Markets live chat transcript for the chat ending at 12:16 on 23 Jul 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
Good morning.
PM:
Welcome
PM:
This is ML
PM:
AV’s timely daily markets chat.
PM:
Guess who’s back today>
PM:
The prodigal son.
PM:
Neil Hume
PM:
Got over his sulk.
PM:
Where’ve you been Neil.
PM:
??
NH:
not a sulk
NH:
been in the desert
NH:
trying to sort out my aura
NH:
apparently it was yellow last week
NH:
with big black blotches
NH:
that’s all sorted now
NH:
and I am back and refreshed
NH:
Actually, I had to come back.
NH:
Impose a bit of order round here.
PM:
Oh yeah!?
NH:
yeah
NH:
reports reached me in the desert of a wobble
NH:
Wobble wobble wobble.
PM:
NH:
like a Jelly
NH:
Jelly Capital Management
NH:
Are you long the market, short the market – or out of the market?
PM:
NH:
I think the Rabble on the Right find it rather difficult to know.
PM:
NH:
You go short, but then you tell everyone you don’t know why you are short
NH:
Or whether you want to be short.
NH:
So did you sell it, or not???
PM:
We sold.
NH:
At what?
PM:
4476 on the Footsie
NH:
Berk
NH:
You have no idea where the market is going in the short term.
PM:
I know.
NH:
It’s just going to jut around cos no one seems to have a handle on the trend.
NH:
And you’ve got a slew of companies reporting – each and every one of which piles on the risk.
PM:
I know.
NH:
So step aside here Murph, for a moment.
NH:
Put the portfolio down.
NH:
Down
NH:
Step aside.
NH:
Now…
NH:
I’m going to close this position.
NH:
Not because we think stocks are cheap.
NH:
But just because we don’t know where prices are going in the short term.
NH:
So we are going to close the Ffootsie short – at 4483
NH:
And we are going to wear the 7 ??? point loss.
PM:
Okay.
PM:
Sorry I did that.
NH:
It’s okay.
PM:
I’m sorry
NH:
We’ll just leave it there – and come back when we have a view.
NH:
So – H&M Capital Management has a flat book.
PM:
Actually, we still have the Northgate short open.
NH:
Well, that can stay open – cos we have a view there.
NH:
And the market has so far only priced in a portion of that view.
NH:
We sold circa 60/65
NH:
Now trading at 53p, down a quarter penny today.
PM:
TP: something beginning with either a two or a three
PM:
SL: 70p
PM:
Lets move on.
11:13AM
NH:
right quick market update
NH:
FTSE off a whole 7 points at 4,487
NH:
will the winning streak continue
NH:
what are we up to?
NH:
8 days in a row?
NH:
anyway
NH:
market does not seem to have made much progress this week
PM:
No — news flow has been none existent
PM:
But what are these flashes coming out now??
PM:
As we type
PM:
UAE…
NH:
concerns Saad
NH:
and another bank
NH:
RTRS-CENBANK DIRECTS UAE BANKS TO BOOK PROVISIONS OF 5O PCT AGAINST AL GHOSAIBI EXPOSURE, 75 PCT VS SAAD EXPOSURE — BANKERS
11:10 23Jul09 RTRS-UAE CENTRAL BANK DIRECTS LENDERS TO TAKE PROVISIONS OVER TWO YEARS – BANKERS
11:10 23Jul09 RTRS-UAE CENTRAL BANK DIRECTS LENDERS TO TAKE PROVISIONS OVER TWO YEARS – BANKERS
PM:
This is being billed as a Reuters exclusive
PM:
oooh
NH:
ABU DHABI, July 23 (Reuters) – The United Arab Emirates central bank has directed banks to take provisions up to 75 percent against their exposure to a pair of troubled Saudi firms over two years, bankers told Reuters on Thursday.
The central bank held a meeting with bankers last Thursday to review the lenders’ reports on their exposure to Saad Group [SAADG.UL] and Ahmad Hamad Algosaibi & Bros.
“According to the guidance of the central bank, banks should take provisions of 50 percent over two years on exposure to Al Ghosaibi and 75 percent on exposure to Saad,” a banker who attended the meeting said.
“Basically, banks are required to take 25 percent provisions on Al Ghosaibi and about 37 percent provisions on Saad this year and the same next year,” he said, declining to be named due to confidentiality reasons.
Another senior banker also confirmed the central bank guidance. The central bank declined to comment.
The central bank held a meeting with bankers last Thursday to review the lenders’ reports on their exposure to Saad Group [SAADG.UL] and Ahmad Hamad Algosaibi & Bros.
“According to the guidance of the central bank, banks should take provisions of 50 percent over two years on exposure to Al Ghosaibi and 75 percent on exposure to Saad,” a banker who attended the meeting said.
“Basically, banks are required to take 25 percent provisions on Al Ghosaibi and about 37 percent provisions on Saad this year and the same next year,” he said, declining to be named due to confidentiality reasons.
Another senior banker also confirmed the central bank guidance. The central bank declined to comment.
NH:
dear, oh dear
NH:
not looking good
NH:
some money being burnt there
NH:
massive blaze in the desert
NH:
I guess Fowke will see it
11:16AM
PM:
Supposed we should do some stocks
PM:
YELL
PM:
WHAT ABOUT YELL
PM:
Drives us mad this stock
NH:
Been absolutely right on the longer term trend
NH:
Trending from comedy levels of five quid a couple of years back
NH:
Towards zero at some stage, we fear.
PM:
But in the meantime, there are so many trash hunters out
PM:
Who think if it has fallen a long way it can recover spectacularly.
PM:
So many scavengers at the corporate tip
PM:
That every time some rubbish news come out – they all buy the stock.
