Markets live chat transcript for the chat ending at 12:08 on 27 May 2009. Participants in this chat were: Paul Murphy, FT (PM) Bryce Elder (BE)
PM:
Okay
PM:
It’s 11.04
PM:
This is Markets Live
PM:
Bryce is here with me
PM:
Bryce has a tendency to be even later than Neil
BE:
Hi
PM:
PM:
And me
PM:
Anyway
BE:
I do work on the over side of the office you know
BE:
It’s a long walk …
PM:
yes yes
PM:
Let’s get on
PM:
We got our pants sent on fire yesterday afternoon.
BE:
Huge turnround on Wall St – wiped out losses over here and sent the Footsie back above 4400
PM:
Where it shouldn’t be
PM:
BE:
Turning into quite a battle really
BE:
You look at the chart over the past three/four weeks.
BE:
The footsie literally pings backwards and forwards between 4460 and 4320.
PM:
And today?
BE:
Today is an “up” day
BE:
In a small and uncertain way.
BE:
“Rangebound” springs to mind
BE:
FTSE’s +14 points at 4425
11:07AM
PM:
I am increasingly confident that our bear position is the correct one.
PM:
The political structure in Britain is imploding.
PM:
Over in China there are increasing signs that even command and control “economic stimulus” is fading.
BE:
If the market Maoists can’t organise reflation, what hope have our lot got?
PM:
And then there’s the US, where we’ve got a fresh load of evidence overnight as to how the whole thing is being fudged and scammed.
BE:
Saw your post earlier on mark to market accounting.
BE:
Which the US banks basically want to abolish, if possible.
PM:
Hmm – I did find that strange.
PM:
As tho they are arguing against the idea of a bid/offer spread.
PM:
Saying that for financial instruments, if the seller doesn’t like the price then the price must be wrong.
PM:
Go figure!
PM:
Vegman — no fresh news from China
PM:
Just noted a piece this morning that they are spending loads of their stimulus money on solar power panels
PM:
BE:
Oh, and from the US there is also this – from the Journal
BE:
Some banks are prodding the government to let them use public money to help buy troubled assets from the banks themselves.
Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government’s Public Private Investment Program.
Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government’s Public Private Investment Program.
BE:
PPIP was hatched by the Obama administration as a way for banks to sell hard-to-value loans and securities to private investors, who would get financial aid as an enticement to help them unclog bank balance sheets.
PM:
Hmm
PM:
Everybody said at the time when the PPIP came out that there was a danger of the banks gaming the system
PM:
You take my crap, make the public wear the losses, and then I’ll buy it back – with flexi-government financing.
PM:
What the hell is going on?
BE:
Where’s starstrike when you need hiM?
PM:
Ah, I’m sure he’s lurking. Everyone is slowly coming round to his way of thinking
PM:
Well some of us are
PM:
Anyway, let’s get on with some stock specific stuff – and we can come back to strategy
11:12AM
PM:
Where now?
BE:
Banks?
BE:
Nationwide numbers today
BE:
Which were rubbish
PM:
Reaction?
BE:
Er, limited
BE:
Barclays up a touch
Barclays PLC (BARC:LSE): Last: 293.50, up 4.25 (+1.47%), High: 299.75, Low: 287.00, Volume: 16.37m
BE:
Lloyds down a touch
Lloyds Banking Group (LLOY:LSE): Last: 66.70, down 0.1 (-0.15%), High: 69.60, Low: 65.30, Volume: 22.52m
BE:
RBS ….
Royal Bank of Scotland Group (RBS:LSE): Last: 40.80, up 0.6 (+1.49%), High: 41.70, Low: 40.40, Volume: 20.28m
PM:
Have you got the Jonathan Pierce note Credit suisse sent out earlier?
BE:
Sure.
BE:
Nationwide released its full year results to April 2009 this morning. Pre-tax profits were £212m versus £686m in 2007/08.
BE:
Part of the decline was due to an FSCS levy of £241m. These levies are used to reimburse the Treasury for the next three years of interest payments on loans it has made to the scheme to cover failed deposit-taking institutions. The charge is set in relation to deposit balances and represents about 19bps of Nationwide’s base. This compares to the 14bps taken at Lloyds TSB and HBOS implying a further charge here of around £100m. We have more than this in our numbers already.
BE:
By far the most interesting aspect of the numbers, though, was the margin. It fell to 0.87% in the 6 months to April 2009 from 0.99% in the 6 months to September 2008 and 1.12% in the year to April 2008. The group points to two of our main concerns – the negative carry of holding more liquid assets and increased cost of funding. These two items accounted for 14bps of the 19bps decline in margin year-on-year with the rest accounted for by a reduced base rate : LIBOR benefit (the group used to have a fairly significant net LIBOR asset position, but that has reduced). Higher asset yields are helping but the company comments that slower loan origination is curbing the benefit.
BE:
The outlook statement on margins is also quite negative. It sees the rate of decline slowing, but says “The cost of retail and wholesale funding and our prudent approach to liquidity management will continue to exert downward pressure on margins and this trend will be compounded by the full year impact of the low interest rate environment”. In particular it points to “intensive competion for high quality mortgages and deposits” particularly in an environment where it sees negative deposit and mortgage growth this year.
