Markets live chat transcript for the chat ending at 12:08 on 8 Jun 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE) Sam Jones, FT (SJ)
NH:
Good morning
NH:
and welcome to Markets Live
NH:
FT Alphaville’s daily markets chat
NH:
but with a difference today
NH:
I will be talking to myself
NH:
because I am flying solo
NH:
Murph off in New York to pick up the Webby
NH:
Bryce at home with the sprog
BE:
Well, not quite. I’ll be drifting in and out for as long as Night Garden holds the attention of my kid.
NH:
so today’s session will be light on humour
NH:
I am the straight man remember
11:04AM
NH:
anyway
NH:
we have not heard from Murph yet – he flew out on Saturday
NH:
he turned right when getting on the plane too
NH:
and the temperature is NY will be a pleasant 25oC later today
NH:
but I am pleased to say it is raining
NH:
and according to the Beeb it is going to remain wet all week
NH:
which makes me feel a tiny bit better ABOUT NOT BEING ALLOWED TO GO
NH:
of course, when Paul has recorded his Webby acceptance speech in the YouTube booth, I will be putting the link up
NH:
although somehow I don’t think his speech will be as entertaining as this
11:06AM
NH:
right, on to the wider market
NH:
and I am pleased to say the market is down
NH:
so there will be no panicked phones calls from downtown Manhattan
NH:
from the chief investment officer of H&M Capital Management, telling me to close the bear
NH:
FTSE currently off 62 points at 4,376
NH:
with the mining sector doing most of the damage
NH:
and after Friday’s euphoric reaction to the jumbo Rio right issue a bit of profit taking has kicked in
NH:
Rio down 5% at £28.50
NH:
that’s a fall of 151p
NH:
elsewhere, the tale of the tape looks like this
Vedanta Resources (VED:LSE): Last: 1,552, down 116 (-6.95%), High: 1,647, Low: 1,552, Volume: 623.04k
Eurasian Natural Resources Corp (ENRC:LSE): Last: 646.00, down 36.5 (-5.35%), High: 679.00, Low: 645.00, Volume: 385.33k
Anglo American (AAL:LSE): Last: 1,765, down 92 (-4.95%), High: 1,839, Low: 1,761, Volume: 2.58m
BHP Billiton (BLT:LSE): Last: 1,480, down 75 (-4.82%), High: 1,547, Low: 1,477, Volume: 6.65m
Fresnillo (FRES:LSE): Last: 660.50, down 28.5 (-4.14%), High: 690.00, Low: 643.50, Volume: 280.54k
NH:
you get the picture
NH:
but the biggest faller is not a miner, but one of our wonderful banks
NH:
Lloyds Banking Group
11:07AM
NH:
and that’s because Citi, Caz, UBS are trying to find a home for 1.35bn shares not taken up in the placing and open offer that accompanied the £4bn pref swap by HMT
NH:
Lloyds currently off 5.1p at 61.1p
NH:
and it looks as if the books havs been covered at 60p
NH:
it is due to close at 11.30am
NH:
and I am really surprised by the amount of stock not taken up
NH:
given that shareholders were in the money
NH:
strip out that govt’s 43% stake
NH:
and it looks like 23% of the stock on offer not taken up
NH:
must be some real muppet investors out there
NH:
although
NH:
perhaps some don’t fancy taking “The Journey” with Lloyds
NH:
and who can blame them
NH:
actually
NH:
one suspects that Lloyds is going to be more of a odyssey in the Greek tradition
NH:
anyway
NH:
Deutsche Bank is a buyer
NH:
big note out this morning
NH:
here’s a taster
NH:
Margin and loan losses, regulatory risk now; cheap earnings later
With bank solvency mostly dealt with, we believe the equity market will continue
to base bank valuations on post-crisis earnings. On this basis see LBG as cheap,
trading at 4.3x fully recovered EPS of 15.6p. Short term, there’s risk of
underperformance as significant weakness in interest margin and loan losses is
made obvious with 1H09 results on 5 Aug 09. However, not wanting to attempt to
finesse investment timing and miss the value opportunity, we upgrade to Buy
from Sell and increase our target price to 100p from 35p beforehand.
With bank solvency mostly dealt with, we believe the equity market will continue
to base bank valuations on post-crisis earnings. On this basis see LBG as cheap,
trading at 4.3x fully recovered EPS of 15.6p. Short term, there’s risk of
underperformance as significant weakness in interest margin and loan losses is
made obvious with 1H09 results on 5 Aug 09. However, not wanting to attempt to
finesse investment timing and miss the value opportunity, we upgrade to Buy
from Sell and increase our target price to 100p from 35p beforehand.
NH:
Expect weak trading in the short term
We expect LBG to post extremely weak 1H09 earnings driven by sharply lower
interest margins and elevated loan losses. Tangible NAV will fall materially from
124p as these losses, and those we forecast for 2009 and 2010 are reported.
Regulatory risk is substantial with the EU yet to sign off on government capital
injections and the APS, and likely in our view to impose behavioural limits and
potentially asset sales too. But, we believe the group is capable of 9p of postcrisis
earnings whilst interest rates remain low, rising to 15p as net interest
margins recover as loans reprice to wider spreads, deposit spreads improve and
wholesale repricing completes. This sees the bank currently trading at 4.3x
recovered earnings and 0.6x our trough TNAV estimate – attractive, short term
risks notwithstanding, in our view.
