Markets live chat transcript for the chat ending at 12:08 on 1 Jul 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
The promising signal emerged as the China Iron and Steel Association backed down from its tough position on price cuts amid growing government concern over speculation and uncertainty in the sector.
At the same time, China is battling to avoid the complete collapse of the 40-year-old benchmark pricing system, which would pitch the country’s steel sector into the uncharted waters of relying on short-term index and spot-pricing.
Business magazine and website Caijing magazine and the state-controlled Shanghai Securities News said officials attending a closed meeting of the China Iron and Steel Association late yesterday said they would accept a lower price.
the downturn with confidence. Xstrata management
presented to our sales force yesterday. Overall, the
company emphasized the proactive approach to dealing
with the downturn it had taken with closing down
high-cost production, capex reductions and capital
raisings. Now, with the worst in commodity prices
seemingly behind us, the company’s focus moves on to
emerging from this as one of the winners in the industry
reorganization forced by the crisis, with all optionality
retained, if not enhanced.
stated stance on the US$1bn synergies, the natural fit
between the two and emphasized it believes a merger of
equals is the most appropriate. Because of new
resources being in more challenging geographical areas,
while being more technically difficult, economies of scale
and size will continue to be crucial over the coming
years. It said it would look to continue to diversify in
commodities such as platinum, iron ore, alumina and
manganese. No news on Lonmin’s future or Glencore’s
intentions with its holding.
continued Chinese demand growth: Xstrata expects
a recovery in China during 2H 2009 to be sustained.
Government spending and domestic demand should be
the drivers rather than export sectors, and copper is
likely to be one of the winners, Xstrata believes.
金叉再现!万事俱备只欠耐心 金叉again! Everything is ready due to be patient only 让散户入场行情诱多 Admission is to allow retail prices lured more
跨过3000是否预示顶部信号出现 机构重点加仓3000大盘谁主天下？ 3000 across the top of the signal indicates whether or not there agencies who focus on the main Opening 3000 the world market?
■
We forecast a decline in NII from £15bn in 2008 to £12bn in 2009
■
Remain on Underperform. Target price lowered to 50p from 55p
outlook so unclear, we don’t much like the concept of “normalised EPS”, but we think 8p post 2012 is reasonable. This is 6p in present value terms and given the risks, that leaves LBG looking expensive, in our view.
chief executive and planned withdrawal from the East Coast rail franchise.
This could mean an exit from rail altogether, but does pave the way for a
£400m+ fundraising later this year in our view. Trading in non-rail businesses
appears reasonable and we think that, post a rights issue, the business would
look attractively valued. As such, we retain our BUY recommendation
loss-making East Coast rail franchise once committed funding runs out.
Liabilities on the franchise are a £40m intercompany loan and a £32m
performance bond – ie £72m in total. NEX legal advice suggests that this would
not imply cross-default on the profitable East Anglia franchise, although
Department for Transport comments this morning appear to dispute this.
Liabilities across all rail franchises are £118m in intercompany loans and
performance bonds. In addition, season ticket bonds comprised £86m at the
financial year end.
banking covenant. However, covenant breach remains a risk for the full year in
our view, when we expect the ratio to be in line with the tighter 3.5x covenant.
Exiting Rail (wholly or partially) would open the door to a large equity fundraising
(c.£400m-£500m is likely in our view). We expect this to come later this year,
given the need to refinance a €540m loan by September 2010.
Estimates. We currently target £130.0m PBT (61.0p EPS) this year, falling to
£115.6m PBT (54.2p EPS) in FY10E. We will review estimates later today.
have acted as a drag on the share price and today’s statement appears
alarming at first sight. Hypothetically, however, even if the group were forced to
cross-default on Rail (costing c.£140m+), if it then raised £430m (we model a 4
for 1 rights issue at 70p, a 40% discount to the TERP), based on our existing
forecasts, the remaining bus business would be valued on c.8x 2010 P/E, which
would appear to offer reasonable value. Disclosure this week of a preliminary
approach by Firstgroup (rec: Buy) also highlights other options available to
management. We retain our BUY recommendation, but place our 350p P/Ebased
price target under review.
