Markets live chat transcript for the chat ending at 12:14 on 23 Apr 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
Welcome to Monaco Live
PM:
Neil and I have decamped
PM:
FT Alphaville’s daily markets chat has moved to fiscally friendlier climes.
NH:
Swift work, eh? Couldn’t hang around in London any longer.
PM:
Neil got us some SqueezyJet tickets to Nice late yesterday. And then we got the chopper over to this glorious little principality.
PM:
And before anyone accuses us of profligacy, those of you how have been to Monaco will know that it is actually as cheap to get a helicopter from Nice to here as it is to get a car.
NH:
A rather comfortable 22 degress here right now. Told it’s pretty sunny in London tho.
NH:
Sorry was talking to someone else.
PM:
Staying at the Hotel Metropole a the mo – they have some apartments here that you can rent on a longer term basis.
PM:
Rates have come down since the Ruskies got unoligarched
PM:
Tho you have still to rub shoulders with various British Was Kids.
NH:
And Tina, of course. Queen of the British high street.
PM:
Here on Casino Square
NH:
we have any picked up a good story
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:
yes, hearing Intertek
NH:
a newcomer to the FTSE 100 has recieved a £14 a share offer from a Swiss rival called SGS
Intertek Group (ITRK:LSE): Last: 1,015, up 89 (+9.61%), High: 1,027, Low: 913.50, Volume: 1.38m
NH:
can’t hold of the company’s felts at the moment
PM:
That’s the chatter going round — waiting for comfirmation, one way or another
NH:
he is going to be on the phone for quite a while I was told
PM:
We’ll have to come back to that
NH:
we will, but let’s paint the picture of the scene here Monaco
PM:
Off to the Louis XV a little later.
NH:
No we’re not. Blow our budget on day one.
NH:
There’s Ashley Levett, keep your head down
PM:
It’s okay. Made my peace with him some time back. And Charlie Vincent.
PM:
They were the people who made a mint thru Winchester Commodities – go few years back now.
NH:
Ah look, Matthew Tawse. Was he ex-Mercury.
PM:
I know that guy he’s with. Aussie. Cant remember his name.
PM:
Anyway, we’d better get on. Got to stay focused on London, even tho we’re not there. Don’t you love the web.
PM:
Hey, there’s Brian Copsey.
NH:
What was it Graham Greene said about the Cote d’Azur.
PM:
Anyway, juggling the tech here
PM:
Seems the Barclays AGM is underway in London
PM:
We’re getting flashes on that
PM:
We are also trying to nail down this Intertek thing
PM:
Neil’s on teh phone on that
PM:
I will get some barclays snaps
PM:
23/04/2009 11:10:02 DI !! *DJ Barclays Undertaking Review Of Governance Structures
PM:
23/04/2009 11:00:37 DI =DJ UPDATE:Mizuho Expects Y580B Loss In FY08;1st Loss In 6 Years
PM:
23/04/2009 11:10:38 DI !! *DJ Barclays Plans To Resume Dividend Payments In 2H 2009
PM:
23/04/2009 11:10:48 DI !! *DJ Barclays Policy To Pay Dividends On Qtrly Basis
PM:
23/04/2009 11:11:22 DI !! *DJ Barclays Sees Final Cash Div Declared, Paid In 1Q 2010
NH:
got some comment from Intertek
NH:
we do not comment on market rumours
NH:
but we are aware of our reporting obligations
NH:
sounds to me, if they had received an approach they would have said something
NH:
so that means if there is anything in this story it means SGS must be plotting something
NH:
and I guess the Takeover Panel will be contacting them to see if it is the case
NH:
but the background here is that the testing and certification sector
PM:
Remains red raw this one
NH:
is expected to see consolidation
NH:
three main players
SGS, Intertek and Burean Veritas
NH:
so, deals can’t be ruled out
NH:
but if SGS are plotting something, given their size it would have to contain a paper element
PM:
One to watch — closely
PM:
Just got a note from PTL on Barc
NH:
but be careful on this one
PM:
Sorry — that’s Peter Thal Larsen, teh FT’s banking editor
PM:
says shareholders have turned out in force
PM:
big queues outside the QEII centre
PM:
1,000-seat auditorium is filled to capacity, and late arrivals are being directed to a spare room where they will be able to watch the action on a big screen, but presumably not ask questions. Let’s hope Marcus Agius, Barclays’ chairman, is prepared for a feisty meeting.
NH:
damn if only we weren’t in Monaco we could have gone
PM:
We could — but its nice and sunny here
PM:
Got some more snaps from PTL
PM:
Expresses “sincere regret for financial hardship” that has been suffered by shareholders.
But reaffirms his commitment to “principle and practice of pre-emption”, prompting grumbles from the crowd.
He welcomes government actions to stimulate the economy, but adds: “It is still, now, too early to call the turn.”
NH:
We’ve been driven out of the UK of course by Mr A Darling.
NH:
Expect more people will follow us soon enough.
PM:
Left the young AV-ers in London for now. Sam said he got this msg from a mate this morning
PM:
Someone just shouted ‘we want our xxxxing money back’ at me at Liverpool St. I was reading an FT
PM:
Rage on all sides now
PM:
Note Bryce’s maths below — cheers for that — on Intertek — price now up 108p at 10.34 — but story remains red raw.
