Markets live chat transcript for the chat ending at 12:05 on 31 Jul 2009. Participants in this chat were: Paul Murphy (PM) Neil Hume, FT (NH)
PM:
Hi
PM:
Welcome to Market Live
PM:
At FT Alphaville
PM:
Daily markets chat that starts precisely at 11am each day
PM:
Place were we discuss british equities and …
PM:
A HOST OF OTHER ASSETS FROM AROUND THE WORD
PM:
No boundaries in markets live
PM:
We never did retry that People’s Friday experiment.
PM:
Far too chaotic
PM:
Even by our standards
PM:
Neil is here
PM:
On time as usual
NH:
I am
PM:
You know people are always criticising us for things that just arent true
NH:
such as
PM:
We supposed to be late all the time
PM:
And we dont do anything other than dodgy brit stocks
PM:
And we swan off to lunch at earliest opportunity
NH:
it is so unfair
NH:
actually where are you going for lunch today Murph?
PM:
Actually, I’m off out with an fund manager pal
PM:
BREAK
NH:
Onions on a hat trick
11:02AM
NH:
gotta watch this
NH:
Hussey left another one and got bowled
NH:
right
NH:
let’s see if the Durham man can complete the hat trick
NH:
bear with us
PM:
here we go
NH:
Clarke taking guard
NH:
Two please Ump
NH:
Strauss changing the field
NH:
Onions back to his mark
NH:
right
NH:
here he comes
NH:
COME ON
PM:
oooh
PM:
bouncer
NH:
why not pitch it up?
NH:
on a hat trick
PM:
back to the script
PM:
Well, actually we hvaent got a script this morning
PM:
Neil has been whinging away
PM:
whingeing
PM:
cos he has to do AV and ML and the back page report and the small cap report and his column
PM:
What you doing your column on Neil?
NH:
Not sure actually.
PM:
Maybe you could explain how the Footsie is actually going to get to the moon for its summer holidays.
NH:
I just said that in passing. Not a firm prediction
NH:
But look – might have paused for breath just now – but this run has been incredible.
NH:
Equities have never claimed a steeper wall of worry – as Tim Bond said yesterday.
PM:
I only belatedly read that late yesterday.
PM:
Got to say, not quite as elegant as his usual fayre.
PM:
So much seemed to hang on historical evidence that the first bounce out of recession – GDP wise
PM:
Always tended to be sharply than people expected.
PM:
There was just this blithe assumption that the big economies will be roaring by September or so.
NH:
Well, if you want a bit of history, there was this stuff posted in the LR
NH:
Bullsvsbears
NH:
post the initial crash of 1929-1930 equity rally lasted 147 days and the market was up 46% from it’s low before the apocalypse kicked everyone in the teeth and we went to the all time low! Now we’re 145 days off the March 6th low this year and the market is up 46%…”
NH:
Spooky….eh?
PM:
Would suit Monkey’s book. He’s a seller at 4640.
PM:
I’ve just no blinking idea.
PM:
Let’s move on.
NH:
Hang on – before we do.
NH:
For the remaining bears here – there’s stuff out of Pali this morning
NH:
James Ferguson, their strategist
PM:
(sir incompetent mcbonus – yes)
NH:
The market is celebrating the likely end of the recession in Q3 or,
failing that, Q4. However, at some stage, probably before the end of
the year, the anaemic nature of the recovery, so typical of bank crisis
resolution periods, will become apparent and the bear market rally
will stall.
failing that, Q4. However, at some stage, probably before the end of
the year, the anaemic nature of the recovery, so typical of bank crisis
resolution periods, will become apparent and the bear market rally
will stall.
NH:
History teaches us to expect bank crisis recessions to be deeper than
‘normal’: this one is already the deepest since the 1930s.
Bank crisis recessions are also typically longer than ‘normal’, by three
quarters or so. This one officially started in the US in December 2007, so
an end some time in Q3 would constitute a six to seven quarter long
recession, a duration bang in-line with past bank crises.
‘normal’: this one is already the deepest since the 1930s.
Bank crisis recessions are also typically longer than ‘normal’, by three
quarters or so. This one officially started in the US in December 2007, so
an end some time in Q3 would constitute a six to seven quarter long
recession, a duration bang in-line with past bank crises.
NH:
So the remaining distinguishing feature of bank crisis recessions, as
opposed to ‘normal’ V-shaped ones, namely the extremely sluggish nature
and low trajectory of the recovery profile, should remain the base-case
scenario. It is debatable whether current market strength accurately
discounts that likelihood.
opposed to ‘normal’ V-shaped ones, namely the extremely sluggish nature
and low trajectory of the recovery profile, should remain the base-case
scenario. It is debatable whether current market strength accurately
discounts that likelihood.
PM:
Oh! That’s a novelty. Someone who doesn’t believe in the V
NH:
and to balance that up
NH:
got something from the Squid
PM:
We should stop calling them the Squid!
NH:
they are big buyers of the market
NH:
Many investors believe the 38% rise in the markets since the low is incompatible with the prospects of weak economic growth. We believe that valuation already reflects these fears. On our top down estimates, DJ
Stoxx 600 trades at 10.4x 2010 earnings. The market appears to be implying a 2.6% 5-year annualised earnings decline on normalized ERP.
Stoxx 600 trades at 10.4x 2010 earnings. The market appears to be implying a 2.6% 5-year annualised earnings decline on normalized ERP.
NH:
Valuation based on earnings and dividends is attractive
On most measures we look at, valuations appear to be very attractive. On our top down earnings growth forecasts for 2010 (+34%), the market trades at little more than 10x earnings. Based on real trend earnings since 1973, the market trades on 9.5x or 11x ex-financials. On a cyclically adjusted Shiller multiple, the
market is on 11.8x 2010E compared with a long run average of 15x. Adjusting for inflation, the current multiple is the lowest since the 1970s.
On most measures we look at, valuations appear to be very attractive. On our top down earnings growth forecasts for 2010 (+34%), the market trades at little more than 10x earnings. Based on real trend earnings since 1973, the market trades on 9.5x or 11x ex-financials. On a cyclically adjusted Shiller multiple, the
market is on 11.8x 2010E compared with a long run average of 15x. Adjusting for inflation, the current multiple is the lowest since the 1970s.
NH:
Relative valuations remain compelling
Valuations relative to competing asset classes are also compelling. Even taking into account further sharp falls in dividends implied by the dividend swap market, the yield ratio is close to the lowest level in the UK
since the 1950s.
Valuations relative to competing asset classes are also compelling. Even taking into account further sharp falls in dividends implied by the dividend swap market, the yield ratio is close to the lowest level in the UK
since the 1950s.
NH:
Meanwhile asset and enterprise based measures remain at the low end of their long run ranges – the P/B is 1.5x, EV/sales is 1x and EV/GCI is 0.8 on our 12-month forward estimates.
NH:
GS DDM and implied growth rates point to further upside
On GS DDM, the implied ERP has fallen to 5.7% and there is 91% potential upside to our estimate of equilibrium valuation assuming a normalized real bond yield and ERP – consistent with our view that the market could double by 2014. Using a 3% ERP implies the market is discounting -2.6% annualized earnings
growth over the next five years. Meanwhile the dividend swap market still implies a 45% fall in dividends from the 2007 peak with 2010 forecast dividend yield at 3.5%.
