Markets live chat transcript for the chat ending at 12:03 on 8 Sep 2009. Participants in this chat were: Neil Hume, FT (NH) Miles Johnson, FT (MJ)
NH:
good morning
NH:
and welcome to Markets Live
NH:
FT Alphaville’s daily breeze through the markets
NH:
Miles is with us again today
MJ:
Morning all
NH:
Hello Miles
MJ:
you know this Cadbury bid has really upset a few people
NH:
really
NH:
who, shareholders?
MJ:
no traders
MJ:
forget all that stuff about M&A is back and the City is buzzing again
MJ:
every trader I have talked is seriously cheesed off
MJ:
Biggest deal in ages
MJ:
and there wasn’t even the slightest rumour on this one
MJ:
nothing at all
MJ:
and coupled with the fact that some people are short
MJ:
the mood out there is not very good out there
NH:
too true. a lot of depressed brokers at the moment
11:05AM
NH:
anyway, what’s the price action in Cadbury this morning?
NH:
while we are on the subject
MJ:
Up 1.9 per cent at 798p
NH:
right
NH:
so the market still betting on an increased offer from Kraft
MJ:
I think so. The idea of Nestle counter bidding seems to be cooling
NH:
what about Pepsi. I think they could be the dark horse
MJ:
That is an interesting idea
MJ:
that said, the idea also seems to be gathering momentum that Kraft don’t have a lot of ammo
MJ:
and they won’t be able to offer much more than 850p
NH:
which one would have to expect to be knocked back by Cadbury
MJ:
yes
MJ:
So, I can imagine a scenario where Cadbury survives and goes on to hook up with Hershey
MJ:
in fact Merrill has penned a good note on the financial constraints facing Kraft
NH:
can you paste
MJ:
sure
MJ:
A bid price of 850p would imply a 13.5x ‘09E EV/EBITDA excluding synergies,
which is marginally below other recent deals. Including the $625m synergies the
multiple reduces to just below 10x, approximately 10% above the sector multiple.
which is marginally below other recent deals. Including the $625m synergies the
multiple reduces to just below 10x, approximately 10% above the sector multiple.
Therefore from a Cadbury shareholders perspective an 850p bid would imply
receiving the full NPV of the $625m synergies plus fair value for the existing
stand-alone Cadbury business. Synergies are likely to be higher than the 6.5% of
sales, and could be as high as 10%. We emphasise that an 850p bid does not
include any control premium for what we view is a unique asset and brands.
MJ:
Why do we feel Kraft is unlikely to pay more than 850p?
Ex-competing bids we feel Kraft is unlikely to lift its offer materially above 850p as:
Ex-competing bids we feel Kraft is unlikely to lift its offer materially above 850p as:
?? In order to maintain an investment grade rating, any incremental funding for a
raised offer would have to be equity, making the transaction exponentially less
attractive to Kraft on short term earnings enhancement or WACC measures.
?? The risk remains that the Kraft share price declines when the US markets reopen
on Tuesday, reducing the value of the bid to Cadbury shareholders while
also making any increased (equity financed) offer more expensive to Kraft.
With a revised bid likely we lift our PO to 850p but stay Neutral, believing an
expectation of a higher bid is now reflected in Cadbury’s share price
NH:
hmm. we will have to keep watch on the Kraft price this afternoon
NH:
I reckon they could bomb
NH:
I don’t think enough has been done on Kraft’s financial position
NH:
a lot people just assume they can pay up because they are big
NH:
but the fundamentals don’t support that view
NH:
at least from what I have seen
NH:
anyway
NH:
we must move on
NH:
before we look at the wider market
NH:
it is FTSE reshuffle day
NH:
and here’s the latest runners and ridders
11:08AM
NH:
so
NH:
into the FTSE 100 at the moment go
NH:
SEGRO
WHITBREAD
RENTOKIL INITIAL
WHITBREAD
RENTOKIL INITIAL
NH:
and out come
NH:
BALFOUR BEATTY
PENNON GROUP
FOREIGN & COLONIAL
PENNON GROUP
FOREIGN & COLONIAL
NH:
into the FTSE 250 come
NH:
ST MODWEN PROPS.
TRINITY MIRROR
PARAGON GP.OF COS.
