Markets live chat transcript for the chat ending at 12:09 on 19 May 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)
NH:
Hello
NH:
and welcome to Shambles Live
NH:
FT Alphaville’s daily stab at rounding up what’s going on the market and why
NH:
and we are all at sixes and sevens this morning
NH:
Murphy cried off ill yesterday lunchtime and has not been seen since
NH:
although he has been writing from home this morning
NH:
I have been at the dentist, so was a couple of hours late
NH:
no work needed fortunately, though I was kicked off the NHS list and fined for missing a couple of appointments
NH:
and to top it all off we have more IT probs
NH:
Blackberry server down, so I couldn’t catch up on the train
NH:
Internal email down, had a dozen or so mails this morning
NH:
IT didn’t realise there was a problem
NH:
other than that it’s SNAFU
NH:
so we have little or no idea as to what’s happening
NH:
to which many of you might say, ‘so what’s new’
NH:
anyway the show must go on
NH:
and with Murph away, that means Bryce Elder from the markets desk is joining me this morning
BE:
Hi
BE:
Just getting gmail up and running
BE:
Which is ten times more reliable than our own system
NH:
it is
NH:
right, let’s get straight down to business
NH:
Murph has been in touch
NH:
and he says keep the faith
NH:
remain short
NH:
so we are going to hold
NH:
For the moment
NH:
Unless it continues hurting
BE:
well, it must be starting to hurt
BE:
those fingers getting gently toasted
BE:
BE:
FTSE 100 has kicked on again this morning
BE:
Up 45 points at 4492
NH:
hmmmm
NH:
,000 is looking a long way away now
BE:
Must be close to its 2009 high
NH:
anyway, enough of that
NH:
let’s have a look at M&S
11:08AM
NH:
and at long last its hugely overvalued stock price has cracked following the publication of annual results
BE:
for time being anyway
BE:
Down 22.5p at 316.5p
BE:
that follows a swingeing dividend cut (as heavilly trailed in the press of course)
BE:
and yet another strategic overhaul
BE:
this one has the catchy name of “Doing the right thing”
BE:
and that has cost the head of the international business his job
NH:
OK, so the negative share price reaction, what’s caused that?
NH:
the dividend cut was pre-marketed over the weekend
NH:
so it can’t be that
NH:
current trading looks OK
NH:
and the results overall are in the middle of range of forecasts I have seen
NH:
so what gives?
BE:
well I guess there’s profit taking in there
BE:
but there are some other factors at play
NH:
Such as
BE:
well …
BE:
today’s results have actually come in shy of the house brokers estimates
BE:
Citi was looking for £604m, but the actual number was £11m lower due to a weaker than expected performance from the International business
BE:
and the guidance for 2010 is weaker than expected
BE:
and will still don’t know about the pension fund deficit because the big review is still going on
NH:
I see
NH:
So every excuse in the world to book some profits
NH:
after its amazing run
BE:
forecasts for this year look to be around 22p
BE:
so with a lowered dividend and a prospective PE of 14 M&S still looks way too expensive
BE:
anyway, here are a couple of notes, starting with Citigroup
BE:
March 2009 PBT £604m, -40% yoy, £11m shy of our forecast (Citi £615m) —
The primary difference between our forecast and the reported results looks to
be a £9m lower International EBIT outturn following a -400bp 2H International
EBIT margin fade. This PBT performance drove EPS of 28p, -35% yoy (Citi
27.9p). As pre-announced full year UK LFL sales fell -5.9% (Gen Merchandise
-6.9% and Food -5.0%), alongside a -170bp UK gross margin declined.
BE:
2H dividend cut 33% to 9.5p (Citi 7.1p) — As widely anticipated the 2H
dividend has been reduced, albeit the -33% 2H reduction to 9.5p is less
aggressive than our -50% forecast. This brings the full year DPS to 17.8p (Citi
15.4p). Management also propose cutting 1H 2009/10 DPS by -33% to 5.5p,
arguing for a 15p March 2010 DPS forecast.
BE:
Full year net debt £2.5bn, following changes to pension fund property
partnership classification (Citi £3bn) — These changes make the annual
distributions to the pension scheme at the discretion of the Group from
2010/11 onwards. This reclassifies £539.6m from net debt to equity, and
reduces the March 2010 p&l finance charge by c£30m.
BE:
Last 7 weeks LFL sales in line with 4Q (-3.5%) — As appears to be the case
across the sector, April and early May trading patterns have continued the
better 4Q 2008/9 trend at M&S, with LFL sales patterns over the last 7 weeks
broadly in line with the Easter adjusted 4Q LFL sales trends (-3.5%).
BE:
Virtually all other March 2010 guidance is a little below previous forecasts —
Specifically, M&S are guiding for a -125bp to -175bp gross margin fade this
year (Citi -80bp), cost -1% (Citi -1.5%), capex £400m (Citi £400m), space
+3% (Citi +2.5%), and pension finance income of £12m (Citi £33m).
BE:
Consensus March 2010E PBT of c£480m likely to remain unchanged — On the
back of these results we expect consensus March 2010E to remain unchanged
at c£480m, EPS 22p (-21.5% yoy).
What does it all mean? — While the dividend cut was largely expected, the
modestly reduced space, gross margin and cost guidance, and the absence of
any earnings upgrade, could weigh on the shares in the wake of the recent
share price outperformance.
BE:
And here’s Numis
BE:
We move forecasts ahead but remain negative: We do not expect consensus to
move far on the back of these results but, for our part, we factor in an improved LFL
expectation and lower interest charge. This sees us raise our Mar-10 PBT forecast to
£524m (24.3p) from £482m (22.0p). On 14x Mar-10 earnings, M&S is trading at a
premium to the sector which is, in our view, undeserved. Targetting 12x 2010 earnings,
we move our TP to 290p. Reduce.
BE:
And KBC
BE:
Marks & Spencer has announced PBT of £604m for the
year, in keeping with KBC forecasts. As anticipated, the
final dividend has been cut, although less than expected.
Trading on 8.2x 2008 peak earnings, Marks & Spencer
shares are factoring in too much potential for recovery
BE:
New guidance. Marks & Spencer has released new guidance, with total
overheads expected to be down 1%, in keeping with our forecast assumptions
and gross margin down 125-175bps, more optimistic than our 220bps forecast.
At this stage, we did not expect to change our £494m PBT forecast for 2010E.
Net debt down to £2.5bn due to pension reclassification. Net debt has fallen
substantially from £3.1bn against forecast expectations of a modest rise.
However, this improvement is almost entirely due to the reclassification of the
pension scheme partnership as an ‘equity instrument’, which we assume to be
purely window dressing, with no change to the underlying liability of £572m.
Take profits. Recent trading conditions have been better than anticipated for the
retail sector and apparel in particular, points that will become apparent in the
next trading update for M&S. With a growing international business, freehold
backing and scope for margins to stabilise, we can see the ‘bull case’ for Marks
& Spencer. However, the shares are now trading on 8.2x 2008 peak earnings, a
position that may take another five years to recover. On that basis, we prefer
both Next and Debenhams for apparel exposure.
NH:
So, everyone is saying the same thing: too expensive, sell
NH:
take profits
NH:
Slot them
NH:
BE:
er yes. Nothing to get excited about here.
BE:
just another example of the dash for trash
BE:
The flight to sh….
BE:
cyclical stocks getting way ahead of themselves
11:14AM
NH:
right, given today’s various issues had completely missed the action in the Irish banks.
NH:
just been looking at Bank of Ireland
NH:
up 31% at EUR1.4
NH:
NH:
wires saying the terms of the bond buyback are really good
NH:
obviously the underlying performance is grim
NH:
loans loss provisions rising etc
NH:
and the rest of the sector moving up in tandem, hopes they will do the same thing
BE:
What’s the details of the plan?