Trading conditions have remained challenging in H1 with all of the group’s businesses experiencing difficult market conditions. We expect consensus estimates for all divisions to be reduced, but with the greatest impact in UK Rail due to the East Coast franchise (to lose £20m in H1 vs. our FY divisional forecast of a loss of £8.5m). Spain has continued to experience lower underlying revenue, although there are signs that the rate of decline is beginning to slow. Management expects profit in North America to be flat in H1, but only due to the stronger dollar. UK Bus & Coach appears to be slightly softer.
Richard Bowker, CEO, has resigned to become Chief Executive Designate of Union Railway in the UAE. Chairman John Devaney takes up an executive role, with Ray O’Toole becoming COO, pending the search for a replacement.
We see the lack of a solution to the problems at the East Coast franchise and the soft trading in other divisions as negative. The continuing uncertainty over the group’s exposure to rail, due to the lack of clarity on the validity of the cross default clauses in the group’s other rail contracts, is an obstacle to a refinancing and a rights issue to sort out the group’s capital structure. Our recommendation remains Reduce
Annual Review
The annual review which is currently carried out in December each year, will be moved to June. As a result, it is expected that there will be no annual review in December 2009, rather the next annual review will occur in June 2010. The liquidity test will remain a part of the annual review, and as such the next liquidity test will occur in June 2010, based on the 12 month trading period to the end of April 2010. As a result, the key period for passing the next liquidity review is 1 May 2009 to 30 April 2010.
Provided the company had a trading record of at least 20 days on the Main Market, only the liquidity of Main Market trading was previously used for the liquidity test. Under the new test, both the trading record on AIM and on the Main Market will be used for the first quarterly review test. If the company fails on that basis, at the next quarterly review, only Main Market trading will be used.
Liquidity
Trading volumes for assessing liquidity will now include volumes from other trading venues operating in similar time zones.
Secondary Lines
Where secondary lines were previously assessed for eligibility to remain in an index at quarterly reviews, this will now only occur at annual reviews.
— Specifically, across 1Q, UK LFL sales have declined -1.4% (Citi -3.5%) split;
General Merchandise -2.4% (Citi -4%) and Food -0.5% (Citi -3%). From this we
derive 1Q clothing LFL -2.2% and Home -3.5%. In total, 1Q International sales
rose +15.9% (Citi +10%). Notably, adjusting for the change in Easter timing this
year, M&S estimates that the underlying 1Q LFL sales performance figures cited
above would be 70bp weaker.
Previous full-year gross margin and cost guidance maintained — As set out in the
group’s full-year results, M&S still expects full-year gross margins to decline
between -125bp and -175bp, and operating costs to decline -1%.
today’s 1Q revenue statement, we expect consensus PBT March 2010 to increase
c.£20m to c.£520m (EPS c.24p, -15% yoy). This assumes that despite the betterthan-
forecast 1Q, consensus LFL revenue assumptions across the balance of the
financial year remain unchanged at -3.5%.
What does it all mean? — Given our view that sector-wide revenue trends should
improve through 2009 (as real household cashflow moves back towards zero), this
+140bp improvement in the group’s underlying 1Q LFL (Easter adjusted, up from
-3.5% in 4Q09 to -2.1% in 1Q10) marks an encouraging start to the year. While
there may have been some weather-driven flattery in this 1Q performance, we
argue that M&S earnings visibility should improve from here, driving potential
upside earnings forecast risk.
sector-average 10x March 2011E EV/EBIT multiple. This equates to a 5% dividend
yield for the same year-end.
Policymakers may have averted a prolonged spell in the financial wilderness…
…but the progress seen so far could yet prove to be the easiest part of the recovery…
….with a number of formidable, structural challenges awaiting on the horizon
Given the gravity of the situation confronting policymakers in the dark days of last autumn, the positive developments seen since should not be downplayed. Due to the nature of the current crisis, conditions across both the financial markets and the real economy were always likely to prove more intertwined than usual, and both areas have seen substantial improvements in recent months. Although still subdued when compared to the ‘norm’ of recent years, risk appetite has made a welcome return, credit conditions have staged a cautious recovery and measures of both business and consumer confidence have bounced off exceptionally low levels. A spell in the financial wilderness now looks less likely for the major economies and our forecasts reflect this, with a slowly improving cyclical picture factored in for the rest of 2009 and 2010 across many regions.
