Markets live chat transcript for the chat ending at 12:07 on 23 Jun 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
Hello
PM:
Welcome to Markets Live
PM:
FT Alphaville’s daily markets discussion
PM:
First up — an apology
PM:
Seems that we had a real problem yesterday with people finding they had swapped user names
NH:
yes, and that led me to red card CityBoy
PM:
Poor Cityboy
NH:
for some abusive comments he actually did not make
NH:
I think the guilty party was BullsvsBears
NH:
and if we can prove that
NH:
you are off
NH:
3 match ban
PM:
No!
PM:
Temptation would have been too great
PM:
In fact I would have gone to town if, say, I suddenly discovered I was Monkey
NH:
anyway, Cityboy I am very sorry. We tried to unban you but the system is playing up this morning
NH:
still running slow
PM:
Yes, well, Assanka are seriously on the case
Cracking little software shop who built FT Alphaville
PM:
Think most probs now dealt with
PM:
Now…
NH:
Cityboy has just emailed
NH:
im still banned!
NH:
we know
NH:
and are trying to fix it
PM:
Ban expires at 12.05 — cos of the identity crisis, we can’t unban Cityboy
PM:
hey ho
NH:
identity theft on FT Alpha
NH:
who would have thought it
11:06AM
PM:
As you can see, Neil was straight in today — no swannign up at 11.06 or something
NH:
Yeah, and I’m moving in swiftly to take the executive controls.
NH:
This is H&M Cap Management – booking its not insignificant profits.
NH:
We are closing the short – booking a 150 footsie point profit.
PM:
WHOA!
PM:
PM:
No way Neil!
NH:
(CityUnslic – we have very thin skin)
PM:
Don’t you dare touch that beautiful position.
PM:
The short stays
PM:
Probably the most important rule of investment is that you run with the winners and cut the losers, quickly.
PM:
Think you need to go back to stock school.
NH:
150 Footsie points. You want to risk that sort of profit getting chipped away as the sun comes out and a few more greenshoots show?
PM:
I think it’s too early to close, now that the market is moving our way. The dead cat this morning is rubbish.
NH:
I know it is.
NH:
I was only winding you up.
NH:
Which is not difficult.
NH:
Of course I don’t want to close the short.
NH:
That would be madness at this point.
NH:
Do I look like a wobbler??
PM:
NH:
We can drag the stop loss with us a little – say to 4000, our starting position.
NH:
But the short position stays.
PM:
Neil Hume – the man’s not for wobbling
11:09AM
PM:
What is the Footsie doing, actually
NH:
well, a pretty feeble dead cat bounce
NH:
NH:
up just 13 pouints at 4,247
PM:
That really is poor
NH:
Legal & General the biggest faller at the moment
NH:
and that’s because it is the insurers most exposed to the equity market
NH:
which is going down
PM:
Soc Gen — helped L&G lower yeah?
PM:
I think i have the note
PM:
Update Legal and General (L&G) shares have performed strongly since the recovery in
equity markets back in March (+61% 3M); from 0.3x P/BV the shares are currently
trading on 1.1x, compared to peers on 1.1-1.3x. The rebound in equity markets has
reduced the risk of a capital increase but L&G still has the highest exposure to equities
among the UK life stocks we cover (see page 2). In addition L&G has lower provisions
against bond defaults. These two factors support our view that L&G is the highest risk
stock in the group and thus merits a discount.
Impact A review of our UK life estimates leads us to deeply cut our 2009 EPS estimate
by 81% and reduce our 2010 EPS by 21%. This is approximately a 2p cut in both cases,
but the impact is greater in % terms on 2009 due to a low base. Although we do not
expect significant additional default risk provisioning, implying an improvement in risk
product margins, we do expect L&G to continue to struggle in savings products as a
result of lower asset balances, which in turn generate lower fees (and this despite its
increased focus on reducing costs).
equity markets back in March (+61% 3M); from 0.3x P/BV the shares are currently
trading on 1.1x, compared to peers on 1.1-1.3x. The rebound in equity markets has
reduced the risk of a capital increase but L&G still has the highest exposure to equities
among the UK life stocks we cover (see page 2). In addition L&G has lower provisions
against bond defaults. These two factors support our view that L&G is the highest risk
stock in the group and thus merits a discount.
Impact A review of our UK life estimates leads us to deeply cut our 2009 EPS estimate
by 81% and reduce our 2010 EPS by 21%. This is approximately a 2p cut in both cases,
but the impact is greater in % terms on 2009 due to a low base. Although we do not
expect significant additional default risk provisioning, implying an improvement in risk
product margins, we do expect L&G to continue to struggle in savings products as a
result of lower asset balances, which in turn generate lower fees (and this despite its
increased focus on reducing costs).
PM:
Target price & rating We downgrade L&G to Sell from Hold. Our lower earnings
estimates lead to a lower estimated fair value of 57p (was 74p, see page 2). However,
our target price rises to 52p from 25p as we now apply only a 9% discount to FV to
reflect an improved risk profile. We arrive at 9% by applying a 15% discount to L&Gs
UK peers given the groups higher exposure to equities. The recent sale of BGI by
Barclays to Blackrock provides a positive read-across for L&Gs asset management
operations but we do not expect L&G to exit this business (strategically too important,
and a strong cash flow generator), hence in our view these exit multiples should not be
applied.
Next events & catalysts L&G kicks off the H1 results season for the UK insurance
companies on 4 August.
estimates lead to a lower estimated fair value of 57p (was 74p, see page 2). However,
our target price rises to 52p from 25p as we now apply only a 9% discount to FV to
reflect an improved risk profile. We arrive at 9% by applying a 15% discount to L&Gs
UK peers given the groups higher exposure to equities. The recent sale of BGI by
Barclays to Blackrock provides a positive read-across for L&Gs asset management
operations but we do not expect L&G to exit this business (strategically too important,
and a strong cash flow generator), hence in our view these exit multiples should not be
applied.
Next events & catalysts L&G kicks off the H1 results season for the UK insurance
companies on 4 August.
