Markets live chat transcript for the chat ending at 12:09 on 16 Jul 2009. Participants in this chat were: Neil Hume, FT (NH) Paul Murphy, FT (PM)
NH:
Good morning and welcome to Markets Live
NH:
FT Alphaville’s daily markets chat
NH:
in a mess again
NH:
Murph has only just arrived
NH:
and he looks awful
NH:
broken in fact
NH:
dishevelled and shaking
NH:
that’s what happens when you have to do the 6am cut
NH:
what time did you have to get up this morning?
PM:
oh, around 3.30
PM:
you’re right, I am broken
PM:
I was not made to function at that time in the morning
PM:
And neither was my virgin.net internet conenction
PM:
Stumbling around in the pr-dawbn
PM:
using my Blackberry as torch
NH:
PM:
to try and fix the bloody router
PM:
but it wasnt that — just the broadband feed was down
PM:
Only came back up sometime after 5
PM:
So had to throw the cut together in half n hour or so
PM:
It was ashambles
NH:
3.30am that’s rough
NH:
really rough
PM:
I have to do it tomorrow as well
PM:
PM:
And Monday, unless someone else volunteers…..
NH:
I would love to help
NH:
sadly I am away
PM:
Hmmmm
PM:
But look — help me get up to date
PM:
Lots of good comments on the site this morning
PM:
On pay and Boulton
PM:
And calpers
PM:
And we’d better keep a close eye on that post from tracy
PM:
Guess the bust…
11:10AM
PM:
So what’s going on
PM:
has this daft rally ended???
NH:
well
NH:
the market is flat this morning
NH:
not doing anything
NH:
off 11 points at 4,335
NH:
pausing for breath and half the City is probably in St Johns Wood today
PM:
yes of course, the second test
PM:
England gone in to bat
NH:
however lots of trading statements out today
NH:
a few bits 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.
NH:
and some broker bits and bobs
NH:
but first
PM:
great
NH:
results just out from Nokia
NH:
and looks like a miss
PM:
Got the detail — a bit of detail
PM:
??
NH:
16 Jul 2009 11:00 BST *DJ Nokia 2Q Sales EUR9.9B
16 Jul 2009 11:00 BST *DJ Nokia 2Q Sales EUR9.9B
16 Jul 2009 11:00 BST *DJ Nokia 2Q Sales EUR9.9B
16 Jul 2009 11:00 BST *DJ Nokia 2Q Sales EUR9.9B Vs EUR13.16B
16 Jul 2009 11:00 BST *DJ Nokia Devices & Services 2Q Sales EUR763B Vs EUR1,565B
16 Jul 2009 11:00 BST *DJ Nokia 2Q Oper Pft EUR775M Vs Pft EUR2.05B
16 Jul 2009 11:00 BST *DJ Nokia 2Q EPS EUR0.15 Vs EPS EUR0.37
NH:
Nokia price?
PM:
Down a tad
PM:
just off 0.18% on my screen
PM:
but that might be a delayed quote
PM:
11.08
PM:
That price looks stale
NH:
it does
NH:
brokers telling me a small miss
NH:
and a 11.30
NH:
we have results from JP Morgan
PM:
Oooh
PM:
Someone jsut saying Nolia off 5% on those figs
PM:
That should help sort the deluded bulls out
NH:
market does not like this bit
NH:
*NOKIA CUTS MARKET SHARE FORECAST, SAYING 2009 SHARE TO BE FLAT
NH:
back to JPM
NH:
results out 11.30
NH:
here’s what to look out for
NH:
JP MORGAN – Results today at 11.30 am. May generate market movemetn as the expectation for a surprise seems to have fallen dramatically over the week. On Monday implied vols suggested a 7% move on the numbers, this has fallen to just 2% currently. Consensus EPs US$0.04 (ML est $0.01)……. from BOA-ML.
PM:
hmm
PM:
watch out for that in quarter of an hour or so
NH:
we will obviously cut to
11:14AM
NH:
right
NH:
some sad news
NH:
Teletex is dead
NH:
well almost
NH:
Associated Newspapers, the national media division of DMGT, announces that,
following a comprehensive review, it has decided to bring forward the shut down
of Teletext’s loss-making analogue television services. Transmission will end
in January 2010, rather than 2012 as previously envisaged. In addition,
Teletext will halt a number of its digital television services from the same
date.
following a comprehensive review, it has decided to bring forward the shut down
of Teletext’s loss-making analogue television services. Transmission will end
in January 2010, rather than 2012 as previously envisaged. In addition,
Teletext will halt a number of its digital television services from the same
date.
NH:
going to focus on travel going forward
NH:
rather said
PM:
Never us it tho, do you?
NH:
I do
PM:
Actually, sometimes check the lottery result
PM:
Which i still play occasionally
NH:
that’s Ceefax
PM:
Oh yeah
11:15AM
PM:
Where to ahead of the JPM figures?
NH:
Autonomy
NH:
some readers asking about that
PM:
stock taken a real kicking this morning post resukts
PM:
Down 187 at 11.31
PM:
14% fall
PM:
Er, what has gone wrong??
NH:
well, apart from being overvalued
NH:
this is a software company
NH:
and we all know the tricks software companies play with revenue recognition and cash conversion
NH:
now, I am not for a moment saying that Autonomy employ those tricks
PM:
PM:
course not
PM:
but?
NH:
some analysts are concerned about the company’s cash conversion
NH:
yet others reckon the market has got completely the wrong end of the stick
PM:
right
NH:
As I understand it Cazenove have done the damage this morning
NH:
with this note
NH:
Revenue of $195.2m was below Bloomberg consensus of $197m but adj. EPS of $0.26 was ahead of
consensus at $0.25 (Bloomberg) as preannounced. Gross margin of 88% and adj operating margin of 47% was slightly below our expectation. ASPs were similar to Q1 at $400k. Deferred revenue increased by 4% vs.