NH:
and I get the impression the target is as surprised as everyone else by this rumour
PM:
Hmm — the punters could be too early on this one
NH:
that seems to be the case lately
NH:
Bryce mooted offer price was £14 a share
NH:
Now we could swamp you in budget commentary
NH:
So that’s what we’re going to do.
PM:
Just a few short bits – please
NH:
How about Apocalypse Now from Gerard Lyons at StanChart.
PM:
Oh yeah, that sounds good.
NH:
Dr Jekyll…or Mr Hyde? Britain is clearly a Jekyll and Hyde economy. Or that at least is what the Chancellor would like us to believe. The bad news that we are now seeing in the economy, public finances and across parts of the financial sector will not last. We are in the Mr Hyde phase. But, don‟t worry – we will soon be back to the normal Dr Jekyll soon. The Chancellor believes the recession will be over by year end. That is credible. But then he believes recovery will be rapid, and after a contraction of 3.5% in 2009 we will see growth of 1.25% in 2010 and 3.5% in 2011. This is fantasy, particularly as this rapid rebound is expected to occur not only as the legacy of the credit crunch lingers on, but also as fiscal policy is tightened aggressively through significant tax hikes, largely on those on high incomes, and through spending cutbacks. Strong growth, tax increases and efficiency savings are, the Chancellor believes, about to reduce the budget deficit by half over the next four years. But we expect the legacy of the government‟s borrowing binge to live on for much longer.
NH:
Mr Hyde here to stay as UK returns to high borrowing, high taxes and weak growth Clearly the likelihood of an election next year, and not just the extent of the recession, had a bearing on the measures unveiled. The Budget provides a stimulus of GBP5.2 billion to the economy in 2009-10, followed by a small tax hike of GBP0.1 billion in 2010-11 and a large tax hike of GBP5.23 billion in 2011-12, with a continuing claw-back in subsequent years. Last November we described the Pre-Budget Report (PBR) as the Good, the Bad and the Ugly: good that the Chancellor was taking timely, targeted and temporary measures to help the economy; bad that he was not doing it from a position of strength; and ugly being the fiscal position. Today the outlook is even uglier, with the economy burdened by high borrowing, high debt, prolonged weak growth (in our view) and higher regulation. One wonders how the UK will prosper as the balance of economic and financial power shifts from West to East, to those economies with low taxes and which save and invest.
PM:
Well that’s the basic point. Struggling under a mountain of debt, with tax rates that go up for ever, infrastructure that crumbles without investment. Britain is screwed.
PM:
Painful as it is to say, I think we’ve done the right thing – leaving the country.
NH:
Here’s Melanie Baker at Morgan Stanley
NH:
She’s none too impressed, either
NH:
Investment conclusion: Yesterday’s Budget shows significantly worse projections for the public finances
than in November’s Pre-Budget. The projected gilt issuance numbers for this year, and the DMO’s
illustrative financing projections for the next few years beyond that, imply very large gilt issuance for several
years to come. Additional announced fiscal tightening was relatively small. We now think there are upside
risks to our gilt yield forecasts and that the curve is likely to face prolonged steepening pressure.
NH:
New government finance projections — a lot worse:
Compared to the government’s previous set of forecasts published in November’s Pre-Budget and our own
expectations, the new projections for the deficit, debt and gilt issuance are worse than we had anticipated.
The Treasury project a relatively slow improvement in the deficit as a percent
NH:
worse than we had anticipated.
The Treasury project a relatively slow improvement in the deficit as a percent of GDP and do not see public
sector net debt as a percentage of GDP falling until 2015-16.
Implications for gilt yields: Issuance doesn’t necessarily mean anything for yield levels, but we think
high gross issuance does mean prolonged steepening pressure on the curve.
NH:
There’s one additional point here – from MOST
NH:
Key supply/demand risks
Two significant event risks may affect demand for gilts in the near future: whether the BoE chooses to extend its QE
programme of purchasing gilts; and whether the FSA will introduce its new liquidity regime for banks, which, according to the schedule set out last December, is set to be fully in force by
October.
The FSA’s liquidity regime could generate scores of billions of pounds’ worth of demand for gilts from banks (see Regulatory Upheaval for Banks and Gilts, February 23, 2009). Given the timescales involved we would expect to see an announcement soon.
NH:
That point about the FSA’s liquidity requirements is interesting.
NH:
Basically, the mug public is going to have to recapitalise the banks by paying ludicrous interest rates when base rates are close to zero.
NH:
And then the banks will have to buy gilts to cushion their balance sheets
PM:
So it is just more socialisation of the costs of the crisis.
NH:
so we own the banks, and then will be buying gilts from, er, ourselves
PM:
Gwen put a budget commentary round up post earlier.
PM:
The comments made me smile.
PM:
philbaby Apr 23 09:45
Do we honestly deserve politicians such as Brown et al? Is it really our lot to be governed by people who think it is part and parcel of the power game to mislead the electorate, to act dishonestly and dare I say it tell lies, all to hang on to their position. In what other walk of life would this be tolerated?
The dreaded word despair comes to mind.
PM:
Of course that questions was quickly answered –
PM:
And then starstrike tried to start revolution
PM:
The US will look more like South Africa in wealth distribution in a few years and the UK will be back to the 1970’s at very best.. at worse back to Victorian inequality. Ok if you like poverty everywhere and living in your gated compound.