INTERNATIONAL PSNL.FIN.
IMAGINATION TECHNOLOGIES
AVIS EUROPE
INTL.FERRO METALS
LAIRD
TRINITY MIRROR
PARAGON GP.OF COS.
INTERNATIONAL PSNL.FIN.
IMAGINATION TECHNOLOGIES
AVIS EUROPE
INTL.FERRO METALS
LAIRD
NH:
that might explain why trinity were good last week
NH:
and out come
NH:
SDL
DUNEDIN INC.GROWTH
JPMORGAN EUROPEAN IT.
ABSOLUTE RETURN TRUST
EDINBURGH UK TRACKER
FISHER(JAMES)& SONS
MOUCHEL GROUP
GOLDMAN SACHS DYM.OPPS.
DUNEDIN INC.GROWTH
JPMORGAN EUROPEAN IT.
ABSOLUTE RETURN TRUST
EDINBURGH UK TRACKER
FISHER(JAMES)& SONS
MOUCHEL GROUP
GOLDMAN SACHS DYM.OPPS.
NH:
hope that helps
NH:
will be based on tonight’s closing prices
NH:
Whitbread just ahead of Investec in the race to go in
NH:
will be worth watching to see if there are any unusal movements
11:10AM
NH:
right, back to wider marlet
MJ:
up again
MJ:
closing in on 5,000
MJ:
and Murphy being stopped out
MJ:
FTSE 100 currently up 28 points to 4,961
NH:
so, with a following wind from Wall Street we could crack the psychologically important 5,000 level today
MJ:
yep
MJ:
this morning’s move is being fuelled by the miners, which are all up again
NH:
(Luther, Booker won’t make it because of some liquidity rule I think)
NH:
this is like Groundhog day
NH:
market up, miners up
MJ:
it is
Kazakhmys (KAZ:LSE): Last: 1,073, up 60 (+5.92%), High: 1,077, Low: 1,020, Volume: 1.54m
Antofagasta (ANTO:LSE): Last: 763.50, up 24.5 (+3.32%), High: 770.50, Low: 745.00, Volume: 886.39k
Vedanta Resources (VED:LSE): Last: 1,852, up 63 (+3.52%), High: 1,872, Low: 1,808, Volume: 794.93k
Rio Tinto (RIO:LSE): Last: 2,552, up 87.5 (+3.55%), High: 2,570, Low: 2,497, Volume: 3.27m
Xstrata (XTA:LSE): Last: 879.00, up 25 (+2.93%), High: 884.50, Low: 852.50, Volume: 4.81m
MJ:
apart from risk appetite I suspect the miners have been helped by Goldman increasing its commodity forecasts
MJ:
this came out a little earlier this morning
MJ:
We are raising price forecasts across the base metals
complex with the exception of zinc and remain most
constructive on copper relative to current price levels
complex with the exception of zinc and remain most
constructive on copper relative to current price levels
MJ:
Economic recovery likely to continue to support metals prices
Increasing evidence of a stronger-than-anticipated recovery in global
industrial activity is leading us to revise our price forecasts higher across
most of the base metals complex. With increasing signs and confidence
that the global economy is finally recovering from the severe downturn,
we expect investor expectations about continued future economic growth
will support prices across base metals as spare capacity gradually
disappears and the cost of production steadily climbs.
Increasing evidence of a stronger-than-anticipated recovery in global
industrial activity is leading us to revise our price forecasts higher across
most of the base metals complex. With increasing signs and confidence
that the global economy is finally recovering from the severe downturn,
we expect investor expectations about continued future economic growth
will support prices across base metals as spare capacity gradually
disappears and the cost of production steadily climbs.
MJ:
We remain most constructive on copper
We remain most constructive on copper – which has substantially
outperformed the other metals over the past month – given its higher
leverage to robust Chinese growth and limited spare production capacity.
We raise our end-2010 LME copper price forecast to $7650/mt from
$5800/mt. We remain least constructive on aluminum and nickel – which
have underperformed over the past month – given ample excess
production capacity to meet rising demand. Nevertheless, we raise our
aluminum and nickel price forecasts as we expect the global economic
recovery to drive marginal costs of production higher and motivate the
market to shift from pricing long-term supply destruction to pricing longterm
investment. Net, we now expect end-2010 aluminum and nickel
prices of $2050/mt and $18800/mt, respectively vs. $1950/mt and
$15200/mt previously. Although we remain modestly constructive on zinc,
we temper our positive view on concerns over a large Chinese supply
response and lower our end-2010 zinc forecast to $2170/mt from $2600/mt.
