Markets live chat transcript for the chat ending at 12:04 on 20 Jul 2009. Participants in this chat were: Paul Murphy, FT (PM) Bryce Elder (BE)
PM:
Welcome
PM:
It’s Monday.
PM:
This is Markets Live– FT Alphaville’s daily market commentary
PM:
Sorry I’m a bit late
PM:
Neil Hume is not here.
PM:
Haven’t seen him since Friday.
PM:
He threw a paddy when I closed the H&M short. 
PM:
Wicket
PM:
he walked out in protest.
PM:
In protest at what, I’m not so sure.
PM:
Me saving the fund a lot of money by closing ahead of today’s squeeze?
PM:
Maybe.
PM:
Anyway, I’m sure we can live without Neil.
PM:
Everyone’s indispensable – until they leave.
PM:
ML must go on.
PM:
Thankfully we’ve got Bryce here to fill this technical gap 
BE:
Hello.
BE:
Thanks for the 15 minutes notice
BE:
Not sure I feel comfortable doing this.
BE:
I feel a bit of a scab.
PM:
Look, ML exists for the readers, not for the feather-bedding of the hacks who work on it.
PM:
It had gone to Neil’s head somewhat.
PM:
Stay short, stay short, stay short.
PM:
Needed some calm guidance.
PM:
Saved the H&M 65 footsie points already.
PM:
Actually, Bryce you can have your name on the door, also.
PM:
Well, your initial.
PM:
H,M & E
BE:
Hmm, not sure I want it.
BE:
Do you think he’ll come back?
PM:
Oh, yeah.
PM:
He’ll skulk back on Thursday or something – as tho nothing has happened.
BE:
And what if he doesn’t.?
PM:
Well, it’ll be M&E Capital Management.
BE:
11:09AM
PM:
What’s going on?
BE:
Well, you will like this
BE:
Lloyds TSB – up 5p at 72.5p
PM:
Wot?
PM:
What’s going on there.
PM:
??
BE:
This seems to be in reaction to the Tory reform proposals.
PM:
What, George Osborne says the Tories are going to hold an immediate Competition Commission enquiry in to retail market share
PM:
And so Lloyds, which has a monopolistic position, post HBOS, jumps on the news????
BE:
Madness I know
BE:
but it is actually from what Osborne said at the Bloomberg launch of their Sound Banking plan.
PM:
Well,w aht did he say?
BE:
He said that there was a case for splitting banks up
BE:
separating the retail business from investment banking, but…..
BE:
Quoting …
BE:
“It would not be sensible, or indeed effective to impose separation unilaterally.”
PM:
Ha, that’s pathetic.
BE:
So, the tories are going to send CoComp in to see whether banks should be broken up
BE:
and yet they are not going to follow any advice unless there is some broad international agreement to do so.
PM:
How likely is that?????
BE:
Err… Not at all.
BE:
Hence the 7.5 per cent spike in Llloyds.
PM:
Hmmm.
PM:
If anything, there should be a competition review of the decision to allow Lloyds to breach the traditional 25% cap to market share – in buying HBOS.
PM:
But then again, it proved to be such a daft decision that Lloyds is no in no real position to take advantage of its partial monopoly.
BE:
Indeed.
PM:
There’s also this Times story — see that?
BE:
Sure
BE:
As noted by the people to the right
PM:
WOT THAT BLOKE SHOUTING OVER ON THE RIGHT??
BE:
THAT’S THE ONE
PM:
DOES HE NOT REALISE THAT NEIL LEFT THE ZAPPER BEHIND WHEN HE FLOUNCED OUT??????
PM:
Hotairmail — forgiven
PM:
BE:
Anyway, here’s the story
BE:
LLOYDS BANKING GROUP could shock the market with its first-half results by announcing that accounting trickery has helped it scrape into the black. Despite enormous bad-debt provisions – estimated at £13 billion – the bank is likely to post a modest headline profit for the first six months of the year.
BE:
” accounting trickery” …
BE:
Not quite sure what audience they’re aiming that at
BE:
Here’s Credit Suisse to put it in language adults can understand
BE:
Summary: The Sunday Times ran a story yesterday suggesting LBG might “stun” the city by posting a profit in H1 2009
despite impairment charges “estimated at £13bn”.
• We haven’t published interim forecasts yet but clearly H1 2009 will benefit from a very sizeable negative goodwill gain through
the P&L account. In that context, it should report a statutory profit. However, this is well understood by the market. What
would be more interesting is if the company were to generate a profit excluding this item.
