Markets live chat transcript for the chat ending at 12:12 on 11 Jun 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)
NH:
hola
NH:
and welcome to Markets Live
NH:
Spanish edition
NH:
FT Alphaville’s daily markets chat
NH:
now to be honest
NH:
we have been a bit distracted this morning by football
NH:
and the news that Real Madrid are willing to pay £80 for Ronaldo
NH:
where are they getting the money from?
NH:
and what will MoanU do with it
BE:
pay off some of those nasty PIK notes probably
NH:
let’s hope so – don’t want them buying any Arsenal players
BE:
ha.
NH:
NH:
morning Bryce
NH:
how was the journey in this morning?
BE:
Delightful.
BE:
I’m adding Bob Crow to my Christmas card list.
BE:
nice pic on the front page this morning BTW
NH:
er, the less said about that the better
NH:
let’s get to the markets
NH:
and…
11:06AM
BE:
Well, it’s up.
BE:
not by much
BE:
Ahead 12 pips at 4449
BE:
most people still spooked by the 10-year auction in the US last night
NH:
hmmm, US govt almost had to offer a yield of 4% to get it away
NH:
what’s been the response over here
BE:
Ten-year is teetering on the edge …
BE:
3.996%
NH:
on the brink
NH:
it could tip over during ML
BE:
Neil’s just checking the daily high
NH:
it is over
NH:
gone over
NH:
4%
NH:
back below now
NH:
actually, Robert Buckland the chief strategy guy at Citi has published a good note on bonds yields this morning
NH:
and whether they could derail the rally
BE:
Bear market bounce
NH:
NH:
he says no
NH:
until they are at the 5-6% level anyway
BE:
got the note?
NH:
I thought you would never ask
NH:
For a few reasons, the recent weakness in the bond market hasn’t held back
global equities. First, the increase in bond yields has been more than offset by
an associated fall in equity risk premia. Risk appetites are rising. The world
seems like a less risky place than it was just a few months ago. Second, higher
growth expectations have also helped to offset the rise in the risk-free rate.
This has been consistent with normalising economic growth and inflation
Expectations
global equities. First, the increase in bond yields has been more than offset by
an associated fall in equity risk premia. Risk appetites are rising. The world
seems like a less risky place than it was just a few months ago. Second, higher
growth expectations have also helped to offset the rise in the risk-free rate.
This has been consistent with normalising economic growth and inflation
Expectations
NH:
However, we don’t think a weak bond market will always be associated with
strong equities. We find the relationship between bonds and equities changes
at different bond yields. When bond yields are low, the correlation between the
assets tends to be negative — what is good for bonds is bad for equities. This
is when uncertainty is extreme, risk premia are rising and deflation fears set in.
When bond yields rise from very low levels, these concerns are unwound and
we find what is bad for bonds is good for equities. Investors start their
migration from safety, as we are experiencing right now.
strong equities. We find the relationship between bonds and equities changes
at different bond yields. When bond yields are low, the correlation between the
assets tends to be negative — what is good for bonds is bad for equities. This
is when uncertainty is extreme, risk premia are rising and deflation fears set in.
When bond yields rise from very low levels, these concerns are unwound and
we find what is bad for bonds is good for equities. Investors start their
migration from safety, as we are experiencing right now.
NH:
Conversely, at high bond yields, what is bad for bonds is also bad for equities.
At these levels, risk appetites and growth expectations are already high and will
not be able to counter rising bond yields. Rather, higher bond yields may be a
prelude to tighter policy and lower growth expectations.
At these levels, risk appetites and growth expectations are already high and will
not be able to counter rising bond yields. Rather, higher bond yields may be a
prelude to tighter policy and lower growth expectations.
NH:
From current levels, we think strong equity markets will continue to be
associated with weaker bond markets as this represents higher growth and
inflation expectations and a lower risk premium. However, equity markets and
bond yields cannot rise in tandem forever. At what point will we see the
relationship between equities and bonds turn from negative to positive? History
suggests stock markets can continue to rise as bonds sell-off until the US 10-
year yield approaches 5-6%. US equity and bond markets have been negatively
correlated below 5-6%, but positively correlated above this level (Figure 8).
associated with weaker bond markets as this represents higher growth and
inflation expectations and a lower risk premium. However, equity markets and
bond yields cannot rise in tandem forever. At what point will we see the
relationship between equities and bonds turn from negative to positive? History
suggests stock markets can continue to rise as bonds sell-off until the US 10-
year yield approaches 5-6%. US equity and bond markets have been negatively
correlated below 5-6%, but positively correlated above this level (Figure 8).
