Markets live chat transcript for the chat ending at 12:06 on 14 Jul 2009. Participants in this chat were: Neil Hume, FT (NH) Paul Murphy, FT (PM)
NH:
Bonjour
NH:
Vive la Revolution
NH:
Le Roi est mort, vive le Roi!
NH:
Welcome to Market’s Live, FT Alphaville’s daily markets chat
NH:
Bastille Day edition
NH:
which means not only will those on the left be forced to eat cake
NH:
but they could also lose their heads
NH:
any dissent and the zapper will come out today
PM:
I think he means it
NH:
I do
NH:
the decisions could be arbitary
11:03AM
PM:
Should jump straight to some flashes comes across the screens
PM:
BA saying time not right for a rights issue
PM:
But maybe a convertible
NH:
yes that’s right
NH:
here’s the flashes
NH:
from chairman Martin Brougton
NH:
PREMIUM TRAVEL MAY NEVER FULLY RECOVER
11:00 14Jul09 RTRS-BRITISH AIRWAYS PLC – AVIATION INDUSTRY IS CRYING OUT FOR CONSOLIDATION
11:01 14Jul09 RTRS-BRITISH AIRWAYS PLC – WE DO NOT BELIEVE THAT THE TIMING IS RIGHT TO APPROACH THE FINANCIAL MARKETS FOR A RIGHTS ISSUE
11:01 14Jul09 RTRS-BRITISH AIRWAYS PLC – THERE ARE OTHER OPTIONS TO RAISE FUNDING WHICH ARE AVAILABLE TO US
11:01 14Jul09 RTRS-BRITISH AIRWAYS PLC – HOPEFUL MANAGEMENT CHANGES AT IBERIA ANNOUNCED LAST WEEK WILL PROVIDE AN IMPETUS TO DISCUSSIONS
11:01 14Jul09 RTRS-BRITISH AIRWAYS PLC – DISCUSSIONS WITH OUR INSTITUTIONAL INVESTORS EXPLORING OPPORTUNITIES IN THE CONVERTIBLE MARKET
11:02 14Jul09 RTRS-BRITISH AIRWAYS PLC – REMAINS TOTALLY OPPOSED TO STATE AID FOR AIRLINES
11:00 14Jul09 RTRS-BRITISH AIRWAYS PLC
11:01 14Jul09 RTRS-BRITISH AIRWAYS PLC
11:01 14Jul09 RTRS-BRITISH AIRWAYS PLC
11:01 14Jul09 RTRS-BRITISH AIRWAYS PLC
11:01 14Jul09 RTRS-BRITISH AIRWAYS PLC
11:02 14Jul09 RTRS-BRITISH AIRWAYS PLC
NH:
they are desperate
PM:
Premium travel may never fully recover
NH:
ouch
NH:
we hope management changes at Iberia will lead to merger
PM:
Price is steady on that tho
NH:
please
PM:
UP 2p at 128
PM:
Actually, its ticking lower now
NH:
the stuff on a cash call is a negative in IMO
PM:
Im with you on that
NH:
the timing is not right because of the pension deficit
NH:
get that fixed and perahps
PM:
This is the AGM statement btw
PM:
just to update on BA price — stock is now just a tad negative
PM:
anyway, lets move on
11:07AM
NH:
on to the market
NH:
and the rally continues
PM:
We are being squeezed, but not painfully so
PM:
Down at these levels we are relaxed
NH:
well, its added 30 points to yesterday’s advance and that’s left the index comfortably above 4,200 points
NH:
4,232
NH:
miners leading the way this morning, must be some Chinese data out because they are all flying
NH:
have a look at this
Fresnillo (FRES:LSE): Last: 516.00, up 45.5 (+9.67%), High: 519.50, Low: 474.75, Volume: 273.81k
Kazakhmys (KAZ:LSE): Last: 626.50, up 35.5 (+6.01%), High: 626.50, Low: 603.50, Volume: 814.67k
Lonmin (LMI:LSE): Last: 1,063, up 78 (+7.92%), High: 1,075, Low: 1,008, Volume: 1.15m
Xstrata (XTA:LSE): Last: 609.00, up 26 (+4.46%), High: 614.20, Low: 593.00, Volume: 3.61m
Rio Tinto (RIO:LSE): Last: 2,001, up 78.5 (+4.08%), High: 2,010, Low: 1,960, Volume: 3.88m
NH:
actually, it is very, very quiet out there
NH:
all eyes on this afternoon’s results from the giant vampire squid
NH:
due at 13.30
NH:
for a quick results primer have a look at the post I wrote earlier
NH:
that will give you an idea of where consensus stands
NH:
and a dial in number for the 4.00pm conference call
PM:
have you got the number?