However, financial markets, we suspect, may be about to find out that it’s often better to travel than
arrive. Despite all the developments of the past year, we believe that the most formidable challenges may lie ahead, and that the more demanding questions are yet to be answered. It now seems likely that the worst outcomes which threatened last autumn have been averted, but it’s far from certain that a solid, durable recovery will emerge over the coming twelve months or, when abstracting from the cycle
entirely, just what economic underpinnings remain.
The ‘needs must’ approach adopted by policymakers last autumn has presented investors with issues that will beguile for many years to come, while the worst excesses accumulated during the ‘boom’ years may be difficult to work off during the ‘bust’. The need for possibly painful structural adjustment, both within and outside of the financial sectors of the major economies, and the threat of more onerous regulation, now loom large. What lies in wait over the economic horizon, therefore, remains a source of major anxiety. Indeed, given the extent to which activity collapsed around the turn of the year, the progress seen to date could yet prove to be the ‘easiest’ part of the recovery, with the hard part of any broader return to health yet to begin.
Our forecasts acknowledge both the most recent improvement in higher frequency data releases, and the more structural constraints that are likely to be encountered over the coming years. With the first quarter GDP data generally proving weaker than expected, our global 2009 GDP forecast has been lowered slightly to -2.3% from -1.9% previously, but most regions have seen an upward revision to their 2010 prospects, and the global growth forecast has risen in turn to 2.2% from the previous 1.6% estimate.
Europe, both East and West, has proved the exception here, with no significant upgrade forthcoming,
except in the UK. The forecast for developed economy growth of just 1.2% next year, meanwhile, is
distinctly underwhelming given the extent to which GDP has now contracted, particularly as many
industrial sectors are still following a path more closely aligned to depression than recession. More
optimistically, the apparent early success of China’s fiscal stimulus is expected to sustain the clear outperformance of Asia, and emerging markets more generally, in 2010.
Financial crises have a nasty habit of not only lowering expectations for future growth, but also
challenging the assessment of earlier growth and the factors that drove this. Clearly, the prospect for a
further rise in household sector indebtedness within the developed world now appears wholly dubious,
not only due to the apparent willingness of individuals to pay down debt levels, but also because of the
impaired ability of the financial system to facilitate any further increase.
The degree of adjustment seen in the US household sector to date has actually been fairly quick,
reflecting among other factors the extraordinary decline in policy interest rates of the past year, and the
equally dramatic fall in oil prices, factors that have consumers to pay down debt without curtailing
spending too drastically. However, the lesson from earlier financial crises, which may yet be replicated
elsewhere, is that once underway, this process of adjustment can be prolonged, painful and extremely
disruptive to the establishment of a broader economic recovery.
Assuming the burden
It is important to remember that the often large-scale government intervention in financial sectors over the past year may not automatically lead to increased fiscal burdens, but the very volatile conditions across government bond markets have recently served as a powerful reminder of the fiscal challenges that now await many economies. Both the discretionary fiscal packages and the fiscal implications of economic downturn have proved hugely costly. But the ultimate bill facing taxpayers will remain unknown for years to come due to the government guarantees that have been extended to the various corners of financial markets. Given the looming demographic challenges, the current financial crisis and the ‘lost’ output (and therefore tax revenues) it implies have proved exceptionally poorly timed. Indeed, persistently higher government borrowing and a skyward trajectory of debt-to-GDP ratios could yet prove the most visible consequences of the credit bust and economic collapse of the past 18 months. Should the perception of the public finances deteriorate sufficiently, fiscal policy itself may lose some of its current efficacy, requiring ever greater government interventions to produce the desired objective and, presumably, ever larger economic distortions.