Q1 which is significantly below our expectation. Net debt at the end of Q1 was $44m. Cash conversion (Adj CFFO/EBITDA) was c. 63%, which is very disappointing in our view.
consensus at $0.25 (Bloomberg) as preannounced. Gross margin of 88% and adj operating margin of 47% was slightly below our expectation. ASPs were similar to Q1 at $400k. Deferred revenue increased by 4% vs.
Q1 which is significantly below our expectation. Net debt at the end of Q1 was $44m. Cash conversion (Adj CFFO/EBITDA) was c. 63%, which is very disappointing in our view.
PM:
So cash conversion 63%
NH:
yep
NH:
here’s some more
NH:
Deferred revenues (short term and long term) of $170m compares with consolidated deferred revenue position at Q4 of
$173.8m (i.e. Autonomy and Interwoven) and our expected level of $180m+. At Q1 Autonomy noted a fall in Interwoven
deferred revenue due to certain customers delaying the renewal of maintenance agreements. In our view, with currency
benefiting the deferred revenue balance this is again a disappointing result and we note there has been little organic
deferred revenue growth in the business which we believe led to the poor cash conversion of the past.
$173.8m (i.e. Autonomy and Interwoven) and our expected level of $180m+. At Q1 Autonomy noted a fall in Interwoven
deferred revenue due to certain customers delaying the renewal of maintenance agreements. In our view, with currency
benefiting the deferred revenue balance this is again a disappointing result and we note there has been little organic
deferred revenue growth in the business which we believe led to the poor cash conversion of the past.
NH:
Capitalisation of R&D was $4.115m, higher than Q1 of $3.3m. This was offset by $1.9m in amortisation charges arising
from historical R&D capitalisation, and the net credit of $2.2m represents an operating margin benefit of c 2.4%.
from historical R&D capitalisation, and the net credit of $2.2m represents an operating margin benefit of c 2.4%.
We believe cash conversion of c. 63% (our preliminary estimate) is very disappointing considering the expectation of
>100% this quarter.
NH:
Recommendation and valuation
Post the pre-announcement the stock has been weak relative to the market due to, we believe, concerns about the slowdown in top-line momentum. In our view the underlying growth has slowed materially since the closing of Interwoven and we believe the EPS outperformance cannot be sustained without a momentum returning to revenue. The stock trades on 21x 2009E PER or 30x a cash adjusted EV/NOPAT
NH:
now, other analysts have shot back at that
NH:
and said, no, no this is all wrong
NH:
have a look at his
NH:
Since the low cash conversion number at the Q1 results two distinct Schools of
thought have opened up with 2 brokers taking the stands on either side of the
case. We are on the bullish side and so I will attempt to explain below why the
bear case that has been put about this morning is wrong and I hope Mike Lynch
will follow suit on the conf call starting now.
thought have opened up with 2 brokers taking the stands on either side of the
case. We are on the bullish side and so I will attempt to explain below why the
bear case that has been put about this morning is wrong and I hope Mike Lynch
will follow suit on the conf call starting now.
PM:
I assume this stuff is coming from a good quality house
NH:
yes it is, but this is the unsanitized version
NH:
1. Cash Conversion – the key issue.
We say 109%, bears say 65%. The reason is that because they have a DSO of 90
days your calculation to get cash conversion should be Cash in divided by
EBITDA in the previous 90 days, or quarter. So in this case 65.4 / 60 (Q1
EBITDA) = 109%. The bears are using Q2 EBITDA which has risen significantly
since Q1, this is a growth company after all. There is a complexity thanks to
when Interwoven EBITDA was integrated into the Autonomy numbers, 8.4m are
included in Q1, 8m weren’t, if you add these on to the 60m the cash conversion
is still 95%, or solid.
We say 109%, bears say 65%. The reason is that because they have a DSO of 90
days your calculation to get cash conversion should be Cash in divided by
EBITDA in the previous 90 days, or quarter. So in this case 65.4 / 60 (Q1
EBITDA) = 109%. The bears are using Q2 EBITDA which has risen significantly
since Q1, this is a growth company after all. There is a complexity thanks to
when Interwoven EBITDA was integrated into the Autonomy numbers, 8.4m are
included in Q1, 8m weren’t, if you add these on to the 60m the cash conversion
is still 95%, or solid.
NH:
2. Deferred Revenues -
170m of deferred revenues compared with our expectation of 180m but this is
entirely explained by the closure of the services division. This was poorly
170m of deferred revenues compared with our expectation of 180m but this is
entirely explained by the closure of the services division. This was poorly
explained in the results.
NH:
3. Growth -
There was a question that growth would stall. Organic growth was 19%. Pretty
conclusive. 15x is the same as SAP despite SAP being mature and Autonomy being a growth
name. I think if the management can do a good job on the call this could move
today (especially given the poor performance into numbers) and if not I still
think this stock is good value here.
There was a question that growth would stall. Organic growth was 19%. Pretty
conclusive. 15x is the same as SAP despite SAP being mature and Autonomy being a growth
name. I think if the management can do a good job on the call this could move
today (especially given the poor performance into numbers) and if not I still
think this stock is good value here.
PM:
right
NH:
now from what I hear
NH:
at the conference call Mike Lynch is not making a very good job of explaining the cash conversion issue
NH:
and the other points mentioned above
NH:
and that could be because he has next to no time for the City
NH:
have a look at his feedback
NH:
Autonomy’s slides highlight Q3 looking even lighter than 1st thought…..EPS of 19c way lower than the cons 25-27c, Revs of £180m looking around 7.5% lower than cons ests of £195m, thats more than the 5% we’d thought earlier., but FY eps guidance higher at 105 vs 101. They is better clarification of the cash conversion. CONCLUSION: – this is more back end loaded. Bears will be on top until Lynch gives comfort.
