Markets live chat transcript for the chat ending at 12:11 on 29 Jul 2009. Participants in this chat were: Paul Murphy (PM) Neil Hume, FT (NH)
PM:
Okay
PM:
It’s 11.04 i think
PM:
Not quite sure
PM:
Actually check on here
11:02AM
PM:
Okay — its 11.02
PM:
not having a computer clock has made me early
PM:
go figure
NH:
First things first
NH:
We are going to have a belly laugh at Paul Tudor Jones
PM:
Ha ha ha
PM:
PM:
What a sad, humourless man.
NH:
Ha ha ha
NH:
NH:
If you look down the right hand column of the AV home page – to the list of FT Alphavill’e most popular
NH:
You will see that Paul Tudor Jones – The Trader — is top of the pops.
NH:
Well I hope you all got to enjoy that yesterday, because sado PTJ has had the video removed from YouTube.
PM:
What a vain man.
NH:
Well, we assuming it was PTJ
NH:
The Youtube page actually says
NH:
This video is no longer available due to a copyright claim by Michael Glyn .
PM:
Michael Glyn?
NH:
He’s a film director
NH:
His work includes
NH:
1. Fire! (1969/I)
2. Please Hurry! (1969)
3. News Is People (1968)
2. Please Hurry! (1969)
3. News Is People (1968)
NH:
All shorts, I think
NH:
According to the internet movie database.
NH:
I was going to leave a msg on the discussion board – find out whether it was Glyn who got this film of PTJ removed
NH:
But it just took too long going thru the registration process.
PM:
Actually, it could be Glyn.
PM:
It may be that he has been making a mint selling off vids of PTJ individually –
PM:
and the full film appearing on YouTube cut off an important income stream.
NH:
Maybe; they have been changing hands for a couple of hundred dollars a time
PM:
Then again, PTJ may simply have had a vanity attack – and got Glyn to get it taken down
PM:
Dealbook was saying that PTJ had asked Glyn to take the film out of circulation back in the 90s
NH:
Anyway, who ever is responsible is a serious spoil sport.
PM:
Maybe we should all dress up as PTJ for the Webby Drinks.
PM:
Izy’s idea
NH:
Ha! Have a mid-80s night.
PM:
Yeah. Yeah, get some big specs and a beige suit.
NH:
And stand around drinking American Bud.
PM:
But how would we get drunk?
NH:
Anyway, we are very disappointed by that
NH:
If anyone managed to download a copy, let us know.
PM:
We can have a screening at the Webby Drinks or something
PM:
we should mvoe on
PM:
But first — we do appear to have a problem with comments refreshing
PM:
Will just go and reprot to Assanka
Cracking little software shop who built FT Alphaville
NH:
and now someone has come to fix Murph’s Blackberry
NH:
which has been playing up
PM:
Playing up!?
PM:
Gone thru two this week — neitehr working
PM:
Now sourced my own 9000
PM:
NH:
Murph on phone now
NH:
to Assanka
NH:
about the comments
NH:
bear with us
NH:
it could be that no one is reading this morning
NH:
but I doubt that
NH:
11:10AM
PM:
To the wider market
PM:
Melt up back on??
NH:
sure is
NH:
FTSE 100 up 37 points to 4,566
NH:
not sure why
NH:
and I don’t care if it goes up or down today
NH:
I escaped the front page story yesterday
NH:
thanks to a pull back in NY
NH:
anyone
NH:
normal service has been resummed this morning
NH:
although I am struggling to see why
NH:
China off 5%
PM:
Normal bull market stuff
NH:
copper off sharply because of a rising dollar
NH:
poor results from companies like ArcelorMittal
PM:
Buy
NH:
and yet we are up
PM:
PM:
Dont forget the Bank of England stats
NH:
and what to do they say?
PM:
Lending to individual figs out from the BoE
PM:
The increase in total net lending to individuals in June (£0.4 billion) was lower than both the May increase (£0.5 billion) and the previous six-month average (Table A). The twelve-month growth rate continued to fall, by 0.2 percentage points to 1.2%, and the three-month annualised growth rate also fell, by 0.1 percentage points, to 0.5%.
Within the total, the increase in net lending secured on dwellings (£0.3 billion) was unchanged from May and below the previous six-month average (Table A). The twelve-month growth rate fell further, by 0.2 percentage points to 1.1%. The three-month annualised growth rate fell to 0.5%. Approvals for house purchase (47,584) and for remortgaging (35,011) were higher than in May and above the previous six-month average. The number of loans approved for other purposes (29,509) was higher than in May but below the previous six-month average (Table B).
Consumer credit increased by a net £0.1 billion, in line with the previous six month average (Table A). Credit card lending increased by a net £0.2 billion and other loans and advances fell by £0.1 billion. The annual growth rate of consumer credit continued to fall, to 1.9%; the three-month annualised growth rate increased by 0.1 percentage points to 0.6%.
Within the total, the increase in net lending secured on dwellings (£0.3 billion) was unchanged from May and below the previous six-month average (Table A). The twelve-month growth rate fell further, by 0.2 percentage points to 1.1%. The three-month annualised growth rate fell to 0.5%. Approvals for house purchase (47,584) and for remortgaging (35,011) were higher than in May and above the previous six-month average. The number of loans approved for other purposes (29,509) was higher than in May but below the previous six-month average (Table B).
Consumer credit increased by a net £0.1 billion, in line with the previous six month average (Table A). Credit card lending increased by a net £0.2 billion and other loans and advances fell by £0.1 billion. The annual growth rate of consumer credit continued to fall, to 1.9%; the three-month annualised growth rate increased by 0.1 percentage points to 0.6%.
PM:
Mortgage stats out also
PM:
Lots of fresh evidence that the banks are not lending
PM:
NH:
actually going back to China for a moment
NH:
I am bit worried the bubble might be about to burst
PM:
Why?
PM:
Having you been reading the excellent Stephen Roach piece in today’s paper
NH:
I have read that
NH:
and would encourage anyone who has not to do so
NH:
here’s a link
NH:
but that’s not the reason for my jitters
PM:
really?
