Markets live chat transcript for the chat ending at 12:02 on 24 Aug 2009. Participants in this chat were: Paul Murphy (PM) Neil Hume, FT (NH)
PM:
Hi
PM:
11.03
PM:
Welcome to Markets Live
PM:
Neil is back from his hols.
PM:
With system probs
PM:
You in yet Neil?
NH:
yes
PM:
Refreshed etc.
NH:
in now
PM:
He’s out of the loop
PM:
But then I have not idea what is going on
PM:
Just back from NY, where I had to go for the weekend
PM:
Trigger my visa etc – will bare you the details, bar the fact that I traveled with Virgin.
PM:
NH:
Good flight, no?
PM:
Er,
PM:
Let’s just say they suffer from being stuck in T3 when BA are lauding it in T5
PM:
Anyway, let’s get on.
PM:
We’ve missed you
PM:
Tho Bryce and Miles did step into the gap.
PM:
And Tracy came on
PM:
And Izy
PM:
And Masa even, briefly.
PM:
The Rabble on the right have been poor quality – as usual.
NH:
You jest.
PM:
Of course.
PM:
Anyway Neil – we’ve spent three weeks wondering why stocks are going up.
PM:
Any ideas?
NH:
Not a clue.
PM:
NH:
the FTSE 100 touched 4,900 this morning
PM:
NH:
amazing
NH:
incredible
NH:
is Monkey still short?
PM:
Monkey is an ex-monkey
NH:
PM:
Even gone thru Lorcan’s 4888 ealier
PM:
went thru
NH:
he was a seller at that level?
PM:
Yep — forecast short term rally
PM:
So he’s looking for a pull back from here
NH:
hmm
NH:
I think he might have to wait
NH:
this rally
NH:
might have a couple more weeks to run
NH:
before it all collapses
NH:
I am going with Bob the Bear
NH:
who is forecasting a big pull back
NH:
will try and dig out the note
NH:
was sent it will I was away
PM:
Do remember that
PM:
think we published
PM:
But the bear sense has been buried in this e-market we’ve been experiencing
PM:
Just China china china
PM:
As if
PM:
Gonna re-pub?
PM:
Few peole back from hols today — wont have seen
NH:
I am
NH:
Both Kevin and I have been saying all year that this yr was going to
surprise, with H1 09 far better than the consensus was forecasting back
in Jan/Feb (and H2 much worse). Take yourselves back to the dark days of
Jan/Feb. I know that I have the reputation of an uber Bear, and I think
this sometimes means that some folks may sometimes ASS-U-ME they know
what I am saying, rather than actually carefully reading what I am
actually saying. However, I don’t know of any (other?!) ‘uber Bears’ who
were telling you back in the dark days of Jan/Feb that risk assets would
rally and surprise to the upside. The entire Street was telling you H1
09 would be terrible. Not Me, and not Kevin.Virtually every client we
spoke to in Jan/Feb was telling us that this year was going to be a
disaster, with some small hopes of a bottom and turnaround at 09
year-end. Not Me, and not Kevin.
surprise, with H1 09 far better than the consensus was forecasting back
in Jan/Feb (and H2 much worse). Take yourselves back to the dark days of
Jan/Feb. I know that I have the reputation of an uber Bear, and I think
this sometimes means that some folks may sometimes ASS-U-ME they know
what I am saying, rather than actually carefully reading what I am
actually saying. However, I don’t know of any (other?!) ‘uber Bears’ who
were telling you back in the dark days of Jan/Feb that risk assets would
rally and surprise to the upside. The entire Street was telling you H1
09 would be terrible. Not Me, and not Kevin.Virtually every client we
spoke to in Jan/Feb was telling us that this year was going to be a
disaster, with some small hopes of a bottom and turnaround at 09
year-end. Not Me, and not Kevin.
NH:
What is the point of this? Well, simply put SO FAR this yr economies and
mrkts have broadly followed the route map we suggested. OK, we could
have been a little more aggressively bullish. On a scale of -10 (max
bear) to +10 (max bull), having been at -10(00!) over 07 and 08, we only
went to +3/+5 or so on risk assets. We should have gone to +10, but for
us a move from -10 to +3/+5 was pretty significant. Fortunately, enough
clients did follow our words (rather then any pre-set belief of what our
words were saying) to mean that, SO FAR, 09 is working out pretty well.
At the very least, some folks as well as ourselves realised that pretty
much EVERY major bear mrkt in history has AT LEAST one major 50% retrace
along the way. From the all time highs in Oct 07, thru to the dark days
of Jan/Feb 09, we had not seen even a single retracement anywhere near
these % move levels, and thus we were well overdue one. We are having it
NOW, from the lows in March 09, to the highs which I think we see in the
next few weeks.
What is the point of this? Well, simply put SO FAR this yr economies and
mrkts have broadly followed the route map we suggested. OK, we could
have been a little more aggressively bullish. On a scale of -10 (max
bear) to +10 (max bull), having been at -10(00!) over 07 and 08, we only
went to +3/+5 or so on risk assets. We should have gone to +10, but for
us a move from -10 to +3/+5 was pretty significant. Fortunately, enough
clients did follow our words (rather then any pre-set belief of what our
words were saying) to mean that, SO FAR, 09 is working out pretty well.
At the very least, some folks as well as ourselves realised that pretty
much EVERY major bear mrkt in history has AT LEAST one major 50% retrace
along the way. From the all time highs in Oct 07, thru to the dark days
of Jan/Feb 09, we had not seen even a single retracement anywhere near
these % move levels, and thus we were well overdue one. We are having it
NOW, from the lows in March 09, to the highs which I think we see in the
next few weeks.