On GS DDM, the implied ERP has fallen to 5.7% and there is 91% potential upside to our estimate of equilibrium valuation assuming a normalized real bond yield and ERP – consistent with our view that the market could double by 2014. Using a 3% ERP implies the market is discounting -2.6% annualized earnings
growth over the next five years. Meanwhile the dividend swap market still implies a 45% fall in dividends from the 2007 peak with 2010 forecast dividend yield at 3.5%.
NH:
there you have it
NH:
Squid says market cheap
NH:
pile in
NH:
watch out Monkey
NH:
so powerful forces pushing this market higher
PM:
The equity market, that is
11:12AM
PM:
Actually, what is the Footsie doing at the mo?
PM:
Down i guess
NH:
it is
NH:
but only small
NH:
off 10.5 points at 4,621
PM:
(Stoppedout — blessing in disguise, probably)
11:13AM
PM:
BAY mentioned to the right
PM:
British airways
PM:
Bragging about costs being down 6.6%
NH:
Cut cut cut cut
NH:
Everyone wants to cut costs
NH:
What happened to that thing called investment.
NH:
Companies cant just continue cutting costs for ever.
NH:
and what about the impact this cost cutting will have on the economy
NH:
jobs
NH:
confidence
NH:
etc?
PM:
Yeah, but it is what people want at the moment – cost cutting
PM:
Well, investors do.
PM:
Not the people who are having their jobs cut.
PM:
Neil is looking for the GS note on BAY
PM:
Cant find immediately
PM:
Stock is top of the leaderboard tho
PM:
Price up 6.4p at 140.7
PM:
gian of almost 5%
NH:
nope
NH:
not got it
NH:
the Squid are giving Lloyds a push this morning though
NH:
upgrading estimates ahead of results
NH:
slightly surprised by the positive reaction
NH:
most of the trading data was announced with the recent Convertible, no?
PM:
That is true
PM:
Cost cutting already flagged
NH:
right got some comment on BA
NH:
here’s Andrew Light at Citi
NH:
June quarter results in-line with pre-announcement 2 weeks ago and slightly
better than expected — The operating loss of £94m (-4.7% margin) was slightly
better than the £100m loss guidance. Net loss of £106m (9.6p/share) was
better than our expected net loss of £117m (10.1p/share).
better than expected — The operating loss of £94m (-4.7% margin) was slightly
better than the £100m loss guidance. Net loss of £106m (9.6p/share) was
better than our expected net loss of £117m (10.1p/share).
NH:
Balance sheet intact and liquidity strong — Ending cash was £1.26bn, as
expected, and will shortly be boosted by £350m convertible bond proceeds. All
capex to 2012 is pre-funded (with c.£3bn facilities) and general purpose
facilities amount to £460m. Ending net debt of £2.27bn beat our estimate of
£2.85bn and fell £114m from end March 2009 due to weaker US$ debt.
expected, and will shortly be boosted by £350m convertible bond proceeds. All
capex to 2012 is pre-funded (with c.£3bn facilities) and general purpose
facilities amount to £460m. Ending net debt of £2.27bn beat our estimate of
£2.85bn and fell £114m from end March 2009 due to weaker US$ debt.
NH:
Negative outlook in-line with some glimmer of hope — The CEO said there are
no visible signs of improvement, as expected. However, passenger volume and
load factor are expected to improve in the peak summer months. July traffic
data will be released next week on 5th August. We expect passenger traffic
(RPKs) for July to have risen by 0.5%, driven by a 1.5% fall in capacity (ASKs)
and a 2 point improvement in load factor, but we expect the -15% premium
traffic decline to have continued. Yield outlook is uncertain. Despite media
attention to swine ‘flu, travel volume does not appear to be affected so far.
no visible signs of improvement, as expected. However, passenger volume and
load factor are expected to improve in the peak summer months. July traffic
data will be released next week on 5th August. We expect passenger traffic
(RPKs) for July to have risen by 0.5%, driven by a 1.5% fall in capacity (ASKs)
and a 2 point improvement in load factor, but we expect the -15% premium
traffic decline to have continued. Yield outlook is uncertain. Despite media
attention to swine ‘flu, travel volume does not appear to be affected so far.
NH:
No news yet on major upcoming issues – as expected — Outstanding issues that
could catalyse the shares (in either direction) remain: i) ongoing
pay/productivity negotiations; ii) pension deficit; iii) American Airlines JV antitrust
approval; iv) Iberia merger. There may be some colour on these issues on
today’s call (2pm UK time) but we doubt management will give much away.
could catalyse the shares (in either direction) remain: i) ongoing
pay/productivity negotiations; ii) pension deficit; iii) American Airlines JV antitrust
approval; iv) Iberia merger. There may be some colour on these issues on
today’s call (2pm UK time) but we doubt management will give much away.
NH:
nad here’s Merrill
NH:
Low valuation – not discounting stabilisation and potential upside from savings
and M & A
We estimate BA trades on a FY03/10E EV/IC multiple of 0.29x. We think the
current trough valuation (35% discount to historic average) reflects the low point
in the industry cycle and does not discount benefits from further capacity
reductions, economic stabilisation and cost savings. M & A-related synergies
would be a further positive if deals (e.g BA/AA) are agreed/approved.
and M & A
We estimate BA trades on a FY03/10E EV/IC multiple of 0.29x. We think the
current trough valuation (35% discount to historic average) reflects the low point
in the industry cycle and does not discount benefits from further capacity
reductions, economic stabilisation and cost savings. M & A-related synergies
would be a further positive if deals (e.g BA/AA) are agreed/approved.
PM:
cheers for those Neil
11:20AM
PM:
You mentioined GS were bullish on the banks
PM:
Well, certainly Lloyds
NH:
they are
NH:
What’s changed
We are updating our estimates to reflect the new divisional proforma
numbers released last week. Our forecasts do not change materially as the
main differences were reclassifications of line items. However, we have
pushed back the £15.6 bn B shares equity injection from 1H09 to 2H09; this
changes our reported 1H09 tangible book value per share from 105p to
100p and Equity Tier 1 ratio from 11.5% to 6.2% (we expect profroma
Equity Tier 1 to remain at 11.5% while trough TBVPS increases 1p to 88p).
There is no impact on our assumptions on GAPS losses in 1H09 as the
assets will be priced as of December 31, 2008.
We are updating our estimates to reflect the new divisional proforma
numbers released last week. Our forecasts do not change materially as the
main differences were reclassifications of line items. However, we have
pushed back the £15.6 bn B shares equity injection from 1H09 to 2H09; this
changes our reported 1H09 tangible book value per share from 105p to
100p and Equity Tier 1 ratio from 11.5% to 6.2% (we expect profroma
Equity Tier 1 to remain at 11.5% while trough TBVPS increases 1p to 88p).
There is no impact on our assumptions on GAPS losses in 1H09 as the
assets will be priced as of December 31, 2008.
NH:
Implications
Lloyds is reporting their 2009 interim results Wednesday, August 5. We
expect focus to be on: (1) the outlook for credit quality and net interest
income. We expect Lloyds to report lower loan losses in 2H09 vs. 1H, but
net interest income to continue to decline in 2H09; (2) the progress being
made on finalizing the terms of the governments asset protection scheme
(GAPS); and (3) earnings capacity of the group, with a focus on funding
structure, losses on non-GAPS assets and balance sheet size “post
restructuring”.