NH:
no, it’s this new IPO
NH:
China State Construction Engineering
NH:
$7.3bn issue
NH:
I was expecting it to fly out of the traps, you know double or something
NH:
and in the event it ONLY gained 56% on its first day of trading
PM:
ha — that’s pathetic
NH:
SHANGHAI/HONG KONG, July 29 (Reuters) – The stronger-than-expected debut for China State Construction Engineering Corp’s <601668.SS> $7.3 billion IPO showed China’s booming markets are drawing investors, but it heightened concerns about a speculative stock market bubble forming.
The IPO, the world’s largest in a year, surged 56 percent in its Shanghai debut on Wednesday, while building materials group BBMG Corp <2009.HK> enjoyed the strongest listing in Hong Kong this year as ample investor funds chased exposure to Beijing’s infrastructure stimulus spending
NH:
Despite the strong debut, the mainland’s benchmark Shanghai Composite Index <.SSEC> fell 5 percent in its biggest one-day drop this year, after a 90 percent year-to-date surge that had prompted Beijing to reopen its IPO pipeline last month.
The rally has been fuelled by a surge in lending from state-linked banks aimed at helping the economy recover. Beijing has also committed to spending around $585 billion on stimulus measures, much of it focused on building and infrastructure
The rally has been fuelled by a surge in lending from state-linked banks aimed at helping the economy recover. Beijing has also committed to spending around $585 billion on stimulus measures, much of it focused on building and infrastructure
PM:
didn’t realise it was the biggest IPO of the year
PM:
(Thank you Robert at Assanka — comments cable plugged back in)
NH:
yep, and there have only been two bigger Chinese IPO’s – China Shenhu Energy and PetroChina
PM:
actually I think it is worth putting up a few pars from the Roach piece because it illustrates why something of this size can put on 50% in the fist day
PM:
The bad news is that China’s recent growth spurt comes at a steep price. Fearful that its recent economic shortfall would deepen, Chinese policymakers have opted for quantity over quality in setting macro-strategy, the centrepiece of which is an enormous surge in infrastructure spending funded by a burst of bank lending.
Sure, developing nations always need more infrastructure. But China has taken this to extremes. Infrastructure expenditure (including Sichuan earthquake reconstruction) accounts for fully 72 per cent of China’s recently enacted Rmb4,000bn ($585bn) stimulus. The government urged the banks to step up and fund the package. And they did. In the first six months of 2009 bank loans totalled Rmb7,400bn – three times the pace in the first half of 2008 and the strongest six-month lending surge on record.
Sure, developing nations always need more infrastructure. But China has taken this to extremes. Infrastructure expenditure (including Sichuan earthquake reconstruction) accounts for fully 72 per cent of China’s recently enacted Rmb4,000bn ($585bn) stimulus. The government urged the banks to step up and fund the package. And they did. In the first six months of 2009 bank loans totalled Rmb7,400bn – three times the pace in the first half of 2008 and the strongest six-month lending surge on record.
PM:
Yet there can be no avoiding the destabilising consequences of these actions. Surging investment accounted for an unprecedented 88 per cent of Chinese GDP growth in the first half of 2009 – double the average contribution of 43 per cent over the past decade. At the same time, the quality of Chinese bank lending most assuredly suffered from the rash of credit disbursements in the first half of this year – a trend that could sow the seeds for a new wave of non-performing bank loans. Just this week Chinese regulators sounded the alarm – telling banks new loans must be used to bolster the real economy and not for speculation in equities and real estate.
PM:
This is not a sustainable outcome for any economy – or sustainable support for the world economy. China must redirect economic growth towards internal private consumption. This may require a compromise on the quantity dimension of its growth outcome. But to the extent that leads to improved quality in the Chinese economy, a short-term growth sacrifice is well worth the effort.
Unlike most, I have been a steadfast optimist on China. Yet I am starting to worry. A macro strategy that exacerbates already worrying imbalances is ultimately a recipe for failure. In many respects, that’s what the global crisis and recession of 2008-09 are all about. China will not get special dispensation from the most critical lesson of this post-crisis era.
Unlike most, I have been a steadfast optimist on China. Yet I am starting to worry. A macro strategy that exacerbates already worrying imbalances is ultimately a recipe for failure. In many respects, that’s what the global crisis and recession of 2008-09 are all about. China will not get special dispensation from the most critical lesson of this post-crisis era.
PM:
Good stuff, eh??
NH:
yep
NH:
it will please Albert Edwards
PM:
indeed
NH:
before we move on from China
NH:
here’s a bit on who the stock market over there performed overnight
NH:
Chinese stocks fell 5.0 percent on Wednesday in heavy turnover, posting their biggest daily decline in eight months and dragging down Hong Kong-listed counters amid worries that banks may begin to restrict lending.
The late afternoon sell-off in the Chinese market had a ripple effect across the region, triggering a bout of profit taking in Australian stocks <.AXJO> and currency as well and sending the S&P 500 futures down more than 1 percent earlier.
“There is concern that China will take steps to tighten money supply, but whatever the reason may be, this a just a healthy, normal correction that is necessary if the market is to continue moving up,” said Patrick Shum, president with BMI Fund Management
The late afternoon sell-off in the Chinese market had a ripple effect across the region, triggering a bout of profit taking in Australian stocks <.AXJO> and currency
“There is concern that China will take steps to tighten money supply, but whatever the reason may be, this a just a healthy, normal correction that is necessary if the market is to continue moving up,” said Patrick Shum, president with BMI Fund Management
NH:
which as I said
NH:
makes today’s rise all the more puzzling
PM:
NH:
in fact some mining stocks are up as well
PM:
actually, why is this market up?
NH:
it must be the machines
NH:
the momentum following black boxes
NH:
that’s the explanation
NH:
it’s the robots
PM:
Oh, of course, stupid me
NH:
we need a little robot icon
NH:
or black box
PM:
we do
NH:
The Rise of the Machines
11:18AM
NH:
Liam
NH:
I would be very careful with that Gulf Keystone story
NH:
as someone has pointed out a $2.2bn bid would be
NH:
well unbelievable
NH:
it’s market cap is £50m
PM:
The Hindu have done a Bloomberg, have they?