RISE UP
NH:
Right, to the wider market
NH:
not a bad performance really
NH:
different picture in the gilt market
NH:
medium to long end weak this morning as the market prepares
NH:
for the flood of issuance
NH:
10-year gil back to 3.5%
PM:
That’s is about where it stood before the bank of england started QE
PM:
So that didnt work then!
NH:
but that’s the QE factor at work
PM:
Heaviest damage amongst 15 year paper
NH:
we are going to have to mug up on gilts because
NH:
the UK economy is now at the mercy of the bond market
NH:
gilts are where it is at now
NH:
still as the ship goes down
NH:
Britain’s gone spending
NH:
well, things are so awful some retail therapy is in order
NH:
seen the figs from Debenhams this morning?
PM:
they look very good, no?
NH:
and the stock is screaming higher
NH:
apparently demand for affordable designer clothing is fuelling sales at Debs
PM:
ah, that would be crunch chic
NH:
anyway, Debs said this morning that half year profits would be above last year
NH:
because of better margins
NH:
but that’s not the really interesting bit
NH:
the comments on current trading
NH:
like for like sales in the seven weeks to April 18 up 1.9%
PM:
what is going on here?
PM:
don’t people know there is a recession on?
NH:
I half think UK consumers are dumb
NH:
because what seems to be happening
NH:
and it’s the only explanation I can come up with the decentish trading updates we have seen in recent weeks
NH:
in addition to the recent fine weather
NH:
is that people are spending the money they are saving on their mortgages
NH:
instead of using it to pay down debt
NH:
they are going out shopping
NH:
of course the question is will it last?
PM:
I think the numbers in yesterday’s budget might finally act as a wake up call to a lot of people
PM:
the UK really is in the mire
NH:
Don’t hold your breath
NH:
surely paying down debt might be the best thing to do in the circumstances
NH:
as those people on a tracker mortgage will have a nasty shock when they have to refinance
NH:
because these rates are want that used to be
NH:
I can tell you that from experience because a large chunk of my mortgage has to be refinanced in the next couple of months
NH:
to fix or not to fix, that is the question
PM:
actually, when you think about this
PM:
the rate cuts are acting as a sort ofsubsidy to the high street
NH:
have you seen some of them?
NH:
Marks & Spencer 350p now
Marks and Spencer Group (MKS:LSE): Last: 342.00, up 12.75 (+3.87%), High: 351.75, Low: 326.25, Volume: 12.18m
Next (NXT:LSE): Last: 1,523, up 88 (+6.13%), High: 1,554, Low: 1,435, Volume: 2.98m
Kingfisher (KGF:LSE): Last: 176.00, up 1.2 (+0.69%), High: 176.60, Low: 172.80, Volume: 11.27m
Kesa Electricals (KESA:LSE): Last: 128.75, up 6.25 (+5.10%), High: 130.00, Low: 122.00, Volume: 2.23m
PM:
So — public is not paying down debt — buying cloths instead
PM:
So we will end up a bit further down the road with the same debt, higher unemployment and much higher tax — brilliant
PM:
I’m with Itzman below
PM:
Might go back to london for those
NH:
yep, the debt problem not tackled, just postponed
PM:
Coffin dodger also brilliant below
NH:
Reuters has caught up with the RAW Intertek rumour
NH:
RTRS-INTERTEK SHARES UP 14 PCT, TRADERS CITE SPECULATION OF BID FROM SGS
NH:
1038 GMT [Dow Jones] Intertek (ITRK.LN) +14% at 1053p, on speculation SGS
(SGSN.VX) is looking to bid, say traders. “Consolidation is expected in this
industry,” says Noble analyst Alex Magni. “However, I would’ve expected
consolidation between the blue chips to have come later, not now.” Notes a
number of mid-caps in the sector which would have lower capital risk for an
acquirer. Sees much overlap between Intertek and SGS and says a tie with Bureau
Veritas (BVI.FR) – often rumored – would be better. SGS not immediately
available, Intertek declined to comment. Reiterates positive rating, 1040p
PM:
Remember — this remains red raw — and to be frank we are slightly sceptical of the story
NH:
LONDON, April 23 (Reuters) – Shares in testing firm Intertek gained 13.8
percent in late morning trade in London on Thursday with traders citing bid talk
from Swiss peer SGS .
Three traders in London cited talk that the world’s largest testing firm
has made an approach to Intertek.
One trader said the bid could be pitched at as much as 1400 pence. The
stock is currently trading at 1053.5 pence.
An Intertek spokesman said: “We do not comment on market speculation and
never have”.
SPS was not immediately available for comment.
PM:
Think the hot money is probably a bit early
NH:
let’s head back to the Barclays AGM
PM:
Ah yes, PTL been back on
PM:
He repeats commitment to restart dividend payments in H2 2009, but says the need to maintain strong capital reserves means the payout ratio will be “significantly lower” than the 50 per cent ratio that was in place before the crisis.
That’s it from Agius, who even gets light applause from the crowd. Now it’s John Varley’s turn – he’s started with the obligatory corporate video.
PM:
Varley: “It seems to us that while the worst of the financial crisis is now behind us, there will no doubt be thunder and lightning from time to time.”
Says we are now in a “brutal” recession. “We’re going to be living in difficult times for at least another year.”