NH:
If you have read my previous cmmt (below) CAREFULLY, you will see that
on the day of writing, June 5th, I said that the risk asset rally has
further to run. On June 5th S&P traded at 950, the iTrx XO index traded
in the mid-low 600s. As you will see below I suggested that the Jul thru
to Sept period would be the ‘tipping zone’ and that during this period
we could see another 5 to 10% gains in the S&P before rolling over.
Between 5th June and now we had a mini-retrace (869 early-July S&P low,
from an early-June high of 956, nearly -10%) but are now in the middle
of a parabolic spike up. This spike higher/better in risk assets is as
expected and fully within the levels I said in early June.
I expect this risk rally to CONTINUE, into and maybe even thru a large
part of AUG. I see scope, as I said in early June, for a move in the S&P
up to 1000 (no doubt)/1050 (potentially), this equity move will drag all
risk assets better and lead to further weakness in govvies and the USD
on the day of writing, June 5th, I said that the risk asset rally has
further to run. On June 5th S&P traded at 950, the iTrx XO index traded
in the mid-low 600s. As you will see below I suggested that the Jul thru
to Sept period would be the ‘tipping zone’ and that during this period
we could see another 5 to 10% gains in the S&P before rolling over.
Between 5th June and now we had a mini-retrace (869 early-July S&P low,
from an early-June high of 956, nearly -10%) but are now in the middle
of a parabolic spike up. This spike higher/better in risk assets is as
expected and fully within the levels I said in early June.
I expect this risk rally to CONTINUE, into and maybe even thru a large
part of AUG. I see scope, as I said in early June, for a move in the S&P
up to 1000 (no doubt)/1050 (potentially), this equity move will drag all
risk assets better and lead to further weakness in govvies and the USD
NH:
What happens after that? Well, SO FAR, nothing has happened to alter the
views I have set out already below – namely that the next ugly leg of
the bear mrkt begins as we get into the end of the Jul thru Sept tipping
zone, driven by failure of the data to validate the V that is now FULLY
priced in into markets, with new equity lows forecast for late
2009/early 2010. I see late Aug/early Sept as the most likely best spot
to short stks/credit/risk assets, as I expect the S&P to peak for the yr
at 1000/1050 around then, and I see this same timeframe as a great oppo
to buy BUNDS again, when 10yr bund yields could well be back up in the
3.70s/3.80s yield area.
views I have set out already below – namely that the next ugly leg of
the bear mrkt begins as we get into the end of the Jul thru Sept tipping
zone, driven by failure of the data to validate the V that is now FULLY
priced in into markets, with new equity lows forecast for late
2009/early 2010. I see late Aug/early Sept as the most likely best spot
to short stks/credit/risk assets, as I expect the S&P to peak for the yr
at 1000/1050 around then, and I see this same timeframe as a great oppo
to buy BUNDS again, when 10yr bund yields could well be back up in the
3.70s/3.80s yield area.
NH:
Some will say the data – macro and earnings – are validating the V.
Well, if for some reason your time clock only started working the day
after Lehman, then of course you are right, and it is such comparisons
which have driven the current bear mrkt rally post early-March. But
compare the data to the day before Lehman – do this and you will see
things are in much poorer shape, on almost every metric. The Lehman
event is, as Kevin puts it, going to be seen as the head fake when this
crisis is looked back upon in the history books of tomorrow. I had my
own staggering version of this recently. One client at a leading
investment firm told me the other day that I was too bearish long term
because Q2 earnings were UP. Up? Up against what? Against the utterly
bogus guidance given to you by companies themselves, which have been
trimmed down continuously into the reporting date? Yes!! Yippee – I
guess. Up vs the results of Q4 and Q1, which were amongst the 2 worst
qtrs in global economic history EVER? Yes, but again, yippee – how could
they NOT be up considering governments around the world have thrown
TRILLIONS of taxpayer money at the hole. But Up against the same qtr
last yr – NO NO NO. Q2 S&P operating earnings are DOWN over 20% vs Q2
last yr, and that measure is AFTER the dramatic ‘changes’ on accounting
policies re earnings from the financial sector.
Well, if for some reason your time clock only started working the day
after Lehman, then of course you are right, and it is such comparisons
which have driven the current bear mrkt rally post early-March. But
compare the data to the day before Lehman – do this and you will see
things are in much poorer shape, on almost every metric. The Lehman
event is, as Kevin puts it, going to be seen as the head fake when this
crisis is looked back upon in the history books of tomorrow. I had my
own staggering version of this recently. One client at a leading
investment firm told me the other day that I was too bearish long term
because Q2 earnings were UP. Up? Up against what? Against the utterly
bogus guidance given to you by companies themselves, which have been
trimmed down continuously into the reporting date? Yes!! Yippee – I
guess. Up vs the results of Q4 and Q1, which were amongst the 2 worst
qtrs in global economic history EVER? Yes, but again, yippee – how could
they NOT be up considering governments around the world have thrown
TRILLIONS of taxpayer money at the hole. But Up against the same qtr
last yr – NO NO NO. Q2 S&P operating earnings are DOWN over 20% vs Q2
last yr, and that measure is AFTER the dramatic ‘changes’ on accounting
policies re earnings from the financial sector.