NH:
that’s a hell of a premium
NH:
shares are rising on it
PM:
This copy has apparently come from a news agency called PTI
NH:
up 20% to 13.7p
NH:
OMG
NH:
alert, alert
PM:
NH:
actually the reality at Gukf Keystone is much different
NH:
this company is trying to raise cash
NH:
I have spoke to people who have been approached
NH:
and this company is using an equity line of credit
NH:
has drawn down £2.6m already
PM:
This is last chance saloon financing, in my view
PM:
Various specailist finance houses offer it
PM:
Print fresh stock in return for hard cash
PM:
Issue at a big big discount
PM:
And suddenly you discover that eveyone is shorting stock…
NH:
yep it’s cash in return for new shares
PM:
Neil has been talking about this for acouple of days
NH:
set at a discount to the price over the past seven days
PM:
we were planning a more detailed piece on AV
NH:
usually the stock that’s delivered is used to close the short
NH:
taken out over the seven day period
PM:
But here’s one suggested exercise: find a house that offers this finance
PM:
Look at its tombstones
NH:
and they are literally tombstones
PM:
NH:
gravestones
PM:
Possibly!
NH:
I reckon this Gulf Keystone story is up there with Harman Int
NH:
let’s hope it does not end in the same way
NH:
here’s the offending story
NH:
Business
IOC-OIL joint venture eyes acquisition of Gulf Keystone
IOC-OIL joint venture eyes acquisition of Gulf Keystone
London (PTI): Indian Oil Corporation and Oil India joint venture is eyeing acquisition of London Stock Exchange-listed Gulf Keystone Petroleum Ltd for USD 2.23 billion.
Gulf Keystone Petroleum Ltd has operations in Kurdistan, Iraq and Algeria.
IOC-OIL joint venture has been in talks with the promoters, including two groups based out of Kuwait, investment banking sources here said.
The two have put a value of USD 2.23 billion for acquiring the company but the promoters are asking for substantially higher price, they said.
In New Delhi, IOC Chairman Sarthak Behuria declined comments on the issue while OIL Chairman and Managing Director N M Borah did not take calls.
Gulf Keystone is a Bermudian incorporated company with Gulf Keystone Petroleum LLC being the largest shareholder with 10.84 per cent.
TF Kozel and AA Al-Qabandi are both shareholders in Gulf Keystone Petroleum Co LLC and IOC-OIL are believed to have been talking to them.
Talks are still on and no agreement has been reached as yet, sources said.
NH:
you have been warned
NH:
moving on
11:25AM
NH:
do you want to see something really bearish
PM:
go on then
NH:
from a fund called Sprott Asset Management who are based in Canada
NH:
they reckon we are in the early stages of a depression
NH:
We are now in the early stages of a depression. The economic indicators we follow to track real economic activity are all signaling a slowdown of massive proportions. You wouldn’t know it
reading the mainstream papers of course – they all focus on the relative decline in the
slowdown’s intensity. Reading about the slowdown ‘slowing down’ is not the same as growth
however, and does not warrant excitement in our opinion.
reading the mainstream papers of course – they all focus on the relative decline in the
slowdown’s intensity. Reading about the slowdown ‘slowing down’ is not the same as growth
however, and does not warrant excitement in our opinion.
NH:
Our title this month paraphrases one of Bill Clinton’s presidential campaign messages from 1992.
As one of the three key themes in Clinton’s campaign, “The economy, stupid” was printed on a
sign in his headquarters in Little Rock to help campaign workers stay on message. This month
we’re keeping it simple by focusing on the real economy and its implications for the stock market.
Here is the real economy summarized in numbers:
As one of the three key themes in Clinton’s campaign, “The economy, stupid” was printed on a
sign in his headquarters in Little Rock to help campaign workers stay on message. This month
we’re keeping it simple by focusing on the real economy and its implications for the stock market.
Here is the real economy summarized in numbers:
NH:
The big question now is what effect all this bad data will ultimately have on the stock market.
Stock valuation can often be wonderfully complex – but it ultimately rests on two main
foundations: earnings and investor sentiment. The ‘earnings’ component is concrete; it is a
stream of profits that companies expect to generate in the future for their shareholders. The
‘investor sentiment’ component, however, is not concrete. It dictates what investors are willing to
pay to buy corporate earnings, and can fluctuate widely depending on perceptions of future
growth. The relationship between these two components is vital in gauging market direction. The
price-earnings (P/E) ratio is the classic investment fraction that combines these two factors into a
usable metric. It deserves mention here because its analysis helps to illustrate the point we are
trying to make.
Stock valuation can often be wonderfully complex – but it ultimately rests on two main
foundations: earnings and investor sentiment. The ‘earnings’ component is concrete; it is a
stream of profits that companies expect to generate in the future for their shareholders. The
‘investor sentiment’ component, however, is not concrete. It dictates what investors are willing to
pay to buy corporate earnings, and can fluctuate widely depending on perceptions of future
growth. The relationship between these two components is vital in gauging market direction. The
price-earnings (P/E) ratio is the classic investment fraction that combines these two factors into a
usable metric. It deserves mention here because its analysis helps to illustrate the point we are
trying to make.
NH:
In Chart D, we provide data by Robert Shiller that plots the real, inflation-adjusted P/E ratio of the
S&P 500 stock index from January 1900 to June 2009.14 As the chart illustrates, as at the end of
June 2009, the S&P 500 traded at an inflation adjusted P/E ratio of 16.08, implying that investors
were willing to pay an average of 16 times earnings for a share in the S&P 500 index.15 Sixteen
times earnings is well below the all time, inflation-adjusted high of December 1999 (44 times), but
also well above the lows of 1932 (5.57) and 1982 (6.64). As it turns out, 16 times is almost
exactly at the 109-year monthly average P/E ratio – so stocks are trading at their long-term
average P/E level in the current environment.
S&P 500 stock index from January 1900 to June 2009.14 As the chart illustrates, as at the end of
June 2009, the S&P 500 traded at an inflation adjusted P/E ratio of 16.08, implying that investors
were willing to pay an average of 16 times earnings for a share in the S&P 500 index.15 Sixteen
times earnings is well below the all time, inflation-adjusted high of December 1999 (44 times), but
also well above the lows of 1932 (5.57) and 1982 (6.64). As it turns out, 16 times is almost
exactly at the 109-year monthly average P/E ratio – so stocks are trading at their long-term
average P/E level in the current environment.
