Markets live chat transcript for the chat ending at 12:09 on 24 Jul 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
Hi
PM:
Welcome to Market Live
PM:
11.04
PM:
Misleading name that, of course.
PM:
This is the place on Ft Alphaville where we talk about random stuff.
PM:
Fort Alphaville.
PM:
So, we’ll be running thru
NH:
The slow death of Big Brother
NH:
Drinking dates
NH:
How brilliant L&G is
NH:
Swine flu
NH:
This great fight that broke out in the Korean parliament
NH:
Why stocks are headed to the moon.
PM:
That’s the moon in the sky
PM:
Not some Korean guy called Moon.
NH:
We could GO LIVE at any time to Norwich.
NH:
Important count underway there. Not
NH:
Result expected at 11.30
PM:
Actually, that Korean stuff is the key story.
PM:
For those who missed it, watch this
NH:
Stop taunting the readers, Murphy
PM:
Taunting?
PM:
PM:
I haven’t even begun.
NH:
Suppose we can chat about markets,
NH:
In the absence of anything more inspiring.
NH:
Actually, now ive started clicking on Korea stuff, seen this
NH:
We cannot but regard Mrs. Clinton as a funny lady as she likes to utter such rhetoric, unaware of the elementary etiquette in the international community,
NH:
Sometimes she looks like a primary schoolgirl and sometimes a pensioner going shopping
NH:
That’s North Korea on Hilary Clinton
PM:
Neil? markets?
NH:
Hmmm – okay
PM:
Glad I convinced you to close that short yesterday.
NH:
Indeed, you saved my bacon there.
NH:
It’s a bull market
PM:
And so what are your most bullish features today?
NH:
well
NH:
the great UK GDP reading
NH:
the results from Ericsson
NH:
the fact that
NH:
Microsoft, Amazon, Juniper Networks, Broadcom and Amex were all trading lower post results in after market trading
NH:
why is this market up??
PM:
i notice fistynuts over on the right is mixing me up with some guy who was bearish on here
PM:
Neil — its going to the moon
PM:
Financials
PM:
Miners
PM:
Builders merchants
PM:
Catalogue shopping.
NH:
Yeah, catalogue shopping !!!!
NH:
That’s a HUGE growth business.
PM:
Step aside solar
PM:
Biotech
PM:
Mobile
PM:
Give me Argos
PM:
How can I get exposure to Homebase.
PM:
Just gonna FLY this sector
NH:
indeed, Home Retail up 8p at 307p
NH:
In fact, this month alone it’s up almost 20%
PM:
Told you..
11:12AM
PM:
Index update
NH:
up 32 points at 4,592
NH:
that means the index is on course for a tenth straight days of gains
NH:
11 is the record
NH:
happened twice before
NH:
but this 10-day move
NH:
is much, much bigger in percentage terms
NH:
now up to 10.7%
NH:
and it just ignores bad news
NH:
like the GDP reading
NH:
and the Ercisson results
NH:
actually what’s been the impact elsewhere of the GDP reading
NH:
currency?
PM:
Sterling took it on the nose
PM:
Cable down from 1.653 to 1.645 over the session
NH:
and what about gilts?
PM:
blinking eck — im behind on this
PM:
10 yeild yields approaching 4%
NH:
hmmm
PM:
Imagine where they’d be without QE
NH:
of course
NH:
gilts not helped by the comments from Andrew Sentence yesterday
NH:
but they have crept up yields
NH:
and I think there is a big issue of new paper in the US today
NH:
right
NH:
have a few bits of comment on the GDP figs
NH:
here’s Michael Saunders at Citigroup
NH:
The ONS report that Q2 GDP fell 0.8% QoQ, a deeper drop than expected by
both the consensus (which looked for a drop of 0-.3% QoQ) and our forecast
(drop of 0.6% QoQ). As in Q1, construction output was especially weak (down
2.2% QoQ), with manufacturing down 0.3% QoQ and services down 0.6% QoQ.
GDP is down 5.6% YoY, the biggest drop (outside WW2 and the wind-down of
the war economy) since the 1930s. The drop in GDP from the pre-recession
peak (5.7%) is much greater than the big three recessions of the last 60 years.
both the consensus (which looked for a drop of 0-.3% QoQ) and our forecast
(drop of 0.6% QoQ). As in Q1, construction output was especially weak (down
2.2% QoQ), with manufacturing down 0.3% QoQ and services down 0.6% QoQ.
GDP is down 5.6% YoY, the biggest drop (outside WW2 and the wind-down of
the war economy) since the 1930s. The drop in GDP from the pre-recession
peak (5.7%) is much greater than the big three recessions of the last 60 years.
NH:
We expect that Q2 will turn out to be the last quarter of recession (i.e. falling
GDP). But, as well as a deep recession, we expect a slow recovery, held back
by high private debts and (with inadequate bank capital) poor credit
availability. Potential growth also is probably falling markedly, as the IMF
warns. It took 14 quarters for GDP to regain the pre-recession peak after the
mid-1970s recession, and 13 quarters after the recessions of both the early
1980s and early 1990s. This time, we expect it will take about 20 quarters (i.e.
until 2013Q1) before GDP regains the pre-recession peak (2008Q1). It seems
it will be many years before the UK returns to a well-balanced and sustainable
mix of low unemployment, low fiscal deficit and low public debts, decent
economic growth and low inflation.
GDP). But, as well as a deep recession, we expect a slow recovery, held back
by high private debts and (with inadequate bank capital) poor credit
availability. Potential growth also is probably falling markedly, as the IMF
warns. It took 14 quarters for GDP to regain the pre-recession peak after the
mid-1970s recession, and 13 quarters after the recessions of both the early
1980s and early 1990s. This time, we expect it will take about 20 quarters (i.e.
until 2013Q1) before GDP regains the pre-recession peak (2008Q1). It seems
it will be many years before the UK returns to a well-balanced and sustainable
mix of low unemployment, low fiscal deficit and low public debts, decent
economic growth and low inflation.