NH:
hmmm
PM:
Michael van Wegen
NH:
another stock swept up in the dash for trash
NH:
or the flight to sh*te
NH:
and VP notes Yell
NH:
which is down again
NH:
this is not looking good at all
NH:
the lower it goes
PM:
Defying gravity before
PM:
not any more
NH:
the more likely a debt of equity swap
PM:
Yell is off 3.25 at 22p
NH:
they can’t raise enough cash via a rights issue at this price
NH:
this is looking bad
NH:
and rather surprising
NH:
I would have though ex Merrill supremo Bob Wigley would have done his homework
NH:
before taking the job of chairman
NH:
but obviously not
PM:
Any fresh analysts comment on this Neil
PM:
?
NH:
nope
NH:
everyone seems to have given up
NH:
probably being covered by the FI analysts now
PM:
11:15AM
PM:
Now VP has also mentioned this stupid three decimal point tick stuff from the LSE
PM:
We’re just trying to find the news release
PM:
RBS currently quoted at 35.935
NH:
on the redesigned LSE website
PM:
As if we are going to type that all the time
PM:
With the release being on the new LSE website, shouldn’t be possible to find it then
NH:
it looks fairly impossible
NH:
London Stock Exchange announced today that its new website has gone live. Built using the latest web technology, the re-launched www.londonstockexchange.com offers the site’s 1 million users a new look and feel, faster, more user friendly navigation and an improved search engine.
www.londonstockexchange.com is already a popular resource for the private investor community and, according to Hitwise, is consistently among the top 15 most visited financial services websites in the UK.
PM:
Actually — a site refresh at the LSE was long overdue.
PM:
yeah, but is there anything on these stupid tick sizes???
PM:
Tuna says they started yesterday
PM:
Come on – lets move on if you cant find it
NH:
can;t find it
NH:
arghhhhhh
11:19AM
PM:
ECB
PM:
You got your head around these new ECB funding operations yet?
NH:
I thought you were looking at that.
PM:
Well, I was busy.
NH:
I haven’t had time to look at the details, but its about unlimited financing for one year – at 1 per cent.
PM:
Yes, well it gets underway tomorrow — called the long-term financing operation.
PM:
Dunno why it’s called that when the funding is for one year.
PM:
Anyway, here’s something on the matter from BarCap – their daily snaps
PM:
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PM:
Er, that didn’t work.
PM:
Right, we’ve now got another reason to have a go at Barclays.
PM:
They’ve put some stupid coding on their PDFs which makes it difficult for us to cut and paste.
PM:
Until we apply a bit of software
PM:
… which is not to hand.
NH:
Basically I will just have to tell you that they expect huge demand for this funding – once only opportunity, ECB rates are not going to fall much further.
NH:
Guesses of the size range from €300bn to €1,000 bn
NH:
Some talk about it having steepened the yield curve
PM:
Also, tomorrow, btw – we have the FOMC decision
PM:
Got a bit of MOST stuff on that
PM:
Richard Bemer
PM:
Temporary Upside Risks, but
Still a Slow Recovery
Upside risks are likely temporary and don’t change
the slow recovery story: Near-term upside risks to US
economic growth are emerging. But any short-run
improvement will likely be fleeting and won’t change our
slow recovery story. Headwinds include: consumer
deleveraging, still-restrictive financial conditions, budget
woes at state and local governments, and cyclical
weakness in capital spending and US exports.
Still a Slow Recovery
Upside risks are likely temporary and don’t change
the slow recovery story: Near-term upside risks to US
economic growth are emerging. But any short-run
improvement will likely be fleeting and won’t change our
slow recovery story. Headwinds include: consumer
deleveraging, still-restrictive financial conditions, budget
woes at state and local governments, and cyclical
weakness in capital spending and US exports.
PM:
Near-term upside risks: Housing is getting short-term
support from a homebuyer credit and improved
affordability. But higher mortgage rates are a threat.
Less restrictive financial conditions, ‘cash for clunkers’
and restocking should modestly help vehicle sales and
output. Another round of stimulus checks will help
consumers. The evidence is already visible in official
and survey data.
Slow recovery dynamic persists: Among the factors:
Consumers saving more of their current income,
still-restrictive credit terms, state and municipal
government belt tightening, and weakness in capital
spending and US exports. In addition, if they persist, the
backup in mortgage rates and in energy quotes will
reinforce the slow growth dynamic.
Fed to look through such data, focus on medium
term: Any upside forecast revisions may limit Fed
officials’ willingness to counteract downside risks to
output and inflation. But with “core” inflation beginning
to moderate again, and legitimate threats to recovery
still in evidence, officials have scant reason to turn
hawkish.
support from a homebuyer credit and improved
affordability. But higher mortgage rates are a threat.
Less restrictive financial conditions, ‘cash for clunkers’
and restocking should modestly help vehicle sales and
output. Another round of stimulus checks will help
consumers. The evidence is already visible in official
and survey data.
Slow recovery dynamic persists: Among the factors:
Consumers saving more of their current income,
still-restrictive credit terms, state and municipal
government belt tightening, and weakness in capital
spending and US exports. In addition, if they persist, the
backup in mortgage rates and in energy quotes will
reinforce the slow growth dynamic.
Fed to look through such data, focus on medium
term: Any upside forecast revisions may limit Fed
officials’ willingness to counteract downside risks to
output and inflation. But with “core” inflation beginning
to moderate again, and legitimate threats to recovery
still in evidence, officials have scant reason to turn
hawkish.
NH:
that’s nice and bearish
NH:
no green shoots there
NH:
or here
NH:
*MAERSK LINE CHIEF EXECUTIVE EIVIND KOLDING SPOKE IN INTERVIEW
*MAERSK SAYS 2009 CONTAINER MARKET TO DECLINE AT LEAST 10%
*MAERSK SAYS CONTAINER VOLUMES FELL 15% IN FIRST 5 MONTHS
*MAERSK LINE `DISAPPOINTED’ WITH MAY, APRIL CONTAINER VOLUMES
*MAERSK LINE WILL HAVE `SUBSTANTIAL’ LOSSES IN 2009, 2010
*MAERSK SAYS 2009 CONTAINER MARKET TO DECLINE AT LEAST 10%
*MAERSK SAYS CONTAINER VOLUMES FELL 15% IN FIRST 5 MONTHS
*MAERSK LINE `DISAPPOINTED’ WITH MAY, APRIL CONTAINER VOLUMES
*MAERSK LINE WILL HAVE `SUBSTANTIAL’ LOSSES IN 2009, 2010
PM:
indeed
NH:
also some other breaking news
NH:
they have located the Air France black box
11:24AM
PM:
right, suppose we had better take a look at Thomson Reuters
PM:
its plan to shift its listing from London to the US and Canada
PM:
PM:
Traitor stock
Shire recently announced that it is to reorganise itself as an Irish company for tax purposes, registered in Jersey. Murphy is routinely critical of those who successfully avoid tax – possibly because he has never managed to avoid any himself.