BE:
Combined with an expectation for higher impairments, Nationwide concludes that underlying profits in the year to April 2010 will trend inline with the 6 months to April 2009. This is a significant statement as in the 6 months to April 2009 the group generated underlying PBT of just £71m versus £322m in the 6 months to September 2008. In fact, the group also says there is “scope for further reduction dependent upon the level of competition for retail funds and the performance of the wider economy”.
BE:
That Nationwide can be flagging a potential decline in profits towards zero (or even negative?) in the next 12 months is clearly bad news for the UK domestic banks. Our focus remains the margin which fell 12% at Nationwide in the last 6 months alone. This follows recent RBS guidance which we believe is implictly pointing to a 30%+ fall in its margin this year. This scuppers any suggestion that asset yields will drive margin up over the next year or two, in our view.
BE:
We remain particularly concerned by LBG. We believe it is effectively paying LIBOR + 150bps for Government funds, new deposit margins across the industry have gone notably negative (up to 250bps for the best accounts), its existing deposit book generates 35% of pre-provision profits (on our estimates) but ex the structural hedge we believe related margins have also gone negative, it is experiencing modest deposit outflows, and still has considerable exposure to sub-3 month wholesale funding. We think the potential decline in mortgage balances might also make it harder for LBG to meet Government lending targets over the next two years. Again these are likely to be at the expense of margin, in our view. Our longer term view also holds – that structurally lower margins, reduced non-interest income and a higher cost asset ratio (a consequence of running a deposit led business) will mean the bank struggles to generate a return significantly ahead of its COE (like in every decade since 1920, ex the 1990’s). At 1.4 times PV 2011E TNAV, we therefore think the shares are expensive and remain on Underperform.
We remain particularly concerned by LBG. We believe it is effectively paying LIBOR + 150bps for Government funds, new deposit margins across the industry have gone notably negative (up to 250bps for the best accounts), its existing deposit book generates 35% of pre-provision profits (on our estimates) but ex the structural hedge we believe related margins have also gone negative, it is experiencing modest deposit outflows, and still has considerable exposure to sub-3 month wholesale funding. We think the potential decline in mortgage balances might also make it harder for LBG to meet Government lending targets over the next two years. Again these are likely to be at the expense of margin, in our view. Our longer term view also holds – that structurally lower margins, reduced non-interest income and a higher cost asset ratio (a consequence of running a deposit led business) will mean the bank struggles to generate a return significantly ahead of its COE (like in every decade since 1920, ex the 1990’s). At 1.4 times PV 2011E TNAV, we therefore think the shares are expensive and remain on Underperform.
BE:
We reattach our note on LBG from April which discussed the balance sheet, funding and margin issue in more detail.
PM:
Thanks for all taht
BE:
I will put that April note from Pierce up in the LR
BE:
It’s about 20 pages long so am not going to start doing extracts here.
PM:
Er, no
PM:
Also, while we are on the banks
PM:
We can discuss former banks
PM:
Like Bradford and Bingley
BE:
Yup
BE:
Good post from you this morning on that particular scandalette.
PM:
bizarre
PM:
end of day announcement
PM:
no context or explanatoin
BE:
Now, regular readers may remember I mentioned shoulder-surfing a B&B flak discussing exactly this announcement on their Blackberry
PM:
ah yes
BE:
On the Central Line tube, about six weeks ago
BE:
Everything is more or less identical to what came out
BE:
Six – weeks – ago
BE:
That, alone, I find a bit of a shocker
PM:
yeah, well if its is government owned then they can just ignore all the market abuse regime stuff that is applied to the rest of the financial world
PM:
FSA rulebook doesnt count
PM:
i guess
PM:
Actually — you said this guy was a flak — as in a felt
BE:
Well – flak or civil servant …
BE:
I’m assuming because of the nylon suit
PM:
ah — was just wondering why they might still have a PR
BE:
And the fact that he was travelling on the tube to the same scummy bit of West London as me
PM:
Spending our money on non-communication
BE:
Anyway, we’re probably best to move on before we get a call from Damian McBride
11:22AM
PM:
Question to the right about JJB sports
PM:
Been some big big trade this morning
PM:
But must confess we are still trying to get some guidance on that
PM:
Will pass it on as soon as we do
PM:
JJB is up 1.25p at 36p currently
PM:
Dangerous one to play tho, to my mind
11:23AM
BE:
Mention of Fresnillo to the right.
BE:
The Mexican precious metals miner, so far not suffering from H1N1.
BE:
Will just dig out some comment.
PM:
Oh do if you can Bryce
BE:
Actually, no-one’s said anything interesting yet.
BE:
But hopefully, we can revisit the theme before the end of the session.
11:26AM
PM:
Okay, let’s look at something completely different
BE:
How about Misys?
Strange software outfit, seemingly controlled by US investor ValueAct Capital.
BE:
And that autotext probably needs an update.
PM:
PM:
Got to go thru all the autoquote things
BE:
Not that it’s wrong, just a bit out of date.
PM:
So what’s the news?
PM:
On Misys
BE:
Refinancing
BE:
Following its bafflingly constructed $305m acquisition of Allscripts, which was due to complete in September 2008.