We expect LBG to post extremely weak 1H09 earnings driven by sharply lower
interest margins and elevated loan losses. Tangible NAV will fall materially from
124p as these losses, and those we forecast for 2009 and 2010 are reported.
Regulatory risk is substantial with the EU yet to sign off on government capital
injections and the APS, and likely in our view to impose behavioural limits and
potentially asset sales too. But, we believe the group is capable of 9p of postcrisis
earnings whilst interest rates remain low, rising to 15p as net interest
margins recover as loans reprice to wider spreads, deposit spreads improve and
wholesale repricing completes. This sees the bank currently trading at 4.3x
recovered earnings and 0.6x our trough TNAV estimate – attractive, short term
risks notwithstanding, in our view.
NH:
Valuation – Better the further out we look
We value LBG on the basis of our estimate of post-crisis earnings for the group,
having previously valued the business on a discount to underlying tangible NAV
basis on fears over the solvency of the bank. Given rebuilt capital ratios and
government reinsurance of a substantial portion of the loan book we believe an
earnings-based approach is warranted. Our 100p target price is based on a fair
multiple of 6.5x fully recovered EPS of 16p. This target price is broadly in line with
our estimate of trough stated tangible NAV per share. See page 9 for detail.
We value LBG on the basis of our estimate of post-crisis earnings for the group,
having previously valued the business on a discount to underlying tangible NAV
basis on fears over the solvency of the bank. Given rebuilt capital ratios and
government reinsurance of a substantial portion of the loan book we believe an
earnings-based approach is warranted. Our 100p target price is based on a fair
multiple of 6.5x fully recovered EPS of 16p. This target price is broadly in line with
our estimate of trough stated tangible NAV per share. See page 9 for detail.
NH:
Risks – Plenty in the short term
Key downside risks relate to regulatory rulings (lack of APS approval or forced sale
of substantial portion of earnings base to qualify for EU approval), margin decline
(low interest rates plus cost of renewing and extending wholesale funding duration
amount to £2-3bn p.a.) and loan impairments (we forecast £19bn of loan losses in
2009, 4.3x normalised level). We expect short term trading will be weaker than the
market expects which may weaken confidence in the post-crisis earnings power
Key downside risks relate to regulatory rulings (lack of APS approval or forced sale
of substantial portion of earnings base to qualify for EU approval), margin decline
(low interest rates plus cost of renewing and extending wholesale funding duration
amount to £2-3bn p.a.) and loan impairments (we forecast £19bn of loan losses in
2009, 4.3x normalised level). We expect short term trading will be weaker than the
market expects which may weaken confidence in the post-crisis earnings power
NH:
right
NH:
There is more to say on Banks
NH:
but first
NH:
Sam is going to join the chat
SJ:
hello
NH:
and talk about Ireland quickly
NH:
I am getting sick of my own voice
SJ:
yup
11:11AM
SJ:
S&P downgraded them again basically
SJ:
from AA+ one notch to AA
SJ:
lots of reasons given
SJ:
eg
SJ:
We have lowered the long-term rating on Ireland because we believe that the fiscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected when we last lowered the rating in March 2009, and, consequently, that the net general government debt burden will also be significantly higher over the medium term
NH:
I see
SJ:
But if you ask me the reason they’ve knocked ‘em down again is cos of the election results
NH:
really
NH:
Euro elections?
SJ:
ruling Fianna Fail/Green coalition is looking a bit ropey
SJ:
like Labour is here
SJ:
only more so
SJ:
Anyway here’s another bit from S&P on the Ireland govt bank bailout
SJ:
Under the government’s plans, up to EUR90 billion of performing and impaired property-related exposures and associated commercial lending will be transferred from Irish banks to NAMA (which we understand will be established under legislation expected to come into effect in September 2009). The government also expects NAMA to acquire the assets at a significant discount to their current face value, with market estimates we have seen of the projected cost, based on average purchase prices, currently in the range of EUR55-EUR75 billion. The purchase of these assets, in turn, is to be financed by the issuance of government bonds. The government has announced that its objective is for NAMA to pay down some or all of this additional debt in future years from the proceeds of maturing loans and from asset disposals and recoveries.
SJ:
n our view, NAMA’s ability to minimize the cost to the government of its financial operations will depend on the prices it pays for the assets and their future performance. We consider that NAMA’s ability to meet its financial objectives is uncertain because of the risk that cash flows from its assets could fall below its funding costs if their underlying performance worsens compared with NAMA’s expectations at the time of purchase. At the same time, we believe the recently announced losses (for the six months to the end of March 2009) at nationalized Anglo Irish Bank Corp. Ltd. (A-/Watch Neg/A-1) highlight both the continued fragility of the Irish banking sector and its reliance on the government for ongoing financial support. We also maintain our opinion that Irish real and nominal GDP is likely to remain below 2008 levels until 2013. Taking these factors and NAMA’s likely borrowings into account, along with our revised estimate of recapitalization costs to the government of EUR20-EUR25 billion (compared with our previous estimate of EUR15-EUR20 billion), we now believe that Ireland’s net general government debt could exceed 100% of GDP over the medium term–a level that is higher than for Ireland’s ‘AA’ rated Euro-zone sovereign peers.
SJ:
the rating outlook is still negative…
SJ:
once sovereigns get downgraded they tend to carry on sliding…
SJ:
you got any market reaction neil?
NH:
one bit
NH:
from the CDs market
NH:
right, I have a bit of reaction from the CDS market. unsurprisingly moving higher.
