Markets live chat transcript for the chat ending at 12:09 on 30 Apr 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
Welcome to Bull Market Live
NH:
I’m so glad we turned buyers of Barclays when we did.
PM:
Yes, we can discuss that.
PM:
If you have not yet cast all your Webby votes, today is the day.
NH:
the deadline is upon us
NH:
help us bear the beard
PM:
Register (on the right)
PM:
Find the email they send you – click on the link.
PM:
Navigate to “websites”
PM:
Then find the “marketplace” categories.
PM:
Then find “blog – business”
PM:
And vote for the beard.
NH:
No! We’ve got to beat The Beard
PM:
As a hedge, we’ve confiscated Sam’s razor.
PM:
We’ve got a pic — but i dare not post
NH:
Murph, I can’t see anything.
PM:
No i can’t do it. Sam will go potty
PM:
Okay – promise not to mention the Webby vote again after today.
NH:
Other than in the context of you organising Webby drinks – like you have promised
PM:
Of course. I will be true to my word.
PM:
And thank you to those who have done so already
PM:
So tell us about this glorious bull market Neil
PM:
How many percent have we jumped so far?
NH:
2% this morning – or 90 points to 4,280
NH:
highest level since Feb
NH:
and according to Anthony Bolton the bull market has already started
NH:
so you had better get on board
PM:
Saw your post earlier on that
PM:
Mr B always guaranteed to get the readers fuming
NH:
and he was going to be right – in the end
NH:
I reckon Bolton’s missed something
NH:
the technical recovery
NH:
investors should buy for the technical recovery
PM:
Wht’s that?
NH:
well, the US GDP figs yesterday
NH:
much worse than expected
PM:
the market goes through the roof
NH:
everyone seems to think that the dismal reading is all down to de-stocking
NH:
companies letting stock levels run down
NH:
and they will now start ordering more stuff
NH:
to meet all that pent up demand
PM:
come on, that’s not going to happen
NH:
well the market seems to think so
NH:
companies seem to think so
NH:
that was the line Mittal was spinning yesterday
PM:
but just how much stuff are companies going to re-order
PM:
the car industry for example
PM:
do people suddenly want new motors???
PM:
Just want someone to take my stupid old broke Jag away
NH:
does that quality for the scrapage payment
PM:
Yes, it would — if i wanted a new car, which i dont
PM:
Actually, is the secondary market here — could i buy a new car for someone else?
NH:
what and spilt the 2 grand?
PM:
Wouldnt be worth all the effort
PM:
Any what else is suddenly going to reflate the economy?
NH:
I can’t believe anyone has any idea what demand will be going forward
NH:
and I can’t believe demand is going to be strong, what with unemployment rising
NH:
but nothing seems able to derail this bear market rally
NH:
that’s barely even registered
NH:
millions of deaths on the way – buy
PM:
We’ve got masks, you know — but havent done the pics yet
PM:
I brought back form HK last year
PM:
perhaps Bolton is right the new bear market has begun
NH:
long live the new bull market
NH:
even sensible rational bears are throwing in the towel
NH:
it has all got too much for them
NH:
from the banking team at RBS
PM:
they have been big bears of the sector
NH:
well, they have turned buyer of Barclays this morning
NH:
and reckon with the exception of Lloyds all UK banks will report positive earnings this year
NH:
which should, according to RBS, ease fears that all of the banks are going to end up nationalised
NH:
and much as HSBC said yesterday
NH:
the taxpayer will get lumbered with all their toxic assets
PM:
look a the price of Barclays
PM:
back to this RBS note
PM:
the last piece I saw from the team over there
PM:
focused on the potential for huge losses from exposure to monolines
PM:
what’s happened to all that??
NH:
Murph, that’s soooooooo last year
NH:
the technical recovery is here
NH:
anyway here’s the RBS note
NH:
The good news for the UK banks is that, apart from Lloyds, we think they will all report positive earnings this year, which should help alleviate the worst fears of them trending in a straight line to nationalisation.