PM:
that’s not very on msg
PM:
Slow recovery
NH:
here’s a little bit of Howard Archer
NH:
The Q2 GDP data are a really nasty and disappointing shock, with the rate of contraction slowing far less markely than expected. Indeed, it is very hard to put any positive spin on GDP contraction of 0.8% quarter-on-quarter, even if it was down substantially from drops of 2.4% quarter-on-quarter in the first quarter and 1.8% quarter-on-quarter in the fourth quarter of 2008. It was the fifth successive quarter of contraction and caused the year-on-year decline in GDP to widen to 5.6%.
NH:
The second-quarter performance was dragged down by construction output slumping by 2.2% quarter-on-quarter. Meanwhile, service sector and manufactuirng activity still declined at a pretty fair clip.
No details were released on the expenditure side of the economy in the second quarter but it seems highly likely that GDP was dragged down by further substantial de-stocking and still sharply contracting investment. However, consumer spending almost certainly contracted at a much reduced rate given that retail sales rose by 0.7% quarter-on-quarter in the second quarter while the Bank of England’s regional agents have reported that the rate of contraction on consumer services has eased.
NH:
It now looks likely that GDP contraction this year will now be around 4.7% rather than the 4.3% decline that we had previously expected. The sharp second quarter drop in GDP suggests that hopes of recovery over the coming months are based on even rockier ground. Furthermore, there continue to be serious economic and financial obstacles to a return to sustainable growth – most notably ongoing tight credit conditions amid still serious financial sector problems, the need for consumers and corporates to improve their balance sheets, and elevated and still markedly rising unemployment. Meanwhile, domestic demand in key overseas markets remains muted.
NH:
Furthemore, it is very possible that swine flu could have a significant dampening impact on economic impact over the coming months.
PM:
Someone was mentioning swine flu over on the right
PM:
Is Throg around — he’s our only declared case here
PM:
i believe
NH:
actually Brewin Dolphn have just published something
NH:
on SF
NH:
and its impact on the market
NH:
not sure it says anything ground breaking
NH:
The spread of swine flu is now described by the UN as ‘unstoppable’. The UK is predicting 100,000 new cases a day by the end of the summer. The World Health Organisation said on 21 July that 700 people had now died since the outbreak began four months ago and that the pandemic is developing at such a pace that it is pointless to try and document every case. They have also warned that it will become the biggest flu pandemic ever seen
NH:
We feel that general sentiment at present is that the worst case scenario will not be tested and that the impact on corporate Britain will be limited; therefore share prices have not yet been ‘infected’. However, as time goes on and if the numbers of cases increase in line with projections, concern may rapidly mount.
NH:
We consider the main areas which could be affected as follows:
Consumer – High Street footfall is likely be affected by a reduction in visits by infected and non-infected people with an impact on the main players such as Next, M&S etc. On the other hand, there could be a positive impact on the key online players such as ASOS, N Brown and Tesco.com.
NH:
Travel and Leisure – a reduction in the circulation of people both due to sickness and the desire to avoid contact with infected people could lead to volume falls on all modes of transport; bus, rail, air etc with a negative impact on the likes of National Express, Go-Ahead, First Group, Stagecoach and Arriva and the major airlines. Hotel occupancy both due to a reduction in business travel and a reduction in holiday activity is likely to fall, as will attendance of areas where people congregate, e.g. pubs, restaurants, gyms, coffee shops etc. This will affect companies such as Holidaybreak and Restaurant Group
NH:
Support Services – Given the heavy ‘human capital’ element of many Facilities Management businesses, high levels of sickness could lead to high proportions of expensive temp labour being required, affecting stocks such as Mitie, Serco, Capita and Carillion; however, we believe current valuation methods for recruitment firms and engineering consultants are unrelated to current earnings and that prices should therefore be relatively unaffected whatever the operational impact.
PM:
Starve a fever, feed a cold
NH:
Healthcare – Large Pharma companies are benefiting from anti-viral orders – earlier this week Glaxo talked of a ‘significant contribution’ to profit; Care home operators are partially at risk should the elderly become relatively more vulnerable. As such Southern Cross and Care UK’s Residential division are exposed.
PM:
Swine flu is fever
NH:
actually that’s all blindingly obvious
PM:
PM:
cruel
NH:
but fair
NH:
where to now?
PM:
ITEm club is upbeat
PM:
n Today’s numbers confirm that the worst of the recession is finally behind us but the fall in output in Q2 was larger than we had expected given the stronger survey data of recent months.
n Today’s numbers confirm that the worst of the recession is finally behind us but the fall in output in Q2 was larger than we had expected given the stronger survey data of recent months.
n It does appear that recent hopes of recovery have run ahead of reality. With credit still severely restricted, consumers and businesses continuing to retrench and world trade yet to pick up, it is hard to see any grounds for sustained optimism at the moment.
PM:
jsut pr release stuff, tho
PM:
“Today’s numbers confirm that the worst of the recession is finally behind us but the fall in output in Q2 was larger than we had expected given the stronger survey data of recent months. The preliminary estimate indicates that GDP fell 0.8% in Q2 following a 2.4% contraction in the previous quarter, and takes the annual growth rate to -5.6% – the lowest since records began in 1955.
“The 0.3% contraction in manufacturing is a marked improvement on the 5.5% fall seen in Q1 and this is no doubt being driven by the turning of the stock cycle. We expect the quarterly declines to continue to ease over Q3. Q4 will get a boost from the impending VAT increase next January as consumers bring forward spending, though consumers will remain under pressure from further employment cuts. Looking further ahead, the economy will remain in a feeble state next year, growing very slowly.