NH:
The CDS for Ireland is now trading at 224.8bps, from 214.4bps on Friday close. Incidentally, our market implied rating based on the 5yr spread is CMA_bbb+
NH:
that was from CMAvision
NH:
thanks Sam
NH:
and good morning Bryce
NH:
who has joined the chat from home
NH:
how’s the sprog?
NH:
Come in Bryce
BE:
Fine at the moment
NH:
London calling
BE:
But that can change
NH:
any thoughts, reflections, stories?
BE:
Hm.
NH:
what about Barclays
NH:
the sale of BGI, which looks to be drawing to close
NH:
which does not surprise us
NH:
although some in the Barc press office might be surprised
NH:
yway
NH:
BlackRock in the driving seat, a deal could be announced latter this week
NH:
and the most important thing here will be
NH:
by the price tag
NH:
the composition of the offer
NH:
and crucially how much of the proceeds will count towards Tier 1 capital
NH:
judging by the weekend press comment, it seems that Blackrock is going to pay in cash and stock
NH:
Barc to get a 20% holding
NH:
while at the same time issuing paper to some Middle Eastern investors
NH:
and if one of them happens to be IPIC from Abu Dhabi, the irony will not be lost on anyone
NH:
selling out of Barclays, to buy back into its fund management business once Barclays are not at the helm
NH:
is not exactly a resounding vote of confidence in management
NH:
anyway, Jonathan Pierce at Credit Suisse, which are brokers to Barclays but acting as an adviser to Blackrock
NH:
how’s that for a conflict of interest
NH:
how do you manage that???
NH:
reckons Barc will be able to record a £7bn gain
NH:
and a sale would lift its equity tier one ratio by 100bps and put solvency largely beyond doubt
NH:
Shares in Barc currently down 5p at 280p
NH:
Applying the same ratio of gain to sale price seen at iShares (i.e. 80%) would imply a gain on BGI of up to £7bn.
• We are not quite sure how this translates to the profit & loss and balance sheet of Barclays, because The Telegraph suggests
that part of the consideration will be in BlackRock shares. According to the paper, this could leave Barclays with 20% of BlackRock, and that would mean around £3-4bn of the £8bn purchase price would be in shares.
NH:
In practice, we don’t think this matters and that Barclays will likely still record the full £7bn gain in TNAV and equity tier 1, but there is likely to be a deduction at the total capital level and / or a marginal increase in the group’s RWA for the shareholding in BlackRock.
NH:
At the moment, we have a £2.5bn gain pencilled in for iShares, and an additional £4.5bn would boost TNAV by around 40p and the equity tier 1 ratio by around 100bps. Our current December 2009 TNAV estimate is 282p (265p fully diluted for
warrants) and equity tier 1 ratio 6.9% (7.7% fully diluted for warrants).
warrants) and equity tier 1 ratio 6.9% (7.7% fully diluted for warrants).
NH:
As we have said before, this transaction should, therefore, put solvency largely beyond doubt (i.e. 7.9% equity tier 1 and 8.7% including the warrants) and leave the shares on a modest discount to book value (i.e. 322p 2009E TNAV or 305p including.
the warrants). Barclays is our favourite UK domestic bank.
the warrants). Barclays is our favourite UK domestic bank.
BE:
Also add Nomura to that.
BE:
The Sunday Telegraph reports that Barclays is in advanced discussions to
sell BGI for $13bn to Blackrock. This is $3bn higher than previous
reports of the potential sale price.
sell BGI for $13bn to Blackrock. This is $3bn higher than previous
reports of the potential sale price.
Barclays has issued a statement commenting that discussions over BGI
continue, but that it is not certain a deal will be concluded and that a
further update will be made by 19 June at the latest, when the Go Shop
clause expires.
BE:
Assuming a gain in proportion to the £2.5bn from the $4.4bn sale of
ishares, a $13bn disposal of the whole of BGI would imply a gain of £7.3
bn, which we estimate would be some 51p per share after minorities, or
33p more than the ishares deal alone, lifting the pro forma end-2008
TBVPS to 296p..
ishares, a $13bn disposal of the whole of BGI would imply a gain of £7.3
bn, which we estimate would be some 51p per share after minorities, or
33p more than the ishares deal alone, lifting the pro forma end-2008
TBVPS to 296p..
The article comments that Barclays could end up with a stake of up to
20% in the enlarged Blackrock, or $5bn. The deal structure is also
reported to be highly complex, although there is no further comment on
additional funding provided by Barclays; the ishares deal involves
Barclays providing debt funding equivalent to 80% of the sale price.
Assuming the Blackrock stake is disallowed for capital purposes, we
estimate a £7.3bn gain would add 76bp to Barclays group capital ratios,
lifting the pro forma end-2008 ordinary equity Tier 1 ratio to 6.8%.
BE:
A $13bn price tag would represent some 11x our current 2009 pre-tax
estimate for BGI and 13x the 2008 pre-tax profits.
estimate for BGI and 13x the 2008 pre-tax profits.
We estimate the deal would be at least 2p per share EPS diluting to
Barclays.
We would regard a sale of the whole of BGI as positive for Barclays.
Although we believe BGI is a very attractive franchise and under normal
circumstances the group would be expected to wish to retain it, or
extract an even higher price, in the current circumstances the more
important issues for the group are its leverage and ability to absorb
further write-downs on legacy assets. A sale of the whole business would
further strengthen the case that the group can grow/manage its way out
of leverage/asset quality issues without further equity issuance.