BE:
And was totally funded with debt provided by Lehman Brothers
BE:
So when Lehman went down the plughole they scrambled to put together a bridge loan to complete the deal
BE:
More than half of which came from ValueAct Capital, its biggest shareholder. (And the former employer of its CEO Mike Lawrie)
BE:
So Valueact was apparently charging Misys 6.5% over Libor at the start, with the rate ratcheting higher towards loan shark levels from January.
PM:
Nice.
BE:
Yup. So anyway, the new deal today has cut it to 2.5-2.5% over Libor for £210m.
BE:
And, with Misys saying they’ve cut debt from £200m at the full-year to nearer £135m by its FY, the theory is they should be okay.
PM:
Hmm — interesting
PM:
Any comment on this?
BE:
Sure
BE:
the refi’s been welcomed, needless to say
BE:
but the general theme is that there’s not enough information to know whether it’s worth holding your nose and buying Misys.
BE:
Starting with George O’Connor at Panmure
BE:
News of a new loan and cash facility is good housekeeping in the wake of the
company losing Lehmans last year, as it went to conclude the Allscripys
acquisition. It also serves to remind us that Misys remains ill-configured and that, as it addressed scale in its Healthcare division, the other two operating units, Capital markets and Banking, are likely in time to be ‘bulked out’. We retain our Hold recommendation.
company losing Lehmans last year, as it went to conclude the Allscripys
acquisition. It also serves to remind us that Misys remains ill-configured and that, as it addressed scale in its Healthcare division, the other two operating units, Capital markets and Banking, are likely in time to be ‘bulked out’. We retain our Hold recommendation.
BE:
Milan Radia at Jeffries
BE:
The debt refinancing confirms careful and solid execution on the part of Misys management. The Allscripts-Misys business continues to make strong strategic progress ahead of the commencement of the flow of funds from the US Stimulus Plan into the EHR market. Backing out the current value of Misys’ 56.7% shareholding in Allscripts-Misys, leaves the remaining Banking and Treasury & Capital Markets (TCM) divisions trading on an implied EV/EBITDA multiple of 2.4x, representing a 70% discount to the average trading multiple of its financial systems peer group. The stock has performed strongly this year, but the valuation story for Misys remains highly compelling, in turn bolstered by the impressive software licence traction demonstrated during Q3 09. We retain our Buy rating on the stock with a £1.90 PT.
BE:
Investec
BE:
Forecast upgrades We estimate this could lead to a 4% EPS upgrade on our FY10 forecasts. However, we had already assumed that the interest charge would fall materially during FY10E, effectively hoping for this refinancing.
BE:
Trading read-across Separately, the statement alludes to this being a positive endorsement of the Misys turnaround and strength of the business model. While we cannot be completely sure, we would be surprised if this was alluded to if trading was not progressing well. This is the last week of Misys’ trading year and on balance we would take this as a positive signal.
BE:
Investment view Our positive stance has rested on the group being exposed to the US healthcare stimulus, trading well through the banking crisis and now positioned for any improved sentiment, combined with our belief that FY10E consensus forecasts are likely to move up. We expect today’s news will help to support FY10E forecasts. We maintain our Buy stance and FY10E PE-based target price of 185p.
BE:
And finally, a line from Deutsche Bank
BE:
although the terms of prior facilities have not been disclosed, we were modeling a blended 8% interest, so this agreement provides a 45-55% reduction in interest expenses and a 4-5% earnings accretion on our FY10 estimates.
BE:
Pending further details, we maintain estimates and Hold rating: although the group has delivered well through this economic crisis and, in our opinion, management deserves credit, on balance, the healthcare business has started to feel the effects of the slowdown, and instances of demand contraction even for the so-far resilient global services unit (e.g. banking -6% in Q3) have emerged. In light of the macro environment and the execution risks particularly in banking and healthcare, we maintain our cautious stance.
BE:
Our 135p target prices is based on a conservative multiple of 2x FY10E
recurring revenues. Key risks: upside – a faster turnaround of banking business; cost savings coming through faster than expected, downside – economic downturn worsens, market share loss in banking.
recurring revenues. Key risks: upside – a faster turnaround of banking business; cost savings coming through faster than expected, downside – economic downturn worsens, market share loss in banking.
PM:
thanks for all that
11:31AM
PM:
Now Bohemia was mentioning the scorched digits in Jessops this morning
BE:
Quite so.
PM:
Any thoughts on that Bryce?
PM:
Bit small cap corner-ish — but so what
BE:
True. And smaller than ever.
BE:
I guess it’s another indicator that the dash to trash is very much over.
PM:
Whoa – its that price right?
PM:
down 4.3 at 2.35???
PM:
Off 64%
BE:
Ugly, isn’t it?
BE:
They were above 8p at the start of the month.
PM:
So – profit warning?
BE:
Everything warning.
BE:
Talks with lenders continuing but shareholders unlikely to realise any value from their equity
PM:
oh dear
PM:
It’s actually sayign that?
BE:
Yup.
BE:
And the accountants have given another “emphasis of matter” statement
BE:
“… a material uncertainty which may cast significant doubt on the Group.s ability to continue as a going concern”
PM:
Oh dear. Oh dear. Oh dear.