NH:
We find a similar “line-in-the-sand” in the UK. Weaker gilts have been a
headwind for UK equities above a 6% yield, but are associated with stronger
equity markets below 6%. In lower inflation regions like Continental Europe and
Japan, it looks like the threshold is also lower. Our work suggests Japanese
equities have had a negative correlation with the bond market when the 10-
year bond yield is less than 4%.
Below 6%, what is good for equities is bad for bonds and vice versa. Asset
allocators know this and move from one asset to the other. This is what we saw
in 2008 and 2009. However, above 6%, what is bad for bonds is also bad for
equities. At this point, money leaves both assets and finds a home elsewhere
(cash perhaps).
headwind for UK equities above a 6% yield, but are associated with stronger
equity markets below 6%. In lower inflation regions like Continental Europe and
Japan, it looks like the threshold is also lower. Our work suggests Japanese
equities have had a negative correlation with the bond market when the 10-
year bond yield is less than 4%.
Below 6%, what is good for equities is bad for bonds and vice versa. Asset
allocators know this and move from one asset to the other. This is what we saw
in 2008 and 2009. However, above 6%, what is bad for bonds is also bad for
equities. At this point, money leaves both assets and finds a home elsewhere
(cash perhaps).
NH:
sorry, probably put a bit too much of that up
NH:
but it is one of the key debates at the moment
BE:
it is
NH:
anyway for those who are interested the rest of the note can be found in the Long Room
NH:
along with James Montier’s summer reading list
NH:
now if you need a bit of light reading for the beach or on the flight, that’s well worth having a look at
NH:
here’s a bit of taster
NH:
In the past I have put together reading lists of books that to my mind form the core of what every investor should know. Every so often someone will ask what I would add to the list now.
This note seeks to answer that question by offering up my selection of recent reads that I think investors could benefit from reading. As ever the selections are personal and eclectic.
NH:
My top three books this year are Bill Fleckenstein’s ‘Greenspan’s Bubbles’, Howard Marks’ ‘Memo to Oaktree Clients’, and ‘The Myth of the Rational Market’ by Justin Fox.
NH:
This year’s list is split into four categories. The first group concerns the current crisis. All these authors exemplify the spirit of good analysis. They all spotted and documented the current crisis before it unfolded. My favourite book in this category is Bill Fleckenstein’s ‘Greenspan’s Bubbles’ – an excellent exposé of incompetence during Alan Greenspan’s tenure as Fed Chairman. The next choice in this group is Whitney Tilson and Glen Tongue’s ‘More Mortgage Meltdown’.
NH:
This book explains clearly how we ended up in this
mess (and is based on the authors’ real time experience), and an added bonus is the insight into Tilson’s investment process provided by the case studies. My final choice in this section is Jim Grant’s ‘Mr. Market Miscalculates’. I’ve mentioned this excellent book before, and I believe it deserves a place on all investors’ bookshelves.
mess (and is based on the authors’ real time experience), and an added bonus is the insight into Tilson’s investment process provided by the case studies. My final choice in this section is Jim Grant’s ‘Mr. Market Miscalculates’. I’ve mentioned this excellent book before, and I believe it deserves a place on all investors’ bookshelves.
NH:
The second group of books I labelled broadly as covering the topic of investment. First up in this selection is Howard Marks’ ‘Memo to Oaktree Clients’. To my mind, Marks’s letters are in the same category as those of Klarman – simply a must read for investors. The topics covered in this collection include investment processes, bubbles and the folly of
forecasting. My next choice in this category is ‘Distressed Investing’ by Marty Whitman and Fernando Diz. Given the current situation I can’t imagine a more timely addition to an investor’s library, or indeed better authors to serve as guides. The third book in this selection is ‘Snowball’ by Alice Schroeder. Schroeder’s warts-and-all magnum opus provides a wealth of insights into Buffett
forecasting. My next choice in this category is ‘Distressed Investing’ by Marty Whitman and Fernando Diz. Given the current situation I can’t imagine a more timely addition to an investor’s library, or indeed better authors to serve as guides. The third book in this selection is ‘Snowball’ by Alice Schroeder. Schroeder’s warts-and-all magnum opus provides a wealth of insights into Buffett
BE:
thanks for that
BE:
I hope they are all Penguin books
NH:
NH:
actually what’s the Pearson price doing??
Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.
BE:
Down 5.5p at 619p.
11:12AM
NH:
Back to Ronaldo and Real for a moment
NH:
presumably Santander must be financing this deal
BE:
What makes you say that?
NH:
well, they are very close
NH:
a few years back
NH:
after Santander bought Abbey
NH:
they took a few hacks including myself to Madrid
NH:
to see their fantasic, revolutionary computer system
NH:
Pantheon
NH:
I think it was called
NH:
anyway the highlight of the visit was a trip to a Real match
NH:
and talk about access all areas
NH:
at half time we got taken to the presidental suite
NH:
where we were introduced to Perez
BE:
Nice
NH:
and the Spanish defence minister
NH:
after the match, which Real lost
NH:
it was on to some lovely restauarant
NH:
where we met members of the Spanish roayl family
NH:
Santander seemed to run the City
BE:
Hm.