NH:
actually I might put that up in the LR a bit later
NH:
if anyone is interested
11:27AM
PM:
that is bearish
11:27AM
PM:
Getting questions on Northgate
PM:
stock is trading at 13.5p ex rights
NH:
and that’s because the Squid is pushing it
PM:
Defying gravity in our view
PM:
But hey, what do we know
NH:
the Squid reckons it is a buy
NH:
they have an ex-rights target price of 26p
PM:
Only 1.2 billino sahres on offer
NH:
here’s this morning’s comment on NTG from the Squid
NH:
We adjust our interest payment assumptions and debt outstanding as we now expect a larger paydown of debt following the conclusion of Northgate’s rights issue. We are not changing our top-line and EBIT margin assumptions. Our ex-rights target price is 26p, implying significant upside from the current price of 10.94p.
We reiterate our Buy rating on the shares.
We reiterate our Buy rating on the shares.
NH:
Implications
We continue to believe the company’s fundamentals are improving, as rental rates improve, utilization picks up and residual value pricing recovers from trough levels. Our current view on the stock is set out in more detail in our report of June 24, 2009, Position of strength: Considering rights issue impact; still CL Buy.
We continue to believe the company’s fundamentals are improving, as rental rates improve, utilization picks up and residual value pricing recovers from trough levels. Our current view on the stock is set out in more detail in our report of June 24, 2009, Position of strength: Considering rights issue impact; still CL Buy.
NH:
Valuation
We adjust our 6-month target price to 26p (from 30p) on an ex-rights basis; our target remains based on blended 10th percentile forward P/E and EV/EBITDA multiples. Our new target price implies 138% potential upside to the current share price. Shares are trading at 2.3x our CY2010 EBITDA estimate and 3.5x our
CY2010 EPS estimate, compared with the stock’s historical 10th percentile multiples of 3.1x and 9.7x, respectively.
We adjust our 6-month target price to 26p (from 30p) on an ex-rights basis; our target remains based on blended 10th percentile forward P/E and EV/EBITDA multiples. Our new target price implies 138% potential upside to the current share price. Shares are trading at 2.3x our CY2010 EBITDA estimate and 3.5x our
CY2010 EPS estimate, compared with the stock’s historical 10th percentile multiples of 3.1x and 9.7x, respectively.
NH:
Key risks
Key downside risks to our view and price target include continued technical pressure prior to the completion of the rights issue, lower than forecast utilization, an inability to sell used vans and a reversal of recent favourable economic trends in the UK and Spain.
Key downside risks to our view and price target include continued technical pressure prior to the completion of the rights issue, lower than forecast utilization, an inability to sell used vans and a reversal of recent favourable economic trends in the UK and Spain.
NH:
hmmm
NH:
technical pressumre
NH:
must mean the small matter of 1.2bn new shares
PM:
Might have probs selling used vans also
NH:
they could fill with new shares
PM:
NH:
warehouse them
PM:
of course
PM:
Stock by the white van load
NH:
yep
11:30AM
PM:
anyway, what’s moving
PM:
Other than Gulfkeystone
NH:
up 20% can u believe that
NH:
on that story
PM:
Idiotic — why dont people actually read the story???
NH:
mind u probably been flashed by one of the wires by now
PM:
Shall we take a quick short on GKP???
NH:
yep, let’s bang some out
NH:
quick 20% in this
PM:
Spread?
PM:
13/13.5
PM:
Thank you
NH:
dealt
11:32AM
NH:
right let’s get back to some real stocks
NH:
Rexam are getting hit again
PM:
yes, off 21p at 255p
PM:
a fall of almsot 8%
NH:
serves them right
NH:
the can maker has been spinning that Monday’s 12% fall was all about the dilution from a possible rights issue
PM:
which has been announced this morning
PM:
4 for 11 at 150p per share to raise c£350.7mn.
NH:
yep
NH:
and the shares have not rallied
NH:
they have kept on falling
NH:
and that’s because everyone realises now
NH:
that Rexam will not see a recovery in H2
NH:
and won’t generate any cash
PM:
hmmm, they haven’t done a very good job of spinning this one
PM:
big leak in the Sunday papers helped test the water
PM:
and the share price has subsequently tanked
NH:
and that fall more than reflects the earnings dilution
PM:
gone from 321p to 257p in a matter of days
PM:
I note the divi has been cut as well
NH:
yep no interim divi but a final payment of 8p – and it was one of the reason why people held Rexam
NH:
going forward divi cover is going to be 2-2.5 times underlying earnings
PM:
any comment on this??
NH:
hang on
NH:
right, this is a good note
NH:
from Paul Checketts at Oriel Securities
NH:
check the last line
NH:
he has seen through the spin
NH:
Rexam has come to the market a day early with a gloomy set of interims and is asking for
£350m to see it through this immensely challenging period.
£350m to see it through this immensely challenging period.
£350m 4 for 11 rights issue at 150p, a 38% discount to TERP. Officially it’s to preserve
investment grade status but reading between the lines the reason is that management
can see the trends and fear the current debt position is too high risk.
Group revenues are down 6% organically and operating profit is 20% lower.
NH:
Plastics business performing the worst – organic profit contraction of 18% and is to
undergo and restructuring to reduce annual costs by £30m.
undergo and restructuring to reduce annual costs by £30m.
European bev cans also going backwards rapidly – volumes 10% lower with Russian (- 32%) and specialty can (-13%) demand collapsing.
Bev can performance in US and Europe (even ex Russia) is way behind the broader
market. This highlights the higher cyclicality of Rexam.
Interim dividend has gone and a final dividend of 9p is expected to be paid. We had been forecasting 21p for the year.
This is a business under great stress and the capital restructuring may prove to have
been essential. TERP PE of 9.2x still struggles to reflect that. SELL.