BE:
Here’s what David Adams, Executive Chairman, says
BE:
He was, of course, dropped into the business in an attempt to rescue it
BE:
: ‘Since my arrival at Jessops in 2007, the team has worked very hard in extremely challenging conditions to secure a successful future for the business. We have reduced costs wherever possible, worked closely with suppliers and explored a range of options to deliver a sustainable future for Jessops.
‘In January we said that we were in discussions with our advisers and HSBC Bank and that it was highly likely that this exercise would involve a fundamental restructuring of our debt. These discussions continue. Regrettably however, against the backdrop of the challenging retail environment and the historic level of debt, the board believes that it is unlikely that any value will be attributed to shareholders. Nevertheless we are still working with HSBC towards a solvent solution for the business.’
BE:
All very negative …
BE:
Excure the pun.
PM:
How much debt has this thing got?
BE:
£61.8m at the period end, including finance leases.
PM:
And how much is it losing?
BE:
£6m at the operating level in the first half.
BE:
When sales were down 4.5%, and gross margin took a 270 bip hit
BE:
Cost savings should be enough for break-even if it can survive to the full year, for what it’s worth.
BE:
Which, at this stage, is quite clearly not a lot.
PM:
okay — well one to watch from behind the sofa i think
BE:
Or from a dark room …
11:36AM
PM:
Some one asked earlier for Don Coxe’s Basic Points, May edition
PM:
Fraid we don’t have that
PM:
He’s the Bank of Montreal strategist
PM:
Very good — but his research is quite tightly held
PM:
Obvoiusly, if we do get a copy…
PM:
What strategy do we have Bryce?
BE:
Well there’s Teun – but it is not really strategy
BE:
It’s his new market neutral stock filter thingy.
PM:
Ah yes, probably more suitable for the Long Room
PM:
This is Teun Draaisma for Morgan Stanley, of course
BE:
Hang on!
BE:
Potential sell ideas.
BE:
PUNCH TAVERNS Consumer Discretionary £ 1.40 3.3 17.1 1
ENIRO Consumer Discretionary SEK 23.50 3.1 15.6 3
DAILY MAIL & GEN TRUST A Consumer Discretionary £ 3.02 0.4 13.1 4
BELLWAY Consumer Discretionary £ 6.72 3.9 17.9 4
KINGFISHER Consumer Discretionary £ 1.80 2.5 11.8 3
PROSIEBEN SAT1 MEDIA VZ Consumer Discretionary € 4.59 4.6 13.3 4
BMW STAMM Consumer Discretionary € 24.88 0.8 8.3 3
RENAULT
PUNCH TAVERNS Consumer Discretionary £ 1.40 3.3 17.1 1
ENIRO Consumer Discretionary SEK 23.50 3.1 15.6 3
DAILY MAIL & GEN TRUST A Consumer Discretionary £ 3.02 0.4 13.1 4
BELLWAY Consumer Discretionary £ 6.72 3.9 17.9 4
KINGFISHER Consumer Discretionary £ 1.80 2.5 11.8 3
PROSIEBEN SAT1 MEDIA VZ Consumer Discretionary € 4.59 4.6 13.3 4
BMW STAMM Consumer Discretionary € 24.88 0.8 8.3 3
RENAULT
PM:
Good man Teun
PM:
A seller of both Toxic Pubs and Toxic media.
BE:
Can the Daily Mail give you cancer?
PM:
PM:
It’s a good question.
PM:
Out of interest – or at least balance – what are his top buys?
BE:
TELECINCO Consumer Discretionary € 7.06 39.9 4.4 5
MTG MODERN TIMES GROUP B Consumer Discretionary SEK 220.50 26.3 4.5 6
MEDIASET Consumer Discretionary € 4.20 21.4 3.4 5
NEXT Consumer Discretionary £ 14.57 44.6 5.8 6
SMITH (WH) Consumer Discretionary £ 4.37 45.4 5.9 7
OPAP Consumer Discretionary € 22.40 133.2 6.0 8
PUMA Consumer Discretionary € 161.61 27.8 5.8 5
UNILEVER PLC Consumer Staples £ 14.89 28.1 4.0 5
PARMALAT
MTG MODERN TIMES GROUP B Consumer Discretionary SEK 220.50 26.3 4.5 6
MEDIASET Consumer Discretionary € 4.20 21.4 3.4 5
NEXT Consumer Discretionary £ 14.57 44.6 5.8 6
SMITH (WH) Consumer Discretionary £ 4.37 45.4 5.9 7
OPAP Consumer Discretionary € 22.40 133.2 6.0 8
PUMA Consumer Discretionary € 161.61 27.8 5.8 5
UNILEVER PLC Consumer Staples £ 14.89 28.1 4.0 5
PARMALAT
BE:
And, for completeness, here’s the blurb
BE:
Summary – Providing updated stock screens for the ‘combo’ strategy inspired by Greenblatt & Piotroski. Last month, we introduced a new market-neutral strategy that we believe could make money in bull or bear markets. We encourage investors to refer to the original publication – ‘A New ‘’Magic Formula’’ – a ‘Combo’ Strategy Inspired by Greenblatt & Piotroski’, 14 April 2009, for a detailed description of the strategy and backtest results. In short, this ‘Combo’ strategy combines two of our favourite screening tools inspired by Greenblatt (Valuation-based) and Piotroski (Financial health-based), to help identify cheap stocks with strong balance sheets. Our analysis showed that this long-short strategy would have made money in 17 of the last 19 years, with an average total return of 13%. We prefer the ‘Combo’ strategy
over the standalone Greenblatt strategy, as we like the logic, it has had similar average return, a much smaller maximum drawdown and superior risk-adjusted returns since 1990. Today, we re-run the lists of potential buy and sell ideas, based on actual 2008 data that have been reported in the last few weeks
over the standalone Greenblatt strategy, as we like the logic, it has had similar average return, a much smaller maximum drawdown and superior risk-adjusted returns since 1990. Today, we re-run the lists of potential buy and sell ideas, based on actual 2008 data that have been reported in the last few weeks
BE:
Current recommendations. We already own a few of the OW-rated names among today’s list of potential long ideas, and they are Total, BG, ENRC and Telefonica. Other OW-rated names include Dana Petroleum, Hays, Michael Page, Go- Ahead, Man Stamm and TNT. UW-rated potential sell ideas include Punch, Kingfisher, BMW, Heineken, Saras, Randstad, Cintra, Brisa, Acerinox and Centrica. If you wish to receive a monthly update of this ‘combo’ strategy and other screens, please contact your Morgan Stanley sales representative.