NH:
similar the debt buybacks done by Lloyds and RBS, this should add around E700m to Teir 1
NH:
which is very handy
BE:
Few bits of comment on this …
BE:
Quick summary from KBW
BE:
Bank of Ireland reported underlying PBT of €332mn for year ending March
2009 (KBWe €365mn) and EPS of €0.30 (€0.31), with the delta coming from
higher impairment levels than we had anticipated. The underlying quality of
the results was weaker than we had expected, supported by continued strong
performance in Capital Markets in 2H08. However, stronger than forecast
capital ratios (equity tier 1 6.2% vs KBWe 5.7%) and the announcement of a
€1.4bn debt tender offer should be well received. BKIR is now trading at
c0.2x current NAV. However, we still have no indication as to the scale of
portfolios/ level of discount to be applied to loans included in NAMA.
Moving forward, the stock will be driven by the level of dilution to existing
ordinary shareholders from further equity issuance, which for the time being
remains an unknown.
2009 (KBWe €365mn) and EPS of €0.30 (€0.31), with the delta coming from
higher impairment levels than we had anticipated. The underlying quality of
the results was weaker than we had expected, supported by continued strong
performance in Capital Markets in 2H08. However, stronger than forecast
capital ratios (equity tier 1 6.2% vs KBWe 5.7%) and the announcement of a
€1.4bn debt tender offer should be well received. BKIR is now trading at
c0.2x current NAV. However, we still have no indication as to the scale of
portfolios/ level of discount to be applied to loans included in NAMA.
Moving forward, the stock will be driven by the level of dilution to existing
ordinary shareholders from further equity issuance, which for the time being
remains an unknown.
BE:
Credit Suisse
BE:
Bank of Ireland results came in better than expected with underlying EPS of 30.2 cents vs our 7.5 cents, PBT before
exceptionals of €€ 332m ahead of our €€ 113m
• The beat was mainly due to lower costs which were €€ 2022m vs our €€ 2176m, revenue and impairment in line with expectations
• The company has now raised the impairment forecast over 3 years to €€ 6bn with downside risk – they had previously guided
€€ 4.5bn, this shouldn’t come as a massive surprise after AIB increased its impairment guidance last week. Note also the
impaired loans increased from 131 bps as at September to 393bps as at March 2009.
• Capital ratios slightly better than expected – total tier 1 at 12% vs our 11.2%, equity 6.2% vs our 5.8% – note also the Tier 1
debt repurchase which was announced today and we estimate that this could generate up to €€ 1bn in capital (85bps) based on
50% exchange ratio and 65% take up.
• Loan deposit ratio increased from 159% as at Sept to 161%
• TNAV collapsed to €€ 3.02 vs our €€ 4.55 due to higher negative AFS & FX reserves vs our forecasts and vs interims.
• Conclusion – mixed set of results with operating performance better than expected but revenues likely to be under pressure
going forward as the company runs down the loan to deposit ratio. The tier 1 debt repurchase will be well received but this
capital is insufficient to sufficiently plug hole that impairment could cause over next few years. Negative news here is the
increase in impairment guidance and increased NPLs, which should have been expected, and the collapse in TNAV is
particularly notable. On balance, stock likely to be slightly down, especially after recent run in stock.
• On our sensitivity analysis this would give a March 2012E TNAV range of €€ 0.43 to €€ 0.78 (stressed to base) based on our
assumption of a €€ 22bn loan transfer to NAMA at 25% discount, followed by a recapitalisation to 5% equity tier 1 (this assumes
conversion of govt ref at a 20% discount to current share price and the gain from the debt repurchase). We remain
Underperform.
exceptionals of €€ 332m ahead of our €€ 113m
• The beat was mainly due to lower costs which were €€ 2022m vs our €€ 2176m, revenue and impairment in line with expectations
• The company has now raised the impairment forecast over 3 years to €€ 6bn with downside risk – they had previously guided
€€ 4.5bn, this shouldn’t come as a massive surprise after AIB increased its impairment guidance last week. Note also the
impaired loans increased from 131 bps as at September to 393bps as at March 2009.
• Capital ratios slightly better than expected – total tier 1 at 12% vs our 11.2%, equity 6.2% vs our 5.8% – note also the Tier 1
debt repurchase which was announced today and we estimate that this could generate up to €€ 1bn in capital (85bps) based on
50% exchange ratio and 65% take up.
• Loan deposit ratio increased from 159% as at Sept to 161%
• TNAV collapsed to €€ 3.02 vs our €€ 4.55 due to higher negative AFS & FX reserves vs our forecasts and vs interims.
• Conclusion – mixed set of results with operating performance better than expected but revenues likely to be under pressure
going forward as the company runs down the loan to deposit ratio. The tier 1 debt repurchase will be well received but this
capital is insufficient to sufficiently plug hole that impairment could cause over next few years. Negative news here is the
increase in impairment guidance and increased NPLs, which should have been expected, and the collapse in TNAV is
particularly notable. On balance, stock likely to be slightly down, especially after recent run in stock.
• On our sensitivity analysis this would give a March 2012E TNAV range of €€ 0.43 to €€ 0.78 (stressed to base) based on our
assumption of a €€ 22bn loan transfer to NAMA at 25% discount, followed by a recapitalisation to 5% equity tier 1 (this assumes
conversion of govt ref at a 20% discount to current share price and the gain from the debt repurchase). We remain
Underperform.
BE:
And JPMorgan
BE:
BOI disclosed €59mn FY net profit (vs. €1.68bn profit in 08), largely in
line our €67mn underlying estimate (including c.€390mn goodwill
impairment and restructuring costs). This implies a €511mn loss, vs. our
€503mn estimate. Net operating income of €1.85bn (-12.6% yoy) was 6%
below our estimates. Divisionally, Ireland was unsurprisingly the worst
performer (€20mn FY profit vs. €306mn estimate), offset by capital
markets.
• Revenues of €3,957mn (-7.5% yoy ) are 3% below expectations. Top line
(+12.5% yoy) largely in line, miss comes from non-interest income
(€287mn vs. €414mn estimate), with BOI claiming (i) €46mn impairments
on properties, (ii) €117mn negative insurance variance, and (iii) €66mn cost
attached to Govt. guarantee
• Excluding restructuring expenses, underlying costs of €2.0bn (-6.0%
yoy) was 4% below expectations, highlighting BOI’s cost cutting focus at
this point (through 5% yoy staff reduction and lower compensation levels).
On a sequential basis, costs declined 5% vs. H1 levels.
• Asset quality – with the loan book declining 6% vs. H108 levels, BOI
disclosed NPL ratio of 3.91% (vs. 1.31%), following a 179% hoh increase.
Provisions of €1.44bn represent 211bps of loans and came above our
€1.36bn estimates. Total “watch loans” (including past due but not impaired)
stand at €11.1bn (vs. €6.3bn in Sept), implying a 8.3% ratio (vs. 4.4%). By
segments, CRE accounted for the largest deterioration (€3.5bn NPLs,
c.1000bps provision), though we also witnessed a significant increase of
SME/corporate delinquencies (€1.2bn vs. €506mn a year before, some
320bps provisions).