PM:
John Varley has just committed Barclays to increasing lending in the UK by 11bn pounds this year, over and above the “record” levels at the end of 2008. “This represents a significant increase in support to customers and clients.”
Separately, he says trading in Q1 was “well ahead” of the same period of last year, which means the bank “made good profits and generated equity.”
NH:
well done JV, now tell the UK consumer that
NH:
talking of consumer finance
NH:
we had a little statement out from Cattles this morning
NH:
shares been suspended
PM:
What were they suspended at??
PM:
Interesting to know what all those penny dreadful punters who were buying it earlier this week are now feeling
NH:
The Board of Cattles plc (the ‘Company’) reported on 1 April 2009 that its review of the potential extent of the impairment underprovisioning had made significant progress and that this had cleared the way for its external auditors to continue their work with respect to the delayed financial statements for the year ended 31 December, 2008. However, it was not expected that this work would be completed until the outcome of discussions with Cattles’ debt providers became clearer.
Those discussions are continuing. The Company is making every effort to conclude a satisfactory agreement with all the parties involved to secure the refinancing it requires as soon as possible. However, these are complex negotiations which are likely to continue for some time and the Company’s external auditors are not expected to be able to complete their audit of the 2008 financial statements until those negotiations have been concluded.
As a consequence, Cattles will not be in a position to publish its report and accounts for the year ended 31 December 2008 by 30 April 2009 as is required by Disclosure and Transparency Rule (DTR) 4.1.3. In those circumstances, the Company believes that the FSA will ordinarily require the suspension of trading of the Company’s shares and bonds with effect from 1 May 2009.
Therefore, in order to avoid a disorderly market and to protect investors, the Company has today requested an immediate suspension of trading in its securities pending publication of its audited report and accounts for the year ended 31 December 2008.
NH:
hmm interesting last par
PM:
That’s very interesting
NH:
the FSA listing authority is usually loathe to let people suspend their shares
PM:
For reasons like that — ie protecting punters from themselves
NH:
people were still buying this company earlier this week
NH:
although some of that was forced by CMC markets
NH:
which stopped coverage of the company because it was too small
NH:
this called a few punters to close out positions
PM:
Regulation cant protect a fool from losing his money , but should protect a reasonable man from being made to look a fool.
PM:
Dont know where that quote is from — but was supposed to be a foundation block of financial regulation
PM:
Back to Debs for a moment
NH:
I have, a couple of bits
NH:
who have upgraded to buy
NH:
Debenhams H1 result was considerably ahead of expectations, with a strong
cost-saving performance adding to the solid LFL performance already announced at the pre-close. With strong current trading, no sign of a rights issue to dilute returns and the focus on FCF successfully reducing debt, we struggle to hold our valuation down and move our recommendation to BUY.
NH:
H1 ahead of expectations: PBT of £104.2m ahead of our £97m forecast (cons £95m), driven by strong cost savings (down 1% by our reckoning) and a lower interest charge.
The interim dividend (last year 2.5p) was, however, cut to zero.
Current trading strong: Current trading was very strong, with the first 7 weeks running at +1.9% LFL and gross margin ahead, against our H2 forecast of -6%. Admittedly this result was helped by some good weather but is still an impressive outturn
NH:
Net debt improving: Interim net debt fell £52m to £930m, with a £30m saving on the
dividend and £20m on capex. We now expect an outturn approaching £900m for the
year.
Move to BUY: Throwing off the shackles of conservative company guidance, we raise our full year PBT forecast to £126m from £99m and, shifting to a DCF-weighted
valuation (as for the rest of the sector), increase our TP to 85p. The stock has had a
great run, but with no sign of a rights issue to dilute returns and the focus on FCF
successfully reducing debt, we can’t hold the valuation down. BUY.
NH:
Interim PBT up c10% to £102.2m ahead of our £96.6m forecast (consensus
£95m). Of note, no interim dividend has been declared, against our 0.5p
forecast.
Stable trading continues, LFL goes positive. Debenhams was the first retailer
to confirm fairly stable trading conditions through the first quarter of 2009, with
trading ahead of KBC and market forecasts at that time. This has driven forecast
upgrades over the past few weeks, with wider forecast rises expected across the
sector through the current reporting season, in our view. In current trade, LFL
sales are ahead by 190bps, with margins also ahead
And now for the rights issue? Better trading provides the basis for a stable net
debt figure, with some progress likely for de-gearing over the next two years.
However, while the risk of a covenant breach may subside, a higher share price,
the exit of the Icelandic investor and a better trading backdrop push the likely
timing of a fund raising up the agenda, in our opinion.
NH:
Forecasts, target price under review. The shares have enjoyed a stunning
rally since the Marks & Spencer update on 31 March, the catalyst for a wider
sector rally as it became clear that market forecasts had undershot the likely
nadir for the general retail sector. As comparatives weaken from June, we see
scope for the more financially leveraged and operationally geared to continue to
rise. We see scope for forecast PBT to rise towards £115-120m, reflecting high
operational gearing, driving the shares higher.
NH:
and here’s some feeback from the analyst meeting
NH:
always interesting to hear what’s being said
NH:
At the well attended analysts meeting, most notable was the elephant in the room – questions about the net debt of £927.2m.