NH:
Lets see. I fully expect S&P to move up to 1000/1050, but holding above
1022 for 4 consecutive days, as opposed to a single day spike up to
1050, will tell me a lot. If what I fear (as opposed to what I hope)
plays out then I will have to concede that the lunatics that ran the
asylum pretty much into the ground, culminating in the events of Q4 last
yr, are back in control. Sadly, if this is indeed what plays out, then
when the public sector balance sheet bubble bursts, maybe in a year, but
almost certainly within 24mths, I will hopefully be far far away from
the madness. I am deeply troubled by what we could see – a REDUX of the
Greenspan Fed 2003 thru to 2005, where the WRONG polices were kept in
place far too long, validated by nonsense around productivity and global
savings glut, which DIRECTLY lead to the terrible failure of global
credit markets over the last 2 yrs, and where the new paradigm was that
house prices could go up for ever and that nothing could ever
default….Ben Bernanke – PLEASE do not make the same mistake as your
predecessor!! You and other policymakers should be applauded for dealing
with the post-Lehman fall-out, but even you used the term ‘Emergency
Policy’ when dealing with this. You must deep down know that such
Emergency Policy is NOT the right policy going forward, as Lehman has
been ‘dealt’ with. Sadly, your most recent testimony and the way you
talked so vaguely abt exit policies – whilst ‘bought’ by the mrkt -
leaves me extremely nervous as you said NOTHING concrete abt exit.
Lets see. I fully expect S&P to move up to 1000/1050, but holding above
1022 for 4 consecutive days, as opposed to a single day spike up to
1050, will tell me a lot. If what I fear (as opposed to what I hope)
plays out then I will have to concede that the lunatics that ran the
asylum pretty much into the ground, culminating in the events of Q4 last
yr, are back in control. Sadly, if this is indeed what plays out, then
when the public sector balance sheet bubble bursts, maybe in a year, but
almost certainly within 24mths, I will hopefully be far far away from
the madness. I am deeply troubled by what we could see – a REDUX of the
Greenspan Fed 2003 thru to 2005, where the WRONG polices were kept in
place far too long, validated by nonsense around productivity and global
savings glut, which DIRECTLY lead to the terrible failure of global
credit markets over the last 2 yrs, and where the new paradigm was that
house prices could go up for ever and that nothing could ever
default….Ben Bernanke – PLEASE do not make the same mistake as your
predecessor!! You and other policymakers should be applauded for dealing
with the post-Lehman fall-out, but even you used the term ‘Emergency
Policy’ when dealing with this. You must deep down know that such
Emergency Policy is NOT the right policy going forward, as Lehman has
been ‘dealt’ with. Sadly, your most recent testimony and the way you
talked so vaguely abt exit policies – whilst ‘bought’ by the mrkt -
leaves me extremely nervous as you said NOTHING concrete abt exit.
NH:
there’s lots more
NH:
might put the full piece up in the LR later
PM:
Should also note that Lorcan ran this comp in the LR
PM:
predicting friday’s close — for the Webbies driniks
PM:
But those close for that competition was this morning, before 8am
PM:
Attitude_Check:-5100
11:12AM
PM:
Market update?
NH:
FTSE 100 up 35 points at 4,886
NH:
miners leading the way
NH:
lots of bullish press
NH:
about rising coal prices
PM:
And the banks again
NH:
yes
NH:
Lloyds
NH:
and RBS good market this morning
Lloyds Banking Group (LLOY:LSE): Last: 107.20, up 5.62 (+5.53%), High: 108.50, Low: 103.41, Volume: 73.77m
Royal Bank of Scotland Group (RBS:LSE): Last: 50.80, up 2.32 (+4.79%), High: 51.55, Low: 49.25, Volume: 54.44m
NH:
Lloyds probably helped by these weekend press stories about Clerical Medical being sold for £4bn
PM:
Indeed
PM:
who to , btw
NH:
didn’t you get a paper on the planne
PM:
Nope — was economy Virgin
NH:
really
PM:
Yeah, really — 2.5 hrs on the tarmac at JFK
NH:
Alpha editor turns right when he enters the plane?
NH:
that can’t be right
PM:
Yep, FT employee, obviously turn left
NH:
anyway, Cowdery being linked with everything at the moment
PM:
hmmmm
NH:
and assuing he paid £4bn for Clerical Medical
NH:
the cash would come in useful
NH:
actually I have got a little bit of comment on this from Mike Trippett at Oriel Securities
NH:
Lloyds and Clerical Medical
NH:
According to some weekend press Lloyds Banking Group (LLOY LN) is believed to be in
talks with Resolution Ltd. (RSL.LN) over the sale of Clerical Medical. Discussions are
allegedly at an early stage, with a price tag of around GBP4billion.
• The combined embedded value of Scottish Widows and Clerical Medical is around £8bn,
split approximately 50/50.
• We would estimate Clerical should be valued at around 80% of embedded value. Note
Resolution’s acquisition of Friends Provident (£1.86bn) was valued at 69% of embedded
value.
• Having announced the run-off of around £200bn of non-core assets, it seems likely that
LLOY may be evaluating alternatives to the Government Asset Protection Scheme
(GAPS) which would include further capital raising, including asset sales.
• A sale of Clerical would also help address Basel 2′s requirement to eliminate 50% of
embedded value from tier 1 capital by 2012.
talks with Resolution Ltd. (RSL.LN) over the sale of Clerical Medical. Discussions are
allegedly at an early stage, with a price tag of around GBP4billion.
• The combined embedded value of Scottish Widows and Clerical Medical is around £8bn,
split approximately 50/50.
• We would estimate Clerical should be valued at around 80% of embedded value. Note
Resolution’s acquisition of Friends Provident (£1.86bn) was valued at 69% of embedded
value.
• Having announced the run-off of around £200bn of non-core assets, it seems likely that
LLOY may be evaluating alternatives to the Government Asset Protection Scheme
(GAPS) which would include further capital raising, including asset sales.
• A sale of Clerical would also help address Basel 2′s requirement to eliminate 50% of
embedded value from tier 1 capital by 2012.
PM:
Look at the price tho — Lloyds trading at 106p.
PM:
UKFI will be looking to sell soon
PM:
And another broker tale from last week was that Lloyds would seize the opportunity to launch a rights
PM:
Didn’t happen, obviously
PM:
But the chatter remains…
NH:
while we are talking about the banks
NH:
seen this note from ICAP?