11:40AM
PM:
While we are on media — sort of
PM:
Was there some big Goldman thing out earlier?
PM:
Not abotu the Mail giving you cancer, but was it TV?
BE:
Hang on – just digging it out
BE:
More positive macro outlook drives 23% increase to 2010 forecasts
Macro improvements drive 23% increase to our 2010 forecasts
Since 2008 we have cut our 2009 estimates >50% but following more
positive macro indications, we raise our 2010 estimates by 23% (14%
ahead of Reuters consensus). This includes >50% increases for several free
TV companies, c.20% for agencies and 10% for prof pubs (the agencies
and prof pubs also include a 2%-5% negative impact from US$ weakness).
Macro improvements drive 23% increase to our 2010 forecasts
Since 2008 we have cut our 2009 estimates >50% but following more
positive macro indications, we raise our 2010 estimates by 23% (14%
ahead of Reuters consensus). This includes >50% increases for several free
TV companies, c.20% for agencies and 10% for prof pubs (the agencies
and prof pubs also include a 2%-5% negative impact from US$ weakness).
BE:
Structural issues still real, although less severe in recovery
The economic downturn has accelerated the shift to online from traditional
media and we forecast that this will likely continue but not quite as
aggressively during the recovery, while some margins can substantially
rebound. Agencies and professional publishers are in solid shape and we
forecast 26% pa 2009-12 sector EPS growth. Longer term we forecast 4%-
5% profit growth from agencies and professional publishers and 0%-3% for
traditional media companies as structural pressures continue.
The economic downturn has accelerated the shift to online from traditional
media and we forecast that this will likely continue but not quite as
aggressively during the recovery, while some margins can substantially
rebound. Agencies and professional publishers are in solid shape and we
forecast 26% pa 2009-12 sector EPS growth. Longer term we forecast 4%-
5% profit growth from agencies and professional publishers and 0%-3% for
traditional media companies as structural pressures continue.
BE:
Corporate activity, debt and FX still play a role
We see limited scope for corporate activity overall, although consolidation
in UK regional newspapers could impact. We believe debt remains a
concern for some and that all face significant cyclical and structural issues.
We see limited scope for corporate activity overall, although consolidation
in UK regional newspapers could impact. We believe debt remains a
concern for some and that all face significant cyclical and structural issues.
BE:
The market has moved to mid-cycle multiples and so do we
Valuations are now in line with the historical average and we increase our
price targets to be consistent, although for more cyclical companies, we
use normalized 2012E. We believe agencies and prof pubs merit 9-10x 12-
month forward EBITDA and 6-8x 2012E EBITDA (in line with history) and
traditional media should trade on 5-6x 2012E EBITDA (below history). This
implies 26% upside potential to our target prices, the top end of the 12-
month range, although this is spread across cyclical and defensive stocks.
Valuations are now in line with the historical average and we increase our
price targets to be consistent, although for more cyclical companies, we
use normalized 2012E. We believe agencies and prof pubs merit 9-10x 12-
month forward EBITDA and 6-8x 2012E EBITDA (in line with history) and
traditional media should trade on 5-6x 2012E EBITDA (below history). This
implies 26% upside potential to our target prices, the top end of the 12-
month range, although this is spread across cyclical and defensive stocks.
BE:
Key recommendations and changes
We add ITV to the Conviction Buy List and upgrade Premiere to Buy. We
reiterate our Buy on Aegis and Reed Elsevier (Conviction List). UBM and
Lagardere are off the Conviction List but remain Buy rated. CTC is down to
Neutral and JCDecaux, TVN and Johnston Press are upgraded to Neutral.
We downgrade Telecinco (onto Conviction Sell List) and Axel Springer to
Sell. Thomson Reuters is off the Conviction Sell List but remains Sell.
We add ITV to the Conviction Buy List and upgrade Premiere to Buy. We
reiterate our Buy on Aegis and Reed Elsevier (Conviction List). UBM and
Lagardere are off the Conviction List but remain Buy rated. CTC is down to
Neutral and JCDecaux, TVN and Johnston Press are upgraded to Neutral.