• Certainly the authors, John Waples and Iain Dey, point to sizeable write backs on toxic credit instruments. But we would be
surprised if this was significant. Cumulative fair value adjustments on toxic assets at LTSB and HBOS were less than £4bn in
2007 and 2008 and we doubt much of this has reversed in H1 2009. Furthermore, most of these toxic assets are now held in
AFS or loan portfolios following the reclassification of around £15bn of ABS and FRNs previously fair valued through the P&L
account in H2 last year. Improvements in value will therefore have a very limited impact on profits in the near term, in our
view.
despite impairment charges “estimated at £13bn”.
• We haven’t published interim forecasts yet but clearly H1 2009 will benefit from a very sizeable negative goodwill gain through
the P&L account. In that context, it should report a statutory profit. However, this is well understood by the market. What
would be more interesting is if the company were to generate a profit excluding this item.
• Certainly the authors, John Waples and Iain Dey, point to sizeable write backs on toxic credit instruments. But we would be
surprised if this was significant. Cumulative fair value adjustments on toxic assets at LTSB and HBOS were less than £4bn in
2007 and 2008 and we doubt much of this has reversed in H1 2009. Furthermore, most of these toxic assets are now held in
AFS or loan portfolios following the reclassification of around £15bn of ABS and FRNs previously fair valued through the P&L
account in H2 last year. Improvements in value will therefore have a very limited impact on profits in the near term, in our
view.
BE:
There will be gains on tier 1 and tier 2 debt swaps, however these should be broadly offset by restructuring and capital
issuance charges so we don’t worry about that either.
• There remains one possibility – that there is a substantial gain coming from the unwind of the fair value adjustment on HBOS
loans made on acquisition. As a reminder, Lloyds wrote down the carrying value of HBOS loans by £13.7bn when it bought
the bank in January 2009, and this FV adjustment will flow back through the profit & loss account once the loans default – the
FV adjustment is then “released” and replaced by an actual impairment provision. In H1 2009 we strongly suspect higher
default rates are leading to higher impairment charges and hence a substantial release of the fair value adjustment.
issuance charges so we don’t worry about that either.
• There remains one possibility – that there is a substantial gain coming from the unwind of the fair value adjustment on HBOS
loans made on acquisition. As a reminder, Lloyds wrote down the carrying value of HBOS loans by £13.7bn when it bought
the bank in January 2009, and this FV adjustment will flow back through the profit & loss account once the loans default – the
FV adjustment is then “released” and replaced by an actual impairment provision. In H1 2009 we strongly suspect higher
default rates are leading to higher impairment charges and hence a substantial release of the fair value adjustment.
BE:
This isn’t good news – quite the opposite, as it might suggest that things are worsening more quickly than the company
originally anticipated. Furthermore, the fair value adjustments on assets were broadly matched by fair value adjustments on
HBOS liabilities (also £13bn) so over several years the two will net out to a very small number anyway. Granted, the liabilities
unwind more slowly than the assets and so you get profits in the earlier years, but then you get losses in the later years. If the
asset unwind accelerates, you get bigger profits in the earlier years but bigger losses in the later years. But again, we would
be surprised if this contribution were big enough to push the group to profit in H1 2009.
• We wouldn’t chase the shares on this story and await further details.
originally anticipated. Furthermore, the fair value adjustments on assets were broadly matched by fair value adjustments on
HBOS liabilities (also £13bn) so over several years the two will net out to a very small number anyway. Granted, the liabilities
unwind more slowly than the assets and so you get profits in the earlier years, but then you get losses in the later years. If the
asset unwind accelerates, you get bigger profits in the earlier years but bigger losses in the later years. But again, we would
be surprised if this contribution were big enough to push the group to profit in H1 2009.
• We wouldn’t chase the shares on this story and await further details.
PM:
Cheers for that
PM:
Lots of other people chasing in any case
11:18AM
PM:
Other banks?
BE:
Well, RBS is up 2p at 40.4p for similar reasons.
PM:
How about Barclays?
BE:
Stock up 4p at 317p.
PM:
So that’s the reaction to news that they are losing their top tax avoider??
PM:
Market takes more notice of this Tory reform plan – than it does of the fact that BarCap are losing a guy who is quite possibly their best fee earner over the past decade or so.