NH:
the one Tracy did a post on?
NH:
here’s the link
NH:
not sure it is pushing the sector higher
NH:
but probably worth looking at
NH:
with the aid of some colourful graphics annotated with the help of MS Paint
NH:
ICAP reckons the share prices of banking stocks could double again
PM:
and that’s because loan loss provisions are falling
PM:
that will push up EPS
NH:
that’s it
PM:
and books values will follow
NH:
simple really
NH:
the note is penned by Bijal Shah
NH:
who apparently used to push the same line when he was at SG
NH:
Globally, bank shares have doubled from
their lows of early March. Investors now
fret that with demand for borrowing poor,
banks may struggle to generate substantial
growth in their earnings per share.
Predictably, with this level of bearishness,
the bank sector in the US and in Europe is
trading on a price to book of just around
one, despite doubling in value.
their lows of early March. Investors now
fret that with demand for borrowing poor,
banks may struggle to generate substantial
growth in their earnings per share.
Predictably, with this level of bearishness,
the bank sector in the US and in Europe is
trading on a price to book of just around
one, despite doubling in value.
NH:
Loss provisions & bank eps cycle
However, in the initial two years of the
economic upswing it is not loan demand,
but reduction in bad loss provisioning that
drives bank eps. The sharp improvement
in the newsflow on corporate profits, on
aggressive cost-cutting and the levelling
out of demand, has dramatically
diminished default risk; junk credit
spreads have fallen from around 20% to
8%. Unsurprisingly, bank share prices have
doubled in six months, smartly
outperforming the broader market.
However, in the initial two years of the
economic upswing it is not loan demand,
but reduction in bad loss provisioning that
drives bank eps. The sharp improvement
in the newsflow on corporate profits, on
aggressive cost-cutting and the levelling
out of demand, has dramatically
diminished default risk; junk credit
spreads have fallen from around 20% to
8%. Unsurprisingly, bank share prices have
doubled in six months, smartly
outperforming the broader market.
NH:
Manufacturing utilisation rates in the US,
Germany and Japan are all edging higher.
And as utilisation climbs so do profits for
the corporate sector. It is very likely that
the rally in corporate debt will extend
further over the coming year.
Germany and Japan are all edging higher.
And as utilisation climbs so do profits for
the corporate sector. It is very likely that
the rally in corporate debt will extend
further over the coming year.
And US house prices may also rise. With
greater backlog of orders, US firms are no
longer cutting working hours, and
unemployment rates are now only edging
higher having moved up substantially in
Q4 and Q1. The resulting rise in consumer
confidence is feeding through to the
housing market: the traffic of prospective
home buyers is up; existing home sales are
off their lows; and most importantly for banks, house prices appear to
be forming a bottom. With a sharp reduction in loss provisioning, bank
eps ought to rise through 2010.
NH:
Playing the yield curve
Moreover, the steep yield curve is currently exceptionally profitable for
the existing book of US banks; about half of bank assets are lent at long-
term rates, and 3-month LIBOR is just 0.4%. And in the absence of
substantial demand for credit, banks can add to their Treasury holdings
to further benefit from the yield curve. Bank holdings of Treasuries have
already risen by $200bn over the past year and may increase substantially
more. In addition, the yield curve is likely to remain steep – the Fed is
unlikely to raise rates over the coming year with unemployment rates
high and core inflation dormant.
Moreover, the steep yield curve is currently exceptionally profitable for
the existing book of US banks; about half of bank assets are lent at long-
term rates, and 3-month LIBOR is just 0.4%. And in the absence of
substantial demand for credit, banks can add to their Treasury holdings
to further benefit from the yield curve. Bank holdings of Treasuries have
already risen by $200bn over the past year and may increase substantially
more. In addition, the yield curve is likely to remain steep – the Fed is
unlikely to raise rates over the coming year with unemployment rates
high and core inflation dormant.
Intriguingly, in each of the last three major cyclical recoveries, 1982-1983,
1991-1992, 2002-2003, the price-to-book of banks continued to increase
along with bank eps and return on equity. Growth in book value and a
return to a more normal price-to-book can only propel bank share prices
higher over the next two years. The fact that equities are currently
overbought and likely to consolidate presents opportunities. The story
is not over for banks globally; use dips to increase exposure
PM:
thanks for that
11:19AM
PM:
Got to cut here — and go to Oldie over on the right
PM:
Self-declared shrewdie
NH:
yes
NH:
come on Oldie
NH:
tell us where the markets are going
NH:
gaze into your crystal ball
PM:
He/she has just registered — ready to share their insight
PM:
Go Oldie — we’ll just sit back for a bit
NH:
yeah, Oldie
NH:
the floor is yours
NH:
while we wait for that
NH:
and it could be a while
NH:
the cricket
NH:
NH:
not had time to calculate the England runs yet
PM:
has anyone done that maths?
NH:
I am sure somone has
NH:
actually what was the prize?
PM:
It was a signed copy of Gillian’s book
NH:
er she is on hols
PM:
But we haven’t sourced that yet 
NH:
I got an out of office messafe this morning
PM:
Of course Gillian’s away
PM:
Cote d Azur i suspect
NH:
dunno, back on Sept 2 though
NH:
post Webby drinks
PM:
rain says Cros is the lucky winner
PM:
Cricketing shrewdie
NH:
right
NH:
nothing from Oldie
NH:
so we should move on
PM:
Crow! — sorry not Cros
PM:
Congrats Crow
PM:
get in touch — paul.murphy@ft.com
NH:
that needs to be verified
NH:
and of course
PM:
in fact, to make sure you get your prize try…
NH:
we can change the results
PM:
tracy.alloway@ft.com
NH:
if we fancy it
PM:
We did reserve the right to meddle with the result
NH:
yeah, but that was only if Taxloss won
PM:
Oh yeah
11:24AM
PM:
Okay – now down to the sticky subject of IB research
PM:
And whether it is worth the paper it is published on
PM:
Whether it is worth the pixels we squirt at it.