Barclays is currently generating strong operating earnings (particularly
within BarCap), supplemented by disposal gains. Q1 profits before credit
write-downs were £3.5bn, and we assume £8.4bn for the year on this
basis. A sale of the whole of BGI (plus the announced £800m debt
exchange) could add £5.9bn post tax to these operating earnings. At
Friday’s closing price of 280p, the shares would trade on 95% of
estimated 2008 pro forma TBVPS, while the group is likely to grow its
book value. This compares with valuations of near book value at RBS and
Lloyds, where we believe book value is likely to fall.
BE:
Wow – difficult doing this on one screen.
NH:
I can imagine
BE:
Here’s Cazenove.
NH:
need multiple screens
NH:
ta
BE:
Financial impact
Our estimates already reflect the sale of iShares to CVC. We estimate
the incremental impact of selling BGI on the broad terms described above
would be to:
increase 2009E NTAV by 28p, to 280p on a fully-diluted basis;
add 77bp to 2009E equity tier 1 capital, increasing the equity tier 1
ratio to 7.8%;
reduce 2010E earnings by 1.3p (12%). This is based on the loss of BGI
earnings (-3.0p), offset by income on the proceeds (+0.8p) and a 20%
share of the combined Blackrock/BGI earnings (+0.9p). Blackrock 2010E
consensus estimates are for net income of c.US$950m earnings, and we
estimate BGI contributes the same again. Our estimates do not include
any profits from future synergies between Blackrock and BGI.
BE:
The sale of BGI for a better price than originally envisaged (eg.
US$10bn reported by the FT on 15th May) would provide further
reassurance on the group’s capital position, though this is arguably
reflected in the valuation with the shares trading at 1.0x NTAV,
adjusted for the potential gain on sale. The disposal of a relatively
high growth, low capital intensity business would be partially mitigated
by retaining an interest in Blackrock, though we estimate the
transaction would still be initially dilutive to group earnings. Near
term news flow is likely to be supportive for Barclays, with
confirmation of a BGI transaction seemingly imminent and a Barclays
Capital seminar next week (16th) having the context of more favourable
credit market conditions in Q2. However, we remain of the view that the
shares will contine to trade around tangible book value rather than
establish a significant premium given the prospect of low returns for
next few years. In-line.
US$10bn reported by the FT on 15th May) would provide further
reassurance on the group’s capital position, though this is arguably
reflected in the valuation with the shares trading at 1.0x NTAV,
adjusted for the potential gain on sale. The disposal of a relatively
high growth, low capital intensity business would be partially mitigated
by retaining an interest in Blackrock, though we estimate the
transaction would still be initially dilutive to group earnings. Near
term news flow is likely to be supportive for Barclays, with
confirmation of a BGI transaction seemingly imminent and a Barclays
Capital seminar next week (16th) having the context of more favourable
credit market conditions in Q2. However, we remain of the view that the
shares will contine to trade around tangible book value rather than
establish a significant premium given the prospect of low returns for
next few years. In-line.
BE:
Have you put a price up yet?
NH:
yes
NH:
but will put up an auto quote
Barclays PLC (BARC:LSE): Last: 278.25, down 6.75 (-2.37%), High: 288.00, Low: 276.00, Volume: 30.70m
NH:
this looks to be a good price for Barc
NH:
although
NH:
it does mean the bank is even more dependent on Barc Cap
NH:
in fact
NH:
it is becoming by the day more and more of an IB
NH:
with some retail assets bolted on the side
NH:
perhaps they will go next
NH:
and Diamante et al
NH:
will try to create a UK version of Goldman
NH:
thanks for the notes Bryce
NH:
are you going to remain with us for the rest of the show?
BE:
Competition commission would have a fit if the retail side went to Santander or whoever.
NH:
true
BE:
Anyway, I’ll be drifting in and out whenever possible.
NH:
HSBC?
BE:
Hm.
NH:
the govt can wave through these deals when it wants to
BE:
They could hardly block it after Lloyds could they?
NH:
indeed
NH:
but then again
NH:
perhaps it won’t be their decision
NH:
it might be Cameron’s
BE:
And would HSBC want expansion in an ex-growth market?
NH:
to cut a load of costs
NH:
I don’t know
BE:
That’d go down well with a new Tory govt.
NH:
right
BE:
BarHSBC dumps 50,000 staff.