• Capital – core Tier 1 ratio of 9.5% (6.2% excluding €3.5bn govt. pref
injection) is largely stable vs. H108 levels, with 9% decline of RWA levels
offsetting the c.€500mn loss
• Outlook – 3-year provisioning target of €4.5bn (set out in Feb’s IMS) now
increased to €6bn (we are already there in our estimates)
• Overall, results confirms our views for BOI (i) in absolute terms, the bank
remains immersed in a very challenging situation, with €6bn accumulated
credit charges and costs attached to govt’s preference shares implying the
bank will remain in loss making territory in 09-10E, (ii) more positively,
today’s results do not represent incrementally negative news vs. our
forecasts; this a marked difference vs. AIB’s IMS last week, with BOI
appearing as a safer option given its lower developer exposure (€12bn vs.
€23bn). In any case, and though the stock should probably be boosted by the
absence of disasters in H2, we need details on the ‘bad bank’ structure to
express a fundamental view on the two Irish banks.
line our €67mn underlying estimate (including c.€390mn goodwill
impairment and restructuring costs). This implies a €511mn loss, vs. our
€503mn estimate. Net operating income of €1.85bn (-12.6% yoy) was 6%
below our estimates. Divisionally, Ireland was unsurprisingly the worst
performer (€20mn FY profit vs. €306mn estimate), offset by capital
markets.
• Revenues of €3,957mn (-7.5% yoy ) are 3% below expectations. Top line
(+12.5% yoy) largely in line, miss comes from non-interest income
(€287mn vs. €414mn estimate), with BOI claiming (i) €46mn impairments
on properties, (ii) €117mn negative insurance variance, and (iii) €66mn cost
attached to Govt. guarantee
• Excluding restructuring expenses, underlying costs of €2.0bn (-6.0%
yoy) was 4% below expectations, highlighting BOI’s cost cutting focus at
this point (through 5% yoy staff reduction and lower compensation levels).
On a sequential basis, costs declined 5% vs. H1 levels.
• Asset quality – with the loan book declining 6% vs. H108 levels, BOI
disclosed NPL ratio of 3.91% (vs. 1.31%), following a 179% hoh increase.
Provisions of €1.44bn represent 211bps of loans and came above our
€1.36bn estimates. Total “watch loans” (including past due but not impaired)
stand at €11.1bn (vs. €6.3bn in Sept), implying a 8.3% ratio (vs. 4.4%). By
segments, CRE accounted for the largest deterioration (€3.5bn NPLs,
c.1000bps provision), though we also witnessed a significant increase of
SME/corporate delinquencies (€1.2bn vs. €506mn a year before, some
320bps provisions).
• Capital – core Tier 1 ratio of 9.5% (6.2% excluding €3.5bn govt. pref
injection) is largely stable vs. H108 levels, with 9% decline of RWA levels
offsetting the c.€500mn loss
• Outlook – 3-year provisioning target of €4.5bn (set out in Feb’s IMS) now
increased to €6bn (we are already there in our estimates)
• Overall, results confirms our views for BOI (i) in absolute terms, the bank
remains immersed in a very challenging situation, with €6bn accumulated
credit charges and costs attached to govt’s preference shares implying the
bank will remain in loss making territory in 09-10E, (ii) more positively,
today’s results do not represent incrementally negative news vs. our
forecasts; this a marked difference vs. AIB’s IMS last week, with BOI
appearing as a safer option given its lower developer exposure (€12bn vs.
€23bn). In any case, and though the stock should probably be boosted by the
absence of disasters in H2, we need details on the ‘bad bank’ structure to
express a fundamental view on the two Irish banks.
NH:
actually, does any one know when the NAMA details are due?? going to be very interesting to see the size of the haircut on the bonds.
NH:
oh, FTSE 100 now trading above 4,500
NH:
perhaps it is on the Martin news
NH:
Sky saying he is going to resign this afternoon
BE:
The public gets a sacrifice
BE:
The Telegraph will be delighted
NH:
right, our email has completely stopped working. nothing coming through at all.
NH:
grrrrrrrrrrrrrrrrrr
NH:
BE:
I’ve just tried to access mine and it’s given me Murphy’s diary …
11:22AM
NH:
Right., Asher asking for some comments on the Vodafone figures
NH:
I think Bryce can oblige here
BE:
Yup
BE:
FY results look slightly better, outlook’s slightly weaker
NH:
so, mixed bag. As usual.
BE:
Indeed
BE:
Same story across the geographies …
BE:
Doing well in Italy,
BE:
Keeping up with Telefonica in Spain.
BE:
Although there’s a monster of a writedown against the Spanish assets
BE:
lagging Deutsche in Germany. Getting beaten up by O2 (O2!!!) in the UK.
BE:
Emerging markets similar. India good, South Africa bad and Turkey ugly.
NH:
Any analyst comment?
BE:
Here’s Merrill for a quick summary
BE:
Vodafone has reported 2008/9 results with EPS at 17.2p vs our estimate of 14.6p (cons: 14.7p) with the beat coming from a tax provision reversal, EBITDA at £14.5bn vs our £14.39bn (cons: £14.4bn), share of associate profits at £4.09bn vs our £3.85bn.
Key is the outlook for 2009/10 with the company guiding to a wider than usual range of £11.0-11.8bn for operating profit which compares on a like-for-like currency basis to our forecast of £11.99bn (cons: £11.9bn). For FCF guidance is £6.0-6.5bn compared to our forecast of £6.1bn in line with cons . With revenue under pressure in Europe and FCF guidance relying on a year end swing in the dividend from VZW we expect this to be taken modestly negatively initially.
BE:
And Cazenove, who are joint shop, for a bit more detail
BE:
Key detail: Italy (15% of operating profit) has outperformed its peer group with positive Q4 revenue growth and Germany (15% of operating profit) has seen a decline in line with expectations. The weak areas continue to be Spain with a 9% Q4 service revenue decline, Turkey with an 18% fall in Q4 service revenues and the UK with a 1% decline in Q4 service revenues. India and South Africa both continued to perform well. Outlook for 2009/10: Free cash flow £6.0-6.5bn (including a £200m timing benefit from 2008/09, current consensus £6.1bn, source: Company), adjusted operating profits £11.0-11.8bn (consensus £11.9bn). This reflects depreciation and amortisation charges of £8.5bn (consensus £8.0bn mainly reflecting acquired intangible amortisation) and capex “similar to 2009, after adjusting for fx (suggests £6.4bn, vs consensus of £6.0bn). No revenue guidance but given “challenging environment, recent revenue trends assumed to continue, EBITDA margins to decline at a slightly slower rate.” £1bn cost reduction programme accelerated, over 65% to be achieved in 2010.
BE:
Estimate changes: Limited revenue and EBITDA movement, given recent changes. Operating profit estimates will reduce by 1-7% depending on where in Vodafone’s range consensus ends up. However, much of this reduction reflects higher amortisation charges following the Vodacom acquisition. Assuming the middle of
range (£11.4bn), there is even scope to see some small EPS upgrades to 15.0-15.5p reflecting lower tax and interest charges. Underlying free cash flow unchanged although estimates may still increase by 3% to reflect the phasing of a £200m tax distribution from Verizon Wireless.
range (£11.4bn), there is even scope to see some small EPS upgrades to 15.0-15.5p reflecting lower tax and interest charges. Underlying free cash flow unchanged although estimates may still increase by 3% to reflect the phasing of a £200m tax distribution from Verizon Wireless.
BE:
Summary: Revenues clearly under pressure especially in Europe, reflecting GDP trends with both the UK and Turkey still disappointing. Italy, India and South Africa provide some offsetting bright spots. Cost reduction remains a key focus allowing underlying free cash flow to be broadly maintained. However, underlying declines in revenues and profits reduce earnings visibility and hence may limit any re-rating.
BE:
Valuation remains compelling, especially assuming that US dividends re-emerge in the future although no news on this front.