PM:
ouch
PM:
Lynch, of course is rather paranoid about the City
PM:
Completely paranoid, actually
PM:
I remember him confiding in me once
PM:
About how in the City, bear raiders put bad news around about your stock
NH:
hasn’t he read Bolton’s piece this morning
PM:
His price had gone up like the proverbial rocket during the dot comedy boom
PM:
And then it came down like stick — and he didnt like it one bit
PM:
It was all down to bear raiders
PM:
Bad people, you know
NH:
jeez
NH:
it got up to £34 during the dotcomedy bubble
PM:
PM:
(we seem to have a a prob with the Rabble on the Right)
PM:
(Apols — if comments delayed — i will alert Assanka)
Cracking little software shop who built FT Alphaville
PM:
Anymore to say on Autonomy
NH:
don’t think so, there are three bones of contention in the results
NH:
and Lynch is not explaining any of them very well
11:24AM
PM:
how about a quick detour into small cap land…
PM:
People asking about Central African mining
PM:
Any thought??
NH:
ah yes
NH:
looks like I smoked that out
NH:
CFM
NH:
is chaired by Phil Edmonds the former England test cricketer
NH:
which is fitting
NH:
I wonder if he is at Lords today
NH:
anyway
NH:
the talk in the market is of an offer at 22p a share
NH:
from either
NH:
Vale, ENRC or the Chinese
NH:
I know that does not narrow it down very mych
NH:
but
NH:
CFM does have some good assets
NH:
whether it can be profitably mined
NH:
and removed from areas like the DRC
NH:
and ZIM
NH:
remains to be seen
PM:
indeed
PM:
Nice smoke out on that one, tho Neil
NH:
stock flying at the moment
NH:
up 35% to 16.25p
PM:
Hmm
11:28AM
PM:
I know what i meant to ask you
PM:
this mail you sent out earlier
PM:
JJB Sport????
NH:
oh yeah
NH:
Bill Gates has taken a stake
PM:
Amazing
PM:
(Operational alert — we have a spam filter issue — getting it looked at sharpish)
NH:
well it is the Bill and Melinda Gates Foundation Trust
NH:
and they have had a holding for a while
NH:
but have just gone discloseable after buying a bit more
NH:
stake is now 3.14%
PM:
what on earth does Gates want with a position in JJB
PM:
???
NH:
well he has some previous where investing in UK mid cap retailers
NH:
he owns some Carpetright
NH:
but there is a theory doing the rounds
NH:
and it runs like this
NH:
one of the big shareholders in JJB is Harris Associates
NH:
David Herro
NH:
has a reputation as something of an activist
NH:
apparently he recommended JJB to Gates who is looking to build a larger holding
NH:
probably around 5%
NH:
and this is good news because another big, long term shareholder means it will be easier for JJB Sports to get its rights issue away
NH:
remember
NH:
JJB looking to raise at least £50m
NH:
current market is cap is £62m
NH:
so it is quite a chunky deal, not up their with Northgate
NH:
but pretty big
NH:
and the market seems to like the Gates seal of approval
NH:
shares up and away
NH:
3.5p higher at 28.5p
11:32AM
NH:
okay
NH:
JP Morgan results out
NH:
Murph?
PM:
JPMorgan Chase Reports Second-Quarter 2009 Net Income of $2.7 Billion, or $0.28 Per Share
Record Revenue of $27.7 Billion
* Earnings per share reduced by TARP repayment ($0.27) and FDIC special assessment ($0.10)
* Record firmwide revenue of $27.7 billion, resulting in record revenue for the first half of 2009 (on a managed basis 1):
o Reported record Investment Banking Fees and Fixed Income Markets revenue in the Investment Bank; maintained #1 rankings for Global Debt, Equity and Equity-related, and Global Investment Banking Fees
o Continued earnings and revenue growth in Commercial Banking; solid performance in Asset Management, Treasury & Securities Services and Retail Banking
PM:
* Maintained fortress balance sheet with Tier 1 Capital of $122.2 billion, resulting in 9.7% Tier 1 Capital ratio and 7.7% Tier 1 Common1ratio:
o Added $2 billion to credit reserves, bringing the total to $30 billion; firmwide loan loss coverage ratio of 5%2 as of June 30, 2009
o Repaid in full the $25 billion TARP preferred capital
o Added $2 billion to credit reserves, bringing the total to $30 billion; firmwide loan loss coverage ratio of 5%2 as of June 30, 2009
o Repaid in full the $25 billion TARP preferred capital
* Continued lending and foreclosure prevention efforts:
o Extended approximately $150 billion in new credit to consumers, corporations, small businesses, municipalities, and non-profits
o Approved 138,000 trial mortgage modifications in the second quarter, bringing total foreclosures prevented since 2007 to 565,000
PM:
Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)
* Ranked #1 in Global Debt, Equity and Equity-related; #1 in Global Equity and Equity-related; #1 in Global Long-Term Debt; #1 in Global Syndicated Loans; and #3 in Global Announced M&A, based on volume, for the six months ended June 30, 2009, according to Thomson Reuters.
* Ranked #1 in Global Investment Banking Fees for the six months ended June 30, 2009, according to Dealogic.
* Return on Equity was 18% on $33.0 billion of average allocated capital.
* End-of-period loans retained were $64.5 billion, down 9% from the prior year. End-of-period fair-value and held-for-sale loans were $6.8 billion, down by $12.9 billion, or 65%, from the prior year, driven primarily by a reduction in leveraged loan exposure.
NH:
looks like a beat
NH:
esp on net income
NH:
market likes
NH:
FTSE 100 turned around
NH:
these banks will be the death of our short position
NH:
FTSE 100 now up 15 points at 4,360
PM:
Yes, JPM figs going down well across the board
PM:
Even the dollar is up on those
NH:
and these
NH:
RTRS-SEPT BUND FUTURES HIT SESSION LOW AT 121.02 AFTER JPMORGAN RESULTS
11:35 16Jul09 RTRS-U.S. TREASURY NOTE FUTURES PARE GAINS AFTER JP MORGAN RESULTS
11:35 16Jul09 RTRS-U.S. TREASURY NOTE FUTURES
NH:
meanwhile at Lords
NH:
40-0
NH:
after 9.2 overs
NH:
run fest
PM:
(Think the spam filter prob is fixed…)
PM:
(Hopefully..)