We downgrade Telecinco (onto Conviction Sell List) and Axel Springer to
Sell. Thomson Reuters is off the Conviction Sell List but remains Sell.
PM:
Got to say — taht is brave of Goldman
PM:
Conviction buy on ITV
PM:
When they’ve cancelled the south bank show and all
BE:
And they’re planning to broadcast the X Factor results show on a Sunday night, in addition to the usual Saturday evening show.
BE:
According to today’s Campaign.
BE:
Anyway, ITV doing well on it
ITV (ITV:LSE): Last: 30.75, up 2.75 (+9.82%), High: 31.50, Low: 30.00, Volume: 13.15m
PM:
fair enough
11:44AM
PM:
Off at a tangent…
PM:
To Italy
PM:
Moody’s Changes Outlook for Italian Banks to Negative from Stable
Moody’s Changes Outlook for Italian Banks to Negative from Stable
PM:
Milan, May 27, 2009 — Moody’s Investors Service today changed the
fundamental credit outlook for the rated Italian banks to negative from
stable, reflecting the spread of the financial crisis into the real
economy and the resultant adverse effect on Italian banks’ asset quality
and profitability, according to a new Moody’s Special Comment.
Milan, May 27, 2009 — Moody’s Investors Service today changed the
fundamental credit outlook for the rated Italian banks to negative from
stable, reflecting the spread of the financial crisis into the real
economy and the resultant adverse effect on Italian banks’ asset quality
and profitability, according to a new Moody’s Special Comment.
Moody’s negative outlook for the Italian banks expresses the rating
agency’s view on the likely future direction of fundamental credit
conditions in the industry over the next 12 to 18 months. It does not
represent a projection of rating upgrades versus downgrades.
PM:
“The Italian banking system, which is the last major European banking
sector to have a negative outlook in the current crisis, initially proved
more resilient than those of other countries due to its lower exposure to
toxic financial assets, investment banking activities and capital market
funding. However, the financial crisis has now spread into the real
economy and, as a consequence, Italian banks’ asset quality and
profitability indicators deteriorated in 2008 and are likely to worsen
further in 2009 and 2010,” says Carlo Gori, a Moody’s Vice
President/Senior Analyst.
“The Italian banking system, which is the last major European banking
sector to have a negative outlook in the current crisis, initially proved
more resilient than those of other countries due to its lower exposure to
toxic financial assets, investment banking activities and capital market
funding. However, the financial crisis has now spread into the real
economy and, as a consequence, Italian banks’ asset quality and
profitability indicators deteriorated in 2008 and are likely to worsen
further in 2009 and 2010,” says Carlo Gori, a Moody’s Vice
President/Senior Analyst.
PM:
Strange to think that the Italian banks didnt get it in the neck earlier on
BE:
Hm.
11:46AM
BE:
Odd email just arrived
BE:
Anyone over on the right able to check Bloomberg for BT/A.LN?
PM:
Our Bloomberg terminal is on the other side of the news room
PM:
I’m a reuters person myself
PM:
dunno how to work bloomberg
PM:
Tracy does tho
PM:
BT price off 1.1 at 86.6
BE:
Was there for a year myself. Have the codes burnt into my memory.
PM:
Ta Bohemia
BE:
11:46 *BT OUTLINES PRINCIPAL RISKS, UNCERTAINTIES IN ANNUAL REPORT
11:35 *BT GROUP PLC SAYS MAY HAVE TO REFINANCE DEBT OR DELAY CAPEX
11:34 *BT GROUP PLC SAYS MAY NOT GENERATE CASH FLOW TO REPAY DEBT
11:34 *BT GROUP PLC SAYS MAY HAVE TO SEEK ADDITIONAL CAPITAL :BT/A LN
11:35 *BT GROUP PLC SAYS MAY HAVE TO REFINANCE DEBT OR DELAY CAPEX
11:34 *BT GROUP PLC SAYS MAY NOT GENERATE CASH FLOW TO REPAY DEBT
11:34 *BT GROUP PLC SAYS MAY HAVE TO SEEK ADDITIONAL CAPITAL :BT/A LN
BE:
So it’s the annual report.
PM:
yep
PM:
Whatever happened to that story that BT were going to be coming out with a monster bond??
BE:
That was via our friends at mergerMarket …
BE:
No news yet, of course
BE:
But there’s nothing official on the pension deficit either
BE:
So, who knows basically?
BE:
And, Montesquieu, thanks once again for sharing your thoughts.
BE:
The ITV / Endemol link has been getting some oxygen for a couple of days.
BE:
Although, as stale bull stories go, I don’t think many of the hot money guys have a lot of patience for this one any more
PM:
ta
11:52AM
PM:
Any more red raw on Amec and John Wood group
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.
PM:
I know i was a sceptic on this tale
PM:
but anything fresh?
BE:
Not really
BE:
And we did stress yesterday that it was a hot money tale …
BE:
But, on a quiet day without too many tales going around, it got a fair bit of play
BE:
Anyway, here’s a bit of comment from Phil Linsday at RBS
BE:
Who’s generally very good on the sector
BE:
We note speculation from FT alphaville yesterday that Wood Group was a possible bid target with AMEC mooted as a possible buyer. We think a deal is unlikely and would recommend switching Wood shares into AMEC at these levels.