NH:
hang on
NH:
888-281-7154
NH:
that’s domestic
NH:
706-679-5627
NH:
international
PM:
(Pakora Mix — apols — we will get this identity crisis looked at…)
NH:
Rain
NH:
you could be right
NH:
have a look at this
NH:
a note shooting down yesterday’s upgrade from MWAG
NH:
WHITNEYS GOLDMAN CALL A LITTLE LATE?? by CHAD BRAND
NH:
Stocks rose smartly Monday after renowned banking bear Meredith Whitney
(now at her own firm) actually had positive things to say about
investment banking giant Goldman Sachs (GS), upgrading the stock to a
“buy” and raising her price target to $186 per share. GS shares are
trading up 7 points to $149 each.
(now at her own firm) actually had positive things to say about
investment banking giant Goldman Sachs (GS), upgrading the stock to a
“buy” and raising her price target to $186 per share. GS shares are
trading up 7 points to $149 each.
NH:
While the market is making a big deal about this call, we have to
remember that everyone knows Goldman Sachs is firing on all cylinders
lately, so this should come as no surprise. Getting in the stock ahead
of earnings (especially on an up seven point day) may backfire for some
people Tuesday (GS reports earnings Tuesday morning) who are getting
excited about Whitney’s bullish note.
remember that everyone knows Goldman Sachs is firing on all cylinders
lately, so this should come as no surprise. Getting in the stock ahead
of earnings (especially on an up seven point day) may backfire for some
people Tuesday (GS reports earnings Tuesday morning) who are getting
excited about Whitney’s bullish note.
NH:
Frankly, the best time to get into Goldman was when the stock was down a
lot (you know, when Warren Buffett bought a 10% preferred from the
company and got equity warrants). As you can see from the chart below,
GS shares had a huge move down, and even before Monday had made a ton of
it back already.
Frankly, the best time to get into Goldman was when the stock was down a
lot (you know, when Warren Buffett bought a 10% preferred from the
company and got equity warrants). As you can see from the chart below,
GS shares had a huge move down, and even before Monday had made a ton of
it back already.
NH:
While Whitney’s call looks late to me, she has taken earnings estimates
well above consensus, which makes the stock by no means expensive even
at $149 per share. Whitney’s 2010 profit estimate is nearly $20 per
share, so there is no reason the stock couldn’t trade higher from here
if she is right. Still, I would have loved this call had it come when
the stock traded below $50 near its low, or even after a double to $100.
Now it has already tripled.
While Whitney’s call looks late to me, she has taken earnings estimates
well above consensus, which makes the stock by no means expensive even
at $149 per share. Whitney’s 2010 profit estimate is nearly $20 per
share, so there is no reason the stock couldn’t trade higher from here
if she is right. Still, I would have loved this call had it come when
the stock traded below $50 near its low, or even after a double to $100.
Now it has already tripled.
NH:
In terms of the large commercial banks, Whitney appears to be hedging
her bets (probably because deep down she knows that the worst is behind
us for the banking sector). She is bullish near term (thanks to a
booming mortgage business), but bearish long term. This seems like a
hedge because, if anything, logic would dictate one being bearish on
banks in the short term (while the economy is still in the dumps), and
bullish longer term (because the recession is certain to end).
her bets (probably because deep down she knows that the worst is behind
us for the banking sector). She is bullish near term (thanks to a
booming mortgage business), but bearish long term. This seems like a
hedge because, if anything, logic would dictate one being bearish on
banks in the short term (while the economy is still in the dumps), and
bullish longer term (because the recession is certain to end).
Part of her long term bearish view is the fact that she thinks the
unemployment rate is going to reach 13-14 percent. It seems odd for a
banking analyst to be making predictions like that. Not that economists
are any good at forecasting the jobless rate (they’re not at all), but
to think the unemployment rate will rise another 4% from the current
9.5% seems overly negative to me, especially given the source. After
all, many people are expecting positive GDP as soon as the third quarter
of this year.
NH:
ll in all, I think the market is placing too much importance on
Whitney’s comments yesterday morning. Not much has changed, really. We
already knew Goldman was printing money, mortgage refinances are doing
well, and that the economy was still rather poor. It seems like Whitney
is making both bullish and bearish comments at the same time to cover
her bases.
Whitney’s comments yesterday morning. Not much has changed, really. We
already knew Goldman was printing money, mortgage refinances are doing
well, and that the economy was still rather poor. It seems like Whitney
is making both bullish and bearish comments at the same time to cover
her bases.
As a result, I don’t think there is much to go on from her views at this
point. Unless you think the economy will never recover (and the
unemployment rate will hit 13 or 14 percent), I would just buy your
favorite bank stocks at attractive prices and hold them for a few years.
There is still plenty of money to be made in the sector if you have
patience.
11:13AM
NH:
Ah
NH:
a real Frenchman has commented
NH:
not just Taxloss
NH:
thank you Monty for your comments
PM:
Interesting question — whether there really is a pipeline of floats — and whether the demand really exists.
NH:
what’s that pet company that is always threatening to float?
PM:
dunno
NH:
I remember, Pets at Home
NH:
Bridgepoint Capital considers IPO for Pets at Home
By David Fickling
Published: July 5 2009 22:40 | Last updated: July 5 2009 22:40
Private equity group Bridgepoint Capital is considering a public float for Pets at Home, the pet shop chain it acquired for £230m in 2005.
The group has held talks with NM Rothschild, Goldman Sachs, and JPMorgan Cazenove in recent weeks to discuss its plans to exit the investment, including a public share offer or private sale.
PM:
That ref to a large free float and decent market cap — one key point about the final months of the boom was the number of comically small free floats
PM:
People like Blackstone and Fortress effectively abusing the market mechanism just to get themselves a valuation
PM:
Not to mention all the ruskies that did the same
PM:
That said, I suspect there is demand for quality IPOs
NH:
not things like Moneysupermarket
NH:
which got away in the last round of IPOS
NH:
or things like Cadogan
PM:
bluesky makes that point — IPOs post recession will tend to be better than those later in the cycle
PM:
Cadogan — there’s some crazy stuff from Tolstoi in the Long Room – a recommended read
NH:
yeah, someone was hospitalized
NH:
going back to ipos
NH:
I hear there is an interesting one coming out of Jakarta
NH:
a big coal mine
NH:
huge
PM:
Eeeeeh — ive heard about this
NH:
some interesting names behind it
PM:
Are you naming?
NH:
no,
NH:
I think they should be given the chance to get their ducks in a row
NH:
obviously we want the exclusive
NH:
anyway
PM:
NH:
we were talking about our short position
NH:
of course it remains open
NH:
as does our bear in Northgate
NH:
which is looking pretty profitable already
PM:
That was a no-brainer tho
PM:
that said — price has bounced 2p to 57p this morning
NH:
yeah but it was slammed yesterday
PM:
Still WAY WAY WAY too high
PM:
remember: 50m new shares at 60, 1.2 BILLION at 7p.
PM:
Do the maths
PM:
Interesting couple of names cited over on the right — re floats…
NH:
not sure I fancy UnityMedia
NH:
Unity Media Plc was launched and commenced trading during 1995 by its founder and Chairman Dennis Taylor to publish premium quality magazines throughout the Business to Business and Specialist Consumer magazines sectors.
Unity’s first three years growth was at 225% compound achieved through the efforts of it’s energetic staff for whom success goes hand in hand with having fun along the way. This dynamic culture still prevails and since the launch of the first publication during 1995.
NH:
if that’s the right one
NH:
there is something of a similar name in Germany
NH:
what’s Ziggo, Murph?
PM:
PM:
All in double dutch
NH:
Slam Tv?
NH:
what’s that
PM:
yep — just what it says
PM:
(TheHoof — we really cant see why the price of Northgate is trading much about 20p)
NH:
On Unity, the German version looks much more interesting
NH:
the UK B2B publisher, much less so
11:24AM
PM:
Bank Fraud
PM:
Can I do an update on my bank fraud.
NH:
Sure
NH:
For those who missed it, Murphy was embarrassed last week when his card bounced at Sam Jones’ leaving do.
NH:
Turns out his card had been copied or something – and 4.5k siphoned out of his bank account.
PM:
6k actually – we got the bank statement – for june
PM:
Went thru it (painful process)
PM:
PM:
Shows how a series of fraudulent “purchases” start really small – 6/7 quid
PM:
Then move to 20 quid
PM:
Then 60 – a whole string
PM:
And then, at the beginning of July, just after I had been paid
PM:
A series of big lumps 1,200 etc.
NH:
So you going to get the money back.
PM:
Well, yes, apparently.
NH:
And how’s the investigation going Inspector Murph?
NH:
Nabbed anyone yet?
PM:
Nabbed who?
NH:
The people who did the fraud. Who else?
PM:
Oh no – no one doing any investigating.
NH:
?????
PM:
Well, when you think of a fraud department at a bank you probably think of people chasing criminals.
NH:
Er, yeah.
PM:
Well they don’t
PM:
There’s no investigation.
PM:
The bank said that if I wanted to report it to the police I could – and they’d offer as much help as possible.
PM:
But the clear inference was that they would rather I didn’t.
PM:
Bank effectively saying it’s pointless.
NH:
But you had 6k taken.
NH:
If that had happened at a branch someone would have called the Sweeney – but on a computer, forget it.
PM:
Clear evidence of organised crime here. Carefully planned heist – and presumably it is happening to thousands of people.
PM:
So, go after the baddies?
PM:
Nah, cant be bothered
PM:
I find it utterly bemusing.
NH:
actually you are quite angry about this
PM:
I am. Why are people just allowed to get away with it? The bank is the one that has all the information — i dont
PM:
yet they think it is my job to press the case
PM:
i suspect the problem is SO LARGE the banks are happy to keep it under the carpet
11:29AM
NH:
anyway
PM:
Cool breeze has mentioned this Goldman stuff
NH:
yes
NH:
an email doing the rounds this morning
PM:
In your post earlier
PM:
Noted your little mention of smart securitisatin – and whether there would be anything on that in the GS release.
NH:
yep, that’s right
PM:
You also mentioned “Alphaville’s in box”
PM:
That was a reference to this, that was pinged out by RANSquwak earlier
PM:
Talk that Goldmans good results may have been false. They purchased low priced CDO and CLO and repackaged into new products with a higher evaluation rating. Causing a huge fake profit on the books
NH:
Now, just to be absolutely clear, we DO NOT think that GS numbers are “false” and we DO NOT think they are “Causing a huge fake profit on the books.”
NH:
We reprint that mail because it is being passed from dealing room to deal room – without any explanation or context.
PM:
Can we just repeat that caveat / warning
NH:
WE DO NOT THINK GOLDMAN’S NUMBERS ARE FAKE OR FALSE IN ANYWAY.
NH:
Do you think people have got that?
PM:
Best say it once more, just to be clear.
NH:
WE DO NOT THINK GOLDMAN’S NUMBERS ARE FAKE OR FALSE IN ANYWAY.
PM:
that’s for these readers: http://tinyurl.com/mvkz3b
PM:
But we would recommend reading this post over at Credit Writedowns
PM:
This is this so-called smart securitisation referred to recently by BarCap.
NH:
Suddenly everyone’s doing it.
NH:
Barclays, goldman and Morgan Stanley.
PM:
You know after we wrote about it here, the Treasury launched an urgent review of what was going on.
PM:
They had no idea. 
NH:
I suspect Goldman and GS are rather irritated by BarCap letting the cat out of the bag
NH:
Trumpeting the cat out of the bag, actually
PM:
lets move on
11:34AM
PM:
how abotu some stock stuff
NH:
Good idea
NH:
Big move in DSG International this morning
NH:
Shot up
NH:
Stock was up 8 per cent earlier
PM:
Oh. Its up a penny and 20.75p.
PM:
Forgot it was in penny dreadful territory.
PM:
But why’s it up?
PM:
Nomura giving it a big pushit seems – Christopher Walker
PM:
We reiterate our Buy rating on DSGi and upgrade our price target to 35p, but highlight further potential upside to
50p. We see group margins returning to at least 3% over four years from currently depressed levels of 0.8%.
Although execution risk exists, we believe investors are compensated by potential upside in the investment
case, c.75% to our new price target. In our view, the investment case hinges on the following five metrics which
will drive the turnaround plan:
50p. We see group margins returning to at least 3% over four years from currently depressed levels of 0.8%.
Although execution risk exists, we believe investors are compensated by potential upside in the investment
case, c.75% to our new price target. In our view, the investment case hinges on the following five metrics which
will drive the turnaround plan:
11:36AM
PM:
Neil on the phone
PM:
Bear with us a mo
PM:
We’re lining up a little bit of RAW here
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:
very raw — so bear with
NH:
er, yes
NH:
will come to that in a bit
NH:
but first
NH:
DSG
PM:
yeah — ive done that,w hile you were gabbing
PM:
is that how you spell gabbing?
PM:
whatever
11:38AM
PM:
So what was that on the phone
PM:
I say with some education
PM:
since i can see your screen…
PM:
NH:
a few bits and pieces
NH:
National Express
NH:
some very good buying late yesterday
NH:
stock closed up 8% I think
NH:
word in the market is that Stagecoach are looking
NH:
and could be about to make an approach
NH:
no level mentioned
NH:
or whether it would be cash and stock
NH:
or just all stock
PM:
But to repeat — this remains completely raw — adn may simply simply be broker talk
NH:
it does
NH:
but this is the more interesting story
NH:
Heritage Oil
NH:
been very weak recently
NH:
but stock is motoring today
NH:
up 35p at 471p
NH:
hearing that Shell are looking to gatecrash the merger with Genel of Turkey
NH:
a price over 700p being mentioned
NH:
apparently Shell lost out or passed on assets in south Kurdistan
NH:
and now see HOIL
NH:
as the best way to get into this area
PM:
This is being talked about widely — but i sense you are cautious in terms of applying a bandit rating on this one
NH:
only because the shares have been so weak recently
NH:
but the bandit is a good one
PM:
hmm. okay
PM:
One to watch once more: Heritage Oil
NH:
gained a couple more pence while we have been writing
NH:
could be something in this
NH:
not checked the terms of the Genel deal
NH:
not sure about break fees
NH:
etc
NH:
will need to have a look later on
NH:
right a couple more bits of RAW
NH:
told to keep an eye on Computacenter
NH:
apparently they have one a seriously big contract from BT
NH:
could be larger than their market cap
NH:
not sure how many years the deal would run over
Computacenter (CCC:LSE): Last: 210.50, up 9.5 (+4.73%), High: 214.00, Low: 200.25, Volume: 72.81k
NH:
also
NH:
Findel
NH:
mail order catalogue group
NH:
stock a good market today
NH:
rumours that Numis might be close to getting a cash call away
Findel (FDL:LSE): Last: 50.00, up 8.75 (+21.21%), High: 55.00, Low: 42.00, Volume: 215.01k
NH:
and biy to Findel need it
NH:
also
NH:
there has been some interesting buying of Marstons in the past day or so
NH:
I think someone is trying to get the Greene King story going again
NH:
not sure Greene King are realy interested
NH:
but we pass it on
PM:
(Trading bot — very good )
)11:47AM
NH:
any reaction to the inflation news?
PM:
I had hardly seen any
PM:
Here’s teh ft story
PM:
UK inflation drops below target rate
Inflation fell below the Bank of England’s target rate for the first time in almost two years in June, although prices have generally been rising faster than expected over the course of the recession.
Inflation fell below the Bank of England’s target rate for the first time in almost two years in June, although prices have generally been rising faster than expected over the course of the recession.
The consumer price index rose by 1.8 per cent last month after a 2.2 per cent rise in May, lower than the 2 per cent rate that the Bank aims for, but much in line with economists’ forecasts. The last time inflation was so low was September 2007.
http://link.ft.com/r/XYEWFF/LMZKC/GU1Z/G07Z4/13NGT/N9/h
PM:
Here’s some quick comment from Ernst and Young
NH:
cable at $1.631
PM:
Hetal Mehta
PM:
The gains made by sterling have helped to unwind the imported inflation of recent months and pushed prices down.
The current weakness in the economy and falling factory gate inflation should ensure consumer price inflation continues to fall well below target over the course of this year.
As a consequence, policy will not need to be tightened anytime soon.
PM:
“Consumer price inflation fell from 2.2% in May to 1.8% in June – the first below-target reading since September 2007. RPI inflation was down from -1.1% to -1.6%, while RPIX inflation fell from 1.6% to 1.0%.
“The gains made by sterling have helped to unwind the imported inflation of recent months and pushed prices down. Food prices exerted significant downward pressure on inflation. And although petrol prices increased 4.4 pence between May and June, the rise is not as large as that seen last year so this made a negative contribution to the annual rate. Stagnant demand in the housing market appears to be impacting prices of furniture and household goods, which also made a negative contribution to the annual CPI inflation rate.
“The gains made by sterling have helped to unwind the imported inflation of recent months and pushed prices down. Food prices exerted significant downward pressure on inflation. And although petrol prices increased 4.4 pence between May and June, the rise is not as large as that seen last year so this made a negative contribution to the annual rate. Stagnant demand in the housing market appears to be impacting prices of furniture and household goods, which also made a negative contribution to the annual CPI inflation rate.
PM:
But the numbers are really very much inline
NH:
but below 2%
PM:
Sure
11:48AM
PM:
What else is moving this morning?
NH:
Vodafone
NH:
off 2.7p at 112.3p
NH:
biggest faller in the FTSE 100
NH:
on the back of a UBS downgrade
NH:
they reckon it could be a value trap
NH:
actually, a classic value trap
PM:
really, why?
NH:
well, Vodafone has a trading statement coming up and UBS reckon they could disappoint
NH:
and to back up that assertion they given lots of evidence
NH:
Voda losing market share in three of its four major European markets
NH:
that sort of thing
NH:
the end result is that, UBS are on a short term sell rating now
PM:
hmmm, IMS due on July 24
PM:
interim management statement
PM:
you got the note?
NH:
I have
NH:
We are downgrading Vodafone to Neutral from Buy, with a reduced target price of 115p from 150p previously. We believe deteriorating fundamentals and earnings momentum could result in Vodafone being the classic value trap. Given our expectations for poor KPIs and cuts to consensus estimates, we introduce a Short-term Sell rating.