NH:
while we are taking about the banks
NH:
interesting note out of Credit Suisse this morning
NH:
looking at if M&A and equities can take over from fixed income as growth drivers
NH:
makes some interesting points
PM:
oh yeah
NH:
shall I put some up>
PM:
Do if youve got it to hand
NH:
here goes
NH:
In the coming quarters, we will be monitoring how M&A and equities can
take over from fixed income as growth drivers. More importantly, we will
be listening to managements’ guidance for the rest of the year.
Indeed, the favourable environment for the fixed-income business in H1
may not remain as strong for a number of reasons, in our view:
take over from fixed income as growth drivers. More importantly, we will
be listening to managements’ guidance for the rest of the year.
Indeed, the favourable environment for the fixed-income business in H1
may not remain as strong for a number of reasons, in our view:
NH:
1. Fixed-income origination revenues have fallen away in high-grade but have
increased in high-yield. This suggests to us that the borrowing surge of Q1 09
has come to an end. The high levels of issuance in the first half of the year will
have completed many companies’ borrowing programmes for the FY, meaning
that H2 revenues are likely to disappoint relative to H1.
2. There is some anecdotal evidence of bid-ask spreads in fixed income
markets beginning to narrow as second-tier players return to the market and
incumbents attempt to preserve market share gains in the face of overall falling
volumes.
3. Market shares of established players may erode marginally as the healthy
profit booked in fixed income entices some players to carefully return to the
market.
increased in high-yield. This suggests to us that the borrowing surge of Q1 09
has come to an end. The high levels of issuance in the first half of the year will
have completed many companies’ borrowing programmes for the FY, meaning
that H2 revenues are likely to disappoint relative to H1.
2. There is some anecdotal evidence of bid-ask spreads in fixed income
markets beginning to narrow as second-tier players return to the market and
incumbents attempt to preserve market share gains in the face of overall falling
volumes.
3. Market shares of established players may erode marginally as the healthy
profit booked in fixed income entices some players to carefully return to the
market.
NH:
In our view, market participants will be more focused on outlook
statements (Are spreads coming down? Are volumes slowing?) than on
actual Q2 numbers.
Because investors currently look at both P/TE and P/E valuation methods, any
beat to Q2 earnings has a small positive valuation impact as TE increases, but
the sustainability of the returns is what matters most, in our view.
However, on this front we remain cautious on both capital requirements and
volume development in a poor economic context.
We have recently upgraded UBS to Outperform and continue to like BNPP
for capital management (benefit of the Fortis acquisition), potential for earnings
momentum (Fortis acquisition and fixed-income revenues) and for being the
only AA-rated investment bank in the Western world (although with a negative
outlook). We rate DB Underperform and SG Neutral, mostly on the back of
earnings sustainability and remaining balance sheet risks.
statements (Are spreads coming down? Are volumes slowing?) than on
actual Q2 numbers.
Because investors currently look at both P/TE and P/E valuation methods, any
beat to Q2 earnings has a small positive valuation impact as TE increases, but
the sustainability of the returns is what matters most, in our view.
However, on this front we remain cautious on both capital requirements and
volume development in a poor economic context.
We have recently upgraded UBS to Outperform and continue to like BNPP
for capital management (benefit of the Fortis acquisition), potential for earnings
momentum (Fortis acquisition and fixed-income revenues) and for being the
only AA-rated investment bank in the Western world (although with a negative
outlook). We rate DB Underperform and SG Neutral, mostly on the back of
earnings sustainability and remaining balance sheet risks.
PM:
(Spam filter not fixed — im furiously clearing everyone in inferno system at the back of AV)
PM:
(Apol — everyone is getting caught by the filter. We are able to go in and “approve” ech comment — but there is obviuosly a time lag in us doing that…)
NH:
Ticker – 4 runs per over in a Test. Do you know anything about cricket? prolly not.
PM:
Hotairmail — you are correct. We did bring the stop loss on the H&M short all the way down to 4400
PM:
And that is looking uncomfortably near, after those JPM numbers
NH:
sure is
PM:
(daddy — what do you think?)
)NH:
but the zapper still works though
PM:
NH:
might be time to unleash it
PM:
Hotairmail — no, that would show a lack discipline on our side
PM:
We’re professionals you know
PM:
ish
PM:
Lorcan — NTG still looking pretty sweat
PM:
Northgate bounced 1.5p to 56/75 currently
PM:
Headed towards 20p in our view
NH:
it should do
11:44AM
PM:
Right Neil– I think you had some RAW to share
NH:
Sorry beein distracted by ticker who seems to think 360 runs in a day in test match is par for the coruse
NH:
strange guy
NH:
anyway
NH:
RAW
NH:
British Airways
NH:
apparently they had a convert and placing lined up to go
NH:
on Monday
NH:
JPMorgan mandated
PM:
oooh
PM:
NH:
but it got pulled
PM:
NH:
told it could come back soon
PM:
Goo story
Gold Oil – little resources play, with assets in Peru, Colombia and Cuba. Not for the faint-hearted.
PM:
ooops
NH:
worth keeping an eye on
PM:
Meant — Good story
PM:
Not gold oil — which has turned into a penny dreadful
NH:
other than that
PM:
Always was actually
NH:
a little thing called Portland Gas
NH:
building a huge gas storage facility in Dorset
NH:
told it has secured government debt financing for the project
NH:
shares up again today
NH:
shares up 8p to 99p
PM:
One to watch
11:48AM
PM:
What’ Ferrexpo doing?
NH:
price down
NH:
off 6p at 143p
PM:
Not surprised
PM:
tolstoi had some interesting stuff on that front in the Long Room
PM:
I havent had toime to give it a proper look
PM:
But basically, there were reprots in the Ukraine that Zhvargo was in trouble with his bank there
PM:
Suggestion this would lead possibly to a takeover or raid on Ferrexpo
PM:
But the story was overcooked in Keiv
PM:
Kiev
NH:
stock Kiev
PM:
Hmm,
PM:
So the price of Ferrexpo has come rattling back — as the hot money got out
PM:
Got to be careful with Ukraine press reports
PM:
very careful
PM:
Basically, you can buy coverage there — articles to order
NH:
hmmmm
PM:
So if you want to spread something false, you just get it written up in the press
PM:
Of course that doesnt happen in the UK
NH:
a couple more requests
NH:
Sports Direct
NH:
results out
NH:
and
NH:
stock up
NH:
2.5p better at 84.5p
NH:
analysts seem reasonably happy
NH:
here’s Investec
NH:
Underlying FY09 EBITDA of £136.8m announced today compared with longstanding
guidance of £135m; SPD is guiding to “at least” £140m for the
current year. As recently flagged, the final dividend has been passed and debt
is targeted to reduce below £400m by end FY10E. UK retail gross margins are
below our forecast and could come under further pressure as SPD targets
inventory reductions. We remain Sellers.
guidance of £135m; SPD is guiding to “at least” £140m for the
current year. As recently flagged, the final dividend has been passed and debt
is targeted to reduce below £400m by end FY10E. UK retail gross margins are
below our forecast and could come under further pressure as SPD targets
inventory reductions. We remain Sellers.
NH:
The EBITDA outcome of £136.8m (compared with company guidance of £135m)
reflects stronger sales, but weaker margins than forecast. With “core” store
growth of c7%, underlying UK retail LFL sales look to have been flat across the
year, implying mid single digit growth in H2. The company reports (for the first
time) a LFL gross profit contribution growth of 2.5%, excluding the effect of
foreign currency moves.
reflects stronger sales, but weaker margins than forecast. With “core” store
growth of c7%, underlying UK retail LFL sales look to have been flat across the
year, implying mid single digit growth in H2. The company reports (for the first
time) a LFL gross profit contribution growth of 2.5%, excluding the effect of
foreign currency moves.
NH:
Stated year end net debt of £431m excludes £20m of creditors owed to
Kaupthing as a result of a dispute with the administrators, so underlying net debt
is close to our estimate. The group will need to refinance its £500m banking
facility this year, and has also announced its intention to reduce debt below
£400m by the year end, principally, it appears, by reducing working capital (we
assume inventory reduction). This implies to us that the margin pressure seen
last year is likely to continue.
Within the new FY10E guidance of EBITDA of “at least £140m”, the company
notes that the effect of the 2010 World Cup on sales and margins is likely to fall
into the FY11E financial year. We note that the history of these significant
events is a large boost to sales often largely offset by heavy margin dilution.
The company has also given details of its proposed employee bonus share
scheme which requires EBITDA of £155m in FY10E, and for the second stage
to trigger, £195m in FY11E. In our view, achieving these results would require
significant capacity withdrawal in the sector which looks less likely than before.
We remain Sellers of the shares, but place our forecasts and target price under
review.
Kaupthing as a result of a dispute with the administrators, so underlying net debt
is close to our estimate. The group will need to refinance its £500m banking
facility this year, and has also announced its intention to reduce debt below
£400m by the year end, principally, it appears, by reducing working capital (we
assume inventory reduction). This implies to us that the margin pressure seen
last year is likely to continue.
Within the new FY10E guidance of EBITDA of “at least £140m”, the company
notes that the effect of the 2010 World Cup on sales and margins is likely to fall
into the FY11E financial year. We note that the history of these significant
events is a large boost to sales often largely offset by heavy margin dilution.
The company has also given details of its proposed employee bonus share
scheme which requires EBITDA of £155m in FY10E, and for the second stage
to trigger, £195m in FY11E. In our view, achieving these results would require
significant capacity withdrawal in the sector which looks less likely than before.
We remain Sellers of the shares, but place our forecasts and target price under
review.
NH:
and Oriel Securities
NH:
Sports Direct have reported underlying EBITDA for finals of £137m in line with guidance.
The company now expects underlying EBITDA for next year to be £140m, this is a slight
upgrade to what the market was expecting.
However with lower interest payments, PBT adj for next year could easily be around
85m, a significant upgrade. We were expecting PBT adj of just 65m.
Trading in UK Retail has been good but margins have inevitably come under pressure
following the higher US dollar.
The final dividend has scrapped, but this was largely expected.
Debt levels are now being targeted to be below 400m implying the company now has net
debt/EBITDA of 2.9x.
Going forward we believe a less competitive retailing environment, better weather, easier
comps, improved sterling rates and the 2010 World Cup will help deliver earnings
momentum. There could easily be 10-11p of earnings for FY2011.
If £85m, is the number for next year then the stock is trading on just 9.5x PE. BUY.
The company now expects underlying EBITDA for next year to be £140m, this is a slight
upgrade to what the market was expecting.
However with lower interest payments, PBT adj for next year could easily be around
85m, a significant upgrade. We were expecting PBT adj of just 65m.
Trading in UK Retail has been good but margins have inevitably come under pressure
following the higher US dollar.
The final dividend has scrapped, but this was largely expected.
Debt levels are now being targeted to be below 400m implying the company now has net
debt/EBITDA of 2.9x.
Going forward we believe a less competitive retailing environment, better weather, easier
comps, improved sterling rates and the 2010 World Cup will help deliver earnings
momentum. There could easily be 10-11p of earnings for FY2011.
If £85m, is the number for next year then the stock is trading on just 9.5x PE. BUY.
11:53AM
NH:
and someone was asking about Fresnillo
NH:
Mexican silver company
NH:
that I must confess to not have followed that closely
NH:
but Cazenove have
NH:
Fresnillo – delivers record quarterly production [FRES.L FRES LN 561p] IN-LINE Sector: OVERWEIGHT
Fresnillo has reported Q2/H1 production numbers this morning, with the company delivering record quarterly and H1 silver production figures which leave them comfortably on track to hit FY09E guidance and our estimates. We see no material changes to our forecasts following today’s announcement, although we are likely to make minor changes to the mine-by-mine production split.
Production: group attributable silver production in Q2 of 9,587koz is up 4% QoQ and 7% YoY. H1 production of 18.8Moz is up 8% YoY. Both Q2 and H1 represent production records for the company, which was achieved due to increased efficiency at the Fresnillo mine, higher grades at Ciénega and Herradura and the processing of development ore from the Fresnillo II project contributing (an albeit modest) 67koz. Gold production is up sequentially (+5%), due to an increase in grade at Ciénega where production has now stabilised, but down YoY due to the issues at Ciénega. Zinc and lead production running slightly behind our full year run rate, although they are minor contributors to group revenue (c.7% in FY09E). Most importantly, silver and gold production is well on track to hit our FY09E estimates.
Costs: the statement reiterates previous guidance that USD unit costs are falling relative to last year, due to a combination of a more favourable MXN:USD fx rate and reductions in inputs costs (consumables, steel etc.). Offsetting that, electricity prices and wage costs have increased. Our base case models unit costs flat in local currency terms, implying a 16% YoY fall in USD terms for FY09E; we remain comfortable with that estimate at this stage.
Fresnillo has reported Q2/H1 production numbers this morning, with the company delivering record quarterly and H1 silver production figures which leave them comfortably on track to hit FY09E guidance and our estimates. We see no material changes to our forecasts following today’s announcement, although we are likely to make minor changes to the mine-by-mine production split.
Production: group attributable silver production in Q2 of 9,587koz is up 4% QoQ and 7% YoY. H1 production of 18.8Moz is up 8% YoY. Both Q2 and H1 represent production records for the company, which was achieved due to increased efficiency at the Fresnillo mine, higher grades at Ciénega and Herradura and the processing of development ore from the Fresnillo II project contributing (an albeit modest) 67koz. Gold production is up sequentially (+5%), due to an increase in grade at Ciénega where production has now stabilised, but down YoY due to the issues at Ciénega. Zinc and lead production running slightly behind our full year run rate, although they are minor contributors to group revenue (c.7% in FY09E). Most importantly, silver and gold production is well on track to hit our FY09E estimates.
Costs: the statement reiterates previous guidance that USD unit costs are falling relative to last year, due to a combination of a more favourable MXN:USD fx rate and reductions in inputs costs (consumables, steel etc.). Offsetting that, electricity prices and wage costs have increased. Our base case models unit costs flat in local currency terms, implying a 16% YoY fall in USD terms for FY09E; we remain comfortable with that estimate at this stage.
NH:
Development projects: The flagship development project, Fresnillo II, remains on track, with long lead time items (SAG and ball mills) ordered and a pre-feasibility study is expected to be submitted to the Fresnillo board on 5 August. Soledad-Dipolos also remains on track to deliver first production in Q1 2010. The company also has a range of relatively small-scale projects which are designed to increase efficiency/reduce costs, including the addition of a new shaft (San Carlos) and water purification facility at Fresnillo and plant optimisations at Ciénega and Herradura. All of these projects are on time
Valuation and recommendation
Since listing in May last year Fresnillo has established itself as the default silver play in the UK market and today’s results should further cement that position, in our view. Having said that, the momentum has dissipated from precious metals stocks recently due to the economy having seemingly moved past the worst of the economic crisis and inflation related to the massive government stimulus packages yet to emerge. Silver will, however, benefit from any upturn in global IP given 75% of demand is industrial, while any weakness in the USD would also be positive. Fresnillo trades on PERs of 29.0x and 21.5x for FY09E and FY10E respectively against the peer group on 23.3x and 14.7x. P/NPV of 1.27x on CazE and 1.05x on spot is supportive, in our view, given the world class nature of Fresnillo’s assets. IN-LINE.
Valuation and recommendation
Since listing in May last year Fresnillo has established itself as the default silver play in the UK market and today’s results should further cement that position, in our view. Having said that, the momentum has dissipated from precious metals stocks recently due to the economy having seemingly moved past the worst of the economic crisis and inflation related to the massive government stimulus packages yet to emerge. Silver will, however, benefit from any upturn in global IP given 75% of demand is industrial, while any weakness in the USD would also be positive. Fresnillo trades on PERs of 29.0x and 21.5x for FY09E and FY10E respectively against the peer group on 23.3x and 14.7x. P/NPV of 1.27x on CazE and 1.05x on spot is supportive, in our view, given the world class nature of Fresnillo’s assets. IN-LINE.
PM:
cheers Neil
PM:
Just got a note from Assanka
PM:
Apols about the spam problem — they now seem to have fixed it
PM:
This should have been resolved now – there were major problems with
resolving remote servers from the Assanka FT platform, which we’ve
dropped a quick fix into place for. We’ll look at longer-term fixes and
additional safeties now.
resolving remote servers from the Assanka FT platform, which we’ve
dropped a quick fix into place for. We’ll look at longer-term fixes and
additional safeties now.
PM:
They are on the ball Assanka
PM:
They do work quickly when there’s a problem
PM:
And they do have to take a lot of stick from some of those over on the right…
11:56AM
NH:
some more small cap RAW, which is about all I am good for these days
NH:
Caledon
NH:
rumours that a bid from an Indian company set to be recommended
NH:
75p apparently is the level
NH:
not 80p or 85p
NH:
two names in the frame
NH:
State-owned utility National Thermal Power Corporation
NH:
and Coal India
NH:
both of them looking to acquire
NH:
in Mozambique, Indonesia and Australia
PM:
Caledon resources price up just 0.25p at 59.75
PM:
Lot of hot money in Caledon
PM:
Be careful
NH:
hang on
NH:
Northgate
NH:
the giant vampire squid want to take on H&M Capital Management
PM:
WOT!!!!!!!!!!
PM:
Over Northgate????
PM:
Ah they mad
NH:
quite possibly
PM:
reckless
NH:
they like risk
PM:
What do they know that we don’t
NH:
have a look at this
NH:
What happened
We are removing Northgate from the Conviction Buy List following the announcement of a rights issue and
accompanying share price volatility. While we believe the fundamental outlook is improving, and supports our
retained Buy rating on the stock, we expect further rights issue-related volatility in the near-term. Since being
added to the Conviction Buy List on April 9, 2009, Northgate’s shares have declined 56%, vs. the FTSE
World Europe’s gain of 2%. Over 12 months, Northgate’s shares are down 83%, vs. the index’ -20%. Based
on the expected new share count and use of funds, our 6-month price cum-rights price target is 30p.
We are removing Northgate from the Conviction Buy List following the announcement of a rights issue and
accompanying share price volatility. While we believe the fundamental outlook is improving, and supports our
retained Buy rating on the stock, we expect further rights issue-related volatility in the near-term. Since being
added to the Conviction Buy List on April 9, 2009, Northgate’s shares have declined 56%, vs. the FTSE
World Europe’s gain of 2%. Over 12 months, Northgate’s shares are down 83%, vs. the index’ -20%. Based
on the expected new share count and use of funds, our 6-month price cum-rights price target is 30p.
NH:
sorry
NH:
off the Conviction Buy list
NH:
but still a buy
NH:
Current view
Our current view on the stock, as set out in more detail in our report, “Position of strength”, June 24, 2009, is
that the share price reaction to the announcement of the rights issue is excessive. We believe the
fundamentals for the company are improving, as rental rates improve, utilization picks up, and residual value
pricing recovers from trough levels.
Following better than expected FY09 results, we raise our EPS forecasts for FY10 and FY11 to 37.5p and
51p from 5.5p and 41.0p, respectively (unadjusted for the rights issue). We also incorporate the benefit of £6
mn of announced cost savings.
On an ex-rights basis, we estimate the stock is trading at only 3.9x our FY11 EPS estimate vs. its historical
10th percentile multiple of 9x. We are adjusting our price target to reflect blended 10th percentile forward P/E
and EV/EBITDA multiples. Our 6-month cum-rights price target is 30p, which implies 89% potential upside to
the current combined TERP and theoretical rights price (15p).
Key downside risks to our view and price target include continued technical pressure prior to the completion
of the rights issue, lower than forecast utilization, an inability to sell used vans and a reversal of recent
favourable economic trends in the UK and Spain.
Our current view on the stock, as set out in more detail in our report, “Position of strength”, June 24, 2009, is
that the share price reaction to the announcement of the rights issue is excessive. We believe the
fundamentals for the company are improving, as rental rates improve, utilization picks up, and residual value
pricing recovers from trough levels.
Following better than expected FY09 results, we raise our EPS forecasts for FY10 and FY11 to 37.5p and
51p from 5.5p and 41.0p, respectively (unadjusted for the rights issue). We also incorporate the benefit of £6
mn of announced cost savings.
On an ex-rights basis, we estimate the stock is trading at only 3.9x our FY11 EPS estimate vs. its historical
10th percentile multiple of 9x. We are adjusting our price target to reflect blended 10th percentile forward P/E
and EV/EBITDA multiples. Our 6-month cum-rights price target is 30p, which implies 89% potential upside to
the current combined TERP and theoretical rights price (15p).
Key downside risks to our view and price target include continued technical pressure prior to the completion
of the rights issue, lower than forecast utilization, an inability to sell used vans and a reversal of recent
favourable economic trends in the UK and Spain.
PM:
Hang on, hang on.
PM:
They are way long and wrong
PM:
Since being
added to the Conviction Buy List on April 9, 2009, Northgate’s shares have declined 56%, vs. the FTSE
World Europe’s gain of 2%.
added to the Conviction Buy List on April 9, 2009, Northgate’s shares have declined 56%, vs. the FTSE
World Europe’s gain of 2%.
PM:
Just havent got the guts to move from a conviction buy to an outright sell
PM:
If i was their client…
PM:
Monkey — this is true
PM:
But the guy still won
NH:
actually I prefer the note which came out of UBS earlier this week
NH:
Rights issue smaller than hoped
Northgate has announced a rights issue & placing to raise £108m net of fees. We
had hoped for closer to £250m, although this was always going to be challenging
given a market cap of £50m. Following the rights issue, we estimate net
debt/EBITDA of 2.2x in FY10. The business was built on leverage, and we expect
the next few years to be characterised by debt pay-down. This does suggest limited
ability to invest into a market upturn when it comes
Northgate has announced a rights issue & placing to raise £108m net of fees. We
had hoped for closer to £250m, although this was always going to be challenging
given a market cap of £50m. Following the rights issue, we estimate net
debt/EBITDA of 2.2x in FY10. The business was built on leverage, and we expect
the next few years to be characterised by debt pay-down. This does suggest limited
ability to invest into a market upturn when it comes
NH:
Estimates reduced by 21% for FY10, 15% for FY11
Given the lower earnings base as FY09 numbers were well below our forecasts,
and our assumption of pricing weakness continuing into FY10, we reduce our
estimates by 21% for FY10. Our estimates are based on the pre-rights issue
position, and therefore do not reflect the impact of the transaction. On proforma
post rights issue, we estimate EPS of 1.4p in FY10 and 1.5p in FY11.
Given the lower earnings base as FY09 numbers were well below our forecasts,
and our assumption of pricing weakness continuing into FY10, we reduce our
estimates by 21% for FY10. Our estimates are based on the pre-rights issue
position, and therefore do not reflect the impact of the transaction. On proforma
post rights issue, we estimate EPS of 1.4p in FY10 and 1.5p in FY11.