BE:
For those of you who missed it, Roger Jenkins is leaving BarCap to do his own thing – involve SWFs and the like.
BE:
Actually, while you may not have heard from Neil, he did mail about this.
PM:
Eh?
PM:
Already trying to worm his way back in again, is he?
BE:
Well, I don’t know about that – but he has been kicking around this story for a few days.
PM:
BE:
According to his people Jenkins was looking at setting up something with Mike Platt, the founder of BlueCrest.
BE:
Suggestion that they might have run some sort of consolidation vehicle together.
BE:
Some people reckon they might even have looked at Man Group before deciding against it.
PM:
Hmm…
PM:
Interesting
PM:
Even if it does come from Neil Hume.
BE:
Temporary 
BE:
Actually, I think some other people were after this story.
BE:
Such as the Times. Hear they are a bit sore this morning.
PM:
What, surely they weren’t misled.
PM:
By Barclays people and/or Jenkins?
BE:
Are you mad?
11:22AM
PM:
Got anything else from your special channel to Neil Hume?
BE:
Well, I hear he is rather interested in Harman International Industries.
PM:
????????????????
PM:
Harriet quoted?
BE:
No – big stereo outfit in the States.
BE:
Harman Kardon – the boy racer’s favourite.
BE:
There was actually a report in the Saudi press about a bid.
BE:
Harman stock shown some good gains over the past week or so.
BE:
And then suddenly this Saudi stuff
PM:
So who is the bidder?
BE:
Allegedly: Arabian Peninsula Group
PM:
?????????????????????????
BE:
APG. ALLEGEDLY.
BE:
There’s just a mail going round…
BE:
Supposedly based on a Bloomberg story
BE:
Priv investment grp ARABIAN PENINSULA GRP announced today it’s plan to acquire HARMAN INTERNATIONAL INDUSTRIES in a public tender offer
joint bid with SKorean partner
USD 45 dollars per stock
PM:
This is all very very odd.
PM:
BE:
Indeed.
BE:
Harman trading at $25 on Friday in New York – -up a dollar, sure.
BE:
But there is no follow through on this story.
BE:
We need to know more.
PM:
Just googling around
PM:
This company was supposed to be taken out by KKR and Goldman back at the peak of the M&A frenzy
PM:
Supposedly at $125 back in April 2007
BE:
Goodness – one idiot PE deal KKR managed to avoid.
BE:
Easy to forget the stupid prices people were ready to pay.
PM:
Hmm – but suppose that helps with the story that this Saudi group might pay $45, even when the market is standing at $25.
BE:
Miles Johnson’s looking at it.
BE:
Seems the Bloomberg story – if there was one – was expunged from the system on Sunday.
BE:
If any of our friends over at Finsbury Square can let us know what happened, if anything, we’d be interested to hear
BE:
But it’s all a real mystery at the moment.
PM:
And it could be a hoax???
BE:
Yes.
BE:
It certainly could.
PM:
Im just reading thru a “report” on this that Miles has dug up on some blog
PM:
We cant find any formal ref to this supposed “press release”
PM:
So we are going to issue a four star warning on this
PM:
BE:
You can find it on Google if you’re really interested.
BE:
Caveat emptor though.
11:31AM
BE:
Gold, as noted, is going nuts.
BE:
Through $950
BE:
Touched $954 earlier
PM:
Dont quite know why, when equities are so strong
PM:
Footsie is now up 72 points at 4461
BE:
Melt up. Cross asset melt up.
PM:
yeah
BE:
Just been mailed a line on gold from Thomas Weisel Partners
BE:
Haven’t read it in detail, but hopefully useful to the bullion fans out there
BE:
Gold rose 2.8% for the week to $938/oz as the US dollar fell on the back of
better than expected corporate earnings. Inflation and the economy seem to be
shifting back into focus as China’s GDP beat expectations, rising 7.9% yoy,
Canada’s June core inflation was 1.9% (ex-volatile items), and the Federal
Reserve had a brighter outlook on the US economy based on their June 23-24
meeting.
better than expected corporate earnings. Inflation and the economy seem to be
shifting back into focus as China’s GDP beat expectations, rising 7.9% yoy,
Canada’s June core inflation was 1.9% (ex-volatile items), and the Federal
Reserve had a brighter outlook on the US economy based on their June 23-24
meeting.