NH:
meh
NH:
That doesn’t sound too pleasant Murph.
NH:
Nha, lots of the research we publish here is clearly priceless.
PM:
Everyone knows that.
PM:
But we raise the issue cos the WSJ have.
NH:
Yep – had a go at the mighty Goldman Sachs.
NH:
Basically suggesting GS keeps its best research for favoured clients.
NH:
Heavy allegations
PM:
Yes, but
PM:
All this favoured client stuff was suppose to have been wiped out during the Spitzer reforms
PM:
Post the dot.comedy bubble.
NH:
But the fact is, you can’t wipe it out.
NH:
It’s how things work.
NH:
Some clients are more equal than others.
PM:
Goldman…. Get it in the neck again.
NH:
are starting to feel sorry for them?
PM:
ish
PM:
Here’s one example of how it is impossible to control.
PM:
You have Marshall Wace – hedge fudn that pays big big commissions.
PM:
Sales staff a the banks are asked to type in details of interesting trading ideas direct into the MW interface.
PM:
So if the analyst at XYZ house comes up with a good idea, what happens?
PM:
The idea gets punched in to the MW terminal.
PM:
MW trades and pays a wad of commission.
PM:
XYZ house prospers.
PM:
What’s the difference?
NH:
none
NH:
How does a bank differentiate between clients?
PM:
v
PM:
The banks should simply release all research thru us – then you’d have a level market place.
NH:
But what about al the regs that say you cant put the full research in front of retail punters
NH:
Doesn’t that automatically create a tier of “favoured clients”
PM:
Course it does.
PM:
But then we know the regulatory system doesn’t work.
NH:
Could put it all in the LR
NH:
And then charge.
PM:
Oh yeah, its so of the moment – charging for free content
PM:
AV and the LR are free!
PM:
Remember that.
NH:
actually we would like to make one point here about research
NH:
it is not pushed to us from the IB press offices
NH:
well not all of it
NH:
in fact some of it
NH:
is very hard to get hold of
NH:
and some of the big houses go nuts when it is put on the site
PM:
We source research from a variety of sources 
NH:
yep
PM:
We are v greateful to a handful of brokers/ fund managers
PM:
And then we beg to get on certain IB distribution lists
NH:
but the idea that it is being pushed to us so retail punters get sucked in
NH:
just is not right
PM:
Sure
11:31AM
PM:
Quick advert for the Webby drinks
PM:
Some of you may have been away when we confirmed venue, date etc
PM:
Bleeding Heart, this friday, 6pm onwards
PM:
But you need to be on the Guest List
PM:
And you had better hurry cos it is starting to fill up
PM:
mail — alphaville@ft.com
NH:
what’s capacity?
PM:
Well, there’s plenty of room actually -cos we can just use more of the courtyard at the Bleeder
PM:
But…
PM:
and its a but..
PM:
funds are limited
PM:
We’ve got circa 4/4500 to spend so far
NH:
wow
NH:
impressive
PM:
yeah, but thirsty lot, that rabble on the right
NH:
might last till 9.00pm
PM:
Wen the money runs out, people can buy their own
PM:
NH:
but the message is
NH:
if your name is not down, you are not coming in?
PM:
btw — you can put a false name on the guest list
PM:
We just need an indication on numbers, really
PM:
Lorcan — Stacy is sending out replies — but we might have missed a few
PM:
And she has been crossing the Atlantic also
PM:
Stacy in the office tomorrow
11:36AM
NH:
Right
NH:
still not heard back from Oldie
NH:
so
NH:
let’s push on
PM:
Right, I know you have only been back in the office for a few hours
PM:
but have you got any RAW?
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
I have
NH:
but it is all in the small cap oil sector I am afraid
NH:
and we all know what a wild place that can be
PM:
yes
PM:
have you seen the price of Gulf Keystone?
PM:
50p
PM:
NH:
what!
NH:
that’s crazy
NH:
the bulletin board brigade must be behind this one
PM:
indeed
NH:
can’t be worth 50p
NH:
anyway
NH:
on to the RAW
NH:
Regal Petroleum
PM:
Oh do
PM:
from one dodgy stock to another
NH:
shares up 10p to 88p this morning
NH:
a rise of 12.7%
NH:
the word in the market is that a drilling update is coming
NH:
actually updates
NH:
that will be pretty impressive
NH:
and that TNK-BP is very keen to strike a JV or farm out deal
NH:
although if these finds are as big as rumoured, then one of the big Western utility companies might come in for Regal
PM:
really
PM:
any more detail?
NH:
there is
NH:
which is unusual for Regal
NH:
you may recall the company raised about £80m a while back
NH:
well, the cash was used to get hold of a couple of rigs
NH:
to replace the rather rubbish ones that had been used before
NH:
So
NH:
Regal is using these new rights to drill
NH:
two wells (MEX 106 and SV 58) using these two new western rigs, with the aim of appraising the c.180mn boe of P50 resources upside potential in the deeper Tournasian reservoirs.
PM:
What does that mean??
NH:
a positive drilling update is coming
NH:
and there could be lots of stuff down there
NH:
and what is interesting, I am told, is that these deeper T-sands reservoirs have no
attributed 2P reserves
attributed 2P reserves
NH:
and that Regal’s Saipem rigs, which have already shown significant
improvement in drilling times may confirm some decent flow rates
improvement in drilling times may confirm some decent flow rates
NH:
obviously I would like Tolstoi to have a look at this
PM:
right — can we give this a bandit rating??