Undeterred, xxxx asked CEO Rob Templeman the following questions after the meeting:
NH:
1) How much of the £250m revolving credit facility is used?
Answer: barely touched
NH:
2) What are you doing abour refinancing the debt due to expire in April 2011?
Answer: Not inclined to do much about it as it might cost say £50m to extend by a year and £1 of cash worth £2 of debt. If a good deal was to be had might consider it of course. As background, the company tends to tell analysts not to ask about the debt as a matter of course at the start of a conference call, for example. Management does not comment on a possible rights issue though they do feel that now is probably a bad time to do one.
NH:
We commented on the low average cost of debt (4.82% vs. 6.18% last year), which would ironically have been even lower without swap/cap cover of 69%!
We asked about the dividend: can the investor expect no divi in H2 2010 following none in H1?
Answer: If more Principles-like deals to be done, then probably no divi, and this is supported by shareholders. (Debs bought the stock and fittings from Principles when it went bust and has made a neat arbitrage out of it- selling prices are slightly less than Principles would have sold at but Debs still makes a good margin). However if there were no other deals like this (which seems unlikely given how some of the concessions, particularly the Icelandic ones are faring), a divi should not be ruled out.
NH:
The savings from the divi will be spent mainly on capital expansion.
The presentation revealed that although clothing market share was up, womenswear value share was down by 10bp in the half. This was largely due to the performance of the concessions. Shoe concessions are particularly weak and management has a programme of action on all concessions to improve the returns it gets, starting with ratchets, and moving on to minimum guarantees, space reduction and eventually expulsion.
The shares are up 22.4% today (as of 10:25am) but is still, on consensus estimates, on around a 22% P/E discount to the sector – Debs is on 9.5x 2009E consensus earnings, rising to 11.2x 2010E at 78p.
The only explanation for this discount is the debt and possible threat of a rights issue- which has been lessened today we think in view of positive like for likes and good cost control, and the dividend cut.
PM:
More from PTL quickly — at the Barc AGM
PM:
Sir Richard Broadbent, chairman of the remuneration committee of the Barclays board, just told the AGM that Barclays employees at all levels lost 2bn pounds of wealth in 2007 and 2008 as a result of the collapse of the share price.
He didn’t say how much of that they have recovered from the rally in recent weeks….
NH:
Hearing talk of Deutsche Telekom to sell UK business.
NH:
that was from a broker
NH:
He means T-Mobile I think. This story went round on the day of the DTel profit warning.
PM:
Hmm — that story has done the rounds a couple of times i think
NH:
yeah and who would buy it? who would be allowed to buy it?
NH:
surely none of the big operators
NH:
and 3, can if afford it?
NH:
not sure about that one
NH:
and, just been sent a wire story on our Porsche story from this morning
NH:
a sort of reverse takeover
NH:
April 23 (Bloomberg) — The Porsche and Piech families plan
to sell their main car assets to Volkswagen AG under a plan that
would tighten Porsche SE’s grip on Europe’s biggest automaker,
according to two people familiar with the matter.
The families, which control at least 51 percent of
Wolfsburg, Germany-based VW, intend to sell the Austrian Porsche
Holding GmbH unit and the Porsche AG automotive division to VW
in return for cash and VW shares, said the people, who declined
to be identified because the plan is confidential. As part of
the transaction, Porsche SE will issue new shares, a portion of
which may be sold to external investors, they said. The plan is
backed by VW, the people said.
The asset sale would allow Porsche SE to achieve its aim
for greater control of VW, Europe’s largest carmaker, while
preserving cash and giving it funds to repay rising debt, three
people familiar with the situation said earlier this month.
Porsche, based in Stuttgart, Germany, is struggling to raise the
financing needed to reach its goal of obtaining 75 percent of
VW, they said.
NH:
the fruitmachine lives on
PM:
bit too mad this morning
NH:
have you been following Britain’s Got Talent
PM:
but a lot people in the newsroom have
PM:
all talking about that singer
NH:
not that I have been watching it you understand
NH:
ITV might have to enlist the help of Simon Cowell to help them find a new CEO
NH:
because the current cigar chomping incumbent has indicated that he will step down as soon as the latest round of regulatory reviews has been completed
NH:
or the end of this year, which ever is sooner
PM:
you refer to Michael Grade
NH:
here’s this morning’s statement
NH:
which strangely has not gone down very well
PM:
Shares down 1.75p at 30.25p
NH:
In ITV’s results announcement on 4 March 2009, the Board stated that it would continue to evaluate all options to improve the strength of the balance sheet in response to the significant deterioration in the advertising market.
The Company is now implementing a number of further initiatives, including the decision to dispose of its wholly owned subsidiary, SDN, and has agreed terms for covenant-free financing to raise an additional £58m. ITV’s programme schedules continue to perform competitively and operational progress is being maintained.
It is the Board’s view that, taken together and ahead of important regulatory decisions expected towards the end of the year, these actions are appropriate in this uncertain market. The Board further believes that the company has adequate liquidity as it stands today and is therefore able to confirm it has no current plans for a rights issue.
NH:
In the light of the regulatory timetable now expected, Michael Grade has recommended to the Board that the conclusion of the regulatory reviews will be the right time for him to relinquish his executive responsibilities and become non-executive chairman, as planned. The Board has agreed with this recommendation and accordingly will now commence a formal search for the next CEO.