BE:
All very nice.
BE:
Barely on topic ….
NH:
an eye opener
NH:
if you got corporate to the Emirates
NH:
you don’t get that sort of access
BE:
Yeah – I’ve done corporate at the Emirates
BE:
Pizza and beer
BE:
Not that I’m complaining of course.
BE:
Invites always welcome
NH:
yes
NH:
thinking about tweeting them
11:16AM
NH:
right back to the market
NH:
what shall we have a look at??
BE:
what about the banks?
NH:
OK, but only if you are quick
BE:
RBS and Lloyds both higher
Royal Bank of Scotland Group (RBS:LSE): Last: 39.70, up 1.8 (+4.75%), High: 39.70, Low: 37.90, Volume: 27.81m
Lloyds Banking Group (LLOY:LSE): Last: 67.00, up 2 (+3.08%), High: 67.50, Low: 64.80, Volume: 20.19m
BE:
presumably on the back of the story in the Daily Tel that the govt is considering issuing covertibles backed by some of their holdings in the two banks
BE:
… meanwhile, Barclays
Barclays PLC (BARC:LSE): Last: 294.25, up 5.75 (+1.99%), High: 295.50, Low: 284.25, Volume: 19.41m
BE:
word in the market is that the BGi could be announced at midday
NH:
hmmmm
NH:
was starting to get slightly worried about this
NH:
the longer it takes, the more you think the two sides might have had a row
NH:
and Blackrock might have flounced off
BE:
the price isn’t telling us that
NH:
no
NH:
it is isn’t
NH:
anyway, there another little story going around in Barc
NH:
gets re-weighted in the FTSE indices tonight
NH:
brokers reckon the trackers will need to buy 130m shares
NH:
although John Carson at SG Securities
NH:
who is an expert on all things index related
NH:
puts the figure at 95m
NH:
but there is a caveat here
NH:
I suspect there won’t be demand for 95m Barc shares at the close today because a lot of the trackers bought into the Abu Dhabi placing
NH:
in fact they had no choice
NH:
nonetheless it could be an interesting auction in Barc tonight
BE:
Worth watching, certainly.
11:20AM
NH:
just going to back to Barclays
NH:
bullish note out from Alex Potter this morning
NH:
slapped a trading buy on the stock
NH:
BarCap presentation on 16th should only be good
NH:
Barclays is holding a BarCap investor presentation next week. The market is now fully aware of the strength of investment banking earnings through 2009 driven by, amongst others, departure of mid-tier players, sharply steeper yield curves and continuing wide credit spreads – as well as an equity market recovery and large amounts of debt and equity capital raisings.
NH:
GS and CSGN point to BARC earnings as much as 35p 2009E
NH:
In the last month, consensus estimates for GS 2Q09E earnings have broadly doubled. In the last two months, the same number for CSGN has multiplied by four, albeit from a low base. If we use the 1Q09 BarCap profit indications from the 7-May-09 IMS (£907m) and assume a doubling into 2Q09 and then a c.one-third lower run-rate in the second half, this can move our current Barclays 2009E earnings from c.20p to around 35p. This puts Barclays on just 8x earnings and, assuming a 40% payout ratio, yielding c.5% on an annualised basis by year-end.
NH:
“Go-shop” clause terminates 18-Jun – wider BGI sale positive
The clause in the original iShares sale to CVC terminates “no earlier than” 18-Jun. CVC would have five days to re-bid or get a $175m break fee.
The clause in the original iShares sale to CVC terminates “no earlier than” 18-Jun. CVC would have five days to re-bid or get a $175m break fee.
NH:
Press reporting BLK to buy whole of BGI for up to $13bn
The original iShares transaction implied around half of the sale price to be net assets. We assumed a similar level of net assets within wider BGI, which would give a £4bn gain-on-sale on an £8bn ($13bn) sale. This improves tangible book value per share by 32p to 275p 2009E. However, we have seen estimates implying net assets as low as £1.5bn. The additional £2.5bn of sale-gain would be a further 20p on tBVps, moving it to 295p.
The original iShares transaction implied around half of the sale price to be net assets. We assumed a similar level of net assets within wider BGI, which would give a £4bn gain-on-sale on an £8bn ($13bn) sale. This improves tangible book value per share by 32p to 275p 2009E. However, we have seen estimates implying net assets as low as £1.5bn. The additional £2.5bn of sale-gain would be a further 20p on tBVps, moving it to 295p.