BE:
Citi — who I think are the other joint shop — take a Panglossian view of things
BE:
2010 FCF Guidance: Consensus Upgrades Possible — FCF guidance at the
mid-point is £250m above consensus (4%), £250m below our estimate and
10% above 2009. Long-term guidance of £5-6bn p.a. is too low, in our view.
£200m of tax distributions from the US have been delayed into 2010.
mid-point is £250m above consensus (4%), £250m below our estimate and
10% above 2009. Long-term guidance of £5-6bn p.a. is too low, in our view.
£200m of tax distributions from the US have been delayed into 2010.
2010 Profit Guidance: EPS stable? — Operating profit guidance at the midpoint
is £400-500m below consensus (4%), £500m below our estimate and 4%
below 2009 levels. Detailed tax and interest commentary is consistent with
small changes only to 2010E EPS consensus.
NH:
(Munger, been denied)
BE:
Current Sales Trends in Europe — Organic sales growth was 0.4% for the year,
negative in 4Q09. Sales in Europe fell (3.3)% in 4Q09, twice the rate of the
previous quarter. The pressure is widespread and reflects lower MOUs. Our
first picture shows Vodafone often in line with competitors.
negative in 4Q09. Sales in Europe fell (3.3)% in 4Q09, twice the rate of the
previous quarter. The pressure is widespread and reflects lower MOUs. Our
first picture shows Vodafone often in line with competitors.
Current Margin Trends in Europe — Group margins fell 1.5pp in 2H09. We see
little deterioration in margin trends in mobile and common functions compared
to 1H09, but 1pp of pressure more from fixed and recent acquisitions.
Vodafone needs to re-explain its fixed-line strategy and targets.
BE:
Emerging Market Trends: — Indian subscriber share take is firming but
revenue growth comes at lower margins (25% in 2H09). Turkish EBITDA fell
37% in 2009. Vodacom and Egypt remain strong.
revenue growth comes at lower margins (25% in 2H09). Turkish EBITDA fell
37% in 2009. Vodacom and Egypt remain strong.
Immediate Outlook Difficult — Although FCF consensus should rise this is a
low-quality FCF upgrade. Indeed operating trends are poor enough in several
countries to mean the market may take the lead from operating profit
(pressure) and earnings (little need to change post lower tax and interest).
BE:
And finally, SocGen, because they were the only sell I’ve received this morning
BE:
Results and outlook in line with downbeat consensus. In our report “A weakening cycle adds to structural risks” published on 13 May, we investigated the declining trends in consensus estimates over the last three months. Today’s results and management outlook came generally in line with those estimates (see table above), with the exception of higher EPS driven by a one-off effect (i.e., “a benefit from a favourable tax settlement”). To assess Vodafone’s (challenging) trading environment and scope for restructuring efforts, investors should focus on Y/Y organic trends (as defined by the company, i.e, clean of exchanges rate and changes in the perimeter of consolidation).
BE:
Group revenues fell in 4Q08/09 by -2.7% (vs -0.3% 3Q). Importantly the deterioration was widespread, with Europe falling from -1.4% to -3.3% q/q, Africa from +2.3% to -3.0%, Asia Pacific & Middle East from +8.4% to +3.9%. For the first time, management dropped guidance for revenues signaling the low degree of visibility they have on business outlook. To assess the effectiveness of management cost rationalization efforts we highlight that whereas 1H08/09 EBITDA fell by 3.2% (as disclosed by VOD), for the FY the decline was 3.5%, implying that during H2 EBITDA dipped by c. 3.8% (quarterly data are not available to assess deterioration on a quarterly basis). Cost cutting may still catch headlines but the reality looks more challenging with deteriorating revenue trends feeding into EBITDA.
BE:
We will review our estimates in the coming days. We are currently forecasting e12.3bn operating profit for the year to March 10e. However, this is based on lower depreciation charges (-£1.5bn impact) and a weaker exchange rate than guided by management (e/£ 1.15 vs company of e1.12, +£0.6bn impact). All other things being equal, this would bring our forecast back to £11.4bn, which would tally with guidance of £11.0-£11.8bn.
Reiterate Sell rating based on deteriorating trends and structural risks still on the horizon.
NH:
thanks for alll that
NH:
And the shares?
BE:
Down 0.65p at 126.8p.
BE:
Which is where they’ve been, give or take, since 2003
BE:
And will remain, most likely, unless they can figure out what to do about Verizon Wireless.
NH:
yeah, it must figure a way to get some dividends or sell the stake
11:27AM
NH:
Bryce
NH:
Monkey wants to know if you can see Murph’s diary
BE:
Only the internal electronic version …
NH:
any Webby’s date?
BE:
Er … not that I can see.
NH:
we are running out of time
BE:
I can tell you when he gets his performance review, but not the important stuff like Webbie drinks
NH:
ah, when’s that??
BE:
I would tell you …
BE:
But Lotus Notes is failing once again.
BE:
Ah – actually, it was in February
NH:
and he’s still with us
BE:
Yeah. Lucky it was before Cometgate.
NH:
anyway, the point about the Webby’s drinks is that we are running out of time
NH:
Paul is heading to the awards in june
NH:
then he is back off to the States in Aug
NH:
which gives us July
NH:
but there are holidays to think of
NH:
I reckon this might not materialise
NH:
BE:
If that happens, I’m sure the readers may be able to show more initiative than us.
11:31AM
NH:
Right some people asking about this counterbid story in BPP
BPP Holdings (BPP:LSE): Last: 560.50, no change, Volume: 0.00
BE:
Hm.
NH:
apparently Pearson the name in the frame
Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.
BE:
Hm.
NH:
we don’t want to comment on that for obvious reasons
BE:
Hm.
NH:
but one of our sister publications has
NH:
dealReporter
NH:
Speculation that Pearson, the UK-listed publishing company, could make a counter-bid for BPP Holdings, the UK-listed professional training business, is wide of the mark, this news service was told.
The rumour was generated after Schroders, BPP’s largest shareholder with a stake of around 17.4%, was last week reported to have said it would be interested in hearing from Pearson. The report said that earlier this year Pearson had been poised to acquire an unnamed UK-listed training company but that talks had broken off. Pearson, the owner of Mergermarket group, declined to comment.
Three weeks ago, BPP announced it had received an indicative GBP 6.20 per share offer from Apollo Global. Shares in the company are currently trading at 560p. The company went ex-div on 8 May.
It is understood that at the time of the announcement, the proposed bid, which values BPP at around GBP 300m, was viewed as a fair and full price. It was also said the approach was subject to further due diligence.
Washington Post Company’s education and training subsidiary Kaplan, which is understood to compete with BPP in several business areas, would face regulatory issues should it consider a bid, it was said.
BE:
Important to get dealReporter correctly capitalised.
NH:
it is
BE:
They get upset otherwise
NH:
right
NH:
email has kiked into life
NH:
and this just landed on Glencore
NH:
May 19 (Bloomberg) — Glencore International AG, the world’s
biggest commodity-trading company, posted a 69 percent drop in
first-quarter profit after metal and energy prices fell.
Net income before attribution to shareholders and adjusting for
minority interests slid to $444 million from $1.42 billion a year
earlier, the Baar, Switzerland-based company said in a report obtained
by Bloomberg News. Sales declined 50 percent to $20 billion.
biggest commodity-trading company, posted a 69 percent drop in
first-quarter profit after metal and energy prices fell.
Net income before attribution to shareholders and adjusting for
minority interests slid to $444 million from $1.42 billion a year
earlier, the Baar, Switzerland-based company said in a report obtained
by Bloomberg News. Sales declined 50 percent to $20 billion.