NH:
bored with banks
NH:
let’s move on
11:27AM
NH:
Not sure it will be possible to combine Webby drinks with Sam’s leaving party
NH:
Sam joins the hedge fund world in a couple of weeks
NH:
and the odds of Murph having sorted the drinks by then are
NH:
precisely zero I would guess
NH:
I reckon we are looking at either late July
NH:
or early Sept
NH:
for choice
NH:
early Sept
11:28AM
NH:
OK
NH:
I think it is time for a little bit of RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
BE:
NH:
although we can’t claim credit for this RAW
BE:
NH:
it comes from much further afield
NH:
the South China Morning Post
NH:
which has been prolific this morning
NH:
two stories
NH:
both have overlap to UK companies
NH:
one is a Tullow Oil, which I know has a lot of followers here
NH:
SCMP carrying a story which says Chinese National Oil Company is weighing a $4bn bid for the Ghana assets of Kosmos
NH:
the read across for Tullow was detailed in a good FT article last week by Carola Hoyos
NH:
which you can find here
NH:
if you can’t be bothered to look
NH:
the rough story is
NH:
Tullow is exploring in Ghana
NH:
Kosmos has a stake in one of its largest prospects – the Jubilee field
NH:
and if Kosoms fetches $4bn, this will be good news for Tullow
NH:
as most analysts value its assets in Ghana at around $3.5bn
NH:
just having a quick peak at the Tullow price
NH:
down 18p at 959p
11:31AM
NH:
the other story concerns a company listed on Aim and in Canada
NH:
called Addax Petroleum
NH:
over the past 10 days we were picking up market title-tattle of a bid
NH:
no names mentioned
NH:
just state owned companies in either China or India
NH:
anyway
NH:
the SCMP has put some meat on the bone for us
NH:
ADDAX PETROLEUM (AXC CT) – The South China Morning Post reports that Sinopec is working on a bid of up to $8bn for Addax. Says China National Petroleum and China National Offshore were also interested in a deal with Addax,
though notes that Beijing usually chose one company to go ahead with a bid to avoid Chinese companies competing against each other.
though notes that Beijing usually chose one company to go ahead with a bid to avoid Chinese companies competing against each other.
NH:
Addax shares motoring at the moment
NH:
but they are very illquid
NH:
up 207p at £22.20
NH:
think Credit Suisse took up coverage of the stock a couple of weeks back
NH:
and Chinese oil companies have been sniffing around for a while
NH:
as this article from Reuters shows
NH:
actually Addax
NH:
is a play on Kurdistan
NH:
like Heritage Oil
NH:
which featured prominately in the Sunday Times over the weekend
NH:
right
NH:
here’s the Reuters piece from Feb
NH:
HONG KONG, Feb 13 (Reuters) – Africa and Middle East-focused oil and gas firm Addax Petroleum has attracted buyout interest from major Chinese, Japanese, and Indian energy firms, according to three sources with direct knowledge of the matter.
Toronto and London-listed Addax, with a market value of roughly $2.9 billion, has projects in Nigeria, Gabon, Cameroon, and exploration licenses in the Kurdistan region of Iraq.
Chinese offshore oil giant CNOOC <0883.HK>, Japan’s Mitsubishi <8058.T>, and major Indian firms, which include Oil & Natural Gas Corp , have all expressed interest in the firm, sources said.
“Addax has been talked about for a while. Chinese players are looking at it,” one of the sources told Reuters, adding that Chinese oil majors continue to scour Africa for quality assets.
“CNOOC has looked at Addax,” a second source said.
The sources declined to be named due to the sensitive nature of the process, which is at an early stage.
CNOOC in particular has aggressively sought African resources. The firm, which is hunting for overseas assets to meet demand from China, set aside $6.76 billion in capital expenditures for 2009, up 19 percent from last year.
Toronto and London-listed Addax, with a market value of roughly $2.9 billion, has projects in Nigeria, Gabon, Cameroon, and exploration licenses in the Kurdistan region of Iraq.
Chinese offshore oil giant CNOOC <0883.HK>
“Addax has been talked about for a while. Chinese players are looking at it,” one of the sources told Reuters, adding that Chinese oil majors continue to scour Africa for quality assets.
“CNOOC has looked at Addax,” a second source said.
The sources declined to be named due to the sensitive nature of the process, which is at an early stage.
CNOOC in particular has aggressively sought African resources. The firm, which is hunting for overseas assets to meet demand from China, set aside $6.76 billion in capital expenditures for 2009, up 19 percent from last year.
11:35AM
NH:
right
NH:
it looks like some readers are having technical probs
NH:
with the comments
NH:
we will send a helpdesk request to Assanka
Cracking little software shop who built FT Alphaville
NH:
we are OK here
NH:
although we did have some very odd error messages this morning
NH:
and I does look like
NH:
messages are lagging by 10 mins
NH:
Fatdaz just came up on my screen
NH:
9 mins after he posted
NH:
very odd
NH:
hang on, while I email
11:37AM
BE:
While we’re waiting …
BE:
Bit of international politics
NH:
go on
BE:
Translated press release:
BE:
“On Sunday June 7th, 2009, the French media interrupted their broadcasts to announce the death of the President of Republic of Gabon, his Excellency El Hadj Omar Bongo Ondimba.
BE:
This information has surprised the Gabon public and the highest Gabon authorities enormously. For this reason, I, in the effect of head of government and Prime Minister, am making this statement, not only to assure the Gabon public that this information is incorrect, but to deplore these trends in the French press who only wants to put doubts in the spirits of the people of Gabon for unwanted reasons.
BE:
I want to reiterate, in regards to the health of the President, that he was admitted to the Quiron hospital in Barcelona for a comprehensive health check.
NH:
BE:
This morning I visited the President, accompanied by the President of the National Assembly, the Foreign Minister, the head of the President’s cabinet and senior members of the presidential family and after a meeting with the medical team we can confirm that the President is alive.
BE:
I have instructed the Minister of State and the Foreign Minister that they send, via diplomatic ways to the French authorities concerned, an official protest from the Gabon Presidency for the repeated leaks in the French press in a unique way against the public bodies.”
BE:
So – Bongo’s very much live and kicking.
NH:
so it would seem
NH:
and tut, tut
NH:
the French press
BE:
Not sure it has any stock implications, but I’m sure the hive mind to the right will keep us updated.
NH:
I wonder who has been leaking?