“It does appear that recent hopes of recovery have run ahead of reality. With credit still severely restricted, consumers and businesses continuing to retrench and world trade yet to pick up, it is hard to see any grounds for sustained optimism at the moment.”
PM:
Very go cityunslicker — bear flue
PM:
flu
PM:
good!
11:24AM
PM:
where now
PM:
national Express?
NH:
yeah, we should have a quick look at that
PM:
CVC Capital Partners have confirmed the FT scoop this morning
PM:
Lina Saigol
PM:
and said they are working with the Cosman family on a possible cash bid for NEX
PM:
Sent shars up 29p at o 353
PM:
even though the offer would have valued them around 336p based on Lina’s story
NH:
yep
NH:
although the story also says NEX want more at least 400p
PM:
right
NH:
Now, most of the event drive types I have talked to this morning are very sceptical this deal will happen
NH:
they say it will be very tricky to pull off
PM:
Why??
NH:
well, the debts, the cross rail defaults
NH:
that sort of stuff
NH:
but those fears might have been overplayed IMO
NH:
first, the Spanish banks are prepared to roll over the Nex debt
PM:
So Mr Cosmen must have some good connections at Santander
NH:
we are presuming it is Santander
NH:
they like to bankroll this sort of stuff
PM:
certainly do
PM:
or did
NH:
as for the rail stuff
NH:
presumably, Cosmen and CVC would look to sell those on to someone like Stagecoach of Go-Ahead
NH:
and the govt could let that happen
PM:
why??
NH:
because the alternative is taking control of these franchises and auctioning them again
NH:
and how much are they going to get for them in this environment?
NH:
much better to let a new owner take them on the same terms
PM:
let the market sort it out
PM:
so what does CVC get out of all this
NH:
the UK bus assets, I guess
NH:
while Cosman gets the Spanish stuff
PM:
so carve up
NH:
yep
NH:
anyway that’s just one view
NH:
this all looks pretty early/preliminary
NH:
so early that there is not even very much analyst reaction
NH:
although a few bits of starting to come through
NH:
here’s Panmure
NH:
National Express – target price increased from 265p to 350p
We have increased our target price from 265p to 350p. Our previous target
price reflected the uncertainties faced by NEX under a standalone scenario,
including ongoing issues with UK rail (including whether or not it can retain
two of its three rail franchises, the exposure to Spanish coach operations, the
need to significantly strengthen an overstretched balance sheet and
substantial refinancing needs in the next couple of years at higher costs).
Recent bid interest from FirstGroup, and now from another suitor believed to
be a CVC/Cosmen family combination, has diminished the likelihood of
NEX remaining an independent company.
We have increased our target price from 265p to 350p. Our previous target
price reflected the uncertainties faced by NEX under a standalone scenario,
including ongoing issues with UK rail (including whether or not it can retain
two of its three rail franchises, the exposure to Spanish coach operations, the
need to significantly strengthen an overstretched balance sheet and
substantial refinancing needs in the next couple of years at higher costs).
Recent bid interest from FirstGroup, and now from another suitor believed to
be a CVC/Cosmen family combination, has diminished the likelihood of
NEX remaining an independent company.
NH:
The Cosmen family, which already own c18.5% of NEX, is in our view mainly interested in the Spanish coach operations. Some of the other parts of the NEX group may be sold off, such as UK Bus, and others may be retained by CVC.
Excluding any discount for either the very large debt pile or the rail uncertainty, we
would value the NEX business at just over 400p. We expect the shares to remain strong in the coming days and weeks and increase our target price to 350p.
Excluding any discount for either the very large debt pile or the rail uncertainty, we
would value the NEX business at just over 400p. We expect the shares to remain strong in the coming days and weeks and increase our target price to 350p.
NH:
and here’s something from RBS
NH:
Todays FT suggests that the Cosmen family and CVC are the group behind the new interest in
National Express disclosed yesterday. Accepting its issues as a standalone entity, NEX
trades in line with peers, so hanging on for further developments looks sensible to us.
CVC and the Cosmens have reportedly teamed up to pursue National Express
The FT reports that the Cosmen family (holds 18.5% of NEX) have teamed up with private equity
group CVC to potentially bid for National Express – suggesting a value of over £500m for the group
(current market cap £474.7m). It further suggests the National Express board is looking for a bid
above 400p a share (£620m market cap).
National Express disclosed yesterday. Accepting its issues as a standalone entity, NEX
trades in line with peers, so hanging on for further developments looks sensible to us.
CVC and the Cosmens have reportedly teamed up to pursue National Express
The FT reports that the Cosmen family (holds 18.5% of NEX) have teamed up with private equity
group CVC to potentially bid for National Express – suggesting a value of over £500m for the group
(current market cap £474.7m). It further suggests the National Express board is looking for a bid
above 400p a share (£620m market cap).
NH:
Could suggest a break up scenario
Having previously sold their Spanish coach business to the group, that asset is presumably the part of
the business the Cosmens would be keen to get hold of in any break up scenario. The FT also points
out that Stagecoach (nr) and Go-Ahead* (Hold) are considering their options, but they have yet to
approach the company. Given relative balance sheet strength, they would certainly offer obvious
homes for at least some/all of NEXs UK assets in any break up; and for Go-Ahead (has looked
overseas before) some of the international assets could provide a new leg to its currently UK focused
operations. However, Go-Ahead is the smallest of all the transport groups (EV £825m vs NEX at
£1,731m), so anything more than picking off any divisions that become loose would be ambitious for
that group.