NH:
Glencore, led by Chief Executive Officer Ivan Glasenberg, had its
credit rating cut to the lowest investment grade in December by Standard
& Poor’s because of plunging metal prices. The employee-owned company
said in March that senior staff agreed to delay future termination
payments until at least January 2012 in an attempt to strengthen its
finances.
The company doesn’t publicly disclose information about its
financial performance on a quarterly basis, spokesman Marc Ocskay said
today in an e-mail.
credit rating cut to the lowest investment grade in December by Standard
& Poor’s because of plunging metal prices. The employee-owned company
said in March that senior staff agreed to delay future termination
payments until at least January 2012 in an attempt to strengthen its
finances.
The company doesn’t publicly disclose information about its
financial performance on a quarterly basis, spokesman Marc Ocskay said
today in an e-mail.
NH:
It shut the Rosaura zinc mine in Peru in December and said in March
output was suspended at the country’s Iscaycruz zinc mine. Zinc for
immediate delivery on the London Metal Exchange averaged $1,183 a metric
ton in the first quarter, 52 percent lower than a year earlier. Copper
and aluminum, which Glencore also produces, dropped 56 percent and 50
percent respectively.
Glencore sold the Prodeco coal assets in Colombia to Xstrata Plc
for $2 billion in March 3, using the proceeds to participate in Zug,
Switzerland-based Xstrata’s 4.1 billion- pound ($6.3 billion) rights
offer. Glencore is the largest investor in Xstrata, which reduced
ferrochrome and nickel production after prices fell and said in January
it wouldn’t pay a final dividend.
output was suspended at the country’s Iscaycruz zinc mine. Zinc for
immediate delivery on the London Metal Exchange averaged $1,183 a metric
ton in the first quarter, 52 percent lower than a year earlier. Copper
and aluminum, which Glencore also produces, dropped 56 percent and 50
percent respectively.
Glencore sold the Prodeco coal assets in Colombia to Xstrata Plc
for $2 billion in March 3, using the proceeds to participate in Zug,
Switzerland-based Xstrata’s 4.1 billion- pound ($6.3 billion) rights
offer. Glencore is the largest investor in Xstrata, which reduced
ferrochrome and nickel production after prices fell and said in January
it wouldn’t pay a final dividend.
BE:
Didn’t Glencore refinance out to 2012 the other week?
NH:
yeah, think it did. hang on, will dig out the piece
NH:
took on $5.5bn of fresh debt to refinance some other stuff
NH:
paid 225bps over Libor for it
NH:
(DSG are ex-rights)
BE:
Xstrata’s up 39p at 657p
BE:
(Ming the Merciful is shortest odds? Surprised at that.)
NH:
hang on Ming put threw some dodgy expenses didn’t he??
BE:
As revealed on Question Time I think.
BE:
And he was my MP for many years
11:37AM
BE:
Enough of that
BE:
Any 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:
a couple of bits
NH:
I am told the situation at Premier Foods is about to hot up again
BE:
er, forgotten what this story was can you refresh my memory
NH:
Kraft Foods bidding for one of their businesses
NH:
Mr Kippling Cakes was one idea
NH:
anyway, the idea seems to be that Kraft is back in the country and determined to buy something from Premier
NH:
and this time they are serious
BE:
Right.
BE:
was never really convinced Kraft wanted to buy any Premier brands
BE:
in fact it has dumped a load on them in recent years
BE:
but if you say there is something in it …
NH:
well I am just watching it at the moment
NH:
some good bandits talking about it
NH:
and telling me to keep it on the watch page
NH:
so I am
Premier Foods (PFD:LSE): Last: 37.00, up 1.75 (+4.96%), High: 37.00, Low: 35.00, Volume: 4.03m
NH:
If I hear any more, will update you
BE:
I see.
NH:
some interesting developments at Citigroup this morning
NH:
where rumours reach us of further departures
NH: can’t say who
why’s that?
nothing has been decided
BE:
Anyway, any more raw?
NH:
no, think that is it
11:42AM
NH:
Jeez
NH:
trash rallying hard this morning
NH:
especially commerical property
BE:
Land Secs up 7.9%
BE:
British Land ahead 5.1%
BE:
Hammerson up 5.3%
BE:
Eh?
NH:
well, the had a big fall the other day
NH:
think it was a record breaking fall
NH:
The sector was settling into a trading pattern with a bias to the long side until Wednesday when it hit the perfect storm. UK REITs turned in a -10% fall, the largest one day decline since the equity market crash of 1987. Land Securities suffered most at -13% to close on 468p (it briefly reached 600p post rights issue) on consensus prelims at the same time the BoE delivered its characteristically depressing outlook for the UK economy.
NH:
that’s from Nomura
NH:
and that was last Weds
NH:
actually have some more stuff through from the property team at Nomura
NH:
Monthly IPD Performance Data – April 2009
BE:
What’s that about?
NH:
some green shoots, things not getting worsem any quicker
NH:
The monthly 6% IPD capital value falls in November and December slowed to -3% in each of January thru March, and now we’ve had -2% in April. The rental value portion of the capital value decline has stayed in line with the average of the last few months at -1.0%, but the ‘denominator effect’ has slowed further, with a yield movement impact on capital values of -1.7% in April, versus -2.2% in March and -2.6% in February. We expect this trend to continue, with rental value declines increasing and cap rates levelling off and even reversing, especially in prime buildings where the leases are long enough to see through the rental recession.
BE:
Right.
BE:
So, stabilisation.
BE:
Like a plane that’s just hit an air pocket
BE:
We’re still 20’000 feet lower, but no longer think we’re about to crash
BE:
Great.
NH:
thanks
11:48AM
NH:
right, let’s have a look at the insurers
NH:
James Pearce has taken a stick to Standard Life
NH:
Very very aggressive note out of Cazenove this morning
NH:
Got an underperform rating on the stock.
NH:
Standard Life’s premium rating reflects its unusually strong capital position and low
recapitalisation risk, but elsewhere problems appear to be accumulating. There are huge
unanswered questions on succession and strategy given that the head of UK job has never
been filled, and given the planned retirement of group CEO Sir Sandy Crombie. The core UK
life operation appears to be struggling, judging by a 25% fall in new business profit in 2008
and a 30% fall in sales in Q109. Making good customer losses in “cash” funds cost
shareholders some £270m in 2008. Standard Life Bank has become even more dependent
on group support and faces deteriorating credit quality, albeit from very low default rates. If
financial market recovery continues, then a solvent balance sheet will become less rare.
However, few competitors have as many operational or management questions, and the
premium rating should evaporate, in our view. UNDERPERFORM.
recapitalisation risk, but elsewhere problems appear to be accumulating. There are huge
unanswered questions on succession and strategy given that the head of UK job has never
been filled, and given the planned retirement of group CEO Sir Sandy Crombie. The core UK
life operation appears to be struggling, judging by a 25% fall in new business profit in 2008
and a 30% fall in sales in Q109. Making good customer losses in “cash” funds cost
shareholders some £270m in 2008. Standard Life Bank has become even more dependent
on group support and faces deteriorating credit quality, albeit from very low default rates. If
financial market recovery continues, then a solvent balance sheet will become less rare.
However, few competitors have as many operational or management questions, and the
premium rating should evaporate, in our view. UNDERPERFORM.
BE:
So he’s basically saying Standard Life has been badly managed.
NH:
And some!
NH:
Standard Life’s strategy is up for grabs at the moment, due to the unusual succession situation. A
successor to longstanding group CEO Sir Sandy Crombie’s is now being sought, but “there is no
fixed timetable”. Given that the group has yet to fill the head of UK role vacated by Trevor
Matthews in January 2008 we do not expect to hear of Crombie’ successor any time soon.
successor to longstanding group CEO Sir Sandy Crombie’s is now being sought, but “there is no
fixed timetable”. Given that the group has yet to fill the head of UK role vacated by Trevor
Matthews in January 2008 we do not expect to hear of Crombie’ successor any time soon.
