Markets live chat transcript for the chat ending at 12:13 on 10 Jun 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)
NH:
Good morning
NH:
Due to industrial action there will be no Markets Live this morning or tomorrow
NH:
AV members have walked out in protest at not being able to attend the Webby awards in New York
NH:
AV General Secretary Neil Crow said
NH:
AV members do not resort to industrial action lightly, that is a myth pedalled by some sector of the media
NH:
the fact is we have been driven into walking out today
NH:
We are committed to providing a good service for our readers, but this can’t be achieved when we are not allowed to go on an all expenses paid jolly to Manhattan
NH:
unlike members of senior management
NH:
it’s just not fair
11:05AM
NH:
not really
NH:
Good morning
NH:
and welcome Markets Live
NH:
Alphaville’s Daily Markets chat
NH:
and just in case you have been living on a different planet
NH:
A date for the Webby drinks has been announced much to the amazement of many readers like Monkey
NH:
it was revealed at the Webby awards by FT Alphaville editor Paul Murphy
NH:
and in case you office firewall doesn’t let you log on to YouTube
NH:
the date is…
NH:
August 28th
NH:
Save the date
NH:
the Friday before the bank holiday weekend
NH:
at a venue to TBA
NH:
and remember, this one is on Paul
NH:
he promised
NH:
we can ruin him financially
NH:
right on to the markets
11:07AM
NH:
once again I am joined by Bryce Elder from the London market’s desk
BE:
Hello
BE:
A mere two hours to get here
BE:
Shepherd’s Bush to Notting Hill, to Finchley, to Swiss Cottage to London Bridge
BE:
Might do that every morning.
BE:
Worsel – great idea
BE:
Like 1988 again.
NH:
nice
NH:
I don’t do the tube, so no probs for me
NH:
anyway, what’s this market doing?
BE:
FTSE’s up a tonne.
BE:
Well, up 99.94 points at 4504.
BE:
you might be getting that panicky phone call from Manhattan after all
BE:
It’s all being driven by a decent performance from the miners after some data from China
BE:
As well as decent housing and loan figures
Eurasian Natural Resources Corp (ENRC:LSE): Last: 725.00, up 49.5 (+7.33%), High: 738.00, Low: 693.00, Volume: 1.44m
Xstrata (XTA:LSE): Last: 764.00, up 42.5 (+5.89%), High: 770.50, Low: 742.00, Volume: 6.52m
Vedanta Resources (VED:LSE): Last: 1,729, up 98 (+6.01%), High: 1,731, Low: 1,662, Volume: 794.59k
Rio Tinto (RIO:LSE): Last: 3,094, up 142 (+4.81%), High: 3,103, Low: 3,015, Volume: 2.79m
BHP Billiton (BLT:LSE): Last: 1,563, up 68 (+4.55%), High: 1,569, Low: 1,549, Volume: 5.80m
NH:
hmmm
NH:
fairly relaxed about the move higher
NH:
still along way from out close out position
NH:
and the index still struggling to break 4,500
NH:
really does not like the level
NH:
no need to panic
BE:
yet
NH:
no, just relax
11:10AM
NH:
right
NH:
some interesting developments in Sweden
NH:
Riksbank had had to borrow some cash from the ECB
NH:
now are guessing this all relates to Latvia
NH:
here’s a couple of emails I got this morning
NH:
Interesting that the Riksbank has had to borrow from the ECB like this…could be nothing, but market may think that maybe there are some problems at swedish banks (or a swedish bank) that we are not aware of….
NH:
The Executive Board of the Riksbank has decided to borrow EUR 3 billion from the European Central Bank, ECB. This is being done to ensure that the Riksbank is well-prepared to continue safeguarding financial stability.
NH:
To restore the foreign currency reserve, the Riksbank has earlier requested to borrow the equivalent of SEK 100 billion in foreign currency from the Swedish National Debt Office. SEK 65 billion of this will be borrowed prior to the summer.
The Riksbank is now borrowing three billion euro from the ECB to ensure that the Riksbank will have a sufficiently large foreign currency reserve during the period the borrowing takes place. The Riksbank already has a swap agreement with the ECB regarding borrowing up to 10 billion euro in exchange for Swedish kronor. This agreement is now being used to borrow currency.
NH:
One of the Riksbank’s tasks is to ensure that the payment system in Sweden works safely and efficiently. An important component of this work is to be able to provide liquidity assistance to the Swedish banks. As a substantial part of the Swedish banks’ funding is in foreign currency, the Riksbank needs to have a sufficiently large foreign exchange reserve to be able to meet a potential need from the banks.
Further information can be found on the ECB’s website, follow the link below.
BE:
So how much have they borrowed?