11:40AM
NH:
Still no answer on why comments are lagging behind
NH:
but a helpdesk call has gone in
BE:
Anything else to look at in the meantime?
NH:
Thomas Cook
NH:
rumours about the Arcandor stake
NH:
hitting the market
NH:
sooner rather than later
NH:
some people think it might be snapped up by one buyer
NH:
at 52% it would trigger a mandatory offer
NH:
and things look fairly bleak for Arcandor
NH:
as today’s reports show
NH:
BERLIN, June 8 (Reuters) – A government committee has rejected retailer Arcandor’s request for hundreds of millions of euros in state guarantees from a special rescue fund for crisis-hit companies, an economy ministry spokesman said.
“It was rejected,” the spokesman told reporters in Berlin. The government’s decision on a separate request for a 437 million euro loan from state bank KfW is expected by Wednesday.
“It was rejected,” the spokesman told reporters in Berlin. The government’s decision on a separate request for a 437 million euro loan from state bank KfW is expected by Wednesday.
BE:
Didn’t Goldman turn more positive today though?
NH:
they did
NH:
not to much avail
NH:
shares down 3.25p at 211.25
BE:
Hang on – will just go get the note
BE:
We remove Thomas Cook from the Sell List (now Neutral). Our estimates
rise due to better-than-expected trading, although our FY2009 net debt
estimate is up £200 mn due to currency moves and higher exceptionals. We
raise our 6-month EV/EBITDAR-driven price target to 240p (from 224p).
Our
target is now based on equally weighted 2009 and 2010 estimates
(previously 2009) and incorporates a 10% discount given the overhang
arising from the uncertainty over Arcandor’s financial situation. Since
added
to the Sell List on March 24, 2009, the stock is -3.6% vs. +12.4% for
the FTSE
World Europe. Over 12 months, it is -9.3% vs. the index’s -26.8%.
rise due to better-than-expected trading, although our FY2009 net debt
estimate is up £200 mn due to currency moves and higher exceptionals. We
raise our 6-month EV/EBITDAR-driven price target to 240p (from 224p).
Our
target is now based on equally weighted 2009 and 2010 estimates
(previously 2009) and incorporates a 10% discount given the overhang
arising from the uncertainty over Arcandor’s financial situation. Since
added
to the Sell List on March 24, 2009, the stock is -3.6% vs. +12.4% for
the FTSE
World Europe. Over 12 months, it is -9.3% vs. the index’s -26.8%.
NH:
thanks
NH:
anymore
BE:
We believe the stock is likely to be driven by news flow on the
financial
situation of its largest shareholder, Arcandor, over the near term. On
fundamentals, however, we believe that rising unemployment and falling
disposable income could mean a weaker consumer in 2010. Meanwhile,
the massive capacity contractions, particularly in the UK, that have
sustained and driven improving margins are, we believe, at an end. Early
signs point to the German market proving the toughest in 2010; however,
this could inspire further consolidation, and we believe that if this
does
occur, Thomas Cook could be a leading player, although this is highly
dependent on the future home of Arcandor’s stake.
financial
situation of its largest shareholder, Arcandor, over the near term. On
fundamentals, however, we believe that rising unemployment and falling
disposable income could mean a weaker consumer in 2010. Meanwhile,
the massive capacity contractions, particularly in the UK, that have
sustained and driven improving margins are, we believe, at an end. Early
signs point to the German market proving the toughest in 2010; however,
this could inspire further consolidation, and we believe that if this
does
occur, Thomas Cook could be a leading player, although this is highly
dependent on the future home of Arcandor’s stake.
NH:
ta
11:45AM
NH:
Right, the comments are still lagging behind
NH:
but one that I did see
NH:
was asking about BPP
NH:
and we do have something to say on that
NH:
but first
NH:
BPP finally recommended an offer this morning
NH:
620p a share in cash
NH:
from Apollo Global, a US education firm
NH:
but curiously the bidder has failed to get any irrevocable undertakings from its two biggest shareholders
NH:
which is some unusual
NH:
one is Andy Brough at Schroders
NH:
he owns 15.3%, according to Reuters
NH:
which is sometimes wrong so pls don’t blame us
NH:
and Threadneddle which owns 8%
NH:
all very odd
NH:
they may be expecting a counter bid
NH:
although I can’t think from where it will emerge
NH:
the idea that Pearson might get involved was shot down by analysts on Friday
Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.
NH:
here’s a quick bit of comment from RBS on the deal
NH:
As expected, Apollo Global has launched an offer for BPP pitched at 620p per share and this has been unanimously recommended by the BPP board. We do not expect any counter-bids, but view this as an attractive offer which we would expect to be accepted by shareholders.
NH:
Apollo Global has announced a 620p per share bid for BPP, which has been unanimously recommended by the BPP board. We view this an attractive offer. It represents a 70% premium to the share price prior to the announcement of bid talks, and we estimate that it values BPP’s degree awarding powers at £83m, a value that it would have taken BPP many years (and a more ambitious investment programme) to extract as an independent company. There has been speculation of a
Pearson counter-bid, but we view this as highly unlikely, and expect the Apollo offer to be successful
Pearson counter-bid, but we view this as highly unlikely, and expect the Apollo offer to be successful
NH:
shares trading just below the terms of the offer at the moment
NH:
up 49p at 616p
BE:
Also
NH:
yes Bryce
BE:
Got a bit from Numis if anyone’s interested.