NH:
Good newsflow, good valuation – TRADING BUY
We remain concerned about where “normalised” RoE will settle for IB-dominated groups, which Barclays is becoming. Hence the longer-term HOLD call. However, in the short-term, with strong newsflow and trading at (potentially) just sub-book value and as low as 8x 2009E earnings, Barclays should continue its rally, in our view.
We remain concerned about where “normalised” RoE will settle for IB-dominated groups, which Barclays is becoming. Hence the longer-term HOLD call. However, in the short-term, with strong newsflow and trading at (potentially) just sub-book value and as low as 8x 2009E earnings, Barclays should continue its rally, in our view.
BE:
Didn’t it have a BarCap presentation last week as well?
NH:
probably
NH:
Bob Dimante likes telling the world how great Bar Cap is
BE:
Swarovski Bob.
NH:
11:22AM
NH:
OK, let’s have a look a Heritage Oil
NH:
stock being hit again
NH:
or it was
NH:
rallied a bit
NH:
off 7.5p 532.5p
NH:
I thought it might recover today
NH:
as people digested the comments made by the Iraqi oil minister yesterday and concluded that most of it was bluster designed to force a better deal out of the Kurds
BE:
Well, looks like you were wrong.
NH:
so it would seem
NH:
but some of the headlines on the screens yesterday
NH:
would have had you believe the oil exports were illegal and would be stopped
BE:
I know
BE:
And Reuters seems to have left out a few comments that people are considering important
BE:
perhaps the most telling was this
BE:
“These exports are still not completely legal now; to become completely legal, they need to have the approval of the federal government in Baghdad.”
BE:
“We hope the oil law being discussed will allow this to happen.”
BE:
now, it is fair to say that Shahristani really does want to stop explorers in the region like Heritage, Addax, DNO from getting paid
BE:
until the KRG falls into line on the oil law, which we have been waiting for three years now
NH:
so what you are saying is that the big issue here is that no one gets paid until the Iraqis and Kurds settle this bill
NH:
which they have been debating for three years
BE:
that’s about the size of it
BE:
And we should look at today’s comments from DNO
BE:
the Norwegian group
BE:
Who are holding a big presentation on their ops in Kurdistan today
BE:
And the’re fairly relaxed
BE:
OSLO, June 11 (Reuters) – DNO International said:
* Has not yet received payment from Baghdad for oil exports
* Would be “normal” to get paid for Iraq oil exports within month
* Payment for Iraq oil exports important for further investments
NH:
hmmmm
NH:
none of the oil companies seem surprised by this
NH:
or even that bothered
BE:
well, that’s the thing
BE:
none of this is really new-today type news
BE:
it has been rumbling on for years
BE:
it’s just because of the deals involving Heritage and Addax
BE:
the market is suddenly aware of Kurdistan as a hot area
BE:
and are jumping to the wrong conclusion because they have not really down their homework
NH:
still a fascinating situation and one we will be watching closely
BE:
hang on a mo
BE:
good note sent out by Panmure on this
BE:
1. The story of al-Shahristani saying these licences are illegal has not changed and been around for ages – that is why there were no exports as these had to go through the Iraqi controlled export pipelines (so no new story there).
BE:
2. There has been a softening in the stand off between the KRG and Baghdad – this was shown by the allowing of exports to happen. This has come on the back of the Iraqi parliament questioning the progress that al-Shahristani had made with exports declining over the last few years. There were calls for him to be sacked.
BE:
3. The quote from Reuters did not mention the bit about being illegal until they have the approval of the Iraqi government. This actually is a change in tack. The previous statements and opens the way forward for making the licences legal. This is a new positive announcement. Also note that the Iraqi president is a Kurd.
BE:
4. The big question now is whether the contractors get paid. At present the KRG will receive 17% of all oil revenues (over the whole country). The Baghdad government could just pass this revenue from the Kurd fields onto the KRG and not pay for the contractors costs and profits – costs say are (guessing here) $10/bbl while the contractor take is approximately 12%. This would require the KRG to pay this onto the contractors which could leave them out of pocket. So the big question remaining is do they get paid. This will become apparent in the next few weeks. Also note that Addax has had an approach rumoured to be Sinopec – a Chinese takeover of Addax may accelerate the sorting of this issue as plitiacl pressure will come to bear.
BE:
The other point that the market is concerned about is over the liabilities. Genel owes US$1.1 billion to the KRG. Of this US$605 million will have to be paid by Genel prior to the merger. What will happen is that the KRG will take a big slug of the 260 million shares that Heritage will pay for Genel – at current prices this mean Genel shareholders get 190 million shares and the KRG will get 70 million. The remainder (US$495m) will be paid out of cash flow. Some of the bears have missed this and talk about the huge indebtedness of the group but this is not true!.