NH:
looks like 3 billion euros
NH:
so not a great figure
NH:
but…
NH:
and the Swedish central bank making supporting noises
NH:
sorry Swedish FSA
NH:
this from Bloomberg
NH:
June 10 (Bloomberg) — Sweden’s four largest banks can handle loan losses in Estonia, Latvia and Lithuania of 150 billion kronor ($20 billion) over a three-year period, the Nordic country’s Financial Supervisory Authority said.
“All of the big banks can withstand extreme pressure in the coming period,” the Stockholm-based financial watchdog said in its stress test of Sweden’s four largest banks today. “There is currently no need for any of the big banks to strengthen their capital adequacy based on the regulatory requirements.”
NH:
Swedish banks face soaring loan losses in the Baltic states, which are suffering the severest recessions in the European Union. Swedbank AB, the largest bank in the Baltics, has 17 percent of its lending in the region, while SEB AB, the second- largest, has 13 percent. Together, the two have lent more than 366 billion kronor in the region.
In its “conservative base scenario,” the watchdog forecasts loan losses on 15 percent of the banks’ Baltic loan portfolios and on 38 percent of loans made in Ukraine, while losses in Sweden will reach 1.5 percent, it said. That will lead to total loan losses of 203 billion kronor during 2009, 2010 and 2011, while total income will be 296 billion kronor, meaning the four largest banks will remain profitable on an aggregate level.
11:14AM
BE:
Ok – we should head back to London now
NH:
OK
NH:
I think we should have a quick look at Thomas Cook in the wake of yesterday’s developments at Arcandor
NH:
what’s the price action?
BE:
muted at the moment
BE:
We are up 3.25p at 238.75p.
NH:
so, yesterday’s takeover speculation cooling
BE:
very much so
BE:
brokers, analysts have been over the numbers for the rumoured bidder REWE
BE:
and they reckon it will struggle to buy it
BE:
have a look at this
BE:
Co are said to be agreeable to a merger with Rewe Group’s travel business, though would prefer to be a lead partner in a deal..
BE:
REWE had €49.8bn turnover in Europe in 08..Co is 2nd largest food trader in Germany and 3rd in Euro and 7th worldwide… and is no.3 on travel in Germany behind TUI and Thomas Cook..
NH:
second largest food trader??
BE:
But …
BE:
Co turned over c€4.58bn in travel c1/2 the size if TCG difficult to see how Rewe funds any takeover…
BE:
MOST LIKELY:A placing by Arcandor? TCG say they are ringfenced, so only issues is what happens to the stake? Rewe is effectively a co-operative so can’t see how it could fianance a bid?
NH:
thanks for that, very interesting
NH:
so Rewe is some sort of weird German co-operative with its fingers in loads of pies
BE:
Not unlike Arcandor, really.
NH:
so the most likely outcome is the Arcandor stake hits the market, all 53% of it!
BE:
barring a bid from the middle east, which is possibility, yes
BE:
although probably not in one go
BE:
the stake is held in several places and some of its pledged to a convertible loan
NH:
yeah, heard that yesterday
BE:
hang on a minute, a broker sent me a handy note on this today
BE:
A court-appointed administrator, Klaus Hubert Görg, will develop a restructuring plan with management.
BE:
* The company will be run on a day-to-day basis by Horst Piepenburg, a restructuring and insolvency expert.
* Mr Piepenburg said he hoped Arcandor would be able to emerge from the process with its three main businesses – retail, mail order and tourism – intact
* Rewe, the food retailing co-operative, whilst being interested in bolstering its tourism business will look at the TCG LN stake if it came on the market.
BE:
* 8% of the TCG LN stake is now under the control of Bayern LB as collateral agent for the exchangeable.
* The remaining 44% is pledged as collateral to RBS, Commerzbank and Balyern LB
* There are potential buyers of all three of the main Arcandor businesses.
* Unfortunately, visibility is low on the true scale of the debts of Arcandor and calculation of a possible recovery is uncertain.
NH:
so, the main chunk is with RBS Commerzbank and Balyern LB
NH:
and the convert with Bayern
BE:
yes, and it is that bit which could hit the market sooner rather than later
NH:
actually, this all makes a bit of mockery of the disclosure system
NH:
Arcandor does not really own anything in TC
NH:
al of it hasl been pledged elsewhere
NH:
I wonder how many people knew that when they bought in
NH:
anyway
NH:
what have the analysts made of it all??
BE:
well
BE:
they have come to pretty much the same conclusion as us: an orderly sale of the holding is the most likely outcome
BE:
here’s Investec
BE:
THOMAS COOK (TCG,SELL). Uncertainty persists about where the TCG stake now sits post Arcandor’s insolvency. There are suggestions in the press that the stock
now sits with banks (and probably landlords and convertible bond holders) to
whom Arcandor’s Thomas Cook stake was pledged.
now sits with banks (and probably landlords and convertible bond holders) to
whom Arcandor’s Thomas Cook stake was pledged.