NH:
yeah
NH:
put it up
BE:
Apollo and BPP’s management have agreed an all cash offer of 620p per share for
BPP. This follows the intial approach announced on 29th April and we believe is the
culmination of a number of years of Apollo coveting BPP’s position and progress in
its core markets. We believe the price is fair but not a knockout. However, the
current economic downturn has focussed investors’ attention on the “bird in the
hand” rather than long term value which was likely to be created from the Business
School as well as the group’s unrivalled position in its core market of Professional
Education with good long term growth prospects and high returns on capital. A
counter bidder has not emerged since the announcement of Apollo’s initial
approach and a bidding war looks unlikely. As such we reduce our target price to
Apollo’s offer price of 620p.
BPP. This follows the intial approach announced on 29th April and we believe is the
culmination of a number of years of Apollo coveting BPP’s position and progress in
its core markets. We believe the price is fair but not a knockout. However, the
current economic downturn has focussed investors’ attention on the “bird in the
hand” rather than long term value which was likely to be created from the Business
School as well as the group’s unrivalled position in its core market of Professional
Education with good long term growth prospects and high returns on capital. A
counter bidder has not emerged since the announcement of Apollo’s initial
approach and a bidding war looks unlikely. As such we reduce our target price to
Apollo’s offer price of 620p.
BE:
BPP’s management has recommended the all cash offer from Apollo of 620p per share.
n The price of 620p represents an EV/EBITDA of c11x or EV/EBITA of 12x (both ex
Business School losses). This equates to an intial pre tax ROIC for the bidder of 8%.
As a platform acquistion this looks good value for Apollo in our opinion
n The price of 620p represents an EV/EBITDA of c11x or EV/EBITA of 12x (both ex
Business School losses). This equates to an intial pre tax ROIC for the bidder of 8%.
As a platform acquistion this looks good value for Apollo in our opinion
BE:
“Bidding war unlikely”
NH:
well with Pearson at least
11:48AM
NH:
Right the comment box looks to have completely broken down
NH:
readers are appearing in Red
NH:
and that’s only supposed to happen when you are an FT employee
NH:
which I don’t think Lemmy is
NH:
or Mervyn
NH:
anyway Andrew Betts is on the case
NH:
and he says the comments are getting caught in the spam filter
NH:
and then only being released when approved
NH:
he is trying to fix things now
BE:
Not red on my screen, FWIW
NH:
they are on mine
BE:
All very messy.
NH:
apologies for that
BE:
Wonder if they can revoke the Webby?
NH:
a day without Murph
NH:
and look what happens
NH:
total meltdown
11:50AM
NH:
but there are a few more market related things to look at
NH:
Sterling remains under pressure
NH:
against the dollar
NH:
$1.5859
NH:
and against the Euro
NH:
0.8726
NH:
just havinig a look at gilts
NH:
yield on 10-year gilt at 3.904%
NH:
was at 4% last back in Nov
11:52AM
NH:
Okay
NH:
comments starting to filter through…slowly
NH:
Zoomy has made it through the Spam filter
NH:
surprisingly
BE:
Ha
NH:
And I promise
NH:
I have not set the Zapper to random
NH:
or gone crazy in Murph’s absence
NH:
and started red carding people
NH:
in some sort of Alpha massacre
NH:
no
NH:
it is an over zealous spam filter
NH:
over 70 comments waiting to be checked
11:55AM
NH:
right a couple of things to round up on
NH:
property stocks
NH:
outperforming the wider market
Land Securities Group (LAND:LSE): Last: 494.75, up 6.75 (+1.38%), High: 494.75, Low: 477.25, Volume: 814.35k
British Land Co (BLND:LSE): Last: 382.50, up 6.75 (+1.80%), High: 383.25, Low: 367.75, Volume: 1.28m
BE:
Why’s that?
NH:
interesting note out from Caz this morning
NH:
not sure that is pushing it
NH:
by interesting
NH:
back up in bond yield does not help the sector
NH:
so all quite odd
NH:
anyway
NH:
back to Caz
NH:
they have been talking to seasoned property entrepreneurs
NH:
Mike Slade of Helical Bar and Adrian Wyatt of Quintain.
NH:
and both reckon
NH:
the bottom of the property cycleis not that far away
NH:
although
NH:
they don’t expect a V -share recovery
NH:
Slade reckons ti will be a www-shaped recovery
NH:
which I might nick and pass off as my own
NH:
here’s the note
NH:
Real Estate – update on majors – reiterate buy cases for British Land and Derwent London
(BLND.L, Closing price 375.75p, Recommendation OUTPERFORM) (DLN.L, Closing price 918p, Recommendation OUTPERFORM)
(BLND.L, Closing price 375.75p, Recommendation OUTPERFORM) (DLN.L, Closing price 918p, Recommendation OUTPERFORM)
NH:
Last week we heard from two of the seasoned property entrepreneurs, Mike Slade of Helical Bar and Adrian Wyatt of Quintain. Both commented that the bottom of the property cycle was not too far away and further price declines were likely to be relatively muted. In particular we liked Slade’s analogy that when we hit bottom soon the trough will be a ‘ www. ‘ shaped one not a ‘u’ or ‘v’ and with the emphasis on the ‘w’s being flat ones!
NH:
The point we have taken away from this and other anecdotal evidence from the investment market is that for good quality property and where lot sizes are not prohibitive to financing, values are stabilising. This gives us greater confidence in our trough NAVs for the majority of companies we cover not overshooting on the downside and that many of the repaired balance sheets are no longer in danger of becoming distressed again and thus do not, as feared recently, need further equity injections – Hammerson’s two long awaited sales last week and its previous equity raise put the balance sheet back in the comfort zone in our view.
NH:
Indeed investors are beginning to consider the upside potential one, and even two year’s hence. Whilst we remain cautious on the shape of recovery (there is still a vast amount of debt to be refinanced over the next couple of years, most of the property majors are still price takers in their on going smallish sales programmes, rental values are declining, voids are rising, and earnings dilutive sales most not be lost sight of) we have started to put through some NAV upgrades to our current plus 1 year and beyond forecasts and increasingly offer sensitivities highlighting upside rather than downside risks to capital values.
NH:
Following recent quite dramatic price moves we thought it worth while showing the current ratings (BOTC NAV discounts/premiums and prospective dividend yields) for the large and mid cap REITs. Two stocks stand out as attractive right now.
Following recent quite dramatic price moves we thought it worth while showing the current ratings (BOTC NAV discounts/premiums and prospective dividend yields) for the large and mid cap REITs. Two stocks stand out as attractive right now.
NH:
British Land – BLND of the large caps is the one that has the most balance sheet capacity and unutilised attractively priced debt to make EPS & DPS accretive acquisitions and we believe its management has the clearest strategy of how to capitalise on the market in the short/ medium term.
On our current BOTC NAV in FY2010E of 341p which assumes a further 7% fall in capital values and average net IY of 7.75% the shares command a premium rating of 10% but also yield prospectively 6.9%. If we are being too cautious (see simplified balance sheet attached) and for example the near term portfolio was valued at 7.2% the NAV would be c. 403p – assume nil discount to this and with the dividend yield investors total return from current price levels would be 14.2% – if the portfolio valuation yield dips below 7% and again assuming nil discount to the then NAV of 440p and shareholders potential return would be 23.9%. All before those hoped for accretive acquisitions! OUTPERFORM
On our current BOTC NAV in FY2010E of 341p which assumes a further 7% fall in capital values and average net IY of 7.75% the shares command a premium rating of 10% but also yield prospectively 6.9%. If we are being too cautious (see simplified balance sheet attached) and for example the near term portfolio was valued at 7.2% the NAV would be c. 403p – assume nil discount to this and with the dividend yield investors total return from current price levels would be 14.2% – if the portfolio valuation yield dips below 7% and again assuming nil discount to the then NAV of 440p and shareholders potential return would be 23.9%. All before those hoped for accretive acquisitions! OUTPERFORM
NH:
Derwent London – No upside sensitivity analysis to our current BOTC NAV is required to show how attractive in absolute and relative terms to the sector and its nearest peer (Great Portland) this stock looks in our view.
Off a 7% net IY our BOTC NAV is 968p and the shares currently stand at a discount of 5% to this. Only Hammerson’s trough discount is wider (and justified in our view) and most of the other REITs are standing at premiums with Great Portland on a 20% premium. Derwent’s balance sheet is strong with unutilised capacity for acquisitions (though a big deal might sensibly be part equity financed), its portfolio is let off low and reversionary rents, and its management team is highly experienced and very well regarded. OUTPERFORM.
Off a 7% net IY our BOTC NAV is 968p and the shares currently stand at a discount of 5% to this. Only Hammerson’s trough discount is wider (and justified in our view) and most of the other REITs are standing at premiums with Great Portland on a 20% premium. Derwent’s balance sheet is strong with unutilised capacity for acquisitions (though a big deal might sensibly be part equity financed), its portfolio is let off low and reversionary rents, and its management team is highly experienced and very well regarded. OUTPERFORM.
BE:
I thought you were kidding about the www recovery.
11:58AM
NH:
nope
NH:
NH:
a series of w’s
NH:
rather like a wave
NH:
up and down, up and down, up and down
BE:
How very 1993.
NH:
indeed
NH:
right
NH:
I think that it is from today’s edition of Shambles Live
NH:
hopefully the hyper-active spam filter will be fixed tomorrow
NH:
rather odd talking to myself
NH:
with no comments
NH:
I am off to have a chat with Assanka about this morning’s edition
NH:
thanks for joining us this mornig
BE:
I’m off to the park to play on the swings.
NH:
even I can’t see the comments
NH:
I know a lot of you logged in
BE:
Might even bring the sprog, if she’s lucky.
NH:
have a nice afternoon Bryce
NH:
don’t have too much White Lightening
BE:
Prefer Tennents Super
NH:
might just leave the session open for a few more minutes
NH:
to let the comments come through
NH:
Andrew Betts says we have moved to a new filter
NH:
and there was me thinking there was only one
BE:
You can close the session but leave comments open
NH:
Lloyds looks to have completed rump placing
NH:
LLOYDS 1.3 BLN SHARE RUMP OFFER COVERED AT 60 PENCE EACH – SOURCE, DEALERS
NH:
shares down 4.1p at 62p
NH:
I am off to see what comes out of the Apple’s developers conference
NH:
possibly a new iPhone
NH:
Bryce enjoy the swings
BE:
“Iphone Video” is the rumour
NH:
still no contact from Murph
NH:
but I will be back tomorrow
NH:
joined by Bryce
BE:
In the office
NH:
see u all then
BE:
Which is easier.
NH:
byeeeee
BE:
Bye.
NH:
Zoomy. Murph in NY to pick up an award. I think he will be Okay. You really don’t have to worry.