The present and anticipated outperformance of China appears to be providing a substantial bid to
commodity prices, given that the economy’s more intensive (and likely rising) commodity demand per
unit of GDP growth. For most economies, the influence of energy costs upon inflation is expected to
move from the recently substantial negative to a positive by the final quarter of the year. But given the
economic current fragility, the risks associated with rising oil prices appear much more acute with regard to growth rather than inflation, particularly within the Eurozone. Moreover, with substantial spare capacity having developed across the major economies and unemployment approaching multi-year highs, the current cyclical position appears far from conducive to the development of underlying inflationary pressures. As a result, our 2010 global inflation forecast has increased only marginally to 1.8% from 1.6% previously.
Such disinflationary forces are expected to hamper the relative performance of developed market equities, and we remain underweight as result, with credit continuing as our preferred asset class. But with the recent (and in our opinion misplaced) concerns over an imminent reversal of monetary policy having provided the opportunity, we have shifted some exposure into long-dated Treasuries, gilts and core European bonds, which we expect to benefit from a growing realisation of the substantial obstacles that exist between the current turnaround in sentiment and the formation of a strong, sustained economic recovery.
— We withdrew our ‘BBB+’ rating on Helium Capital Ltd.’s series 38 CDO notes.
— This followed the early termination of these notes.
Standard & Poor’s Ratings Services today withdrew its ‘BBB+’ credit rating on the EUR145 million limited-recourse secured principal protected fixed-rate notes series 38 issued by Helium Capital Ltd.
The withdrawal follows the early termination of the notes, which took place in September 2008. We were only recently notified of this early redemption.
securities transferred into the German Bad Bank vehicle
could lead to higher acceptance levels among banks
(the proposed ~10% haircut to Q109 book values
eliminates most of the RWA reduction). A move to YE08
values could provide for significant write-backs, boosting
capital (similar to the ING solution in the Netherlands). In
our view, this potential upside is not reflected in CBK’s
(UW) nor DBP’s (UW) share price. If agreed by the
parliament this week, it could have a significant impact
on share prices, as capital positions improve materially.
debate a revision of the terms of the ‘Bad Bank’ scheme
(finance select committee Wed, July 1; lower house vote
July 3). The proposed transfer of assets at a ~10%
haircut to Q109 book values has not been well received
by the banks, and so presents a hurdle to new lending to
SMEs, given the additional capital charges upon asset
transfer and/or exposure to the deteriorating quality of
assets not transferred. We note that by removing VAT
for the ‘Bad Bank’ vehicle last Friday, the German
government has shown increasing goodwill towards a
more workable ‘bad bank’ solution.
29/30 June), the revised proposal could move the
valuation date of transferred securities to YE08 or even
June 2008 (when values were significantly better for
structured credit assets). Though unconfirmed, this
proposal could give substantial scope for write-backs for
CBK (total charges ~€11bn, much since H208) and DPB
(~€2bn). We caution that negative rating shifts and in
some cases index rebounds above YE08 levels make it
difficult to estimate potential benefits at this point, but we
think the risks from the review are skewed to the upside.
move would aid capital positions short term, we think it
would only postpone the overall restructuring process of
the German financial system.
Still unattractive
The proposed changes to the German bad bank scheme (allowing banks to transfer assets at December 08 valuations) do not change the fundamental unattractiveness of the scheme to private sector banks. We would be sceptical as to whether the changes will result in any participation on the part of the private sector banks, and indeed, would view any such participation negatively.
The important point about the German bad bank scheme is that it does not provide for any genuine risk transfer. As the ECB comment in their legal opinion on the scheme “the shareholders of the transferring institutions have to fully bear the cost of the scheme”. The ECB also notes that it is not obvious that the scheme would even work to gain the accounting treatment desired.
In simple form, the German bad bank proposal is as follows:
1) Participating banks transfer assets at a given price to an SPV in return for government-guaranteed bonds. At the time of the transfer, SoFFin calculates its estimate of the true “fundamental” value of the securities.
2) Over a period of 20 years, the transferring bank makes a series of “compensatory” payments to the SPV, equal to 20 annual installments of the difference between the transfer price and the estimated fundamental value. These payments are made out of distributable profits – ie, they have the same level of seniority as “silent participations”
3) At the end of the 20 year period, the bank makes a further payment compensating the SPV for any extra realised losses.
