Markets live chat transcript for the chat ending at 12:06 on 25 Jun 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
Hi there
PM:
Welcome to ML
NH:
morning all
NH:
Paul can u call me
NH:
line just gone dead
PM:
tHi Neil
PM:
All over the shop this morning
PM:
I’m having to do this from home.
PM:
Got a builders nightmare to sort out.
PM:
They haven’t been doing any bleeding work when im not there.
PM:
And I have a whole load of plumbers and electricians about to come round – and they haven’t even laid the bleeding floor.
NH:
Speak for yourself Murphy.
NH:
Im not all over the shop,
NH:
Im in the office doing the job im paid to do.
NH:
Anyway, there’s a theory at this end that this “builders crisis” coincides with you being embarrassed that you got sun burnt at Wimbledon yesterday
NH:
So you didn’t want to come in the office.
PM:
Not true!
PM:
In fact that’s defamatory.
PM:
I had a pleasant day – discussing the market and corporate developments,
PM:
While having a leisurely lunch with some very good contacts.
NH:
Discussing market developments in the champagne pen while listening to jazz
NH:
And getting sunburnt
PM:
Look, I believe you are swanning off to Wimbledon this afternoon.
NH:
Oh yeah
NH:
PM:
So don’t you think we’d better get on?
NH:
Suppose so.
PM:
Just a tip tho – get some suncream and take sun-glasses.
PM:
Youll need them.
NH:
don’t worried well prepared for that. Been to Boots and got some factor 30 for the face
NH:
and the Oakleys are in my top pocket
NH:
raring to go
PM:
Excellent
NH:
but might be cutting things a bit fine
NH:
supposed to be having lunch at the Centre Court Debenture Longue at 1.00pm
NH:
don’t want to be late for that
PM:
Okay — so let’s end this session a little early today then
NH:
yeah
PM:
if thats okay with everyone
NH:
not looking toward to the District Line to Southfields
PM:
No == get the train from Waterloo
PM:
doesnt take long
PM:
wimbledon village, jump in a cab
PM:
lots there
PM:
Difficulty isgetting a cab at the end of the day…
NH:
(funny HedgeHog)
PM:
Quick reminder of NAMARAMA — tomorrow i believe
PM:
Hope you all have a good time
PM:
in the Shelbourne bar in Dublin
PM:
But lets get on with some stocks
11:11AM
NH:
before we do that
NH:
let’s take a look at the market
NH:
some folk thought we could wobble yesterday
PM:
no way
NH:
after the snap move higher
NH:
but there was no need to panic
NH:
down 35 points at 4,244
NH:
a real mixture leading the market lower
NH:
insurers
NH:
banks
NH:
miners
NH:
but
NH:
one bank is rising
NH:
RBS
PM:
what’s going on there?
Royal Bank of Scotland Group (RBS:LSE): Last: 36.80, up 1.24 (+3.49%), High: 37.33, Low: 36.07, Volume: 69.48m
PM:
Good move
NH:
well, it’s all down to a big push from Cazenove
NH:
a very big push
NH:
Simon Pilkington turned very positive
NH:
gone from underperform to outperform in one go
PM:
er, why?
NH:
well, after £40bn of equity issuance and the membership of the government’s new club – the APS
NH:
he thinks capital adequacy is no longer a problem
NH:
and therefore investors can start to think about how much RBS might earn
NH:
once it has shrunk it balance sheet of course
PM:
How much is that then?
NH:
Pilko thinks 6.5p is achievable
NH:
here’s some of the note
NH:
titled Shrink to grow
NH:
£40bn of new equity and a £300bn insurance scheme have
addressed the issue of capital adequacy, in our view. The
proviso is that the balance sheet shrinks in line with
management’s strategy. With the share price now trading
around tangible book value, we believe the valuation
reflects investor confidence in the capital position.
The opportunity lies in reducing the scale of and so risk
within the balance sheet and then drive higher returns once
impairment peaks. Rising loan impairment will lead to
losses for both 2009E and 2010E on our estimates.
addressed the issue of capital adequacy, in our view. The
proviso is that the balance sheet shrinks in line with
management’s strategy. With the share price now trading
around tangible book value, we believe the valuation
reflects investor confidence in the capital position.
The opportunity lies in reducing the scale of and so risk
within the balance sheet and then drive higher returns once
impairment peaks. Rising loan impairment will lead to
losses for both 2009E and 2010E on our estimates.
NH:
Potentially, as details are published with the final agreement
on the Asset Protection Scheme, we may reduce the
losses.
Further out and on a balance sheet one-third smaller, the
potential earnings for RBS are 6.5p, we estimate, which
suggests 60p share price is achievable in time.
on the Asset Protection Scheme, we may reduce the
losses.