PM:
Oh — forgot about that
PM:
They are not doing it for tax avoidance
NH:
yeah, still a traitor stock though. after all the UK has given it
NH:
anyway
NH:
the UK line is up on the news
NH:
97p higher at £17.28
NH:
and that’s probably arbed away most of the gap between the two prices
NH:
UK TRIL shares will be converted into one Canadian/US TRIL
NH:
the Canadian/US stuff was trading at a 9.5% premium last night
NH:
and when you factor in different tax treatment of dividends
NH:
the cost of borrow
NH:
and the fact that as part of the unification process, the company says it may
purchase up to $500mln worth of shares of either PLC or Corp
purchase up to $500mln worth of shares of either PLC or Corp
NH:
the stock is about in line
NH:
roughly
PM:
what’s the point of all this??
NH:
simplify the shareholder structure
NH:
an element of toys being thrown out of the pram
NH:
UK investors have never really taken to this company
NH:
and nor have we because of its valuation
NH:
only 20% owned by UK shareholders
PM:
OK – fair enough
PM:
some comment?
NH:
well here’s a bit from an arb broker
NH:
which looks at the sort of things that could influence the price
NH:
We believe the key drivers to the pricing of
the spread will be:
- Availability of stock borrow (has been 2-3% in Corp recently, but
That will get tougher)
the spread will be:
- Availability of stock borrow (has been 2-3% in Corp recently, but
That will get tougher)
- Tax treatment on dividends (estimated $0.28 per share ex-div 19
August)
- The company’s ability to conduct buybacks
- Flowback from PLC holders not able/willing to hold foreign listed
shares.
NH:
We expect both sets of shareholders to approve the transaction. We
expect the spread to trade at a tight net annualized rate of return
during the period when both shares are open (14:30-16:30 UK time). The
flow in availability and pricing of stock borrow will likely cause
volatility in the spread. We would expect the company to use their
mandate for buybacks on the PLC shares.
expect the spread to trade at a tight net annualized rate of return
during the period when both shares are open (14:30-16:30 UK time). The
flow in availability and pricing of stock borrow will likely cause
volatility in the spread. We would expect the company to use their
mandate for buybacks on the PLC shares.
NH:
here’s house broker Citi
NH:
Mechanics: Easier Than You Would Think
Closing the DLC is relatively straightforward. Thomson Reuters PLC shares will
be exchanged 1-for-1 with shares in Thomson Reuters Corp shares. The group
will also close down the PLC American Depository Shares (ADSs). To complete
this transaction, the group needs shareholder approval at an EGM, which is
scheduled to take place on 7 August, the day after 2Q results. We understand
the closure of the London line should be finalized by the end of
August/beginning of September (certainly by end 3Q) depending on court
approval. We note the company has indicated that it may repurchase up to
$500m worth of shares to facilitate this transaction.
Closing the DLC is relatively straightforward. Thomson Reuters PLC shares will
be exchanged 1-for-1 with shares in Thomson Reuters Corp shares. The group
will also close down the PLC American Depository Shares (ADSs). To complete
this transaction, the group needs shareholder approval at an EGM, which is
scheduled to take place on 7 August, the day after 2Q results. We understand
the closure of the London line should be finalized by the end of
August/beginning of September (certainly by end 3Q) depending on court
approval. We note the company has indicated that it may repurchase up to
$500m worth of shares to facilitate this transaction.
NH:
What Happens Now? Short-Term Positive; Medium-Term Negative
In terms of ST impact, now there is a prospect of 100% fungibility between the
PLC and Corp shares, the first thing we expect is a closing of the discount
between the two listings – 7.8% as of last night’s close, equal to 137p per TRIL
share. A second potential feature is something of a short squeeze: we note that
around 12% of the London listing is on loan (although note investors who are
can at least do this by buying the Canadian/US listing). Longer-term (post the
EGM), selling by passive investors (FTSE trackers) could put pressure on the
shares.
In terms of ST impact, now there is a prospect of 100% fungibility between the
PLC and Corp shares, the first thing we expect is a closing of the discount
between the two listings – 7.8% as of last night’s close, equal to 137p per TRIL
share. A second potential feature is something of a short squeeze: we note that
around 12% of the London listing is on loan (although note investors who are
can at least do this by buying the Canadian/US listing). Longer-term (post the
EGM), selling by passive investors (FTSE trackers) could put pressure on the
shares.
NH:
so there could be a bit of flow back to the US
NH:
and here’s what Caz made of it
NH:
While there may be some surprise at the timing, given the PLC discount had already narrowed to less than 10% recently, unification was always a possibility at some point and should provide the group with a simpler and more liquid equity capital structure.
With the buyback helping to counter potential flowback issues, we would expect the PLC stock to move up closer to the Corp price (C$33.5, equivalent to around 1,782p based on the current £=C$1.88) in the near term. Beyond this, we retain our Underperform rating on both Corp and PLC lines reflecting full relative valuation and more challenging newsflow which we see ahead (slowing trading momentum in both Markets and Professional and potential customer hesitation as we approach a major product launch for Markets in H2).
With the buyback helping to counter potential flowback issues, we would expect the PLC stock to move up closer to the Corp price (C$33.5, equivalent to around 1,782p based on the current £=C$1.88) in the near term. Beyond this, we retain our Underperform rating on both Corp and PLC lines reflecting full relative valuation and more challenging newsflow which we see ahead (slowing trading momentum in both Markets and Professional and potential customer hesitation as we approach a major product launch for Markets in H2).
PM:
hmmm
PM:
that’s a good point
PM:
TRIL is sooo expensive
NH:
yep and it seems to have come through the worst financial crisis since the 1930’s virtually unscathed
PM:
all very strange
NH:
indeed
NH:
actually company made some more positive noises about trading this morning
NH:
in line with expectations, blah, blah, blah.