More importantly, though, is that widespread government support for the industry via funding, and capital and asset purchase schemes . particularly in the US and the UK . is allowing the banks to avoid forced selling and the subsequent downward spiral of financial asset prices. Put differently, this support is allowing the banks to disregard current market prices of their assets by creating the time necessary for them to earn their way back to balance sheet strength.
NH:
From an equity investor perspective, this shifts the investment debate to how quickly book values per share will grow from here. From a historical and bull-case perspective, current cyclical valuation multiples would suggest that under this scenario a further valuation rerating is in order
PM:
a further re-rating is in order
NH:
We do recognize the merit of this argument for the primary reason that a shift to quantitative easing makes the appreciation of financial asset prices one of the principal components of policy response to the financial crisis. This belief becomes much more compelling when asset prices are rising, making banks an even more geared play on the value of their balance sheet holdings than usual. Sector p/marked-to-market TCE multiplies have recovered to well above 1.0x FY09F as a
result (1.2x at Lloyds and 1.7x at HSBC). Marked-to-market TCE remains our preferred equity book value measure:
However, if the RBS credit strategists. view proves correct (ie risk asset prices move lower through the rest of the year), then history suggests a bearish impact on equity valuation multiples.
NH:
the latest missive from Albert Edwards has just landed
PM:
yes — he’s discussing the fact that his views have departed from those of James Montier, his mate at SocGen
PM:
Montier has become a dedicated value investor — stock picking
NH:
but Albert remains a bear and reckons US stocks are still expensive
NH:
James, in his latest note, directly addresses the debate between the value investors and
what he calls the hard core bears link. His analysis, with which I heartily concur, shows
that European stock markets remain very cheap, but by way of contrast the US equity
market is fair value. My concern is that despite one of the biggest economic and profits
collapses in history, US stocks have failed to get cheap in the same way that they have in
Europe or Japan. My concern is that the US equity bear market has not fully played out.
PM:
He’s also got a new market filter — use the stars
PM:
Another method might be to look to the stars. I will actually be doing this a lot more, as my
wife treated me on my birthday to having a star named after me in The Great Bear
constellation (where else?). Apparently Im somewhere to the left of Olivia Newton-John and to
the right of Michael Jackson! Perhaps staring at the stars is more useful than investors think.
Professor Shu-Ing Liu of the Shih Hsin University in Taipei has recently published A Bayesian
Analysis of Lunar Effects on Stock Returns and finds a bearish effect on markets from a full
moon link. Hence what could be more useful for investing than a calendar of full moons -
link.
NH:
it is a full moon at the moment
NH:
not looked the night sky this week
NH:
there;s lots of weird stuff happening this morning
NH:
as Monkey notes below DSG up after shocking news
NH:
but we will come to that in a bit
NH:
but even more surprising that that
NH:
is news of a bid approach for Bramdean
PM:
Bid approach from an unnamed party.
PM:
For Nicola Horlick’s vehicle of course.
PM:
She also says that Cenkos are carrying out a strategic review
NH:
We immediately thought that this must be Vincent Tchenguiz making a bid – with a view to winding the thing up.
NH:
stock trades at a big discount to NAV etc
PM:
We know that Mr T is livid with Ms H.
PM:
Big, big shareholder in Bramdean
PM:
In fact, without his help Bramdean would not have floated
NH:
Bramdean has been sitting on a 40% plus discount to NAV
NH:
Idea that if he found someone with some money Mr T could bid and wind the thing up.
NH:
But we are not so sure now.
PM:
We moved on to the idea that this is simply another alternative manager, looking to consolidate.
PM:
Key reason is the cash calls on the investment funds – cash commitments.
PM:
But we are revising that idea now
PM:
Apparently the Standard are saying it is Mr T
NH:
But we think there is a bigger story here – our colleague Dan Thomas is on the case – keep an eye out for his story later.