We remain most constructive on copper – which has substantially
outperformed the other metals over the past month – given its higher
leverage to robust Chinese growth and limited spare production capacity.
We raise our end-2010 LME copper price forecast to $7650/mt from
$5800/mt. We remain least constructive on aluminum and nickel – which
have underperformed over the past month – given ample excess
production capacity to meet rising demand. Nevertheless, we raise our
aluminum and nickel price forecasts as we expect the global economic
recovery to drive marginal costs of production higher and motivate the
market to shift from pricing long-term supply destruction to pricing longterm
investment. Net, we now expect end-2010 aluminum and nickel
prices of $2050/mt and $18800/mt, respectively vs. $1950/mt and
$15200/mt previously. Although we remain modestly constructive on zinc,
we temper our positive view on concerns over a large Chinese supply
response and lower our end-2010 zinc forecast to $2170/mt from $2600/mt.
MJ:
Closing our basket trade and opening a long copper trade
Our tempered views on zinc, combined with recent strong performance of
our long copper/zinc, short aluminum/nickel basket trade, are leading us to
take profits on the trade with a 25% gain. In line with our bullish copper
view, we are opening a long Dec10/Dec11 timespread trade
Our tempered views on zinc, combined with recent strong performance of
our long copper/zinc, short aluminum/nickel basket trade, are leading us to
take profits on the trade with a 25% gain. In line with our bullish copper
view, we are opening a long Dec10/Dec11 timespread trade
NH:
I we all know what happens when Goldman get behind a commodity
NH:
long copper it is then
NH:
thanks for that
MJ:
and of course there have been no shortage of brokers pushing their favourite gold stock this morning in the wake of price breaking $1,000
MJ:
for example
MJ:
GOLD TOUCHES $1000 – This is an important level for all the gold bugs and we expect the gold stocks to continue to run toady. In the gold sector we would like to highlight Avocet Mining (BUY TP 105p) as the cheapest stock in the sector trading on an NPV multiple of 0.8x. The stock could get a huge re-rating should it deliver on its Inata project in Burkina Fasso. The first gold pour is expected in the Q4. Randgold (BUY TP 5000p) trades on an NPV multiple of 1.8x and is the quality play in the sector while Peter Hambro (Reduce TP580p) is looking toppy on an NPV multiple of 2.2x. We suggest using the gold price rally to sell Peter Hambro as it is still cash negative despite the gold price.
GOLD TOUCHES $1000 – This is an important level for all the gold bugs and we expect the gold stocks to continue to run toady. In the gold sector we would like to highlight Avocet Mining (BUY TP 105p) as the cheapest stock in the sector trading on an NPV multiple of 0.8x. The stock could get a huge re-rating should it deliver on its Inata project in Burkina Fasso. The first gold pour is expected in the Q4. Randgold (BUY TP 5000p) trades on an NPV multiple of 1.8x and is the quality play in the sector while Peter Hambro (Reduce TP580p) is looking toppy on an NPV multiple of 2.2x. We suggest using the gold price rally to sell Peter Hambro as it is still cash negative despite the gold price.
MJ:
and this from Liberum
MJ:
Overnight resource markets up small, with silver (which continues to outperform gold) and lead (given Chinese govt. crackdown) the continued outperformers. Gold also remain v. strong, trading through the $1000/oz barrier ahead of the Denver Gold Forum on Monday – Peter Hambro still our preferred in the space on 10.0x PE, 3.4x sales, 5.6x EV / EBITDA 2010E. Note if we see continued strength in Goldfields in S. Africa, there remains the potential for Mvelaphanda to re-start the sale of its remaining c.5% stake. Major Asian resource/steel names up c.1% on average (Sterlite outperforming), Aussie majors up 2.1% reflecting the strength in the UK market yesterday. Iron ore exports from Port Hedland (Aus) were up 14% in August, up 31% more than a year earlier. Despite this freight rates continue to be subdued, as are iron ore fines/pellet and Chinese HRC prices. Chinese major stainless mills also cut prices overnight – Whilst it has been easy to look bullishly on ferrochrome volumes, the historical oversupply in the sector looks to be coming back as production picks up at the likes of Merafe and IFL in S. Africa. Next news in FeCr will be from International Ferro Metals on (interims Monday) and the Q4 price settlement – we are hearing there is push back on the 30c/lb price hike being demanded by the SA majors.