BE:
Our reading is slightly different, with these people being “secured creditors” who get first claims to proceeds from the TCG stake’s sale but do not have control over the stake.
Whichever way you look at it, though, the stake has to be sold at some point
(though note that CEO is quoted in the press as saying that it could take
“weeks or months”) and it seems very unlikely to go to a trade buyer.
As mentioned yesterdayy, Rewe is only likely to be interestd at a much lower price (150p-180p?) and would be unlikely to be able to secure full control of the
company at this level – a view reiterated in Lex this morning. An MBO would be
very large and would need to raise maybe close to £3bn. We are still perplexed
as to why the stock bounced yesterday – the only satisfactory reason is that an
immediate sale may not be likely – and we would be selling the shares today.
Whichever way you look at it, though, the stake has to be sold at some point
(though note that CEO is quoted in the press as saying that it could take
“weeks or months”) and it seems very unlikely to go to a trade buyer.
As mentioned yesterdayy, Rewe is only likely to be interestd at a much lower price (150p-180p?) and would be unlikely to be able to secure full control of the
company at this level – a view reiterated in Lex this morning. An MBO would be
very large and would need to raise maybe close to £3bn. We are still perplexed
as to why the stock bounced yesterday – the only satisfactory reason is that an
immediate sale may not be likely – and we would be selling the shares today.
BE:
And Mark Brumby of Blue Oar
BE:
Parent company files for bankruptcy
The diverging performances of Europe’s two premier leisure travel companies over the last month has suggested that the Arcandor announcement has been at least partially discounted in current share prices.
Any hedge funds that had sold Thos Cook shares ahead of a potential placing may understandably have decided to close their positions.
With that in mind, the see-saw movements in Thos Cook’s shares come into clearer focus. Bear closing may have sent the share better but the news that some (or all) of the shares had been pledged against loans was not helpful news and sent the shares lower. Mr. Tchenguiz recently found ‘his’ shares in M&B placed by an impatient Kaupthing and investors are likely to remember that.
As regards what happens next, that is not yet altogether clear. The administrator (or his German equivalent) could conceivable hold his shares in Thos Cook indefinitely and if debt financing were a little easier to come by, a purchase of the 52% stake followed by a bid would be entirely possible. We believe that the shares had become oversold and are maintaining our HOLD recommendation.
BE:
It an RNS released at around 2pm yesterday, Thomas Cook re-iterated that its financing arrangements were completely independent from Arcandor’s and that there were minimal balances (less than £1m) outstanding between the companies. There are no cash-pooling arrangements and Thomas Cook has not guaranteed any obligations of Arcandor. The group went on to say that it has not had any approaches and is not in talks with any potential acquirer of Arcandor’s shares or any potential offeror for the group as a whole and it is ‘very much business as usual at Thomas Cook’. However, in interviews undertaken later in the afternoon, Thos Cook (and Arcandor Director) CEO Manny Fontenla Novoa said that Arcandor had pledged (an undisclosed number of) shares in Thos Cook against loans. Arcandor’s main banks include Bayerische Landesbank, Commerzbank and RBS. This was not taken to be good news.
We fully accept that Thomas Cook is a separate legal and trading entity in its own right and the fact that there are no cross-company balances or legal guarantees is something of a relief. Nonetheless, it is not ideal to see a material shareholder shaken loose (ask M&B with regard to Mr. Tchenguiz’s stake) let alone one that owns some 52.8% of one’s equity. Indeed, Mr. Tchenguiz’ stock in M&B was ultimately placed by the banks that had taken his shares as collateral and it would not be helpful if history were to repeat itself. With this in mind, Thos Cook’s management will have to work very hard to keep their eyes on the ball, particularly as we enter the Lates market for 2009 and begin the tricky process of budgeting and brochure building for what may be a very tough year, 2010.
11:21AM
NH:
thanks for that
NH:
On Barclays
NH:
We have heard nothing fresh. Still expecting the deal today, but we might have to wait until the US open, given that Blackrock is listed in NY
NH:
shares up 4.75p pto 294p
NH:
i would guess that most of the news is now priced in
BE:
Wouldn’t be surprised to see it before the open
BE:
Although that’s not based on any info, just a hunch
NH:
and SFB you are right. 325 hits for Murph’s speech
NH:
his credit card is going to take one hell of beating on Aug 28
NH:
fancy scheduling it for a Friday before a long weekend
NH:
what was the man thinking
NH:
taken leave of his senses
BE:
Yup – it’s certain to get messy.
NH:
and end up at the Ivy club
BE:
Although it’ll probably start in a Wetherspoons, if he has any sense.