NH:
all sorts of stuff happening below the surface
NH:
and a strategic review at the same time
NH:
and unhappy shareholders
PM:
We think this approach might be rather “timely” for Ms H
NH:
yes, all seems rather conincidental
PM:
The regular stock is up 1.75p at 52.5p
PM:
In the middle – the spread is 50/55
NH:
Think that’s wide – look at the dollar units.
NH:
They are up 31%, supposedly – moved from 0.38 to 0.5 cents
NH:
interesting though that the market is treating this approach with some degree of scepticism
NH:
You got Nicola’s latest investment letter?
PM:
I have – most of it is just history.
PM:
The underlying unaudited performance in March was -3.55% for the Sterling Share class and
-2.87% for the US Dollar Share class. This compares with 0.06% and 0.65% returned by the HFRI Fund of Funds Composite Index and Credit Suisse/Tremont Hedge Fund Index respectively.
The discrepancy in performance between the two Share classes relates to currency. During part of the month, the Company’s currency manager, Mesirow Financial Currency Management, hedged the Company’s Euro, US Dollar and Sterling exposure within both Share classes. The tactical default hedging ratio was zero with discretion to operate tactically within a range -30% to +30%. The currency hedge was taken off during March and will continue to be reviewed going forward to determine whether currency hedging will need to be implemented again.
PM:
There were 31 holdings in the Company’s overall Portfolio as at 31 March 2009. During the month, proceeds were received in relation to a partial redemption from Paulson Advantage Plus Ltd. A subscription for Roy G. Niederhoffer Negative Correlation Fund became effective 1 March.
As reported in the recently published Interim Management Statement, Deephaven Capital Management LLC has made proposals to investors which relate to the Company’s holding in Deephaven Global Multi-Strategy Fund Ltd. to which RMF Investment Management is responding. The Company also submitted a redemption notice in November 2008 to Aarkad plc, proceeds from which are not due until May 2009, although the manager has suspended redemptions until further notice. Aarkad is currently holding its NAV at the December 2008 valuation as a result of its redemption suspension.
The Company continues its programme of tactically reducing its allocation to hedge funds, a strategy that the investment manager started to implement in December 2007. As a result, there have been partial redemptions during March from certain holdings in the Strategic Hedge Funds portfolio, which have also been made in order to maintain weightings within the overall allocation range for that portfolio. Further partial redemptions will be made over the coming months.
PM:
In December 2007, the Company’s hedge fund holdings represented 86.3% of the Company’s overall Portfolio. As at the end of March 2009, they represented 32.1% of the overall Portfolio. As a result of the repositioning of the Portfolio during the course of 2008, the Company holds 32.8% of its net assets in cash as at the end of March. The investment manager intends to maintain cash reserves in order to fund draw-downs from the Private Equity and Specialty Funds.
NH:
Ah, so there’s also the issue of some of its underlying hedge investments being stuck by gates – redemptions blocked
PM:
Read more of that here if you want
NH:
right, questions below about the pub stocks
Punch Taverns (PUB:LSE): Last: 149.25, up 31.5 (+26.75%), High: 150.75, Low: 120.00, Volume: 2.38m
Enterprise Inns (ETI:LSE): Last: 165.00, up 21.75 (+15.18%), High: 165.25, Low: 147.00, Volume: 5.69m
NH:
this is the SHORT SQUEEZE OF DEATH – PART II
NH:
talked to a couple of brokers this morning
NH:
had big, big orders to buy back ETI
NH:
following yesterday’s statement from Punch
NH:
which basically said trading was not getting any worse
NH:
which in turned got everyone jumping up and down and saying the worst is over
NH:
the fact these two toxic pub co’s are sittinig on billions of debt seems to have been forgotten
NH:
going to check wtih DataExplorers later and get some short selling info
NH:
well put it up in the longroom
PM:
interesting cheers for that
NH:
Driss – don’t think you will be seeing Kemsley this year
NH:
he has other things to attend to
PM:
Sorry — just had a bit of mild zapping to do
NH:
We should have a quick look at media
PM:
What, in a navel gazing sense.