BE:
China’s foreign-exchange reserves topped $2 trillion for the first time as
investment flowed into the bustling economy. The amount of gold reserves
reportedly stayed flat at 1,054t, or roughly $30 billion, however, China has
historically rarely commented on its gold reserves, updating it only once in
the past 6 years.
investment flowed into the bustling economy. The amount of gold reserves
reportedly stayed flat at 1,054t, or roughly $30 billion, however, China has
historically rarely commented on its gold reserves, updating it only once in
the past 6 years.
BE:
The Swiss banks have reported a shortage of vault space for their gold
holdings. The increase in gold’s popularity from the ETFs and individuals has
forced the banks to seek additional space.
holdings. The increase in gold’s popularity from the ETFs and individuals has
forced the banks to seek additional space.
BE:
The IMF will begin selling bonds to the BRIC countries denominated in SDR
“currency” which will give BRIC some currency diversification and the IMF
some extra funds.
“currency” which will give BRIC some currency diversification and the IMF
some extra funds.
BE:
The M&A space heated up this week after a competing bid was launched by a
Randgold/Anglo JV for Moto Goldmines’ large 20+mn oz resource. Initial
suitor, Red Back, has 5 days to make a counter bid after Moto certifies that
the competing bid is of higher value.
Randgold/Anglo JV for Moto Goldmines’ large 20+mn oz resource. Initial
suitor, Red Back, has 5 days to make a counter bid after Moto certifies that
the competing bid is of higher value.
BE:
The only US producer of platinum and palladium, Stillwater Mining, has
asked a judge to block GM from cutting its price floor contracts while under
bankruptcy protection. GM’s purchases account for roughly 11% of Stillwater’s
revenue. Further challenges face this mine if Ford’s contracts are dropped
when they expire at the end of 2010.
asked a judge to block GM from cutting its price floor contracts while under
bankruptcy protection. GM’s purchases account for roughly 11% of Stillwater’s
revenue. Further challenges face this mine if Ford’s contracts are dropped
when they expire at the end of 2010.
BE:
Producer P/NAV valuations at spot gold rose to 1.34x from 1.29x. GLD
inventories slipped 1% to 35.19mn oz. CFTC net long non-commercial positions
as of Tuesday, July 14 were 160,298, down 6% from one week earlier.
inventories slipped 1% to 35.19mn oz. CFTC net long non-commercial positions
as of Tuesday, July 14 were 160,298, down 6% from one week earlier.
PM:
cheers
PM:
Cityunslicker also has a point — if you are an equities bear being squeezed, where else do you hide?
BE:
True
11:36AM
PM:
back to equites
PM:
Tell us what else is moving Bryce
BE:
Next steady at 16.48
BE:
Did have a run earlier on the back of a Nomura upgrade
BE:
They’ve upped their Tp to £17.80
BE:
Analyst Frazer Ramzan
BE:
We raise our estimates for Next as we believe recent seasonable weather and better-than-expected consumer
news flow have resulted in the group exceeding its guidance of -4% to -7% for 2Q. We also raise our FY LFL
estimate to -3% on better fashions and easy 2H comparatives. While medium-term growth risks are clear, we
believe this momentum is likely to continue to support a stock trading at a discount to the sector.
FY LFL raised from -6% to -3%. Gross margin from -130bp to -100bp.
1H Retail LFL -3%, 1H Directory sales est +1%. Likely lower markdowns given tight stock position at end of Q1.
BE:
Lots of people turning positive on Next over the past week or so
BE:
Despite the one nearest me, in Westfield, being like a ghost town every weekend
11:39AM
PM:
Right — here’s one reason we’ve got this blinking rally this morning
PM:
its our friends at Goldman Sachs
PM:
This passed on by v helpful GP
PM:
Breaking the range: We expect a sustained rally
We are raising our year-end 2009 S&P 500 price target to 1060, 13%
above the current level. After trading in a 10% band for the past three
months, our “Pop, Stall, & Sustained recovery” framework, sequential
improvement in ex-Financials EPS, stabilization in profit margins, and
higher forward EPS guidance all point to a rising market through 2009.
We are raising our year-end 2009 S&P 500 price target to 1060, 13%
above the current level. After trading in a 10% band for the past three
months, our “Pop, Stall, & Sustained recovery” framework, sequential
improvement in ex-Financials EPS, stabilization in profit margins, and
higher forward EPS guidance all point to a rising market through 2009.