NH:
and even Merrill, which is buyer, can’t fund much positive to say
NH:
Rexam has released its interim results a day earlier than expected. It has also
announced a 4 for 11 rights issue (as previously rumoured) at 150p to raise
£350.3m gross, a 28% discount to TERP. The dividend policy is also being
changed.
announced a 4 for 11 rights issue (as previously rumoured) at 150p to raise
£350.3m gross, a 28% discount to TERP. The dividend policy is also being
changed.
In terms of the results, numbers are broadly in line with forecasts – EBITA was
£218m vs BAS-ML £216m and EPS is 14.6p vs BAS-ML 14.2p. However there
will be no interim dividend payment.
NH:
Organic sales in cans was 1%, but the European business has significantly
underperformed, with H1 volumes down 3% in W. Europe and 14% in E.Europe.
Volumes in North America are down 5%, worse than the market. S. America grew
volumes 11%.
Organic sales in cans was 1%, but the European business has significantly
underperformed, with H1 volumes down 3% in W. Europe and 14% in E.Europe.
Volumes in North America are down 5%, worse than the market. S. America grew
volumes 11%.
Plastics is suffering even more – organic volumes are down 13% in H1. Personal
care is down 28%, closures down 21% and healthcare flat. A goodwill write-down
of £113m has been taken in this division.
There will be no interim dividend paid but an 8p final is expected.
The outlook states that no recovery is expected in 2H 2009, but that increased
annualised cost savings of £75m should help 2010.
PM:
cheers for that
11:37AM
PM:
Taxloss asking about horses tips
PM:
Shrewdette says she didnt have a great day yesterday
PM:
Bit disappointing yesterday, only managed one 2nd - Balthazaar’s Gift - but at a good SP of 25/1, so helped to keep level on the day. Incidentally, though I bet this one at 16/1, I was paid at the better odds because of the Best Price guarantee offered by Will Hill – not meant to be an advert but worth bearing in mind. So on to Day 2 ….
PM:
2:10. This is a slightly curious one so proceed with caution – SWEETHEART 10/1, has good 3m form over hurdles and has been in the frame (1142) last 4 outings over 2m, so I’m going EW. And for added interest a FC with the 9/2 favourite SWINGKEEL a stylish winner over 2m earlier this month and additional plus of Jimmy Fortune riding.
2:45 XTENSION 4/1 fav. Winner on debut at 6f and 2nd in Coventry Stakes, the extra furlong should suit.
3:25 BGC Sussex Stakes the big race today being touted as a 2 horse race but I think it’s bit more open than that. Rip Van Winkle 6/4, is attracting the most support on account of his Eclipse second, but I prefer the classy Guineas and Coronation winning filly GHANAATI 9/4, & proven over this trip. But, one of my regulars is there too – PACO BOY – and I am going to ignore his last disappointing run over 6f and focus on his Queen Anne win at Ascot in June and he’s back to 1m. So have him EW at 10/3 and in a FC with Ghanaati (because if the ‘boy’ doesn’t win it I hope the girly does!).
4:00 And if you find yourself in front at this stage and are up to indulging in a bit of madness with me – TOO MUCH TROUBLE 33/1 – a St Leger entry who impressed when staying on well in his penultimate, the Hampton Court Stakes at Ascot. At the price an adventurous EW flutter or Toteplace bet, but not one for the fainthearted!
2:45 XTENSION 4/1 fav. Winner on debut at 6f and 2nd in Coventry Stakes, the extra furlong should suit.
3:25 BGC Sussex Stakes the big race today being touted as a 2 horse race but I think it’s bit more open than that. Rip Van Winkle 6/4, is attracting the most support on account of his Eclipse second, but I prefer the classy Guineas and Coronation winning filly GHANAATI 9/4, & proven over this trip. But, one of my regulars is there too – PACO BOY – and I am going to ignore his last disappointing run over 6f and focus on his Queen Anne win at Ascot in June and he’s back to 1m. So have him EW at 10/3 and in a FC with Ghanaati (because if the ‘boy’ doesn’t win it I hope the girly does!).
4:00 And if you find yourself in front at this stage and are up to indulging in a bit of madness with me – TOO MUCH TROUBLE 33/1 – a St Leger entry who impressed when staying on well in his penultimate, the Hampton Court Stakes at Ascot. At the price an adventurous EW flutter or Toteplace bet, but not one for the fainthearted!
NH:
right we need to sell some more Gulf Keystone
NH:
up 24% now
NH:
this is madness
PM:
Fine — sell some more
NH:
unless of course the company is going to make a statement
PM:
Spread?
NH:
saying it has received $2.3bn offer
PM:
13.25/14
PM:
thank you — we’ll take that
NH:
spread widening
PM:
if th Hindu Times sotry is correct — what shold the price rocket too??
NH:
about 340p
PM:
NH:
and that would sink H&M Capital
NH:
another LTCM
PM:
But the trade was right!
PM:
STOP!
NH:
it is true
NH:
Bloomie have flashed it
NH:
by back the short
PM:
NH:
By Rakteem Katakey July 29 (Bloomberg) — Indian Oil Corp. and Oil India Ltd.may jointly buy U.K. explorer Gulf Keystone Petroleum Ltd. for$2.23 billion, the Press Trust of India reported, citingunidentified investment bankers. The two companies have been in discussions with GulfKeystone shareholders TF Kozel and AA Al-Qabandi, the newsagency said. An agreement hasn’t been reached, according to thereport. Indian Oil Chairman Sarthak Behuria declined to comment andOil India Chairman and Managing Director N.M. Borah didn’tanswer phone calls today.For Related News and Information:Stories on Indian Oil: IOCL IN CN BN Energy stories from India: TNI INDIA NRG BN Top news from India: TOP IN
PM:
Start counting to the moment that the Bloomie felt rings to say that Bloomberg terminals are just like search negines
PM:
Its not their content
NH:
up 27% now – 13.75p – 14.25p
PM:
Sell some more
PM:
Actually — Bloomberg have screwed themselves here
PM:
Earth to Bloomberg
PM:
Its a HOAX
PM:
GulfKeystone is NOT worth $2.34bn
PM:
NH:
this is silly
PM:
Price
NH:
we should contact the reporter on that story
NH:
Amit Prakash at +65-6212-1167 or aprakash1@bloomberg.net
PM:
just getting the nummber
NH:
Paul is calling her now
NH:
to check the headline figure
NH:
if they are wrong and it rupees
NH:
then the figure would be around £29m
NH:
for the entire company
NH:
and current market cap is £50m
PM:
Nah Neil — its jsut a hoax — its not a mistake
NH:
sorry that maths there is wrong – more like £300m
PM:
Left a msg for the hack — who is in India
PM:
No answer
11:46AM
NH:
back to the market
PM:
oh what fun
PM:
where to now?