NH:
I also have a memo from Reuters boss Tom Glocer
NH:
but frankly it is too long and boring to put up
NH:
but if anyone wants it, I can make it available in the usual place
PM:
OK
NH:
here’s an appetiser
NH:
Our commitment to customers, employees and other stakeholders in London, the United Kingdom and Europe is unchanged by where we list our shares. London is a vital global capital for the markets we serve and home to more than 5,000 of our employees.
The Founders Share Company has indicated it will support unification as this will in no way diminish our adherence to the Reuters Trust Principles.
If you are a Thomson Reuters shareholder, your vote is important and I encourage you to vote. Shareholder meeting materials and proxy forms will be available in early July.
The Founders Share Company has indicated it will support unification as this will in no way diminish our adherence to the Reuters Trust Principles.
If you are a Thomson Reuters shareholder, your vote is important and I encourage you to vote. Shareholder meeting materials and proxy forms will be available in early July.
PM:
Zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz
NH:
I suspect employees in London will feel slightly uneasy about this
NH:
Reuters is no longer a UK company
NH:
the Thomson clan have got the upper hand
PM:
all quite sad really
NH:
yes, it is
NH:
Reuters RIP
PM:
Thomson, incorporating the Reuters news agency
NH:
and of course the big question is
NH:
what happens to the bust of Paul Julius Reuters
NH:
currently round the back of the Royal Exchange
NH:
is it going to be shipped off to Canada
PM:
no, surely they wouldn’t uproot that
NH:
if they do we should launch a campaign
NH:
save PJR
NH:
don’t let the mounties have him
PM:
Well no one would see it
PM:
Canada’s empty, isnt it?
NH:
that’s true
NH:
nothing there
PM:
Stuck in the snow
PM:
Actually, should be rude about canada
PM:
I lived there as a little kid
PM:
was great fun
PM:
Vancouver
PM:
Learnt about stocks
PM:
Anyway, a campaign is a good idea if the bust is under threat
NH:
it must not go
PM:
Save PJR Campaign
PM:
We could just start it anyway
PM:
Thomson clearly dont have any interest in the company’s rich history
PM:
Throwing it away
NH:
philistines
PM:
Maybe we should adopt PJR
PM:
We could have the bust in here, with the webby springs and stuff
PM:
We still by reuters journalistic values if if Thomson doesnt
PM:
They’ll be sacking a lot of friends in head office here also
PM:
NH:
right, lots of ungreatful readers saying we are waffling on
NH:
so
NH:
time for some 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:
it might shut them up
NH:
and thank you BullsvsBears for the confession
PM:
Come out with his hands up
NH:
you escape a ban for helping the authorities with their inquiries
11:34AM
11:34AM
PM:
right
PM:
RAW
NH:
well, there was some real nonsense going around in Anglo American early this morning
NH:
the wires got really excited
NH:
Chinalco apparently bidding institutions £22 for stock
PM:
Like the Thomson wire — no standards any more
NH:
NH:
Thomson Wire
NH:
like that
PM:
Chinalco bidding institutions £22 quid for stock
PM:
Oh yeah
PM:
does anyone really think that Chinaclo are that dumb
PM:
they bought a huge lump of Rio at the wrong price
NH:
£60 to be precise
PM:
£60 to be precise
PM:
are they really going to repeat that error?
NH:
no in a word
NH:
but look the bandit rating on this one was off the scale
NH:
worse that a 10
NH:
and remember bandit 10 is a Glaswegian taxi driver
NH:
anyway
NH:
Anglo down at the moment
NH:
off25p at £16.73
PM:
we will come back to the miners in a moment
NH:
back to the RAW
NH:
also rumours that the Arcandor administrators are getting ready to sell a lump of their 40% odd stake in Thomas Cook
PM:
real raw, as opposed to Thomsonwire stuff
PM:
40%??
PM:
I thought it was more like 50%
NH:
well it is, but around 8% has been pledged as collateral for a convertible bond
NH:
and there is a story that KBC are trying to get a load of bondholders together
NH:
and demand the collateral is sold
NH:
anyway the stock is weak
NH:
down 3p at 204p
NH:
did fall to 194p
NH:
and the story seems to be that existing shareholders and institutions are being sounded out to see if they want to buy
PM:
OK
PM:
thanks
11:38AM
PM:
Any more?
NH:
yes a few more bits
NH:
in predicatable sectors though
NH:
picking up rumours that Emirates are looking to offer 425p a share for the balance of Dragon Oil
NH:
Now i thought this sounded a bit high
NH:
although when the approach was announced earlier this month
NH:
I think Dragon were trading at close to 402p
NH:
and Emirates indicated they were prepared to paid a small premium
PM:
so 425p might do it
NH:
yes
PM:
Price?
Dragon Oil (DGO:LSE): Last: 357.50, down 2.5 (-0.69%), High: 362.50, Low: 350.00, Volume: 481.07k
NH:
oh and there has also been some very, very educated buying of something called ROC Oil
PM:
ROC oil — sounds fun
NH:
well, this Anglo-Australian company is already in play
NH:
said it may it was considered strategic options
NH:
the stock a bit weaker this morning following news that work on a well had been suspended
NH:
but could be worth keeping on the watch page
PM:
where does thing operate?
NH:
Australia, China, Africa and UK
NH:
but most of the assets in Oz and China
PM:
OK
11:41AM
NH:
Murph
NH:
have you put the bet on yet?
PM:
Yep, its on
PM:
16/1
NH:
good odds
PM:
irresistable
NH:
11 at William Hill
PM:
That was Ladbroke for what it is worth
PM:
Dreadful website — but it is where i have my account
NH:
but good odds
NH:
so
NH:
that’s £170 if the best comes off
PM:
Obviously, for the good of the nation i hope i loose my money
NH:
but for readers
PM:
(not)
NH:
all proceeds go to the Webby’s drinks fund
PM:
That’s 16/1 on Murray getting beat at Wimbledon on his first day out
NH:
what’s the name of the bloke we are cheering on?
NH:
Hendrix?
NH:
Hendricks
PM:
Kendrick even
PM:
Come on Kendrick
NH:
come on Kendrick
NH:
the Webby’s needs you
PM:
match at 4.30
NH:
right back to the market
NH:
and the miners
NH:
Anglo and Xstrata specifically
11:44AM
PM:
or AXA as we are calling it
NH:
Anglo fired a real get stuffed response to Xstrata yesterday
NH:
so now the ball is back in Mick, “the Miner”, Davis’s court
PM:
and what are his options??