NH:
Well, our old fun stock Mecom has come out with a rescue plan
NH:
It’s about 5000 pages long
NH:
Raising some 140m – and its got additional waivers on its debt.
PM:
This is David Montgomery – somehow defied the undertaker
PM:
No terms on the equity issue that I can see.
PM:
Market price is down 0.74p at 5.5p
PM:
Dangerous situation – don’t even think of meddling.
NH:
I think they will get it away
NH:
the chairman of Mecom is
NH:
which was sold to PE at the top of the boom
NH:
he made a lot of people a lot of money
NH:
and is calling in a few favours re Mecom
NH:
and putting his credibility on the line
NH:
no idea what price they will do this at
NH:
but it will go I reckon
PM:
Goodness knows how many godzillion shares will be in issue afterwards tho
PM:
While we are on media
PM:
Independent News & Media has failed to do a deal with its bond holders.
PM:
So they are warning on their ability to continue trading.
NH:
Poor, Indie must be doomed
PM:
Think the next deadline on the debt is mid May.
NH:
actually they are up for Webby
NH:
big “vote for us adverts” up on their site
PM:
Wonder whether they will be able to afford tickets for the ceremony?
NH:
Will the Guardian buy it?
PM:
Nah – they’d be mad to.
PM:
I suspect they have their own cash flow issues, in anycase.
PM:
Er, best not go there just now.
NH:
you can’t tease the readers like that
NH:
you will have Taxloss doing a forensic number on their accounts now
PM:
(Fromage — how long you got?
NH:
(Murph could bore for hours on this)
NH:
right, it is time to have a look at DSG International
NH:
deeply discounted £310m cash call
PM:
That’s good for 20% on the stock price
NH:
it had, but they have come back a bit now
NH:
price action at the moment is
NH:
obviously it is good news
NH:
that the company has managed to raise capital
NH:
and renegotiate its credit facilities
NH:
because that means it will survive
PM:
look at the statement
PM:
basically DSG was running out of cash
PM:
working capital sqeeze
NH:
no one would extend credit to them
PM:
having to pay cash upfront to their supplies
NH:
and the squeeze was down to the fact that suppliers could not get insurance
NH:
so a bit like Del Boy they were having to pay cash upfront to their supplies
NH:
and that was putting a tremendous strain on the company
NH:
but they are by no means out of the woods
NH:
trading remains tough
NH:
there is a pension deficit
NH:
and massive store revamp to pay for
NH:
oh and the company’s says the changes in the provision of credit insurance are structural
PM:
so the working cap squeeze continues
PM:
easy to see why they are up then
NH:
just suspend rational thinking
NH:
on a prospective PE of something like 30 times now
PM:
this is not a turnaround situation
PM:
but a business in structural decline that’s been propped up by an emergency cash infusion
PM:
it’s hardly likely to become a growth stock again is it?
PM:
what are the analysts saying??
NH:
hang on I will dig out a few notes
NH:
actually there are that many about yet
NH:
the cash call came a bit earlier than expected
NH:
and unlike results day
NH:
no one got an embargoed copy
NH:
but I do have something from Citi
NH:
I believe they are house broker
NH:
and it gives a good overview of the results and rights issue
NH:
Net Debt materially ahead of forecast at £503m (Citi £212m) — A combination
of ending supplier payment deferrals (c£140m), supplier settlements (c£60m),
interest/hedging costs (c£30m), restructuring in Italy (c£20m) and a deferral of
the Swedish distribution centre disposal drive year end net debt to c£500m.
Placing to raise £100m through issuance of 333.3m shares — The placing will
raise £100m via an issuance of 333.3m shares at a price of 30p.
NH:
Rights issue post placing to raise £210.6m — Through a 5 for 7 rights issue,
gross proceeds will be £210.6m. Rights issue to be at 14p, a 53% discount to
the placing price. Ex-rights date will be 19 May with a record date of 15 May.
Post the placing and rights issue the new share count will be 3,609.8m. Final
TERP 23.3p with an historic EPS adjustment factor of 1.2857.