Having previously sold their Spanish coach business to the group, that asset is presumably the part of
the business the Cosmens would be keen to get hold of in any break up scenario. The FT also points
out that Stagecoach (nr) and Go-Ahead* (Hold) are considering their options, but they have yet to
approach the company. Given relative balance sheet strength, they would certainly offer obvious
homes for at least some/all of NEXs UK assets in any break up; and for Go-Ahead (has looked
overseas before) some of the international assets could provide a new leg to its currently UK focused
operations. However, Go-Ahead is the smallest of all the transport groups (EV £825m vs NEX at
£1,731m), so anything more than picking off any divisions that become loose would be ambitious for
that group.
NH:
Hang on for further developments
With National Express trading at 5.7x FY10 EV/EBITDA (the year when East Coast losses fall out
from our forecasts) vs the sector also on 5.7x for that year, it continues to look to us sensible to hang
on for any further developments.
With National Express trading at 5.7x FY10 EV/EBITDA (the year when East Coast losses fall out
from our forecasts) vs the sector also on 5.7x for that year, it continues to look to us sensible to hang
on for any further developments.
PM:
thanks for that
PM:
fast moving situ
NH:
(Taxloss – what’s the source for your FTSE vols pls)
11:31AM
NH:
right
NH:
Paul is just checking something in the archive
NH:
in the meantime
NH:
Tracy has sent over an interesting note on Aer Lingus
NH:
which suggests things are set to get even worse
NH:
We are growing increasingly negative about prospects for air travel to and from Ireland. An imploding consumer, recently introduced departure taxes and intense competition make the environment especially harsh for Aer Lingus which depends on Ireland for up to 90% of its traffic. Accordingly, we now expect the airline to report an operating loss of over €150m in 2009, significantly above our previous estimate of €130m and 37% worse than consensus Bloomberg forecasts. These losses imply negative EBITDAR at the airline and underline the urgency with which management must tackle the group’s cost base.
NH:
What’s happened ? – The Irish economy is experiencing a steep decline, exacerbated by a banking crisis and significant pressure on public finances. Deep public sector cuts and higher taxes are likely which will punish consumer spending further. We see consumer spending falling by about 7.5% in 2009 and a further 3% in 2010. For airlines, the problems are exacerbated by the introduction of a €10 per passenger departure tax in spring 2009. This too will further weaken demand, especially during the off-peak low fares winter period. Together, these factors are driving down air passenger volumes in Ireland by at least 10%. Aer Lingus is uniquely exposed to this issue as most of its flights end or originate in Ireland.
NH:
What are the implications ? – Like all airlines, Aer Lingus operates a capital intensive business model with reasonably fixed costs. When revenue weakness arises, losses can manifest very quickly. In 2009 we now model passenger growth of just 1% for Aer Lingus, with the bases at Belfast and Gatwick helping to offset negative trends in Ireland. However, severe yield declines are probable as Aer Lingus fights to retain load factors amid intense competition from easyJet and Ryanair on short-haul, and cash-hungry US competitors on long-haul. We now expect average short-haul fares to fall over 15% in 2009, alongside a 20% decline in long-haul. Together, and taking into account hedged fuel costs, these factors hammer profits and generate an EBIT loss of -€152m and an EBITDAR loss of -€25m (eps -20.8c). Note that Aer Lingus itself has suspended guidance since its AGM in June so our estimates are without any calibration from the company.
NH:
What’s next ? – Losses of this magnitude require urgent action by the airline to address cash outflows and uncompetitive unit costs. Under our new estimates, Aer Lingus’ cash balances will fall to under €300m in early 2010 compared to €757m at the start of 2008. This does not take in to account any additional restructuring costs in the company or any payments related to a significant deficit in the Aer Lingus employee’s pension scheme. The former depends on company decisions. The latter may be subject to a test in law as diverging views on liability exist between the company and its trade unions. The overall negative trajectory of cash balances should be of growing concern to equity investors.
NH:
Aer Lingus must quickly advance plans to radically restructure its cost base if it values an independent future. Cancelled aircraft orders, financing of unencumbered aircraft and a system-wide cull of costs are essential to halt the cash bleed and bring unit costs closer to those of its competitors. We believe costs need to fall by at least 25%, implying a €250m reduction in the group’s ex-fuel operating cost platform. Alongside changes in work practices and salaries, this probably means a reduction of at least 800 employee positions (20%) in the airline.
Given the lack of visibility across the entire airline industry, it is impossible to provide informed forecasts for 2010 ahead of a company update on August 27th when it publishes H1 results. We see little evidence however that profitability can return soon given the ongoing weakness of the Irish economy and sustained pressure from competing carriers with unit costs below those of Aer Lingus. The airline’s newly appointed CEO must act quickly and dynamically to protect the integrity of the company’s finances. He will need robust support from all stakeholders to address the group’s challenges.
