Markets live chat transcript for the chat ending at 12:07 on 25 Aug 2009. Participants in this chat were: Paul Murphy (PM) Neil Hume, FT (NH)
PM:
Hiyya
PM:
Welcome to Torchedville.
PM:
Up in flames.
PM:
Incorporating Markets Live at Ft Alphaville
PM:
Fort Alpha
PM:
Actually, I’m just glad I got a grip on Neil a month ago and banned him from opening a new short position.
PM:
We’d be serving bread and water this Friday, otherwise.
PM:
You around Neil?
NH:
I am
NH:
just reading the comments
NH:
lots of them this morning
NH:
including something about a funny smell near the FT
PM:
Hmmmm
PM:
Just find things v difficult to read.
PM:
What’s the Footsie doing now?
NH:
almost flat on the day
NH:
off just 7 points at 4,889
NH:
and that’s in spite of another Chinese wobble overnight
NH:
which has knocked the miners
NH:
but not the market overall
PM:
Indeed
PM:
Chinese market was off 5.5% at one stage
NH:
yep
NH:
but bounced back to close 2.2% lower I think
PM:
So what was that all about
NH:
comments from the Jiabao, the Premier
NH:
he issued a pretty downbeat statement late on Monday, saying monetary policy would be kept loose because the economy faced new difficulties, such as boosting domestic consumption
PM:
right
PM:
so China to persist with its huge stimulus package
PM:
Command recovery
PM:
I would have thought that was good news?
NH:
NH:
the bubble lives on
NH:
actually I have some facts and stuff on the Chinese market performance overnight, including some interest stuff on short selling, which appears to be increasing
NH:
China A-shs -5.5% now, trading below 3000 key level, post Premier Jiabao ALSO…Note HK short-selling volume +26% this morning at HK$1.805bn mid-mkt, accounting for 6.1% of mkt total (vs yesterday’s 4.3% half-day). Shorts topped by ICBC (1398), Angang (347), CCB (939), Ch Life (2628) and CMB (3968) …
NH:
and
NH:
* Market in Shanghai is down almost 5% led by Commodity & Financials.
* PetroChna (post y’days figures), ICBC and Sinopec are the stocks
contributing most to the decline.
* China’s Premier Wen reiterated the govt will maintain its current
macro policy sentiment.
* However, the Premier did also say that the recovery is not yet stable
with many “uncertainties” and warns of “blind optimism”.
* Today’s drop also triggered by lacklustre results of cdty-stocks such
as Chalco & Jiangxi Copper and speculation again that China will raise
the capital adequacy ratios soon.
* Additionally, CCB (China Constr Bank, 939 HK) on tape saying that it
sees asset bubbles.
PM:
People are also talking about this piece in the South China Morning Post
PM:
Friends of Albert Edwards were saying that people should read this
PM:
Andy Xie
PM:
I havent got a subscription
PM:
so…
PM:
hang on, my lotus notes has stalled
PM:
The A-share market is collapsing again, like many times before. It takes
numerous government policies and “expert” opinions to entice ignorant retail
investors into the market but just a few days to send them packing. As greed
has the upper hand in Chinese society, the same story repeats itself time and
again.
The A-share market is collapsing again, like many times before. It takes
numerous government policies and “expert” opinions to entice ignorant retail
investors into the market but just a few days to send them packing. As greed
has the upper hand in Chinese society, the same story repeats itself time and
again.
A stock market bubble is a negative-sum game. It leads to distortion in
resource allocation and, hence, net losses. The redistribution of the
remainder, moreover, isn’t entirely random. The government, of course, always
wins. It pockets stamp duty revenue and the proceeds of initial public
offerings of state-owned enterprises in cash. And, the listed companies seldom
pay dividends.
The truly random part for the redistribution among speculators is probably 50
cents on the dollar. The odds are quite similar to that from playing the
lottery. Every stock market cycle makes Chinese people poorer. The system takes
advantage of their opportunism and credulity to collect money for the
government and to enrich the few.
I am not sure this bubble that began six months ago is truly over. The trigger
for the current selling was the tightening of lending policy. Bank lending grew
marginally in July. On the ground, loan sharks are again thriving, indicating
that the banks are indeed tightening. Like before, government officials will
speak to boost market sentiment. They might influence government-related funds
to buy. “Experts” will offer opinions to fool the people again. Their actions
might revive the market temporarily next month, but the rebound won’t reclaim
the high of August 4.
PM:
This bubble will truly burst in the fourth quarter when the economy shows signs
of slowing again. Land prices will start to decline, which is of more concern
than the collapse of the stock market, as local governments depend on land
sales for revenue. The present economic “recovery” began in February as
inventories were restocked and was pushed up by the spillover from the asset
market revival. These two factors cannot be sustained beyond the third quarter.
When the market sees the second dip looming, panic will be more intense and
thorough.
of slowing again. Land prices will start to decline, which is of more concern
than the collapse of the stock market, as local governments depend on land
sales for revenue. The present economic “recovery” began in February as
inventories were restocked and was pushed up by the spillover from the asset
market revival. These two factors cannot be sustained beyond the third quarter.
When the market sees the second dip looming, panic will be more intense and
thorough.
The US will enter this second dip in the first quarter of next year. Its
economic recovery in the second half of this year is being driven by inventory
restocking and fiscal stimulus.
However, US households have lost their love for borrow-and-spend for good.
American household demand won’t pick up when the temporary growth factors run
out of steam. By the middle of the second quarter next year, most of the world
will have entered the second dip. But, by then, financial markets will have
collapsed.
PM:
China’s A-share market leads all the other markets in this cycle. Even though
central banks around the world have kept interest rates low, the financial
crisis has kept most banks from lending. Only Chinese banks have lent
massively. That liquidity inflated the mainland stock market first, then
commodity markets and property market last. Stock markets around the world are
now following the A-share market down.
central banks around the world have kept interest rates low, the financial
crisis has kept most banks from lending. Only Chinese banks have lent
massively. That liquidity inflated the mainland stock market first, then
commodity markets and property market last. Stock markets around the world are
now following the A-share market down.