PM:
got quite distracted
NH:
I reckon we should have a little look at Autonomy
PM:
ah yes
NH:
remember when it presented results earlier this month the share price got crushed
PM:
yep
PM:
big row between analysts about revenue recognition and cash
NH:
yep
NH:
well one of the analysts in the bear camp has turned even more bearish
PM:
who’s that?
NH:
Daud.Khan at Cazenove
NH:
he has cut to underweight this morning
NH:
and reckons the reasons for poor cash conversion should be investigated
PM:
oh dear
PM:
that’s a bit aggressive
PM:
Mike Lynch is not going to like that
NH:
no
PM:
he is not going to like that at all
PM:
let’s have a look at the note then
NH:
OK
NH:
here’s the summary
NH:
it is a bit long but I think there are number of readers interested in the stock
PM:
paste away
NH:
Autonomy has built its strong reputation on consistent topline growth, usually outperforming market estimates, and from the continual rise of its operating margin. We believe the depressed state of IT demand globally is putting downward pressure on the business momentum.
With top-line expectations lowered in Q1 followed by a virtual miss in Q2 and then followed by low guidance for Q3 relative to Bloomberg consensus, we believe the macro backdrop is having a larger impact than the company and the market might have expected.
NH:
We argue that the cash conversion within Autonomy is poor, and Q2 was worse than we and the market expected. The cash deficit, (the cumulative effect of sub 100% cash conversion based on our calculation) in the business continues to grow and now stands at $189m (more than the sum of operating cash reported in 2008). The continuing lack of organic deferred revenue growth in our view may be a function of revenue recognition.
The company has taken steps to address the issue of low cash conversion but we believe that the company’s chosen metrics provide information that is not relevant to the underlying causes.
There may be acceptable reasons for poor cash conversion and these include the possibility that growth reduces cash conversion or that a change in business model might lower it. Our analysis
demonstrates that even high growth software companies should show good cash conversion. The change in business model articulated by the company may explain a lower cash conversion post Zantaz but this does not explain the period before Zantaz nor the deterioration in cash conversion post the Interwoven acquisition.
NH:
We demonstrate that the change described by the company would inflate revenue recognition by overstating growth post acquisition. Most software companies (outside of startups) have negative working capital and hence do not require working capital to grow. As a result they tend to throw off cash with a resultant cash
conversion above 100%. It appears that Autonomy acquires businesses with sufficient negative working capital to take the combined business negative. However, the actions of the company post acquisition appear to change the profile of the business from a cash generative business to one that consumes more and more cash.
conversion above 100%. It appears that Autonomy acquires businesses with sufficient negative working capital to take the combined business negative. However, the actions of the company post acquisition appear to change the profile of the business from a cash generative business to one that consumes more and more cash.
NH:
2009E PER is c. 19x based on Bloomberg consensus of $1.05 and this is at close to historic lows for Autonomy. Under our scenario that the underlying growth in the business is flat or negative and that earnings are materially overstated based on the cash conversion, we believe the stock actually trades on closer to 29x on a cash adjusted basis and hence remains overvalued.
Based on the slowing revenue momentum and our growing concern over issues related to cash conversion we are moving to UNDERPERFORM.
NH:
right
NH:
there’s a lot to digest there
NH:
but a few things stand out
NH:
such as this par
NH:
Under our scenario that the underlying growth in the business is flat or negative and that earnings are materially overstated based on the cash conversion, we believe the stock actually trades on closer to 29x on a cash adjusted basis and hence remains overvalued
NH:
so
NH:
earnings could be overstated
NH:
alledgely
NH:
and as a result Autonomy is on 29 times earnings
NH:
shares are off a bit this morning
NH:
down 13p at £12.02
NH:
and I am sure the bulls will respond over the next couple of days
NH:
but the wider point here is one about software companies and revenue recognition
NH:
and cash generation
NH:
actually they guy to ask about this
NH:
is Tim Steer
NH:
he used to be a New Start
NH:
but I think has pitched up at Artemis now
NH:
in fact he could already be there
11:52AM
NH:
Right
NH:
Paul is on the phone to Gulf Keystone
NH:
well, there’s felts
NH:
NH:
Citigate
PM:
Goodness they are slow
NH:
to seek confirmation about the bid
NH:
while he does
NH:
some more people news
PM:
Got to be careful tho — Citigate may be sponsoring part of our webby drinks
NH:
Alex Potter has left Collins Stewart
NH:
he was the banking analysts we quoted a fair bit back in those days of banking meltdown
NH:
apparently he has joined FBR Capital Markets which are opening up in London
NH:
if you don’t know FBR they are actually quite big
NH:
and have written some really punch and negative stuff about the US banking sector
NH:
here’s a bit of blurb from their website
NH:
FBR Capital Markets Corporation (FBR Capital Markets; NASDAQ:FBCM) is a top ten investment bank1 with an international franchise, one of the strongest equities distribution capabilities in the securities industry and an active asset management business.
From 2003 to 2008, FBR Capital Markets’ Investment Banking group has been ranked as the:
#3 book-running manager of all common stock offerings for U.S. companies with a market capitalization of $1 billion or less in the last five years2
#1 book-running manager for all U.S. IPOs and 144A equity placements combined for all industries3
#1 book-running manager of all common stock offerings for domestic mining, oil and gas, and utility and energy companies, with a market capitalization of $1 billion or less4
11:54AM
NH:
right Paul is talking to the felt now
NH:
no comment at the moment
NH:
no comment at all
NH:
stock coming back
NH:
13-13.75p
NH:
still up 15% though
PM:
citigate ignorant
PM:
Completely ignorant
PM:
had seen it , head heard of it
NH:
that’s what £75,000 a year retainer is for
PM:
Obviously
PM:
NH:
do they not have a bloomie??