Lloyds is reporting their 2009 interim results Wednesday, August 5. We
expect focus to be on: (1) the outlook for credit quality and net interest
income. We expect Lloyds to report lower loan losses in 2H09 vs. 1H, but
net interest income to continue to decline in 2H09; (2) the progress being
made on finalizing the terms of the governments asset protection scheme
(GAPS); and (3) earnings capacity of the group, with a focus on funding
structure, losses on non-GAPS assets and balance sheet size “post
restructuring”.
NH:
Valuation
Our 12-month price target remains 107p and is calculated using 2011E
ROTE, COE and trough TBV. Lloyds is currently trading on 5.7x 2011E EPS
and 0.86x TBV. This compares to the large cap European banks which are
trading on 8.5x and 1.2x respectively. We maintain our Conviction Buy due
to Lloyds attractive valuation, strong downside protection and potential to
benefit from structural changes in the UK banking market.
Our 12-month price target remains 107p and is calculated using 2011E
ROTE, COE and trough TBV. Lloyds is currently trading on 5.7x 2011E EPS
and 0.86x TBV. This compares to the large cap European banks which are
trading on 8.5x and 1.2x respectively. We maintain our Conviction Buy due
to Lloyds attractive valuation, strong downside protection and potential to
benefit from structural changes in the UK banking market.
PM:
So , figs from Lloyds next Wednesday
PM:
We need to do some sort of interim preview
NH:
There’s something out of credit Suisse today
NH:
Jonathan Pierce
NH:
Ooh, he is still cautious on Lloyd and RBS
NH:
and with good reason
NH:
interesting note this
NH:
while everyone is talkling about valuing Lloyds and RBS on normalised earnings
NH:
Pierce is looking at things like
NH:
the future cost of funding
NH:
which must go up and affect profitability
NH:
LBG and RBS shares have run too far. Reiterate Underperform on both
NH:
We think structural issues, particularly margins, are being overlooked
NH:
Interim results likely to be mixed
The partly state-owned banks, LBG and RBS, have rallied in recent weeks
reflecting previous underperformance and optimism on long-term earnings.
We remain very cautious in this regard. APS clearly has the potential to provide
one or two years of solid earnings once the Government starts to make
insurance payments, but this is likely to be short lived as APS assets begin to
refinance and move back onto bank balance sheets. Associated impairment
charges will likely rise (particularly if the accounting has moved to through the
cycle) and risk weighted assets could increase sharply (as loans move from
10% of normal weighting to 100% of normal weighting)
The partly state-owned banks, LBG and RBS, have rallied in recent weeks
reflecting previous underperformance and optimism on long-term earnings.
We remain very cautious in this regard. APS clearly has the potential to provide
one or two years of solid earnings once the Government starts to make
insurance payments, but this is likely to be short lived as APS assets begin to
refinance and move back onto bank balance sheets. Associated impairment
charges will likely rise (particularly if the accounting has moved to through the
cycle) and risk weighted assets could increase sharply (as loans move from
10% of normal weighting to 100% of normal weighting)
NH:
Assession documents to get a better feel for the extent of this risk.
Right now though, our bigger concern remains margin where we think there
is scope for a big negative surprise, particularly in the second half of the year.
While new asset margins have widened, what is important is the yield on stock.
We suspect this is improving only slowly
Right now though, our bigger concern remains margin where we think there
is scope for a big negative surprise, particularly in the second half of the year.
While new asset margins have widened, what is important is the yield on stock.
We suspect this is improving only slowly
NH:
. Indeed, mortgage securitisation
trusts show an improvement in yield, net of swaps, of just 10-15bps so far
this year, and while this is likely to underplay the improvement, we expect an
increase of only 30-40bps. That’s around £2bn extra revenue for the domestic
banks against deposit income of £12bn and additional wholesale funding costs
of £2bn, on our numbers. More stability in margins should be seen next year,
but we expect further declines in net interest income across the sector.
trusts show an improvement in yield, net of swaps, of just 10-15bps so far
this year, and while this is likely to underplay the improvement, we expect an
increase of only 30-40bps. That’s around £2bn extra revenue for the domestic
banks against deposit income of £12bn and additional wholesale funding costs
of £2bn, on our numbers. More stability in margins should be seen next year,
but we expect further declines in net interest income across the sector.
NH:
Throw in shrinking balance sheets, and we think net interest income forecasts
– particularly at LBG – could be far too high. Some might argue this is
cyclical. We don’t, and think banks with structural imbalances are likely to suffer
notable, secular deterioration in margin. In this regard it is worth considering the
Reserve Bank of New Zealand’s decision to enforce a “core funding ratio” of
at least 75% on local banks. Disclosure hampers comparisons, but we believe
LBG is nearer 64% and 50% excluding Government sponsored funding. Getting
to 75% would require a dramatic and expensive repositioning of the balance
sheet costing £3-4bn per annum of LBG’s net interest income, on our estimates.
With interim results next week, we also publish our half year forecasts for the
five banks in this research. We don’t expect any major surprises, but do expect
margin to be a key focus. Combined with potential pressures on NAV from
pension fund deficits and currency moves, and with both LBG and RBS trading
at 1.4 times 2010E TNAV, we reiterate our Underperform ratings on both
– particularly at LBG – could be far too high. Some might argue this is
cyclical. We don’t, and think banks with structural imbalances are likely to suffer
notable, secular deterioration in margin. In this regard it is worth considering the
Reserve Bank of New Zealand’s decision to enforce a “core funding ratio” of
at least 75% on local banks. Disclosure hampers comparisons, but we believe
LBG is nearer 64% and 50% excluding Government sponsored funding. Getting
to 75% would require a dramatic and expensive repositioning of the balance
sheet costing £3-4bn per annum of LBG’s net interest income, on our estimates.
With interim results next week, we also publish our half year forecasts for the
five banks in this research. We don’t expect any major surprises, but do expect
margin to be a key focus. Combined with potential pressures on NAV from
pension fund deficits and currency moves, and with both LBG and RBS trading
at 1.4 times 2010E TNAV, we reiterate our Underperform ratings on both
NH:
good note that
NH:
and I emphasis this line
NH:
and we think net interest income forecasts
– particularly at LBG – could be far too high
– particularly at LBG – could be far too high
NH:
anyway
NH:
that’s probably being ignored
NH:
and shares are risinig
Lloyds Banking Group (LLOY:LSE): Last: 84.62, down 0.26 (-0.31%), High: 85.25, Low: 83.03, Volume: 36.74m
Royal Bank of Scotland Group (RBS:LSE): Last: 44.79, up 0.08 (+0.18%), High: 45.00, Low: 44.05, Volume: 25.72m
PM:
That note includes a summary of all CS forecasts for banks reporting next week.
PM:
Will share in the usual place….
NH:
Where, the Long Room?
PM:
Er, I was trying to be more discreet.
11:25AM
NH:
more banks
NH:
this time Irish ones
PM:
On the NAMA front
PM:
John Holms at KBW
PM:
Basically he is saying we will have to wait till September for the final bill.