PM:
Raising S&P 500 EPS: $52 in 2009, $75 in 2010
Our new operating EPS estimates of $52 (from $40) and $75 (from $63)
reflect year/year growth of 5% in 2009 and 45% in 2010. Measured on a
pre-provision and pre-write-down basis our estimates are $69 and $81.
Lower Financials losses largely explain our higher EPS forecast. S&P
500 trades at 12.5x our 2010 operating and 11.6x our pre-provision EPS.
Our new operating EPS estimates of $52 (from $40) and $75 (from $63)
reflect year/year growth of 5% in 2009 and 45% in 2010. Measured on a
pre-provision and pre-write-down basis our estimates are $69 and $81.
Lower Financials losses largely explain our higher EPS forecast. S&P
500 trades at 12.5x our 2010 operating and 11.6x our pre-provision EPS.
PM:
PM:
Goldman hiking its eps expectations for US corporates
BE:
H&M’s position looking ever more fragile. Can’t fight the vampire squid, at least in the short term.
PM:
Nah — we are fine — we are out of the market
PM:
It was neil that was against closing
PM:
We closed the short on Friday
PM:
CORRECTION
PM:
I closed the short on Friday
PM:
PM:
It’s a long note this Goldman tome
PM:
May find its way to the usual place
PM:
PM:
Taxloss and others — just to be clear, we have not re-iopened the short
PM:
as yet
PM:
Dont have a feel for things
PM:
Sustained rally forecast by GS
PM:
Want to read what they are saying before we bet against it
BE:
VampSq’s S&P target 1060, vs 940.38 on Friday
PM:
hmmm
11:44AM
PM:
What else Bryce?
BE:
Friends I guess
BE:
FP up 2.4p at 74p
BE:
Resolution’s down 0.25p at 92
BE:
No consensus in the press on how to spell Pac-Man
BE:
Which irritated me, at least.
BE:
Anyway, the Sunday Express claimed Cowdrey would bid £1.9bn
BE:
That’s by memory – I’m guessing Express still doesn’t have a website.
PM:
Here’s the take from Panmure
PM:
Resolution sweetener
Following Friday’s pac man defence by Friends Provident, Resolution has
responded with an upbeat proposal that addresses most, but not all, issues
raised by Friends Management. The issues of a cash exit for retail investors
and a dividend have been largely addressed, and to some extent corporate
governance by the creation of FP becoming the UK life insurance
consolidation company for Resolution. There is an intention to relist the
entity in a few years time. We think that a deal will ultimately be done largely
on the proposed terms set out by Resolution this morning, although we note
that the indicative price (previously at 0.8 Reso shares for every one FP share)
has not been re-affirmed.
Following Friday’s pac man defence by Friends Provident, Resolution has
responded with an upbeat proposal that addresses most, but not all, issues
raised by Friends Management. The issues of a cash exit for retail investors
and a dividend have been largely addressed, and to some extent corporate
governance by the creation of FP becoming the UK life insurance
consolidation company for Resolution. There is an intention to relist the
entity in a few years time. We think that a deal will ultimately be done largely
on the proposed terms set out by Resolution this morning, although we note
that the indicative price (previously at 0.8 Reso shares for every one FP share)
has not been re-affirmed.
PM:
Resolution has this morning responded to Friends pac Man announcement on Friday. It
welcomes Friends agreement for the need to consolidate the UK life sector (which we
concur with entirely), and goes on to restate the case for Resolution being a mid teens IRR
business, which will look to hold businesses for 2-4 years. It highlights the benefits for FP,
ie the secure in-force book and a life new business platform, but it is unambiguous in that
the change of control from one company to the other must take place.
The possible offer (more like a discussion paper) addresses the concerns of Friends
Provident.
Retail investors – There will be a cash alternative for up to 2500 shares being paid out
of Reso’s existing cash resources, although the amount could be scaled back depending
on take up.
Dividend – Those shareholders keen on the income stream at FP will welcome the
announcement that Reso will look to pay the anticipated FP 2009 dividend out of FP’s
cash flow (subject to performance).
Corporate – Reso structure would remain and FP would be taken over, but would
become the UK Holding company for Reso’s consolidation of the UK life sector before
it relists in a number of years.
Board Structure – The current FP Chairman/CEOand CFO would all remain in place,
and the UK Holdings Board would include non-execs John Tiner and Clive Cowdrey.