NH:
Downside potential to earnings
Economic pressures, market share loss and FX have combined to put pressure on our earnings estimates for Vodafone, and after our downgrades last week, we now sit 6-9% below consensus. Excluding last year’s tax gain, we expect earnings to decline 11% this year. We think the upcoming KPIs are likely to show deterioration across the board, with the European businesses seeing a revenue decline of 5.5%.
Economic pressures, market share loss and FX have combined to put pressure on our earnings estimates for Vodafone, and after our downgrades last week, we now sit 6-9% below consensus. Excluding last year’s tax gain, we expect earnings to decline 11% this year. We think the upcoming KPIs are likely to show deterioration across the board, with the European businesses seeing a revenue decline of 5.5%.
Stemming share loss could be costly
Our forecasts are 2% below the bottom end of management’s guidance for operating profit this year. Vodafone is losing share in three of its four main European markets, and we regard this as unsustainable in the medium term. Stemming this share loss could necessitate price cuts, or increased commercial costs, potentially thwarting management attempts to attack the overall cost base.
NH:
Valuation: More watertight dividends at KPN, TEF and SWCM
Vodafone trades on 8.3x FY 10E PE and offers a yield of 7.0%. While these look attractive, they do not stand out in the context of the sector. Given our forecast of falling underlying earnings, low cash coverage of dividends and relatively high leverage, we see more watertight dividends at KPN, Telefonica and Swisscom
Vodafone trades on 8.3x FY 10E PE and offers a yield of 7.0%. While these look attractive, they do not stand out in the context of the sector. Given our forecast of falling underlying earnings, low cash coverage of dividends and relatively high leverage, we see more watertight dividends at KPN, Telefonica and Swisscom
Short-Term Rating Summary
Vodafone reports KPIs on 24 July. We expect European revenues to come under additional pressure, falling 5.5% (Q4 -3.3%). We attribute around 1pp of the deterioration to a larger termination rate impact in Germany, and the fact that the UK number was flattered by an accounting change last quarter which will not be repeated. The remainder is an underlying deterioration or around 1pp. In the emerging markets we expect solid performance in India and at Vodacom to be offset by significant weakness in Turkey.
11:50AM
PM:
moving on
PM:
Smallcap-cum-midcap corner
PM:
we were asked during People’s Friday about a solar wafer company called PV Crystal Solax
NH:
yes and we didn’t have a clue
NH:
but we do now
NH:
sort of
PM:
shares down 2.5p at 77p
PM:
and that’s on the back of a profits warning from a German rival, right?
NH:
yep, something called Q-Cells has issued a horrible statement
NH:
seasonal upturn has not arrived
NH:
large projects being cancelled
NH:
prices falling
NH:
competition from China
NH:
apart from that everything is going fine
PM:
jeepers
PM:
sounds pretty gloomy
NH:
it is
NH:
and Q-Cells, which is the world’s biggest maker of solar wafers apparently, has taken a real thump
NH:
stock off almost 12% at the moment at EUR1.55
NH:
company capped at just over under EUR1bn now
PM:
OK
PM:
some analyst comment
PM:
because we don’t know what we are talking about
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this is from Code
PM:
Q-Cells weak 2Q and REC rights issue oversubscribed
This morning Q-Cells (QCE.DE) released a weak 2Q09 trading statement expecting revenues of €142m down from €225m in 1Q09. It stated that ‘the seasonal market upturn that the industry had been anticipating to the start of the second quarter has broadly not materialised for Q-Cells as yet.’ It also blames lower sales volumes, the postponement of a large project to the third quarter and the continued downward trend in solar cell prices on its massive EBIT loss of €62m (1Q09 €15m profit). The drop in cell and wafer prices has also led to non-cash revaluations of current assets (inventory write-downs).
This morning Q-Cells (QCE.DE) released a weak 2Q09 trading statement expecting revenues of €142m down from €225m in 1Q09. It stated that ‘the seasonal market upturn that the industry had been anticipating to the start of the second quarter has broadly not materialised for Q-Cells as yet.’ It also blames lower sales volumes, the postponement of a large project to the third quarter and the continued downward trend in solar cell prices on its massive EBIT loss of €62m (1Q09 €15m profit). The drop in cell and wafer prices has also led to non-cash revaluations of current assets (inventory write-downs).
In contrast, REC’s (REC.OL) rights issue was 1.6x oversubscribed. The issue raised ~$700m and REC’s capitalisation is ~$4.4bn.
PM:
Comment: The weak 2Q09 performance by Q-Cells was even worse than most analysts had been expecting and is likely to cloud the sector. We had been anticipating poor 2Q09 results across the global sector due to weak demand in all key markets and therefore believe that Q-Cell’s expectation for a traditional seasonal market upturn (due to the German weather improving allowing more projects to be completed) was over-optimistic. Furthermore, we have been stating for some time that there is little differentiation between high quality Asian manufactured wafers, cells and modules and that it was unrealistic to expect that in an oversupply dynamic that European manufacturers would be able to indefinitely maintain a significant pricing differential. Q-Cells now seems to be going through the same order deferrals, contract renegotiation and inventory write downs that its Asian competitors such as Yingli, Suntech and JA Solar etc have already gone through.
PM:
We believe that oversupply and competition from Asia has pushed module prices down to around $2/W and that pricing should stabilize around this level. This is because this price corresponds more or less to a 15% margin for highly efficient wafer and cell and module manufacturers at around $70/kg polysilicon price. Furthermore, we expect demand to pick-up in 3Q09 with increased project financing flows in the EU and with the cash grant ‘fix’ for the Investment Tax Credit finally being available in the US. We believe this price is sustainable only for efficient manufacturers and continue to favour far eastern manufacturers with low processing costs that can take advantage of reduced input prices.
PM:
and Cazenove
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Q-Cells – Profit warning [QCEG.DE, QCE GR] €13.2 UNDERPERFORM
Q-Cells has warned that revenues and operating profits will sharply disappoint for Q2. In the absence of recovery signs so far, the company has also withdrawn guidance for the FY.
Revenues of €142m are down 55% yoy, down 37% qoq, and far below our estimate.
EBIT loss of €(62)m (-44% margin) is down from €15m profit in Q1 (our estimate was €15m profit for Q2). (Inventory write-downs or any one-offs are not yet quantified.)
Guidance withdrawn for FY: The company had been guiding to revenue of €1.3-1.6bn for the FY, which we considered unrealistic given the pricing pressure amid industry overcapacity in cell-making and lack of momentum seen so far in volume demand.
Q-Cells has warned that revenues and operating profits will sharply disappoint for Q2. In the absence of recovery signs so far, the company has also withdrawn guidance for the FY.
Revenues of €142m are down 55% yoy, down 37% qoq, and far below our estimate.
EBIT loss of €(62)m (-44% margin) is down from €15m profit in Q1 (our estimate was €15m profit for Q2). (Inventory write-downs or any one-offs are not yet quantified.)
Guidance withdrawn for FY: The company had been guiding to revenue of €1.3-1.6bn for the FY, which we considered unrealistic given the pricing pressure amid industry overcapacity in cell-making and lack of momentum seen so far in volume demand.
PM:
Inventory writedowns: The company has signalled inventory writedowns, although these are not quantified. We had previously highlighted the combination of alarming working capital consumption and sharp price pressure. Working capital consumption has been driven particularly by inventory growth at the QCI business.
Limited restructuring plan: The company has sketched out preliminary restructuring measures, described below. In our view however Q-Cells faces deep-seated structural challenges. Already it operates amid significant excess capacity in cell production. In the long-term we believe that it will struggle to compete in this core business against emergent scale producers in low-cost regions (see previous email regarding TSMC).
Even before further cuts in estimates, Q-Cells shares had little valuation support in our view with high PER multiples (in excess of 30x for 2009E and 2010E based on our estimates). While recent balance sheet restructuring succeeded in addressing the liquidity crisis seen in Q1, the prospect of further losses will refocus attention on the balance sheet strength and continued deterioration in the cash position. The threat of continued losses and towering strategic challenges will also raise questions about Q-Cells’ business model over the long-term in our view. Underperform. There is a conference call at 11.30.
Limited restructuring plan: The company has sketched out preliminary restructuring measures, described below. In our view however Q-Cells faces deep-seated structural challenges. Already it operates amid significant excess capacity in cell production. In the long-term we believe that it will struggle to compete in this core business against emergent scale producers in low-cost regions (see previous email regarding TSMC).
Even before further cuts in estimates, Q-Cells shares had little valuation support in our view with high PER multiples (in excess of 30x for 2009E and 2010E based on our estimates). While recent balance sheet restructuring succeeded in addressing the liquidity crisis seen in Q1, the prospect of further losses will refocus attention on the balance sheet strength and continued deterioration in the cash position. The threat of continued losses and towering strategic challenges will also raise questions about Q-Cells’ business model over the long-term in our view. Underperform. There is a conference call at 11.30.
PM:
With respect to peers, the readacross from weak volume demand and pricing pressure is clearly negative, although Q-Cells does indicate that wafer pricing remains more stable than cell pricing, which suggests that upstream players such as REC [Underperform] and PVCS [Outperform] are likely seeing somewhat less headwind in trading at least for the time being.
PM:
okay?
NH:
up to speed now
NH:
solar wafer expert
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Taxloss reckons this sort of stuff is owned by all the eco funds
11:55AM
PM:
any more on Emerald
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from yesterday — Emerald Energy
NH:
not really
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there is an update on its Columbian operations out
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and this which popped up on reuters late yesterday
NH:
LONDON, July 13 (Reuters) – Investment group Waterford Finance & Investment, the largest shareholder in Emerald Energy , believes 750 pence per share would be a good price for the London-listed oil explorer which said on Monday it had received a takeover approach.
“It is a good number, I would be very interested to look at this offer,” Michael Kroupeev, director of energy-focused Waterford told Reuters in a telephone interview.
Kroupeev said he would prefer a cash offer to shares but he was in no rush to sell his Emerald stake as he was optimistic about the Colombia and Syria-focused company’s prospects.
Kroupeev said he had not yet been approached by the party behind the bid approach.
“It is a good number, I would be very interested to look at this offer,” Michael Kroupeev, director of energy-focused Waterford told Reuters in a telephone interview.
Kroupeev said he would prefer a cash offer to shares but he was in no rush to sell his Emerald stake as he was optimistic about the Colombia and Syria-focused company’s prospects.
Kroupeev said he had not yet been approached by the party behind the bid approach.
NH:
not really any analyst comment
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because no one follows this company
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that said
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there was a little bit of comment from Cazenove
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which I can put up
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E & P sector – another potential target – Sector OVERWEIGHT
Emerald Energy announces an approach – Yesterday, Emerald Energy [EEN LN 632p] announced that it had received an approach from a third party who had expressed an interest in making a possible cash offer for the entire issued share capital of the Company, adding that discussions were at a preliminary stage. This is the latest M & A event in the UK E & P space and follows a string of bids and take-overs. We stay OVERWEIGHT the space and continue to see scope for further sector consolidation, even amongst the dwindling population of names. We remain OVERWEIGHT the E & P space following the recent pull back, largely induced by the oil price weakness, in our view. This may be the first instance where the market may have run slightly ahead of itself in a potential bid situation – perhaps not surprising since it has tended to the opposite in recent bid situations, Emerald is not especially liquid (100 day average value of trade < £1m per day) and its largest shareholder may encourage a premium valuation expectation. One of our favoured names in the sector remains Dana Petroleum [DNX LN 1300p] OUTPERFORM. This name still languishes at a 25% discount to our core NAV of £17 per share and a 2009E (2010E) EV/DACF multiple of just 4.2x (3.1x).
Emerald Energy announces an approach – Yesterday, Emerald Energy [EEN LN 632p] announced that it had received an approach from a third party who had expressed an interest in making a possible cash offer for the entire issued share capital of the Company, adding that discussions were at a preliminary stage. This is the latest M & A event in the UK E & P space and follows a string of bids and take-overs. We stay OVERWEIGHT the space and continue to see scope for further sector consolidation, even amongst the dwindling population of names. We remain OVERWEIGHT the E & P space following the recent pull back, largely induced by the oil price weakness, in our view. This may be the first instance where the market may have run slightly ahead of itself in a potential bid situation – perhaps not surprising since it has tended to the opposite in recent bid situations, Emerald is not especially liquid (100 day average value of trade < £1m per day) and its largest shareholder may encourage a premium valuation expectation. One of our favoured names in the sector remains Dana Petroleum [DNX LN 1300p] OUTPERFORM. This name still languishes at a 25% discount to our core NAV of £17 per share and a 2009E (2010E) EV/DACF multiple of just 4.2x (3.1x).
11:57AM
NH:
right
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Murph has been distracted
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something going down in the media world
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looks like Thomson Reuters are about to buy Breaking Views
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according to the Times
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not sure where that leaves the grand Reutards project
PM:
We cant find the times piece
NH:
can’t find the piece
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Thomson Reuters
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chucking money at blogs, comment
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and moving to NY
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Slackbelly is wrong
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not us
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Ah, this is Kingie
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He’s confirmed it 00 ian King
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preliminary talks
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Sorry, this is navel gazing media stuff
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Taxloss, please. options.
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as if
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(Taxloss — no)
NH:
it is navel gazing
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but one it is midday
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and two
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it affects this service
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TR
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will now have a Lex
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and a Alpha clone
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war has been declared
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No no Neil
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remember we are in the blogosphere
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We welcome fresh voices
NH:
it’s not fresh
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Oh yeah
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Lucky those other talks didn’t leak
NH:
oh yeah, those ones with……
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right
NH:
we are done I think
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Time for lunch
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This place today
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Actually, no , shouldnt mention
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PM:
We’re off
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thanks for joining
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thanks for the debate and the comments
NH:
Vive la Alphaville
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down with Thomsonwire
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joking
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Paul is all greyed out
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so I will close today’s session
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see you all tomorrow
NH:
good comment on the ipos
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cya