NH:
well the bandit is good
NH:
NH:
but because this is Regal
NH:
it needs a discount
PM:
blinking eck!
NH:
so let’s say 5
NH:
or even a six
PM:
NH:
because Frank Timis is still a big shareholder
NH:
but
NH:
worth looking out for these updates
PM:
and all this is due in September
NH:
I believe so
NH:
and qucikly on to another small cap oil plauy
NH:
Sterling Energy
NH:
another one focused on Kurdistan
NH:
Raised some cash a few weeks ago
PM:
yep
PM:
£62.5m via the issue of 4.8bn shares at 1.3p
PM:
NH:
nice
NH:
anyway
NH:
this was mentioned in the placing announcement
NH:
but a lot of people seem to have missed it
NH:
what’s happened here is that the biggest shareholder in Emerald Energy
NH:
a Russian guy called Kroupeev
NH:
he is effectively in control of the company now
NH:
he took a big stake via the placing
NH:
and the former boss of Emerald, Alastair Beardsall, is now executive chairman of the company
PM:
(Lorcan — you are in the money, 4877)
NH:
and what happens next is that they will drill in Kurdistan and then look to sell the business as they did with Emerald
NH:
along the way they might even pick up the Columbian assets of Emerald
PM:
okay
PM:
thanks for that
11:45AM
PM:
Answering questinos quickly
PM:
Bob the Bera
PM:
I meant Bob the Bear
NH:
Bob Janjuah
PM:
PM:
real name?
NH:
he is at RBS
PM:
Not a common name
NH:
he is on holiday in Barbados at the moment
NH:
right
NH:
also people
NH:
asking about Amlin
NH:
we should have some comment
NH:
here’s Caz
NH:
Amlin – H1 results; [AML.L AML LN] 355p, stock – In-Line, sector – Neutral
Amlin has reported a strong set of first half results in our view, ahead of expectations. Management cites “low claims activity” and an “improved investment return” as reasons for good profit growth. The Combined ratio was 73, below our forecast of 75% and consensus on 74% (source: Company). PBT grew strongly, up 29% to £177m (CazF £134m, consensus £128m), and the dividend was grown by 8% to 6.5p (CazF and consensus had 6.4p). The company says the Fortis acquisition integration is proceeding well.
The shares trade on 1.38x Price/TNAV and 8.0x PER in 2009E (sector on 1.1x and 7.0x), generate a 18% RoE on existing estimates and offer a 5.5% dividend yield on our 2009E forecasts. The premium rating of the shares looks to factor in good operating performance already and we therefore continue with our In-Line recommendation.
Amlin has reported a strong set of first half results in our view, ahead of expectations. Management cites “low claims activity” and an “improved investment return” as reasons for good profit growth. The Combined ratio was 73, below our forecast of 75% and consensus on 74% (source: Company). PBT grew strongly, up 29% to £177m (CazF £134m, consensus £128m), and the dividend was grown by 8% to 6.5p (CazF and consensus had 6.4p). The company says the Fortis acquisition integration is proceeding well.
The shares trade on 1.38x Price/TNAV and 8.0x PER in 2009E (sector on 1.1x and 7.0x), generate a 18% RoE on existing estimates and offer a 5.5% dividend yield on our 2009E forecasts. The premium rating of the shares looks to factor in good operating performance already and we therefore continue with our In-Line recommendation.
NH:
Key Points:
Gross written premiums grew by 32% to £950m (+9% at constant currency), 6% ahead of our expectations and 3% ahead of the market.
Claims were £233m with the company saying claims activity was low. The claims ratio looks good at 39% (H1 2008 40%).
The underwriting performance was £135m, a 9% decline YoY.
Combined ratio of 73% versus our expectation of 75.3% and the market’s expectation of 74% also reflects these points (H1 2008 was 67%).
Reserves run off contribution to profits was £72m (H1 2008 £60m).
The investment return is ahead at £53.1m, a return of 1.6% (CazF £35m, consensus £32m).
Net FX losses to P&L of £32m.
PBT rises 29% to £177m (32% ahead of us on £134m and 38% ahead of consensus on £128m).
Reported tangible book value per share of 242p is slightly below our estimate of 247p.
EPS was up 54% to 35.2p
Dividend grown by 8.3% to 6.5p per share (CazF and consensus both on 6.4p). Our FY dividend forecast is 19.2p (5.6% yield).
Gross written premiums grew by 32% to £950m (+9% at constant currency), 6% ahead of our expectations and 3% ahead of the market.
Claims were £233m with the company saying claims activity was low. The claims ratio looks good at 39% (H1 2008 40%).
The underwriting performance was £135m, a 9% decline YoY.
Combined ratio of 73% versus our expectation of 75.3% and the market’s expectation of 74% also reflects these points (H1 2008 was 67%).
Reserves run off contribution to profits was £72m (H1 2008 £60m).
The investment return is ahead at £53.1m, a return of 1.6% (CazF £35m, consensus £32m).
Net FX losses to P&L of £32m.
PBT rises 29% to £177m (32% ahead of us on £134m and 38% ahead of consensus on £128m).
Reported tangible book value per share of 242p is slightly below our estimate of 247p.
EPS was up 54% to 35.2p
Dividend grown by 8.3% to 6.5p per share (CazF and consensus both on 6.4p). Our FY dividend forecast is 19.2p (5.6% yield).