PM:
dunno
PM:
Anyway, the felt has promised to get back
NH:
actually
NH:
she has probably popped round the corner
NH:
Citigate is close to the Blomie offices
NH:
probably in reception
NH:
trying to get a peak at a machine
NH:
PM:
oh dear
PM:
this job is funny
PM:
Gult Keystone still up
PM:
No need to close yet
PM:
Suppose we could try calling the police
NH:
don’t go there
11:57AM
NH:
right a few things to finish up on
NH:
HMV have reacted very badly to the possibility that they will loose their CEO to ITV
NH:
Simon Fox is one of the front runners according to this morning’s paper
PM:
shares off 5.5p at 107.5p
PM:
a drop of nearly 5%
PM:
Is Fox that good??
NH:
well he has transformed HMV’s fortunes
NH:
company was in real trouble before he arrived
PM:
but will he take the ITV job
NH:
well it is high profile
NH:
seriously high profile
NH:
and having turned HMV around against the threats like iTunes etc
NH:
perhaps he thinks he can repeat the magic at ITV
NH:
but it’s risky
NH:
ITV has the potential to destroy his reputation
PM:
true, difficult industry
PM:
I wonder want Monty thinks of the shortlist
PM:
he was a good call on all things ITV
PM:
and ITV shares moving higher?
NH:
they are
NH:
up 1.75p at 39p
12:00PM
12:01PM
PM:
so, do we have any RAW
before we go
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:
not really
NH:
there’s was some talk about BT doing a convertible with results
NH:
but we reckon that’s wide of the mark
NH:
elsewhere
NH:
bid rumours around in RSA again
PM:
Shares up 4.6 at 128
NH:
all pretty vague though
NH:
no names being mentioned by just a buzz that someone is looking
PM:
actually a big note out on the insurers today
PM:
Deutsche Bank
PM:
they have cut L&G to a sell
PM:
given this insurance the note is quite complex
PM:
but the argument is that the ban on IFA commissions will hit sales
PM:
and changes to the tax system
PM:
here’s the note
PM:
Change creates opportunity We believe the UK life assurance industry faces unprecedented upheaval in view of recent tax changes and a shifting regulatory landscape. We expect sales volumes over the next three years to drop materially,
but improved persistency to improve back book valuations. Consolidation is the most likely consequence. FP apart, we see the most likely beneficiaries as being Prudential and Aviva reflecting relatively low UK new business exposure versus
the value of their back books. In view of recent divergent performance, we lift Aviva to Buy and cut L&G to Sell.
but improved persistency to improve back book valuations. Consolidation is the most likely consequence. FP apart, we see the most likely beneficiaries as being Prudential and Aviva reflecting relatively low UK new business exposure versus
the value of their back books. In view of recent divergent performance, we lift Aviva to Buy and cut L&G to Sell.
A changing landscape – lower sales, but scope to realize back book value Income tax and capital gains tax changes along with a cap on higher rate pension contributions are eating into UK life assurers’ historic tax advantage. Simultaneously, a
ban on commissions in 2012 as the Retail Distribution Review comes into force will result in substantially lower IFA numbers, in our view, and a sharp decline in high commission product sales such as investment bonds and personal
pensions. The proposed introduction of Personal Accounts could likewise hit sales of SME group pensions
PM:
However, while new business levels will fall, we expect persistency on back books to improve. And with less business coming into these, we see less reason for management teams to retain these books, potentially freeing up capital for other projects.
Consolidation appears inevitable We believe that consolidation of the industry is increasingly inevitable, with both the new business market and back book management becoming a scale game. In our view, smaller players (e.g. FP) are
likely to be the first to be consolidated, along with selected foreign-owned insurers.
Consolidation involving the remaining
UK quoted life assurers may take longer given greater relative scale. Nonetheless, if a reasonable market develops for closed books, we highlight Prudential and Aviva as potential gainers. For both these, the value we attach to their UK sales
is low (6% and 4% respectively of our SOTP) – against which the value of their back books is considerable (17% and 21% respectively).
PM:
Recommendation changes Following a strong recent run, we downgrade L&G (TP 55p) from Hold to Sell. The shares have benefited from speculation over its value as a break-up, but we think that 90% of the proceeds from selling LGIM or
the US would be required to cover existing solvency requirements or repay debt. Added to which, there remains considerable uncertainty over increased capital requirements under Solvency II. We upgrade Aviva (TP 401p) to Buy
following recent underperformance; we think that bad news is once again reflected in a PE 20% below the sector and yield 1.6x the sector – post a 33% dividend cut, also recognizing potential longer term value to be gained from selling
parts of its UK back book.
the US would be required to cover existing solvency requirements or repay debt. Added to which, there remains considerable uncertainty over increased capital requirements under Solvency II. We upgrade Aviva (TP 401p) to Buy
following recent underperformance; we think that bad news is once again reflected in a PE 20% below the sector and yield 1.6x the sector – post a 33% dividend cut, also recognizing potential longer term value to be gained from selling
parts of its UK back book.
Sector valuations and key risk We value the sector on a SOTP approach, net of a recessionary stress test, on which basis aggregate sector upside of 13% is the lowest for two years. Key risks for the sector include financial market
developments, reserving trends and regulatory change.
NH:
ta for that
NH:
and staying with the financials for a minute
NH:
if you were wondering why Schroders was up this morning
NH:
it is because of this note from Morgan Stanley
NH:
We double upgrade Schroders to OW and raise our price target from 710p to 1,045p (13% implied upside) as we believe consensus (20% below our numbers) underestimates the earnings upside risk from a strong rebound in high-margin retail flows. Detailed analysis of SDR’s Luxembourg fund factsheets indicates ~£3bn 2Q09inflow, implying ~70% annualised NNM rate, three times the 1Q09 run-rate, driven by strong demand for European corporate bond product.