NH:
walk away
NH:
this seems unlikely and one has to believe he expected this initial rebuff
NH:
improve the terms
NH:
more stock
NH:
add some cash, possibly with the help of a third party, such as the Chinese
PM:
hmmm
PM:
Sounds fair speculation — that Xstrata team will have a plan here
PM:
Bound to have looked at a get stuffed senario
PM:
Even if on the face of it the approach looks pretty bungled
PM:
but you have to think Davis and his advisers have something up their sleeve
PM:
and the Chinese angle is a good one
PM:
would certainly explain those rumours about Chinalco earlier
NH:
a sort of Chinese, Chinese whisper
NH:
that had some truth in it
PM:
Nah, just a strategy put through the Thomsonwire mangle
NH:
NH:
yeah, they get cut in for a bit of the action
NH:
a 20% stake in the merged company and a board seat
PM:
I wonder what Glencore would make of that
NH:
er, not sure
PM:
anyway what’s the price action??
NH:
hang on
Anglo American (AAL:LSE): Last: 1,667, down 31 (-1.83%), High: 1,697, Low: 1,610, Volume: 8.96m
Xstrata (XTA:LSE): Last: 639.70, up 4.6 (+0.72%), High: 649.00, Low: 623.50, Volume: 7.80m
NH:
Xta price being supported by Vale bid speculation
NH:
and this Merrill upgrade
NH:
Xstrata approach; Upgrade to BUY, PO 2200p (ZAR295)
We upgrade Anglo American to Buy from Underperform after confirmation of a
preliminary proposal from Xstrata plc which could lead to a merger. Our price
objective of 2200p is set at a premium to our revised NPV and implies >27%
upside from current levels. Our simple merger analysis implies material potential
value could be unlocked by Xstrata from operational synergies and tax savings.
We upgrade Anglo American to Buy from Underperform after confirmation of a
preliminary proposal from Xstrata plc which could lead to a merger. Our price
objective of 2200p is set at a premium to our revised NPV and implies >27%
upside from current levels. Our simple merger analysis implies material potential
value could be unlocked by Xstrata from operational synergies and tax savings.
NH:
Synergies related to merger could have NPV of $7bn
We see two main sources of synergies from this potential combination. 1) Anglo
specific asset optimization and cost savings 2) Merger related hard operational
synergies and tax savings by incorporating Anglo American’s assets into Xstrata’s
Swiss tax domicile. Combined, if the transaction successfully completes we see
potential near-term after tax savings of up to US$2,250 million per year perhaps
with upside risk longer term.
We see two main sources of synergies from this potential combination. 1) Anglo
specific asset optimization and cost savings 2) Merger related hard operational
synergies and tax savings by incorporating Anglo American’s assets into Xstrata’s
Swiss tax domicile. Combined, if the transaction successfully completes we see
potential near-term after tax savings of up to US$2,250 million per year perhaps
with upside risk longer term.
NH:
Why a premium to current share price?
1) We believe shareholders could reasonably expect a premium given we think the
potential cost savings come largely from the Anglo side of the proposed merger. 2)
Earnings from the platinum assets are at trough levels because PGM pricing is weak,
in part, we believe due to Anglo’s apparent unwillingness to cut production. A new
owner could have a different approach to matching supply and demand in this
consolidated market which could result in material “revenue” synergies. We recall the
positive nickel price trend post XTA’s acquisition of Falconbridge
1) We believe shareholders could reasonably expect a premium given we think the
potential cost savings come largely from the Anglo side of the proposed merger. 2)
Earnings from the platinum assets are at trough levels because PGM pricing is weak,
in part, we believe due to Anglo’s apparent unwillingness to cut production. A new
owner could have a different approach to matching supply and demand in this
consolidated market which could result in material “revenue” synergies. We recall the
positive nickel price trend post XTA’s acquisition of Falconbridge
NH:
Improving valuation…driven by announced savings
Our revised July NPV places Anglo American on a 1x P/NPV, compared to its
peer group that trades at 20-30% premiums to NPV. Spot USDZAR currency is a
concern, but we think the improving outlook for commodities, potential
participation in industry consolidation and increasing risk appetite could be
catalysts for out performance.
Our revised July NPV places Anglo American on a 1x P/NPV, compared to its
peer group that trades at 20-30% premiums to NPV. Spot USDZAR currency is a
concern, but we think the improving outlook for commodities, potential
participation in industry consolidation and increasing risk appetite could be
catalysts for out performance.
NH:
and here are some more musing from the analysts
NH:
Liberum
NH:
All in all then a very thorough and humiliating slap in the face from the board of Anglo for what it sees as its uppity young rival that turned seven years old this year. The message seems to be quite clear on the preference for a stand alone Anglo right now. Some observations on the decision:
NH:
A definite ‘no’: The language of the statement referring to incompatible strategy, inferior assets and totally unacceptable terms makes it absolutely clear that the current board feels Anglo can only be bought by Xstrata for a premium and mostly cash offer. The statement firmly shuts the door that we thought had been left ajar on Sunday night.
NH:
A brave move by the NEDs? With governance issues so fresh on the minds of the independent board (not least Paul Skinners’ ex colleague Mark Moody Stuart) the decisions seems to us to have been made remarkably quickly and with astonishing robustness
NH:
Defiant tone given Anglo’s standing in the market? The popular press has it that Anglo is a ‘broken’ equity story whose management has lost the faith of its shareholders. In reality we found the truth to be closer to one of investor apathy – with many holding on to what they see as a bombed out value play that should one day come good – perhaps on a change of Chairman. In this context, we feel Anglo have taken a strong line without thorough consultation with shareholders and no engagement with Xstrata. It seems the board has almost implicitly assumed that current shareholders are content with the status quo.
NH:
Are Anglo not telling us something? We wonder if the confident tone of the rejection is because the company have something up their sleeve – a new Chairman or even corporate initiatives with a third party such as Vale?
NH:
and finally something from Nomura
NH:
We would not rule out the possibility of Vale and/or a Chinese buyer becoming involved in any M&A discussions around Xstrata/Anglo. Xstrata management have previously articulated a view that they see merit in large-scale mergers towards the trough of the cycle which may involve Xstrata becoming predator or prey. While it may be foolish to rule out almost any potential M&A combination in the mining sector at the moment we see more merit in a Vale/Xstrata combination as opposed to Vale/Anglo. We see potential anti-trust issues in iron ore as a hurdle to Vale/Anglo as well as a view that Vale may bring little to any restructuring story at Anglo Platinum and have little experience in deep level platinum mining. We see some merit in recent press speculation (e.g. Financial Times, June 4, 2009) that the Chinese may turn their attention to Anglo American.