NH:
We expect we are well below consensus
According to management, FY09 consensus is c£85m EBIT vs UBSe £76m. The
key difference relates to pricing, where we assume pricing pressure continues into
FY10. Until utilisation at Northgate and across the industry is where it needs to be,
we expect competitors to price aggressively to generate cash.
Valuation: Price target cut to 60p from 110p
c50% of the reduction relates to the earnings downgrades, and c50% due to the fact
the company raised less equity than we had hoped, and is therefore more limited in
its ability to invest into the upturn. PT based on 0.6x price/book (from 0.8x).
According to management, FY09 consensus is c£85m EBIT vs UBSe £76m. The
key difference relates to pricing, where we assume pricing pressure continues into
FY10. Until utilisation at Northgate and across the industry is where it needs to be,
we expect competitors to price aggressively to generate cash.
Valuation: Price target cut to 60p from 110p
c50% of the reduction relates to the earnings downgrades, and c50% due to the fact
the company raised less equity than we had hoped, and is therefore more limited in
its ability to invest into the upturn. PT based on 0.6x price/book (from 0.8x).
NH:
that was on NTG
PM:
sure
PM:
much more sensible
12:03PM
PM:
Okay — done for today
PM:
I have to go cos Ive got to talk to Tom from PR
PM:
We’ve got a blinking “blogger event” this afternoon
PM:
various blaggers coming into the FT
PM:
Blaggers|?
PM:
Sorry bloggers
PM:
Including…..
PM:
one…..
PM:
Micahel Fowke.
PM:
Allegedly.
NH:
I don’t believe it
NH:
he won’t show
NH:
no way
NH:
if he does
NH:
I will take a pic
PM:
Yes he will. i have confidence
NH:
and publish the exclusive
NH:
FOWKE OUTED
NH:
FOWKE REVEALED
PM:
But we will have to promise to keep his identity secret
PM:
And not snap his picture or anything like that
NH:
sod that
PM:
Right — got to go
PM:
Back tomorrow at 11am
PM:
Thanks
PM:
And sorry about the comments probs earlier
NH:
OK Paul has gone
NH:
but I am still here
NH:
and
NH:
have some more feedback from the Autonomy conference call
NH:
Taxloss
NH:
don’t think that’s Fowke
NH:
reckon it is fake
NH:
anyway
NH:
we will be seeking confirmation
NH:
we think that pic could be off an actor
NH:
we shall see
NH:
either
NH:
way
NH:
we can clear up the mystery
NH:
once and for all
NH:
back to Autonomy
NH:
The Autonomy call was disappointing for 2 key reasons but there were many many
positives showing that the story is alive and well. I agree with the shares
though, they should be down. They were unable to answer a key question on cash
and they failed to disclose openly an important aspect in the new ‘guidance’. I
still think that at 14x this is a buy and I am holding on post doubling up.
positives showing that the story is alive and well. I agree with the shares
though, they should be down. They were unable to answer a key question on cash
and they failed to disclose openly an important aspect in the new ‘guidance’. I
still think that at 14x this is a buy and I am holding on post doubling up.
NH:
1. Cash conversion – in response to a very aggressive question about the
cash conversion number they were unable to provide the simply calculation that
would have demonstrated a pro-forma cash conversion number of 92-95% vs the
104% reported and the 63% suggested by the bears. This was very disappointing.
It was discussed all morning in the market and not to be able to address this
was poor. Gerardus ran through his calculation with the FD after the meeting
and he said that it looked right to him but that they would put the detail on
the website. This should be available soon!.
cash conversion number they were unable to provide the simply calculation that
would have demonstrated a pro-forma cash conversion number of 92-95% vs the
104% reported and the 63% suggested by the bears. This was very disappointing.
It was discussed all morning in the market and not to be able to address this
was poor. Gerardus ran through his calculation with the FD after the meeting
and he said that it looked right to him but that they would put the detail on
the website. This should be available soon!.
NH:
2. New “Guidance” for Q3 – They don’t give guidance, just endorse a model
(!) but they numbers imply revenues of 180 and eps of 19c for Q3. This was vs
120 and 25c for consensus and therefore looks very low. The Revenues were well
explained pointing to the conservative use of normal seasonality rather than
last year’s patterns but they failed to point out in the presentation that the
reason why this drove eps of 19c not higher was thanks to a 10-15m one off cost
of marketing taken in Q3 ready for a big launch in Q4. Had this been in this
morning’s statement this would not be an issue. To not mention it might be.
(!) but they numbers imply revenues of 180 and eps of 19c for Q3. This was vs
120 and 25c for consensus and therefore looks very low. The Revenues were well
explained pointing to the conservative use of normal seasonality rather than
last year’s patterns but they failed to point out in the presentation that the
reason why this drove eps of 19c not higher was thanks to a 10-15m one off cost
of marketing taken in Q3 ready for a big launch in Q4. Had this been in this
morning’s statement this would not be an issue. To not mention it might be.
NH:
These issues are not malicious, there are explanations but the communication
was poor in terms of telling the market. Now though as the stock is in the 11s
and on 14x p/e, less than SAP, for a stock that is consistently delivering 20%
earnings growth. The story, if anything, is getting more interesting with the
new areas that they are moving into with “phase 2” and the media search
software but I hope they tell us about it better in future. I’m keeping mine.
was poor in terms of telling the market. Now though as the stock is in the 11s
and on 14x p/e, less than SAP, for a stock that is consistently delivering 20%
earnings growth. The story, if anything, is getting more interesting with the
new areas that they are moving into with “phase 2” and the media search
software but I hope they tell us about it better in future. I’m keeping mine.
NH:
Autonomy rallying
NH:
off only 118p at £12
NH:
and Praxis
NH:
Lynch v smart
NH:
heard him on Radio 4 recently
NH:
very insightful
NH:
right I have a lunch
NH:
see u all tomorrow
NH:
and hopefully we will be able to clear up the Fowke mystery once and for all this afternoon
NH:
cya