BE:
Overall no problems with this story. Believe that this could be a bit of profit taking. Story still stands
BE:
and this is quite good from Evo Securities
BE:
EVO TAKE – Heritage’s shares tumbled 10% yesterday in response to press comments from Baghdad attributed to the Oil Minister Shahrastani that companies operating in Kurdistan are operating under illegal contracts and would not be paid. As DNO pointed out in its conference call this morning, on the Tawke field the KRG has assured contractors that they will be paid. Furthermore it is the Ministry of Finance in Baghdad that pays the contractors and not the Ministry of Oil.
BE:
DETAILS – The shares of Addax, DNO, Gulf Keystone and Sterling Energy were all unaffected by the news which would suggest that there is another explanation for the Heritage price move.
BE:
VALUATION AND RECOMMENDATION – We maintain our Buy recommendation and target price of 900p for Heritage. Our fair value post the Genel deal is 992p (see yesterday’s note titled “Infusion of Energy”), with a hard deck valuation of 681p.
NH:
hard deck valuation
NH:
what on earth is that?
BE:
No clue
BE:
Sounds like yachting terminoligy
NH:
of course another reason for the fall
NH:
actually, wasn’t hard deck in Top Gun
BE:
Hm
NH:
get down to the hard deck and nail that SOAB
BE:
Google certainly backs that up
BE:
Although UrbanDictionary has another definition that’s best not mentioned before the watershed.
NH:
OK
NH:
back to Heritage
NH:
another reason for the fall
NH:
could be the placing
BE:
Yeah.
NH:
when the Genel deal was announced Heritage said that they would place up to 10% of their share capital for working cap
NH:
now, I thought that placing would come once the deal with Genel is completed
NH:
probably something like September
NH:
but after making a few calls yesterday, that was not the feedback I got
NH:
from the pauses in conversation etc
NH:
I got the impression that it could come as early as next week
NH:
now, that’s not some sort of journalistic code that means it is coming
NH:
just that in theory it is possible
NH:
that is the sort of the timescale they are looking at
NH:
ie short term
BE:
Quite.
BE:
although the share price fall may have put things on the backburner for a while
NH:
yeah
NH:
and one final thing on Heritage
NH:
if yesterday’s falls were down to the comments from the Iraqi oil minister
NH:
why didn’t the other Kurish oil plays fall?
BE:
Yup. A reflection of the different shareholder bases one suspects.
NH:
what hot money
NH:
punters
NH:
spivs
NH:
NH:
and his mates in Glasgow
BE:
We should probably move on.
NH:
we should
NH:
10-year gilt now well through 4%
BE:
And what of the GBK?
NH:
well that’s the odd thing
NH:
sterling is strong
NH:
stronger
NH:
$1.6468 vs the dollar
NH:
and 0.85p against the euro
BE:
Ok.
BE:
Ta.
NH:
seems odd
NH:
will be more expensive for the UK govt to finance the wacking deficit
NH:
yet sterling goes higher
11:38AM
BE:
We should mention the Shaftesbury placing
BE:
Just chatting off air with Dan Thomas
BE:
FT’s property guru
BE:
So the placing looks like it was done at around 282p
BE:
Which is not a bad showing
BE:
So hats off to Caz
NH:
yes
NH:
looks like they will get this down around 282p
NH:
which is something of a result
NH:
interesting placing this
NH:
Laxey the activist investor have decided to sell their 19% holding in the middle of the rights issue
NH:
not seen that happen before
NH:
so that means the ords and the nils paids being placed in the market
NH:
now, they have done this because
NH:
well, they don’t agree with SHB on the need for a cash call
NH:
and I also hear they were furious with the way this was handled
BE:
What – dropped to a Sunday paper?
NH:
something like that
NH:
not that the board of Shaftesbury will be that bothered
NH:
think it is fair to say they wanted Laxey off their share register
NH:
this was a classic clash of long and short term investors
NH:
management at Shaftesbury always say judge us over 10 years and we will make you money
NH:
Laxey are activist so have a rather shorter horizon
BE:
got a few bits of comment on this if you are interested
NH:
yeah
NH:
paste away
BE:
Oriel Securities
BE:
Terra Catalyst Fund and other funds under the discretionary management of Laxey
Partners Limited has announced an offering of 25.7m shares in Shaftesbury representing
approximately 19% of the company’s issued share capital and the placing of 17.2m nil
paid rights, as described below.
BE:
• J.P. Morgan Cazenove is acting as sole bookrunner to the Placing.
• The Placing is expected to close on or before the close of business on 11 June 2009.
BE:
The price per Share and Nil Paid Right and the exact number of Shares and Nil Paid
Rights to be sold in the Placing will be announced thereafter.
BE:
• At yesterday’s closing price of 309p, the stake is reported to reflect approximately £130m.