NH:
Despite headwinds in the form of Asia and US units, we expect positive surprises for the market at the interims on August 6. We downgrade Aberdeen to EW on valuation (price target cut 3% to 145p) and given weaker flow momentum, albeit we think deal event risk remains a positive
catalyst.
catalyst.
We also raise our Henderson (OW) and F&C (UW) PTs (see ‘Today’s Changes’).
Schroders (SDR:LSE): Last: 952.00, up 43 (+4.73%), High: 978.50, Low: 923.00, Volume: 406.20k
NH:
and also we have a bit of comment on Inchcape
NH:
which, as was rumoured, has produced a decent trading update today
Inchcape (INCH:LSE): Last: 24.75, up 2.25 (+10.00%), High: 25.50, Low: 23.50, Volume: 25.11m
NH:
here’s what Caz made of it all
NH:
This is a good set of results for Inchcape, demonstrating a solid performance in very difficult markets across the globe. Particularly positive is the substantial reduction in the net debt position from £408m at the year end to £28m at the end of H1 2009.
This should serve to reduce significantly any lingering concerns over the company’s balance sheet and allow investors to focus on the eventual scope for recovery.
To that end, the stronger performances in the UK and Australia have been very encouraging, albeit they have been partially offset by weakness in Hong Kong and the emerging markets regions. Despite the drag on profitability these latter regions provided, profits for the first half were nevertheless ahead of expectations.
NH:
Looking forward to the second half, this better than expected H1 performance combined with an improved outlook for the UK and Australia results in a 24.1% upgrade in our FY2009E EPS despite our also taking a more pessimistic view of
the H2 prospects for the Asian markets. Following a strong performance in the last couple of weeks, the shares suffered from some profit taking yesterday ahead of the statement, but given the positive surprise on the debt and the upgrades to estimates, we expect them to push on from here.
the H2 prospects for the Asian markets. Following a strong performance in the last couple of weeks, the shares suffered from some profit taking yesterday ahead of the statement, but given the positive surprise on the debt and the upgrades to estimates, we expect them to push on from here.
On our estimates they are trading on a PER of 12.4x Dec 2009E, but only 7.3x last year’s earnings and 6.2x peak.
12:04PM
NH:
Right that’s it
NH:
before we go
NH:
GKP update
NH:
12.25-13p now
PM:
Do you want close before go..
PM:
the shorts?
NH:
well, what worries me is this
NH:
there is a bid
NH:
but at say 20p
NH:
if that assets in Kurdistan are any good
NH:
that has to be possible
NH:
set against that
NH:
any company using an equity line of credit
NH:
well
NH:
let’s keep it open
PM:
yeah
PM:
The story is not an errors — it’s a hoax
PM:
We believe
PM:
Anyway — was bit mean to Citigate earlier
NH:
especially as they were going to sponsor the Webby’s
PM:
Not fair that they should just be on hand to immediately answer questions from us
PM:
cant monitor everything in real time
PM:
HedgeHog asked PM. Do entities sponsor with intent to manipulate opinions published on line ?
PM:
Answer
NH:
clearly not
NH:
if Gulf Keystone is anything to go by
PM:
No! help to wards the Webby drinks bill was for me doing a talk to their clietns
PM:
clients even
NH:
one last thing
NH:
people askinig about BTG and why they are moving
NH:
very bullish note out of KBC
NH:
that may be pushing it
NH:
Now that CytoFab has been progressed into Phase IIb we look
to Varisolve as the main near-term value driver. We investigate
several scenarios, from complete success to outright failure.
Shares have risen ~40% since our upgrade to Buy at the
beginning of April. Having raised our valuation for CytoFab we
see 20% upside and raise our target price to 208p. Buy
to Varisolve as the main near-term value driver. We investigate
several scenarios, from complete success to outright failure.
Shares have risen ~40% since our upgrade to Buy at the
beginning of April. Having raised our valuation for CytoFab we
see 20% upside and raise our target price to 208p. Buy
NH:
Varisolve – read-across from US vein specialists
The US varicose vein market has seen several innovations, much litigation, and
many business consolidations since BTG began developing Varisolve. Endovenous
ablation technologies (Covidien, Angiodynamics) have become the gold standard
for the treatment of varicose veins, while sclerotherapy products have lagged
behind. We have talked to one of the leading vendors of varicose vein products,
who believe sclerotherapy may one day replace the current technologies. This
could be good for Varisolve.
The US varicose vein market has seen several innovations, much litigation, and
many business consolidations since BTG began developing Varisolve. Endovenous
ablation technologies (Covidien, Angiodynamics) have become the gold standard
for the treatment of varicose veins, while sclerotherapy products have lagged
behind. We have talked to one of the leading vendors of varicose vein products,
who believe sclerotherapy may one day replace the current technologies. This
could be good for Varisolve.
NH:
Newsflow and valuation
BTG’s shares have risen over 40% since our upgrade from Hold to Buy in April
2009. Newsflow from Cougar Biotechnology (all-cash acquisition by J&J),
Genzyme’s moves on Campath and acknowledgment of management’s success in
consolidating Protherics have driven this re-rating. We have upgraded our DCF
model for CytoFab and raise our target price to 208p. The stock remains a Buy.
BTG’s shares have risen over 40% since our upgrade from Hold to Buy in April
2009. Newsflow from Cougar Biotechnology (all-cash acquisition by J&J),
Genzyme’s moves on Campath and acknowledgment of management’s success in
consolidating Protherics have driven this re-rating. We have upgraded our DCF
model for CytoFab and raise our target price to 208p. The stock remains a Buy.
BTG (BGC:LSE): Last: 176.00, up 8 (+4.76%), High: 177.75, Low: 168.75, Volume: 1.11m
12:09PM
PM:
Rain — please can we have a copy of the PTJ vid !?!?!
PM:
paul.murphy@ft.com
NH:
we will play it on a loop at the Webby drinks
PM:
right — got to go
PM:
Sorry if a bit chaotic this morning
PM:
But, hey, that’s news
PM:
or fake news
PM:
for you
PM:
Back tomorrow at 11am
NH:
when H&M may be no more
NH:
sunk by an indian bid for small cap oil company
NH:
what a way to go!
PM:
PM:
seeya