NH:
Meanwhile the Chairman has been angling for a role at the Bank of England (source: The Times,
March 9th), suggesting an appetite for further change at the top of the group.
This means that the leadership at both group level and within the group’s biggest division is an
unknown quantity, and second guessing strategic direction is more difficult than normal. We would
highlight the following issues as being critical for Sir Sandy’s eventual successor, if one is ever
found:
March 9th), suggesting an appetite for further change at the top of the group.
This means that the leadership at both group level and within the group’s biggest division is an
unknown quantity, and second guessing strategic direction is more difficult than normal. We would
highlight the following issues as being critical for Sir Sandy’s eventual successor, if one is ever
found:
NH:
The UK operation remains heavily dependent of pensions business, and therefore highly
dependent on continued pension tax relief and benign investment market conditions. Neither
can be relied on at present, in our view.
The international operations are an accident of Standard Life’s history rather than the result of a
conscious decision as to which markets will be most attractive in future. None of the non UK
operations has performed particularly well over the last decade.
Except for Standard Life Investments, the non insurance operations have yet to establish
standalone critical mass. Standard Life Bank is particularly problematic given the liquidity crisis
and its need for financial support from the life fund at each of the last two year ends. Even SLI’s
profile has been harmed by recent problems with two cash funds.
The remaining internal candidates to succeed Crombie are David Nish (CFO, Scottish, 48) and
Keith Skeoch (head of SLI, English, 52). Neither is a “Standard lifer”, with Nish joining in 2006 and
Skeoch in 1999. Although closely associated with the problematic bid for Resolution, Nish has
otherwise been a solid performer. Skeoch has stronger operating credibility, given the emergence
of SLI as a serious standalone player under his leadership, notwithstanding recent problems with
cash funds. However, neither has direct operational life insurance experience, which could be a
concern, particularly in the absence of a head of UK life.
dependent on continued pension tax relief and benign investment market conditions. Neither
can be relied on at present, in our view.
The international operations are an accident of Standard Life’s history rather than the result of a
conscious decision as to which markets will be most attractive in future. None of the non UK
operations has performed particularly well over the last decade.
Except for Standard Life Investments, the non insurance operations have yet to establish
standalone critical mass. Standard Life Bank is particularly problematic given the liquidity crisis
and its need for financial support from the life fund at each of the last two year ends. Even SLI’s
profile has been harmed by recent problems with two cash funds.
The remaining internal candidates to succeed Crombie are David Nish (CFO, Scottish, 48) and
Keith Skeoch (head of SLI, English, 52). Neither is a “Standard lifer”, with Nish joining in 2006 and
Skeoch in 1999. Although closely associated with the problematic bid for Resolution, Nish has
otherwise been a solid performer. Skeoch has stronger operating credibility, given the emergence
of SLI as a serious standalone player under his leadership, notwithstanding recent problems with
cash funds. However, neither has direct operational life insurance experience, which could be a
concern, particularly in the absence of a head of UK life.
BE:
If one is every found! — successor for Sir Sandy, that is.
NH:
Rather surprising that Crombie is there now.
NH:
He was previously chief investment officer – then deputy chief executive. Largely responsible for the dogged addiction to an overweight equity position that led S Life into trouble with the FSA
NH:
and subsequently forced it to demutualise.
BE:
Quite amazing – still there – and still no clear successor.
BE:
What’s the stock doing?
NH:
up, of course
NH:
it’s trash
NH:
8p better at 196.6p
BE:
And while we are in the insurance sector
BE:
JP Morgan are keen on RSA
BE:
Just grabbing the note
BE:
We are upgrading RSA to Overweight from Neutral, following a period
of underperformance against the wider insurance sector, as investors
have we believe switched from more defensive names such as RSA into
higher beta names within the sector (SXIP up 30% since 24 March,
RSA down 7%). We believe this has created a buying opportunity for
RSA, with the market price missing the attractive distribution in the
Nordic market.
of underperformance against the wider insurance sector, as investors
have we believe switched from more defensive names such as RSA into
higher beta names within the sector (SXIP up 30% since 24 March,
RSA down 7%). We believe this has created a buying opportunity for
RSA, with the market price missing the attractive distribution in the
Nordic market.
BE:
RSA’s focus away from consolidators and price comparison sites within
the UK (only 11% of premiums) means it is better placed than peers in
our opinion, and will be able to sustain lower combined ratios.
the UK (only 11% of premiums) means it is better placed than peers in
our opinion, and will be able to sustain lower combined ratios.
BE:
RSA provides cheap access to the Nordic insurance market through its
subsidiary Codan. In our opinion, the market undervalues this asset as
part of the group. By comparing to peers Topdanmark and TrygVesta,
the remaining business is valued at a large discount to book value (30%)
based on similar metrics.
subsidiary Codan. In our opinion, the market undervalues this asset as
part of the group. By comparing to peers Topdanmark and TrygVesta,
the remaining business is valued at a large discount to book value (30%)
based on similar metrics.
BE:
Surprisingly, given the quality of the Nordic business, RSA trades at a
lower P/NAV (1.1x) than ZFS (1.2x ’09E), Amlin (1.3x ’09E) and
Hiscox (1.4x ’09E). We expect there is around £260m remaining stock of
reserve releases within the UK business not included in the book value.
lower P/NAV (1.1x) than ZFS (1.2x ’09E), Amlin (1.3x ’09E) and
Hiscox (1.4x ’09E). We expect there is around £260m remaining stock of
reserve releases within the UK business not included in the book value.
BE:
Management retained guidance of 95% combined ratio for 2009 together
with investment income similar to 2007 levels. We believe management
should easily meet the target of matching 2007 investment income, due
to the wide spreads now available on AA bonds (approx 5.2%).
with investment income similar to 2007 levels. We believe management
should easily meet the target of matching 2007 investment income, due
to the wide spreads now available on AA bonds (approx 5.2%).
BE:
If M&A were to return to the sector we expect RSA’s share price to
benefit, we also believe improving yields would be positive. We expect
management to move the hold co to Ireland, following domestication of
the Irish branch, but have not allowed for the tax benefit associated with
this in our model.
benefit, we also believe improving yields would be positive. We expect
management to move the hold co to Ireland, following domestication of
the Irish branch, but have not allowed for the tax benefit associated with
this in our model.
BE:
That’s from Andrew X Hughes
11:52AM
NH:
interesting. there are some really aggressive notes out this morning and the market seems to be ignoring them. seen this note on Rolls Royce
NH:
talking them down to 240p
NH:
and the stock is off 0.75p at 345p
NH:
big downgrades too
BE:
This is from UBS, right?
BE:
What are they saying?
NH:
it is from UBS
NH:
and they are saying the obvious really
NH:
civil areospace and OE aftermarket look rubbish
NH:
yet concensus forecasts expect PTP to grow in 2010
NH:
and on top of all that, Rolls is trading on 16 times prospective earnings
NH:
WTF
NH:
here’s the note
NH:
We are cutting our Rolls def. EPS estimates by c7% in ‘10 and ‘11 and by c15% in both years
on a UBS adj. basis. Concurrently we are downgrading our rating on Rolls to Sell (from Neutral).
Our new estimates factor a weaker A380 delivery outlook, a downward revision to the pension
finance charge (following publication of the annual report) and the impact of the US$ weakening
from US$1.40 to US$1.50. Our estimates are now c10% below consensus in 2010 and 2011.
on a UBS adj. basis. Concurrently we are downgrading our rating on Rolls to Sell (from Neutral).