By next spring, another stimulus story, involving even bigger sums, will
surface. “Experts” will offer opinions again on its potency. After a month or
two, people will be at it again. Such market movements are bear-market bounces.
Every bounce will peak lower than the previous one. The reason that such bear-
market bounces repeat is the US Federal Reserve’s low interest rate.
The final crash will come when the Fed raises the interest rate to 5 per cent
or more. Most think that when the Fed does this, the global economy will be
strong and, hence, exports would do well and bring in money to keep up asset
markets. Unfortunately, this is not how our story will end this time. The
growth model of the past two decades – Americans borrow and spend; Chinese lend
and export – is broken for good. Policymakers have been busy stimulating,
rather than reforming, in desperate attempts to bring growth back. The massive
increase in money supplies around the world will spur inflation through
commodity-market speculation and inflation expectations in wage setting. We are
not in the midst of a new boom. We are at the last stage of the Greenspan
bubble. It ends with stagflation.
PM:
Hong Kong’s asset markets are most sensitive to the Fed’s policy due to the
currency peg to the US dollar. But, in every cycle, stories abound about
mysterious mainlanders arriving with bags of cash. Today, Hong Kong’s property
agents are known to spirit mainland-looking men, with small leather bags tucked
under their arms, to West Kowloon to view flats. Such stories in the past of
mainlanders paying ridiculous prices for Hong Kong flats usually involved
buyers from the northeast. In this round, Hunan people have surfaced as the
highest bidders. The reason is, I think, that Hunan people sound even more
mysterious. But, despite all this talk, the driving force for Hong Kong’s
property market is the Fed’s interest rate policy.
currency peg to the US dollar. But, in every cycle, stories abound about
mysterious mainlanders arriving with bags of cash. Today, Hong Kong’s property
agents are known to spirit mainland-looking men, with small leather bags tucked
under their arms, to West Kowloon to view flats. Such stories in the past of
mainlanders paying ridiculous prices for Hong Kong flats usually involved
buyers from the northeast. In this round, Hunan people have surfaced as the
highest bidders. The reason is, I think, that Hunan people sound even more
mysterious. But, despite all this talk, the driving force for Hong Kong’s
property market is the Fed’s interest rate policy.
Punters in Hong Kong view the short-term interest rate as the cost of capital.
It is currently close to zero. When the cost of capital is zero, asset prices
are infinite in theory. At least in this environment, asset prices are about
story-telling. This is why, even though Hong Kong’s economy has contracted
substantially, its property prices have surged. Of course, the short-term
interest rate isn’t the cost of capital; the long-term interest rate is. Its
absence turns Hong Kong into a futile ground for speculation, where asset
prices increase more on the way up and decrease more on the way down.
When the Fed raises the interest rate, probably next year, Hong Kong’s property
market will collapse. When the Fed’s policy rate reaches 5 per cent, probably
in 2011, Hong Kong’s property prices will be 50 per cent lower.
NH:
wow
NH:
50% lower
NH:
well
NH:
Nomura aren’t buying any of that
NH:
have a look at this
NH:
BURST? – REITERATE THAT AN ASSET PRICE BUBBLE IN CHINA IS INEVITABLE & WILL ONLY GROW BIGGER, POSSIBLY EXCEEDING THAT OF 2007
Despite the stock market sell-off over the last two weeks, economic fundamentals remain solid and improving. We expect asset price inflation to continue in China in the coming months and quarters (or even years).
Some investors wonder if the sell-off signals the bursting of the stock bubble. We do not think so. We look at five fundamental factors and compare them to the situation in Oct/Nov 2007, and find almost the opposite economic characteristics. These fundamental differences suggest to us that asset price inflation is unlikely to end at this stage
PM:
Sorry if that was a bit of pixel spam
PM:
But it is a good read, i belive
PM:
believe
NH:
yes
NH:
on the Nomura note
NH:
can’t post anymore
NH:
some prob with the PDF
NH:
and copying frmo it
PM:
We’ve got to sort this problem
PM:
new adobe locking tech
PM:
it’s not on
11:14AM
NH:
shall we move on from China?
PM:
We can
PM:
But i suspect we might be back…
PM:
Something closer to home
PM:
Vodafone
PM:
Chunky old rise this morning from Voda
PM:
Up 3.35p at 134p.
NH:
Top of the leaderboard this morning
NH:
Rare event.
NH:
Very rare – cos it is such a liquid stock.
PM:
You know the Chris Gent overhang really has gone now.
PM:
Perception of it
PM:
(Reece Mander — thank you very much sir)
NH:
?????
NH:
Gent
PM:
Well, he issued a gazillion shares to buy Mannessman nine years ago – top of the tech bubble.
PM:
And the market never forgave him for treating em like suckers.
NH:
Which they were.
NH:
If he’d built Voda with debt it would be bust. But he did it with stock.
PM:
Never delivered in share price terms tho.
PM:
Anyway, why is it at the top of the leaderboard – a spot it never occupies??
NH:
Well, its up there cos precious little else is moving.
NH:
But the actual price move is down to JP Morgan, we think
NH:
They’ve had a big strategy switch this morning
NH:
Mizlav Matejka
NH:
Cut their recommendation on metals and mining
NH:
which are down
NH:
Going overweight telecoms instead
NH:
Am going to put this full summary up.
NH:
Broadly, the drivers of our bullish view on equities are tracking, with EPS
upgrades starting, a sharp manufacturing rebound and inventory rebuild
underway, an inflection point being reached in labour markets and loan
delinquencies, as well as a continued healing in credit markets.
However, revisiting our ISM framework, we are getting close to the stage
where some portfolio rebalancing is warranted. As we are exiting the “2nd
derivative” phase in macro dataflow and entering “1st derivative”, the
risk-reward in our view gets less compelling.
upgrades starting, a sharp manufacturing rebound and inventory rebuild
underway, an inflection point being reached in labour markets and loan
delinquencies, as well as a continued healing in credit markets.
However, revisiting our ISM framework, we are getting close to the stage
where some portfolio rebalancing is warranted. As we are exiting the “2nd
derivative” phase in macro dataflow and entering “1st derivative”, the
risk-reward in our view gets less compelling.
NH:
Using the last recovery as an example, the initial equity gains were largely
made from March ’03 to Jan ’04, with MSCI Europe up almost 50%.