NH:
or what about a conference room here
NH:
he could go to Makro
NH:
buy a couple of crates
NH:
and a few bottles of plonk
BE:
… and get the readers to edit the weekend edition.
BE:
Brilliant idea.
NH:
yep
NH:
let’s do it here
NH:
open house at the FT
BE:
Security may have a few issues with that.
BE:
Anyway, should we move on?
NH:
we should
BE:
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.
11:27AM
NH:
a few bits
NH:
apparently some educated buying of Tandberg TV in Norway
BE:
ah, Tandberg
NH:
You have heard of it?
BE:
Oh yeah. One of the world’s biggest player in teleconferencing, no less.
BE:
was in takeover talks with a private equity group last year
BE:
Silver Lake Partners I think
BE:
Seem to remember that Silver Lake own Avaya, another big player in the market
BE:
But the deal got credit crunched
BE:
Leaving several punters without their limbs
BE:
So what’s the story this time?
NH:
Bid rumours, again
BE:
NH:
Cisco the name in the frame
BE:
Right.
NH:
some breaking news
NH:
for holders of Addax, Heritage, Sterling Energy
NH:
RTRS-KURDISH CONTRACTS WITH OIL FIRMS ARE ILLEGAL UNTIL THEY ARE RATIFIED BY IRAQI OIL MINISTRY – GOVERNMENT SPOKESMAN
BE:
Of course, the Iraq ministry has always said that.
BE:
Not sure how much is new there.
BE:
Wouldn’t be surprised if it unsettled some of the hotter cash coming into the sector recently though.
NH:
but it does highlight the uncertainity here
BE:
Yup – Huge political risks attached to the whole enterprise
BE:
Which might make you wonder whether Tony Buckingham and a Turkish firm are the best people to navigate this particular minefield.
NH:
right back to the RAW
NH:
I have a bit more on the Berkeley placing from yesterday
BE:
Oh yeah – go on.
NH:
we thought the balance of the Saad stake would soon hit the market
BE:
that’s another 17m shares
NH:
but we might have been wrong
NH:
what happened yesterday is that Citigroup pulled the plug on Saad
NH:
well, that what source sources tell me
BE:
What do you mean?
NH:
well, some of Berkeley the stake was held on margin at Citi, or a CFD
NH:
Citi decided they wanted more margin
NH:
Saad could not cough up because their accounts are frozen
NH:
so they liquidated the position
NH:
and they weren’t really too bothered what they got for it
BE:
7 quid did look a touch on the low side.
NH:
apparently UBS, Berkeley’s broker were hopping mad
NH:
they could have placed the stake at a higher level with shareholders they knew
BE:
All very illuminating. So Saad didn’t want to sell?
NH:
it would appear not
BE:
What’s the detail on this JV?
NH:
I guess so, although Saad not having any access to cash will be something of a problem
BE:
What about the rest of the holding?
BE:
Where’s that held?
NH:
not sure, Credit Suisse sold 4m odd shares
NH:
so they might have had some
NH:
the balance of 17m is out there somewhere
NH:
it could be held physically
NH:
I just don’t know
BE:
Hm.
BE:
So where does this leave us?
BE:
What about the mysterious HSBC stake?
NH:
well I have been doing a bit of digging on this
NH:
and from what I can tell, Saad owns it beneficially
NH:
held in a nominee account in Jersey
NH:
James Capel nominee
BE:
So that might not come on to the market.
NH:
yes
NH:
but of course he might have already sold it
NH:
right some share prices
HSBC Hldgs (HSBA:LSE): Last: 537.00, up 19.25 (+3.72%), High: 540.50, Low: 525.00, Volume: 28.56m
BE:
Berkeley’s up 8p at 790p
BE:
(Autoquote fail.)
11:38AM
NH:
OK
NH:
FTSE reshuffle
NH:
a quick update
NH:
this is what we think will be confirmed by FTSE later today
BE:
5pm usually.
NH:
outs of FTSE 100
NH:
FOREIGN & COLONIAL
DRAX GROUP
WHITBREAD
DRAX GROUP
WHITBREAD
NH:
in
NH:
WOLSELEY
3I GROUP
LONDON STOCK EX.GROUP
3I GROUP
LONDON STOCK EX.GROUP
NH:
out of FTSE 250
NH:
ALTERNATIVE INV.STGIS.
F&C.EUROTRUST
FINSBURY WWD.PHARM.
INTERNATIONAL PSNL.FIN.
BARING EMERGING EUROPE
TELECOM PLUS
HANSARD GLOBAL
F&C.EUROTRUST
FINSBURY WWD.PHARM.
INTERNATIONAL PSNL.FIN.
BARING EMERGING EUROPE
TELECOM PLUS
HANSARD GLOBAL
NH:
and in
NH:
LANCASHIRE HOLDINGS
SIG
PUNCH TAVERNS
BPP HOLDINGS
ST MODWEN PROPS.