Further out and on a balance sheet one-third smaller, the
potential earnings for RBS are 6.5p, we estimate, which
suggests 60p share price is achievable in time.
NH:
We move our recommendation to OUTPERFORM (from
Underperform) as we expect the share price to react
positively to news on restructuring, APS and disposals.
Underperform) as we expect the share price to react
positively to news on restructuring, APS and disposals.
NH:
Overall, we believe the new management team has set RBS
on the right path to a smaller group. We expect the focus of
the asset reduction is on Global Banking and Markets, a
task which is easier to achieve than shedding retail loans.
Typically, a strategy of paring back to the core is effective
in raising return on equity. The absolute share price
performance will in large part be driven by the level of
economic activity, but relative to its peers we expect RBS
to outperform given its lower risk strategy
on the right path to a smaller group. We expect the focus of
the asset reduction is on Global Banking and Markets, a
task which is easier to achieve than shedding retail loans.
Typically, a strategy of paring back to the core is effective
in raising return on equity. The absolute share price
performance will in large part be driven by the level of
economic activity, but relative to its peers we expect RBS
to outperform given its lower risk strategy
PM:
hmmm
PM:
thanks for that
PM:
what is the rest of our fabulous banking sector doing??
NH:
well Lloyds down a touch
Lloyds Banking Group (LLOY:LSE): Last: 66.83, down 0.74 (-1.10%), High: 67.90, Low: 66.06, Volume: 21.47m
NH:
but Standard Chartered takiing a bit of knock post its trading statement
NH:
which reads more cautiously than recent ones
Standard Chartered (STAN:LSE): Last: 1,170, down 25 (-2.09%), High: 1,207, Low: 1,161, Volume: 5.03m
PM:
Should pull the chart on that
NH:
hmmm
NH:
stock been stuck just above £11 for a while
NH:
needed something positive to drive it on
NH:
today’s statement isn’t it
PM:
And that hasnt arrived
PM:
Got any analyst comment on that??
NH:
yep, something has just landed from Nomura
NH:
The Standard Chartered trading statement is similar to our expectations. Although the tone is more cautious on profit trends in Q2 and on the future than that given at Q1, particularly in WB, we do not regard this as surprising. This may prompt some disappointment. However, we do not expect significant earnings revisions after this announcement and remain positive towards the Far Eastern banks, compared with developed market stocks.
NH:
Overall group trends appear similar to our expectations, with profits growth driven by WB, although cost control is limiting the decline in CB. Group cost jaws strongly positive.
CB profit indications appear consistent with our full-year assumption of down 10%. Revenue is running at a lower rate than in H2 last year, although higher than Q1, which is 2% worse than our assumptions. However, expenses are still 10% down on the H1 run rate and 5% below our full year assumptions. Credit impairment is said to be ‘tens of millions’ higher in Q2 than previous full year guidance, which is similar to our assumptions.
NH:
In addition, to the operating performance, Standard Chartered will take charges against $190m of structured notes bought back from clients in Taiwan.
WB profit performance is said to be ‘very strong,’ although there is a clear weakening in the phraseology, compared with that used in Q1, when performance was described as ‘excellent.’ Income has grown, although the implication is that the growth rate has slowed. Again own account revenue appears to have grown faster than client income. Furthermore, the statement indicates that ALM revenue has been ‘excellent,’ but that the ALM positions are maturing and will be replaced at lower yields, implying lower revenue in the future. Credit quality is indicated to have deteriorated in Q2, with loan impairments for the half year implied to be between $331m and $643m. This compares with the Q1 comments that impairments were ‘low.’ We currently assume WB impairments of $1090m for the year.
NH:
The overall statement remains understandably cautious over the outlook, although the bank continues to expect Asian markets to be less affected by the downturn.
PM:
ta for that
11:18AM
PM:
Are we done with financials??
NH:
not quite
NH:
another financial moving higher
NH:
is Standard Life
NH:
and that’s after a Merrill upgrade to buy
Standard Life (SL:LSE): Last: 183.30, up 4.5 (+2.52%), High: 185.50, Low: 182.00, Volume: 2.05m
NH:
As part of a wider sector note published today, we have upgraded our opinion on
Standard Life from Neutral to Buy. Our 214p PO and the current dividend yield of
7% imply a total return of nearly 30%. This is attractive given the lower than
average risk profile of the company, in our opinion.
Standard Life from Neutral to Buy. Our 214p PO and the current dividend yield of
7% imply a total return of nearly 30%. This is attractive given the lower than
average risk profile of the company, in our opinion.