NH:
KBC
NH:
Interim results have substantially exceeded expectations with pre-tax profits rising 52.8% to £210.8m before exchange rate movements. This was driven by substantially higher than expected prior year reserves releases (£71.9m vs. £40m est.). The key highlights of the results are as follows;
NH:
Recommendation & Valuation: Amlin has produced a strong set of results helped in no small part by higher than expected reserves releases. With the stock of prior year reserves above actuarial best estimates remaining at £150m there is every reason to suppose that the H2 reserve release will be equally strong. This suggests that the full year PBT (ex forex) estimate is likely, pending discussions with management, to be upgraded by a c.14% to c. £249m with NTA per share rising c.6.6% to c.255p per share. This leaves the shares trading at 1.47x prospective NTA representing a 40% premium to the sector. While a rating of 1.6x prospective NTA is warranted on fundamentals the stock is already trading at a 40% premium to the wider sector and it is difficult to foresee the extent of the premium widening out much further. From a sales perspective with Hiscox, Beazley and Hardy offering substantial value we are inclined to recommend Amlin as a Hold.
NH:
and Oriel
NH:
Conclusion: on first read these results look strong. Profits are well ahead of consensus
(+38%) which is driven by stronger underwriting and investment returns, although we
would highlight that there is a significant contribution from prior year releases (14% of
combined). Amlin have also increased the dividend 8%, which is consistent with the rest
of the sector. In our view, these results demonstrate that Amlin consistently delivers
strong operating performance, although much of this is already reflected in the premium
valuation at 1.37x 09 NTA. We retain our HOLD recommendation
(+38%) which is driven by stronger underwriting and investment returns, although we
would highlight that there is a significant contribution from prior year releases (14% of
combined). Amlin have also increased the dividend 8%, which is consistent with the rest
of the sector. In our view, these results demonstrate that Amlin consistently delivers
strong operating performance, although much of this is already reflected in the premium
valuation at 1.37x 09 NTA. We retain our HOLD recommendation
PM:
cheers for that
11:50AM
PM:
What else is moving?
PM:
i was trying to keep these sessions short for Aug…
PM:
But then, why not…
NH:
right couple of things to look at
NH:
Yell
NH:
had some worried bears on this morning
NH:
wanting to know why the stock is 40p
NH:
I don’t know
NH:
but Invesco have started buying again
NH:
now own 21% of the company
PM:
Trash is King
NH:
and also WPP
NH:
had a nice move this morning
NH:
up 23p at 527.5p
NH:
and that’s ahead of interim results this week
PM:
hmmm
NH:
why the hmmm
PM:
well, the Sunday Times RNS ran a story saying the results would disappoint
NH:
well, a couple of the big houses think different
NH:
Deutsche Bank are advising clients to get stuck in and buy
NH:
while Cazenove, who are no fans of the stock reckon the chance of equity fund raising following the results are slim
NH:
WPP – [WPP.L WPP LN] 504p Underperform, sector Neutral
Ahead of WPP’s interim results we trim our EPS forecasts by 3% in both 2009E and 2010E to reflect the weak Q2 trends reported by competitors. We believe the company’s credit rating is likely to be downgraded post results but given the relatively minimal P&L impact of such a move we see an equity issue as unlikely at this stage.
Following a strong recent run we believe the share price is likely to pause for breath near term although we recognise valuation multiples remain attractive relative to historic levels for investors looking at the upside through the cycle.
PM: right
Ahead of WPP’s interim results we trim our EPS forecasts by 3% in both 2009E and 2010E to reflect the weak Q2 trends reported by competitors. We believe the company’s credit rating is likely to be downgraded post results but given the relatively minimal P&L impact of such a move we see an equity issue as unlikely at this stage.
Following a strong recent run we believe the share price is likely to pause for breath near term although we recognise valuation multiples remain attractive relative to historic levels for investors looking at the upside through the cycle.
PM: right
PM:
right
PM:
while you were away, there was lots of speculation about a cash call from WPP
PM:
like the one from Reed
NH:
okay
PM:
have you got the Deutsche note?
NH:
well, I have a quick summary of it
NH:
Interims on August 26th: weak results and concerns over TNS now priced in. We are
almost certain results will be weak, so the focus is on outlook commentary. We
believe emphasis will be on margins and prospective benefits of reduced staff costs
and accelerating TNS synergies. We raise 2010 EPS by 11% with our view that EPS
has bottomed with a leaner cost base supporting margin expansion next year. On
2010 estimates, WPP trades at 10.5x P/E, 11% free cash yield; the P/E discount to
Omnicom and Publicis is 30% which looks excessive. We raise our TP from 465p to
610p and upgrade from Hold to Buy.
almost certain results will be weak, so the focus is on outlook commentary. We
believe emphasis will be on margins and prospective benefits of reduced staff costs
and accelerating TNS synergies. We raise 2010 EPS by 11% with our view that EPS
has bottomed with a leaner cost base supporting margin expansion next year. On
2010 estimates, WPP trades at 10.5x P/E, 11% free cash yield; the P/E discount to
Omnicom and Publicis is 30% which looks excessive. We raise our TP from 465p to
610p and upgrade from Hold to Buy.
NH:
Heavy 2009 severance/restructuring means bigger cost savings in 2010. WPP has
publicly indicated that H1 margins will be heavily impacted by severance provisions
and TNS integration costs: we assume 9.5% margins (13.6% 2008). The payback
comes through in full next year (at least £230m benefit est, 3% of current year costs).
So, even if revenues remain under pressure, a radically leaner cost base means
management can now paint a more positive view on margin prospects for next year.
On TNS, we know revenues have missed term budgets, but we believe the profit
contribution remains broadly on track. We see scope for management to raise its TNS
synergy target (from £50m to >£60m).
publicly indicated that H1 margins will be heavily impacted by severance provisions
and TNS integration costs: we assume 9.5% margins (13.6% 2008). The payback
comes through in full next year (at least £230m benefit est, 3% of current year costs).