PM:
But here’s for our many irish readers
PM:
NAMA draft legislation published
The Department of Finance last night published draft legislation detailing the
functioning of the National Asset Management Agency (NAMA). The draft bill
contains detail on the valuation method to be applied to transferred assets,
however, there is little in the document enabling us to draw further conclusions
on the level of haircuts that will be applied. Therefore, from an equity market
standpoint, we see little in this draft bill to advance the debate. We think more
clarity will follow publication of the final bill in September. Consequently, we
maintain our base-case assumption that AIB and BoI will transfer loans totalling
€28.0bn and €18.1bn at discounts of 18% and 15%, respectively. We retain our
Market Perform recommendations on both Allied Irish Banks (ALBK ID, €1.74,
TP €1.90) and Bank of Ireland (BKIR ID, €1.86, TP €1.60).
The Department of Finance last night published draft legislation detailing the
functioning of the National Asset Management Agency (NAMA). The draft bill
contains detail on the valuation method to be applied to transferred assets,
however, there is little in the document enabling us to draw further conclusions
on the level of haircuts that will be applied. Therefore, from an equity market
standpoint, we see little in this draft bill to advance the debate. We think more
clarity will follow publication of the final bill in September. Consequently, we
maintain our base-case assumption that AIB and BoI will transfer loans totalling
€28.0bn and €18.1bn at discounts of 18% and 15%, respectively. We retain our
Market Perform recommendations on both Allied Irish Banks (ALBK ID, €1.74,
TP €1.90) and Bank of Ireland (BKIR ID, €1.86, TP €1.60).
PM:
Valuation methodology. The acquisition value applied to assets transferred will be
referenced to their current market value, with an adjustment where necessary to their
long-term economic value, “a value that it can reasonably be expected to attain in a
stable financial system when current crisis conditions are ameliorated”. More detail
on how the long-term economic value is reached will be published in September,
which may provide us with further clues as to the level of haircuts to be applied. This
process is consistent with existing EU Commission guidelines.
Appeal process. The draft bill provides an appeal process for the banks with regard to
the acquisition values applied by NAMA. Any adjustment in favour of the banks
would however be predicated on approval from both the valuation panel and the
Minister of Finance. Even then, an adjustment would only take place in a case where
the current market value was above the original acquisition value.
Timeline. The formal publication of the bill is due in September. Following this, the
Dail will return on 16 September to discuss the bill in the context of a wider debate on
the future of the financial sector. In the intervening period, the European Commission
will be consulted with relation to State Aid approval. Following enactment of the bill,
it is expected that asset transfers to NAMA will begin later this year, starting with the
loans of the largest borrowers.
referenced to their current market value, with an adjustment where necessary to their
long-term economic value, “a value that it can reasonably be expected to attain in a
stable financial system when current crisis conditions are ameliorated”. More detail
on how the long-term economic value is reached will be published in September,
which may provide us with further clues as to the level of haircuts to be applied. This
process is consistent with existing EU Commission guidelines.
Appeal process. The draft bill provides an appeal process for the banks with regard to
the acquisition values applied by NAMA. Any adjustment in favour of the banks
would however be predicated on approval from both the valuation panel and the
Minister of Finance. Even then, an adjustment would only take place in a case where
the current market value was above the original acquisition value.
Timeline. The formal publication of the bill is due in September. Following this, the
Dail will return on 16 September to discuss the bill in the context of a wider debate on
the future of the financial sector. In the intervening period, the European Commission
will be consulted with relation to State Aid approval. Following enactment of the bill,
it is expected that asset transfers to NAMA will begin later this year, starting with the
loans of the largest borrowers.
PM:
Potential for banks to earn service fees on transferred assets. The draft provides
for an arrangement whereby the banks continue to service transferred loans (e.g.
management, administration, restructuring and enforcement services) in return for an
appropriate fee. Payment may take the form of an adjustment to the acquisition value,
performance fees or via profit-sharing schemes.
No decision taken on tax relief. The issue of setting off tax against losses on
transferred assets will be addressed upon publication of the Bill in September. We
currently assume full tax-deductibility on these losses (see ‘The Waiting Game’, 5 July,
2009, for further details).
for an arrangement whereby the banks continue to service transferred loans (e.g.
management, administration, restructuring and enforcement services) in return for an
appropriate fee. Payment may take the form of an adjustment to the acquisition value,
performance fees or via profit-sharing schemes.
No decision taken on tax relief. The issue of setting off tax against losses on
transferred assets will be addressed upon publication of the Bill in September. We
currently assume full tax-deductibility on these losses (see ‘The Waiting Game’, 5 July,
2009, for further details).
11:26AM
PM:
But look — we are do too many stocks
PM:
Too equity focused!!!
NH:
how about horses then
NH:
a few nags
PM:
Ah yes, forgot to put this up yesterday 
PM:
Latest from Shrewdette
PM:
Penultimate Goodwood day, and a couple of our old familiars getting
an outing…
an outing…
PM:
2:10 Coutts Stakes: Satisfying to see my last time 25/1 winner now
favourite for this – CRIME SCENE at 10/3 – but hey we got there
first! While foolish not to follow a previous good return & with
Frankie taking the ride, I am hoping to bring another longish shot
home – INDIAN DAYS 11/1, proven over this distance and though
disadvantaged by low drawer (this track favours high draws) looks a
good EW chance. Out of respect I’ve Crime Scene on the nose and
have also done a FC.
favourite for this – CRIME SCENE at 10/3 – but hey we got there
first! While foolish not to follow a previous good return & with
Frankie taking the ride, I am hoping to bring another longish shot
home – INDIAN DAYS 11/1, proven over this distance and though
disadvantaged by low drawer (this track favours high draws) looks a
good EW chance. Out of respect I’ve Crime Scene on the nose and
have also done a FC.
2:45 Wide open sprint here so have done something completely daft:
trained and ridden by Anne Stokell at 12/1 PAWAN – though last couple
runs disappointing has the ability to surprise, but more a place than
win option. And if you want to be dafter, couple him with last time
winner SPIRIT OF SHARJAH 10/1trained by Miss Feilden – so am really
going out a limb for the ladies, (don’t have Murphy’s yellow
triangles but there’d be 3 of them here!)
PM:
3:25 Totesport Mile: Another open race as the betting indicates with
favourite CLOUDY START @ 7/1 and 2006 winner of this SPECTAIT @ 9/1 –
and both high (well) drawn for this track. So if I were playing safe
it would be one of these two – but I’m not! Sticking with one I
followed couple of weeks ago HUZZAH, creditable 4th in classy field
at Sandown and 6lb better off here so have gone EW at 18/1 and a
Tricast too.
favourite CLOUDY START @ 7/1 and 2006 winner of this SPECTAIT @ 9/1 –
and both high (well) drawn for this track. So if I were playing safe
it would be one of these two – but I’m not! Sticking with one I
followed couple of weeks ago HUZZAH, creditable 4th in classy field
at Sandown and 6lb better off here so have gone EW at 18/1 and a
Tricast too.
So a little bravery (and madness) required to follow me today!
And an early one for Saturday:
3:05 our last time winner BARSHIBA quoted at tens … I will follow
her again and hope she can make it pillar to post once more.
Will try and send update on the rest of Saturday but obviously not on
Markets Live.
Shrewdette
NH:
she’s been on good form recently, no?