11:50AM
NH:
OK
NH:
some more RAW
NH:
rumours that BG are talking down numbers
NH:
but we hear that’s not true
NH:
this just been sent through
NH:
BG: Some sell side analysts may be currently calling around saying that BG are talking down numbers for their Q2 results – this is NOT the case. The Co are saying that the LNG business is hedged in and out (which is the case) BUT some analysts have mistakenly taken this hedged price and netted it back rather than the market price to calculate the profit of the E&P business.
NH:
In our model, we have correctly NOT used the hedged price this and as a result we have a profit estimate for the E&P business of c.£620m – the sell side analysts who are effectively double counting by using the hedged price could be as much as c.10% wide of the mark. We have a 1215p price target (1x NAV) and are happy to reiterate Outperform here, BG are NOT talking down numbers, the street has just tried to be a little too clever.
BG Group (BG:LSE): Last: 1,015, up 14 (+1.40%), High: 1,018, Low: 996.50, Volume: 2.60m
11:50AM
PM:
Right — we both have a lunch today
NH:
yes, at Butlers Wharf
NH:
a real broker lunch
PM:
Chop house there — ive never been
NH:
no PR’s allowed
NH:
so we need to get finished
NH:
but before we do
NH:
can we pay a visit to small cap corner?
PM:
Why not
NH:
I thought it would be fitting it we marked the passing of another small cap company that had connections with Andrew Regan
PM:
not another
NH:
yep
NH:
the small cap serial killer strikes again
PM:
PM:
so who has he bumped off this time?
NH:
company called DiamondTech
NH:
actually it is not dead yet
NH:
but in ICU
NH:
company in question called
NH:
DiamondTech
NH:
floated in 2007 and claimed to have some pretty fancy technology
NH:
it was a laser that could find diamonds among tonnes of gravel
PM:
hahahahaha
NH:
developed by a guy called Adriaan Botha, who has 18 years’ experience in the diamond industry, including 13 years as a consultant to De Beers.
NH:
and here’s Botha explaining how it worked
NH:
The technology is based on the use of red lasers and an optical recognition technique that detects diamonds from mine material,” said Mr Botha. “Diamonds identified by the system are extracted by pneumatic jets into a safe that can only be accessed by authorised personnel.”
PM:
NH:
it raised £4.25m at 12.5p a share,
NH:
domiciled in the Cayman Islands, of course
NH:
and Corvus Capital, Regan’s investment vehicle which has since disappeared, was a big shareholder
PM:
right, it doesn’t take a genius to figure out what happened next
PM:
the share price probably spiked higher post float and then there was a relentless grind lower before it imploded
NH:
er, yes
NH:
you must be clairvoyant
PM:
nah, I have seen this all before
NH:
anyway, shares suspended this morning at 0.42p
NH:
because a promised cash injection failed to materialise
NH:
Now, there’s a surprise
NH:
The Board of DiamondTech has requested the suspension of trading in the
Company’s ordinary shares with immediate effect.
Company’s ordinary shares with immediate effect.
The Company announces that it has not yet received the funding due to it from
Beryl Capital (UK) Limited (“Beryl”) pursuant to the legally binding placing
agreement entered into between the Company and Beryl on 27 May 2009. The Board
is currently in discussions with Beryl and its legal advisers regarding the
provision of such funding.
As previously announced, the Company urgently required the proceeds of the
placing for working capital purposes, and if such funds are not provided the
Company is in severe financial difficulty.
Accordingly, the Board has requested the suspension from trading of the
Company’s ordinary shares pending clarification of the provision of funds from
Beryl and its financial position.
PM:
Oh, dear, oh dear
PM:
any background on Beryl??
NH:
yep
NH:
Beryl Capital is a multi-sectoral investment and financial brokering firm with
offices in South Africa, Zimbabwe, the United Kingdom and the United States.
Beryl Capital has specific expertise in mining and in working in Africa, and its
investment strategy includes applying its expertise to develop investee
companies. The Board believes that Beryl Capital’s experience and expertise in
DiamondTech’s sector will add significant value to the Company going forward.
offices in South Africa, Zimbabwe, the United Kingdom and the United States.
Beryl Capital has specific expertise in mining and in working in Africa, and its
investment strategy includes applying its expertise to develop investee
companies. The Board believes that Beryl Capital’s experience and expertise in
DiamondTech’s sector will add significant value to the Company going forward.
PM:
that all looks pretty terminal
PM:
who were the noddies / advisers on this??
PM:
at the time of that float?
NH:
here you go
NH:
James Harris, Warren Pearce Tel: 020 7409 3494
Strand Partners Limited
Strand Partners Limited
Derek Crowhurst Tel: 020 7871 2232
Keith, Bayley, Rogers & Co. Limited
John Bick Tel: 07917 649362
Hansard Group
PM:
Keith, Bayley, Rogers still gonig?