It can also be seen that changing the transfer price does not make the scheme more attractive for shareholders – it simply increases the stream of compensation payments. As the ECB legal opinion notes, “it should be further assessed whether this scheme achieves its intended purpose given that it is unclear whether transferring institutions are required to set up provisions (against net income) for these additional losses in their annual financial statements.” Whatever the conclusions on accounting, the economic picture is clear.
Effectively, in raising the transfer price, the German government is offering private sector banks the opportunity to add a somewhat larger amount of silent participations which are senior to shareholders’ equity and put a larger wedge between accounting profits and cash, while offering no more genuine risk transfer than in the original scheme. We do not see how this makes the scheme materially more attractive and therefore doubt whether it will attract increased participation – even if it does, it is clear that there is no genuine subsidy to the banks here, and we would view substantial “transfers” under this scheme as adding nothing to a participating banks’ equity shareholders except worse transparency.
repurchase programme of $250 million to purchase up to 10% of the Ordinary
Shares in issue. Since the commencement of this programme Vedanta has purchased
16,210,700 shares, representing 5.62% of the Ordinary Shares at a total cost of
$226.9 million. Vedanta today announces that its Board has approved an increase
in the total programme size to $350 million.
In addition, Vedanta today announced that it will commence an irrevocable,
non-discretionary programme to purchase Vedanta Ordinary Shares on its own
behalf, to be held in Treasury, during its close period which commences on 1
July 2009 and ends on 31 July 2009.
Any purchases of shares pursuant to the irrevocable programme will be effected
within certain pre-set parameters, and in accordance with both Vedanta’s general
authority to repurchase shares and Chapter 12 of the Listing Rules, which
requires that the maximum price paid will not exceed 5% above the average market
value of Vedanta’s Ordinary Shares for the five dealing days preceding the date
of purchase.
Strong royalty unit growth reported at full year results gives us confidence in Imagination’s ability to fulfil its potential of ramping royalties and thus profitability. Furthermore, increased equity stakes from Intel and Apple highlight the embedded nature of Imagination’s technology with leading OEMs and the importance of the company’s technology to the product roadmaps of industry leaders.
Imagination’s exposure to high-growth consumer electronics sectors, such as smartphones, netbooks and PNDs, will, in our view, provide positive catalysts for the shares over the coming six months. The company’s graphics IP continues to be the de-facto standard in mobile graphics while also proliferating into a broader range of end-applications.
June 30 (Bloomberg) — Punch Taverns Plc investors owning
at least 13 percent of the stock will oppose the U.K. pub
owner’s plan to raise 375 million pounds ($617 million) in a
share sale in protest at the potential dilution of their
holdings, two people with knowledge of the investors said.
Greenlight Capital Inc., the hedge fund that bet against
Lehman Brothers Holdings Inc. four months before the firm
collapsed, and QVT Financial LLP are among those who will vote
against the stock sale, according to the people, who asked not
to be identified because the voting is confidential.
Punch needs the approval of 75 percent of shareholders who
vote to proceed with the stock sale, most of the proceeds of
which will be used to cut borrowings. The pub owner, which had
net debt of 4.35 billion pounds at the end of May, will announce
the result at an extraordinary general meeting on July 3.
Punch is aware of one shareholder that has indicated they
will oppose the capital raising, spokesman John Kiely said.
“In determining the size of the offer we had to balance
the views of all our shareholders,” Kiely said. “We’ve seen
broad support from across our register.”
Spokesmen for Greenlight and QVT declined to comment.
Greenlight reduced its stake in Punch to 8.98 percent from 13.3
percent this month. QVT has a 4.1 percent holding.
One of the dissenting investors has told Punch that its
strategy of selling pubs remains a viable way of reducing debt,
the people said. Punch has sold 331 outlets this fiscal year and
sees the share offering as an alternative to selling more pubs
at prices that wouldn’t be in shareholders’ best interests.
The opponents of the share sale may be supportive of a much
smaller offering, the people said. The new shares to be issued
are equal to about 140 percent of Punch’s share capital.