YELL GROUP
SHANKS GROUP
SIG
PUNCH TAVERNS
BPP HOLDINGS
ST MODWEN PROPS.
YELL GROUP
SHANKS GROUP
BE:
It’s return of the living dead.
NH:
sure is
NH:
and out of the FTSE All share
NH:
DAWSON HOLDINGS
NH:
and in
NH:
PENDRAGON
FIBERWEB
JJB SPORTS
INNOVATION GROUP
ALTERIAN
ALPHAMERIC
KEWILL
FIBERWEB
JJB SPORTS
INNOVATION GROUP
ALTERIAN
ALPHAMERIC
KEWILL
NH:
and look, that little company Alterian we mentioned yesterday is in
BE:
Hm.
BE:
Some uncertainty about whether Balfour Beatty’s in or out.
BE:
Was told last night that it was for the chop.
NH:
really
NH:
well the changes have to be rubber stamped
NH:
the market caps above are not enough
NH:
so will shall see
NH:
but Punch and Yell do look as if they will be back in the FTSE 250
BE:
Indeed.
NH:
actually
NH:
3i have had a good move this morning
NH:
up 13.7p to 270.75p
BE:
That’s on the back of a Morgan Stanley upgrade.
BE:
Hang on – will just go get.
NH:
thanks
BE:
We raise 3i to Overweight as we see ~20% upside implied by our price target of £3.14 (up from 234p), and an attractive risk-reward in the context of our broader coverage universe – our bull case implies ~65% upside, our bear case implies 31% downside. With ~65% of the portfolio now valued on a multiple basis or in quoted stakes, we estimate that NAV has recovered from the March trough at £2.75 (adjusted for capital raise) to £3.10 today. The capital raise reduces tail risk from sub optimal asset sales and brings gearing to manageable levels. Uncertainty exists on the pace of further NAV recovery given real economy pressures and constraints on investment near term, though we feel ~20% upside to book is sufficient basis to upgrade.
NH:
thanks for that
NH:
the news at Candover probably helps as well
BE:
Sectorwise, I guess.
11:45AM
NH:
right
NH:
people what has gone wrong at Turquoise this morning
NH:
and we are not sure
NH:
all we do know is that the system has gone down
NH:
we got sent this email earlier this morning
NH:
MARKET ALERT.
Due to a system outage, the trading session today is being suspended. We will send an e-mail update when a re-opening time has been defined.
We are currently working to overcome all issues and apologize for any inconvenience.
ETA tba.
Market Operations Team
Turquoise
23 Austin Friars
London
EC2N 2QP
BE:
Some kind of tech meltdown I’d assume
NH:
yeah
BE:
Cleaner’s pulled out a plug
NH:
and all its rivals quick to stick the boot in
NH:
usually they do it to the LSE
NH:
when it has an outage
NH:
now its someone elses turn
NH:
(Garbitrage, if you have a copy of the email, would like to see it)
BE:
Interesting to see if volumes move up on the LSE today …
NH:
does not look like it at the moment
NH:
most heavily traded stock so far is Lloyds
BE:
Might shed some light on whether the gains made by Turquoise etc are mostly just double-counting due to cross-exchange arbing
NH:
done around 90m
NH:
then it is Dog Robinson
NH:
with 43.5m
BE:
What’s going on with the Dog?
NH:
not sure. from memory there were a couple of stakebuilders there
NH:
one was a Dutch guy
NH:
owned or founded a rival company called
NH:
hang on a moment
NH:
need to delve into the archive
NH:
BCD Holdiings
NH:
perhaps they have bought a block
NH:
and are going to bid
NH:
would be a complentary deal
NH:
and the two companies know each other well
NH:
buy Dogg Robinson directors have been buying stock recently
NH:
and I not sure anyone would go near this company
NH:
Beverweerd Investments owns 21%
BE:
Second behind “Dnata”
NH:
that’s Emrirate right??
BE:
I think so
BE:
Hang on – Neil’s just checking the tape
BE:
Big blocks going through at 28p
NH:
large blocks
NH:
could be a CFD position being shifted
NH:
or a placing
NH:
of one of the big holders
11:53AM
BE:
Right – nearly midday
BE:
What do we finish up on?
NH:
How about something nice and bearish
NH:
all this talk about green shoots
NH:
is obviously alien to us
NH:
and as for this stuff about the turn in the inventory cycle
NH:
and the end of de-stocking
NH:
we are pretty suspicious
NH:
even if things do recovery what will be the new normal in terms of demand
NH:
anyway that brings on to Charter
NH:
big UK engineer
NH:
and it has shocked the market with a horrible profit warning today
NH:
bascially business fell off a cliff in May
NH:
and no one is re-stocking
NH:
shares down 91.5p at 472.5p at the moment
BE:
Covers quite a few industries
BE:
Welding, industrial gas, automation
BE:
Fair old geographical spread as well
BE:
Could be argued that it’s a mini bellwether.
NH:
well here’s what they hit the market with this morning
NH:
To date, ESAB has seen no signs of general restocking or upturns in demand from the automotive industry or governmental infrastructure spending programmes. ESAB continues to expect falling shipbuilding activity later in the year and there also remains the possibility that some customers will take extended summer shutdowns. Competitive pressures are also increasing in some markets.
The Board’s expectations for Howden’s trading in the remainder of the year are in line with those expressed in the IMS on 29 April 2009.
Following an acceptable start to the year, Charter’s result for 2009 will reflect the weaker current trading conditions in ESAB’s European and other principal markets. The Company is implementing a further round of restructuring initiatives, and, if the difficult conditions seen in May persist, the Board of Charter would anticipate the outcome for 2009 being materially lower than its previous expectations.
NH:
now that has triggered some pretty aggressiv downgrades from analysts that were caught on the hop
NH:
forecasts coming down by 30%
NH:
look at this from Caz
NH:
Very tough trading in May set to trigger significant downgrades; [CHTR.L CHTR LN], 564p, Stock – In-Line, Sector – Underweight
Charter has released a short trading update this morning covering the period since the Q1 IMS which was published at the end of April. The key news is that, after a very solid first quarter, trading at the group’s welding division, ESAB, took another sharp step down in May. We believe that the European business in particular has experienced a significant deterioration in demand. Howden has continued to trade solidly and additional restructuring measures are to be implemented to address the further deterioration at ESAB. Nonetheless, we expect the tougher trading at ESAB and the news that competitive pressures are increasing to lead to significant downgrades to forecasts. We are likely to cut our 2009E EPS to around 45p (from 64p), a cut of almost 30%.
Charter has released a short trading update this morning covering the period since the Q1 IMS which was published at the end of April. The key news is that, after a very solid first quarter, trading at the group’s welding division, ESAB, took another sharp step down in May. We believe that the European business in particular has experienced a significant deterioration in demand. Howden has continued to trade solidly and additional restructuring measures are to be implemented to address the further deterioration at ESAB. Nonetheless, we expect the tougher trading at ESAB and the news that competitive pressures are increasing to lead to significant downgrades to forecasts. We are likely to cut our 2009E EPS to around 45p (from 64p), a cut of almost 30%.
NH:
Significant downgrades likely – Charter believes that “if the difficult conditions seen in May persist, the Board…would anticipate the outcome for 2009 being materially lower than its previous expectations”. Visibility is limited given the lack of a meaningful order backlog at ESAB, and the division’s mix of early and late cycle end markets makes it difficult to call whether a recovery in areas already hit hard (eg autos) will be underway by the time later cycle end markets such as shipyards are rolling over. However, given the weakness of May trading, and the risk of further shutdowns materialising over the summer period, we believe that it is prudent to assume that there is no improvement at ESAB in the coming months.
BE:
Ta
NH:
surprisingly the rest of the engineering sectoe is holdinig up reasonably well
BE:
Bit more comment
BE:
Starting with UBS
BE:
Management suggest that restocking took place in Q1 and this has now run its
course leading to a collapse in demand in May. The main area of weakness stems
from Europe, particularly export economies such as Germany. The weakness in
consumables suggests not recovery, but a continued to decline in markets such as
machinery, automotive and general metal fabrication. The read-through from this
has negative implications for the hopes of a swift industrial recovery in Europe as
Charter suggests there is no sign of demand stabilisation in steel consumption.
course leading to a collapse in demand in May. The main area of weakness stems
from Europe, particularly export economies such as Germany. The weakness in
consumables suggests not recovery, but a continued to decline in markets such as
machinery, automotive and general metal fabrication. The read-through from this
has negative implications for the hopes of a swift industrial recovery in Europe as
Charter suggests there is no sign of demand stabilisation in steel consumption.
BE:
Howden’s order intake has broadly matched sales so far in 2009 and management
expect the business to hold its order book through 2009, which suggests
revenues/margins should be in-line with current consensus expectations.
expect the business to hold its order book through 2009, which suggests
revenues/margins should be in-line with current consensus expectations.
BE:
We envisage at least 20% downgrades to consensus following the trading update.
BE:
Oh, and this is quite interesting
BE:
Sanjay Jha at Pali
BE:
Who tends to be a bit of an uberbear
BE:
Has turned buyer
BE:
Today’s profit warning on Q2 trading confirmed our fears that Charter’s
outperformance in Q1 was largely due to its geographical exposure,
and that it was wrong to assume pricing stability in welding products, given
the severe price deflation in the wider capital good sector. It is worrying
that the management didn’t see this coming when it issued its April trading
statement.