It is intended that a new CEO will be appointed as soon as practicable following the outcome of the CRR regulatory review process and, in any event, no later than the end of 2009.
PM:
should be good news, no?
PM:
but what is covenant-free financing to raise an additional £58m??????
NH:
is there anyone out there who would lend to ITV covenant free
PM:
I can’t believe there is
PM:
unless of course this is an existing lender
PM:
protecting its position, so to speak
NH:
and on the rights issue
NH:
I am not so sure that is good news
NH:
given the large Sky shareholding
NH:
I don’t think they can get one away
NH:
so they have had to borrow another £50m to tide them over
NH:
plus the disposal proceeds
PM:
who are the front runners?
NH:
well the internal candidates are
NH:
John Cresswell, Rupert Howell
NH:
Creswelll would die for it
NH:
as would the new boy Fincham
NH:
I don’t know enough about the media world
NH:
Dawn Airey will be mentioned, inevitably
NH:
but I am not so sure they would have her back
NH:
anyway, got a couple of notes
NH:
ITV has announced that it will dispose of SDN (NSe c.£150m), has secured £58m of additional funding and therefore has no ‘current’ plans for a rights issue. Michael Grade will move from Executive to Non-Executive Chairman following the conclusion of the CRR review and no later than the end of this year. We believe ITV will consider both internal (John Cresswell, Rupert Howell) and external candidates.
ITV has been one of our key negative recommendations over the past 18 months,
though we moved to a Hold at the prelims in March. We view the FTA broadcasters as less structurally challenged than B2C publishers, and given their high operational gearing believe they will in due course prove excellent recovery plays.
Balance sheet. ITV has announced that it intends to dispose of SDN, its multiplex
operation. We believe SDN is an excellent business, and view it as a hidden gem within ITV. The business generated £20m EBITA on revenues of £33m in 2008, and we expect it to command a price of c.£150m. ITV has also secured a further £58m of
additional covenant free funding. Combined with the expected proceeds from SDN and future cost/regulatory savings, this leads ITV to conclude that it has sufficient near-term liquidity and the group states that it has no current plans for a rights issue. On our forecasts, ITV will have 4x debt/EBITDA this year, although a rebound in profitability due to economic recovery/cost savings would see this reduce rapidly.
NH:
Management. Michael Grade will move from Executive to Non-Executive Chairman
following the CRR review, and no later than the year end. We expect ITV to consider
internal (John Cresswell, Rupert Howell) and external candidates.
Outlook. ITV will release an AGM/IMS update on 14th May. STV stated in its IMS
yesterday that it had seen no improvement in trading since its prelims in February,
although we note that there has been no further marked deterioration either. We forecast ITV1 NAR will fall -20% in H1 and multichannel will be flat, giving a decline of -16% for ITV Family. We forecast declines of -10%, flat and -8% respectively for H2,
aided by much easier comparatives from September onwards.
Recommendation. ITV had been a key negative recommendation since Lessons from
the Last Downturn in October 2007, but we moved to a Hold in March. We expect the
FTA broadcasters to prove excellent recovery plays in due course, and note that UTV
has been left behind in the recent rally. We are raising our target price from 26p to 32p, to reflect an easing of capital raising concerns.
Hardest hit by the budget appears to be Rank
NH:
this is from Jefferies
NH:
ITV announced this morning that 1) Michael Grade will
relinquish his CEO role to become non-executive chairman
before the end of this year; 2) It will not pursue a rights issue in
the near term as an option to strengthen the balance sheet and
that an additional £58m of covenant-free financing has been
secured; and 3) SDN will be put up for sale.
• There are no surprises in the announcement. The company
does not face an immediate liquidity constraint and in our view a
rights issue at the moment would have been difficult without 1)
Clarity on regulatory issues such as sector consolidation and
CRR (the timing on its removal could be as late as November),
2) An agreement from the pension fund trustees to mitigate the
risk of any new funds being used to plug the deficit; and 3)
Legal issues constraining BSkyB and US shareholders from
subscribing to rights. In our view the proceeds from a sale of
SDN and Screenvision could raise about £200m and this would
provide adequate funding until a €500m bond matures in
October 2011.
• Our Underperform rating is based on the view that trading
conditions are very tough and valuation is demanding, while the
pension situation will constrain distributions to shareholders for
the foreseeable future. After falling 16% in Q1, UK advertising
looks set to be down 20% this quarter; our FY forecast of
-13.5% therefore implies a less adverse H2. The stock is trading
on a ’09 PE of 34x and ’10 of 44x. We estimate that the
broadcast business is valued by the market at 14.5x ’10
EBITDA after stripping out the content business at 8x EBITDA
and using the £178m IAS-19 estimate of the pension deficit
which, in our view, may materially underestimate its size.
NH:
ITV Secures Additional Liquidity; Dismisses Rights Issue — ITV has
announced that it has secured an additional £58m of liquidity via covenant free
financing and is pursuing a number of further initiatives to raise cash, including
the sale of SDN. Consequently the board has nixed plans for a rights issue. At the
same time, the group has announced that Michael Grade will relinquish his
executive responsibilities and search for a new CEO. We continue to see ITV as
our favoured media owner as we believe the price of advertising is too low, the
fragmenting secular trends are mostly behind us, opportunities on the cost side
are higher than for most other groups and the production asset at some stage
could increase in value. We rate ITV Buy/High Risk.