Debt facilities renegotiated — Conditional upon the successful completion of
the placing and rights issue the group’s debt facilities terms have been
renegotiated, to provide a strengthened capital base. New covenants; fixed
charge cover 1.30x, net debt/EBITDA 3.75x
NH:
Proceeds to provide working capital support — The c£294m net proceeds will
be used to reduce working capital (c£100m), continue the Renewal and
Transformation plan over 3 years (c£100m) and provide additional headroom
on the new revolving facility (c£100m).
Current trading in-line with forecast; 2H LFL -11% (Citi –10.4%) — 2H LFL by
division: UK & Ireland -12% (Citi -12%), Nordics -10% (Citi -9%), Southern
Europe -15% (Citi -14%), Central Europe -29% and E-commerce total sales
+7% (Citi +6%). Group gross margins were up +10bp (Citi -50bp) in the 2H.
April 2009 PBT guided to be ‘not less than £30m’ (Citi £45m), due largely to
higher property losses and higher interest charge — This lower than expected
April 2009 PBT guidance includes the discontinued loss-making Markantalo
and PC City Swedish business (c£12m loss), as well as c£17m of property
losses (Citi £5m) and £27m interest charge (Citi £15m). Hence, the April 2009
group EBIT is guided to be £74m (Citi £65m).
April 2010 consensus PBT c£42m, net debt c£220m — Post the placing,
rights issue and renegotiated bank facilities, a consensus c£42m April 2010
PBT drives EPS of 0.77p. Consensus April 2010 net debt likely to be c£220m.
PM:
We’ve got a market in DSG below
NH:
I am leaning towards the Praxis argument
NH:
and people trying to get you to buy very expensive and useless extended warranties
PM:
Thats enough electricals
PM:
trying to will the footsie thru 100 points at this end
PM:
Footsie up 94 at 4284 currently
PM:
What else is flying Neil?
NH:
well, this is an odd one
NH:
shares up 12p at 119p
PM:
nah — simple explanation
PM:
Chrysler about to file for Chapter 11 bankruptcy protection
PM:
Perfect situation for a supplier to the auto industry
PM:
Chryslers bust — buy GKN
NH:
yeah, because things can’t get worse, right
NH:
so the recovery must follow, right?
PM:
for those of you who might have missed it
PM:
here’s the WSJ story on Chrysler
PM:
Talks between the Treasury Department and lenders aimed at keeping Chrysler LLC out of bankruptcy broke down Wednesday, making it all but certain the car maker will file for Chapter 11 protection Thursday, according to people familiar with the discussions.
Administration officials, who have been braced for a Chrysler bankruptcy filing for weeks, say all the pieces are in place to get the company through the court quickly, perhaps in a matter of weeks.
The talks with Chrysler’s lenders broke down after the Obama administration’s automotive task force worked into the evening to persuade several hedge funds and other lenders to accept a deal to reduce Chrysler’s debt, said people involved in the talks.
The Treasury boosted its most recent offer to lenders on Wednesday by $250 million to $2.25 billion in cash for the banks and hedge funds to forgive $6.9 billion in Chrysler debt, people familiar with the matter said.
J.P. Morgan Chase & Co., which leads the creditor group as Chrysler’s largest lender, gave the other 45 banks and hedge funds 90 minutes Wednesday to vote on the deal. A large number of the funds voted no and refused to budge, paving the way for an all but unavoidable trip to bankruptcy court, said people close to the talks.
PM:
breaking news from Taylor Wipeout
NH:
RTRS-TAYLOR WIMPEY PLC – REFINANCING PROPOSALS ANNOUNCED BY THE COMPANY ON 7 APRIL 2009 HAVE NOW BEEN SUCCESSFULLY COMPLETED
NH:
got be worth 20% on the price that
NH:
TAYLOR WIMPEY PLC – PRE-TAX LOSS BEFORE EXCEPTIONAL ITEMS OF £74.7M (2007 PROFIT: £346.1M).