NH:
I think so
NH:
do you remember that lunch with had with Regan
PM:
How could i forget
PM:
You’d blown the news that he was looking at an heroic bid for Royal Sun Alliance
PM:
Which promptly blew the plan up
NH:
yes
NH:
NH:
but Mr Regan then kindly offered to explain how the bid was possible
NH:
I must admit I left the lunch none the wiser
PM:
Lunch was a pleasant expericence tho
PM:
Cipriani in Mayfair
NH:
full of celebs
NH:
Swen’s wife/girlfriends
NH:
Tom Ford
NH:
loads of ladies who lunch
NH:
and us with Regan
NH:
explaining his bid for RSA on the back of a napkin
NH:
those were the days
NH:
anyway
PM:
(sigh)
NH:
got the menu for this lunchtime
PM:
Bare with me
PM:
Fish soup, Welsh rarebit
Spring green vegetable soup
Oxford Blue, saffron poached pear, cress & toasted almonds
Smoked Lough Neagh eel, beetroot & Daylesford bacon, celeriac
Severn & Wye smoked salmon, rye bread
Ham hock & parsley terrine, piccalilli
Arbroath smokie & spinach tart
6 West Mersea rock oysters
Dressed Dorset crab, mayonnaise 6.50*
Potted Morecambe Bay shrimps, Melba toast
Tankard of shell on prawns
Prawn cocktail
Spring green vegetable soup
Oxford Blue, saffron poached pear, cress & toasted almonds
Smoked Lough Neagh eel, beetroot & Daylesford bacon, celeriac
Severn & Wye smoked salmon, rye bread
Ham hock & parsley terrine, piccalilli
Arbroath smokie & spinach tart
6 West Mersea rock oysters
Dressed Dorset crab, mayonnaise 6.50*
Potted Morecambe Bay shrimps, Melba toast
Tankard of shell on prawns
Prawn cocktail
PM:
Skate wing, capers & black butter
Heritage tomato & goats cheese puff pastry tart, wild English rocket
Whole grilled lemon sole, nettle & minted Jersey Royals
Fishermans pie, mashed potato & Cheddar crust
Herdwick lamb cutlets, Reform sauce
Poached Harrisons Farm chicken, watercress cream, spring vegetables
The Offal Truth
ox liver, lambs kidney, Morris Gold black pudding, ox faggot, Gloucester Old Spot tongue,
smoked Daylesford bacon, beef bone marrow, fried hens egg, spring bubble & squeak, onion gravy
Roast Gloucestershire pork loin & crackling, watercress mash, Bramley apple sauce
Roast Shorthorn rib of beef, Yorkshire pudding & roast potato, gravy
Grilled 10oz Irish Dunbia sirloin steak, hand cut
Heritage tomato & goats cheese puff pastry tart, wild English rocket
Whole grilled lemon sole, nettle & minted Jersey Royals
Fishermans pie, mashed potato & Cheddar crust
Herdwick lamb cutlets, Reform sauce
Poached Harrisons Farm chicken, watercress cream, spring vegetables
The Offal Truth
ox liver, lambs kidney, Morris Gold black pudding, ox faggot, Gloucester Old Spot tongue,
smoked Daylesford bacon, beef bone marrow, fried hens egg, spring bubble & squeak, onion gravy
Roast Gloucestershire pork loin & crackling, watercress mash, Bramley apple sauce
Roast Shorthorn rib of beef, Yorkshire pudding & roast potato, gravy
Grilled 10oz Irish Dunbia sirloin steak, hand cut
NH:
hmmm
NH:
sounds good
PM:
its pretty cheap
PM:
2 COURSES 22.00 3 COURSES 26.00
Minimum 2 courses
* indicates
Minimum 2 courses
* indicates
NH:
the wine list pls
NH:
waiter
PM:
hang on
PM:
2007 Jurancon Sec, Clos Lapeyre 30.00
Jurancon, France
Lovely organic white (Gros Manseng) from the French Pyrenees. Firm, mineral driven with notes of
fresh herbs, green apple, quince, sweet lime & toasted almonds. Delicate & refreshing. Enjoy a glass
with shrimps & shellfish.
4808 2007 Albarino ‘Abadia San Campio’, Terras Gauda 36.00
Rias Baixas, Spain
Whites of Rias Baixas have strong reputation. ‘San Campio’ is made from Albarino grapes. It offers a
curious & complex range of flavours, from ripe apple & stone fruits to refined hints of orange peel,
accompanied by evocations of aromatic herbs. It pairs beautifully with our shellfish, seafood &
lighter meat dishes.
6846 2006 Furmint, Dobogo Winery 42.00
Tokaj, Hungary
A wonderful dry wine from Hungary’s Tokaj wine region. Apricot, peach, almond & acacia blossom
notes with a hint of oak on the nose. It has a lovely round acidity with minerals, a very complex taste
with superb length. The indigenous Furmint grape -by the opinion of experts- is one of the most
potential full undiscovered grape varieties of the World.
5208 2007 Ca’Brione, Nino Negri 47.00
Lombardia, Italy
Blend of Chiavennasca, Sauvignon & Chardonnay. Golden yellow colour, very intense bouquet,
with notes of lychees, melon, raspberries, vanilla, mineral hints & aromatic herbs. This wine is rich, full
of flavour, well structured, lingering aftertaste of exotic fruits and spices with a great finish.
4380 2005 Condrieu, Andre Perret 69.00
Rhone, France
Very aromatic and fresh, featuring peach, apricot & tropical fruit notes – typical to the Viognier
grape. The palate is full of layered flavours & there is an oiliness that is absolutely balanced by
acidity and minerals. A unique, wonderful, complex and enjoyable wine through to the long finish.
5200 2005 Malvasia ‘Selezione’, Borgo del Tiglio 88.00
Friuli, Italy
Only a few barrels are made in the best vintages
Jurancon, France
Lovely organic white (Gros Manseng) from the French Pyrenees. Firm, mineral driven with notes of
fresh herbs, green apple, quince, sweet lime & toasted almonds. Delicate & refreshing. Enjoy a glass
with shrimps & shellfish.
4808 2007 Albarino ‘Abadia San Campio’, Terras Gauda 36.00
Rias Baixas, Spain
Whites of Rias Baixas have strong reputation. ‘San Campio’ is made from Albarino grapes. It offers a
curious & complex range of flavours, from ripe apple & stone fruits to refined hints of orange peel,
accompanied by evocations of aromatic herbs. It pairs beautifully with our shellfish, seafood &
lighter meat dishes.
6846 2006 Furmint, Dobogo Winery 42.00
Tokaj, Hungary
A wonderful dry wine from Hungary’s Tokaj wine region. Apricot, peach, almond & acacia blossom
notes with a hint of oak on the nose. It has a lovely round acidity with minerals, a very complex taste
with superb length. The indigenous Furmint grape -by the opinion of experts- is one of the most
potential full undiscovered grape varieties of the World.
5208 2007 Ca’Brione, Nino Negri 47.00
Lombardia, Italy
Blend of Chiavennasca, Sauvignon & Chardonnay. Golden yellow colour, very intense bouquet,
with notes of lychees, melon, raspberries, vanilla, mineral hints & aromatic herbs. This wine is rich, full
of flavour, well structured, lingering aftertaste of exotic fruits and spices with a great finish.
4380 2005 Condrieu, Andre Perret 69.00
Rhone, France
Very aromatic and fresh, featuring peach, apricot & tropical fruit notes – typical to the Viognier
grape. The palate is full of layered flavours & there is an oiliness that is absolutely balanced by
acidity and minerals. A unique, wonderful, complex and enjoyable wine through to the long finish.
5200 2005 Malvasia ‘Selezione’, Borgo del Tiglio 88.00
Friuli, Italy
Only a few barrels are made in the best vintages
PM:
Sorry for wine spam
NH:
what say we get there early
NH:
and order a bottle of decent stuff
PM:
No those arent the proper bottles
NH:
and drain that before our hosts arrive
PM:
Here’s what we need
PM:
LOIRE
3930 2007 Muscadet de Sevre-et-Maine ’Sur Lie’, D. de la Bretonniere 24.00
3942 2008 Touraine Sauvignon, Alain Marcadet 27.00
3909 2007 Touraine Sauvignon, Domaine de Marce 27.00
3912 2007 Pouilly Fume, Domaine Landrat-Guyollot 33.00
3944 2007 Sancerre ‘La Vigne Blanche’, Henri Bourgeois 35.00
3949 2006 Sancerre ‘Le Chene’, Lucien Crochet 55.00
3910 2006 Pouilly Fume ‘Silex’, Didier Dagueneau 140.00
3930 2007 Muscadet de Sevre-et-Maine ’Sur Lie’, D. de la Bretonniere 24.00
3942 2008 Touraine Sauvignon, Alain Marcadet 27.00
3909 2007 Touraine Sauvignon, Domaine de Marce 27.00
3912 2007 Pouilly Fume, Domaine Landrat-Guyollot 33.00
3944 2007 Sancerre ‘La Vigne Blanche’, Henri Bourgeois 35.00
3949 2006 Sancerre ‘Le Chene’, Lucien Crochet 55.00
3910 2006 Pouilly Fume ‘Silex’, Didier Dagueneau 140.00
NH:
you do like the scancerre
PM:
So 
NH:
a botttle of the Le Chene?
PM:
Hmm
NH:
right that is it for today
NH:
sorry
NH:
but it is very quiet out there
PM:
Good point from Zoomy boy — SW! last year, SE1 now
NH:
the season is in full swing
NH:
dealing desks not manned
NH:
the punters away
NH:
etc
NH:
(very good Taxloss )
)PM:
Okay — we are done
PM:
Thanks for all the comments
PM:
We will be back tomorrow at 11am
NH:
hopefully with some stories
NH:
on BSkyB
NH:
apart from a bit of sector rotation
NH:
Caz have written on the impact of the ESPN move
NH:
ESPN secures Setanta’s English premier league rights
Overnight, it has emerged that ESPN has won Setanta’s English premier league rights for both the coming season and the following three seasons. The FT reports that ESPN will pay £250m in total; £100m for two packages (46 games) for 2009/10 and £150m for one package (23 games) covering the following three seasons. Setanta paid £130m for two 2009/10 packages and £159m for the following three seasons; Sky had already secured one of Setanta’s packages from 2010.
There is a risk that this news initally as a negative for Sky with ESPN seen as a more effective, deep pocketed competitor. Sky is reported as bidding for 2009/10 rights whilst expectations were for a larger discount to the price paid by Setanta. No doubt, the English Premier League will be pleased with the outcome.
Overnight, it has emerged that ESPN has won Setanta’s English premier league rights for both the coming season and the following three seasons. The FT reports that ESPN will pay £250m in total; £100m for two packages (46 games) for 2009/10 and £150m for one package (23 games) covering the following three seasons. Setanta paid £130m for two 2009/10 packages and £159m for the following three seasons; Sky had already secured one of Setanta’s packages from 2010.
There is a risk that this news initally as a negative for Sky with ESPN seen as a more effective, deep pocketed competitor. Sky is reported as bidding for 2009/10 rights whilst expectations were for a larger discount to the price paid by Setanta. No doubt, the English Premier League will be pleased with the outcome.
NH:
However, we would strongly disagree with this being a negative for Sky and actually see this potentially as a positive for the following reasons:
From a regulatory viewpoint, Sky needs to face a viable competitor for premium sports content. ESPN clearly fits the bill. Importantly, however, we would view ESPN as a more rational competitor. It is financially disciplined as evidenced by the time it has taken to secure these rights, rather than bidding higher than Setanta in previous auctions. We also understand that ESPN recently pulled out of a similar rights auction in Germany.
ESPN is not aligned with a particular distribution platform and ESPN will not sell subscriptions directly to consumers as Setanta did but instead, its channels will be sold through Sky and other pay-television platforms. Importantly, ESPN has already announced an agreement with Sky that will allow Sky to retail ESPN’s football content to its residential and commercial customers. This should be seen as a positive.
Sky appears to have shown financial discipline by not outbidding ESPN for the 2009/10 rights. However, we would caveat this by noting that Sky would only have been able to bid for one set of rights in 2009/10 and not for Setanta’s rights from 2010, given the EU restriction. As a result, ESPN was in a position to provide a more complete solution for the English Premier League.
From a regulatory viewpoint, Sky needs to face a viable competitor for premium sports content. ESPN clearly fits the bill. Importantly, however, we would view ESPN as a more rational competitor. It is financially disciplined as evidenced by the time it has taken to secure these rights, rather than bidding higher than Setanta in previous auctions. We also understand that ESPN recently pulled out of a similar rights auction in Germany.
ESPN is not aligned with a particular distribution platform and ESPN will not sell subscriptions directly to consumers as Setanta did but instead, its channels will be sold through Sky and other pay-television platforms. Importantly, ESPN has already announced an agreement with Sky that will allow Sky to retail ESPN’s football content to its residential and commercial customers. This should be seen as a positive.
Sky appears to have shown financial discipline by not outbidding ESPN for the 2009/10 rights. However, we would caveat this by noting that Sky would only have been able to bid for one set of rights in 2009/10 and not for Setanta’s rights from 2010, given the EU restriction. As a result, ESPN was in a position to provide a more complete solution for the English Premier League.
NH:
Sky currently trades on 14.6x PER for calendar 2009E with a dividend yield of 4.2%. In the short-term, we still see risks from regulation and any late-cycle impact from increasing unemployment. We expect Ofcom to publish its latest consultation document on the pay-tv market investigation by the end of this month with Sky’s full year results on 30 July. However, business momentum has remained strong so far, supported by excellent management execution and we would view any further share price weakness as a good buying opportunity.
NH:
cya