PM:
I think so — pretty good form, with the odd down day
NH:
never been to Goodwood, but I hear it is very nice
PM:
Never been either
PM:
Hint
NH:
hint
11:28AM
PM:
okay — British and Irish equities, horses, cricket…
PM:
where next?
NH:
something sweet perhaps
PM:
Like?
NH:
a bit of sugar
PM:
Ah, forgot you were a sugar expert as well
NH:
apparently heavy rains in India and Brazil – so its not just here it rains – are threatening the sugar crop
NH:
so the message is
NH:
from Morgan Stanley
NH:
go long of sugar futures
NH:
Droughts in India and heavy rains in Brazil are threatening sugar production. Uttar
Pradesh, which accounts for one-third of India’s sugarcane production, declared drought in 47 of 70 districts, raising the possibility of steep downward revisions to India’s production outlook in 2009/10.
Pradesh, which accounts for one-third of India’s sugarcane production, declared drought in 47 of 70 districts, raising the possibility of steep downward revisions to India’s production outlook in 2009/10.
Meanwhile, heavy rains in Brazil’s Center-South region are hampering the crush, and
could mean lower sucrose content and reduced sugar production going forward
NH:
We are staying long March 2011 futures. Although the curve is getting close to our price target, we are in no rush to take profits. We currently model Indian imports at 5 mln mt raw value next year; some companies in India are now talking about imports next year reaching 6-7 mln mt white value.
In Brazil meanwhile, the YoY increase in the Center-South crush has faded. From April 1 through July 16 the crush is up 19%, but in the first half of July alone the crush was down 4.6% YoY.
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:
More downside than upside to our production numbers. India’s weather office is forecasting rains for Uttar Pradesh in the coming weeks, so until there is more clarity we are leaving unchanged our assumptions of a 20% rebound in production to 19.4 mln mt raw value in MY 2009/10.
Similarly with respect to Brazil, we were already on the conservative side with an assumption of 43% of cane going to sugar. Given recent developments, this looks about right. Heavy rains earlier in the season will reduce sucrose content in the cane, and the soggy ground hampers harvesting machines. El Niño can often result in heavy rains at the end of the harvest, posing another downside risk to the production outlook.
CFTC data indicate that specs are buying sugar again. It is risky to come to the party this late, but the growing open interest in March 2011 $0.30/lb calls indicates just how high hopes are running.
NH:
RAW sugar
NH:
how about that?
PM:
PM:
Okay, so we’ve done raw, uk and irish equiteis, sugar, and…
PM:
Who said we just do do brit stocks? 
NH:
I have some more RAW.
NH:
a reader asking about Bowleven
NH:
my understanding is that company are trying to do a farm out deal
NH:
for its assets in Camerooon with Repsol
NH:
this would significantly de-risk the business if they pull it off
NH:
and the company would be left with its cash pile to use on other opportunities
NH:
however
NH:
this deal may not be signed until November
NH:
which means the recent run up
NH:
could have been a bit premature
BowLeven (BLVN:LSE): Last: 79.00, down 1 (-1.25%), High: 82.50, Low: 76.00, Volume: 2.64m
NH:
also
NH:
some reheated RAW
NH:
which as we all know
NH:
is very dangerous
NH:
Choloride
NH:
some interesting buying over the past couple of days
NH:
biggish volume yesterday
NH:
around 3m shares
NH:
talk in the market – again and obviously – is that Emerson are coming back
Chloride Group (CHLD:LSE): Last: 142.00, up 3.5 (+2.53%), High: 142.00, Low: 137.00, Volume: 1.27m
PM:
But that’s all pretty vague, no??
NH:
it is
PM:
Mark — we don’t usually drink during the day.
PM:
Neil’s got hs column to do (and dont we know it)
NH:
yeah, yeah
PM:
And ive got a working lunch to attend
PM:
at the ivy
NH:
I reckon I could end up writing two pages in the market section today
PM:
PM:
newspaper copy is easy — its just template stuff
NH:
yeah, the trouble is
NH:
there’s a lot of it to fill
PM:
pah
PM:
lets move on
11:36AM
PM:
What were these vague flashes earlier regarding Anglo American??
NH:
well today’s was the big results day
NH:
the one hyped in the Sunday press
NH:
the CEO Cythnia Carroll
NH:
was supposed to come out
NH:
and say look at all the costs we have cut
NH:
look how well we are doing
NH:
and
NH:
well
NH:
the market is very unimpressed
PM:
(mark — mail us — paul.murphy@ft.com)
PM:
Wot — not impressed by cost cuts??
NH:
nope, shares down 3p at £19
NH:
not the sort of reaction you want when defending a bid
NH:
that said
NH:
Anglo have been a good market recently
NH:
up 10% in the past couple of weeks
NH:
which compared to Xstrata
NH:
up 22% is pretty weak
NH:
anyway, there was no surprised with the figs
NH:
to scare off Xstrata
NH:
we might have thought that Carroll would announce plans to sell a stake in MMX
NH:
its Brazilian iron ore company
NH:
but no
NH:
or the sale of Tarmac
NH:
again no
NH:
all in all
NH:
disappointing
PM:
Hmm
PM:
Have you got any comment to hand on this
PM:
??
NH:
yep
PM:
Presumably Xstrata are rathr pleased that Anglo have nothing much to say at this point
PM:
certainly nothing new
PM:
Might be keeping their powder dry, of course
NH:
here’s Liberum
NH:
Anglo has reported a strong set of first half numbers, with EBITDA coming in 13% above our forecasts at $2.985b. The majority of the discrepancy came from $243m in provisional pricing within the base metals division, although the coal numbers were also strong, 8% ahead of our numbers at the EBITDA line. The discrepancy was magnified at the net profit line with the numbers 68% above our attributable earnings forecast, and 44% above consensus. While the today’s earnings were impressive, there was no commentary on the high- level issues of debt within DeBeers and Amplats, nor the Xstrata offer, the company opting instead to let strong set of results do the talking.
NH:
New discoveries – an unexpected positive
New copper discoveries at Los Sulfatos (1.2bt resources at 1.6% – 17.5mt of contained copper) and San Enrique (900mt at 0.8% – 7.2mt of contained copper), both within the Los Broncos district were an exciting development. Both discoveries are separate satellite deposits and confirm the prospectivity of Anglo’s tenements in the region.The two discoveries add approximately 50% to the group’s copper resources and will add expansion optionality within the base metals division.
New copper discoveries at Los Sulfatos (1.2bt resources at 1.6% – 17.5mt of contained copper) and San Enrique (900mt at 0.8% – 7.2mt of contained copper), both within the Los Broncos district were an exciting development. Both discoveries are separate satellite deposits and confirm the prospectivity of Anglo’s tenements in the region.The two discoveries add approximately 50% to the group’s copper resources and will add expansion optionality within the base metals division.
NH:
Xstrata – keeping quiet
Still no commentary on the Xstrata offer, clearly management have taken the decision to let the numbers do the talking. The announcement of additional resources within their copper division should help to bolster their stocks in the eyes of the market.
Still no commentary on the Xstrata offer, clearly management have taken the decision to let the numbers do the talking. The announcement of additional resources within their copper division should help to bolster their stocks in the eyes of the market.
Cost savings – in line
The group delivered $450m of cost and efficiency savings in the first half and is on target for $1b in savings by the end of the year and $2b by 2011. This is in line with our forecasts.