So, even if revenues remain under pressure, a radically leaner cost base means
management can now paint a more positive view on margin prospects for next year.
On TNS, we know revenues have missed term budgets, but we believe the profit
contribution remains broadly on track. We see scope for management to raise its TNS
synergy target (from £50m to >£60m).
NH:
Change in view – we now think margins go up, not down, next year. Despite
assuming a modest top line decline, we now expect 2010 margins to increase,
counter to consensus expectations of flat/lower margins. This is the key change in our
view. We have upgraded our 2010 PBIT margin assumption from 12.2% to 13% to
reflect this optimism, and have raised 2010 EPS by 11% to 47p – 11% above the
consensus of most recent forecasts. Significantly, this is our first WPP EPS upgrade
this year. Also, if we are correct in thinking that earnings expectations have bottomed
and that we are moving into an upgrade cycle, helped by margins, then concerns over
an equity raising will diminish.
assuming a modest top line decline, we now expect 2010 margins to increase,
counter to consensus expectations of flat/lower margins. This is the key change in our
view. We have upgraded our 2010 PBIT margin assumption from 12.2% to 13% to
reflect this optimism, and have raised 2010 EPS by 11% to 47p – 11% above the
consensus of most recent forecasts. Significantly, this is our first WPP EPS upgrade
this year. Also, if we are correct in thinking that earnings expectations have bottomed
and that we are moving into an upgrade cycle, helped by margins, then concerns over
an equity raising will diminish.
NH:
2010 EPS raised 11% reflecting margin upgrade; target raised to 610p. With the stock
having performed strongly recently, the question is where it goes from here. We note
WPP has still lagged MSCI Europe by 8% in the rally since March 9th and has lagged
other cyclicals in Media. With cost save benefits set to accelerate over the next 12-
18m, we believe earnings risk has moved to the upside even if revenues remain
stressed. We raise our target from 465p to 610p, applying a 13x multiple to 2010 EPS
(10% discount to median prospective P/E 14.6x). At 10.5x 2010 P/E, 7x EV/EBITDA,
11.4% cash yield WPP remains cheap versus the Media sector and is on a 30%
discount to agency peers (Omnicom, Publicis). Risks: weaker advertising market in
2010; emerging markets rollover; failure to deliver TNS synergies impacting margins.
having performed strongly recently, the question is where it goes from here. We note
WPP has still lagged MSCI Europe by 8% in the rally since March 9th and has lagged
other cyclicals in Media. With cost save benefits set to accelerate over the next 12-
18m, we believe earnings risk has moved to the upside even if revenues remain
stressed. We raise our target from 465p to 610p, applying a 13x multiple to 2010 EPS
(10% discount to median prospective P/E 14.6x). At 10.5x 2010 P/E, 7x EV/EBITDA,
11.4% cash yield WPP remains cheap versus the Media sector and is on a 30%
discount to agency peers (Omnicom, Publicis). Risks: weaker advertising market in
2010; emerging markets rollover; failure to deliver TNS synergies impacting margins.
PM:
green shoots eh
PM:
In august
PM:
but thanks for that
NH:
and thanks Monty
NH:
good to see you again
NH:
right
NH:
I have some RAW on Yell
PM:
reader beware
NH:
here merrills are very close to putting a debt refinacing package together
NH:
apparently it could even be done
NH:
we need to check the obviously
PM:
Source can’t spell — like us
NH:
but there is a Merrill connection here
NH:
the new chairman is Bob Wigely
NH:
who used to be the chairman of Merrill in Europe
NH:
I wonder how a refinancing would work
PM:
Could well be Northgate-esque
NH:
or what
NH:
Taylor Wimpey
NH:
get new facilities
NH:
in exchange for warrants
NH:
and then a cash call follows
NH:
a little while later
PM:
A “pre-debt-for-equity swwap”
PM:
pre-refinancing
NH:
obviously Invesco aren’t over the wall yet
NH:
as they are buying
PM:
We’re just checking Invesco’s involvement
NH:
I wonder if that holding is controlled by Neil Woodford?
NH:
thanks Monty
PM:
dont be short of yell, eh
NH:
no
NH:
keep tabs on that
11:59AM
PM:
Right — think that’s a quality note to end on
PM:
here’s some lunchtime reading matter
PM:
Working Paper No. 373
International financial transmission:
emerging and mature markets
Guillermo Felices, Christian Grisse and Jing Yang
International financial transmission:
emerging and mature markets
Guillermo Felices, Christian Grisse and Jing Yang
PM:
Oh, and this
PM:
Working Paper No. 374
How do different models of foreign
exchange settlement influence the
risks and benefits of global liquidity
management?
Jochen Schanz
How do different models of foreign
exchange settlement influence the
risks and benefits of global liquidity
management?
Jochen Schanz
NH:
RTRS-NOKIA SAYS TO ENTER LAPTOP INDUSTRY WITH FIRST NETBOOK
12:00 24Aug09 RTRS-NOKIA SAYS TO USE WINDOWS SOFTWARE, INTEL’S ATOM CHIP IN FIRST NETBOOK
12:00 24Aug09 RTRS-NOKIA SAYS TO UNVEIL AVAILABILITY, PRICING OF THE DEVICE ON SEPT 2
12:00 24Aug09 RTRS-NOKIA SAYS TO USE WINDOWS SOFTWARE, INTEL’S ATOM CHIP IN FIRST NETBOOK
12:00 24Aug09 RTRS-NOKIA
NH:
sorry that just flashed up
NH:
right
NH:
Paul is on the phone
NH:
so I think we will wind things up
NH:
good to be back
NH:
sort of
NH:
and thanks for all the comments
NH:
some good ones this morning
NH:
esp on oil, yell and WPP
NH:
cya tomorrow
NH:
bye