Standard Life’s shares have been bad performers of late, underperforming the
sector by nearly 30% since the March rally, with the share price actually falling
over this period. Despite our cautious view on the operating outlook for UK life
companies, we think this presents an excellent entry point for investors. The
shares are below 10x IFRS 2011E earnings, 0.7x embedded value and a 7%
dividend yield.
NH:
Less exposed to market conditions and risks
We think Standard Life will not be immune to the tough trading conditions we
expect to prevail in the UK, but the fact that the company is largely a consolidator
of existing pension assets in the UK makes us less concerned than for other
companies. For example, more than 70% of SIPP new business comes from
pension business that is already in the system. We believe the transfer amount
has been affected by the setback in markets, but we think this has already been
factored into expectations.
We think Standard Life will not be immune to the tough trading conditions we
expect to prevail in the UK, but the fact that the company is largely a consolidator
of existing pension assets in the UK makes us less concerned than for other
companies. For example, more than 70% of SIPP new business comes from
pension business that is already in the system. We believe the transfer amount
has been affected by the setback in markets, but we think this has already been
factored into expectations.
We think Standard Life passes several of our quality tests. It screens well in our
earnings quality analysis, both in terms of closeness to cash and earnings
sources. In addition, the balance sheet is not overly encumbered with intangibles.
And finally, the company has one of the highest statutory surplus levels (£3.3bn)
and the lowest level of (shareholder exposed) asset gearing to this surplus – less
than 3x, compared to 15x for L&G and more than 20x for Aviva and Prudential.
PM:
ta for that
11:19AM
NH:
Cityboy, where was that comment from on the Gigantor
NH:
because after some good sleuthing work from Fistynuts
NH:
we came to the conclusion that Marios was actually based in Bolton
PM:
NH:
not Warren Street in London
NH:
anyway
NH:
a recon mission to Warren Street might be in order
NH:
to sort this out once and for all
11:22AM
PM:
We should note James Montier’s move
NH:
Yeah, got the Extel gong and now is cashing in
PM:
Breaking his long partnership with Albert Edwards
PM:
Sad moment
PM:
Where’s he off to again?
NH:
GMO
NH:
GMO is a global investment management firm committed to providing sophisticated clients with superior asset management solutions and services. We offer a broad range of investment products, including equity and fixed income strategies across global developed and emerging markets, as well as absolute return strategies. Our client base includes endowments, pension funds, public funds, foundations and cultural institutions.
PM:
hedgie land
NH:
yeah this is where Jeremy Grantham works
NH:
but look
PM:
ah yes
PM:
Obviously after serious dosh
NH:
Montier has left Edwards a couple of times now
NH:
but they have always got back together
NH:
he left Kleinworts and went to Nat West,
Bankers Trust and Old Mutual. But came back after 4 years
Bankers Trust and Old Mutual. But came back after 4 years
PM:
Forgotten that
PM:
Of course — he followed Ed Warner, who hired him in the first place at Kleinworts
NH:
Ed Warner, one of your old chums
PM:
Yes, tho i havent seen him for a while
NH:
and now in charge UK Athletics
PM:
Well, he’s chairman — gadding around ahead of the Olympics
PM:
Bowed out of investment banking for good i think
PM:
Anyway — it will be interesting to see whether Edwards stays at SocGen
NH:
hmmm, although I think Edwards was starting to fret about Montier
NH:
he was getting just a little bit too bullish
PM:
11:27AM
PM:
Actually, how is the Footsie doing — moving against Montier?
NH:
very much so. off 42 points now, 4,200 looming into site
PM:
Note Carlomagno’s comment to the right
PM:
Was watching the footsie tank — and remembered ML was on
NH:
(Fox, watch it. Regular readers know Montier and Edwards very well. You are on a yellow)
11:28AM
NH:
Right
NH:
time of a bit of RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
PM:
Goodbye “the fox”
NH:
jeepers I was just going to give him a yellow
NH:
but straight red
NH:
off
PM:
Straight red
PM:
You’re fine SilberFOx
NH:
Grim Reaper – name of the greasy spoon??
11:30AM
PM:
Right
PM:
time for a bit of RAW
PM:
What have we got?
NH:
some rumours about a placing or fund raising from one of the big European banks
PM:
I think i know who that might be
NH:
go on
PM:
well, its red raw — and i havent been able to do any checking this morning
NH:
but what’s the idea?