NH:
Okay, will just give you a couple of minutes to digest that
NH:
and provide a share price
NH:
the note was from Joe Gill at Bloxham
PM:
sorry about that
NH:
who used to be broker to Ryanair I believe
NH:
shares down 5.9% at 0.475 cents
PM:
Was just looking at stuff pubbed hear on CDN — caledon
PM:
We had been quite hopeful — but “nailed on” is a bit strong
PM:
And away – 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:
in any case the latest market intel is that things are going to take till Sept to finalise
Caledon Resources (CDN:LSE): Last: 53.50, down 2.25 (-4.04%), High: 55.25, Low: 52.50, Volume: 720.70k
PM:
Readers always have the option of travelling up to that little X in the top right hand corner of the screen — and ‘click’ — problem solved
11:36AM
PM:
Cityunslick — here you. i should be less sensitive
NH:
normally it’s me
NH:
and I am also Mr Angry
NH:
but I have been in the desert you see
NH:
Murph you should try it
PM:
i know. need a holdiay — too much stuff to sort out at the mo
NH:
a couple of weeks in the desert with Fowke
NH:
will get your chakras sorted
PM:
no time to be patient or go in the desert or anything
PM:
in fact, youve another three weeks in thederset coming up
PM:
and i havent got anything
NH:
well there is a reason for that
NH:
but yes
NH:
I am heading off again for more spiritual mediation
NH:
just imagine how chilled I will be by mid Aug
NH:
anyway
NH:
back to the exciting world utilities
NH:
and yes
NH:
there is plenty of reaction to Ofwat
PM:
yes, people asking about water
NH:
and the main worry now is dividends
NH:
some could be cut
NH:
and that’s because a number of payments will be uncovered by earnings
NH:
now that doesn’t mean they will be cut
NH:
but the risks are growing
NH:
have a look at this
NH:
from Credit Suisse
NH:
Dividend cuts a pre-occupation of the market: The large income stocks (UU and in particular Severn Trent) were down the most, and we think this has to do with their relatively high payouts under the current policies, hence risk of dividend cuts. On our P&L cover and cash flow analyses the current policy at Severn Trent appears stretched. We still estimate the dividend at UU is sustainable for five years. Part of the problem for an investment thesis in water may be more to do with the high yields obtainable elsewhere in the pan-euro util sector, rather than just the potential for cuts.
NH:
now that’s slightly more bullish than this from Merrill
NH:
DPS will come under scrutiny
United Utilities intends paying a 34.3p DPS for the current year; in our opinion,
this looks under serious threat as EPS could tumble to this level or lower in
2010/11E. Also, Severn Trent may need to re-think its policy, we fear. By contrast,
we anticipate unchanged 3% pa real growth from both Northumbrian Water and
Pennon. We believe these dividend uncertainties will pull share prices yet lower
United Utilities intends paying a 34.3p DPS for the current year; in our opinion,
this looks under serious threat as EPS could tumble to this level or lower in
2010/11E. Also, Severn Trent may need to re-think its policy, we fear. By contrast,
we anticipate unchanged 3% pa real growth from both Northumbrian Water and
Pennon. We believe these dividend uncertainties will pull share prices yet lower
NH:
and here’s Caz
NH:
In our view, yesterday’s draft determination from Ofwat marked a watershed in how the regulator
expects the companies to fund themselves. Historically this is an industry that has funded its
capex almost entirely through debt.
expects the companies to fund themselves. Historically this is an industry that has funded its
capex almost entirely through debt.
NH:
Ofwat very clearly guided the companies yesterday to make greater use of equity funding going
forward, either through retaining greater equity or issuing new equity. In its presentation to the
City yesterday, Ofwat stated that
forward, either through retaining greater equity or issuing new equity. In its presentation to the
City yesterday, Ofwat stated that
NH:
This has quite material implications for the sector, as it is likely that some companies will have to
revisit their dividend policies and investors may have to change their mindsets regarding capital
raising within the sector.
revisit their dividend policies and investors may have to change their mindsets regarding capital
raising within the sector.
NH:
now that’s very bearish
NH:
divi cuts
NH:
and capital raises
NH:
With the potential for dividend cuts, capital raising and negative earnings momentum, we struggle
to see the sector outperforming until after the final determination on 26th November 2009.
We do not see RAV as providing much support for the share prices given the uncertainty
surrounding the sector. We are downgrading our recommendations on Severn Trent and United
Utilities to Underperform from Inline. We retain our InLine recommendations on Northumbrian
Water and Pennon as they have less dividend risk and their earnings profiles are more attractive.
to see the sector outperforming until after the final determination on 26th November 2009.
We do not see RAV as providing much support for the share prices given the uncertainty
surrounding the sector. We are downgrading our recommendations on Severn Trent and United
Utilities to Underperform from Inline. We retain our InLine recommendations on Northumbrian
Water and Pennon as they have less dividend risk and their earnings profiles are more attractive.
PM:
bad news for the coupon clippers then
NH:
oh yes
PM:
Right, some prices
Pennon Group (PNN:LSE): Last: 469.00, down 21.5 (-4.38%), High: 493.00, Low: 466.75, Volume: 1.48m
NH:
OK
Severn Trent (SVT:LSE): Last: 1,020, down 12 (-1.16%), High: 1,045, Low: 1,008, Volume: 1.18m
PM:
and I will have to type out UU because the auto ticker does not work
PM:
Up 0.5p at 479.75
11:43AM
PM:
Jsut to address this pay stuff
PM:
WhenIWereYoung Jul 24 11:41
PM/NH – re :Lionel Barbers comments – Is ML going to be a subscriber service?
PM/NH – re :Lionel Barbers comments – Is ML going to be a subscriber service?
PM:
I believe Mr Lionel was making general points about newspapers charging for content
PM:
it’s quite a debate at the mo
PM:
We’re a blog
PM:
We rely on people linking to us etc
PM:
Advertising supports us
PM:
IN fact, you are desirable bunch to advertisers
PM:
Apparently
PM:
allegedly
PM:
Dunno why
PM:
So don’t worry too much about subscriptions for now
PM:
We are also aware that your employers would probably not want to pay for you to spend an hour of your day watching this rubbish
NH:
on this topic
PM:
NH:
the NY Times made some announcements yesterday
NH:
they are going to trial a metered system
NH:
which is a bit like the FT
NH:
you get a number of free articles a month
NH:
then you pay
NH:
unless you can get them elsewhere
PM:
This whole debate has got a long way to run…
PM:
AV is very lean, in terms of newspaper resources
PM:
It has been profitable from the outset
PM:
So we’re relaxed
PM:
But when you look at some of the mainstream quality papers, the maths get very difficult
PM:
Their online ad rates are very low compared with the FT
PM:
Anyway, i really shouldnt be risking my job by writing live and unedited on stuff like this
PM:
NH:
yes
NH:
we should stop this here
PM:
indeed
11:49AM
PM:
how about something safer
PM:
Like some RAW
NH:
Okay
PM:
got any??
NH:
a few bits
NH:
reheated rumours that GlaxoSmithKline might be interested in bidding for Genmab in Denmark
NH:
that follows the bid for Medarex
NH:
and then we also have some bid rumours in Inchcape
PM:
hang on, that’s a car dealer
PM:
I know we are in a new bull market
PM:
but a bid for car dealer
PM:
NH:
well I know it sounds odd
PM:
come on
NH:
but look the shares are flying this morning; up 2.25p to 26p
NH:
actually, I reckon today’s move is actually down to speculation that results will impress
NH:
particularly its operations in the Far East
PM:
I am not sure what’s more unbelievable a bid or strong trading
NH:
well, the company had a decent update a while back and half year results are out next week
NH:
and Investec reckons the numbers could impress
NH:
they have been pushing this to clients today
NH:
Inchcape will present its interim results on Wednesday 29 July. On the basis
of its pre-close IMS pointing to Q2 pre-tax profits “significantly ahead” of the
£20m delivered in Q1, we are forecasting interim pre-exceptional PBT of £50m.
Delivery of higher profits would clearly point to FY PBT upgrades given the
potential split of profits over the year, and would also feed into lower levels of
debt.
of its pre-close IMS pointing to Q2 pre-tax profits “significantly ahead” of the
£20m delivered in Q1, we are forecasting interim pre-exceptional PBT of £50m.
Delivery of higher profits would clearly point to FY PBT upgrades given the
potential split of profits over the year, and would also feed into lower levels of
debt.
NH:
Summary: Inchcape will present its interim results next Wednesday 29 July.
These should give some further indication of the success of Inchcape’s self-help
measures on both operating costs, following its recent announcement of a
second round of initiatives here, and working capital, where it has already
reached its year-end target of 1.5 months’ landed stock cover. We expect more
formal guidance at the interims on the quantum of these savings, together with
associated exceptional charges. There is also the possibility of goodwill writeoffs
on some emerging market acquisitions, in our view. We would also look for
more formal guidance on the tax position for the full year.
These should give some further indication of the success of Inchcape’s self-help
measures on both operating costs, following its recent announcement of a
second round of initiatives here, and working capital, where it has already
reached its year-end target of 1.5 months’ landed stock cover. We expect more
formal guidance at the interims on the quantum of these savings, together with
associated exceptional charges. There is also the possibility of goodwill writeoffs
on some emerging market acquisitions, in our view. We would also look for
more formal guidance on the tax position for the full year.
NH:
Interim forecast: We are forecasting a clean interim PBT of £50m (down from
£130.3m last year), implying a Q2 PBT of £30m. The latter is therefore forecast
to be some 50% above Q1’s outturn, a quantum that we believe is “significantly
ahead”, as stated in its pre-close IMS update. In the absence of more precise
scoping of “significantly ahead”, combined with our view that management is
looking to re-establish a track record of under-promising and over-delivering, we
are inclined to see forecast risk as weighted to the upside. Should this prove to
be the case, we believe this would result in upgrades to full year consensus
PBT, which we think is around £91m (IIBe: £93m).
£130.3m last year), implying a Q2 PBT of £30m. The latter is therefore forecast
to be some 50% above Q1’s outturn, a quantum that we believe is “significantly
ahead”, as stated in its pre-close IMS update. In the absence of more precise
scoping of “significantly ahead”, combined with our view that management is
looking to re-establish a track record of under-promising and over-delivering, we
are inclined to see forecast risk as weighted to the upside. Should this prove to
be the case, we believe this would result in upgrades to full year consensus
PBT, which we think is around £91m (IIBe: £93m).
Self-help drivers: The most recent UK data from the SMMT for June showed
new car registrations down 16%, compared with the 28% decline for the first five
months, as the initial benefits of the car scrappage scheme came through.
Indeed, retail sales showed the first yoy increase in June since late 2007 (+4%).
While there has been some benefit to volumes in car markets offering car
PM:
okay
PM:
thanks for all that
PM:
one to watch
11:51AM
PM:
What the hells this?
PM:
Develica Deutschland
??????
??????
NH:
I’ve no idea
PM:
Okay well its way down – missed the great market rally
PM:
Off 0.01p at 0.08p
PM:
Why are these things still on the market ?
NH:
It’s some German property play – full year loss of €200m
PM:
Well, there’s nothing wrong with being invested in German property – although its obviously taken its hit.
PM:
But why is this thing structured as a sub-penny muppet stock
NH:
I’m just looking at the chart.
NH:
It’s a quick hilltop – and then an unbroken slope down
NH:
From 1.06p to 0.08p – over the past three years
NH:
actually Murph
NH:
it is not P
NH:
this is quoted in euros
PM:
PM:
So its not a sub-penny muppet stock after all
PM:
Actually, its still a cent dreadful
PM:
8 cents
PM:
Who’s behind it?
NH:
Guy called Derek Butler
NH:
And here’s a blast from the past…
NH:
Baron Phillips, Baron Phillips Associates.
PM:
Baron Phillips?? Mummified felt
NH:
Philip Secrett, Grant Thornton UK LLP – nomad I assume
PM:
Actually, now we’ve found the website, we could get stuck here
PM:
Basically there are no executives – just non-execs
PM:
Weird
NH:
But the fund is run by a series of people
NH:
Richard Thirkell is the Fund Manager and a Director. He joined Develica from Prudential Property Investment Managers Ltd
NH:
Grant Tromans co-founder of Develica focuses on identifying, evaluating and managing all Fund Investments.
NH:
Brian Quinn is structured finance director. Brian was formerly at Anglo Irish Bank Corporation plc, involved in investment banking and real estate finance. During his 7-year tenure at Anglo Irish he was responsible for managing property portfolios and funding a wide range of property investors and developers throughout the United Kingdom, for many of the banks most significant clients.
PM:
Brian Quinn
PM:
Anglo Irish on the CV. Ouch
PM:
Do you think we should have a rule like the breaking the buck thing in the US??
NH:
Dunno.
NH:
The US things is sort of illogical – because it doesn’t reflect that actual value of the company
NH:
Ie – the number of shares in issue.
NH:
Just says if you are less than a dollar for a month, you get kicked off.
NH:
But we have smaller stock prices of course – traditionally.
PM:
But we could set up some sort of committee with the AIM people – and each month we could go thru and kick out daft listings
PM:
The Alphavile Aim Clear-Out Committee
NH:
Yeah.
NH:
We could even have proper people on it.
NH:
Recruit some people from that lot over on the right.
PM:
NH:
Could be a real force for good.
NH:
Regular assessment process. 5% get cleared out each year – for being pathetic.
PM:
Well, im not so sure about recruiting from the right
PM:
But the strategic thinking has got be correct here
PM:
If wwe are going to attract some sort of opportunistic takeover bid
PM:
from the likes of TB and Monkey…
PM:
(financed by ???? )
)PM:
best if we bulk up now
PM:
And JV with AIM would be a start
NH:
can we just rewind for a second. Can you explain what Monkey and TB are up to
PM:
They have take umbrage at my attempt to change the Webby Drinks from the DAFT date of Aug 28 to sometime in early Sept
PM:
So now it looks like we are going to have two sets of drinks
PM:
i dont know
PM:
They are having some sort of secret lunch today to discuss
PM:
My intel says it is being held somewhere on Cornhill
PM:
Didnt know there was a Nandos on Cornhill
NH:
or a PizzaExpress
PM:
Pah
12:01PM
PM:
Are we done?
NH:
no, need to finish up on a few things
NH:
Vodafone
NH:
results out this morning and
NH:
well, they are actually reassuringly dull
NH:
everything in line with expectations
NH:
and no change to guidance
NH:
nothing in the way of earnings upgrades
NH:
although I was surprised to learn that Voda currently trades on underlying PE of just over 6% with a dividend yield of 6.8%
NH:
which for a quasi utility is not bad
NH:
Voda may not be growing
NH:
but it is throwing off cash
NH:
and in spite of the fact that this is the most unremarkable set of figs
NH:
there’s plenty of analyst reaction
NH:
here’s Cazenove
NH:
they are fans
NH:
and have an outperformer recommendation
NH:
Reassuring Q1 IMS. Service revenues 0.8% above our forecast at £10,091m (+9.7%), organic growth 10 basis points better than consensus (source: company) at 2.1%. Limited, if any, estimate changes, ex f/x.
European trends similar to Q4 on an underlying basis. Organic growth of 4.4% vs consensus of 5.1%. Trends in Spain and Italy have actually improved, Germany weak, as expected, UK marginally below our forecast.
Emerging markets: Strong growth still in India whilst Turkey has improved from a low base. South Africa growth has slowed, reflecting national elections in May and has since improved. Romania remains weak.
Verizon Wireless net additions of 1.1m, in line with expectations. Verizon reports on Monday, read-across from AT&T positive with Verizon’s share price +4% yesterday.
Strong growth in free cash flow at £1,896m (+21%), reflecting currency and deferred Verizon Wireless tax distribution. Broadly flat year on year on an underlying basis.
NH:
No change to full year outlook based on planning exchange rates. Margin trends and cost reduction plans in line with management’s expectations. Q2 trends will be worse than Q1 due to regulatory changes, as expected.
We expect share price to recover today, reflecting recent relative performance and concerns ahead of this statement. Valuation looks too low at 6.8x adjusted PER with a 6.8% dividend yield. Outperform
NH:
and here’s Sanford Bernstein
NH:
Vodafone released top line numbers that were in line with consensus at the Group level at £10.7bn but importantly ahead of consensus in most markets especially core Europe.
European organic service revenue continued to decline in core Europe but at a slower pace than expected at -4.4% versus consensus fears of -5.1%. Spanish decline relented with the company posting better than expected results (-8.1% versus expected -9.7%). The Italian growth rate tripled at 3.1% vs consensus expectations of 0.6%. Germany declined at 4.8% YoY v expectations of -5.2%. Only the UK where Vodafone has recently come back into Carphone Warehouse underperformed expectations at -4.7% YoY versus -4.4% expectations
Turkey was significantly ahead of consensus and showed improvement (although still decline) while South Africa was in line and India very slightly (0.5%) below top line growth expectations.
NH:
The Company reported Free Cash Flow for the quarter of £1.9bn (of which 200m from a deferred payment from Verizon Wireless); this represents 21% FCF growth year on year and ~60% of our forecast FCF for the half suggesting that Vod is ahead of expectations in terms of FCF generation. Vodafone stated that margin trends are as expected at the Year End presentation in May.
Vodafone reiterated full year Operating Profit guidance of £11.0 to £11.7bn, but acknowledged that guidance will be adjusted in November for currency changes. Given company estimates, we believe the full year value of changes in sterling/ Euro and Sterling/USD rates to imply a £300m reduction in guidance implying a range of £10.7bn to £11.4. This implies a beat against consensus at £10.4bn, we are at £11.2bn
We think that this season of reporting could signal a shift from US telecoms into European telecoms as the competition in the US heats up and the cyclicality of European mobile is now priced in. Vodafone should be the main beneficiary of this trade.
NH:
and Morgan Stanley finally
NH:
Quick Comment: Vodafone released good fiscal
1Q10 KPIs this morning at 7am. Group operating
profit guidance was reiterated. Europe posted –4.4%
organic service revenue growth (MSe at -4.7% and
consensus at -5.1%). Results from Italy (+3.1%) and
Spain (-8.1%) were better than expected, Germany
(-4.8%) was in-line and South Africa (+7.1%) and India
(+16% ex Indus) were modestly lower than previewed.
UK posted -4.7% growth from -3.5% underlying in 4Q09.
Poor performance continued in Turkey (-11%) and
Greece (-15%). Net debt came in at £31.2bn, about
£3bn lower than last year due to cash flow generation
and benefits of foreign currency, less the purchase of
the rest of Vodacom.
1Q10 KPIs this morning at 7am. Group operating
profit guidance was reiterated. Europe posted –4.4%
organic service revenue growth (MSe at -4.7% and
consensus at -5.1%). Results from Italy (+3.1%) and
Spain (-8.1%) were better than expected, Germany
(-4.8%) was in-line and South Africa (+7.1%) and India
(+16% ex Indus) were modestly lower than previewed.
UK posted -4.7% growth from -3.5% underlying in 4Q09.
Poor performance continued in Turkey (-11%) and
Greece (-15%). Net debt came in at £31.2bn, about
£3bn lower than last year due to cash flow generation
and benefits of foreign currency, less the purchase of
the rest of Vodacom.
NH:
Q1 FY10 the worst quarter? Looking ahead to Q2, the
company anticipates around a further 100bps
deterioration due to roaming volume/price falls and MTR
drags in the UK. However cyclical factors could improve,
and the comps are getting easier as Q2 FY09 was
already -2%. An inflection in a (still negative) trend is
possible in Q2.
company anticipates around a further 100bps
deterioration due to roaming volume/price falls and MTR
drags in the UK. However cyclical factors could improve,
and the comps are getting easier as Q2 FY09 was
already -2%. An inflection in a (still negative) trend is
possible in Q2.
NH:
Less than 7x earnings. The valuation thesis remains
compelling. Underlying prospective P/E is 6.3x ex all
goodwill/licences – and even including some ongoing
licence costs we think it unlikely the P/E would rise
significantly above 7x. Dividend yield is 6.8%, with
limited near-term upside but with significant potential
from any dividend from/disposal of VZW. We reiterate
our OW rating on the shares.
compelling. Underlying prospective P/E is 6.3x ex all
goodwill/licences – and even including some ongoing
licence costs we think it unlikely the P/E would rise
significantly above 7x. Dividend yield is 6.8%, with
limited near-term upside but with significant potential
from any dividend from/disposal of VZW. We reiterate
our OW rating on the shares.
NH:
and a Voda price
Vodafone Group (VOD:LSE): Last: 119.55, up 2.65 (+2.27%), High: 122.25, Low: 118.40, Volume: 141.53m
PM:
cheers for that
PM:
re Norwich
PM:
Apparently the result is now expected between 12.15 and 12.30
PM:
Im not waiting around for that
PM:
Got too much stuff to do
NH:
and back to Voda for a mo
NH:
Verizon Wireless have just reported numbers
PM:
ooh
NH:
RTRS-VERIZON WIRELESS REPORTS SOLID 2Q 2009 GROWTH OF 1.1 MILLION NEW CUSTOMERS
12:05 24Jul09 RTRS-VERIZON WIRELESS SAYS AT THE END OF THE QUARTER, THE COMPANY HAD 87.7 MILLION CUSTOMERS
12:05 24Jul09 RTRS-VERIZON WIRELESS SAYS AT THE END OF THE QUARTER, THE COMPANY HAD 87.7 MILLION CUSTOMERS
NH:
as readers have noted
NH:
Voda still to get a divi out of Verizon
PM:
Quick bit of news from our friends at the FSA
NH:
FSA announces changes to the Financial Services Compensation Scheme
NH:
The Financial Services Authority (FSA) is introducing new rules for the Financial Services Compensation Scheme (FSCS) on banks, building societies and credit unions, which will see individuals and small businesses compensated quicker, and will ensure protection for increased numbers of people.
The fast payout rules, which come into force on 31 December 2010, will mean many individuals and small businesses will receive compensation within a target of seven days, and all payments within 20 days as required under the Deposit Guarantee Schemes Directive. This will greatly reduce uncertainty for consumers.
The fast payout rules, which come into force on 31 December 2010, will mean many individuals and small businesses will receive compensation within a target of seven days, and all payments within 20 days as required under the Deposit Guarantee Schemes Directive. This will greatly reduce uncertainty for consumers.
NH:
An additional change is that in future, payouts will be made on a ‘gross’ basis, which will effectively ring fence the deposits if a depositor has savings and loans with the same firm. Currently, any outstanding loan or debt held with a firm would have been deducted from the amount of an individual’s or small business’ savings before compensation was paid out. The new rules change this arrangement and ensure that the customer’s savings will be protected to the limit of £50,000 and not used to offset loans.
Consumer awareness of the FSCS will also be boosted by a new rule which comes into force from 1 January 2010, requiring firms to provide information on the existence of the FSCS and level of protection it offers to depositors, as well as proactively informing customers of any additional trading names under which the firm operates.
Consumer awareness of the FSCS will also be boosted by a new rule which comes into force from 1 January 2010, requiring firms to provide information on the existence of the FSCS and level of protection it offers to depositors, as well as proactively informing customers of any additional trading names under which the firm operates.
PM:
hmm
PM:
Right — we are off
PM:
Back tomorrow at 11am
PM:
Oh no — its saturday
NH:
you might be
NH:
I’m not
PM:
back on Monday
PM:
at 11am]
PM:
thanks for joining us
PM:
and thanks for all the comments
PM:
Seeya
NH:
bye