PM:
Anything to finish up on?
PM:
Ive got a lunch to go to you know
NH:
where are you headed?
PM:
Monaco branch obviously
PM:
Forgot where i was for mo
NH:
I am off to Marco Pierre White land. Not Hells Kitchen of course. But the Monaco branch of Lucianio’s
NH:
he does. hopefully he will be there
PM:
Dow MPW still own that?
NH:
anyway, a couple of things to round up on
NH:
interesting insurance note of JP Morgan
NH:
all is still not well in the sector
NH:
Valuation in a volatile market: recommend reducing
risk following rally; downgrading Prudential to Neutral
• The starting point as with all metrics is to assess the level of tangible net
assets and add on something for the profits expected to merge in future.
The add on will depend on how we view risks in the market and, in
particular, the CDS price for the relevant company; a higher CDS price
implies lower share prices due to the level of risk in the business.
• Our conclusion is cash flow is fundamentally important — more
important than growth or new business value. We believe that, by
preserving cash flow and rebuilding capital buffers, risk can be reduced
although this is a challenge for the sector because cash flows are weak and
confidence in balance sheets is unlikely to return without rights issues in
near term.
NH:
Lots of risks in insurers still under the radar screen: 1. Aviva has a
capital base heavily dependent on lower Tier II debt (£3.5bn out of £2bn
buffer), which the Turner review has said is not appropriate capital for
banks. 2. Prudential has an attractive Asia business, but it generates little
cash flow to repair emerging issues such as the variable annuity policyholder
behaviour and has credit issues on its £54bn debt and £8bn of loans.
• Surprisingly, L&G and Pru assume hybrid debt they own will be called
at the call date. We look at the assumption that Tier I debt is called at the
call date despite market expectations, which are implied in share prices, that
these drop down to floating rate perpetuals. We would expect this to be
material for Pru and L&G should debt not be called; we estimate this would
be £1.5bn at L&G and £2bn at Prudential.
• We recommend reducing risk to the more geared stocks within the UK
Life sector and downgrade Prudential to Neutral from Overweight. Our
target price for Pru (based on tNAV+DCF) falls to 400p for Dec-09 from
565p. We also lower our target price for Aviva to 285p for Dec-09 from
360p. We adjust our estimates for Aviva, L&G and Prudential following
2008 results as shown in the table below.
Another interesting note out of JPM
NH:
and we could not end today’s session without mentioning Sibir Energy
NH:
TNK-BP launched an off market tender offer yesterday
NH:
offering shareholders 430p
NH:
then Sibir revealed it had received a mystery takeover approach
NH:
and this morning it has appointed advisers
NH:
Sibir is pleased to announce the appointment of its corporate broker J. P. Morgan Cazenove to act as joint financial adviser to the Company alongside Strand Partners Limited, with a specific remit to protect the position of Sibir’s minority shareholders.
NH:
and here’s what a couple of brokers thinks of the latest events at Sibir
NH:
i reckon shareholders should bite the arm off BP-TNK
NH:
and don’t forget the offer ends today
NH:
Credit Suisse International has launched a fixed price accelerated book build to buy Sibir Energy’s publicly
traded shares at 430p on behalf of TNK-BP. Sibir last traded on February 18, when the closing price was
175p. We estimate that the current free float is 35%. In a press release, Sibir Energy stated it has received
no direct approach by TNK-BP, but an informal approach from another party was received. This is at a very
preliminary stage. The company did not specify who the party is.
NH:
We can see the strategic rationale behind this transaction. In our view, TNK-BP has the lowest exposure to
the domestic downstream sector among integrated Russian large-cap oil peers (refining/production ratio is
less than 40% 2009E). Sibir Energy controls Moscow refinery (jointly with Gazprom Neft) which we believe
would be an appealing asset from TNK-BP’s standpoint. Downstream-heavy companies in Russia are more
geared to oil price changes, as refining enjoys lower marginal tax rates. In our estimates, acquiring control of
Sibir Energy would help TNK-BP boost its Russian refining to production ratio to c.44%, making its earnings
more geared to the forecasted oil price rebound.
Based on the reported 430p price, we calculate the offer implies US$2.4 bn for 120kbpd of refining capacity,
100kbpd of 2009E oil production and c.140 retail stations . By means of comparison, in the recent acquisition
of Bashkir oil assets, Systema paid US$2.5 bn for 326kbpd of refining capacity, 117kbpd of oil production
and c.150 retail stations (assuming 50% stake purchased in all assets). In acquiring Sibir, we estimate TNKBP
would assume risks related to recoverability of US$328 mn claim filed by Sibir against one of its key
shareholders, Shalva Chigirinskiy and CEO.
NH:
Topic: TNK-BP offered to buy out minority investors in Sibir Energy via an accelerated bookbuilding process due to finish today, April 23, with a buyout strike price of 450p (USD 6.52).
NH:
Our view: The buyout price of 450p exceeds Sibir Energy’s last trading quote by 2.5X and appears to be an unsolicited effort to establish a minority foothold position in the company’s shareholding structure.