PM:
UBS — something’s cooking, that’s for sure
NH:
hmmmm
NH:
shares weak this morning
PM:
And some people think it might be some sort of cash call
NH:
down 4.7% to CHF14.15
PM:
Well that price is saying something
NH:
indeed and yesterday the Swiss central bank was intervening in the currency market
PM:
But then there are so many issues facing UBS, price move could be triggered by a host of factors
PM:
Keep you eye on UBS tho
NH:
what we do know is that UBS still have some assets that have not been fully written down
NH:
actually
NH:
a few more rumours in the banking sector
NH:
talk of a profits warning coming from Credit Agricole
NH:
or that they have been guiding forecasts lower.
NH:
but that has been around for a few hours
NH:
and this
NH:
BNP Paribas rumored to have EUR552m exposure to Saad group
PM:
thanks
NH:
and elsewhere
PM:
Actually Neil — that is a very specific figure for a “rumour”
PM:
552m euro
NH:
yes it is
PM:
sure its not 557m??
NH:
hang on
NH:
I have a break down
PM:
NH:
loan to Saad is thought to include USD522m from BNPP and USD250m via Fortis
PM:
A break down on a rumour??
NH:
some more RAW
11:35AM
NH:
talk Total guiding lower
PM:
more RAW
NH:
and we have a little something on Dana Petroleum
PM:
PM:
ah Dana
PM:
stock has been very solid since the RWE rumour broke
NH:
it has
NH:
and that’s also been very evident this morning
NH:
stock down to £13.12 early on
NH:
but then bounced all the way back because of this
NH:
LONDON, June 25 (Reuters) – German utility RWE plans to sell a two-part sterling benchmark bond via a finance arm, consisting of 13-year and 30-year maturities, IFR reported on Thursday.
Barclays, BNP Paribas and Credit Suisse have been named to manage the deal, said IFR Markets, a Thomson Reuters online news and market analysis service.
RWE is rated A1 by Moody’s Investors Service, A by Standard & Poor’s and A+ by Fitch Ratings.
Barclays, BNP Paribas and Credit Suisse have been named to manage the deal, said IFR Markets, a Thomson Reuters online news and market analysis service.
RWE is rated A1 by Moody’s Investors Service, A by Standard & Poor’s and A+ by Fitch Ratings.
PM:
hmm – interesting
PM:
Do we know how much they are raising thru this??
NH:
hang on
NH:
looks like demand has been over £2bn
PM:
IFR tend to be right on things like this
PM:
Even if it is part of Thomsonwire
NH:
NH:
but a quick word of warning
NH:
we are not sure what RWE wants the money for
NH:
it could be a refinancing
NH:
but the fact it is in sterling has made a few people sit up
PM:
i bet
NH:
but also note RWE does have assets in the UK – such as Npower
PM:
thanks for that
11:39AM
PM:
Are we done on the RAW front?
NH:
one more bit of RAW
NH:
rumours that Swiss company SGL is looking at Morgan Crucible
NH:
and that’s because it has also raised some money in the bond market
NH:
senior unsecured convertibles
PM:
ok
NH:
but equally the rise in Morgan Crucible could be down to a push from Citigroup
NH:
they met management last night
NH:
and reckon that trading has not got worse
NH:
and that’s the company’s financial position is better than the market thinks
NH:
oh and its on four times earnings
PM:
hmm
PM:
, perhaps it could be a takeover target
NH:
possibly
NH:
here’s the Citi piece
NH:
We hosted a group investor meeting with Morgan Crucible
CEO Mark Robertshaw. Key feedback was:
NH:
Stable Trading Supports Existing Guidance / Forecasts —The overall impression
was that trading has been relatively stable over the last 4 weeks since the May
IMS and that management are happy with existing guidance. The stable trading
combined with the impact of cost actions suggest that profitability may have
slightly improved month on month also supporting our profit forecast for 2009E
(EBITA of £97m pre reorgs implying – an operating margin of 9.8%).
was that trading has been relatively stable over the last 4 weeks since the May
IMS and that management are happy with existing guidance. The stable trading
combined with the impact of cost actions suggest that profitability may have
slightly improved month on month also supporting our profit forecast for 2009E
(EBITA of £97m pre reorgs implying – an operating margin of 9.8%).
NH:
Even 1H/2H Split — Management continue to expect 1H EBITA margins in the
high single digit level (pre reorgs). 2H is expected to be at as similar level with
profits likely to improve in Carbon (benefiting from cost action and improving
body armor sales), remain stable in Technical, and decline in Thermal.
high single digit level (pre reorgs). 2H is expected to be at as similar level with
profits likely to improve in Carbon (benefiting from cost action and improving
body armor sales), remain stable in Technical, and decline in Thermal.