BE:
Why Wood AMEC be interested.?
The potential attraction of Wood Group to AMEC would be its engineering businesses, particularly the well regarded JP Kenny and Mustang businesses. This is in line with AMEC.s goal to build .the best army of engineers in the world.. The Production Facilities business would beef-up AMEC.s opex related services in Natural Resources. We think there would be less interest in Wood Group.s manufacturing businesses (Well Support) and we are unsure whether Gas Turbines Services would fit.
The potential attraction of Wood Group to AMEC would be its engineering businesses, particularly the well regarded JP Kenny and Mustang businesses. This is in line with AMEC.s goal to build .the best army of engineers in the world.. The Production Facilities business would beef-up AMEC.s opex related services in Natural Resources. We think there would be less interest in Wood Group.s manufacturing businesses (Well Support) and we are unsure whether Gas Turbines Services would fit.
BE:
We believe AMEC is looking at acquisitions but Wood may prove too big
We note AMEC management comments (from the prelims and its IMS conference call) that it would consider small, medium and large acquisitions. However, the company does not want to move into a significant net debt position. Although AMEC has net cash of c£700m, with Wood currently capitalised at c£1.5bn (with net debt: c$250m), and any deal likely to be done at a significant premium to this, we think a bid for Wood is unlikely although clearly not impossible.
We note AMEC management comments (from the prelims and its IMS conference call) that it would consider small, medium and large acquisitions. However, the company does not want to move into a significant net debt position. Although AMEC has net cash of c£700m, with Wood currently capitalised at c£1.5bn (with net debt: c$250m), and any deal likely to be done at a significant premium to this, we think a bid for Wood is unlikely although clearly not impossible.
BE:
Wood Group premium to AMEC highlights a good switching opportunity
Wood currently trades on a 2010F PE of 12.3x and an EV/EBITDA 6.4x. This compares to AMEC on a 2010F PE of 10.8x (ex-cash) and EV/EBITDA of 5.9x. Given, we view the deal as unlikely, on valuation grounds, we would recommend a switch into AMEC from Wood at these levels.
Wood currently trades on a 2010F PE of 12.3x and an EV/EBITDA 6.4x. This compares to AMEC on a 2010F PE of 10.8x (ex-cash) and EV/EBITDA of 5.9x. Given, we view the deal as unlikely, on valuation grounds, we would recommend a switch into AMEC from Wood at these levels.
PM:
Okay — so he doesnt buy the tale either
PM:
Although he thinks AMEC is the mood for an acquisition
BE:
And, while on the subject of raw
BE:
Some people talking again about Inmarsat
BE:
And the intentions of Harbinger and Landsdowne, who hold 29% and 12% respectively
BE:
It’s another stale spiv story, frankly …
BE:
Everyone was in 18 months or so ago anticipating a bid
BE:
And I seem to remember shares actually fell when Harbinger confirmed, as the regulatory process was set to take forever
BE:
Anyway, the shares have seen a bit of support in the past couple of days
BE:
Which has sparked a bit of hope that the FCC might be looking to clear a takeover sooner rather than later
BE:
And Harbinger might bring on a major telco to close the deal
BE:
Anyway, it’s all conjecture and speculation at this stage, so best not get carried away.
PM:
Just looking at the chart — had a huge fun up to 580 at the beginning of the month
PM:
Sharp reversal and then ticked a bit higher again over recent days
PM:
One to watch — cautiously
PM:
Price up 4.5p at 509 this morning
BE:
Although I think that reflects a broker push as well.
BE:
Got it – RBS starts coverage with buy
BE:
We see upside risk to our earnings estimates via migration to new products. The
value of the US spectrum is not discounted in the price, in our view, yet it was a
key motivation for Harbinger’s acquisition interest last year. We see Inmarsat as a
bright spot in the telco sector with truly defensive, yet high-growth, revenues.
value of the US spectrum is not discounted in the price, in our view, yet it was a
key motivation for Harbinger’s acquisition interest last year. We see Inmarsat as a
bright spot in the telco sector with truly defensive, yet high-growth, revenues.
BE:
Inmarsat is the leading MSS operator
Inmarsat is the worlds largest provider of mobile satellite communication services (MSS). It
operates in high-growth niche markets (maritime, aeronautical and remote land) where it
enjoys market share of over 75%. It has a strong balance sheet and is entering a capex
holiday having completed the launch of its Inmarsat 4 satellite constellation in 2008.
Core growth proving resilient and we see plenty of organic growth opportunities
The migration of customers to higher bandwidth products is driving ARPU and helping to
offset any softness resulting from the woes of the shipping industry and corporate sectors.
1Q09 growth was an impressive 10.5% (13.9% in 2008). With only 15% of customers on
higher bandwidth products, but providing 50% of revenues, this should continue to drive
growth in the medium term.
Inmarsat is the worlds largest provider of mobile satellite communication services (MSS). It
operates in high-growth niche markets (maritime, aeronautical and remote land) where it
enjoys market share of over 75%. It has a strong balance sheet and is entering a capex
holiday having completed the launch of its Inmarsat 4 satellite constellation in 2008.