We note that TNK-BP has had somewhat closer ties with Sibir Energy than the other reported candidate for the acquisition, Rosneft, as the company has dealt with Sibir Energy both in the Moscow retail market through the purchase/resale of the BP branded retail network and via the Moscow Refinery crude supply logistics. We advise shareholders holding the stock to partake in the offer, as the buyout provides a quick exit from this stock at the levels significantly exceeding both the last market price and our current 12-month target price of USD 2.14 the same time, we see no other public indicators that TNK-BP’s efforts are coordinated with Moscow City, which remains the other key holder of Sibir Energy shares with an 18% stake and which has previously said it sought to enlarge its holdings. Lacking such coordination, we do not expect TNK-BP to become the eventual take-out party for Sibir Energy, as the fate of the company remains as much a legal as a political decision for the current shareholders.
Conclusion: We advise investors to accept the offer as it provides a quick and profitable exit from the stock, with other alternatives unclear both on timing and the price. Our current recommendation for the share of TNK-BP is Buy, with a 12-month target price of USD 1.24 and a Hold for Sibir Energy with a 12-month target price of USD 2.14.
NH:
(Fromage, do pop in and say hi, I am meeting a mining entrepreneur. Well that’s what he calls himself)
PM:
Should also say thanks to Monty below for the guidance on ITV
PM:
Looks as well informed as ever
NH:
got some more factiods on Intertek
NH:
ITRK – Intertek Group Mkt Cap 1.6bln EV 1.95bln
Lowly Levered Conglomerate so SoP valuations will look appealing as will
the gearing angle.
NH:
BUSINESS BREAKOUT
Tot Rev Op Income % Group Rev Oil/Chemicals
etc 308 34 30.7
Consumer Goods 250 76 25.0
Commercial/Electrical 204 29 20.3
Other 242 13 24.1
GEOGRAPHIC BREAKOUT
Europe/Middle East 296 29.5
Asia Pac 367 36.6
Americas 341 34.0
VALUATION SNAPSHOT
5yr CAGR Sales 16.3%, EBITDA 15.3%, EBIT 14%, NI 14.3%
Margins EBITDA 19.6%, EBIT 15.2%
Muliplte Relative to closest Comps
EV/EBITDA EV/EBIT P/E EBITDA Margin Interteck
8.5 11.4 13.3 19.6 SGS
9.5 12 13.9 20.8 Bureau Veritas
11.7 13.7 16.8 15.7
PM:
Price of Intertek has edged back now
PM:
rightly so, in my view
PM:
Quote is 10.23 — up 97 on balance
NH:
we are not clear if UK holders can tender
NH:
and as for people with the stock on CFD’s or spread bets who knows
NH:
if you are short a de-listed stock
NH:
will one of the spread betters call you in and use the 430p offer price to do it?
NH:
all interesting questions
NH:
this could cause quite a mess
PM:
interesting situation
PM:
BVriefly — someone was asking for stuff on Autonomy
PM:
Here’s a couple of pars from Singers
PM:
AUTONOMY (Fair Value, TP 1110p) – Q1 Results out tomorrow
Q1 results out today. Q1 revenue came in at US$129.8m, adjusted EBIT (post SBP) of US$56.9m (43.8% EBIT Margin), and adjusted FD EPS of US$0.17. This is significantly ahead of our expectations of sales of US$121m, Adjusted EBIT of US$44m, and FD EPS of US$0.14. The out performance on profit is really indicative of the operational gearing in the business, with a very significant amount of incremental revenue flowing straight through to profits. Some of the good news here would have already been discounted in the share price as it already issued a trading statement in April indicating it expects to report revenue ahead of consensus estimates, with revenue expected to be between US$128m to US$130m (consensus US$126m) and FD EPS is expected to be significantly ahead of consensus estimates of US 15 cents. Reported growth in Q1 is 23%, but on an organic basis, we believe growth was c16% and the operating margin (post SBP) of 44% compares against the 28% margin it achieved last year and is clearly amongst the highest globally. The group is talking about a strong organic growth and an in-line performance by Interwoven in the stub period, but with the integration ahead of plan and synergies expected to be ahead of plan. The outlook statement indicated that it will be discussing with analysts upgrades for 2009 during the analyst meeting given its progress.
PM:
Our view on the stock is that it will be able to hold on to its premium rating (c19x cal’09, 14x cal’10 EV/NOPAT, pre upgrades) for as long as estimate and news flow momentum remain positive, which certainly appears to be the case. Relative to historical ratings the stock has been able to sustain, the shares do not look particularly cheap, but mindful of where the market, the UK software sector, and even global software companies like Oracle and SAP trade (Oracle trades on c13x cal’09, SAP on 15x cal’09), then it does look to be fair value. Looking forward to 2010 multiples, Autonomy’s rating converges closer to that of global software companies due to expectations of superior profit growth — as comfort in its ability to deliver those numbers grow (and at this stage, visibility on that is not high), then the valuation argument may slowly fade into the background.
NH:
let’s go and enjoy the French sunshine
NH:
oh, yeah almost forgto about the prize
NH:
if you think you were the winner or close
NH:
we will check your claim against yesterday’s transcript
NH:
and I have the prize here before in a box I use to keep business cards
NH:
probably should have locked it away overnight
PM:
Also — Webbys reminder
PM:
As if you havent got the msg
PM:
Anyway — back tomorrow at 11am — thanks for all the funny comments
NH:
i’m not. off to funeral in Yorkshire tomorrow
NH:
yep, Bryce will be filling in