NH:
Remaining Confident on Financial Position, Yield Supportive — Management
reiterated its view that it will not need a rights issue based on current
conditions. Operating profits in 2H would need to roughly half versus the 1H
run rate to pressure covenants this year suggesting a very small likelihood of a
year end breach in our opinion. We would only expect a capital raising if a
significant acquisition target was identified. On the basis of the confidence in
the financial position we also see the dividend as relatively solid and we note
that a yield of 8% is very attractive.
reiterated its view that it will not need a rights issue based on current
conditions. Operating profits in 2H would need to roughly half versus the 1H
run rate to pressure covenants this year suggesting a very small likelihood of a
year end breach in our opinion. We would only expect a capital raising if a
significant acquisition target was identified. On the basis of the confidence in
the financial position we also see the dividend as relatively solid and we note
that a yield of 8% is very attractive.
Reiterate Buy Rating — Morgan Crucible remains very attractive on a valuation
basis with a P/E of 4x peak earnings comparing to our sector average of 8-9x.
We expect robust trading to be amplified by growing confidence in the group’s
financial position in 2H09 supporting strong share price upside.
PM:
actually
PM:
what does Morgan Crucible actually do
PM:
PM:
know it is an engineer but beyond that nothing
NH:
hang on
NH:
see if this helps
NH:
From medical instruments, aerospace, power generation and satellite communications to body armour, trains and fire protection systems: Morgan Crucible’s materials, technical and insulating ceramics and carbon, are fundamental components of many of the modern world’s sophisticated products.
With the rapid development of increasingly complex technology, our customers are demanding more from the materials they use, and are looking for a partner who can work with them to respond to the pace of change. Morgan Crucible’s knowledge, skills, design and technical expertise, built up over 150 years in the business, means we tailor our materials to deliver the specialist functionality our customers require, while taking care of the impact our products have on the environment both during and after their useful life.
PM:
er thanks
Morgan Crucible Co (MGCR:LSE): Last: 93.00, up 5 (+5.68%), High: 94.75, Low: 89.00, Volume: 1.19m
11:42AM
PM:
IMG — questions about it to our right
PM:
Any more thoughts on Imagination Tech??
NH:
well
NH:
no confirmation on whether Apple bought stock yesterday
NH:
but some people are starting to warn that IMG is getting a bit expensive
NH:
IMG is Imagination Techbologies
PM:
Chip designer
NH:
yeah
NH:
its graphics IP is in the new iPhone 3G S
NH:
anway
NH:
it is on something like 40 times perspective at the moment
NH:
and Seymour Pierce is worried by that
NH:
Californians at the gate?
We have not significantly changed our forecasts following yesterday’s
results but have adjusted our sum of the parts valuation. The
performance of the IP business has been stronger than we expected
and as this is the key driver to the valuation so our SOTP has risen to
127p.
We have not significantly changed our forecasts following yesterday’s
results but have adjusted our sum of the parts valuation. The
performance of the IP business has been stronger than we expected
and as this is the key driver to the valuation so our SOTP has risen to
127p.
NH:
Despite the stories circulating, we do not regard the current
share price as sustainable without further corporate activity or yet
more positive licensing newsflow and so we move to a SELL
recommendation (Hold since 19 June) and a 127p share price target.
share price as sustainable without further corporate activity or yet
more positive licensing newsflow and so we move to a SELL
recommendation (Hold since 19 June) and a 127p share price target.
NH:
Full year results were ahead of our expectations This was because of the
strong licence performance counteracting the weaker than expected
showing from the Pure business. That said, the Licence business was
significantly helped by the weakness of sterling as licence revenues are in
USD and the Pure business saw an increase of around 30% in its Bill of
Materials due the USD strength. Like for like dollar technology revenues
were up only 7% on a prorata basis.
strong licence performance counteracting the weaker than expected
showing from the Pure business. That said, the Licence business was
significantly helped by the weakness of sterling as licence revenues are in
USD and the Pure business saw an increase of around 30% in its Bill of
Materials due the USD strength. Like for like dollar technology revenues
were up only 7% on a prorata basis.
NH:
The analysts’ presentation told us little that was new We have adjusted
our forecasts for every line in the income statement by a small amount and
end up with small net changes to our forecasts – see table overleaf. The
areas of concern remain the same.
our forecasts for every line in the income statement by a small amount and
end up with small net changes to our forecasts – see table overleaf. The
areas of concern remain the same.
When will the downward trend in royalty per chip end? (16.3p in FY09
vs 23.0p in FY08) It should bottom out as chips come through where the
licence sale was not made via a partner. This could take several years to
come through – we have assumed a 16.0p royalty per chip in FY10E and
FY11E.