NH:
just looking to see if there is anything about a rights issue
NH:
does that mean they couldn’t get one away
NH:
they are talking about an upturn to
NH:
“The underlying strength of our business was severely tested during 2008. We
responded quickly to the downturn in the UK housing market and the ongoing
challenges in the US. Having put in place an appropriate financing package,
Taylor Wimpey can face the challenges that 2009 will inevitably bring with
significant confidence. We are now well placed to take advantage of the
opportunities that an upturn will provide.”
PM:
Surely, the house price crash is over — all the “inventory” cleared
PM:
Why shouldn’t this be the shortest housing down turn in modern history?
PM:
Sure — they last one might have lasted 4/5 years
PM:
Got the refinancing stuff Neil
NH:
These comprise:
* Net operating cash flow which is to be tested for the six months to 30 June
2009, the nine months to 30 September 2009 and then on a rolling 12-month basis
ending at the end of each quarter. The test is on absolute levels of cash
generated in each period.
* Consolidated tangible net worth which is to be tested on a quarterly basis
beginning on 30 June 2009 with varying covenanted minimum amounts over the life
of the facilities.
* An asset leverage cover covenant. This represents the ratio of total
consolidated net borrowings to the book value of inventories net of land
creditors and is to be tested quarterly from 30 June 2009.
The covenant amounts have been set after making allowance for appropriate
sensitivities, including, inter alia, a further weakening of Sterling against
the US Dollar; a potential increase in interest rates; and a potential further
decline in UK house selling prices. All of these covenants are to be calculated
on an adjusted frozen IFRS basis, based on the accounting principles used in the
2008 audited consolidated financial statements of the Company.
The Group has also agreed to provide operational covenants to its banks and
private placement noteholders. These generally ensure that the existing
position between creditors is protected but also include, for example, an annual
cap on new land commitments linked to the Group’s level of net debt.
The refinancing package is sufficiently robust as to adequacy of both facility
and covenant headroom.
The revised financing deal does not require the Group to raise new equity
capital. In the event, however, that the Group meets the planned £150 million
reduction in facilities by the end of 2009 and raises a minimum of £350 million
of equity by the end of 2010, there would be significant advantages:
* The cash margin and coupon payable reduce by up to 3.00% based on a ratchet
mechanism related to gearing;
* The Initial PIK of 1.5% and any additional PIKs cease to accrue; and
* The level of operating covenants are reduced.
NH:
so how on earth do they pay down this debt
NH:
they don’t build houses in anymore
PM:
Stock isnt flying actually — stalled at 48p
NH:
is this effectively a company in run-off
NH:
being run for the creditors?
NH:
surely they have no cash to start building again
NH:
Right, a contact has been in touch
NH:
with some short interest data for the pubs
NH:
Cover
Greene King Plc 12.56 (16.9M shares) +47.6
25.24
Mitchells & Butlers Plc 5.78 (23.48m shares) +0.3
10.04
Punch Taverns 4.25 (11.34m shares) -0.5
7.90
NH:
the first figure is the amount of stock on loan
NH:
second is the number of shares out on loan
NH:
third is the percentage increase on the week
NH:
sorry, we can’t always get the formatting correct
NH:
sorry just looking at a piece of 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:
but this looks really, really bad
NH:
seems like someone has taken an old story, put Monday’s data on it
NH:
and is trying to claim a stockbroker is in takeover talks
PM:
(Taxloss — im not being drawn on GMG, sorry)
NH:
don’t think we should mention the name
PM:
I’ve got loads of things to do
PM:
Please dont try and guess that name. We think it is a crap story and we dont want to be accused of spreading it
PM:
So sorry for the zapping
NH:
better to be safe than sorry
PM:
Thank you very much for all the comments this morning
PM:
Even the ones that got zapped
NH:
enjoyed the DSG debate
PM:
And thanks for your Webby votes
PM:
Last day for voting is today
PM:
So if you havent done so…
PM:
We will be back tomorrow at 11 am