NH:
well, there is a big short position in Yell
NH:
and they have been scrambling to cover today
NH:
price has rocketed 20%
NH:
up 4.75p at 27.5p
PM:
This is on the upbeat news that earnings have all but halved – in the three months to end June.
PM:
Against the 2008 period
NH:
But the key thing here to look at is Yell’s debt, which it is currently trying to refinance.
NH:
Resolution of that not expected until the autumn
NH:
forget the fact that results a little ahead of expectations
NH:
this is what matters
NH:
Debts at £3.8bn
NH:
Our bank facilities are committed until 2011 and 2012 and contain covenants over net cash interest cover and debt cover. The net cash interest cover covenant requires that the ratio of adjusted EBITDA for the latest 12 month period to net cash interest payable for the latest 12 month period not fall below specific threshold ratios at specific test dates. The debt cover covenant requires that the ratio of net debt at the testing date to adjusted EBITDA for the latest 12 month period not exceed specific threshold ratios at specific test dates.
We operated within our debt covenants for the three months ended 30 June 2009 with headroom of 16% and 16% on the net cash interest cover ratio and debt cover ratio, respectively. Drawings on our £400 million revolving credit facility and other short term lines totalled £28.6 million at 30 June 2009.
We operated within our debt covenants for the three months ended 30 June 2009 with headroom of 16% and 16% on the net cash interest cover ratio and debt cover ratio, respectively. Drawings on our £400 million revolving credit facility and other short term lines totalled £28.6 million at 30 June 2009.
NH:
Under the Articles of Association, the directors are required to ensure that the total of all amounts borrowed by group companies do not exceed five times capital and reserves. This ratio is currently exceeded following the significant goodwill impairment during the previous year. Resolutions to authorise the exceeding of this restriction in the Articles will be put to shareholders at the Annual General Meeting on 24 July 2009.
PM:
So, at tomorrow’s AGM they are asking shareholders to give them a waiver – rather than the banks.
NH:
that’s the idea
PM:
what a state to get into
NH:
(Liam, we will come to Arena later. patience pls)
PM:
Anyway, here’s Caz on the Yell Q1s
PM:
Yell’s Q1 results are in line with previous guidance and we do not expect to make any material changes to
forecasts. The outlook is unchanged and there is no update on the company’s refinancing which is expected
to take ‘through the Autumn to complete’. Reflecting the continued trading uncertainty and execution risk with
regards to the refinancing we remain on an In Line recommendation.
forecasts. The outlook is unchanged and there is no update on the company’s refinancing which is expected
to take ‘through the Autumn to complete’. Reflecting the continued trading uncertainty and execution risk with
regards to the refinancing we remain on an In Line recommendation.
Q1 summary
PM:
Yell reported Q1 results broadly in line with our expectations. Geographically UK revenue was down 11% with margins
broadly maintained y/y as cost initiatives offset revenue weakness. While US revenue was only down 8.0% in the quarter
this is mainly due to the seasonality effect which we expect to reverse in Q2. US EBITDA margins were also broadly
maintained. Yell Publicidad revenue was down 14.3% with weaker Spanish performance partly offset by positive trends in
Latin America. EBITDA margins were, however, significantly lower y/y due to the level of the revenue decline and an
increased investment level.
Across the group’s geographies online now represents 21% of overall revenue. This is led by the UK (28%) followed by the
US (18%) and Spain (14%).
Importantly Yell’s cash generation remains strong at 138% in the quarter partly benefiting from the timing of payments
around the quarter. Net debt/EBITDA remains at 4.7x at constant exchange rates and the group had 16% headroom to
covenants at the end of Q1.
The outlook for Q2 was maintained (underlying revenue 17%, EBITDA 30%). Management has not guided on Q3 trends
yet. Covenant headroom is still expected to be 7% at the end of September but still expect a breach by December 2009.
broadly maintained y/y as cost initiatives offset revenue weakness. While US revenue was only down 8.0% in the quarter
this is mainly due to the seasonality effect which we expect to reverse in Q2. US EBITDA margins were also broadly
maintained. Yell Publicidad revenue was down 14.3% with weaker Spanish performance partly offset by positive trends in
Latin America. EBITDA margins were, however, significantly lower y/y due to the level of the revenue decline and an
increased investment level.
Across the group’s geographies online now represents 21% of overall revenue. This is led by the UK (28%) followed by the
US (18%) and Spain (14%).
Importantly Yell’s cash generation remains strong at 138% in the quarter partly benefiting from the timing of payments
around the quarter. Net debt/EBITDA remains at 4.7x at constant exchange rates and the group had 16% headroom to
covenants at the end of Q1.
The outlook for Q2 was maintained (underlying revenue 17%, EBITDA 30%). Management has not guided on Q3 trends
yet. Covenant headroom is still expected to be 7% at the end of September but still expect a breach by December 2009.
NH:
ha
NH:
been sent loads of notes on Yell this morning
NH:
from bears who can’t understand why the stock is rising
NH:
at an operational level things look OK
NH:
internet revs increasing
NH:
but the balance sheet is shot to pieces
NH:
and they can’t trade there way out of £3.7bn of debt
PM:
what sort of notes?
NH:
Numis
NH:
Lorna Tilbian says sell it
NH:
Yell has reported Q1 results slightly ahead of the guidance given at 30th June with
EBITDA of £148m marginally ahead of NSe £143m. Debt was -£3.8bn v NSe -£3.9bn,
helped by currency and operating cash flow. The group reiterated the Q2 guidance
given in June for constant fx declines of -17%/-30% in revenue and EBITDA,
respectively. The process of refinancing the group’s debt (also announced in June)
is progressing ‘as anticipated’, however we believe that in absence of any
stabilisation in trading, any refinancing would likely be on onerous terms and we
highlight that a +200bps increase in the group’s interest rate on £4bn on debt would
increase our interest charge by c.£80m pa. We remain of the view that Yell’s balance
sheet remains a serious risk to equity shareholders and retain our Sell
recommendation.