NH:
Why does the costs line keep going up? At some point we should start to
see some clear blue water between revenues and costs but we are still
forecasting approximately double digit growth in operating expenses over
the next two years in our model.
see some clear blue water between revenues and costs but we are still
forecasting approximately double digit growth in operating expenses over
the next two years in our model.
NH:
that should help cool some of the hot money
PM:
hmm — what are the shares doing this morning??
NH:
off 6.25p at 147.5p
PM:
Sensible move id say
PM:
Got over cooked
11:46AM
PM:
Can we cool the hair-ist chatter to the right
PM:
My youngest daughter is red head
PM:
And she’s gorgeous
PM:
Irish gene
11:47AM
PM:
any reaction to the new BP chairman
PM:
??
NH:
er nothing really
NH:
the best someone has had to say is that it removes a small overhang
PM:
NH:
seems to be more of problem of Ecrisson
PM:
the back story here is that appointed Carl-Henric Svanberg, chief executive of Swedish telecoms equipment maker Ericsson
PM:
to take the place of Peter Sutherland as chairman of the UK oil major.
NH:
actually you could say that BP is just copying Shell
PM:
In what sense??
NH:
Shell has Jorma Ollila ex the Nokia boss as Chairman
PM:
Of course, forget experience cross over from mobiles to oil platforms
NH:
yeah
NH:
very odd
NH:
anyway
NH:
he seemed to steady the ship at Ericsson
NH:
so his departurem might be considered a loss
PM:
Any comment on the BP side?
NH:
only one
NH:
from Citi
NH:
BP has appointed Carl-Henric Svanberg (57), currently CEO of Ericsson and
chairman of Sony Ericsson, as the replacement for Peter Sutherland as
chairman. Mr Svanberg will join the board as a non-executive director on
1st Sept 09 and will succeed Mr Sutherland on 1st Jan 2010. As an aside
we note that the RDS chairman, Jorma Ollila, was the CEO of Nokia prior to
joining Shell in 2006. That BP has found a replacement for Mr Sutherland,
who was originally due to step down in 2008, removes a modest overhang.
In other news, BP has disposed of its operated 46% stake in the offshore
North West Java PSC to the Indonesian state oil company, Pertamina, for a
consideration of $280m. The ONWJ asset is of low materiality to BP,
producing c22kb/d (gross). In addition, BP and Pertamina have agreed to
co-operate on developing CBM assets in Indonesia. The terms and
materiality of this potential ‘co-operation’ are not presently clear
chairman of Sony Ericsson, as the replacement for Peter Sutherland as
chairman. Mr Svanberg will join the board as a non-executive director on
1st Sept 09 and will succeed Mr Sutherland on 1st Jan 2010. As an aside
we note that the RDS chairman, Jorma Ollila, was the CEO of Nokia prior to
joining Shell in 2006. That BP has found a replacement for Mr Sutherland,
who was originally due to step down in 2008, removes a modest overhang.
In other news, BP has disposed of its operated 46% stake in the offshore
North West Java PSC to the Indonesian state oil company, Pertamina, for a
consideration of $280m. The ONWJ asset is of low materiality to BP,
producing c22kb/d (gross). In addition, BP and Pertamina have agreed to
co-operate on developing CBM assets in Indonesia. The terms and
materiality of this potential ‘co-operation’ are not presently clear
NH:
also have some stuff on Ericsson
NH:
Ericsson announce that CFO Vestberg will replace CEO Svanberg on January 1, 2010
Mr. Svanberg will remain in his role until the end of the year, when he becomes Chairman of BP. At this time, Hans Vestberg will become President and CEO.
Mr. Svanberg will remain in his role until the end of the year, when he becomes Chairman of BP. At this time, Hans Vestberg will become President and CEO.
We don’t expect Ericsson’s strategy to change materially in the transition of CEOs. The company is currently performing well, has gained share in GSM and UMTS and is taking an early leadership in LTE. Several acquisitions over the past few years have set the company up to address the industry shift to all-IP, fixed mobile convergence, managed services, application deployment, etc. While more work is likely to address these emerging trends, we expect any further actions to be a continuation of the company’s recent strategy.
NH:
Profile of Mr. Vestberg
Currently, Ericsson’s CFO, Mr. Vestberg has spent his entire career at Ericsson. He has risen rapidly within the firm’s hierarchy and become CFO of Ericsson’s Brazil office within seven years of starting at Ericsson (aged 33). He transitioned to CFO for Ericsson in North America in 2000 and then President of Ericsson Mexico from 2002. Mr. Vestberg then headed up Ericsson’s Global Services business in 2003 before becoming CFO of the entire group in 2007.