Our new estimates factor a weaker A380 delivery outlook, a downward revision to the pension
finance charge (following publication of the annual report) and the impact of the US$ weakening
from US$1.40 to US$1.50. Our estimates are now c10% below consensus in 2010 and 2011.
NH:
Expect two years of falling profits and cash out-flows
We expect profits to fall at Rolls-Royce for two consecutive years in 2009 and 2010 given the
weak state of the civil aerospace OE cycle and aftermarket. Consensus expects PTP to grow in
2010. We also expect cash outflows from the group over each of the next two years as working
capital gets pressured from customers and suppliers and as customer financing becomes more
prevalent.
We expect profits to fall at Rolls-Royce for two consecutive years in 2009 and 2010 given the
weak state of the civil aerospace OE cycle and aftermarket. Consensus expects PTP to grow in
2010. We also expect cash outflows from the group over each of the next two years as working
capital gets pressured from customers and suppliers and as customer financing becomes more
prevalent.
NH:
Trading on too rich a valuation
On our estimates Rolls is trading on a 2010e EV/EBITA of 11x – the very top of the normal
sector range and a P/E of 16x. Despite our view that 2010 will likely mark trough earnings, we
believe Rolls’ valuation is too rich given the prospect of the market revising down earnings
expectations and the need for an accounting related discount – an issue which may gain
relevance as cash generation weakens.
On our estimates Rolls is trading on a 2010e EV/EBITA of 11x – the very top of the normal
sector range and a P/E of 16x. Despite our view that 2010 will likely mark trough earnings, we
believe Rolls’ valuation is too rich given the prospect of the market revising down earnings
expectations and the need for an accounting related discount – an issue which may gain
relevance as cash generation weakens.
Valuation; Maintaining 280p price target
Our 280p PT is predicated on Rolls trading on a 2010 EV/EBITA of 9.6x, towards the middle of
the normal 9-11x forward sector trading range.
NH:
trash really being bid up in this rally
NH:
and we have not even had any green shoot data this morning
BE:
Hm.
BE:
Rolls always struck me as one of those stocks you either believe in or don’t.
NH:
all very puzzling
BE:
Decent company, good delivery record, bad end markets.
BE:
Not sure any sell-side argument’s going to swing the investors either way.
BE:
Oh, and while we’re mentioning green shoots …
BE:
Just got the latest 360 sector view from Collins Stewart
NH:
what?
BE:
With perhaps the most laboured analogy I’ve ever seen
BE:
You reap what you sow
BE:
The seasonal cycle. Preparing the ground properly for harvest requires
extensive hard work, the soil must be turned allowing defunct companies to
rot and provide nutrients for the next harvest. Rocks and bad seeds must be
removed allowing the next plant to grow without restrictions.
extensive hard work, the soil must be turned allowing defunct companies to
rot and provide nutrients for the next harvest. Rocks and bad seeds must be
removed allowing the next plant to grow without restrictions.
BE:
Government manure. Political farmers all around the world are talking about
‘green shoots’. The future of these green shoots is seriously at risk. The soil in
which they are growing is so full of government stimulus fertilizer that this may
well burn the seed. The plants are watered with so much TARP liquidity that
the seeds are at risk of rotting. Should any of these survive, the regulatory
pesticides used on them will completely alter the taste of their fruits and they
will be ill-equipped to defend themselves against competitive elements in the
real world. The government is trying to grow genetically-modified companies
which might offer a short-term yield but the long term inflationary damage to
the environment has yet to be seen. In the end, these green shoots are simply
just weeds – time to do some weed whacking!
‘green shoots’. The future of these green shoots is seriously at risk. The soil in
which they are growing is so full of government stimulus fertilizer that this may
well burn the seed. The plants are watered with so much TARP liquidity that
the seeds are at risk of rotting. Should any of these survive, the regulatory
pesticides used on them will completely alter the taste of their fruits and they
will be ill-equipped to defend themselves against competitive elements in the
real world. The government is trying to grow genetically-modified companies
which might offer a short-term yield but the long term inflationary damage to
the environment has yet to be seen. In the end, these green shoots are simply
just weeds – time to do some weed whacking!
BE:
In search of fertile ground. Banks have been the favoured crop for a very
long time. They have been grown year after year to the point that pathogens
(credit default) and pests (Ponzi schemes) became abundant. Crop rotation is
now necessary and the most fertile ground will be found in the defensive
sectors and Resources.
long time. They have been grown year after year to the point that pathogens
(credit default) and pests (Ponzi schemes) became abundant. Crop rotation is
now necessary and the most fertile ground will be found in the defensive
sectors and Resources.
NH:
this is tortured
BE:
That’s from Eric Lanteigne, part-time farmer
NH:
results out from CS as well today
11:58AM
NH:
Almost time to finish up
NH:
before we do
NH:
the GBK
NH:
we should just have a look because it is very strong
NH:
against the dollar $1.55
NH:
and against the Euro 0.879p
NH:
from what our currency people are saying
NH:
seems to be taking its cue from the equity market
NH:
risk appetite back
BE:
Also note CPI was lowest since Jan 2008
BE:
2.3% in April,
NH:
of course
BE:
Consensus was 2.4%
BE:
RPI was -1.2%
BE:
Reflecting the collapse in mortgage rates
NH:
LONDON, May 19 (Reuters) – British consumer price inflation fell to its lowest level in over a year in April after bigger-than-expected declines in the cost of food, gas and electricity, official data showed on Tuesday.
The Office for National Statistics said consumer prices rose just 0.2 percent last month, taking the annual rate down to 2.3 percent from 2.9 percent in March — the lowest since January 2008 and below the 2.4 percent expected by analysts.
The broader RPI measure of inflation, which includes falling mortgage interest payments and is used in many wage and benefit agreements, fell to -1.2 percent, the lowest since records began in June 1948.
CPI remains above the Bank of England’s 2 percent target but policymakers expect further sharp declines in inflation as the economy is on track to shrink at its fastest since World War Two this year, and are more focused on reviving growth.
The Office for National Statistics said consumer prices rose just 0.2 percent last month, taking the annual rate down to 2.3 percent from 2.9 percent in March — the lowest since January 2008 and below the 2.4 percent expected by analysts.
The broader RPI measure of inflation, which includes falling mortgage interest payments and is used in many wage and benefit agreements, fell to -1.2 percent, the lowest since records began in June 1948.
CPI remains above the Bank of England’s 2 percent target but policymakers expect further sharp declines in inflation as the economy is on track to shrink at its fastest since World War Two this year, and are more focused on reviving growth.
BE:
Quick note from Karen Ward at HSBC on the figures
BE:
Food and energy prices continue to account for much of the volatility in headline inflation.
Utility and petrol prices were both lower than a year ago. Food price inflation is finally
slowing; the annual rate of food price inflation eased to 9.2% from 11.3% in March.
Some of the weakness in other components was temporary, arising from the fact that the
Budget was delivered relatively late this year and thus tax increases will raise prices a month
later than they did last year. This temporarily depressed inflation in alcohol, cigarettes and
restaurants and hotels. But some of the strength in prices over the past couple of months,
particularly in games and toys, was unwound. It seems that the decline in sterling is putting
upward pressure on final goods prices, but retailers are struggling to make price increases stick.
Utility and petrol prices were both lower than a year ago. Food price inflation is finally
slowing; the annual rate of food price inflation eased to 9.2% from 11.3% in March.