NH:
MMX – permitting on target but not much detail
While there were no further details on capex spend, permitting is progressing in line with management expectations. First production is aimed for Q2 2012, with a ramp up to 26.5mtpa, and phase two beyond that to 80mtpa.
While there were no further details on capex spend, permitting is progressing in line with management expectations. First production is aimed for Q2 2012, with a ramp up to 26.5mtpa, and phase two beyond that to 80mtpa.
Tarmac – imminent sales unlikely
Speculation surrounding the potential sale of the company’s tarmac division was not entirely put to rest – although an imminent sale is unlikely. While re-affirming that the division is non-core, the company re-stated that it is unlikely to sell at valuations in the current environment.
Results by division
Base metals was the standout performer amongst the divisions yet to report, although the majority of the differential between our estimate was a $243m provisional pricing adjustment. The coal division was also strong, although industrial minerals underperformed.
NH:
and here’s MF Global
NH:
Although the AngloAmerican results were ahead of expectations the real focus of these will be what the Group and
Cynthia Carroll is doing to unlock the undoubted value inherent in the stock. A number of action points have been
highlighted in the statement, which are helpful but in terms of sentiment the analyst meeting will be even more
important. Cynthia Carroll’s job is under scrutiny, despite the fact that she has taken the hard but necessary actions.
The Xstrata situation and the arrival of Sir John Parker should act as a catalyst to unlock further value, which on a
SOTP basis still has good upside. BUY AngloAmerican with a TP of 2,200p
Cynthia Carroll is doing to unlock the undoubted value inherent in the stock. A number of action points have been
highlighted in the statement, which are helpful but in terms of sentiment the analyst meeting will be even more
important. Cynthia Carroll’s job is under scrutiny, despite the fact that she has taken the hard but necessary actions.
The Xstrata situation and the arrival of Sir John Parker should act as a catalyst to unlock further value, which on a
SOTP basis still has good upside. BUY AngloAmerican with a TP of 2,200p
NH:
The results were ahead of expectations but the focus is elsewhere. The results were 6% ahead of
expectations. Operating profit of US$2.1bn vs expectations of US$1.9bn. BUT the real focus was on what the
management and the Group is going to present to prove that they are on track. The analyst meeting will be quite
important in that context in terms of sentiment;
expectations. Operating profit of US$2.1bn vs expectations of US$1.9bn. BUT the real focus was on what the
management and the Group is going to present to prove that they are on track. The analyst meeting will be quite
important in that context in terms of sentiment;
NH:
Actions highlighted in the statement read well in as far the asset optimisation programme, cost savings, the
larger high quality projects and health and safety is concerned. We would also highlight the options around
Tarmac, DeBeers and AngloPlatinum
larger high quality projects and health and safety is concerned. We would also highlight the options around
Tarmac, DeBeers and AngloPlatinum
NH:
Cynthia Carroll’s job is under scrutiny but we believe that she has done a good job so far going down the
hard route of cutting the dividend and costs rather than doing it the easy way by tapping shareholders; and
hard route of cutting the dividend and costs rather than doing it the easy way by tapping shareholders; and
NH:
The valuation remains attractive, in our view. Our SOTP points to a value of around 2,400p post a 10%
discount even on some quite conservative assumptions. At the same time when assuming a 60% trough to peak
rebound in commodity prices then the stock still looks reasonable value at around 11x P/E. Our target price of
2,200p therefore seems in reach
discount even on some quite conservative assumptions. At the same time when assuming a 60% trough to peak
rebound in commodity prices then the stock still looks reasonable value at around 11x P/E. Our target price of
2,200p therefore seems in reach
NH:
got one
NH:
Onions again
NH:
Ponting gone
NH:
cya
PM:
nICE ONE EH
PM:
Let just watch that again
NH:
he might have even walked
NH:
miracle
11:43AM
PM:
Look — we’d better get away from equities for a mo
PM:
$ / YEN
NH:
yeah, there’s some stuff out of GS
PM:
yes — ive got it
PM:
With structural considerations still pointing clearly to a weaker JPY, we
think the opportunity for notable JPY weakness is the best it has been all
year. We recommend clients consider being long USD/JPY with a target above
105.
Our basic view has been that the JPY belongs at weaker levels and the main
structural reasons on that front are if anything even clearer now than
earlier in the year. JPY remains two standard deviations expensive on
GSDEER (currently around 115), financial conditions in Japan are too tight
(and have continued to tighten) and the Broad Balance of Payments (BBOP)
is in large deficit – to the tune of 6.7% of GDP on a 12-mth ma – on the
combination of a weaker trade balance and significant portfolio outflows.
With structural considerations still pointing clearly to a weaker JPY, we
think the opportunity for notable JPY weakness is the best it has been all
year. We recommend clients consider being long USD/JPY with a target above
105.
Our basic view has been that the JPY belongs at weaker levels and the main
structural reasons on that front are if anything even clearer now than
earlier in the year. JPY remains two standard deviations expensive on
GSDEER (currently around 115), financial conditions in Japan are too tight
(and have continued to tighten) and the Broad Balance of Payments (BBOP)
is in large deficit – to the tune of 6.7% of GDP on a 12-mth ma – on the
combination of a weaker trade balance and significant portfolio outflows.
PM:
We think there are two sets of reasons why the JPY has not so far
responded to these dynamics. The first reason is rate (and growth)
differentials. With US and Japanese policy rates both firmly anchored
around zero, rate differentials have been extraordinarily narrow. And even
as the US and global economy has stabilized, the notion that tightening is
not imminent in either country has left short-dated rate differentials at
historically low levels. Not only has this left the US as an alternative
funding currency within FX, but it has made it less costly (in a carry
sense) than it has been in a very long time for Japanese exporters and
life insurers to hedge against a stronger JPY. The second reason is that
speculative positioning has generally been substantially short JPY since
March, as our Sentiment Index has clearly shown.
responded to these dynamics. The first reason is rate (and growth)
differentials. With US and Japanese policy rates both firmly anchored
around zero, rate differentials have been extraordinarily narrow. And even
as the US and global economy has stabilized, the notion that tightening is
not imminent in either country has left short-dated rate differentials at
historically low levels. Not only has this left the US as an alternative
funding currency within FX, but it has made it less costly (in a carry
sense) than it has been in a very long time for Japanese exporters and
life insurers to hedge against a stronger JPY. The second reason is that
speculative positioning has generally been substantially short JPY since
March, as our Sentiment Index has clearly shown.
PM:
On both fronts, things look different now. The next quarter or two are
likely to see clearer evidence that US growth has shifted more positively
as the inventory adjustment goes through. And we also think we are likely
to see more evidence that the US labour market is stabilising, an area
that remains high on the market’s concerns about the US recovery. While
our view is that the Fed will not hike rates either this year or next, the
last two months have already seen the market speculate more concretely
about eventual tightening and build a risk premium against it. We think
the data in the next couple of months are likely to reinforce the focus on
the improving US growth picture.
likely to see clearer evidence that US growth has shifted more positively
as the inventory adjustment goes through. And we also think we are likely
to see more evidence that the US labour market is stabilising, an area
that remains high on the market’s concerns about the US recovery. While
our view is that the Fed will not hike rates either this year or next, the
last two months have already seen the market speculate more concretely
about eventual tightening and build a risk premium against it. We think
the data in the next couple of months are likely to reinforce the focus on
the improving US growth picture.