Currently, Ericsson’s CFO, Mr. Vestberg has spent his entire career at Ericsson. He has risen rapidly within the firm’s hierarchy and become CFO of Ericsson’s Brazil office within seven years of starting at Ericsson (aged 33). He transitioned to CFO for Ericsson in North America in 2000 and then President of Ericsson Mexico from 2002. Mr. Vestberg then headed up Ericsson’s Global Services business in 2003 before becoming CFO of the entire group in 2007.
Cash Flow likely a priority
Since taking on the role of CFO, Mr. Vestberg has materially increased Ericsson’s quarterly financial disclosure. Cash flow has improved since he became CFO, with free cash flow rising from 38% of EBITDA in 2007 to 80% in 2008. Working capital remains a very high 39% of trailing 12 month sales however, and improvements in this will likely be a major priority during his tenure.
NH:
that was from Nomura
11:51AM
NH:
Paul has just had to go to the door
NH:
decorator turned up
NH:
in the meantime
NH:
some bid rumour around in Peter Hambro Mining
Peter Hambro Mining (POG:LSE): Last: 607.50, up 23 (+3.93%), High: 615.00, Low: 580.00, Volume: 1.05m
PM:
am back
NH:
actually back to oil for a minute
NH:
few buyers around for Tullow Oil this morning
PM:
oh yeah
Tullow Oil (TLW:LSE): Last: 930.00, up 20 (+2.20%), High: 951.50, Low: 907.00, Volume: 2.04m
NH:
and that’s because its Kosmos Energy, another Africa focused explorer, looks like it is about to be taken out by the Chinese for another a fancy price
PM:
hmm
NH:
Sinopec is paying something like the equivalent of $20 a barrel for Addax
NH:
actually here’s something on the read across from that deal
NH:
it’s by Davy
NH:
Consequences of Addax/Sinopec deal more important than
rudimentary comparative valuations
• The Addax/Sinopec deal values each of Addax’s booked 2P
reserves at some $16 (what we call EV per boe). Tullow’s
2P reserves are currently trading at some $40 each.
• However, Tullow’s currently booked 2P reserves neglect
Jubilee’s probable reserves (an additional 246 mmbbl net)
and Tullow’s share of Ugandan discoveries (another 263
mmbbl). Adjusting for this, Tullow is trading on an EV per
boe of $15.
rudimentary comparative valuations
• The Addax/Sinopec deal values each of Addax’s booked 2P
reserves at some $16 (what we call EV per boe). Tullow’s
2P reserves are currently trading at some $40 each.
• However, Tullow’s currently booked 2P reserves neglect
Jubilee’s probable reserves (an additional 246 mmbbl net)
and Tullow’s share of Ugandan discoveries (another 263
mmbbl). Adjusting for this, Tullow is trading on an EV per
boe of $15.
NH:
• However, we concede that EV per boe is a raw comparative
valuation tool: it is unlikely that a barrel of Addax’s oil in
Nigeria or Kurdistan has the same value as a barrel of
Tullow’s oil in Ghana or Uganda.
valuation tool: it is unlikely that a barrel of Addax’s oil in
Nigeria or Kurdistan has the same value as a barrel of
Tullow’s oil in Ghana or Uganda.
• Ultimately, Sinopec’s recommended offer for Addax begs
the question ‘Who’s next?’.
• Beyond this, it will be interesting to see how the cash from
the transaction gets recycled. The closure of the Imperial
Energy/ONGC deal earlier this year probably helped a
number of recent equity fundings in the sector.
11:53AM
PM:
Actually Neil
PM:
We had a look at LIBOR yesterday
PM:
any reason to do so again today?
PM:
remmber i hvent got a reuter screen
NH:
well
NH:
looks like the biggest fall in six months
PM:
NH:
RTRS-LIBOR THREE-MONTH EURO RATES FIX AT 1.14250 PCT VS 1.18500 PCT ON WEDNESDAY – BBA
11:39 25Jun09 RTRS-LIBOR THREE-MONTH DOLLAR RATES FIX AT 0.60125 PCT VS 0.60438 PCT – BBA
11:39 25Jun09 RTRS-LIBOR THREE-MONTH DOLLAR RATES
NH:
seems to have had an effect
PM:
All that cheap money being pumped in again
11:56AM
PM:
Okay, are we done?
NH:
almost. apparently some story around in the French press about Sanofi looking at AstraZeneca
NH:
which would be one hell of a mouthful
NH:
and I have a litle something from small cap corner
NH:
an interesting gold stock, or so I am told by just above every broker I talk to at the moment
PM:
Oh yeah, wha’s it called?