Some of the weakness in other components was temporary, arising from the fact that the
Budget was delivered relatively late this year and thus tax increases will raise prices a month
later than they did last year. This temporarily depressed inflation in alcohol, cigarettes and
restaurants and hotels. But some of the strength in prices over the past couple of months,
particularly in games and toys, was unwound. It seems that the decline in sterling is putting
upward pressure on final goods prices, but retailers are struggling to make price increases stick.
BE:
In the coming months, the food and energy components will continue to put downward
pressure on both measures of inflation, although this will be limited by the recent drift up in
commodity prices, and the delayed impact of tax increases. Lower interest payments will be
the dominant force driving RPI deflation to -2.7% by September. However, after this lull we
expect a swift turnaround in inflation on both indices as base effects from energy and food
drop out of the annual calculation, and nominal demand strengthens leading to upward
pressure on core prices. We expect RPI of 4.6% in December 2010.
pressure on both measures of inflation, although this will be limited by the recent drift up in
commodity prices, and the delayed impact of tax increases. Lower interest payments will be
the dominant force driving RPI deflation to -2.7% by September. However, after this lull we
expect a swift turnaround in inflation on both indices as base effects from energy and food
drop out of the annual calculation, and nominal demand strengthens leading to upward
pressure on core prices. We expect RPI of 4.6% in December 2010.
NH:
thanks for that, and here’s the FT’s take on the Martin departure
NH:
Michael Martin is to resign as Common Speaker on Tuesday after losing the confidence of many MPs and party leaders over his handling of the Westminster expenses furore.
The Speaker decided to bow to his critics and announce his departure after enduring a battering in the press over his defiant statement on Monday. It is unclear whether Mr Martin will go immediately or stay on until the general election
NH:
If he steps down immediately, Mr Martin will become the first Speaker of the House to be publicly forced to resign since John Trevor was forced out in 1695 after being caught accepting a bribe.
Mr Martin was due to meet with all the party leaders at 4pm on Tuesday to explore options for expenses reform. Some senior MPs speculated that Gordon Brown privately withdrew his support before the gathering, leaving Mr Martin with little option but to resign.
NH:
Downing Street declined to comment. Mr Brown will be holding a monthly news conference at 5pm, where he is expected to unveil ideas for further constitutional reforms.
Senior MPs from all three main parties broke with centuries of tradition on Monday calling for the Speaker to resign. About 20 backbenchers have signed a motion of no confidence in the Speaker, which they hoped to debate in the Commons and bring to a vote.
Mr Martin offered an apology during the statement. But many MPs and ministers thought he misjudged the mood of the Commons and wasted a last opportunity to hold on to his job.
NH:
The resignation will begin the race to elect a new Speaker. Early favourites include the Sir George Young, a Tory former cabinet minister, Sir Alan Haselhurst, the Tory deputy Speaker and Sir Menzies Campbell, the former Liberal Democrat leader.
Before the reports of Mr Martin’s resignation, Mr Cameron said his departure would do little to assuage public anger over expenses.
BE:
Just looking back at those Paddy Power odds …
BE:
Frank Field at 4/1 looks a decent punt
NH:
Frank Field, the man who blames short sellers for the financial crisis
BE:
That’s the one.
NH:
we don’t wany him in the seat
BE:
Be a popular appointment though
BE:
With the torchbearers and the pitchfork wielders
NH:
right, we are done
NH:
but before we go
NH:
some stuff on Icap
BE:
Up 8.2% at 432p
NH:
all looks to be in line with expectations
NH:
and Icap are making all the right sort of noises about post trade services
BE:
Wouldn’t want to annoy Spencer by suggesting it’s part of the D for T
NH:
and they seem to have be having some success there
NH:
of course they are also in talks to buy Clearnet
NH:
actually good note out from Philip Middleton at Merrill
NH:
which sums up why the bank likes the numbers
NH:
ICAP’s FY 09 results were broadly consistent with our estimates, whilst
confirming the strategic progress which the company continues to make.
Total turnover, at £1.6bn, was 4.3% ahead of our estimates, with all segments
ahead. Costs, too, were a bit higher than we had expected, at £1.26bn (vs.
£1.18bn e). Net income was modestly better than our estimates, at -£24m (vs. -
£26me), and with other income and associates both a bit better than we were
looking for, overall PBT pre goodwill ended up at £346m, 1.6% below our
estimates, but in the midst of ICAP’s preclose guidance. A lower tax charge and
a modestly lower share count led to eps ex exceptionals and goodwill coming in
0.8% ahead of our modestly above consensus estimates, at 34.1p. The dividend
moved up in line with eps, a fraction lower than our expectations, and came in at
17.05p.
confirming the strategic progress which the company continues to make.
Total turnover, at £1.6bn, was 4.3% ahead of our estimates, with all segments
ahead. Costs, too, were a bit higher than we had expected, at £1.26bn (vs.
£1.18bn e). Net income was modestly better than our estimates, at -£24m (vs. -
£26me), and with other income and associates both a bit better than we were
looking for, overall PBT pre goodwill ended up at £346m, 1.6% below our
estimates, but in the midst of ICAP’s preclose guidance. A lower tax charge and
a modestly lower share count led to eps ex exceptionals and goodwill coming in
0.8% ahead of our modestly above consensus estimates, at 34.1p. The dividend
moved up in line with eps, a fraction lower than our expectations, and came in at
17.05p.
NH:
Divisionally, information came in £1m better than our expectations, electronic
£6m ahead and voice £2m lower.
£6m ahead and voice £2m lower.
Two additional pieces of disclosure struck us as important. Firstly, ICAP provided
some data on its post trade businesses, which generated £87m of revenue and
£43m of operating profit in FY 09 (presently, these are bracketed with electronic
in the company’s disclosure). Thus, the post trade businesses are not only
profitable, but high margin, in spite of Traiana’s still nascent operations.
NH:
Secondly, the company reports that the it has made investments in growth areas,
and in integrating acquisitions, which depressed the operating margin by around
2%. To put it another way, the company could have outperformed expectations
considerably had it not chosen to invest for future growth. In addition, ICAP has
continued to spend heavily on technology, spending 11% of revenue on
technology development in the year.
and in integrating acquisitions, which depressed the operating margin by around
2%. To put it another way, the company could have outperformed expectations
considerably had it not chosen to invest for future growth. In addition, ICAP has
continued to spend heavily on technology, spending 11% of revenue on
technology development in the year.
In our view, this is a key strategic positive for the company. It has consistently
operated with a view to future growth, rather than maximising current profitability,
and it has maintained this approach even in the current difficult circumstances.
NH:
services industry”. As usual, there is no guidance at this stage of the calendar.
The company’s comments on OTC regulation are unsurprising but sensible, with
ICAP underlining the steps made to increate the robustness of the OTC market,
and the extensive nature of OTC clearing.
Overall, we would see ICAP’s results as encouraging, but not very surprising, and
we are unlikely to do much with our estimates. We continue to like the company
as it is using its market leadership to enable it to invest in future growth areas.
We think its strategic positioning fits excellently with current conditions, and
reiterate our Buy recommendation.
The company’s comments on OTC regulation are unsurprising but sensible, with
ICAP underlining the steps made to increate the robustness of the OTC market,
and the extensive nature of OTC clearing.
Overall, we would see ICAP’s results as encouraging, but not very surprising, and
we are unlikely to do much with our estimates. We continue to like the company
as it is using its market leadership to enable it to invest in future growth areas.
We think its strategic positioning fits excellently with current conditions, and
reiterate our Buy recommendation.
NH:
that is all for this morning’s session
NH:
must dash
NH:
have a lunch appointment
NH:
hopefully murph will be back tomorrow
NH:
and we will have email again
BE:
Indeed. And indeed.
BE:
Thanks for all the comments.
BE:
And good afternoon.
NH:
see ya