The respionse from Reso goes a long way to addressing the concerns raised by FP on
Friday. We think that ultimately this will prove to be a good basis for discussion, that will
lead to the ultimate take over of FP by Reso. The one area of possible future conflict will
be the price Reso is prepared to pay. This is because the 0.8 Reso shares for every 1 FP
share has not been restated, and so must be vulnerable.
welcomes Friends agreement for the need to consolidate the UK life sector (which we
concur with entirely), and goes on to restate the case for Resolution being a mid teens IRR
business, which will look to hold businesses for 2-4 years. It highlights the benefits for FP,
ie the secure in-force book and a life new business platform, but it is unambiguous in that
the change of control from one company to the other must take place.
The possible offer (more like a discussion paper) addresses the concerns of Friends
Provident.
Retail investors – There will be a cash alternative for up to 2500 shares being paid out
of Reso’s existing cash resources, although the amount could be scaled back depending
on take up.
Dividend – Those shareholders keen on the income stream at FP will welcome the
announcement that Reso will look to pay the anticipated FP 2009 dividend out of FP’s
cash flow (subject to performance).
Corporate – Reso structure would remain and FP would be taken over, but would
become the UK Holding company for Reso’s consolidation of the UK life sector before
it relists in a number of years.
Board Structure – The current FP Chairman/CEOand CFO would all remain in place,
and the UK Holdings Board would include non-execs John Tiner and Clive Cowdrey.
The respionse from Reso goes a long way to addressing the concerns raised by FP on
Friday. We think that ultimately this will prove to be a good basis for discussion, that will
lead to the ultimate take over of FP by Reso. The one area of possible future conflict will
be the price Reso is prepared to pay. This is because the 0.8 Reso shares for every 1 FP
share has not been restated, and so must be vulnerable.
BE:
While we’re doing research, here’s Morgan Stanley
BE:
Quick Comment – FP’s statement on Friday brings a
deal closer, in our view: While there are still hurdles to
overcome – notably agreeing an exchange ratio and the
governance structure – we believe that the chances of
FP and RSL agreeing terms are increasing. A
transaction would provide RSL with a scale UK life &
pensions platform and a respected operational
management team; while for FP it would represent a
change of strategy, but an opportunity to accelerate the
current restructuring plan by accessing synergies from
future transactions.
deal closer, in our view: While there are still hurdles to
overcome – notably agreeing an exchange ratio and the
governance structure – we believe that the chances of
FP and RSL agreeing terms are increasing. A
transaction would provide RSL with a scale UK life &
pensions platform and a respected operational
management team; while for FP it would represent a
change of strategy, but an opportunity to accelerate the
current restructuring plan by accessing synergies from
future transactions.
BE:
What FP has proposed: A merger with RSL, but
dissolving the current offshore structure and incentive
scheme. Mike Biggs (currently Chairman of
Guernsey-based Resolution Ltd) would become
Chairman of the combined business, Clive Cowdery
Executive Deputy Chairman with Trevor Matthews
remaining as Chief Executive. There would be a
commitment to maintain a ‘meaningful’ dividend.
dissolving the current offshore structure and incentive
scheme. Mike Biggs (currently Chairman of
Guernsey-based Resolution Ltd) would become
Chairman of the combined business, Clive Cowdery
Executive Deputy Chairman with Trevor Matthews
remaining as Chief Executive. There would be a
commitment to maintain a ‘meaningful’ dividend.
BE:
Implications for FP: Some FP shareholders may feel
they are surrendering an element of control without
receiving a premium. Any transaction would likely
constitute in a significant shift in strategy – especially in
light of FP’s large retail shareholder base, which may not
be prepared to subscribe for multiple future capital
raises.
Implications for RSL: A transaction would unlock the
future deal pipeline – bringing RSL a pool of potential
synergies to attract vendors. However, the potential
loss of the Guernsey tax structure could possibly
materially reduce the post-tax returns of any
restructuring projects for shareholders.
they are surrendering an element of control without
receiving a premium. Any transaction would likely
constitute in a significant shift in strategy – especially in
light of FP’s large retail shareholder base, which may not
be prepared to subscribe for multiple future capital
raises.
Implications for RSL: A transaction would unlock the
future deal pipeline – bringing RSL a pool of potential
synergies to attract vendors. However, the potential
loss of the Guernsey tax structure could possibly
materially reduce the post-tax returns of any
restructuring projects for shareholders.