NH:
Centamin Egypt
NH:
and as the names suggests it is looking for gold in Egypt
NH:
it main project is what the company calls the MASSIVE Sukari Hill gold project
NH:
anyway bid rumours have been swirling around the company in recent weeks
NH:
Newmont and a few others mentioned
PM:
Sounds a tad dangerous
NH:
very much so
PM:
NH:
no idea about the Egyptian gold market
PM:
Other than in pyramids
NH:
stock up a little bit this morning after one of the big boys started coverage with a buy rating
PM:
who was that?
NH:
Merrills
PM:
Er, where are they covering this?
NH:
well, forgive me for being so cynical
NH:
but I suspect the company might be eyeing a move to the main list
PM:
er, right
NH:
here’s the Merrill initiation note
NH:
Initiating coverage on Centamin with Buy recommendation
We initiate coverage of Centamin Egypt Limited, a gold producer operating a
single, fully equity funded project in Eastern Egypt, with a Buy recommendation.
We set a price objective of GBp140, 2x our DCF valuation, implying 73% upside
(based on Tuesday 24th close). Our investment case is based on three factors:
We are bullish on gold
We initiate coverage of Centamin Egypt Limited, a gold producer operating a
single, fully equity funded project in Eastern Egypt, with a Buy recommendation.
We set a price objective of GBp140, 2x our DCF valuation, implying 73% upside
(based on Tuesday 24th close). Our investment case is based on three factors:
We are bullish on gold
NH:
Our commodities analyst Francisco Blanch sees gold touching $1500/oz over
three stages. The outburst of the credit crisis last August marked first step, where
gold started to reflect the rising risk premium. The second stage should primarily
be about currency weakness. Finally, as global currency markets stabilize, the
third stage in the appreciation of gold will be driven by a recovery in energy
prices, in our view (see Metals Strategist, 9 June 2009).
three stages. The outburst of the credit crisis last August marked first step, where
gold started to reflect the rising risk premium. The second stage should primarily
be about currency weakness. Finally, as global currency markets stabilize, the
third stage in the appreciation of gold will be driven by a recovery in energy
prices, in our view (see Metals Strategist, 9 June 2009).
NH:
Near term catalysts: project execution, main board listing
We believe the successful ramp-up of the company’s core project, Sukari, will be
a positive catalyst for the shares in the coming months. Centamin is developing
Egypt’s first modern gold mine, expecting initial production of 200koz pa, rising to
>500koz by 2012E. The shares are trading at a P/NPV discount to peers, and we
see potential for re-rating as the project “de-risks”. In addition, the group plans to
list on the LSE’s main board, which, in our opinion, could be a further near-term
positive catalyst for shares.
We believe the successful ramp-up of the company’s core project, Sukari, will be
a positive catalyst for the shares in the coming months. Centamin is developing
Egypt’s first modern gold mine, expecting initial production of 200koz pa, rising to
>500koz by 2012E. The shares are trading at a P/NPV discount to peers, and we
see potential for re-rating as the project “de-risks”. In addition, the group plans to
list on the LSE’s main board, which, in our opinion, could be a further near-term
positive catalyst for shares.
NH:
Longer term upside potential: M&A target, exploration
With M&I gold resources of 9.4Moz, Sukari has one of the largest gold deposits
not owned by a major producer. As such, we believe Centamin could become an
attractive M&A target if the production schedule progresses smoothly. The group
also benefits from being the “first mover” in Egypt and is ideally placed to acquire,
explore and take advantage of future development opportunities in the region.
With M&I gold resources of 9.4Moz, Sukari has one of the largest gold deposits
not owned by a major producer. As such, we believe Centamin could become an
attractive M&A target if the production schedule progresses smoothly. The group
also benefits from being the “first mover” in Egypt and is ideally placed to acquire,
explore and take advantage of future development opportunities in the region.
PM:
Could Merrill be eyeing an M&A mandate as well?
NH:
ha
12:00PM
PM:
Right — i think you need to get train v soon
NH:
crikey
NH:
it is 12
NH:
need to get to the tennis
NH:
right
NH:
I think we are done
NH:
Paul has lost his connection
NH:
so I will finish up
NH:
thanks for all the comments this morning
NH:
well almost all of them
NH:
that was one Fox that did not survive a ban
NH:
hopefully Paull will be back tomorrow
NH:
but I will be here
NH:
so
NH:
see u all tomorrow
NH:
and sorry for the slow start to day
NH:
took us a while to get going
NH:
but hopefully we got there in the end
NH:
Fox hunting still legal on FT Alphaville
NH:
12:05PM
NH:
I will try and wave at the camera
NH:
look to be on the second tier
NH:
mid court
NH:
I think
NH:
cya