Core growth proving resilient and we see plenty of organic growth opportunities
The migration of customers to higher bandwidth products is driving ARPU and helping to
offset any softness resulting from the woes of the shipping industry and corporate sectors.
1Q09 growth was an impressive 10.5% (13.9% in 2008). With only 15% of customers on
higher bandwidth products, but providing 50% of revenues, this should continue to drive
growth in the medium term.
BE:
New opportunities could drive more value
Inmarsat plans to capitalise on the demise of Globalstars constellation with the relaunch of
its hand-held phone in 2Q10. As the only provider of backhaul to the nascent in-flight
telephony market, Inmarsat stands to benefit should this market take off. In the longer term,
spectrum opportunities in the US and Europe also provide upside potential.
Initiate with a Buy rating, 617p target price
Inmarsat is unusual in that it is proving defensive, yet it still offers double-digit earnings
growth on our estimates. On an FY09F PE of 21.8x and EV/EBITDA of 8.5x, the shares
already price in strong growth, but with several new market opportunities, option value
associated with the US spectrum, and ongoing bid interest from its largest shareholder, we
could see further upside.
Inmarsat plans to capitalise on the demise of Globalstars constellation with the relaunch of
its hand-held phone in 2Q10. As the only provider of backhaul to the nascent in-flight
telephony market, Inmarsat stands to benefit should this market take off. In the longer term,
spectrum opportunities in the US and Europe also provide upside potential.
Initiate with a Buy rating, 617p target price
Inmarsat is unusual in that it is proving defensive, yet it still offers double-digit earnings
growth on our estimates. On an FY09F PE of 21.8x and EV/EBITDA of 8.5x, the shares
already price in strong growth, but with several new market opportunities, option value
associated with the US spectrum, and ongoing bid interest from its largest shareholder, we
could see further upside.
BE:
Right – that’s all for that.
12:03PM
PM:
Now, just before we go
PM:
A little chart book for people
PM:
John Kemp at Reuters has put up a nice little pdf
PM:
He used to send this out regularly when he was at Sempra – but then we had a pause while he got Reuters graphics on the case.
PM:
There’s about 20 odd graphs in there – ranging from oil to the spread of triple A paper over 10 year treasuries.
PM:
And heere’s his quick comment on that.
PM:
Yields on benchmark 10YR US Treasury bonds jumped sharply again yesterday and have now risen +60 basis points from 2.95% to 3.56% in the last month, as the recession- and panic-driven flight to safety and liquidity unwinds and investors re-position their portfolios to take advantage of future recovery and possibly a future rise in inflation.
The whole constellation of asset prices is shifting (bonds, equities, fx and alternative assets such as commodities) as the markets realign from fear and recession to recovery, reflation and a world of plentiful central-bank supported liquidity.
The result will certainly wash across into commodity markets and will offer strong support for prices. The overburden of inventories is unlikely to restrain price rises significantly if significant volumes of investment money are redeployed into the market.
The only real question is whether this move has run its course already (in the run up from $35 to $63 crude) or whether that was only the first leg.
PM:
That’s Kemp’s take
PM:
Anyway — we are done
PM:
Thank you for all the puns and comments over on the right
BE:
Still nothing worth sticking up on FRES:LSE
Fresnillo (FRES:LSE): Last: 695.00, down 12.5 (-1.77%), High: 725.50, Low: 682.50, Volume: 399.01k
BE:
And, on JJB trades, have only had a collective shrug
BE:
Both to be investigate further I guess
BE:
On Sibir, once of the stories this morning mentioned an “actual” free float of something like 5%
BE:
With the rest held by the ever euphemistic “Russian businessmen”
PM:
There’s a staement out there
PM:
Cityboy noted to the right
PM:
The Board of Sibir announced on 22 May 2009 that arrangements were in place which would allow 10,559,704 existing issued ordinary shares of 10p each in the capital of Sibir (the “Share(s)”) to be sold and the proceeds received by the Company applied in reduction of the debts owed by Mr Chalva Tchigirinski to Sibir. It was also announced that the Shares would be offered for sale to JSC Gazprom Neft at £5.00 per Share. The Board is pleased to announce that the offer was accepted and that the Shares have now been sold to JSC Gazprom Neft for a total consideration of £52,589,197.08 net of costs. Following settlement, which is anticipated to take place on Thursday 28 May 2009, the net proceeds will be applied in reduction of Mr Tchigirinski’s debts to the Company.
The Board of Sibir announced on 22 May 2009 that arrangements were in place which would allow 10,559,704 existing issued ordinary shares of 10p each in the capital of Sibir (the “Share(s)”) to be sold and the proceeds received by the Company applied in reduction of the debts owed by Mr Chalva Tchigirinski to Sibir. It was also announced that the Shares would be offered for sale to JSC Gazprom Neft at £5.00 per Share. The Board is pleased to announce that the offer was accepted and that the Shares have now been sold to JSC Gazprom Neft for a total consideration of £52,589,197.08 net of costs. Following settlement, which is anticipated to take place on Thursday 28 May 2009, the net proceeds will be applied in reduction of Mr Tchigirinski’s debts to the Company.
PM:
Right — we are off!
PM:
Thank you
PM:
and hopefully see you tomorrow at 11am
BE:
11.04.
BE:
Bye.