Subsequently, equities were flat for the ensuing 3 quarters. Likewise for the
Cyclicals vs Defensives trade, after their initial strong performance
from March to Sept ’03, Cyclicals lost ground relative to Defensives
over the next 12 months.
made from March ’03 to Jan ’04, with MSCI Europe up almost 50%.
Subsequently, equities were flat for the ensuing 3 quarters. Likewise for the
Cyclicals vs Defensives trade, after their initial strong performance
from March to Sept ’03, Cyclicals lost ground relative to Defensives
over the next 12 months.
NH:
This sector rotation happened even though ISM continued to advance to
above the 60 level by mid-04, and despite the ’03 recovery ultimately
proving to be sustainable. We think the current recovery trade, where its
sustainability is not a done deal, could at least show a similar “pause”.
Having upgraded Metals&Mining to OW on 3rd December ’08, we
reduce their weight today to N. Following the run of 75%, the sector is not
as attractive anymore, trading at 52% P/E premium to broad market vs
historical averages. From our previous work we found that past
“Supercycle” sectors tended to do well in the first year of market
stabilisation, but their leadership was not sustained. Tech is a case in point,
rebounding strongly in ’03, but languishing thereafter.
above the 60 level by mid-04, and despite the ’03 recovery ultimately
proving to be sustainable. We think the current recovery trade, where its
sustainability is not a done deal, could at least show a similar “pause”.
Having upgraded Metals&Mining to OW on 3rd December ’08, we
reduce their weight today to N. Following the run of 75%, the sector is not
as attractive anymore, trading at 52% P/E premium to broad market vs
historical averages. From our previous work we found that past
“Supercycle” sectors tended to do well in the first year of market
stabilisation, but their leadership was not sustained. Tech is a case in point,
rebounding strongly in ’03, but languishing thereafter.
NH:
Having downgraded Telecoms on 3rd Feb, we upgrade the sector back
to OW today. Positive seasonality into Q4 is a support, as are valuations -
European Telecoms are trading at a 50% relative P/E discount. Within
Telecoms, we advise exposure to Vodafone, FT and KPN in particular.
These changes move us away from an aggressive Cyclicals OW, which we
held since 3rd Feb, towards a smaller OW stance, although still OW (where
we remain bullish on Discretionary, Industrials, and Chemicals among
Materials).
We would be looking to take some more funds out of Cyclicals and from our
bullish allocation to equities (+10% vs benchmark) as/if ISM confirms
above the 50 mark, perhaps following the September reading which comes
out on 1st October. Our MSCI Europe target remains 1080, still giving
4% upside from current levels.
to OW today. Positive seasonality into Q4 is a support, as are valuations -
European Telecoms are trading at a 50% relative P/E discount. Within
Telecoms, we advise exposure to Vodafone, FT and KPN in particular.
These changes move us away from an aggressive Cyclicals OW, which we
held since 3rd Feb, towards a smaller OW stance, although still OW (where
we remain bullish on Discretionary, Industrials, and Chemicals among
Materials).
We would be looking to take some more funds out of Cyclicals and from our
bullish allocation to equities (+10% vs benchmark) as/if ISM confirms
above the 50 mark, perhaps following the September reading which comes
out on 1st October. Our MSCI Europe target remains 1080, still giving
4% upside from current levels.
PM:
Very confident calls in there.
PM:
Interesting little tid-bit on the performance of super-cycle stocks.
PM:
They stall during the recovery – supposedly
PM:
As telecoms did in 03.
NH:
All relative – telecoms got blown up.
NH:
A super-cycle stock in recovery mode can also look like a dead cat.
PM:
What are JPM saying specifically about telecoms??
NH:
We propose to play the rally through Vodafone, KPN,
and France Telecom, all rated overweight. All operators
are well geared into a wireless recovery scenario.
Vodafone continues to appear particularly cheap. While
European mobile trends are worse than industry average,
the last quarter did not see this trend deteriorate, and due
to its portfolio we still expect Vodafone to deliver sectoraverage
growth on a consolidated basis, and much better
than average growth on a proportionate basis. Positively,
Vodafone is directly geared into the mobile cyclicality
story we observed earlier, while fixed line operators may
still have to contend with a late cycle effect from pent-up
unemployment and deteriorating corporate telephony
spending. Increased cash returns from Verizon Wireless
remain a powerful medium to longer-term catalyst, in our
view
and France Telecom, all rated overweight. All operators
are well geared into a wireless recovery scenario.
Vodafone continues to appear particularly cheap. While
European mobile trends are worse than industry average,
the last quarter did not see this trend deteriorate, and due
to its portfolio we still expect Vodafone to deliver sectoraverage
growth on a consolidated basis, and much better
than average growth on a proportionate basis. Positively,
Vodafone is directly geared into the mobile cyclicality
story we observed earlier, while fixed line operators may
still have to contend with a late cycle effect from pent-up
unemployment and deteriorating corporate telephony
spending. Increased cash returns from Verizon Wireless
remain a powerful medium to longer-term catalyst, in our
view
NH:
KPN remains cheap compared to peers, at least as
measured by clean free cash flow yield, has EBITDA
growth without currency risk due to exposure to (1) a
stabilising domestic market, where it (2) enjoys the
ability to vigorously cut costs, and (3) market share
upside in Germany. The company has one of the most
consistently shareholder-friendly track records in
European telecoms, as is manifest in its sector-leading
buyback policy. In our report on 29 July we argued that
the company has a fair chance of reaching its 2010
EBITDA target of >€5.5bn, which is however doubted
by the analyst consensus, in our view
France Telecom
measured by clean free cash flow yield, has EBITDA
growth without currency risk due to exposure to (1) a
stabilising domestic market, where it (2) enjoys the
ability to vigorously cut costs, and (3) market share
upside in Germany. The company has one of the most
consistently shareholder-friendly track records in
European telecoms, as is manifest in its sector-leading
buyback policy. In our report on 29 July we argued that
the company has a fair chance of reaching its 2010
EBITDA target of >€5.5bn, which is however doubted
by the analyst consensus, in our view
France Telecom
NH:
: We recently upgraded this stock based
on a more stable margin outlook. FT trades at a material
discount to the sector, but the currency-adjusted top line
was flat in Q2 (3.5pp better than Deutsche Telekom), two
thirds of the business is in France, which remains one of
the better incumbent home markets, while the company’s
assets outside of France have ceased underperforming.