PM:
Our forecasts are still for dollar
weakness but at the current levels we are closer to the bottom of our
dollar forecasts and the pace of dollar depreciation may be slower in the
months ahead exactly due to the dynamics described here. A more stable
dollar coupled with clearer evidence for a more positive shift in US
growth will also increase the reluctance to hedge.
At the same time, speculative positioning is now back to neutral levels
for the first time since early April after having been stretched short in
the meantime, according to our Sentiment Index.
There is some risk that with a US tightening cycle a long way off, this is
(still) too early for USD/JPY to move back to where we think it belongs.
But with the downside in our view relatively limited, lighter positioning
and some identifiable cyclical catalysts, we think the risk-reward is more
attractive than it has been for some time.
weakness but at the current levels we are closer to the bottom of our
dollar forecasts and the pace of dollar depreciation may be slower in the
months ahead exactly due to the dynamics described here. A more stable
dollar coupled with clearer evidence for a more positive shift in US
growth will also increase the reluctance to hedge.
At the same time, speculative positioning is now back to neutral levels
for the first time since early April after having been stretched short in
the meantime, according to our Sentiment Index.
There is some risk that with a US tightening cycle a long way off, this is
(still) too early for USD/JPY to move back to where we think it belongs.
But with the downside in our view relatively limited, lighter positioning
and some identifiable cyclical catalysts, we think the risk-reward is more
attractive than it has been for some time.
PM:
So they seem to glimpse a bottom for the dollar
PM:
sugar, uk euqities, irish equities, raw, cricket, horses, dollar, yen,
PM:
Where now??
11:46AM
NH:
Russia
PM:
Oh yeah, russsia
PM:
Been a volatile market
NH:
that’s something of an understatement
PM:
Seen any comment of note?
NH:
funny you should say that
NH:
because
NH:
Credit Suisse have done something today
NH:
Today we take profits on our overweight stance on Russia within an emerging EMEA equities portfolio. We downgrade Russia to a 5% underweight stance from 5% overweight. For now we park the funds raised in cash raising the cash weighting of our portfolio to 4.5% from 1.5%.
As the highest beta market in GEM (on a 52-week basis) the magnitude of the swings in the Russian RTS index performance are highly amplified as regional equity markets are buffeted between a mixture of economic news-some showing nascent evidence of a recovery in economic activity while others point towards a more protracted slowdown with the potential for a second downturn in global growth-with resulting swings in risk appetite.
NH:
At this point we have decided to step off the Russia rollercoaster ride for the following 10 key reasons:
1. Russia is more than ever a pure oil play and we are cautious on the crude price-principally on concerns over protracted levels of spare capacity.
2. The earnings revisions recovery led by energy will now stall in our view.
3. All hopes for metals demand are pinned on the (now consensus) bullish growth scenario for China. China may begin to tighten loan quotas in 2H09.
4. Green shoots are difficult to come by in the domestic economic recovery.
5. Challenges facing the banking sector will result in a protracted decline in profitability. We are concerned about (i) policy response, (ii) the loan to deposit ratio remaining far too high, and (iii) the risk of defaults.
6. As we expected Russia is proving not to be a disinflation trade.
NH:
7. Sector-adjusted forward earnings valuations for Russia are not cheap.
8. Equity risk appetite has reaccelerated close to the ‘Euphoria’ zone.
9. Russia is now over-owned again by pan-emerging market equity funds.
10. Credit Suisse analysts forecast market capitalisation weighted downside of 24% for MSCI Russia.
In absolute terms, Russia is currently trading on a 12-month forward sector-adjusted earnings multiple of 12.2 times-at a premium to the January 2006 to June 2008 average multiple of 12.0 times. Relative to pan emerging markets on a sector-adjusted basis, Russia is only trading at a 12% discount.
Only LUKOIL and Rosneft (our only two EMEA focus list constituent names from Russia) among the blue-chip names have meaningful positive potential upside to Credit Suisse target prices of circa 20%
PM:
sugar, uk euqities, irish equities, raw, cricket, horses, dollar, yen, russia
PM:
Where now??
11:48AM
PM:
How about small caps corner — before lunch
NH:
good idea
NH:
pleased to say Northgate is heading lower
NH:
and my story in Luminar – fund raising
NH:
has been confirmed
NH:
but more interested is Warner Estates
NH:
a couple of weeks ago a reader gave us a good tip on the company
NH:
said the company were on the brink
NH:
and the banks could be about to call in their loans
NH:
we checked it out
NH:
and they said no
NH:
anyway
NH:
the figs have come out this morning
NH:
and things do indeed look pretty desperate
NH:
will just dig out some of the lowlights
PM:
Well that’s what the share price is saying
PM:
Down 14,.2p at 25p
NH:
The Group is currently in discussions with its three lenders, Royal Bank of Scotland, Bank of Scotland and Barclays, to extend and amend its current banking facilities in the case of two and to renew in the case of the third to ensure that the terms of these facilities are appropriate for the Group’s requirements. The third facility is in effect being rolled on a periodic basis and the Directors are confident that this will continue until renewal. In addition to the current facilities, the Group has asked its lenders for a working capital facility of between 1% and 2% of its total existing facilities. Each lender has currently reserved its rights to formally request the testing of certain financial covenants as discussions continue. The Directors would not expect the covenants to be met if tested.
NH:
Until such time that the discussions with the banks are successfully concluded and new facilities are in place, the Board recognises that uncertainty over the ability of the Company and/or individual group companies to continue as a going concern must remain. However, after making enquiries and considering the matters noted above, the Directors have a reasonable belief that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For those reasons, they continue to adopt the going concern basis in preparing these financial statements, which do not include any adjustments that would result from the going concern basis of preparation being inappropriate.
The Directors will continue to provide updates regarding discussions with their lenders as and when there are material developments.
The Directors will continue to provide updates regarding discussions with their lenders as and when there are material developments.
PM:
uh-oh
NH:
not looking good
PM:
Each lender has currently reserved its rights to formally request the testing of certain financial covenants as discussions continue. The Directors would not expect the covenants to be met if tested.
NH:
oh, that really is not very good
NH:
not good at all
NH:
I think Warner is one of these co-investing property vehicles
PM:
Glancing thru that statement — the company are clearly trying to answer the question…
PM:
What is Warner estates for?
NH:
I think the lenders are asking that question as well
PM:
Although sales and falling values have reduced property under management, including that wholly owned, to £1.9billion (2008: £2.9billion), this is still a substantial platform upon which it is our intention to grow the asset management business, playing to our strengths of improving the quality and quantity of income from property. Clearly, investment on our own account will be constrained until values improve and our balance sheet is strengthened.
PM:
Rather sad really
NH:
it is
11:55AM
NH:
Fisty – what’s the relevance of those links pls
PM:
What else
PM:
You got that Man note Neil that people are asking for ?
NH:
should have it somewhere
NH:
concerned about tougher commodities regulation
NH:
odd
NH:
I thought Man had sold all its sugar
NH:
anyway
NH:
Downgrade to Sell US commodities regulator (CFTC) is contemplating tougher trading regulations in order to reduce price spikes in commodities.
This is negative for Man as its key fund, AHL, has 30% of its portfolio in commodities. The risk of less extreme price trends in commodities, and
therefore lower investment performance at AHL, has resulted in our FY10 EPS estimate falling 16% to 26c (20% below consensus). We are
downgrading Man to Sell, from Neutral
This is negative for Man as its key fund, AHL, has 30% of its portfolio in commodities. The risk of less extreme price trends in commodities, and
therefore lower investment performance at AHL, has resulted in our FY10 EPS estimate falling 16% to 26c (20% below consensus). We are
downgrading Man to Sell, from Neutral
NH:
Risk from tougher commodities regulation The risk that CFTC imposes tougher trading regulations across US commodity markets is a new
headwind facing Man Group. Given the strong correlation between recent trends in the oil price and AHL’s investment performance, any reduction in
price spikes could hit AHL’s future performance. This is a significant potential headwind as we estimate that AHL generates over 75% of Man’s PBT.
FY10E EPS cut by 16% to 26c The risk of lower investment returns from AHL has resulted in our FY10E EPS falling by 16% to 26c. This is 20%
below the current consensus of 32.5c.
headwind facing Man Group. Given the strong correlation between recent trends in the oil price and AHL’s investment performance, any reduction in
price spikes could hit AHL’s future performance. This is a significant potential headwind as we estimate that AHL generates over 75% of Man’s PBT.
FY10E EPS cut by 16% to 26c The risk of lower investment returns from AHL has resulted in our FY10E EPS falling by 16% to 26c. This is 20%
below the current consensus of 32.5c.
NH:
Valuation – T/P 245p is 16% below current share price Over the last 3 weeks, Man’s shares have risen 20% to outperform FTSE 100 by 9%. Man is
now trading on a Cal 2010E EV/EBITDA of 8 times, in-line with the alternative asset managers. We believe Man deserves a discount to peers given
the headwinds it faces (incl regulatory risks, weak investment performance, and net fund outflows). Our SOTP target price of 245p is 16% below
current price. Sell.
now trading on a Cal 2010E EV/EBITDA of 8 times, in-line with the alternative asset managers. We believe Man deserves a discount to peers given
the headwinds it faces (incl regulatory risks, weak investment performance, and net fund outflows). Our SOTP target price of 245p is 16% below
current price. Sell.
NH:
so that’s it
NH:
30% of AHL in commods
NH:
and onre more interesting note
NH:
Caz on housebuilders
NH:
say they are overvalued
NH:
The UK Housebuilders have performed more strongly than we expected since their trading updates. High levels of cash generation have been matched by strong work-in-progress management and, with respect to the land market, self control. We also commend their approach to pricing, which has gone boldly against the rule book that served the sector so well over the last decade. We remain very positive on the long-term outlook for the UK Housebuilders, although we cannot see any ‘probable’ positive near-term catalysts ahead of the autumn selling season, which will start at the earliest in September. We therefore, by implication, see more risks to shares on the downside than upside in the near term. We would encourage investors to take stock of their exposure to the sector and assess whether or not they are holding those shares with most upside potential in the longer term. We also expect that some investors may also wish to take profits following the sector’s recent strong outperformance.
NH:
We are about to embark on a hectic schedule of results, which to our mind will offer little in the way of surprises following the full and frank trading updates issued during July. Homebuyers typically are not very active over the summer and therefore transaction levels tail off and whilst we expect the market data derived from thin markets to remain encouraging we would not put any undue weight on any one data point ahead of the autumn selling season.
We do, however, believe that valuations have moved a little ahead of events and are looking back to past victories rather than future challenges. In our view the sector faces little in the way of positive catalysts ahead of the autumn selling season to sustain the recent strong outperformance and one has to weigh that against what one may have to lose in the mean time.
We do, however, believe that valuations have moved a little ahead of events and are looking back to past victories rather than future challenges. In our view the sector faces little in the way of positive catalysts ahead of the autumn selling season to sustain the recent strong outperformance and one has to weigh that against what one may have to lose in the mean time.
PM:
cheers
PM:
for that
PM:
Taxloss — thanks for the Trader dvd btw
PM:
v helpful
PM:
We’ve got to run
PM:
But first…
PM:
John Kemp at Reuters has spotted a greenshoot
NH:
the bears are falling like ten pins
PM:
PM:
Not Monkey — tho — he sold at 4640 — a the index does keep bouncing off that level
NH:
yeah, good luck with that one
NH:
decent GDP number in the US this afternoon
NH:
and
NH:
NH:
moon bound markets
PM:
Here’s Kemp’s greenshoot
PM:
Rail freight data from the United States shows the first signs manufacturing activity has stabilised and may be starting to increase slightly, albeit from a depressed base.
The number of intermodal containers hauled on US railroads in the week ending Jul 25 (162,799) was the highest since early January.
Intermodal containers are used for shipping manufactured items (as well as some agricultural products) so haulage data is the best real-time proxy for activity in the manufacturing sector.
While the data on containers hauled shows strong seasonal variations, and is typically high in the weeks following the Jul 4 holiday, the rebound this year has been stronger than in either Jul 2008 or Jul 2007, giving perhaps an early indication that manufacturing production has started to stabilise and perhaps even increase.
Shipments of metals and products, waste and scrap, and coal are all showing signs of strength. Other sectors, such as chemicals, petroleum products, and coke, freight shipments appear to have stabilised.
PM:
If this proves correct, it would be consistent with expectations the US economy would hit a cyclical trough at some point during Q3 (Jul-Sep) and evidence from the Institute of Supply Management (ISM)’s manufacturing survey, which has shown declines in activity becoming less widespread, in a clear sign that the trough may be near.
If this proves correct, it would be consistent with expectations the US economy would hit a cyclical trough at some point during Q3 (Jul-Sep) and evidence from the Institute of Supply Management (ISM)’s manufacturing survey, which has shown declines in activity becoming less widespread, in a clear sign that the trough may be near.
PM:
Key chart you need is this
NH:
Kemp is a trainspotter!
PM:
Professional trainspotter
NH:
who would have thought
NH:
Locomotive 2691
PM:
That chart book is greta
PM:
We’re covering all assets here
PM:
Lumber and wood
PM:
Coke
PM:
autos
PM:
waste and scrap
PM:
oil cheikcals
PM:
coals
PM:
chemicals
PM:
metallic
PM:
and grain
NH:
ML – covering the investment waterfront. From A – Z.
PM:
NH:
jack of all trades, master of not one
NH:
well perhaps UK equities
NH:
anyway
NH:
I am off for a few weeks
NH:
which means
NH:
we might be trialing a new ML’er
NH:
along with Bryce
PM:
Maybe more than one
NH:
so pls be nice to him
PM:
Or her
PM:
Have a good holiday Neil
PM:
come back refreshed and calm
NH:
Well, I am going to Norfolk
NH:
so I will probably come back wet
NH:
actually
NH:
that’s not true
NH:
I am going to the desert for a couple of weeks
NH:
with Fowke and his mates
NH:
to recharge the chakras
NH:
and my aura
NH:
it needs work apparently
PM:
Yes, get some holiday
PM:
I will hold the fort
PM:
I will be back on Monday at 11am
PM:
Thanks for all the comments
PM:
Seeya