EBITDA of £148m marginally ahead of NSe £143m. Debt was -£3.8bn v NSe -£3.9bn,
helped by currency and operating cash flow. The group reiterated the Q2 guidance
given in June for constant fx declines of -17%/-30% in revenue and EBITDA,
respectively. The process of refinancing the group’s debt (also announced in June)
is progressing ‘as anticipated’, however we believe that in absence of any
stabilisation in trading, any refinancing would likely be on onerous terms and we
highlight that a +200bps increase in the group’s interest rate on £4bn on debt would
increase our interest charge by c.£80m pa. We remain of the view that Yell’s balance
sheet remains a serious risk to equity shareholders and retain our Sell
recommendation.
PM:
ha
NH:
UBS are neutral
NH:
but they are house broker
NH:
so that means sell
NH:
Depending on how the restructuring plays out, we think Yell shares are worth 0-
80p with the worst case being a debt for equity swap and the best case being a
rollover of the existing debt under favourable terms. Given the lack of visibility on
the outcome, the equity is likely to remain volatile and, trading on c6x 2010E
EBITDA, we see more attractive opportunities elsewhere in the sector.
80p with the worst case being a debt for equity swap and the best case being a
rollover of the existing debt under favourable terms. Given the lack of visibility on
the outcome, the equity is likely to remain volatile and, trading on c6x 2010E
EBITDA, we see more attractive opportunities elsewhere in the sector.
PM:
hahahaha
NH:
leaving themselves plenty of room for error there
NH:
worth between 0 -80p
PM:
NH:
shall we play pin the tail on the donkey
PM:
Where do you think the footsie end the years neil?
NH:
between 3,000 and 6,000
PM:
Yell — could a quid, could be zero
PM:
who knows
NH:
and here’s the Vampire Squid
NH:
At 5.9x FY11E EBITDA, Yell trades at a small discount to other directories
and newspapers. At 0.8x FY11E P/E it looks interesting, but assuming a
rights issue to reduce net debt/EBITDA below 4x, would increase the P/E to
c.6x. However, should we incorporate a double digit interest rate on Yell’s
debt, its P/E would move to c.1.5x. Our 12-month, multiple-based price
target based on 6x CY10E EBITDA moves to 30.5p from 32p.
and newspapers. At 0.8x FY11E P/E it looks interesting, but assuming a
rights issue to reduce net debt/EBITDA below 4x, would increase the P/E to
c.6x. However, should we incorporate a double digit interest rate on Yell’s
debt, its P/E would move to c.1.5x. Our 12-month, multiple-based price
target based on 6x CY10E EBITDA moves to 30.5p from 32p.
PM:
lets move on
11:24AM
PM:
Right Neil
PM:
We are getting demand for RAW — as tho it can just be produced to order
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:
for the Rabble on the Right
NH:
not a great deal around
NH:
but
NH:
rumours of a EUR4.3bn bid for T-Mobile
PM:
Vodafone??
NH:
they are being mentioned as well as Telefonica, the owner of 02
PM:
I just dont believe any of that
PM:
People pushing this — and i know it includes some supposedly in the loop corporate financiers…
PM:
Just seem to ignore the competition angle
PM:
Why should UK competition policy be torn up for the mobile sector??
NH:
we should say this is T-Mobile UK
NH:
not the whole thing
PM:
Sure — but Vod cant buy anything in the UK
NH:
well, they are going to try
NH:
I think
PM:
Couldnt in Germany either
PM:
for that matter
PM:
I just dont believe it will come to anything
NH:
well, we shall see
NH:
somemore raw
NH:
National Express
PM:
Ah, this is more like it
PM:
PM:
shares up 13.25p at 322p
PM:
after the market clsoed last night we got news that they had received another approach
PM:
after FirstGroup had walked
NH:
yes
NH:
now, the word in the market is that this could be a break-up bid involving, NEX’s large Spanish shareholder
NH:
Cosmen
NH:
apparently he wants to buy back the coach company he sold them a few years back
NH:
a private equity group, which is interested in some of the UK coach operations
NH:
and Stagecoach, which would like to get its hands on the rail franchises that the government has not taken control of
PM:
yet
NH:
of course we still don’t know why FirstGroup walked
PM:
did they discover something nasty?
NH:
probably unlikely as they weren’t given access to the books
NH:
and while all this is interesting, there is also another fascinating story about Stagecoach doing the rounds at the moment
NH:
actually is has more to do with the CEO and Brian Souter and his sister, a co-founder of the company, Anne Gloag
NH:
it was in the Telegraph yesterday
NH:
A High Court judge has ordered Nicholas Levene, the former deputy chairman of Bramdean Asset Management, to pay Ms Gloag, 65, who is Scotland’s richest woman, and Mr Souter, who is chief executive of Stagecoach, a total of £8.9m each plus over £12,000 in legal costs.
Mr Justice Teare upheld the pair’s claim that Mr Levene had failed to return both capital and profits relating to investments made in Xstrata and HSBC shares earlier this year.
Mr Levene, who is also vice- chairman of Leyton Orient Football Club and has worked in the City for nearly 25 years, was also ordered to pay a rate of £1,928.77 for each day the payment is late starting from 30th June 2009.
When contacted by The Daily Telegraph, he said: “There was a misunderstanding about what profits were due. But that has been sorted out and paid. As far as I’m concerned this is not an issue.” However, a spokesman for Ms Gloag and Mr Souter said that lawyers acting for the siblings had no knowledge of any payment as of yesterday afternoon.
Mr Justice Teare upheld the pair’s claim that Mr Levene had failed to return both capital and profits relating to investments made in Xstrata and HSBC shares earlier this year.