BE:
Other thoughts: The rating on any future combined
entity’s shares will be crucial in its ability to execute
value-accretive transactions. Should a deal be agreed,
the market’s focus will likely shift to the first possible
target for FP / RSL – underpinning UK life share prices.
entity’s shares will be crucial in its ability to execute
value-accretive transactions. Should a deal be agreed,
the market’s focus will likely shift to the first possible
target for FP / RSL – underpinning UK life share prices.
BE:
And finally, there’s SocGen
BE:
Which, for what it’s worth, I reckon is the smartest comment.
BE:
We question whether turning the tables on Resolution will be appreciated by Resolutions management and its shareholders. In our view, another advantage for FP would be that it gets access to Resolutions cash position; although not a solution to FPs continued operational cash flow issues, it would provide a better buffer. At the suggested exchange ratio, we estimate Resolution would be valued at a discount to its cash position.
BE:
FP indicates it has initially focussed on the correct structure of any potential deal with Resolution, but feels the offer from Resolution is wholly inadequate and has invited Resolution to discuss this. Given the structurally weak position of FP, we believe there is little room for Resolution to make a more generous offer for FP, as long as there are no synergies to be achieved. Sell reiterated.
PM:
cheers for all that
11:49AM
PM:
What’s this Zhaikmunai thingy?
BE:
No idea really – its just some Kazakh oil firm
BE:
Listing GDRs in London
BE:
$300m at $4 apiece, according to Reuters.
PM:
Hmm – blast from the past.
BE:
What, you know Zhaikmunai?
PM:
No – just a while since we’ve seen a global depository receipt issue here.
PM:
Pre-Crunch we got lots.
PM:
Typically Ruskies using London to get a quick valuation for their Russian assets.
PM:
Which allowed them to run off and get a bank loan – and then buy some blinking great yacht.
BE:
Then they all became former oligarchs.
BE:
Must be worse being a former oligarch than never having been one.
PM:
Well, I wouldn’t actually know.
BE:
Tis worse to have had and lost …
PM:
Point with these GDRs though, is that we find it very difficult to get any info.
PM:
The FSA has ruled that their prospectuses must not be seen by the public – therefore they are rarely distributed to the press.
BE:
Opacity – always a bad idea.
PM:
Indeed.
PM:
We had an intern here a couple of weeks back – Josh Noble – and I set him the job of trying to get all the docs from the last crop of GDRs.
BE:
And?
PM:
Well he got a load, but I haven’t had time to read.
PM:
So I just put them up in the Long Room as a resource.
PM:
Feel free to add to the table if you can.
PM:
Table is here
BE:
Not very popular.
PM:
No, not yet.
PM:
But I’m convinced the London authorities will regret this.
BE:
Hm
11:54AM
BE:
Must admit, Pi, we’re not up to speed on Business Consulting International yet
BE:
A household name 1960s pop star is one of the well-known figures known to have lost tens of thousands of pounds.
BE:
Says the Telegraph.
BE:
Which one?
BE:
Suggestions welcome.
11:57AM
PM:
What else have we got to push out before Noon
PM:
How about a bit of swine flu related stuff
BE:
Ok
PM:
This is from Collins Stewart
PM:
Focus: H1N1 vaccine orders begin to
flow GSK (Buy) in pole position
Timing and value uncertain but moderate upside to
consensus 09E EPS appears likely for Sanofi, GSK and
Novartis.
flow GSK (Buy) in pole position
Timing and value uncertain but moderate upside to
consensus 09E EPS appears likely for Sanofi, GSK and
Novartis.
PM:
France last week followed hard on the heels of the US to became the latest
country to place significant H1N1 orders with the major vaccine
manufacturers. As commented recently (See Script 15/6/09 First WHO
pandemic for 40 years ) the escalation of the H1N1 swine flu virus has
triggered steps likely to lead to significant upside for both vaccine (GSK,
NOVN, SAN) and antiviral manufacturers (GSK, ROG). We note, as before,
that GSK is ideally positioned with a double exposure through both vaccines
and antiviral Relenza.
country to place significant H1N1 orders with the major vaccine
manufacturers. As commented recently (See Script 15/6/09 First WHO
pandemic for 40 years ) the escalation of the H1N1 swine flu virus has
triggered steps likely to lead to significant upside for both vaccine (GSK,
NOVN, SAN) and antiviral manufacturers (GSK, ROG). We note, as before,
that GSK is ideally positioned with a double exposure through both vaccines
and antiviral Relenza.