Nevertheless, Charter’s shares are now looking very cheap against its
peers: Lincoln Electric and ITW. On our revised forecasts, Charter is
trading at under 10x 2010 earnings, while its main competitors are trading
above 20x. Moreover, with the profit warning out of the way, the shares are
likely to outperform as investors now look for evidence of “green shoots”.
outperformance in Q1 was largely due to its geographical exposure,
and that it was wrong to assume pricing stability in welding products, given
the severe price deflation in the wider capital good sector. It is worrying
that the management didn’t see this coming when it issued its April trading
statement.
Nevertheless, Charter’s shares are now looking very cheap against its
peers: Lincoln Electric and ITW. On our revised forecasts, Charter is
trading at under 10x 2010 earnings, while its main competitors are trading
above 20x. Moreover, with the profit warning out of the way, the shares are
likely to outperform as investors now look for evidence of “green shoots”.
BE:
Balance sheet remains strong
From our point view, the main attraction of the shares is not their valuation
or recovery potential but the strength of the balance sheet. Even after the
poor trading in April and May, and the dividend payment of £23m in May,
the company retained a healthy net cash balance of £43m at the end of
May, compared with £52m at the December 2008.
From our point view, the main attraction of the shares is not their valuation
or recovery potential but the strength of the balance sheet. Even after the
poor trading in April and May, and the dividend payment of £23m in May,
the company retained a healthy net cash balance of £43m at the end of
May, compared with £52m at the December 2008.
BE:
Target price raised to 550p
Our target price of 550p assumes that Charter should trade at least at a
20% premium to Cookson, which is trading 9x 2010 consensus earnings
but is still burdened with £500m of net debt and is unlikely to pay a dividend
for some time.
Our target price of 550p assumes that Charter should trade at least at a
20% premium to Cookson, which is trading 9x 2010 consensus earnings
but is still burdened with £500m of net debt and is unlikely to pay a dividend
for some time.
BE:
Forecasts cut
We have cut our EPS forecasts by 20% to 42.5p for 2009. We now believe
ESAB sales will fall by 30% yoy versus our previous expectation of 25%.
We also expect margins to fall by 470bps in Welding and 480bps in Cutting
& Automation. We are expecting no improvement in sales next year but we
expect the company to cut costs by £10m.
We have cut our EPS forecasts by 20% to 42.5p for 2009. We now believe
ESAB sales will fall by 30% yoy versus our previous expectation of 25%.
We also expect margins to fall by 470bps in Welding and 480bps in Cutting
& Automation. We are expecting no improvement in sales next year but we
expect the company to cut costs by £10m.
NH:
thanks for that
NH:
Right.Just want to clear something up on trackers. When they are index changes, and a company goes into the the FTSE 250, it is small cap funds that have to sell. These aren’t trackers, but they cant hold stuff.
As for companies coming out of the FTSE 250, providing they stay in the FTSE All Share, there should not be too selling.
As for companies coming out of the FTSE 250, providing they stay in the FTSE All Share, there should not be too selling.
NH:
that is what we were driving at yesterday
BE:
Yup.
BE:
We write this every three months.
BE:
Pretty much.
NH:
Okay, I think we are done
NH:
thanks for tuning in today
BE:
Hang on …
BE:
Someone to the right asking for the Shanks u/g from Goldman Sachs
BE:
It was just a reiteration
BE:
And it was yesterday
BE:
And it was dull
BE:
So I won’t be posting that.
NH:
and Phorm Group. It seems one of their fan club is pointing out today’s placing
NH:
which was revealed exclusively in the FT
NH:
we have a bit of comment on that
NH:
company raised £15m at 450p
NH:
for working cap
Phorm (PHRM:LSE): Last: 590.00, up 55 (+10.28%), High: 590.00, Low: 537.50, Volume: 196.95k
NH:
this from Mirabaud
NH:
Phorm has announced an oversubscribed equity placing of 3.3m shares at 450p per share, raising the Company £15m (before expenses).
The placing provides the Group with working capital to execute its roll-out plans globally: we estimate that the Group now has enough
funds to turn cash flow positive. We maintain our BUY recommendation and leave our price target unchanged at 1500p.
The placing provides the Group with working capital to execute its roll-out plans globally: we estimate that the Group now has enough
funds to turn cash flow positive. We maintain our BUY recommendation and leave our price target unchanged at 1500p.
The placing reduces short terms risks associated with the requirement for further funds and importantly strengthens the Group’s balance
sheet during a key trial period with Korea Telecom and deployment in both the UK and South Korea, which we expect to occur before the
end of 2009.