Mr Levene, who is also vice- chairman of Leyton Orient Football Club and has worked in the City for nearly 25 years, was also ordered to pay a rate of £1,928.77 for each day the payment is late starting from 30th June 2009.
When contacted by The Daily Telegraph, he said: “There was a misunderstanding about what profits were due. But that has been sorted out and paid. As far as I’m concerned this is not an issue.” However, a spokesman for Ms Gloag and Mr Souter said that lawyers acting for the siblings had no knowledge of any payment as of yesterday afternoon.
PM:
hmm, that is a fascinating story
PM:
although some of the maths in the article are a little to difficult to work out
PM:
According to the writ which was filed in the High Court, Ms Gloag and Mr Souter each gave Mr Levene £2.5m in March to invest in Xstrata’s rights issue at a price of 210p per share. At the time the shares were trading in the open market at over 320p. Mr Levene, who has worked in fund management for nearly 25 years, was contracted to sell the shares in the market as soon as he could for a commission of 20pc of the profits.
Around the same time, Ms Gloag and Mr Souter each gave Mr Levene another £2.5m to invest in HSBC’s rights issue which was also deeply discounted.
Mr Levene was instructed to buy the issue, which was 254p a share, at a time when the shares were trading around 370p. He was contracted to sell them as soon as he could, in return for 20pc of the profits.
Around the same time, Ms Gloag and Mr Souter each gave Mr Levene another £2.5m to invest in HSBC’s rights issue which was also deeply discounted.
Mr Levene was instructed to buy the issue, which was 254p a share, at a time when the shares were trading around 370p. He was contracted to sell them as soon as he could, in return for 20pc of the profits.
PM:
On both occasions, according to the writ, Mr Levene did not return either the original capital or the profits.
In May Mr Levene presented Ms Gloag and Mr Souter each with cheques for £5m and £3.8m, representing the profits made from the deals. But the writ claims that the cheques did not clear.
In May Mr Levene presented Ms Gloag and Mr Souter each with cheques for £5m and £3.8m, representing the profits made from the deals. But the writ claims that the cheques did not clear.
PM:
Begs a string of questions
NH:
hmm, looks like those rights prices took no account of the fact that you would have to bought a nil paid share
NH:
anyway, I got loads of calls about this yesterday
NH:
Levene is a big market punter
NH:
knows lots of big market punters like Paul Kemsley, Peter Shalson, the coat hanger king
NH:
and I am told this story will continue to unravel
NH:
it is not limited to Souter and his sister
PM:
Now, Levene used to work at a hedge fund didn’t he?
NH:
yep, something called Integrated Asset management
NH:
that was run by an Arbib of Perpetual fame
NH:
he left around six months ago for personal reasons
NH:
apparently he is in Israel at the moment
PM:
right, we need to look much further into this
NH:
we do
NH:
lots and lots of chatter about this
NH:
unfortunately we can’t repeat any of it
NH:
yet
NH:
but it is just very curious
NH:
not many people cross Souter and his sister
NH:
hard people
PM:
Tough couple
NH:
very hard
PM:
PM:
Apols for any quick zapping on the right
PM:
Sure you udnerstand why…
PM:
NH:
legal reasons
11:35AM
PM:
Eight — half past
PM:
suppose we should have a quick ad hoc on the Webby Drinks
PM:
Got a bit of a boardroom revolt going on
PM:
Monkey has convened a secret lunch with TB to oust me as chief planner
NH:
first the short position
NH:
now the Webby drinks
NH:
this place is falling apart
NH:
what’s the new plan?
PM:
Look — there was a small group of readers int he Long Room who decided Aug 28 was a good date
PM:
But its not!
PM:
Its’ the Friday before the bank holiday weekend
PM:
When i have inquired about getting a venue i have just been met by incredulous stares
PM:
Loads of people will not be able to make taht date
PM:
So… i suggested September 8 — in the Bleeding heart
PM:
have a putative deal with Robert Wilson
PM:
there
NH:
looks like you will have to host two parties
PM:
But the readers done like
PM:
I knmow
PM:
How about Tues/Wed 1 or 2 of Sept?
NH:
not getting involved in this
NH:
I can’t make either or both dates
NH:
but it looks like people have made plans
NH:
too late to change
NH:
reader backlash
PM:
Well, i am around on the 28th s– so happy to be there.
PM:
But i am convinced with need a different date for a larger do
PM:
emptyend Jul 23 11:39
Don’t you folks at the FT have anything useful to say or do? I don’t come here to read social witterings!
Don’t you folks at the FT have anything useful to say or do? I don’t come here to read social witterings!
PM:
Hello?
NH:
sense of humour failure
NH:
anyway
NH:
we should move on
NH:
and they time has come
NH:
there really is no alternative
NH:
we are going to have to look at utility stocks
PM:
Zzzzzzzzz — no not really
PM:
Big moves today
11:41AM
NH:
worst performing sector in London today
PM:
really?
NH:
yep on the back of the new five-year pricing plan from Ofwat
NH:
look at some of the moves
Severn Trent (SVT:LSE): Last: 1,033, down 80 (-7.19%), High: 1,080, Low: 1,030, Volume: 1.31m
Pennon Group (PNN:LSE): Last: 490.00, down 17.5 (-3.45%), High: 501.50, Low: 485.75, Volume: 846.48k
Northumbrian Water Group (NWG:LSE): Last: 241.25, down 12.5 (-4.93%), High: 253.25, Low: 238.50, Volume: 996.41k
NH:
and United Utilities
NH:
which I will have to type out
NH:
coz the auto ticker does not work
PM:
ah
NH:
down 28.2p at 474p
PM:
hmmm
PM:
pretty big falls
PM:
and some of those names take me back to when there was M&A
PM:
that’s mergers and acquisitions, for newer readers
PM:
all those infrastructure funds bidding for companies like Kelda
NH:
and middle eastern funds
NH:
those were the days
NH:
golden days
NH:
anyway, the sector has sprung a big leak today
NH:
because of the severe cuts that Ofwat is planning to impose
NH:
on investment programmes
NH:
They want to spend £21bn and would like the green light to increase bills at more than the rate of inflation
NH:
but Ofwat disagrees
NH:
here’s some detail
NH:
at the end of five years, average water bills will be 12 per cent lower than requested by Severn Trent, 11 per cent lower for Pennon’s South West Water unit, 10 per cent lower than asked by Northumbrian Water and 11 per cent lower than requested by United Utilities.