• We continue to be positive on Shaftesbury and would expect there to be strong demand for the shares. The shares continue to trade at a premium (11%) to our Current NNNAV per share (274p), although against our TERP based share price (256p) trade at a discount of 7%.
BE:
Hope that’s useful to followers.
NH:
thanks for that
NH:
another day, another large share placing
NH:
which gets away
NH:
how much longer can it go on?
11:44AM
NH:
right
NH:
an advert
NH:
this is for fans of Fat Bloke Finance
BE:
You mean HBOS corporate
NH:
yes
NH:
Peter Cummings
NH:
friends of Mike Ashley
NH:
Paul Kemsley
NH:
et al
NH:
anyway
NH:
a hack called Ian Fraser has been digging into Fat Bloke Finance
BE:
This should be good …
NH:
in fact a piece he did for Radio4 was debated in the House of Commons
NH:
anyway
NH:
he has updated his blog
NH:
For those who are interested here in the HBOS / Quayside scandal, which so far the UK authorities have failed to adequately investigate, here is the latest installment. This piece follows on from the File on 4 documentary I helped to make, which was broadcast on Radio 4 on 26 May, and a debate held in the Houses of Parliament on 2 June. I have decided to put this on my blog because, for the time being at least, it is virtually impossible to get an overview piece like this published in the mainstream media (they are so financially weakened at the moment they are easily cowed by sabre-rattling from the legal fraternity).
NH:
Click here to read
NH:
here’s a taster
NH:
The extraordinary saga of the relationship between Lloyds Banking Group’s Bank of Scotland Corporate division and David Mills’s Quayside Corporate Services as recently highlighted in a BBC Radio 4 ‘File on 4′ documentary gets curiouser and curiouser. The big question now is whether the affair was a one-off, isolated episode or whether it signals wider malpractice across the whole of Bank of Scotland Corporate.
A week ago the matter came to a head during a debate in Westminster Hall, a debate instigated by the Tory MP for South-East Cambridgeshire, James Paice.
NH:
you get the picture
BE:
Right.
NH:
talking of banks and their clients
NH:
a quick update on Saad Investments
NH:
it is becoming pretty clear
NH:
that Citi is closing him out of positions
NH:
first Berkeley Group
NH:
then 3i Infrastructure
NH:
we are not sure if the troubled Saudi group had the stock pledged as collateral for a loan
NH:
or on margin
NH:
either way
NH:
Citi are liquidating
NH:
of course
NH:
what we are trying to find out is if the HSBC stake has been pledged as collateral
NH:
and if so where
BE:
Ok – cheers for that.
11:50AM
BE:
Anything else we should look at before lunch?
NH:
Inmarsat
NH:
they are a good market
NH:
up 18p to 539p
NH:
still in takeover talks with Harbinger
NH:
but today’s move seems to have something to do with a Merrill note
BE:
Well, perhaps
BE:
Although perhaps not
BE:
Judge for yourself …
BE:
Looming deadline means pressure is on for a deal
Inmarsat was awarded a licence for 30MHz of pan European spectrum last month. Looking at the details of the licensing process, we believe Inmarsat is facing a deadline of 13 June by which time it must accept or decline the licence. Since Inmarsat has always said it will only commit itself to this project if it can find partners, it must effectively do so by this weekend, or walk away, in our view.
BE:
Investment partnership to unlock spectrum value in Europe
We believe Inmarsat is looking for financial investors and mobile operators to create an external partnership to back EuropaSat, the dedicated satellite that will be required to operate the licence. We believe the satellite is likely to cost around €500m and the base station upgrades a further substantial amount. The prize is to create a pan European mobile network using this spectrum (which straddles 3G). Using a valuation of €0.10 MHz-Pop we believe the spectrum is
worth at least €1.5bn. If we assume (hypothetically) that Inmarsat injects the
spectrum into a JV in return for (say) 20% of the JV this means the value could be
worth around 57p/share. Since the licence comes with an operational deadline of
May 2011, the JV would need to start investment in the satellite immediately.
While we remain sceptical that an untested, novel, hybrid terrestrial-satellite
mobile network, with no subs and no cashflow and requiring significant capex is a
viable proposition in this market, such a deal – if it can be achieved – would be
very positive for Inmarsat equity.
BE:
Market could focus on further US options
If Inmarsat does manage to construct a deal, then the stock market may react by
considering scenarios where Inmarsat combines its European and US spectrum,
where it has L band (“ATC”) spectrum. Alternatively Inmarsat could conceivably
look at the identical US ‘S-band’ spectrum that is held by the administrators of
ICO North America. With the 13th June looming, Inmarsat needs to act quickly.
NH:
urgh, that’s a bit complicated
NH:
S-band
NH:
that’s satellite mobile phone
NH:
thanks for that
11:53AM
NH:
shall we head to small cap corner quickly
BE:
Sure
BE:
What’s caught your attention?
NH:
well a few people we asking about Caledon Resources yesterday and the bid rumours
NH:
80p a share I think
NH:
now
NH:
being having a chat with a few people about this
NH:
Denham is not a likely bidder
NH:
but there are others
NH:
and 80p in not unreasonable
NH:
as a target price
NH:
have a look at this from Canaccord Adams
BE:
Go on
NH:
Event
We are raising our near-term target price for Caledon, owing mainly to an increase in our peer-based in-situ valuation of the company’s undeveloped Minyango resource reflecting a notable market re-rating of listed coal stocks over the past two months, as a degree of cautious optimism returns to the metallurgical coal sector.
We are raising our near-term target price for Caledon, owing mainly to an increase in our peer-based in-situ valuation of the company’s undeveloped Minyango resource reflecting a notable market re-rating of listed coal stocks over the past two months, as a degree of cautious optimism returns to the metallurgical coal sector.
NH:
Impact/Action
We are raising our target price to £0.50/share (previously £0.28/share) but maintain our HOLD recommendation given significant share price appreciation over recent days, following increased takeover speculation in the press. RBC Capital was appointed to solicit interest in Caledon back in January following the receipt of a non-binding note of interest from an un-named party, but little guidance on the progress of the situation has been provided by the company in the interim period. While in our view a competitive bid situation could culminate in an offer in excess of our target price (our un-risked valuation is £0.80/share), the situation remains opaque and we can have no certainty that an offer will emerge, or on what terms.
We are raising our target price to £0.50/share (previously £0.28/share) but maintain our HOLD recommendation given significant share price appreciation over recent days, following increased takeover speculation in the press. RBC Capital was appointed to solicit interest in Caledon back in January following the receipt of a non-binding note of interest from an un-named party, but little guidance on the progress of the situation has been provided by the company in the interim period. While in our view a competitive bid situation could culminate in an offer in excess of our target price (our un-risked valuation is £0.80/share), the situation remains opaque and we can have no certainty that an offer will emerge, or on what terms.
NH:
Valuation
Our underlying core valuation of £0.80/share incorporates the Cook mine at 10% NPV and the undeveloped Minyango resource at a peer-group based in-situ valuation of US$0.50/t (up from US$0.20/t previously). In the continued absence of a formal bid, we apply a 0.6 multiple to NAV in setting our target price to account for the risks associated with production at Cook ramping up to +1Mtpa within our modeled schedule and whether the technical and economic parameters for developing Minyango justify our US$0.50/t valuation.
Our underlying core valuation of £0.80/share incorporates the Cook mine at 10% NPV and the undeveloped Minyango resource at a peer-group based in-situ valuation of US$0.50/t (up from US$0.20/t previously). In the continued absence of a formal bid, we apply a 0.6 multiple to NAV in setting our target price to account for the risks associated with production at Cook ramping up to +1Mtpa within our modeled schedule and whether the technical and economic parameters for developing Minyango justify our US$0.50/t valuation.
NH:
We expect the company to report its Q2 production numbers by the end of July and its interim financial results in August.
11:55AM
NH:
HedgeHog
NH:
it is perfectly acceptable to post links here
NH:
in fact we welcome it
NH:
we link to people
BE:
Within reason
NH:
and hope they link to us
BE:
Rickrolling not appreciated
BE:
Also, note a discussion about Scottish football has broken out to the right
BE:
If you want a special ML on the state of SPL finances you only have to ask …
BE:
Anyway, there’s a story in the Guardian about Setanta’s potential rescue
NH:
who is gonna save it?
BE:
The idea at the moment is they’re working on the potential sale of all
or part of its US and Irish assets
or part of its US and Irish assets
BE:
Then MBO the remainder of the business.
NH:
I hope it does go under because it is impossible to cancel a subscription
NH:
and believe me I have tried
BE:
True
BE:
Not without fakling your own death and moving to Argentina
BE:
Quick line from Polo Tang on Setanta …
BE:
The US and Irish assets, both profitable, are reported to worth “a few hundred
million” (according to the Guardian). While Setanta is unlikely to be able to realise
their full value given the circumstances, the sale of the assets should be enough to
meet the £30m payment due to the Premier League on Monday. The remainder of
the proceeds could be used to fund the management buyout, although extra funds
from a new private equity backer would likely also be needed.
million” (according to the Guardian). While Setanta is unlikely to be able to realise
their full value given the circumstances, the sale of the assets should be enough to
meet the £30m payment due to the Premier League on Monday. The remainder of
the proceeds could be used to fund the management buyout, although extra funds
from a new private equity backer would likely also be needed.
BE:
While management is working on the rescue plan, Setanta has announced that it
will temporarily suspend the acceptance of new subscriptions but it continues to
broadcast its channels as usual. BT has also issued a statement confirming BT
Vision has stopped selling Setanta subscriptions.
will temporarily suspend the acceptance of new subscriptions but it continues to
broadcast its channels as usual. BT has also issued a statement confirming BT
Vision has stopped selling Setanta subscriptions.
BE:
If Setanta fails, we would expect Sky to acquire some of its rights to consolidate its
sports offering. While this should have longer term benefits for Sky, it may result
in higher costs near term as it acquires additional content and could increase
regulatory risk ahead of Ofcom’s final pay TV market consultation. Sky trades on
12x 2010e EPS, which we believe is more than justified given its structural growth.
sports offering. While this should have longer term benefits for Sky, it may result
in higher costs near term as it acquires additional content and could increase
regulatory risk ahead of Ofcom’s final pay TV market consultation. Sky trades on
12x 2010e EPS, which we believe is more than justified given its structural growth.
NH:
ah, Polo Tang, the analyst with a hole in the middle from UBS.
BE:
Actually, no, sorry …
BE:
It’s Daniel Kerven
BE:
Not Polo
11:59AM
NH:
right we are done for today
NH:
I have a lunch at Roast in Borough Market
NH:
but before we sign off
NH:
Shaftesbury placing has been done
NH:
at 282p
Shaftesbury (SHB:LSE): Last: 302.25, down 6.5 (-2.11%), High: 305.00, Low: 284.00, Volume: 1.15m
BE:
Indiana – the observation that Caledon’s “scarily popular on the III discusion boards” is a valuable one, I feel
NH:
NH:
and if you have a moment
NH:
click on this
NH:
(Garb, you can’t buy them. Owned by staff and ex-partners, they trade once a month I think through some internal matched bargain basis.)
BE:
Ooh – that geography of jobs thing is very clever
NH:
yeah it is kinda cool
BE:
Looks like the US has a dose of the pox
NH:
oh
NH:
some breaking RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
Caz placing some more stock
NH:
a lump of Carphone Warehouse
NH:
and Big Yellow Group
BE:
NH:
which can only mean one thing
NH:
David Ross is selling out
BE:
Finally …
BE:
What does he hold in both?
BE:
(Or did)
NH:
19.4% of Carphone
NH:
although that is from Reuters and could be a decade out of date
NH:
as for Big Yellow
NH:
one moment
NH:
Reuters just loading
NH:
9%
NH:
both stocks under pressure
Carphone Warehouse Group (CPW:LSE): Last: 171.75, up 0.75 (+0.44%), High: 172.75, Low: 169.50, Volume: 525.54k
Big Yellow Group (BYG:LSE): Last: 333.25, down 4.75 (-1.41%), High: 338.00, Low: 333.00, Volume: 16.79k
BE:
Wasn’t Ross another client of Fat Bloke Finance?
NH:
I think he was. they loaned him cash for some property venture
NH:
buying shopping centres in Portsmouth
NH:
it is all coming back to me now
BE:
All bought at the top of the market
NH:
large chunks of these stake were pledged as collateral for loans
BE:
Kandahar
NH:
Mr Ross is heavily exposed to the beleaguered commercial property market. He has pledged stakes worth £216.4m ($325.5m) last night in Carphone, National Express, Big Yellow and Cosalt as security against his personal loans.
His collateral arrangements are vulnerable to any fall in value of his property interests.
NH:
that was from December
NH:
this could be another Saad
BE:
Looks that way
NH:
hmm
NH:
interesting
BE:
FSA’s still investigating Ross, isn’t it?
NH:
not sure
NH:
thought that was closed
BE:
Can’t remember.
NH:
Ross did not declare his collateral positons to the market
NH:
that’s why he forced to leave the board of Carphone
NH:
and a host of other companies like National Express
BE:
Is he still an advisor to Boris Johnson?
NH:
more detail on these placings
NH:
cpw-Price Range: To be determined via an Accelerated Bookbuild
Offering Size: Approx 24m Ordinary Shares (c.2.6% of the company)
Offering Size: Approx 24m Ordinary Shares (c.2.6% of the company)
NH:
byg-Price Range: To be determined via an Accelerated Bookbuild
Offering Size: Approx 11.5m Ordinary Shares (c.9% of the company)
Offering Size: Approx 11.5m Ordinary Shares (c.9% of the company)
NH:
Big Yellow must be ross
BE:
Can’t really be anyone else.
BE:
Ok – we’re 10 minutes into extra time.
BE:
We should wrap up.
NH:
we should
NH:
have lunch to go to
NH:
cya all tomorrow
NH:
thanks for the coments
NH:
bye
BE:
Bye