH:
EVO TAKE – Bowleven put out a statement very close to the market close on Friday re: a revised possible offer of 100p, down from 150p previously. There was no explanation given for the drop in price even though the prospective buyer has been carrying out due diligence. We thought the original possible offer of 150p was too good to be true and so it has turned out to be. We would stick by our previous guidance that it best to reduce positions in Bowleven.
NH:
DETAILS – Bowleven’s directors say they are not aware of any reason, whether arising from the due diligence or otherwise, that would explain the drop in the offer price and the possible offer price.
NH:
VALUATION AND RECOMMENDATION – The group cash pile is currently US$38m (30p/share) with no firm work commitments under any of its PSCs during 2009. Against the alternative high impact exploration choices in the sector Tullow and Heritage, investing in Bowleven is hard to justify other than for purely speculative reasons.
PM:
ta
11:47AM
NH:
has the red card come out?
PM:
It has – in a mild way
PM:
Merv won’t be posting for the rest of ML
PM:
Purile comments = 1hr ban
NH:
and just to back Paul up there
NH:
this referering is rubgy style
NH:
not footie style
NH:
you can’t argue with the decision, otherwise it is another ban
NH:
a longer one
PM:
Re-offenders will get week bans, Re-re-offenders get one year ban
NH:
Tuna, we don’t explain decisions
NH:
we don’t tolerate back chat
11:49AM
NH:
OK, another small cap stock to look at quickly
NH:
Phorm Group
PM:
NH:
company confirmed rumours that were swirling around on Friday about a deal in Korea
NH:
actually it is more of a trial than a deal
NH:
but hey ho, the shares are up
NH:
up 20p to 460p
PM:
Phorm for those of you who don’t know
PM:
has developed a controversial piece of software
PM:
that trackers users’ browsing habits with the aim of then providing tailored advertising
NH:
that’s right
NH:
and for the record, Paul is not a fan
NH:
he does not think it works
PM:
Well — ive used it — when we set up AV
PM:
Couldnt work out why all these adverts for AV were appearing on MySpace
PM:
it was because I had accessed AV on my home computer — and then my kids spent the rest of the day on MySpace
PM:
So Phorm assumed that i read both
NH:
really, isn’t the software sophisticated enough to tell the difference
PM:
Well maybe it has improved…
PM:
I am just a bit sceptical
PM:
IP number location — all these things are less accurate that the industry makes out
PM:
In my experience
NH:
well, there new house broker thnks they are great
PM:
(Zippy — see earlier discussion)
NH:
Evolution Group
NH:
Korean catalyst
Phorm has announced a commercial trial of its technology with the
leading telecoms company in South Korea. Commercially trialling
with another ISP further de-risks the investment, adds revenue and
opens a highly devloped, new territory.
Phorm has announced a commercial trial of its technology with the
leading telecoms company in South Korea. Commercially trialling
with another ISP further de-risks the investment, adds revenue and
opens a highly devloped, new territory.
NH:
Details: Phorm has announced a deal with KT, South Korea’s leading telecoms
company and largest Internet Service Provider (ISP), with a 44% share of the
15m broadband subscriber market (source: OECD).
Significant market. Korea is one of the leading broadband subscriber markets
in the world (No7), as well as a significant online advertising market ($1.6bn in
2008, Zenith Optimedia).
company and largest Internet Service Provider (ISP), with a 44% share of the
15m broadband subscriber market (source: OECD).
Significant market. Korea is one of the leading broadband subscriber markets
in the world (No7), as well as a significant online advertising market ($1.6bn in
2008, Zenith Optimedia).
NH:
Other details: Consumers will opt in (as per the UK trial with BT); no privacy
issues are anticipated (especially given recent regulatory approval); the KT
consumer offer will be branded Smartweb; Phorm has already engaged with
publishers and advertisers; a local Phorm office is already established and
recruiting.
issues are anticipated (especially given recent regulatory approval); the KT
consumer offer will be branded Smartweb; Phorm has already engaged with
publishers and advertisers; a local Phorm office is already established and
recruiting.
NH:
Rapid roll-out. Phorm expects that the trial will move through to full scale
deployment without a break. The trial is expected to last several weeks.
Large scale trial. We estimate that a commercial trial requires at least 100k
consumers (as compared to the 10k in the BT trial in the UK). Consumers will be
served targeted adverts (and a small level of revenue will be generated). Market
research regarding likely consumer adoption was encouraging.
deployment without a break. The trial is expected to last several weeks.
Large scale trial. We estimate that a commercial trial requires at least 100k
consumers (as compared to the 10k in the BT trial in the UK). Consumers will be
served targeted adverts (and a small level of revenue will be generated). Market
research regarding likely consumer adoption was encouraging.
NH:
Assumptions, possible that South Korea overtakes the UK: We have
retained the same assumptions for Korea as for the UK model (see overleaf): cost
of publisher inventory is 40% and the revenue split with the ISPs is 60/40. We
expect other ISPs in South Korea (SK Telecom, LG Powercom) to sign in due
course. Minimal capex is required for the trial.
Estimates upgraded to break-even for 2010E (-$1.5m PBT). Our model only
included the UK, so the addition of Korea requires an upgrade, especially in
2011E. We estimate that Phorm will incur some additional costs in 2009 ($2m),
mainly related to staff costs as the Korea office is opened up. We further estimate
that Korea will add $19m EBITDA in 2011E.
retained the same assumptions for Korea as for the UK model (see overleaf): cost
of publisher inventory is 40% and the revenue split with the ISPs is 60/40. We
expect other ISPs in South Korea (SK Telecom, LG Powercom) to sign in due
course. Minimal capex is required for the trial.
Estimates upgraded to break-even for 2010E (-$1.5m PBT). Our model only
included the UK, so the addition of Korea requires an upgrade, especially in
2011E. We estimate that Phorm will incur some additional costs in 2009 ($2m),
mainly related to staff costs as the Korea office is opened up. We further estimate
that Korea will add $19m EBITDA in 2011E.
NH:
More to come. Phorm is moving from blue sky to reality. Its proposition offers
a compelling ROI for advertisers. Key early metrics will include consumer
adoption and rate of roll-out. We retain our Buy recommendation and expect
further key announcements over the next few months.
a compelling ROI for advertisers. Key early metrics will include consumer
adoption and rate of roll-out. We retain our Buy recommendation and expect
further key announcements over the next few months.
11:55AM
NH:
interesting point Taxloss – any more detail
NH:
as for Rio/BHP
NH:
the game here could be disposals
NH:
but we have to wait and see whether the Chinalco deal goes through
NH:
my guess BHP are quite happy to wait
NH:
and then see how things pan out
11:57AM
NH:
right, a few things to follow up on
NH:
some positive comment around on Vodafone this morning
NH:
and it is one of the few stocks that is outperforming
Vodafone Group (VOD:LSE): Last: 117.90, up 1.6 (+1.38%), High: 118.30, Low: 115.50, Volume: 52.18m
NH:
the notes come from RBS annd Cazenove
NH:
Underperformance due to UK technical issues – creates buying opportunity
Over the last month, Vodafone has underperfomed the sector by 8%, below the other European mega-caps (Telefonica +6% relative, Deutsche Telekom +1%, France Telecom -1%). This is despite Vodafone having only limited (and mildly positive on network sharing) newsflow. Over the month, Vodafone has also underperformed the FTSE 100 by 9% (Telefonica -2% over IBEX 35, Deutsche Telekom -9% over DAX 30, France Telecom -11% over CAC 40) while over the last 12 months Vodafone has outperformed the FTSE 100 by 8% (Telefonica +37% over IBEX 35, Deutsche Telekom +34% over DAX 30, France Telecom +32% over CAC 40). We believe this underperformance is largely due to technical issues as Vodafone has been utilised as a source of funds to support rights issues, in addition to some sector rotation as a number of investors reposition portfolios for an upswing, having entered the year long of defensive stocks.
As such, we believe Vodafone now represents an excellent buying opportunity, trading on an 11% reported equity free cash flow yield (18% ex Verizon Wireless) and a 7% dividend yield for 2009/10, we would highlight an EV/EBITDA of 4.2x (sector 4.5x) and an adjusted PE of 6.6x (7.5x including acquired intangible amortisation, sector 7.9x).
Whilst the technical factors impacting Vodafone are difficult to judge, we believe the company’s valuation is becoming too compelling to ignore. More important perhaps is Vodafone’s defensive qualities in terms of resilient cash flows and well covered progressive dividend policy amid what remain difficult market conditions. In addition, there remains longer term scope for a step change in Vodafone’s dividend once Verizon Wireless starts paying dividends itself.
Over the last month, Vodafone has underperfomed the sector by 8%, below the other European mega-caps (Telefonica +6% relative, Deutsche Telekom +1%, France Telecom -1%). This is despite Vodafone having only limited (and mildly positive on network sharing) newsflow. Over the month, Vodafone has also underperformed the FTSE 100 by 9% (Telefonica -2% over IBEX 35, Deutsche Telekom -9% over DAX 30, France Telecom -11% over CAC 40) while over the last 12 months Vodafone has outperformed the FTSE 100 by 8% (Telefonica +37% over IBEX 35, Deutsche Telekom +34% over DAX 30, France Telecom +32% over CAC 40). We believe this underperformance is largely due to technical issues as Vodafone has been utilised as a source of funds to support rights issues, in addition to some sector rotation as a number of investors reposition portfolios for an upswing, having entered the year long of defensive stocks.
As such, we believe Vodafone now represents an excellent buying opportunity, trading on an 11% reported equity free cash flow yield (18% ex Verizon Wireless) and a 7% dividend yield for 2009/10, we would highlight an EV/EBITDA of 4.2x (sector 4.5x) and an adjusted PE of 6.6x (7.5x including acquired intangible amortisation, sector 7.9x).
Whilst the technical factors impacting Vodafone are difficult to judge, we believe the company’s valuation is becoming too compelling to ignore. More important perhaps is Vodafone’s defensive qualities in terms of resilient cash flows and well covered progressive dividend policy amid what remain difficult market conditions. In addition, there remains longer term scope for a step change in Vodafone’s dividend once Verizon Wireless starts paying dividends itself.
NH:
Long term (12 months): Buy (from Hold)
Target price: £1.30
Reason: Change of recommendation
Vodafone’s recent share price weakness looks anomalous. Sure, recent European results leave something to be desired, and we remain concerned about margin pressure in India. But management seem more pragmatic about, and committed to, cost cutting and addressing problems head-on. We move to Buy.
Target price: £1.30
Reason: Change of recommendation
Vodafone’s recent share price weakness looks anomalous. Sure, recent European results leave something to be desired, and we remain concerned about margin pressure in India. But management seem more pragmatic about, and committed to, cost cutting and addressing problems head-on. We move to Buy.
NH:
that was from RBS
NH:
and on the read across from GM to UK stocks
NH:
i guess GKN would be one of the most exposed
NH:
here’s quick bit of comment on that
NH:
can’t remember from whom
NH:
The departure of GM’s CEO over the weekend is part of the government’s plan to save GM but could come through the company filing for bankruptcy. The path to how this will happen and what form it may take remains unclear – particularly how it would impact its European operations which there have been rumoured as up for sale. It may well lead to some impact in the form of bad debtors.
NH:
Tomkins GM exposure was 6.2% of group sales in 07. With the downturn in the market since then the exposure is likely to have fallen below 6%. This would suggest c$40m of working capital exposure (assuming group average working capital turn) a situation which is, no doubt, being tightly managed.
GKN Driveline business is not heavily exposed to (North America c16%) but Powder Metals is predominantly a North American business and automotive exposed. We estimate GM North America 5-6% of group sales suggesting a £30-4m working capital position to be managed.
GKN Driveline business is not heavily exposed to (North America c16%) but Powder Metals is predominantly a North American business and automotive exposed. We estimate GM North America 5-6% of group sales suggesting a £30-4m working capital position to be managed.
NH:
apparently Tomkins could also be hit
NH:
GM US – Much press talk that Wagoner has been asked to step down by the Obama government. Obama to announce today a further injection and a stay of exection for 30 days. FT are reporting today that GM will file for Chapter 11 sometime in the “next few weeks”. This story reiterates our call that the cash injections by the US government at the end of last year were redundant. What they need to do is get people buying cars again rather than just promoting the car manufacturers to continue to churn them out. The money would have been a lot better spent giving the US household a cheque for redemption against a new car. We maintain our SELLS on (GKN 60p TP) and TOMK (75p TP)
12:01PM
NH:
Paul wants to talk about Phorm again
PM:
Just somethign that seals it for me
PM:
Lord Lamont on the board…
NH:
actually they also hired a highly rated media analyst from Morgan Stanley recently
PM:
And they’ve got Kip Meek, who used to be at Ofcome
NH:
horm (AIM: PHRM and PHRX), the online advertising technology company, is pleased to announce the appointments of Sarah Simon as Financial and Strategic Development Officer and Mike Moore as Global Commercial Director.
Sarah will have responsibility for the management of investor, analyst and shareholder relationships and financial communications. She will also provide analysis, research and strategic guidance to the business on all financial issues. Sarah reports to Phorm’s CEO, Kent Ertugrul.
Sarah joins from Morgan Stanley where she spent 15 years and was a Managing Director in European Equity Research. She started her career in corporate finance, working on mergers and acquisitions, IPOs and restructuring then moved to equity research where she spent 12 years specialising in coverage of the European Media and Internet market.
NH:
that was the media analyst
12:05PM
PM:
Are we done?
NH:
I think so
PM:
Bit of scrappy session
NH:
well, there’s not a great deal happening out there
PM:
true
NH:
GM aside
NH:
of course one mystery remains to be solved
NH:
what happened to Taxloss on Friday
NH:
no comments
NH:
he must have been heading back op North
PM:
Right — we are done
PM:
thanks for joining
PM:
thanks for most of the comments
PM:
back tomorrow at 11am
PM:
seeua
PM:
seeya even
NH:
byeeeeeeeeee