NH:
and here’s another bone of contention
NH:
The 5-year review estimates that companies will be able to raise their cost capital over the next five years at a rate of 4.5 per cent a year – below the lowest industry estimates of 4.7 per cent, and well below Thames Water’s 5.25 per cent.
NH:
(Empty End pls stop bickering with other readers and Paul)
PM:
Sorry — i encouraged that
NH:
crikey, I am the voice of reason this morning
NH:
that time in the desert really has worked
NH:
right
NH:
back to water
NH:
the Ofwat decision
NH:
has prompted loads of moaning from the ater companies
NH:
they are already saying, we will have to make tough cuts to our investment prorgrammes
NH:
and leakages will only be held level rather than cut further
NH:
actually there are already some dumb arguments coming out
NH:
such as
NH:
this from the boss of Thames Water, David Owens
NH:
Decades of underinvestment means our bills are unsustainably low
NH:
not sure I get that
NH:
but anyway
PM:
Any idea what this means for dividends from the secotr
PM:
?
NH:
not yet
NH:
it can’t be good news
NH:
but whether anyone will have to cut, I am not sure
NH:
when I have some comment will put it up
PM:
thanks
NH:
actually got some comment now
NH:
from Merrill Lynch
NH:
Economic regulator OFWAT today released its draft determinations for the water
and sewerage companies in England and Wales.
Today’s determinations were tougher than even our cautious stance.
In terms of the prospects of the listed water companies, our preliminary takeaway
from the press release is that the outcome is harsh for United Utilities and Severn
Trent and broadly in line with our cautious expectations for Pennon’s South West
water and Northumbrian Water.
and sewerage companies in England and Wales.
Today’s determinations were tougher than even our cautious stance.
In terms of the prospects of the listed water companies, our preliminary takeaway
from the press release is that the outcome is harsh for United Utilities and Severn
Trent and broadly in line with our cautious expectations for Pennon’s South West
water and Northumbrian Water.
NH:
Severn Trent (-1.5% average K-factor, first year -1.7%) and United Utilities (-0.6%
average K-factor, first year -6.3%) have been allowed negative price limits. This is
even below our cautious expectations.
average K-factor, first year -6.3%) have been allowed negative price limits. This is
even below our cautious expectations.
Northumbrian Water and Pennon both have been allowed 0.9% average K-factor
for the 2010-15 period, generally in line with our expectations. Northumbrian
Water has been allowed 2% K-factor for the first year, better than our expectation.
In terms of industry level price limits (K-factors), the regulator has allowed
average -0.1% for the 5 years upto March 2015 (Industry had proposed 2.5%)
The Industry’s headline allowed cost of capital (WACC) has not been disclosed in
the press release but judging from the K-factors, it is likely to be below our 4.6-
4.75% range.
NH:
Allowed investments came in at £21bn for the industry, 13% below the £24.1bn
proposed by the industry and generally in line with our 10-20% expected haircut.
In November 2009, the regulator will publish its final determinations, which going
by past experience, result in a slightly better outcome than at the draft
determinations stage.
proposed by the industry and generally in line with our 10-20% expected haircut.
In November 2009, the regulator will publish its final determinations, which going
by past experience, result in a slightly better outcome than at the draft
determinations stage.
OFWAT will host an analyst meet at 9 am today which will provide more detail
about the draft determinations. We will assess our preliminary reading as more
information is available.
PM:
thansk for all that
NH:
no probs
11:50AM
NH:
Emptyend asks an interesting question about RWE
NH:
and the North Sea
NH:
yesterday they took control of the Braegh gas field
NH:
buying various stakes
NH:
what that tells is is they want North Sea assets
NH:
and are prepared to spend
NH:
and as we know
NH:
Dana very big in the North Sea
NH:
trying to get some comment on the deal
PM:
hmmm
PM:
interesting..
NH:
I agree Empty
NH:
this deal makes sense
NH:
and I am convinced RWE have been pouring over the company
NH:
I think a move comes in the autumn
11:54AM
NH:
right a few other bits and bobs to round up on
NH:
trading statements from Compass
NH:
Tate & Lyle
NH:
and International Personal Finance
NH:
but
NH:
did you see that Lex on financial blogs.
NH:
read on the plane back from the desert yesterday
PM:
Yes, we focused on it here yesterday..
NH:
That line about blogs simply relying on traditional media for inspiration and stories!!
PM:
Yeah, yeah—we discussed here yesterday.
NH:
And how blogs don’t get the sort of traffic associated with traditional media.
PM:
YES. We discussed here yesterday.
PM:
Everyone’s got it in for bloggers at the moment.
PM:
Including the readers
PM:
Actually, its not everyone – it’s just most people at CNBC.
PM:
We had a bit of fun with this guy earlier in the week
NH:
Is that from the Onion or something?
PM:
No. its real and serious.
PM:
Can you imagine what that guy is like in the flesh
PM:
And he used to be something senior at the Journal.
PM:
And Forbes, apparently.
NH:
The guy needs sedating.
PM:
indeed
PM:
Well, Gasbag’s been on the case also now
NH:
Oh no, Gasparino.
PM:
Bespoke Investment have picked up on it.
PM:
you have to go about two thirds into that interview
PM:
And then Gasbag startgs gassing about how whenever he says something vaguely positive about Goldman Sachs all the MORONIC BLOGGERS go for him as some sort of Goldman groupie.
PM:
And he makes some pompous statement about how he has to put both sides of the story.
NH:
Actually, he’s specifically having a go at Zerohedge, which he refers to as Zero Intelligence
PM:
Well, they do have a tendency to jump on a conspiracy bandwagon.
NH:
Indeed, but they do it with some style
PM:
Anyway, bring it on – that’s what I say.
PM:
Lex
Gasbag
Dennis Kneale or whatever he’s called.
Gasbag
Dennis Kneale or whatever he’s called.
PM:
Bring em on.
NH:
jeepers, you are in combative mood
NH:
readers
NH:
CNBC
NH:
Lex
NH:
I’ll take on anyone
11:59AM
NH:
right let’s round up
NH:
we have been agog about the Porsche news this morning
PM:
details here
PM:
Porsche has a clear position on the legal requirement to publish the salaries of the members of the management board at listed companies. As far as Porsche is concerned, publishing the individual remuneration details does not provide an investor with information that could be of relevance to its decision to buy or sell shares. When deciding whether to invest or not, an investor must only be able to judge whether the development of the total remuneration of the management board is reasonable in proportion to the Company’s profit. Porsche is therefore convinced that the total sum of management board remuneration and its break-down into fixed and performance-based components is sufficient.
Porsche has a clear position on the legal requirement to publish the salaries of the members of the management board at listed companies. As far as Porsche is concerned, publishing the individual remuneration details does not provide an investor with information that could be of relevance to its decision to buy or sell shares. When deciding whether to invest or not, an investor must only be able to judge whether the development of the total remuneration of the management board is reasonable in proportion to the Company’s profit. Porsche is therefore convinced that the total sum of management board remuneration and its break-down into fixed and performance-based components is sufficient.
NH:
I like the line on buying
NH:
s far as Porsche is concerned, publishing the individual remuneration details does not provide an investor with information that could be of relevance to its decision to buy or sell shares
NH:
NH:
Who was the Bernstein guy that really got to the detail on this Porsche fruit machine stuff?
PM:
Max Warburton
PM:
This is from last October
NH:
right
NH:
just going to wrap up a couple of these trading statements
NH:
most of them seem to have gone down fairly well
NH:
for example Tate & Lyle, shares up 28.25p to 340p on the back of a trading statement that is in line expectations
PM:
And that triggers a 10% move??
NH:
well the stock is cheap – yielding around 7%
NH:
here’s a quick note from Citi
NH:
Decent start — Tate has made an “encouraging start” to FY10: adj. PBT in the
quarter is in line with the prior period (with the benefit of f/x translation) and
ahead of Tate’s expectations.
quarter is in line with the prior period (with the benefit of f/x translation) and
ahead of Tate’s expectations.
Divisional colour — Sucralose (strong volumes) and TALFIIE (lower net corn
costs) are both ahead of 1Q09A. Sugar is ahead of expectations but below the
prior period (a return to more normalised molasses profits). TALFIIA is
marginally below 1Q09A (lower corn co-product returns) but there are some
pleasing aspects (value-added growth, stable sweetener volumes).
NH:
Outlook — Visibility remains limited, but 2Q10E adj. PBT is expected to be
lower than 2Q09A due to the very tough comp in TALFIIA (corn by-product
boon). Thereafter, the comps get easier (much easier in 3Q10E) but much
depends on the outcome of the CY10 pricing round from 4Q10 onwards.
lower than 2Q09A due to the very tough comp in TALFIIA (corn by-product
boon). Thereafter, the comps get easier (much easier in 3Q10E) but much
depends on the outcome of the CY10 pricing round from 4Q10 onwards.
Estimates — We suspect consensus numbers at the operational level will not
change materially off the back of this update. However, mark to market f/x
losses on the US$ may put down some downward pressure on numbers
(probably in the 3% to 5% range).
Citi View — A stabilisation in trading is encouraging and valuation is
undemanding. The key to whether Tate’s shares rise materially from here is the
outcome of CY10 pricing negotiations. If the corn processors “behave”, i.e.
maintain their judiciousness with regard to HFCS volumes (keep an eye on
ethanol), then better times could be in store for Tate’s shareholders.
12:02PM
NH:
also good statement out from Close Brothers
NH:
as we had been hearing, Winterfloods have done exceptionally well out of all of the volatility earlier this year
NH:
here’s a quick comment on Wins from our former colleague Sarah Spikes who is now at Arden Partners
NH:
sums things up
NH:
nicely
NH:
Close Brothers’ pre-close statement for the five months to 30th June supports our belief that performance in the securities business would be strong. We are expecting FY PBT of £110m, which is adjusted EPS of 57.8p on which we are expecting a 43p dividend. We expect about 55% of that PBT to come from securities, with 10% from asset management, and 35% from the bank. We will leave our numbers unchanged.
NH:
Securities: The company said that Winterflood’s very strong contribution allowed the securities division to book bargains significantly ahead of the first half. Mako and Seydler appear to be performing in line with previous comments from the company. We have forecast £64m H2 revenue in Winterfloods, versus £55m in H1. We believe that market making has become a bit more competitive in recent weeks, as improving markets have lured some of the mid-cap brokers back into market making. The return of competition to market making could be offset by the LSE’s plans to take more small-cap stocks out of SETs, but the LSE change does not happen until September, so it is too early to know what the net effect of these two changes will be.
NH:
Asset management: AM’s total FUM at end June was £6.8bn. We are forecasting FY FUM of £6.8bn (down 17% from £8.2bn last year and down from £6.9bn at end Jan). The company said nothing about costs in this unit, but we believe there have been some savings.
Bank: We are forecasting bad debts to be 2.6% for the FY, with 5% loan book growth. Today’s statement says the loan book was up slightly at £2.33bn (£2.31bn at end Jan) and that bad debts had increased as expected. Our forecast for the FY loan book is £2.34bn. Sentiment towards banks has shifted recently because margins are wide and interbank lending has become more available.
Valuation: Our SOTP valuation puts Close on 776p, offering upside of 16%.
Recommendation: We move from a BUY to an ADD on valuation grounds. Medium term we believe new management’s strategy is credible, and that further corporate activity is possible (though the company says it has no plans along these lines). Results will be out Sept 29th.
PM:
Wins
PM:
how do they do it??
PM:
all that competition out there and year after year
PM:
the machine keeps purring
PM:
NH:
amazing
NH:
right Compass
NH:
market has reacted rather badly to its trading statement
NH:
off 28p at 324p
NH:
Q3 revenue growth came in below expectations
NH:
according to analysts
NH:
Seymour Pierce
Compass (BUY) – 3Q09 IMS
CPG.L (353p, Target price 400p) Market cap: £6480m
Underlying 3Q09 revenue growth was below expectations but the margin
improvement was ahead of our estimate.
Organic revenue growth in the first 9 months of the year was 0.8% compared with
2.3% for the first half. This indicates a decline in the third quarter and means that
our FY growth target of 2.2% is unlikely to be met. However, this will be
substantially offset by currency gains.
The good news is on the margin which improved by 50bps in the third quarter
against our estimate of 10bps.
NH:
North America continues to be strong with 2.6% organic growth and a 40bps
margin improvement. Continental Europe saw a 0.6% revenue decline with a
20bps improvement and UK revenue declined by 4.8% but with a 40bps
improvement.
margin improvement. Continental Europe saw a 0.6% revenue decline with a
20bps improvement and UK revenue declined by 4.8% but with a 40bps
improvement.
We continue to recommend Compass as a BUY because:
• It is experiencing good organic growth in most markets, including N. America,
due to Healthcare and Education outsourcing.
• It is generating significant margin improvements due to lower input cost
pressures and the MAP initiative.
• It is now trading on a significant discount to its closest peer Sodexo. Compass
is trading on a PER to September 2009 of 11.2x. The FY2009 yield is 3.7%.
Sodexo is on 15.0x 2009 earnings and yields 3.6%. We retain out BUY stance.
NH:
and here’s Merrill
NH:
they are slightly more positive
NH:
Compass has released its Q3 IMS basically in-line with expectations and we
reiterate our Buy recommendation with a 410p price objective. As expected
organic sales growth has continued to decline but the company is offsetting this
with accelerated cost savings. It reports new business is running at a similar level
to both H1 and last year and, as expected, while there is some weakness in LFL
volumes at Business & Industry and Sports & Leisure, Education, Healthcare and
Remote continue to make good progress. Pricing continues to hold up well.
reiterate our Buy recommendation with a 410p price objective. As expected
organic sales growth has continued to decline but the company is offsetting this
with accelerated cost savings. It reports new business is running at a similar level
to both H1 and last year and, as expected, while there is some weakness in LFL
volumes at Business & Industry and Sports & Leisure, Education, Healthcare and
Remote continue to make good progress. Pricing continues to hold up well.
NH:
Organic sales slipping, but expect stabilisation in Q4
Overall, we estimate Q3 group organic sales growth was down 2.5%, from c1% in
Q2 and compares with our 0% to -1% estimate, although Q2 was flattered by the
timing of Easter and Q3 adversely affected. The company expects organic sales
growth to be broadly flat for the year implying Q4 will also be down c2.5% (as the
rate of decline in events catering moderates), in-line with our expectations.
Margins are continuing to improve in all regions and are running c60bps ahead
YTD (60bps in H1 and 50bps in Q3). We expect c60bps improvement for the full
year. We leave our forecasts unchanged.
Overall, we estimate Q3 group organic sales growth was down 2.5%, from c1% in
Q2 and compares with our 0% to -1% estimate, although Q2 was flattered by the
timing of Easter and Q3 adversely affected. The company expects organic sales
growth to be broadly flat for the year implying Q4 will also be down c2.5% (as the
rate of decline in events catering moderates), in-line with our expectations.
Margins are continuing to improve in all regions and are running c60bps ahead
YTD (60bps in H1 and 50bps in Q3). We expect c60bps improvement for the full
year. We leave our forecasts unchanged.
NH:
Valuation supported by EPS growth and upgrade potential
Compass trades on 2010E metrics of 11.2x PE, 6.7x EV/EBITDA, with a 4.1%
dividend yield and a 9% FCF yield (post all capex), and has a strong balance
sheet. Our forecasts assume a margin of 6.4% in 2009, 6.5% in 2010, and 6.6%
in 2011. Compass’ earnings forecasts are very sensitive to small changes in cost
and pricing assumptions. A further 100bps increase in forecast EBITA margin, all
other things being equal, would add 20% to our 2010 EPS forecast, leaving the
stock trading on just 8.6x PER.
Compass trades on 2010E metrics of 11.2x PE, 6.7x EV/EBITDA, with a 4.1%
dividend yield and a 9% FCF yield (post all capex), and has a strong balance
sheet. Our forecasts assume a margin of 6.4% in 2009, 6.5% in 2010, and 6.6%
in 2011. Compass’ earnings forecasts are very sensitive to small changes in cost
and pricing assumptions. A further 100bps increase in forecast EBITA margin, all
other things being equal, would add 20% to our 2010 EPS forecast, leaving the
stock trading on just 8.6x PER.
12:05PM
NH:
and finally a quick trip to small cap corner
NH:
on Arena
NH:
we have some feedback from house broker Altium
NH:
Altium view: Yesterday afternoon Arena announced a new media rights contract with
Satellite Information Services (SIS) for the provision of coverage of horse racing
content from all of its seven racecourses. The new agreement will replace the current
contract with BAGS at its expiry on 31 December 2011 and will run for five years to 31
December 2016. Very significantly, the board of ARE estimate that the revenues
receivable by the company will total £106m over the contract term, almost twice the
£55m that the current deal is estimated to deliver. This is a truly excellent deal in our
view and reflects the quality of Arena’s product. Upfront payments are an added
attraction; ARE will receive £12.5m immediately, a further £12.5m next July and £7m
in July 2011. Combined these payments total £32m, very materially reduce group
indebtedness, and in so doing remove any concerns with respect to next year’s debt
repayment. Furthermore it will significantly enhance the ability of the company to raise
funding to exploit its planned estate development projects.
Satellite Information Services (SIS) for the provision of coverage of horse racing
content from all of its seven racecourses. The new agreement will replace the current
contract with BAGS at its expiry on 31 December 2011 and will run for five years to 31
December 2016. Very significantly, the board of ARE estimate that the revenues
receivable by the company will total £106m over the contract term, almost twice the
£55m that the current deal is estimated to deliver. This is a truly excellent deal in our
view and reflects the quality of Arena’s product. Upfront payments are an added
attraction; ARE will receive £12.5m immediately, a further £12.5m next July and £7m
in July 2011. Combined these payments total £32m, very materially reduce group
indebtedness, and in so doing remove any concerns with respect to next year’s debt
repayment. Furthermore it will significantly enhance the ability of the company to raise
funding to exploit its planned estate development projects.
NH:
Implications for estimates / valuation / recommendation: Table 1 above details
our revised estimates; whilst there is only a 5 month benefit from the first payment in
the current financial year, by FY3 we see PBT enhancement of at least 22.5%. From
FY2012E onwards we expect the annual boost to profits to be £10m. Given this very
significant announcement and the subsequent boost to the quantum and quality of
earnings we upgrade our target price to 50p (30p).
our revised estimates; whilst there is only a 5 month benefit from the first payment in
the current financial year, by FY3 we see PBT enhancement of at least 22.5%. From
FY2012E onwards we expect the annual boost to profits to be £10m. Given this very
significant announcement and the subsequent boost to the quantum and quality of
earnings we upgrade our target price to 50p (30p).
NH:
and finally
NH:
International Personal Finance
NH:
the emerging markets doorstep lender
NH:
look at it go today
NH:
up 19p to 98.5p
PM:
yeah right
NH:
they have had a micralous recovery
NH:
not sure how
NH:
looks this from Numis
NH:
IPF reported interim results well ahead of our forecasts with underlying pre-tax profits of £9.1m vs. our forecast of £3.6m. We have raised our forecasts for this year from £42.3m to £51.7m and our target price from 173p to 215p.
NH:
they have smashed expectations
NH:
but how??
NH:
A story of two quarters: In Q1 the group lost £8.5m but made a profit of £17.6m in Q2. The Q1 Q2 profit performance is testament to the very short duration and rapid impairment policy that IPF has allowing problems to be rapidly expunged from the balance sheet and P&L. The Q2 number was only 12% below Q2 last year. Excluding Hungary the rest of the group saw profitability increase 8% against the record Q2 reported last year. Both Mexico and Romania are performing well despite the weak macro economic environment. Mexico is on track to deliver a profit for this year as a whole and both Mexican regions were profitable in Q2. Romania lost £1.9m in H1 down from a loss of £4.8m in H1 last year.
NH:
and no rights issue coming
NH:
Covenant risk substantially reduced: The group would need to see a 69% decline in profitability through the second half of this year to breach its covenants. Excellent cost control is expected to see costs down 13.3% (£22.1m) in H2 and margin expansion is expected to add a further £10-12m to H2 profitability. With H2 last year being negatively impacted by £6m due to credit tightening we see a low probability of a banking covenant breach.
NH:
Valuation: We believe a bottom of the cycle multiple of 7.1x falling to 2.9x for the year ending 31.12.2011 is too low. IPF remains one of the highest ROE banks in the world and offers an attractive medium term growth profile. Despite the profits warning and dramatic recessions in most of IPF’s markets 2009 profits are expected to be 10% up on 2007.
NH:
and back to Arena Leisure
Arena Leisure (ARE:LSE): Last: 30.50, up 0.5 (+1.67%), High: 30.50, Low: 29.50, Volume: 132.79k
NH:
the biggest shareholders are the Reuben Brothers I believe
NH:
right
NH:
that’s it from me
PM:
thanks neil
PM:
Ive got a lunch to run to
PM:
too many lunches recently
PM:
hard work
PM:
NH:
where to
PM:
havent been there before
PM:
anyway — thanks for all your input
PM:
Sorry if grumpy
NH:
i thought that did pastries
NH:
and cakes
PM:
Tracy says its not great
NH:
where it is?
PM:
Soho
PM:
Fitz — cant cut and paste from the over engineered website
NH:
huge plates of stew
NH:
by the looks of it
PM:
Chilledsoup of organic market vegetables
PM:
thank you monkey
PM:
I didnt organise, obviuosly
NH:
Fitz – zapped and banned for a year
PM:
Ah, Zoomy came in to Tea at the FT yeserday
PM:
Zoomy you should have called by
PM:
Right — gotta go
PM:
thanks
PM:
we wil be back tomorrow at 11am
PM:
Better recharge the zapper also
PM:
after this morning
PM:
Prometheus — jsut remember that we can zap a lot quicker than people can set up fresh webmail addresses 
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PM:
seeya