PM:
We note that Germany announced order for 50m doses 15/7/09 but gave no
details. We also expect that significant amounts of other orders have been
placed but not yet disclosed.
details. We also expect that significant amounts of other orders have been
placed but not yet disclosed.
PM:
C Steward big fans of Glaxo
BE:
Worth picking up on this Caz downgrade of S&N as well
BE:
(That’s Smith & Nephew, not Scottish & Newcastle)
BE:
(Although a mention of the latter here has probably confused several black boxes.)
BE:
Increasing risk that Swine flu hits elective procedures. Downgrade to INLINE
BE:
We have become significantly more concerned that the evolving swine flu pandemic could lead to
hospitals cancelling elective procedures. This would be driven by:
Hospitals wanting to free up bed space for patients admitted with severe swine flu symptoms
Hospitals needing to manage this upturn in acute demand at a time when their own workforce
could be depleted by the same illness.
hospitals cancelling elective procedures. This would be driven by:
Hospitals wanting to free up bed space for patients admitted with severe swine flu symptoms
Hospitals needing to manage this upturn in acute demand at a time when their own workforce
could be depleted by the same illness.
BE:
We have some evidence that such actions are already being contemplated in Australia and the UK.
While we view the impact of such a potential slowdown as not particularly material in terms of the
overall long term investment case for Smith & Nephew (these deferred procedures will be caught
up) it does introduce a significant amount of near term uncertainty at a time when investors are
already concerned about a slowdown in elective procedures as a result of the softening in the
economy. We believe that it will be difficult for investors to differentiate how much of any elective
procedure slowdown is due to swine flu (and therefore temporary) and how much is due to pricing
pressure/mix changes (which could potentially be more structural).
While we view the impact of such a potential slowdown as not particularly material in terms of the
overall long term investment case for Smith & Nephew (these deferred procedures will be caught
up) it does introduce a significant amount of near term uncertainty at a time when investors are
already concerned about a slowdown in elective procedures as a result of the softening in the
economy. We believe that it will be difficult for investors to differentiate how much of any elective
procedure slowdown is due to swine flu (and therefore temporary) and how much is due to pricing
pressure/mix changes (which could potentially be more structural).
BE:
Furthermore, the potential impact of swine flu is likely to be felt for some time. In our view, the
significant acceleration in flu case numbers in recent weeks is likely to lead to the worst winter flu
season in the Northern Hemisphere for many years, and is likely to last until late spring 2010.
Furthermore, while vaccines are likely to be available for critical healthcare workers in early
September (somewhat mitigating the risk in the second bullet point above), current indications are
that bulk government orders for the general population are unlikely to be delivered before late
2009/early 2010. It could therefore be Q2 2010 before we see a return to a more normal
operating schedule in hospitals.
significant acceleration in flu case numbers in recent weeks is likely to lead to the worst winter flu
season in the Northern Hemisphere for many years, and is likely to last until late spring 2010.
Furthermore, while vaccines are likely to be available for critical healthcare workers in early
September (somewhat mitigating the risk in the second bullet point above), current indications are
that bulk government orders for the general population are unlikely to be delivered before late
2009/early 2010. It could therefore be Q2 2010 before we see a return to a more normal
operating schedule in hospitals.
BE:
Our Outperform recommendation has been predicated on our view that the discounted valuation is
more than pricing in concerns of a slowdown in elective procedures as a result of the weakening
economy. It was our belief that the quarterly results from the industry would illustrate that demand
would remain robust. With swine flu potentially removing this positive catalyst for 912 months
we move our recommendation to INLINE.
more than pricing in concerns of a slowdown in elective procedures as a result of the weakening
economy. It was our belief that the quarterly results from the industry would illustrate that demand
would remain robust. With swine flu potentially removing this positive catalyst for 912 months
we move our recommendation to INLINE.
BE:
S&N has Q2 figures on July 30
BE:
Peer numbers have been a bit meh
BE:
Oh – did something happen in the cricket?
PM:
PM:
356-7
BE:
Is that good or bad?
BE:
Cricket really not my thing.
PM:
Er, good . Even i know that Bryce
PM:
Anyway, we are done
PM:
People can concentrate on Lords
PM:
Thanks for joining us today
PM:
We will be back tomorrow at 11am
BE:
Bye.
PM:
seeya
PM:
Prometheus — taht’s a straight 24 hour ban
PM:
