Markets live chat transcript for the chat ending at 12:15 on 2 Apr 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH) Bryce Elder (BE)
PM:
hi there
PM:
This is FT Alphaville’s daily markets related chat.
PM:
RALLY TIME!
PM:
you decide
PM:
I’ve got up and out of my sick bed.
PM:
Which was boring, especially with it all kicking off round the City.
PM:
Missed it all I guess.
NH:
Ah, maybe not all.
NH:
March this morning was supposed to be coming past us
NH:
Earlier internal note here said the march was from Tooley street and then over South Bridge –was expected to come past here at 11.30.
PM:
Oh excellent.
NH:
Nah – fresh note few mins ago said the march was avoiding the City – so not coming past us.
NH:
Guess so.
PM:
This will be after that protester died yesterday.
11:05AM
NH:
newsflash
NH:
the FSA crackdown on wrongdoers continues
PM:
Tough nuts
NH:
FSA wins market abuse case against Winterflood
NH:
The Financial Services Authority (FSA) has won its market abuse case at the Financial Services and Markets Tribunal (the Tribunal) against Winterflood and two of its traders, Mr Sotiriou and Mr Robins.
Winterflood is an FSA authorised firm and the largest market maker in AIM securities.
In June 2008, the FSA found that Winterflood and its traders had played a pivotal role in an illegal share ramping scheme relating to Fundamental-E Investments Plc (FEI), an AIM listed company. In particular, the market maker had misused rollovers and delayed rollovers thereby creating a distortion in the market for FEI shares and misleading the market for about six months in 2004.
Winterflood is an FSA authorised firm and the largest market maker in AIM securities.
In June 2008, the FSA found that Winterflood and its traders had played a pivotal role in an illegal share ramping scheme relating to Fundamental-E Investments Plc (FEI), an AIM listed company. In particular, the market maker had misused rollovers and delayed rollovers thereby creating a distortion in the market for FEI shares and misleading the market for about six months in 2004.
NH:
The FEI share trades executed by Winterflood had a series of unusual features which should have alerted the market maker to the clear and substantial risks of market manipulation. Rather than taking steps to ensure that the trades were genuine, Winterflood continued the highly profitable trading. Winterflood made about £900,000 from trading in FEI shares, its single most profitable stock at the time. As a result of their conduct, the FSA decided to impose fines of £4 million, £200,000 and £50,000 on Winterflood, Mr Sotiriou and Mr Robins respectively.
NH:
The share ramping scheme led to the FEI share price increasing from 4p in December 2003 to a high of 12.25p in June 2004. The London Stock Exchange suspended trading in shares in FEI on 15 July 2004. Following the resumption of trading on 23 July 2004, the price dropped back to 4p and has never recovered.
NH:
Winterflood did not challenge the findings of the FSA investigation at the Tribunal but referred the matter on a point of legal interpretation. Winterflood, Mr Sotiriou and Mr Robins are now seeking permission to appeal the decision at the Court of Appeal. Other parties involved in the scheme have referred their cases to the Tribunal. Background details of the case can be found here.
NH:
some tough language in there
NH:
share ramping
PM:
There is — shame it took six years to bring em to book!
NH:
i think this case related to something cash and new
PM:
Oh i am old enough to remember cash & new-ing
PM:
That was under the old account trading system tho
NH:
and the reason this was being done
NH:
was because a broker wanted to inflate his revenues
PM:
Neil is tryign to find the original story
PM:
Huertasm — the link does not appear to work
NH:
i remember now
NH:
broker behind it all was Simon Eagle
PM:
Here you go …
NH:
this is what I and Jen Hughes wrote back in July
NH:
A marketmaker is challenging the City watchdog over a £4m fine, the biggest for market abuse yet handed out to a regulated institution.
The Financial Services Authority has levied the penalty on Winterflood, a broker specialising in smaller and mid-market stocks, for having failed to notice warning signs or to query particular trades in Fundamental-E Investments, a computer screen company, in 2004.
EDITOR’S CHOICE
Close Brothers survives storm – Mar-10
The investment bank avoided the worst of the downturn
Prebensen named new chief at Close Brothers – Feb-09
Close Brothers’ profits plunge – Sep-29
Private equity struggles to ditch liabilities – Sep-30
Keogh to exit Close Brothers – Sep-28
Close Brothers extends reach via Atlas deal – Sep-15
Winterflood, owned by Close Brothers, the investment bank, said on Thursday that it had referred the case to the Financial Services and Market Tribunal, the independent body set up to review decisions made by the FSA.
The case could prove the first big test for the regulator before the tribunal since a Legal & General case in 2005, when a challenge by the insurance company ended in the tribunal almost halving a £1.1m fine.
NH:
The investigation centred on a series of small trades made through SP Bell, a regional stockbroker. SP Bell was placed into administration in 2004 after it emerged that dozens of its customers’ accounts had been used to buy about £10m worth of shares in FEI.
SP Bell was owned by Simon Eagle, a former commodities trader.
Close Brothers said the firm intended to fight its appeal vigorously. The company said on Thursday that the £4m fine was provided for in its accounts and would not have an effect on its financial results.
Two Winterflood traders have also been fined and are also appealing to the tribunal. One of them faces a fine of between £150,000 and £200,000 and the other faces one of less than £75,000.
The regulator would not comment Thursday.
A £4m fine would be the fourth largest ever levied by the watchdog. The record was £17m against Shell for mis-stating its oil reserves.
PM:
right — okay
11:11AM
NH:
shall we move on
PM:
yes — how about this rally
PM:
And also the gilt auction!
NH:
well the DMO have got that away – just
NH:
Britain’s sale of 30-year gilts met lacklustre demand on Thursday, unsettling the market after a long-dated gilt auction last week failed for the first time in seven years.
Investors put in bids worth 1.59 times the 2.25 billion pounds on offer, slightly higher than at the first sale of this gilt last month. However there was a huge price tail of 78 ticks, suggesting the Debt Management Office had been forced to accept some low offers.
“It’s not great and the tail is longer than usual even though the cover is okay,” said Jason Simpson, gilts strategist at RBS.
Investors put in bids worth 1.59 times the 2.25 billion pounds on offer, slightly higher than at the first sale of this gilt last month. However there was a huge price tail of 78 ticks, suggesting the Debt Management Office had been forced to accept some low offers.
“It’s not great and the tail is longer than usual even though the cover is okay,” said Jason Simpson, gilts strategist at RBS.
NH:
An auction of 2049 gilts last week got a cover of 0.93, the first time a sale of British government bonds has failed to find enough buyers since 2002.
Auctions of long-dated gilts are typically trickier than shorter-dated ones as demand from pension funds can be patchy.
The 30-year gilt on offer on Thursday also was disadvantaged by its small size — it has yet to achieve benchmark status — and the fact its maturity fell outside the 5- to 25-year range the Bank of England is buying for its quantitative easing programme.
Auctions of long-dated gilts are typically trickier than shorter-dated ones as demand from pension funds can be patchy.
The 30-year gilt on offer on Thursday also was disadvantaged by its small size — it has yet to achieve benchmark status — and the fact its maturity fell outside the 5- to 25-year range the Bank of England is buying for its quantitative easing programme.
PM:
That’s from Reuters
NH:
but that should not detract from the feelgood factor
PM:
NH:
looks like it really is time to break out the rally monkey
PM:
the FTSE 100 is flying this morning
NH:
sure is
NH:
130 points at 4,084
NH:
first time it has been above the “psychologically important” 4,000 level since Feb
PM:
ah, the psychologically important level
PM:
I banned phrases like that at the Guardian
PM:
NH:
so you did
PM:
Not with any success tho
NH:
also banned
NH:
billions wiped off shares
NH:
although we could use bilions wiped on shares
PM:
And meltups
NH:
anyway, everything is rosy
NH:
FTSE above 4,000
NH:
house prices rising
PM:
for the first time since October 2007, allegedly
PM:
Taylor Wipeout, the houseseller
PM:
set to be refinanced
PM:
G20 about to save the world
NH:
Gordo at the helm
PM:
US cars sales starting to stabilise
NH:
well the figs were a little bit better than expected, if still heavily negative y/y.
NH:
the only thing missing is the weather
PM:
and US markets were strong overnight as well
NH:
actually I have a good theory about the market and why it might have bottomed
NH:
well, it was a theory from a reader
NH:
who posted on Tracy’s excellent riot photo montage yesterday
NH:
if people are rioting, this poster argued the worst must be past
NH:
i spent the afternoon in my local boozer catching up on some reading (inc some posts printed in the past from the LR – thanks good stuff). As a youngster I would go rant and vent at these sort of events too…but not with the malevolent streak of the ever present aggressive minority…more a general disillusionment (helped by the debts i owed) and a sense of duty to go mill around at such event
But, in my semi befuddled state I have realised that we are all missing the point. Its a great big bottom indicator…its sort of supernatural technical….its a peaking of the past bad stuff and a quickening for the beginning of the new. Now look forward and go long stuff, particularly big banks with bad reps…but retain some balance and short the a*rse out of some bad stuff.
Obviously, I couldn’t give a detailed and fundamental justification of the above…but that would be too obvious. Tomorrow I am going in in ‘hug a crusty’ designer suit with crates of white lightening cider. All good analysts deserve a commission
PM:
oooh — City riot as a buy signal
PM:
Would like to see this Hug A Crusty suit
NH:
I reckon it could be a buy signal
NH:
I mean if Russell Brand is down there
NH:
surely, the worst has past
NH:
and this has all gone very mainstream
PM:
Notice all the non-believers below
PM:
Bearish lot!
11:18AM
NH:
right, just going back to Winterfloods and share ramping
NH:
this has all the makings of an excellent scrap
NH:
Close Bros, the parent company, are not going to take this lying down
NH:
this slight to the reputation of wins
NH:
they are going to fight it
NH:
Close Brothers Group plcAnnouncement regarding Winterflood Securities Limited
Close Brothers Group (“Close Brothers”) today announces it will seek permission
to appeal the decision by the Financial Services and Markets Tribunal (“the
Tribunal”) to reject Winterflood Securities Limited’s (“Winterflood”) referral
of a decision by the Financial Services Authority (“FSA”) in June 2008 that
Winterflood and two of its traders committed market abuse.
NH:
The FSA’s decision was that Winterflood committed market abuse in 2004 in
relation to trading by third parties in 2004 in shares of Fundamental E
Investments plc (“FEI”), an AIM listed stock. Winterflood was a market-maker in
FEI at the time and executed a majority of the relevant trades. The FSA alleges
that Winterflood failed to have appropriate regard to warning signs and failed
to ask questions about the propriety of the third party trades in FEI executed
by Winterflood, and thereby committed market abuse.
relation to trading by third parties in 2004 in shares of Fundamental E
Investments plc (“FEI”), an AIM listed stock. Winterflood was a market-maker in
FEI at the time and executed a majority of the relevant trades. The FSA alleges
that Winterflood failed to have appropriate regard to warning signs and failed
to ask questions about the propriety of the third party trades in FEI executed
by Winterflood, and thereby committed market abuse.
NH:
It is not alleged that Winterflood or its traders deliberately or knowingly
committed market abuse.
committed market abuse.
NH:
Game on, I would say
PM:
looks that way
NH:
Close Bros vs FSA
NH:
the use of share ramping in the statement strikes me as incendary
PM:
i think you are right on that
11:21AM
PM:
But let’s move to some specific stocks
PM:
what’s moving this morning?
NH:
the miners, mainly
NH:
looks like a lot of people are putting on the reflation trade
PM:
they sure are
PM:
just look at the FTSE leaderboard
Kazakhmys (KAZ:LSE): Last: 446.00, up 54.5 (+13.92%), High: 450.25, Low: 410.25, Volume: 3.54m
Vedanta Resources (VED:LSE): Last: 775.00, up 82.5 (+11.91%), High: 775.50, Low: 714.00, Volume: 986.57k
Xstrata (XTA:LSE): Last: 565.50, up 55 (+10.77%), High: 570.50, Low: 524.00, Volume: 14.59m
Anglo American (AAL:LSE): Last: 1,305, up 110 (+9.21%), High: 1,312, Low: 1,231, Volume: 3.52m
Lonmin (LMI:LSE): Last: 1,526, up 97 (+6.79%), High: 1,546, Low: 1,477, Volume: 648.58k
NH:
the copper price is also helping
NH:
Copper is the stand out rising to $185 overnight. The Chilean Mining Minister said’ China is buying large amounts of copper and $1.25 copper is a thing of the past’ in an interview yesterday. Chile is the world largest copper producer.
NH:
got that from Arbuthnot earlier today
NH:
actually there was a good piece in the markets section today about reflation trades
NH:
here’s the link to it
NH:
and here’s a little taster
NH:
Even before deflation has fully hit the world’s leading economies, investors are fretting about inflation.
Since the Bank of England and the US Federal Reserve announced plans to buy government debt, the inflation trade has become increasingly popular.
This has been reflected in a boost for emerging market and cyclical stocks, such as mining and general retailing, the jump in gold prices and rising demand for inflation-linked bonds. Some of these trades, such as buying miners and emerging markets, reflect a rise in risk appetite, while others – purchases of gold and inflation-linked bonds – suggest a more cautious strategy.
Since the Bank of England and the US Federal Reserve announced plans to buy government debt, the inflation trade has become increasingly popular.
This has been reflected in a boost for emerging market and cyclical stocks, such as mining and general retailing, the jump in gold prices and rising demand for inflation-linked bonds. Some of these trades, such as buying miners and emerging markets, reflect a rise in risk appetite, while others – purchases of gold and inflation-linked bonds – suggest a more cautious strategy.
NH:
Michael Hartnett, co-head of international investment strategy at Bank of America Merrill Lynch, says: “There is nothing more inflationary than a whiff of deflation because the deflationary response in policy terms has to be inflationary.”
The impact of quantitative easing – the printing of money to revive the economy – has been most dramatic on cyclical stocks.
In the UK, mining stocks have jumped by 20 per cent since the Bank of England announced plans to buy up to £75bn ($108bn) in gilts on March 5. This compares with a rise of only 7.3 per cent for the FTSE All Share index.
The impact of quantitative easing – the printing of money to revive the economy – has been most dramatic on cyclical stocks.
In the UK, mining stocks have jumped by 20 per cent since the Bank of England announced plans to buy up to £75bn ($108bn) in gilts on March 5. This compares with a rise of only 7.3 per cent for the FTSE All Share index.
NH:
General retailing, which is also heavily reliant on growth, has risen by 11.4 per cent, while the oil sector is up 10.3 per cent. In contrast, defensives have fared badly: gas, water and multi-utilities are down by 4.8 per cent over the same period, while the tobacco sector has dropped by 2 per cent.
11:24AM
NH:
other stocks on the move include
NH:
HSBC
NH:
shares flew in Hong Kong overnight
NH:
jumped 15%
PM:
has seen the stock move up 37.7p to 448.5p
PM:
a gain of over 9% over here
PM:
that must be worth a few index points
NH:
it is
NH:
26 of them
PM:
whoa
NH:
aside from the move in HK
NH:
a couple of things driving the price higher
NH:
one is technical
NH:
trading of the nil paids ended yesterday
NH:
so it looks like people are buying back some bears
NH:
and then there is anticipation
PM:
anticipation of what?
NH:
these accounting changes
NH:
changing the rules on mark to market accounting
NH:
we should get an announcement out of the US Financial Accounting Standards Board this afternoon
PM:
of course
NH:
here’s what the paper wrote on this today
NH:
Large US banks such as Citigroup, Bank of America and Wells Fargo stand to receive a surprise first quarter earnings boost from today’s expected loosening of controversial accounting rules by the Financial Accounting Standards Board.
Wall Street executives and auditors say the accounting watchdog’s likely approval of changes to “mark-to-market” rules could lead to increases of up to 20 per cent in the quarterly profits of large commercial banks.
Rushed through by FASB after pressure from the lenders and politicians, the changes have been strongly opposed by investment banks, investors, auditors and analysts.
Wall Street executives and auditors say the accounting watchdog’s likely approval of changes to “mark-to-market” rules could lead to increases of up to 20 per cent in the quarterly profits of large commercial banks.
Rushed through by FASB after pressure from the lenders and politicians, the changes have been strongly opposed by investment banks, investors, auditors and analysts.
NH:
They will make it easier for companies, including banks, to value assets using their own internal models rather than market prices. They will also only have to recognise a part of any impairment in their profits.
Proponents of the changes, such as Citi, BofA, Wells and their political allies, argue the current regime unfairly magnifies losses by requiring banks to use market prices even though those prices are illiquid and are often from fire sales.
Critics say changing the rules would further undermine investor confidence in the battered sector by reducing the transparency of banks’ balance sheets.
The accounting overhaul, they add, counters the US government’s bid to create a liquid market for troubled assets through private/public partnerships.
Proponents of the changes, such as Citi, BofA, Wells and their political allies, argue the current regime unfairly magnifies losses by requiring banks to use market prices even though those prices are illiquid and are often from fire sales.
Critics say changing the rules would further undermine investor confidence in the battered sector by reducing the transparency of banks’ balance sheets.
The accounting overhaul, they add, counters the US government’s bid to create a liquid market for troubled assets through private/public partnerships.
PM:
when is the announcement??
NH:
er not sure
NH:
will check the FSAB website
NH:
doesn’t say
NH:
but I only had a very, very quick glance
NH:
but rest assured when it comes out we will be on the case
PM:
Notice Bryce has put the pic of that Mark-to-market guy at the demo yesterday
NH:
he has got a Twitter page, no?
PM:
i think so yes
NH:
damien damien
PM:
‘Recently unemployed securities/tech guy moping about house procrastinating.
11:29AM
11:29AM
NH:
quick G20 newsflash
NH:
RTRS-UK TREASURY MINISTER: EXPECTS G20 TO AGREE TO PUBLISH TAX HAVEN BLACKLIST “IN DUE COURSE”, STILL DISCUSSING TIMING
NH:
batten down the hatches
NH:
the market is back on
NH:
another internal email has landed
NH:
The route for the ‘Youth for Jobs’ has been amended the route is now as follows;
Southwark Bridge, Queen Street, Cannon Street, Queen Victoria Street, Mansion House Place, Lombard Street, Gracechurch Street, Eastcheap, Great Tower Street, Lower Thames Street, East Smithfield – out of the City.
Estimated time is as before. Please refer to the note sent out at 09:30 hours for more information
PM:
NH:
time for the tin hat
PM:
They are late tho
NH:
I knew it would come in useful
PM:
Actually, some of the crusties read us you know
PM:
Here’s one from Avaaz.org
NH:
really
PM:
some of us protesters love Markets Live
130,000 signatures for reform and SDRs delivered to Dominique Strauss-Kahn at G20 – see release, quotes, photos below
the march of the sane goes on…
130,000 signatures for reform and SDRs delivered to Dominique Strauss-Kahn at G20 – see release, quotes, photos below
the march of the sane goes on…
PM:
Before the start of the G20 summit, GLOBAL WEB MOVEMENT AVAAZ.org and international trade union leaders this morning delivered a petition signed by over 130,000 people to IMF Chief DOMINIQUE STRAUSS-KAHN, who welcomed the petition.
Avaaz.org is a global, web-based mass movement of 3.4 million citizens with a positive policy agenda for the G20 summit — they marched through London with thousands of green hard hats last Saturday.
Avaaz are the “mainstream and effective” side of the G20 protests in London. They use the same internet campaigning methods with which Barack Obama won the US elections.
PM:
User4277986 – pack it in please
NH:
Paul’s reaching for the red card which has its home on top of my PC
NH:
(thanks TC)
11:33AM
NH:
right, back to the banks
PM:
How are our other brilliant financials doing this morning?
NH:
slightly subdued
PM:
Well you’ve seen this upbeat Goldman note?
NH:
I have.
NH:
RBS and Lloyds will benefit from the GAPS.
PM:
Goldman basically saying it’s a good bank / bad bank situation – drawing parallels with Sweden.
NH:
Crucial bit is making sure all the bad assets are actually in the insurance scheme.
PM:
Share some of the research
NH:
Well it’s quite a long doc.
NH:
Here’s an extract
NH:
What the Swedish experience could tell us about the ultimate losses for the government and for the UK banks
In the context of loss experience, we highlight two loss figures that represent benchmarks for credit losses:
(1) During the Swedish banking crisis, approximately half of the bad assets of the bad banks were provisioned for; while some of those provisions were later recovered, we view it as highly unlikely that the UK banks will not fully draw down their respective first loss pieces over the coming two to three years. We hence see support for our view that the first loss should be deducted from group equity, for valuation purposes.
In the context of loss experience, we highlight two loss figures that represent benchmarks for credit losses:
(1) During the Swedish banking crisis, approximately half of the bad assets of the bad banks were provisioned for; while some of those provisions were later recovered, we view it as highly unlikely that the UK banks will not fully draw down their respective first loss pieces over the coming two to three years. We hence see support for our view that the first loss should be deducted from group equity, for valuation purposes.
(2) Aggregated loan losses in Sweden over the crisis years 1991 through 1993 equaled nearly 20% of loans excluding mortgage credit institutions and 10% including them. In the UK in 2008, aggregate loan losses reached 1.2% of total loans, suggesting that we are still at a relatively early stage of the traditional credit cycle.
NH:
We expect UK banks to fully draw down on first loss exposure – the remainder rests with the UK government
Applying a 50% loss ratio to £550 bn of bad assets (i.e. the GAPS assets) would imply that the UK government would ultimately bear £180 bn of losses after deducting the first loss and the relevant fees. This is overly harsh, in our view. We believe it is necessary to adjust for the core assets included in RBS’s GAPS assets, which are designed to “make room” for lending, as well as the mortgage lending in Lloyds (Exhibit 6). This leaves £340 bn of “real” bad assets, of which £50 bn relates to non-lending assets. Under this scenario, the total loss related to these assets would reach £190 bn, of which the UK government would carry £118 bn (Exhibit 7).
Applying a 50% loss ratio to £550 bn of bad assets (i.e. the GAPS assets) would imply that the UK government would ultimately bear £180 bn of losses after deducting the first loss and the relevant fees. This is overly harsh, in our view. We believe it is necessary to adjust for the core assets included in RBS’s GAPS assets, which are designed to “make room” for lending, as well as the mortgage lending in Lloyds (Exhibit 6). This leaves £340 bn of “real” bad assets, of which £50 bn relates to non-lending assets. Under this scenario, the total loss related to these assets would reach £190 bn, of which the UK government would carry £118 bn (Exhibit 7).
For the UK banks, however, the GAPS could very well prove to be the difference between having sufficient capital or not, should the credit cycle last beyond 2011. Over the coming two to three years, we expect the UK banks to fully draw down their first loss exposures. The benefit (for the UK banks) of the GAPS should thus not materialize until 2011 onwards.
NH:
Credit losses at a Swedish level are largely in our estimates
In Exhibit 8, we assess, from a top-down perspective, the aggregate losses across the Swedish banking system in 1990-1993 and what a similar loss severity would imply for the UK banks going forward. Over this period, Sweden experienced aggregated losses of almost Skr200 bn or c.10% of total lending. Of this, we estimate that nearly a third was attributable to losses related to the statesupported bad bank assets. The comparable loss figure for the UK in 2008-2011 would be £260 bn, on our estimates (Exhibit 8). Adjusting for “bad bank” related losses would imply c.£140 bn of credit losses for the domestic UK three. This compares to our estimates over the same period of £136 bn (Exhibit 9).
In Exhibit 8, we assess, from a top-down perspective, the aggregate losses across the Swedish banking system in 1990-1993 and what a similar loss severity would imply for the UK banks going forward. Over this period, Sweden experienced aggregated losses of almost Skr200 bn or c.10% of total lending. Of this, we estimate that nearly a third was attributable to losses related to the statesupported bad bank assets. The comparable loss figure for the UK in 2008-2011 would be £260 bn, on our estimates (Exhibit 8). Adjusting for “bad bank” related losses would imply c.£140 bn of credit losses for the domestic UK three. This compares to our estimates over the same period of £136 bn (Exhibit 9).
PM:
Right — but what about Barclays — not in the GAPS???
NH:
Well, Goldman saying that without the GAPS Lloyds and RBS look amongst the weakest in Europe.
NH:
Barclays put at “average”
NH:
We conclude that total vulnerable assets make up approximately 20% of total assets for RBS and Lloyds and 12% for Barclays. Of those, we estimate that c.90% have been covered by GAPS for Lloyds and c.65% for RBS. As such, GAPS appears to have achieved a material de-risking of the balance sheets of both banks.
PM:
Hmmm – thanks for that
11:37AM
PM:
Punch Taverns – why is that so strong.
PM:
up again – Punch up 19.75p at 87p.
NH:
that’s a gain of almost 30%
PM:
This is amazing – stock was at 35p earlier this month.
NH:
I don’t think so
PM:
Has it been de-toxified???
NH:
this thing has a half life of at least 50 years
NH:
but there is a note out from Caz
NH:
Will get hold of it
NH:
UK Pubcos – Good debt, Bad debt – Turning selectively more positive
NH:
Recent trading updates suggest that the polarisation between the managed and tenanted pub models is becoming increasingly entrenched, as well-invested managed pubs continue to take market share in difficult trading conditions. Nonetheless, we believe that some of the negative factors which have dictated disappointing trading in the sector over the last two years may be starting to ease. In particular, ONS data showing pricing in the off-trade suggests that supermarkets may be starting to increase their price for beer, potentially reducing the price differential with pubs. From a macro perspective, we believe the anticipated increase in consumer discretionary expenditure due to lower mortgage payments also represents a compelling stimulus for the pub sector.
NH:
However, stretched balance sheets remain an important feature and we expect the market to discriminate closely according to the sustainability of debt levels. Refinancing challenges elsewhere in the leisure sector are a useful reminder that securitisations can be a valuable source of long-term finance. William Hill has recently refinanced its bank debt and when arrangement fees and interest rate hedging are included, the cost of debt is expected to be 8.5% in 2009 and 10% in 2010. Clearly, illiquidity in the credit market is having a major impact on the cost of medium-term debt. In contrast, we believe long-term securitisations are not necessarily a negative factor, provided the underlying security estate is capable of providing sufficient cashflows to service the debt, ie as long as there is comfortable headroom. This is not the case with all of the pubcos (particularly Punch). However, for companies such as Greene King and Mitchells and Butlers, we believe the market is undervaluing the visibility of the capital structure and is penalising them for a high net debt/EBITDA.
NH:
In this note we update our analysis of debt stress testing to take into account year end disclosure and current trading. Our conclusion is that M&B (upgraded to OUTPERFORM from In-line), JD Wetherspoon and Greene King all have strong retail offerings and are well placed to benefit from growth in consumer spending. In contrast, we remain unconvinced that Punch and Enterprise’s debt levels are sustainable and retain UNDERPERFORM recommendations for these two stocks.
PM:
Well that’s not very positive on Punch!
PM:
Saying cashflows are NOT enough to service debt levels.
NH:
Oh yeah
NH:
but in a rising market
NH:
even the….
NH:
can make progress
11:40AM
PM:
right, let’s turn to something that went up on the site yesterday
PM:
Solvay, the Belgain chemicals, pharma and plastics company
PM:
I see there has been a statement
PM:
from the biggest shareholder
NH:
that’s right Solvac
NH:
they own 30% of the company
NH:
and say they have not received an approach for their holding in the company
NH:
in full or part
NH:
Solvac SA : Solvac denies any contact with third parties
2009-04-02 07:56:19.451 GMT
2009-04-02 07:56:19.451 GMT
about the sale of its participation in Solvay, in part or in total
NH:
Embargo, 2 April 2009, 9:45 am (Brussels)
Solvac denies any contact with third parties about the sale of its
participation in Solvay, in part or in total
Following the publication of press articles, Solvac denies any contact
with third parties about the sale of its participation in Solvay, in part
or in total.
Solvac has not recieved any offer on its shares or on the shares of
Solvay.
PM:
so no contact with third parties
NH:
well, not about its stake anyway
NH:
but our story did not say that
NH:
although some analysts think we did
NH:
JPMorgan being the main offender
NH:
but then they have not read it closely enough
NH:
we said there had been approach about the pharma division
NH:
quite clearly
PM:
OK, OK
PM:
calm down
PM:
NH:
which effectively valued the whole business at EUR85 a share
NH:
we never said Sanofi wanted to buy the company or the stake
PM:
OK, just checking
NH:
and in any case
NH:
what is noticeable
NH:
is that Solvac is keeping mum about the pharma business
NH:
they won’t say whether they have been contacted about the division
NH:
look at this
NH:
was sent it by a broker earlier today
NH:
Spoke to Solvac re denial statement. Asked IR if this statement was also a denial of the report that a European pharma group approached Solvac regarding Solvay’s pharma division. IR said they could only comment on the shareholding Solvac has in Solvay and would not confirm or deny whether Solvac had discussed the pharma division with interested parties.
PM:
Hmmm
PM:
so the family don’t want to sell out
PM:
but it looks as if they would be happy to see the pharma business sold
NH:
well, that is what we have been hearing
NH:
they would like some cash
NH:
apparently Solvac is also a big shareholders in Fortis
NH:
and we all know what has happened to its share price in the past year
PM:
and what would this pharma division fetch?
NH:
well, analysts reckon anything between EUR4-EUR5bn
NH:
here’s some reaction to yesterday’s news
NH:
this is from BNP
NH:
: Solvay valuation is not attractive enough to buy the break-up story as we see a balanced profile between a scenario where company is selling its business, EUR65 (13% upside) and our stand alone valuation of EUR50 (13% downside). We thus maintain our Neutral rating and would recommend to start to take profit as long as stock come closer to EUR65.
Topic
We have issued a short update following Solvay announcement yesterday on the strategic review of its pharma business.
Key Points
After Altana in 2006 and Akzo Nobel in 2007, now it’s Solvay’s turn to attract investor with a break-up story on a hybrid company. In response to a report in the FT yesterday Solvay issued a press release stating that “it is proceeding with an analysis of various options for its pharmaceutical activities”. This is the first time that Solvay has commented on this type of rumour, which are not new.
NH:
What are the attractions of Solvay Pharma? Solvay is not attractive for its pipeline, especially following setbacks in its research (schizophrenia and obesity). The group faces patent expiries on its blockbuster Tricor (dyslipidemia) and on the enhanced version (Trilipix). But we see three reasons to buy Solvay Pharma: 1) the vaccines business (no. 2 in flu outside the USA), 2) exposure to emerging markets (>20% of sales) and 3) the diversified portfolio (no product accounts for more than 10% except Tricor/Trilipix).
Who are the potential buyers? We have analysed two options. First, a merger with UCB as neither business has critical mass and the two have shareholders in common. This would be an equity deal requiring an offer for Solvay at EUR70 per share to generate similar accretion in two years. Second, a sale of the Pharma business to big pharma. The FT mentioned Sanofi but we think it would also make sense for AstraZeneca or Abbott. Given the potential for synergies (15% of Solvay’s cost base) the deal is accretive and creates value for any big pharma paying in cash, and not more than EUR6.8bn.
Who are the potential buyers? We have analysed two options. First, a merger with UCB as neither business has critical mass and the two have shareholders in common. This would be an equity deal requiring an offer for Solvay at EUR70 per share to generate similar accretion in two years. Second, a sale of the Pharma business to big pharma. The FT mentioned Sanofi but we think it would also make sense for AstraZeneca or Abbott. Given the potential for synergies (15% of Solvay’s cost base) the deal is accretive and creates value for any big pharma paying in cash, and not more than EUR6.8bn.
NH:
Valuation
We value Solvay Pharma at EUR4.2bn on a standalone basis. We estimate that the deal could generate EUR360m in synergies and EUR250m post-tax (above the EUR175m we first mentioned yesterday), creating an NPV of EUR2.6bn. Assuming 50% is paid to Solvay shareholders, this values Solvay Group at EUR65.
We value Solvay Pharma at EUR4.2bn on a standalone basis. We estimate that the deal could generate EUR360m in synergies and EUR250m post-tax (above the EUR175m we first mentioned yesterday), creating an NPV of EUR2.6bn. Assuming 50% is paid to Solvay shareholders, this values Solvay Group at EUR65.
Action
Given that we see only 50% likelihood for the divestment scenario, the risk/reward on Solvay remains balanced: 13% upside in case of divestment and 13% downside for the status quo. And thus are not tempted to buy the break-up story. Market is likely to like it in the short term. We would recommend taking profit as long as we come closer to EUR65.
NH:
UBS
NH:
The ‘why now?’ – could be a matter of price, we remain sceptical
Following on from articles in the FT Solvay today issued a press release saying it is ‘proceeding with an analysis of various options for its pharmaceutical activities’. It seems counterintuitive to us that of all times Solvay revisits the viability of its hybrid structure in the current downcycle.
Solvay deliberately diversified into pharma to hedge its group earnings. Reconsidering its strategy now could – if a deal was indeed pending – strongly imply that the price is right. Remembering Akzo Nobel selling Organon to SGP for €11bn
Back in March 2007 Akzo sold its Pharma & Animal Health business (Organon & Intervet) for 13.7x 1yr fwd EBITDA and 2.9x Sales. It had sales of €3.8bn, EBIT of c€650m and margins of
17%.
NH:
Admittedly in 2007 multiples on average were twice as high, but Solvay pharma has
characteristics similar to Organon and big Pharma still faces the same structural issues that could lead it to look at Solvay. Logic of deal would be largely driven by realizing cost savings we think
characteristics similar to Organon and big Pharma still faces the same structural issues that could lead it to look at Solvay. Logic of deal would be largely driven by realizing cost savings we think
We believe SGP’s logic behind buying Organon was largely on of realizing cost savings. Solvay’s emerging markets exposure, its CV and vaccines business could also appeal to some of the large European names, but not to Roche, Novartis. Valuation: TriLipix underappreciated, cyclicals on peak multiples
We value Solvay on a blend of SOP and DCF metrics. We see growth momentum from its key drug TriLipix as underappreciated by the market while the cyclical divisions are trading on trough margins but low (peak) multiples.
NH:
RBS
NH:
SANOFI (Buy)
Comment in the press that it is interested in Solvay’s pharma business. No doubt in our mind SASY is looking but not sure it would do the deal.
1) Solvay business is low margin cf sanofi (SASY adjusted EBITA margin 33%, Solvay c18%) and comprises €2.7bn of sales in a variety of therapy areas. Minor overlaps in flu vaccines
2) The Solvay business in our view is not especially attractive and the pipeline appears to have little that would compel a deal from SNY view so any deal would have to be about major cost-cutting (possible) and a good price (other players such as Abbott also may be interested) and
3) SASY is really looking to diversify away from small molecule branded pharma (hence recent generic/OTC deals) and so a deal on Solvay would be somewhat contrary to stated strategy.
Comment in the press that it is interested in Solvay’s pharma business. No doubt in our mind SASY is looking but not sure it would do the deal.
1) Solvay business is low margin cf sanofi (SASY adjusted EBITA margin 33%, Solvay c18%) and comprises €2.7bn of sales in a variety of therapy areas. Minor overlaps in flu vaccines
2) The Solvay business in our view is not especially attractive and the pipeline appears to have little that would compel a deal from SNY view so any deal would have to be about major cost-cutting (possible) and a good price (other players such as Abbott also may be interested) and
3) SASY is really looking to diversify away from small molecule branded pharma (hence recent generic/OTC deals) and so a deal on Solvay would be somewhat contrary to stated strategy.
PM:
thanks for all that
NH:
I should also mention re Sanofi
NH:
we have no idea whether they will come back or not
NH:
they could have walked for all we know
11:46AM
PM:
okay — any more RAW??
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
well a couple of loose ends to tie up
NH:
It looks like Germany’s K&S will not be going for Compass Minerals after all
PM:
why’s that
NH:
because of this
NH:
DOW Chemical has entered into a definitive agreement to sell
Morton International, the salt business of Rohm and Haas, to K+S (SDF
GY). The transaction values Morton at USD1.675bm. The deal is not
subject to a financing condition but will be subject to customary
closing conditions, including regulatory approval, and is expected to
close in mid-2009. Recent actions, including this sale, will effectively
reduce DOW’s originally anticipated bridge loan debt from USD13.0bn to
c. USD7.5bn
Morton International, the salt business of Rohm and Haas, to K+S (SDF
GY). The transaction values Morton at USD1.675bm. The deal is not
subject to a financing condition but will be subject to customary
closing conditions, including regulatory approval, and is expected to
close in mid-2009. Recent actions, including this sale, will effectively
reduce DOW’s originally anticipated bridge loan debt from USD13.0bn to
c. USD7.5bn
PM:
OK
PM:
that really does look dead in the water now
NH:
and
NH:
this is an old chestnut
NH:
Morgans Hotels
PM:
Ah — this was mentioned below
NH:
which owns your favourite Manhattan hotel
PM:
what, the Hudson? or Morgans?
NH:
yep
NH:
bid rumours again
PM:
Prefer the Morgan actually
NH:
was actually in the Telegraph this morning
PM:
what’s the story
NH:
talk of a $7-$8 a share bid
NH:
the name in the frame is a company based in Abu Dhabi called
NH:
Mubadala, which is actually an investment and development arm of the Abu Dhabi Government
NH:
Now this story is raw
NH:
red raw
NH:
and there could be stale bulls in Morgans
PM:
yes, lots of them I would say
NH:
but there is something going on
NH:
as this recent statement from the company shows
NH:
March 24 (Reuters) – Morgans Hotel Group Co : * Shareholder Scheetz says met, may in future meet, with board and/or shareholders to discuss co matters * Shareholder Scheetz holds 11.5 percent stake in co, as of March 20 – SEC
filing
filing
NH:
and Mubadala has been linked with Morgans before
NH:
as this report from Dom Walsh at the Times shows
NH:
A battle royal is developing for some of the world’s most stylish hotels as two sovereign wealth funds from Dubai and Abu Dhabi battle for control of Morgans Hotel Group, The Times has learnt.
Zabeel, a Dubai-based fund, and Mubadala, an investment and development arm of the Abu Dhabi Government, are both understood to have approached Morgans with offers valuing it at more than $600 million ($316 million), or $1.4 billion including debt.
Morgans, which was founded by Ian Schrager, the so-called king of hip, runs ten hotels that are renowned for their style and chic. They include the Delano in Miami, the Clift in San Francisco, the Royalton and Morgans hotels in New York and the Sanderson and St Martins Lane hotels in London.
Zabeel, a Dubai-based fund, and Mubadala, an investment and development arm of the Abu Dhabi Government, are both understood to have approached Morgans with offers valuing it at more than $600 million ($316 million), or $1.4 billion including debt.
Morgans, which was founded by Ian Schrager, the so-called king of hip, runs ten hotels that are renowned for their style and chic. They include the Delano in Miami, the Clift in San Francisco, the Royalton and Morgans hotels in New York and the Sanderson and St Martins Lane hotels in London.
NH:
The bidders, controlled by the royal families of Dubai and Abu Dhabi respectively, are understood to be undertaking some preliminary due diligence with a view to making formal offers.
None of the parties would comment, although The Times understands that the Morgans’ board is pushing for a price above the $20-a-share launch price when the company was floated on Nasdaq two years ago. Yesterday they were trading at less than $17
None of the parties would comment, although The Times understands that the Morgans’ board is pushing for a price above the $20-a-share launch price when the company was floated on Nasdaq two years ago. Yesterday they were trading at less than $17
PM:
thanks for all that
11:50AM
PM:
are we done with RAW??
PM:
or today
PM:
or is there some more
NH:
well, there are more rumours about BHP and what it might or might not acquire
PM:
right
PM:
first it was some US potash company, then Rio
PM:
who now??
PM:
NH:
err
NH:
Woodside Petroleum
NH:
picked this up from the AFR overnight
NH:
According to the AFR Street Talk, speculation has
suggested that BHP may be considering a bid for WPL, either on its own, or it conjunction with Shell, owner of a 34% stake. Banking sources are highlighting talk out of London that Shell is “selling or in the process of arranging the sale” of its stake in WPL either through a bookbuild or to a strategic buyer. BHP would certainly fit the bill says the paper.
suggested that BHP may be considering a bid for WPL, either on its own, or it conjunction with Shell, owner of a 34% stake. Banking sources are highlighting talk out of London that Shell is “selling or in the process of arranging the sale” of its stake in WPL either through a bookbuild or to a strategic buyer. BHP would certainly fit the bill says the paper.
NH:
The other rumour doing the rounds is that Shell may be looking to sell its WPL holding, with a view to acquiring Santos. AFR argues that it would make sense to the extent that Shell only has option money in the LNG/CSG arena in Queensland which is surprising given the size of the company and when compared to Conoco’s AUD6.5bn investment via Origin in an asset deal and BG swallowing Pure Energy.
NH:
and finally
NH:
Premier Foods
PM:
hmmm
PM:
Lots of people asking about this on yesterday’s session
NH:
they were
NH:
and JP Morgan has been looking at the possibility of a bid from Kraft
PM:
and???
NH:
they think it is unlikely
NH:
but JP Morgan also thinks the story first surfaced in the Telegraph
NH:
which is wrong because we all know it was on ML first
PM:
NH:
anyway, here’s the note
NH:
Bottomline: Premier Foods’ shares increased 9% yesterday on market
talk (fueled by a Daily Telegraph article published 31 March) about a
potential bid for Premier Foods (the largest UK food company by sales)
by Kraft (the US largest food company, and world No.2 after Nestlé). PFD
has not commented on this speculation. We would assign a very low
probability to KFT making a bid as the PFD categories to do not fit the
profile of what KFT has called its focus categories, and also because we
believe KFT is more interested in growing in emerging markets than
increasing its presence in tough retail Western European markets like the
UK. Still, the balance sheet would not necessarily be a limitation for KFT;
under most scenarios we estimate the net debt to EBITDA ratio would
spike up only to 3.3-3.4x from 3.1x (we would consider this still a
manageable level).
talk (fueled by a Daily Telegraph article published 31 March) about a
potential bid for Premier Foods (the largest UK food company by sales)
by Kraft (the US largest food company, and world No.2 after Nestlé). PFD
has not commented on this speculation. We would assign a very low
probability to KFT making a bid as the PFD categories to do not fit the
profile of what KFT has called its focus categories, and also because we
believe KFT is more interested in growing in emerging markets than
increasing its presence in tough retail Western European markets like the
UK. Still, the balance sheet would not necessarily be a limitation for KFT;
under most scenarios we estimate the net debt to EBITDA ratio would
spike up only to 3.3-3.4x from 3.1x (we would consider this still a
manageable level).
NH:
No portfolio fit, really. KFT is going through the process of trying to
simplify its product portfolio, so it has said that via M&A it will buy into
either existing focus product categories (which overseas include chocolate,
coffee, biscuits) or into fast growth “good for you” categories. The PFD
portfolio does not overlap with the KFT portfolio (only in sauces and
enhancers, but even in the US portfolio these are not considered growth or
focus categories for KFT) and the rest does not fit the criteria set out by
KFT to enter new categories (bread, cakes, soups, pickles, pie custard).
See table for PFD portfolio and KFT portfolios.
simplify its product portfolio, so it has said that via M&A it will buy into
either existing focus product categories (which overseas include chocolate,
coffee, biscuits) or into fast growth “good for you” categories. The PFD
portfolio does not overlap with the KFT portfolio (only in sauces and
enhancers, but even in the US portfolio these are not considered growth or
focus categories for KFT) and the rest does not fit the criteria set out by
KFT to enter new categories (bread, cakes, soups, pickles, pie custard).
See table for PFD portfolio and KFT portfolios.
NH:
The KFT international growth focus is more on EMs. In 2008 KFT
generated US$42 billion in sales, of which $18 billion came from outside
the US/Canada ($9.7 billion from the EU and $8.2 billion from emerging
markets). Although the company acquired the Danone biscuits business a
few years back, which had exposure to the EU as well as emerging
markets, the company has said the focus in international is to strengthen its
emerging markets presence, and that acquisitions in, say, WE, would be
done to strengthen its existing platforms. The Danone biscuits acquisition
made sense because it strengthened the company’s Nabisco biscuits
franchise in Europe. But to enter new categories, particularly those we
deem mature in nature, in Western Europe would not be in line with the
stated strategy and would probably not be well received by investors in our
view.
generated US$42 billion in sales, of which $18 billion came from outside
the US/Canada ($9.7 billion from the EU and $8.2 billion from emerging
markets). Although the company acquired the Danone biscuits business a
few years back, which had exposure to the EU as well as emerging
markets, the company has said the focus in international is to strengthen its
emerging markets presence, and that acquisitions in, say, WE, would be
done to strengthen its existing platforms. The Danone biscuits acquisition
made sense because it strengthened the company’s Nabisco biscuits
franchise in Europe. But to enter new categories, particularly those we
deem mature in nature, in Western Europe would not be in line with the
stated strategy and would probably not be well received by investors in our
view.
NH:
True, Kraft could fund it, with additional debt and would not need to
raise equity, under most valuation scenarios. At the end of 2008 KFT
had net debt of $19.4 billion and generated EBITDA of $6.1 billion. Our
US research team (analysts Terry Bivens and Jason English) projects net
debt to EBITDA will remain at 3.1x in 2009E (3.2x debt/EBITDA). As we
show in the attached tables, factoring synergies (PFD corporate overheads
mainly, or 3% of sales), we calculate KFT could take on as much as
US$5.8 billion in additional debt before reaching 4x net debt to EBITDA
(our fixed income
raise equity, under most valuation scenarios. At the end of 2008 KFT
had net debt of $19.4 billion and generated EBITDA of $6.1 billion. Our
US research team (analysts Terry Bivens and Jason English) projects net
debt to EBITDA will remain at 3.1x in 2009E (3.2x debt/EBITDA). As we
show in the attached tables, factoring synergies (PFD corporate overheads
mainly, or 3% of sales), we calculate KFT could take on as much as
US$5.8 billion in additional debt before reaching 4x net debt to EBITDA
(our fixed income
PM:
what are Premier shares doing?
NH:
they are down a little
NH:
off 1p at 36p
NH:
but they have had a good run
NH:
of course, Kraft is not the only reason the punters are interested in Premier at the moment
PM:
really??
NH:
yep
NH:
all these big US hedge funds taking stakes is also of interest
PM:
Such as??
NH:
Paulson, Ozch Ziff
PM:
what would they want with Premier
??
NH:
well, one broker makes the suggestion that US investors understand what brands are worth
NH:
and they value them more highly
PM:
and Premier has a lot of well known brands
NH:
which could be sold
NH:
actually one broker has penned a note this morning which argues that large global food manufacturers could extract synergies worth ~29p/share from an acquisition of Premier
NH:
so an opportunistic bidder could offer, say a 30% premium=
NH:
Of course that assumes a bidder is out there
PM:
Thanks for that — situation seems to be very fluid
11:55AM
PM:
I have a note from Bryce saying he wants to butt in
PM:
Got somethign to share
BE:
Yeah, cheers Paul.
BE:
Just adding a couple of bits of raw.
NH:
while we wait for Bryce I have a few other bits of RAW
NH:
this is doing the rounds in ITV
NH:
Currently up 10%, rumors abound of a cash call, but any raising of cash should be a positive, perhaps 1 for 1 around the 12p, & consistent with our theme of playing the cash raisers: BLT/XTA/BES/HSBA
NH:
Also in the background, various suitors watching with interest that includes Disney / Carlos Slim / Bertelsman & any bid would have to be around 25plevel – Further higher expectations will be written in for 2010 World Cup figs, currently are viewed as negligible. In short, this has everything for a core Buy & we did’nt even mention the 11.75% yield!
PM:
Go on then Bryce
BE:
Cheers.
ITV (ITV:LSE): Last: 22.25, up 2.25 (+11.25%), High: 22.50, Low: 20.00, Volume: 9.53m
BE:
Right, this first one is seriously red raw.
BE:
Totally untested.
NH:
in the meantime
NH:
also talk a consortium of Irish investors are limbering up to take a shot at Ladbrokers
NH:
but we have heard this before
Ladbrokes (LAD:LSE): Last: 204.50, up 14.25 (+7.49%), High: 215.00, Low: 192.25, Volume: 2.83m
NH:
oh, and also
NH:
rumours that Siemens is weighing up a bid for Spectris
Spectris (SXS:LSE): Last: 495.50, up 66.75 (+15.57%), High: 517.00, Low: 436.00, Volume: 778.31k
NH:
a rise of over 15%
NH:
but this stock is pretty illiquid remember
NH:
So be careful
PM:
Bryce share!
BE:
And on the untested tip: hearing tales about a US firm called ProLogis
BE:
which is the world’s biggest industrial Reit, no less
BE:
BE:
Now, there’s some story going around about Middle East interest here
PM:
hmm
BE:
Potentially taking the thing private
PM:
Want to give it a bandit rating??
BE:
BE:
As I say, I’ve done no homework on this one
PM:
Okay — fair enough
BE:
But some people seem to think it makes sense
PM:
Possible interest in ProLogis — but remains red raw
BE:
And secondly …
BE:
Some talk from the forex markets that the sovereign wealth fund of Norway is preparing a move
BE:
NOK/GBP is moving on that, apparently
BE:
Basically, they’ve been looking for ages to invest in UK property
BE:
And might now be preparing to strike
PM:
Okay — cheers for that
BE:
I checked this out with Dan Thomas, the FT property guru earloer
BE:
Here’s his take
NH:
(I should explain. If a new writer joings the chat I have to F5 in order to see them. Not get shirty at all)
NH:
(I can see Bryce now!)
BE:
its been well documented that the sovereign wealth fund of Norway wants to spend big in the sector – more than £15bn apparently. basically, it received govt approval for the move last year, but has been looking for about two years thru a chap called Paul Golding (ex merrills i think). Norges Bank Investment Management is the name of the division of the central bank which oversees the sovereign fund. Its all the north sea oil and gas money. They have said the UK is first on the list – and the indications from sources close is that they’ve been talkign with a lot of the more nimble operators such as Helical and DevSecs, who are trying to engine some equity j-vs…
NH:
sounds interesting
BE:
Right, that’s all from me. Cheers for allowing me the interlude.
PM:
ta
NH:
a good bit of RAW that
12:03PM
NH:
and some breaking news for footie
NH:
RTRS-SOUTHAMPTON LEISURE HOLDINGS PLC – APPOINTED MARK FRY AND DAVID HUDSON OF BEGBIES TRAYNOR (SOUTH) LLP AS JOINT ADMINISTRATORS TO THE COMPANY
11:59 02Apr09 RTRS-SOUTHAMPTON LEISURE HOLDINGS PLC – RUPERT LOWE, ANDREW COWEN AND MICHAEL WILDE HAVE RESIGNED AS DIRECTORS OF THE COMPANY WITH IMMEDIATE EFFECT
11:59 02Apr09 RTRS-SOUTHAMPTON LEISURE HOLDINGS PLC – SOUTHAMPTON FOOTBALL CLUB LIMITED, A SUBSIDIARY OF THE COMPANY, IS UNAFFECTED BY THESE INSOLVENCY PROCEEDINGS.
11:59 02Apr09 RTRS-SOUTHAMPTON LEISURE HOLDINGS PLC
11:59 02Apr09 RTRS-SOUTHAMPTON LEISURE HOLDINGS PLC
Paul Murphy was raised in Portsmouth and tends to be abusive of anything Southampton-related
PM:
Good news
PM:
The Board announces today that it has appointed Mark Fry and David Hudson of Begbies Traynor (South) LLP as joint administrators to the Company.
Rupert Lowe, Andrew Cowen and Michael Wilde have resigned as directors of the Company with immediate effect.
Southampton Football Club Limited, a subsidiary of the Company, is unaffected by these insolvency proceedings.
PM:
Overdue, no?
NH:
err, I am not getting involved in south coast rivaly
NH:
beside pompy aren’t in a great financial state
12:05PM
PM:
One for the Long Room when we’ve done ….
PM:
I’ve got pictures of Albert Edwards dressed up as a crusty!
PM:
The real thing!
NH:
what’s that on his back
PM:
Some sort of skull
PM:
Excellent
NH:
very funny pictures
NH:
well worth putting up
12:07PM
PM:
Ian — not sure that ML works over RSS
PM:
There are simply too many words…
PM:
Retular Alphaville RSS is on the home page
PM:
regular even
12:08PM
PM:
l — anything else before we go??
NH:
one thing
NH:
3i moving higher
3i Group (III:LSE): Last: 319.50, up 37.75 (+13.40%), High: 323.75, Low: 286.75, Volume: 2.96m
NH:
on the back of a note from Oriel
NH:
which is kinda interesting
NH:
Iain Scouller, who used to work at UBS
NH:
reckons 3i has unquoted assets of worth 360p a share
NH:
which are being valued by the market at 70p
NH:
he reckons that discount is too pessimistic
NH:
and has taken an Anti-consensus Buy rating
NH:
here’s the note
NH:
360p of unquoted net assets priced at 70p – too wide a gap
We calculate 3i Group has c.180p per share in quoted investments and
c.360p per share of net unquoted assets. If we divide the 3i share price of
250p and attribute 180p for the quoteds, with the remaining 70p attributable
to the unquoteds with an estimated value of c.360p, this implies the unquoted
net assets are on an 80% discount (i.e. 70p price vs 360p value). We believe
this is excessive even taking into account 3i’s leverage of c90% to NAV.
We calculate 3i Group has c.180p per share in quoted investments and
c.360p per share of net unquoted assets. If we divide the 3i share price of
250p and attribute 180p for the quoteds, with the remaining 70p attributable
to the unquoteds with an estimated value of c.360p, this implies the unquoted
net assets are on an 80% discount (i.e. 70p price vs 360p value). We believe
this is excessive even taking into account 3i’s leverage of c90% to NAV.
Leverage means high risk / high return
We think 3i is very much for the bulls and recovery players given its high
leverage and the sensitivity of the portfolio value to stockmarket valuations
and changes in multiples on comparable quoted companies
NH:
Strategy of asset disposals to reduce debt
The new management team has hit the ground running, with further asset
sales likely in the weeks ahead intended to reduce net debt (est. £1.95bn) by
at least £1bn over 12 to 15 months from the level of £2.1bn at 31.12.08. We
think this is achievable and expect modest levels of new investment in the
next 12 months, especially in buyouts, where debt remains difficult to obtain.
The new management team has hit the ground running, with further asset
sales likely in the weeks ahead intended to reduce net debt (est. £1.95bn) by
at least £1bn over 12 to 15 months from the level of £2.1bn at 31.12.08. We
think this is achievable and expect modest levels of new investment in the
next 12 months, especially in buyouts, where debt remains difficult to obtain.
Anti-consensus Buy rating
In calculating a fair valuation (FV) we are dividing the portfolio into quoteds
and unquoteds. We have applied a 5% discount in calculating our FV of the
quoteds and a 50% discount to the unquoteds to reflect high leverage and a
lack of visibility on realisations and performance. This results in a FV of 303-
323p and we are setting a price target of 320p. As net debt is reduced and 3i
starts seeing realisation gains, we anticipate a positive share price re-rating.
PM:
(Overexposed — mail me on paul.murphy@ft.com)
PM:
cheers for that Neil
12:11PM
PM:
Sparts — we were looking from some TW stuff
PM:
We are done — well im done in
PM:
Thanks for all the comments below
PM:
The march didnt turn up outside AV HQ
NH:
but I know why GKN and Tomkins are up so sharply
NH:
upgrades from CAZ
GKN (GKN:LSE): Last: 84.50, up 14 (+19.86%), High: 87.25, Low: 71.50, Volume: 9.29m
Tomkins (TOMK:LSE): Last: 138.50, up 11.5 (+9.06%), High: 141.50, Low: 130.75, Volume: 4.84m
NH:
The most recent auto registration data from the US, SARS of 9.9m units in March, shows a
marked decline y/y (down 34%). However, there was a significant pick up m/m, up 9% from the
9.1m units in February. While it is difficult to be certain we have passed the bottom, the US
government has put in place a number of measures to support the US auto industry. We believe
the more notable recent measures include tax breaks for purchasing new cars as well as
guaranteeing the warranties of the Detroit 3. We believe this is likely to at least help stabilize
demand at the current very depressed levels in the US. In Europe various government stimulus
packages (eg in Germany the €2,500 for scrapping old cars and buying new) appear to be
providing a boosting to demand. We regard this as good news for Tomkins, and this together with
the current cost cutting programmes should result in a moderation of risk to forecasts.
marked decline y/y (down 34%). However, there was a significant pick up m/m, up 9% from the
9.1m units in February. While it is difficult to be certain we have passed the bottom, the US
government has put in place a number of measures to support the US auto industry. We believe
the more notable recent measures include tax breaks for purchasing new cars as well as
guaranteeing the warranties of the Detroit 3. We believe this is likely to at least help stabilize
demand at the current very depressed levels in the US. In Europe various government stimulus
packages (eg in Germany the €2,500 for scrapping old cars and buying new) appear to be
providing a boosting to demand. We regard this as good news for Tomkins, and this together with
the current cost cutting programmes should result in a moderation of risk to forecasts.
NH:
We believe that 2009 has got off to a weak start and this is likely to be reflected in H1 results.
While we may be approaching a bottom in terms of demand in the coming months, it should not
be overlooked that we are not expecting a radical improvement in the nearterm. However, the
group’s cost cutting programmes could yield significant benefits when demand reaches a bottom.
We therefore believe that the risk to our earnings forecasts is beginning to moderate. Tomkins
was the first company in our industrial universe into the downturn and we would expect it to be the
first out. Approximately 65% of the group’s sales are generated in the US and almost half of group
sales are derived from the auto and US residential construction markets. While the group is
trading on high 2009E PE and EV/EBIT multiples relative to our industrial universe we believe this
is a reflection of depressed earnings and an above average perceived risk to forecasts. However,
we believe this is likely to change in the coming months and that the risk to earnings is set to
moderate. The group is also trading on an EV/sales multiple which is close to the low of the last 9
years. As a result we are upgrading our recommendation to OUTPERFORM from
(Underperform).
While we may be approaching a bottom in terms of demand in the coming months, it should not
be overlooked that we are not expecting a radical improvement in the nearterm. However, the
group’s cost cutting programmes could yield significant benefits when demand reaches a bottom.
We therefore believe that the risk to our earnings forecasts is beginning to moderate. Tomkins
was the first company in our industrial universe into the downturn and we would expect it to be the
first out. Approximately 65% of the group’s sales are generated in the US and almost half of group
sales are derived from the auto and US residential construction markets. While the group is
trading on high 2009E PE and EV/EBIT multiples relative to our industrial universe we believe this
is a reflection of depressed earnings and an above average perceived risk to forecasts. However,
we believe this is likely to change in the coming months and that the risk to earnings is set to
moderate. The group is also trading on an EV/sales multiple which is close to the low of the last 9
years. As a result we are upgrading our recommendation to OUTPERFORM from
(Underperform).
NH:
that was Tomkins
NH:
and this is GKN
NH:
While trading is likely to remain tough for GKN in the months ahead, we believe the scope for
incremental bad news is diminishing, and as a result the risks attached to earnings have
moderated in recent weeks. This is particularly the case for the group’s automotive activities
where there are signs of demand reaching a bottom in the US where the recent improvement in
car registrations could bring about an improvement in production rates. There are also signs of
an improvement in European car markets such as Germany as a result of government incentive
programmes. There are obvious areas where risks remain, particularly for the Aerospace division
where the downturn in civil has yet to impact earnings, but we believe the management are acting
in a preemptive manner to reduce costs. However, we believe that the risks here have already
been well flagged in recent newsflow and are therefore likely to be factored into expectations to a
large extent. In addition, we expect a recovery in GKN’s automotive end markets to more than
offset the downturn in Aerospace, particularly as the scale and pace of the automotive downturn
creates scope for a substantial recovery bounce.
incremental bad news is diminishing, and as a result the risks attached to earnings have
moderated in recent weeks. This is particularly the case for the group’s automotive activities
where there are signs of demand reaching a bottom in the US where the recent improvement in
car registrations could bring about an improvement in production rates. There are also signs of
an improvement in European car markets such as Germany as a result of government incentive
programmes. There are obvious areas where risks remain, particularly for the Aerospace division
where the downturn in civil has yet to impact earnings, but we believe the management are acting
in a preemptive manner to reduce costs. However, we believe that the risks here have already
been well flagged in recent newsflow and are therefore likely to be factored into expectations to a
large extent. In addition, we expect a recovery in GKN’s automotive end markets to more than
offset the downturn in Aerospace, particularly as the scale and pace of the automotive downturn
creates scope for a substantial recovery bounce.
NH:
As a result of the group’s substantial automotive exposure, GKN was one of the earliest and
hardest hit by the downturn and slumping auto production. We believe that the automotive
related concerns which have weighed on the share price could now become a key positive for
GKN as investors focus on earlier cycle stocks which are likely to be the first to experience a
recovery. While earnings risks remain, particularly at the Aerospace division, we believe that the
prospect of a recovery in automotive from the current very depressed levels is set to bring about
a marked improvement in the group’s risk profile. GKN currently trades on 2009E EV/EBIT and
PER multiples of 12.5x and 9.8x, at a considerable premium to the rest of industrial universe on
7.6x and 9.1x respectively. We believe that the perceived risk to earnings forecasts is likely to
moderate and that the group’s recovery attractions are likely to at least sustain this premium in
the near term. We are therefore upgrading our recommendation to INLINE (from Underperform).
hardest hit by the downturn and slumping auto production. We believe that the automotive
related concerns which have weighed on the share price could now become a key positive for
GKN as investors focus on earlier cycle stocks which are likely to be the first to experience a
recovery. While earnings risks remain, particularly at the Aerospace division, we believe that the
prospect of a recovery in automotive from the current very depressed levels is set to bring about
a marked improvement in the group’s risk profile. GKN currently trades on 2009E EV/EBIT and
PER multiples of 12.5x and 9.8x, at a considerable premium to the rest of industrial universe on
7.6x and 9.1x respectively. We believe that the perceived risk to earnings forecasts is likely to
moderate and that the group’s recovery attractions are likely to at least sustain this premium in
the near term. We are therefore upgrading our recommendation to INLINE (from Underperform).
PM:
cheers for taht
PM:
we are off — back again tomorrow at 11am
PM:
Seeya
NH:
bye
NH:
until the morrow