NH:
Last week Phorm launched Webwise Discover, the consumer facing proposition that delivers consumers a more relevant internet by
showing users content according to their browsing history. We believe that this represents the final piece in the jigsaw and offers
consumers a reason to opt-in to the service. Investors should note that Webwise Discover was also well received by the Company’s critics.
showing users content according to their browsing history. We believe that this represents the final piece in the jigsaw and offers
consumers a reason to opt-in to the service. Investors should note that Webwise Discover was also well received by the Company’s critics.
NH:
The placing reduces our DCF based valuation to 2446p from 2967p per share – with a key short term risk removed we maintain our BUY
recommendation and leave our 1500p price target unchanged. Investors should note that our valuation is based on a roll-out in the UK
and South Korea only.
recommendation and leave our 1500p price target unchanged. Investors should note that our valuation is based on a roll-out in the UK
and South Korea only.
BE:
1500p!
NH:
i know
NH:
but he is not alone
NH:
£19.22 at Canaccord
NH:
annd that’s downgrade
NH:
Event
On 9 June 2009, Phorm announced it had raised £15 million by way of an institutional placing of 3.33 million new shares at 450p/share. The company will use the additional funds to “continue the implementation of its service in the UK and Korea”, for “general working capital purposes” and to support “continued discussions with additional ISPs in other territories”.
On 9 June 2009, Phorm announced it had raised £15 million by way of an institutional placing of 3.33 million new shares at 450p/share. The company will use the additional funds to “continue the implementation of its service in the UK and Korea”, for “general working capital purposes” and to support “continued discussions with additional ISPs in other territories”.
NH:
Impact
Given the current monthly cash burn (ca. £1 million), this raise is more than enough to secure the funding Phorm needs to get through to cash flow positive in the UK and Korea – both territories where we expect to see full product launches before the end of 2009. It also represents a firm vote of confidence from a number of existing and new shareholders in the progress the company has made over the last year, including both the commercial trial in Korea, and the successful engagement with campaigners and policy-makers in the UK. The unveiling on 3 June 2009 of Webwise Discover, a personalised content tool that uses Phorm’s behavioural targeting technology, has also supported the investment case. It will provide web publishers with a much-needed mechanism to increase traffic stickiness, whilst it represents an important extra consumer benefit with which ISP partners can promote the broader WebWise proposition, and hence maximise both initial and ongoing consumer opt-in rates.
Given the current monthly cash burn (ca. £1 million), this raise is more than enough to secure the funding Phorm needs to get through to cash flow positive in the UK and Korea – both territories where we expect to see full product launches before the end of 2009. It also represents a firm vote of confidence from a number of existing and new shareholders in the progress the company has made over the last year, including both the commercial trial in Korea, and the successful engagement with campaigners and policy-makers in the UK. The unveiling on 3 June 2009 of Webwise Discover, a personalised content tool that uses Phorm’s behavioural targeting technology, has also supported the investment case. It will provide web publishers with a much-needed mechanism to increase traffic stickiness, whilst it represents an important extra consumer benefit with which ISP partners can promote the broader WebWise proposition, and hence maximise both initial and ongoing consumer opt-in rates.
BE:
Burning c. £1 million a month.
NH:
wow, it really needed this fund raising
NH:
Valuation
We have made no changes to our underlying financial forecasts. However, the dilutive effect of the raise means we are lowering our DCF-based target price from 2,357p to 1,922p/share, offering investors 259% upside potential at current levels. This valuation does not reflect any successful product launch in markets outside the UK and Korea, and is based on a 30% discount rate that we would look to lower once the WebWise product is fully launched.
We have made no changes to our underlying financial forecasts. However, the dilutive effect of the raise means we are lowering our DCF-based target price from 2,357p to 1,922p/share, offering investors 259% upside potential at current levels. This valuation does not reflect any successful product launch in markets outside the UK and Korea, and is based on a 30% discount rate that we would look to lower once the WebWise product is fully launched.
BE:
What’s the cash being spent on?
BE:
I mean the £1 million a month?
NH:
staff I reckon
NH:
they hired some senior bankers last year I think
NH:
where’s the office?
BE:
Just checking
NH:
advertising?
NH:
lawyers?
BE:
Liberty House
222 Regent Street
London W1B 5TR
222 Regent Street
London W1B 5TR
NH:
nice
BE:
Very nice.
BE:
Handy for Veraswammy
NH:
look we should stoop being so nasty to Phorm
BE:
And quite near to where Gizmodo had their shop.
BE:
Not that I’m comparing Phorm with Gizmodo of course.
NH:
they take enough flack
12:10PM
NH:
crikey it is 12.10
NH:
we really must wind things up
NH:
thanks for joining us today
BE:
(Sorry – Gizmondo.)
NH:
see you all tomorrow
NH:
and for those of you interested
NH:
Murph back on Monday
BE:
Bye.
NH:
very funny WWY
NH:
cya