The company remains acquisitive, however, we are not
overly worried about the most probable scenario of small
to mid-size bolt-on acquisitions in Africa. Please refer to
our upgrade note of 7 August (‘Stronger margin outlook;
upgrading to OW’) and our 19 August report on DT
(‘Post Q2 2009 – top line challenges’) in which we
directly compare these two large, partially state-owned
European incumbents and conclude that FT is the more
compelling investment at this point
on a more stable margin outlook. FT trades at a material
discount to the sector, but the currency-adjusted top line
was flat in Q2 (3.5pp better than Deutsche Telekom), two
thirds of the business is in France, which remains one of
the better incumbent home markets, while the company’s
assets outside of France have ceased underperforming.
The company remains acquisitive, however, we are not
overly worried about the most probable scenario of small
to mid-size bolt-on acquisitions in Africa. Please refer to
our upgrade note of 7 August (‘Stronger margin outlook;
upgrading to OW’) and our 19 August report on DT
(‘Post Q2 2009 – top line challenges’) in which we
directly compare these two large, partially state-owned
European incumbents and conclude that FT is the more
compelling investment at this point
PM:
thanks for that
11:21AM
PM:
Dinker — ref to screenshots?
PM:
Are you suggesting we should do screen schots of locked pdfs?
PM:
shots even
PM:
We can post interesting research in the LR, but we don’t to push our luck 
PM:
Just catching up on other stuff on the right….
PM:
what’s the RBS reference
PM:
We are ignorant at this end
PM:
Well, i am
NH:
me too
NH:
not heard anything
NH:
about a big scoop
NH:
and am struggling to think what it could be
NH:
doing a Lloyds
NH:
and looking to do a rights issue
PM:
is it details about the GAPS?
NH:
instead of taking full part in the APS
PM:
hmm
PM:
Cityunslicker — re Gulf Keystone
PM:
We kinda stick by our initial view
PM:
Sorry
NH:
we do
NH:
raises money at 9p one minute
NH:
worth £500m the next
PM:
Dont mind humble pie, but suspect this not an occasion
NH:
something does not quite add up
PM:
Company financing itself with equity draw down facility
PM:
PM:
Struggling to raise finance in penny dreadful land
PM:
PM:
Then luckily and brilliantly it discovers 3 billion barrels of oil
PM:
And prior to all that get’s a bid pitched at 80 times its market value
PM:
Hello?
PM:
Lady Jennifer — no
NH:
(A little less of the bragging pls CityUnslicker)
PM:
Not recommending a short
PM:
recommending a barge pole
NH:
ha
PM:
Any unslick is in the money — so well done!
NH:
I have done a post on GKP this morning
NH:
looking at what people think it should be valued at
NH:
one interesting point is that we don’t have any flow data
NH:
or anything of the sort
NH:
anyway
NH:
this could potentially be a world class field
NH:
I will concede that
NH:
how they got the oil out etc
NH:
I don’t know
11:31AM
NH:
and from one company we don’t like
NH:
to another
NH:
Punch Taverns
PM:
Price up 13.6p at 121p
PM:
on the back of a pre-close trading statement
PM:
Bit disappointing, no?
NH:
the market seems to be impressed that Punch has knocked a £1bn off its debt
PM:
so that’s only another what, £3.5bn to go
NH:
precisely and the news on current trading does not look that hot
NH:
in fact there has been no improvement since May
NH:
tenanted and leased like for like profits down 11%
NH:
actually, the performance from the managed pubs has got worse with like for likes down 1.4%
PM:
hmm
PM:
so Punch pays down debt by selling its best pubs and buying back debt
PM:
and the market rewards it with a gain of 12.5%
PM:
and rising
NH:
yep
NH:
and what’s more strange is that some of the analysts most bullish on Punch have downgraded
PM:
and the shares are stil rising
NH:
yep
NH:
have a look at this from Douglas Jack at Numis
NH:
Punch’s year-end trading update is in line. Most importantly, net debt has fallen
from £4.53bn to below £3.5bn versus our estimate of £3.6bn and consensus’
£3.83bn. In addition to the benefit of increment debt reduction (worth 36p/share
versus consensus), we believe the shares should rerate from 8.3x EV/EBITDA to the
peer group average of 9.0x due to Punch’s relative success in selling its bottom-end
pubs, achieving 10x EBITDA overall, and retiring bond debt at 33% discount.
from £4.53bn to below £3.5bn versus our estimate of £3.6bn and consensus’
£3.83bn. In addition to the benefit of increment debt reduction (worth 36p/share
versus consensus), we believe the shares should rerate from 8.3x EV/EBITDA to the
peer group average of 9.0x due to Punch’s relative success in selling its bottom-end
pubs, achieving 10x EBITDA overall, and retiring bond debt at 33% discount.
NH:
Trading is in line with tenanted/leased LFL profits down 11%, the same rate as at 30
May. Managed pub LFL sales are down 1.4%, implying a 2% decline in Q4. This is
partly due to disruption from changing unit management, but also from higher pricing: we believe margins have improved from -400bps in H1 to -250bps in H2, exiting the year at -200bps despite higher repair costs.
May. Managed pub LFL sales are down 1.4%, implying a 2% decline in Q4. This is
partly due to disruption from changing unit management, but also from higher pricing: we believe margins have improved from -400bps in H1 to -250bps in H2, exiting the year at -200bps despite higher repair costs.
Net debt down by over £1bn. We estimate this comprises £210m cash from
operations, nil tax and dividends, £400m disposal proceeds less £90m capex, £235m
profit from bond retirement (£708m reduction; £473m cost) and £350m of net equity
issue. The average discount on bond debt retirement was 33% (28% in Q4).
NH:
Disposals exceed expectations. In 2009E, Punch sold c750 tenanted/leased and c50
managed pubs for £400m (versus £250m forecast) at an average of 10x EBITDA. This was earnings accretive: the £40m disposed EBITDA (2010E: £29m leased; £11m
managed) was exceeded by £49m of related interest saving.
managed pubs for £400m (versus £250m forecast) at an average of 10x EBITDA. This was earnings accretive: the £40m disposed EBITDA (2010E: £29m leased; £11m
managed) was exceeded by £49m of related interest saving.
We are downgrading our 2010E forecast from £165m to £156m. Versus 2009E, we
still forecast 5% LFL profit decline in the tenanted/leased estate (£20m cost) in addition to which £40m of EBITDA has been sold, offset by £55m interest cost reduction.
The downgrade conservatively assumes that equity proceeds remain on deposit and that disposals become dilutive.
NH:
Aided by incremental debt reduction, our 160p target price would put Punch shares
on the same EV/EBITDA (9.0x 2010E) rating as the peer group, yet in comparison,
we believe Punch offers greater upside from disposals, estate quality improvement,
bond debt retirement and turning around the managed pub estate. Even if disposals
do become PBT dilutive, they are still likely to remain accretive to equity value
(above 8.3x EV/EBITDA) and earnings quality.
on the same EV/EBITDA (9.0x 2010E) rating as the peer group, yet in comparison,
we believe Punch offers greater upside from disposals, estate quality improvement,
bond debt retirement and turning around the managed pub estate. Even if disposals
do become PBT dilutive, they are still likely to remain accretive to equity value
(above 8.3x EV/EBITDA) and earnings quality.
NH:
and here’s another buy
NH:
from Altium
NH:
In the leased estate, there has been no material change to underlying performance since the interims with LFL pub contribution down c.11% (2008: -3.4%). Due to the difficult trading environment the group has focused on stabilising the performance by providing financial assistance to tenants of c.£1.6m per month. With variable weather conditions during the period we are encouraged that it appears the tenanted business may have hit its trough in terms of trading clearly supported by some significant support. The group now anticipate transferring a further 450 tenanted pubs into the “turnaround division”, which could well be disposed of over the medium term. This could take total group disposals to around 1600 pubs. The managed estate saw LFL sales improve in H2 resulting in a YoY decline of 1.4% (H1 2009: -2.3%; H2 2009 -0.6%). Operating margins declined 350 b.p’s (in line with our forecasts) which also implies an H2 improvement over the 400 b.p’s fall in H1.
NH:
Implications for estimates / valuation / recommendation: The group has had considerable success with disposals achieving in excess of £400m at an average multiple of not less than 10X EBITDA. This is significantly ahead of our £220m expectation. We believe that a further 800 are targeted for disposals excluding the 450 mentioned above. These funds have been diverted to buy back debt with £780m repaid during the period of which £698m was ahead of schedule at a cost of £473m (60% of par). Coupled with the £350m fund raise completed during the year, we feel confident that the group can repay its convertible by Dec 2010 and continue to buy back debt at below par. The results should provide confidence that Punch A and B will meet the required restrictive payments test. We are entering into a period where comparatives ease considerably and take encouragement that there are signs of the business stabilising. We reiterate BUY.
PM:
of course
PM:
that’s the reason they are up
NH:
things aren’t getting any worse
NH:
that’s it
NH:
anyway, here’s a more sceptical view
NH:
from Investec
NH:
Underlying trading is unchanged from the last update, but management has
provided a relatively downbeat assessment of trading prospects for the
sector. We share this view. For Punch, a healthy market for disposals and
recent equity placing has removed the immediate threat of a covenant breach
or refinancing issue, but we do not expect trading newsflow to materially
improve in the short term. This is key to a re-rating given the financial gearing
provided a relatively downbeat assessment of trading prospects for the
sector. We share this view. For Punch, a healthy market for disposals and
recent equity placing has removed the immediate threat of a covenant breach
or refinancing issue, but we do not expect trading newsflow to materially
improve in the short term. This is key to a re-rating given the financial gearing
NH:
Our view. The trading outlook for Punch and most of the sector remains
uncertain with VAT increases, public sector spending cuts and rising
unemployment in prospect for FY10. A healthy market for disposals and recent
equity placing has removed the immediate threat of a covenant breach or
refinancing crisis, but we do not expect trading newsflow to materially improve in
the short term. Our risk-adjusted DCF 100p target price is unchanged, as is our
Hold recommendation.
uncertain with VAT increases, public sector spending cuts and rising
unemployment in prospect for FY10. A healthy market for disposals and recent
equity placing has removed the immediate threat of a covenant breach or
refinancing crisis, but we do not expect trading newsflow to materially improve in
the short term. Our risk-adjusted DCF 100p target price is unchanged, as is our
Hold recommendation.
PM:
cheers
11:36AM
PM:
re ownership of the Bleeder.
PM:
Owned by a shrewd restauranteur called robert Wilson
PM:
expanded the Bleeder very careful — slowly taking control of Bleeding Heart yard
PM:
Been buying it up from De Beers I think — as they slowly pull out
PM:
he also owns the Don in St Swithns lane
NH:
(Guvnor – Dealreporter has nothing to do with us. Not even in the same building just owned by FT Group)
PM:
The Guv — we are under the same corporate umbrella as Dealreporter. that’s as far as it goes, editorially
11:40AM
PM:
You seen this avalanche of flotations coming our way?
NH:
IPOs? No.
PM:
There are – 115 listing applications.
NH:
No way.
PM:
Actually, I’m talking about China again
PM:
They’ve got this new competitor to AIM
PM:
The Growth Enterprise Market – all set to go late October
PM:
And apparently there are 115 applications which will be put in front of a new review committee.
NH:
christ
NH:
that should provide copy until Xmas
PM:
NH:
in fact well into the new year
NH:
just imagine some of the stuff that will list
PM:
China’s securities regulator set up Friday an initial public offering (IPO) review committee for its Growth Enterprise Market (GEM) which is expected to accept IPOs in late October.
The committee, consisting of 35 members, might start reviewing IPO applications in September, said an official with the China Securities Regulatory Commission (CSRC), who declined to be named.
Apart from 23 full-time members, the committee also has 12 part-time members. The experts are from the CSRC, Shanghai Stock Exchange, Shenzhen Stock Exchange, law offices, accountant offices as well as asset evaluation agencies.
The committee, consisting of 35 members, might start reviewing IPO applications in September, said an official with the China Securities Regulatory Commission (CSRC), who declined to be named.
Apart from 23 full-time members, the committee also has 12 part-time members. The experts are from the CSRC, Shanghai Stock Exchange, Shenzhen Stock Exchange, law offices, accountant offices as well as asset evaluation agencies.
PM:
The GEM IPO review committee is independent from the main board. That means the committee members are not allowed to take any positions with the main board approval committees.
The CSRC started to accept applications of the GEM July 26 and has accepted 115 applications for IPOs on the GEM. The commission was working hard to speed up the GEM IPO procedures, said the CSRC official.
The securities regulator said earlier the GEM would focus on six sectors this year, such as new energy, new materials, bio-pharmaceuticals, pro-environmental, new service and information technology.(Xinhua)
The CSRC started to accept applications of the GEM July 26 and has accepted 115 applications for IPOs on the GEM. The commission was working hard to speed up the GEM IPO procedures, said the CSRC official.
The securities regulator said earlier the GEM would focus on six sectors this year, such as new energy, new materials, bio-pharmaceuticals, pro-environmental, new service and information technology.(Xinhua)
PM:
It is the end of the West as we know it.
PM:
We always said we’d list Alphaville in Shenzhen
PM:
In Zim dollars
PM:
And now we really can do it.
PM:
We’re in one of the GEM focus sectors
PM:
new service and information technology
NH:
what do we come under then?
PM:
Come on – -its a spelling mistake — should be “news service”
PM:
AIM’s finished. And Nasdaq.
PM:
Best option is to go to Shenzhen and Shanghai and get yourselves an 80 per cent pop on day one.
PM:
lets mvoe on
NH:
can I have some pre-ipo stock before we list
NH:
at 0.1p
PM:
Sure — i mail Zoomy — the he might still be in St Trope
PM:
(SFB — dont think so — we re toasted
PM:
Lorcan — The Trading Room
PM:
Were a look if you are interested in exchanges, trading, settlement etc
PM:
Jeremy Grant here is developing a special page for coverage
PM:
Draws all FT matter into one palce
PM:
place
PM:
and provides some whizzy graphics
PM:
gp — good idea — multiple?
11:46AM
PM:
Any RAW neil
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
PM:
or small cap corner stuff
PM:
its that time of day
NH:
not really
NH:
bit light on that today
NH:
some interesting buying of National Express
NH:
just trying to figure out what the angle might be
NH:
PUSU is next month
NH:
11 Sept I think
NH:
and for the consortium to bid
NH:
a number of conditions have to be met
NH:
including the OFT giving their blessing to change of control on the rail franchises
NH:
anyway shares are up
National Express (NEX:LSE): Last: 393.70, up 12 (+3.14%), High: 394.40, Low: 381.40, Volume: 333.44k
NH:
some chatter on Central African Mining
NH:
about the Chinese offering to buy a 30% stake
NH:
and someone was asking about Indus Gas earlier
NH:
very interesting company
NH:
but had a hell of a run
NH:
doubled I think
NH:
here’s a bit of comment from house broker Arden Partners
NH:
Conclusion: This discovery further enhances the Indus story,
underlining the prospectivity of the shallower horizons in the company’s
Rajasthan block and paving the way for the possibility of enhanced
piped gas sales into Ramgarh. Beyond this, we continue to watch
deeper developments very closely, with the expected frac test on the
Indian Shingli-1 well in mid-September a key indicator of tight-gas
potential. Given the read-across from Pakistan, we are increasingly
convinced of the potential for the Indus block – both at the upper and
the deeper levels – and remain Buyers of Indus
underlining the prospectivity of the shallower horizons in the company’s
Rajasthan block and paving the way for the possibility of enhanced
piped gas sales into Ramgarh. Beyond this, we continue to watch
deeper developments very closely, with the expected frac test on the
Indian Shingli-1 well in mid-September a key indicator of tight-gas
potential. Given the read-across from Pakistan, we are increasingly
convinced of the potential for the Indus block – both at the upper and
the deeper levels – and remain Buyers of Indus
NH:
What has happened ? Indus has announced a discovery at the
Eastern Promise-1 well, 16.8km south of the core SGL field
development. Although too early to ascribe a resource figure, we
believe that this discovery is looking similar to SGL – and the operator
was able to make an extended four-hour flare test from the field during
initial open-well testing. The find has been made at the Pariwar
formation level, or c. 3,180m – the same horizon as other discoveries on
the Indus block.
Eastern Promise-1 well, 16.8km south of the core SGL field
development. Although too early to ascribe a resource figure, we
believe that this discovery is looking similar to SGL – and the operator
was able to make an extended four-hour flare test from the field during
initial open-well testing. The find has been made at the Pariwar
formation level, or c. 3,180m – the same horizon as other discoveries on
the Indus block.
NH:
Implications of this find ? Key here is that this is a useful distance
of step-out from the core SGL / SFT discovery area – underlining the
importance of the ongoing drilling effort being put in by the operator,
Focus, on the western segment of the block. Our impression is that, at
the Pariwar level, this zone of the Middle Indus basin is characterised
by a succession of discrete gas ‘pods’, each of c. 100s of bcf – and this
discovery reinforces that assumption. We would also look for evidence
of condensates (as also seen in Pakistan), which could be a useful
additional (and market-priced) product for Indus.
of step-out from the core SGL / SFT discovery area – underlining the
importance of the ongoing drilling effort being put in by the operator,
Focus, on the western segment of the block. Our impression is that, at
the Pariwar level, this zone of the Middle Indus basin is characterised
by a succession of discrete gas ‘pods’, each of c. 100s of bcf – and this
discovery reinforces that assumption. We would also look for evidence
of condensates (as also seen in Pakistan), which could be a useful
additional (and market-priced) product for Indus.
NH:
Given that the SGL project is now moving towards completion by
April 2010, including gas gathering, gas treatment and transmission (a
c. 90km GAIL pipeline to a key power plant in Ramgarh), Indus will, by
early 2010, have gas system infrastructure in place on its block. We
assume that, given the capacity expansion potential of the pipeline, that
it will be able to feed incremental gas volumes into the pipe – thus
ensuring an offtake mechanism for additional finds.
April 2010, including gas gathering, gas treatment and transmission (a
c. 90km GAIL pipeline to a key power plant in Ramgarh), Indus will, by
early 2010, have gas system infrastructure in place on its block. We
assume that, given the capacity expansion potential of the pipeline, that
it will be able to feed incremental gas volumes into the pipe – thus
ensuring an offtake mechanism for additional finds.
11:50AM
PM:
Cheers for all that
PM:
Shrewdie brokers are sending round these snaps
PM:
CHINA PLANNING CHIEF SAYS SERIOUS DROP IN EXTERNAL DEMAND POSES BIG
CHALLENGE CHINA PLANNING CHIEF SAYS GLOBAL ECONOMY STILL IN RECESSION,
RECOVERY TO BE SLOW
CHINA DOMESTIC DEMAND STILL NOT A STRONG ENOUGH DRIVER OF GROWTH
-PLANNING OFFL (FROM REUTERS)
CHINA PLANNING CHIEF SAYS SERIOUS DROP IN EXTERNAL DEMAND POSES BIG
CHALLENGE CHINA PLANNING CHIEF SAYS GLOBAL ECONOMY STILL IN RECESSION,
RECOVERY TO BE SLOW
CHINA DOMESTIC DEMAND STILL NOT A STRONG ENOUGH DRIVER OF GROWTH
-PLANNING OFFL (FROM REUTERS)
PM:
Seems to be why the market has dropped off a bit over last few mins
PM:
footsie down 20
PM:
China take
The Truth! Unvarnished. The price of rice always falls. Shanghai investors do not sell stocks. Torch protestors are vile.
NH:
hmmm
PM:
But the news story accompanying those snaps is completely contradictory
PM:
Saying economic recovery is clearn inChina
PM:
anyway…
NH:
so difficult to read this stuff coming out of China
NH:
as is my email
NH:
which has just crashed
NH:
may have to restart computer
11:53AM
PM:
What else
PM:
What’ Diageo doing?
PM:
Down a tad
PM:
reversed earlier move
PM:
Now off 5p at 957
PM:
there’s supposed to be a Bernstein note out – btu I haven’t seen it.
PM:
Upgrade
PM:
Also Normura are positive
PM:
Ahead of the figures – they are saying buy on any weakness
PM:
Ian Shackleton
PM:
What to do with the stock?
Although we acknowledge short-term concerns around spirits trading, we maintain our Buy recommendation and would look to buy into
weakness over the results. We believe Diageo’s predominantly mainstream portfolio should prove relatively resilient and that double
digit EPS growth can still be achieved in FY10 through a combination of cost cutting benefits and currency gains.
Although we acknowledge short-term concerns around spirits trading, we maintain our Buy recommendation and would look to buy into
weakness over the results. We believe Diageo’s predominantly mainstream portfolio should prove relatively resilient and that double
digit EPS growth can still be achieved in FY10 through a combination of cost cutting benefits and currency gains.
PM:
What could be positive?
Although company did not issue a Q4 trading statement we believe Q4 trading was better vs. Q3 (we est. Q4 revenues -3% vs.
-7% in Q3) with destocking being less of an issue. Underlying consumer offtake though, has been negative in Europe and
parts of Asia in Q4 with Africa trading positive and US still robust. While Q1 and Q2 of FY10 face tough comps, we believe cost
save moves (£120m targeted) and currency benefits (at least £150m, despite recent drift in US$) will help company deliver
double digit EPS growth in FY10. We believe that the company will target stable A&P spend in FY10 as it seeks to gain
market share in several key markets.
Announcement on 1st July indicated uplift in the FY10 cost saving benefit from GBP100m to GBP 120m. We see most of this
benefit in Europe, N America and corporate. In addition, further restructuring moves on supply operations (moving from 3
packaging centres to 2) in Scotland will deliver GBP 40m from FY12 and a longer-term benefit of GBP10m p.a. from lower
production costs on maturing stocks. We think that there could be scope for further savings moves should the trading outlook
deteriorate.
We estimate average overall coupon of c.6% in FY10 (vs. 6.5% in FY09) as company benefits from the lower cost on its
floating rate debt.
Although company did not issue a Q4 trading statement we believe Q4 trading was better vs. Q3 (we est. Q4 revenues -3% vs.
-7% in Q3) with destocking being less of an issue. Underlying consumer offtake though, has been negative in Europe and
parts of Asia in Q4 with Africa trading positive and US still robust. While Q1 and Q2 of FY10 face tough comps, we believe cost
save moves (£120m targeted) and currency benefits (at least £150m, despite recent drift in US$) will help company deliver
double digit EPS growth in FY10. We believe that the company will target stable A&P spend in FY10 as it seeks to gain
market share in several key markets.
Announcement on 1st July indicated uplift in the FY10 cost saving benefit from GBP100m to GBP 120m. We see most of this
benefit in Europe, N America and corporate. In addition, further restructuring moves on supply operations (moving from 3
packaging centres to 2) in Scotland will deliver GBP 40m from FY12 and a longer-term benefit of GBP10m p.a. from lower
production costs on maturing stocks. We think that there could be scope for further savings moves should the trading outlook
deteriorate.
We estimate average overall coupon of c.6% in FY10 (vs. 6.5% in FY09) as company benefits from the lower cost on its
floating rate debt.
PM:
What could be negative?
Spirits trading continues to remain volatile in many markets, but with most of the portfolio in the mainstream segment, we see
relative resilience here.
Company has previously set annual EBIT guidance with full year results but with the uncertain outlook it is possible that the
company does not provide guidance for FY10 until later in the year. For FY10, ex-cost saves, we model for flat organic EBIT
growth, but with cost saves we estimate organic EBIT growth of +4%.
Spirits trading continues to remain volatile in many markets, but with most of the portfolio in the mainstream segment, we see
relative resilience here.
Company has previously set annual EBIT guidance with full year results but with the uncertain outlook it is possible that the
company does not provide guidance for FY10 until later in the year. For FY10, ex-cost saves, we model for flat organic EBIT
growth, but with cost saves we estimate organic EBIT growth of +4%.
PM:
Neil has just rebooted
PM:
should be back in later
PM:
in fact he might be wiped out
PM:
The system has locked him out
PM:
Imagine how much fund AV would be if the kit worked
PM:
Or is it the other way round?
11:56AM
PM:
Monkey noting further cuts at Lloyds
PM:
I should also mention that on the RBS front
PM:
Reuters are dissing Sunny Tucker’s piece this morning, saying the sale of the Asian assets was struggling
PM:
Just see what happens there
PM:
We dont know of any other factor that has kept RBS above water this morning
NH:
OK
NH:
back in
NH:
what about
PM:
horray!
NH:
the Santander bond buyback
NH:
is that not good for RBS??
NH:
think we need to ask Jonathan Pierce at Credit Suisse
PM:
Indeed
NH:
and on Lamprell
NH:
someone was pushing them yesterday
NH:
I just can’t remember who
NH:
will try and dig it out
PM:
JW — on llloyds, nothign fresh
PM:
its a similar story to the Santander bond line
PM:
Lloyds idea perked up on the UBS/Swiss gov move
PM:
it’s jsut read-across as far as i can see
PM:
But im just guessing btw
12:01PM
NH:
right one final thing to mention
NH:
some movement in the capital goods sector this morning following the publication of a big note by Merrill Lynch
NH:
they are staying positive on the sector because there are too many positive factors to ignore
NH:
standard green shoot stuff I think
NH:
strong lead indicators, end to de-stocking, larger restructuring savings yet
to come and a market that still has an underweight position on the sector.
to come and a market that still has an underweight position on the sector.
NH:
and Merrill reckon investors should pile in now because a lot of the above will be reflected in share prices by the end of the year
NH:
that said analyst Mark Troman has downgraded a couple of names such as Cookson and Tomkins and Rotork,
NH:
but have upgraded Morgan Crucible, which is having a good morning
Morgan Crucible Co (MGCR:LSE): Last: 155.60, up 5.2 (+3.46%), High: 161.80, Low: 151.60, Volume: 558.78k
NH:
We think investors should remain overweight the sector for the remainder of 2009.
Time is running out as we feel a lot of the potential good news for the longer term
will be priced in by the end of the year, and by then consensus will be uniformly
bullish. There are too many positive factors to ignore in our view: (i) strong lead
indicator momentum, (ii) scope for industrial activity to rebound materially, (iii) an
end to de-stocking, (iv) resilient pricing trends, (v) larger restructuring savings yet
to come and (vi) a market that still has an underweight position on the sector.
Time is running out as we feel a lot of the potential good news for the longer term
will be priced in by the end of the year, and by then consensus will be uniformly
bullish. There are too many positive factors to ignore in our view: (i) strong lead
indicator momentum, (ii) scope for industrial activity to rebound materially, (iii) an
end to de-stocking, (iv) resilient pricing trends, (v) larger restructuring savings yet
to come and (vi) a market that still has an underweight position on the sector.
NH:
Lead indicator re-rating phase now mostly done
In our year-ahead n ‘Beyond the Abyss’(Jan 15th), we argued the sector could rerate
c.40% over 12 months as the ISM normalised from a low of 32 to the 50 or
zero growth level. Since January, the ISM has reached 48.9 and the sector has
risen by 40%+. With <10% upside to mid-cycle EV/sales and with the sector 12m
PE now 14-15x, we think the ISM driven re-rating story is now largely complete.
In our year-ahead n ‘Beyond the Abyss’(Jan 15th), we argued the sector could rerate
c.40% over 12 months as the ISM normalised from a low of 32 to the 50 or
zero growth level. Since January, the ISM has reached 48.9 and the sector has
risen by 40%+. With <10% upside to mid-cycle EV/sales and with the sector 12m
PE now 14-15x, we think the ISM driven re-rating story is now largely complete.
Phase II: Our average EPS is 15%+ ahead; could be more
We think the stock selection process has to now shift from re-rating to earnings
surprises. Lead indicators will soon tell us that growth is positive again. Given that
consensus estimates assume zero top-line growth in 2010, we would look for
stocks where there is significant upgrade potential and valuation multiples do not
already discount the upside. Overall, we have upgraded our 2010 forecasts by
10% and we are now 15%+ ahead of consensus. We think our forecasts are
potentially conservative as our growth outlook assumes little more than an end to
de-stocking in 2010. We think sector performance from here will be earnings
driven, and see around 20% upside to fair value over the next 12 months.
NH:
Upgrading 4 Stocks – Repositioning for growth
Our European Top Picks are ABB, Metso and MAN. We are also upgrading
Siemens and Atlas Copco from Neutral to BUY and SGL Carbon from
Underperform to BUY.
Our European Top Picks are ABB, Metso and MAN. We are also upgrading
Siemens and Atlas Copco from Neutral to BUY and SGL Carbon from
Underperform to BUY.
Among UK names, our top picks are Charter, Spectris, Invensys and Morgan
Crucible, which we have upgraded from Underperform to BUY.
Downgrading 7 Stocks: Taking some profits or less I.P driven
We are downgrading Alstom and Assa Abloy from BUY to Neutral and
Schneider from Neutral to Underperform.
In the UK, we are downgrading Cookson, Spirax-Sarco and Tomkins from BUY
to Neutral and downgrading Rotork from Neutral to Underperform.
NH:
sorry
NH:
we have not got anything on Cairn
NH:
right I am done
PM:
so am i
PM:
was just reading that BBC piece on multitaking
PM:
link posted by Monkey..
PM:
Basically, high multi-taskers tend to be rubbish
PM:
right — we’ve got to go
PM:
Stacy Marie is in town, btw
PM:
we should get here on here while she is over from NY
PM:
Mr J — Neil coldnt find the stuff. sorry
PM:
Right we are off
PM:
thanks for joining us to day
PM:
and thanks for all the comments
PM:
We wil lbe back tommorrow at 11.02 sharp
PM:
seeya
NH:
bye
NH:
Mr J
NH:
Lamprell results tomorrow. SBM Offshore (closest peer) was reassuring last week.
NH:
that was from Bryce
PM:
seeya