MJ:
Actually Liberum are also pushing diamonds plays
MJ:
Outside of PGMs the diamond market continue to be in focus with news yesterday/overnight that BHP & Rio are considering (an $850m) merging their Canadian diamond operations, as well as Kopane up 128% on the back of news of an (expected) diamond discovery. With diamond prices up off their April lows, it would be easier to countenance buying in to the beaten up small cap plays like Namakwa (-8% on 3 months vs Gem Diamonds which is up 56% over period), but with an overhang of large Russia inventories (Alrosa), it should be a volatile recovery.
NH:
Ah, Kopane
NH:
saw that stock yesterday
NH:
big volume
NH:
huge move
NH:
retail punters piling in
NH:
looks like the next muppet play
MJ:
yep, switch out of Gulf Keystone into Kopane
NH:
NH:
actually just looking at Kopane
NH:
guess where it’s based?
MJ:
Gulf per chance?
NH:
Carlyle House
235-237 Vauxhall Bridge Rd, London, SW1V
020 7963 9590
235-237 Vauxhall Bridge Rd, London, SW1V
020 7963 9590
MJ:
huh?
NH:
of course
NH:
it is not looking for diamonds there
NH:
Finland
NH:
and Lestho
NH:
I think this is the big play
NH:
* Located 120 kilometres ENE of capital Maseru at the Head of the Liqhobong Valley.
* Easily accessible from South Africa (360km to Johannesburg)
* 390 hectare mining lease containing five kimberlites (three yet to be extensively explored)
* Current operations:
o Satellite Pipe, surface area of 1.0 ha, grade 68 cpht, average value ~$40/carat
o Liqhobong Plant currently producing at a rate of 160,000 carats/year
o Main Pipe, surface area of 8.6ha, Pre Feasibility Study (“PFS”) complete, Definitive Feasibility Study (“DFS”) now underway with updated interim resource statement issued November 2008 and full study in 2009
* Production at Satellite Plant suspended on 1 December 2008 due to falling rough diamond prices
* 20 year full mining license for Main Pipe already secured
* Kopane owns 75% interest in Liqhobong Mining Development Company (“LMDC”) the local operator and license holder. The remaining 25% is owned by the Government of Lesotho (“GoL”).
* Easily accessible from South Africa (360km to Johannesburg)
* 390 hectare mining lease containing five kimberlites (three yet to be extensively explored)
* Current operations:
o Satellite Pipe, surface area of 1.0 ha, grade 68 cpht, average value ~$40/carat
o Liqhobong Plant currently producing at a rate of 160,000 carats/year
o Main Pipe, surface area of 8.6ha, Pre Feasibility Study (“PFS”) complete, Definitive Feasibility Study (“DFS”) now underway with updated interim resource statement issued November 2008 and full study in 2009
* Production at Satellite Plant suspended on 1 December 2008 due to falling rough diamond prices
* 20 year full mining license for Main Pipe already secured
* Kopane owns 75% interest in Liqhobong Mining Development Company (“LMDC”) the local operator and license holder. The remaining 25% is owned by the Government of Lesotho (“GoL”).
MJ:
Kopane up another 8 per cent to 17.5p this morning
NH:
and what of our old friend Gulf Keystone
NH:
not heard anything from them for what
NH:
a couple of weeks
NH:
surely time for another big Kurdish find
MJ:
They are 71p now
NH:
hmmm
NH:
I suspect a fund raising is on the cards there
11:18AM
NH:
just going back to the wider market for a moment
NH:
because there are just loads of bullish notes coming out from the strategists
NH:
Draaisma was telling clients yesterday afternoon to keep on buying
NH:
and now Andrew Garthwaite at Credit Suisse has increased his S&P 500 forecasts again
MJ:
Again? he only did that a couple of weeks back
NH:
I know
NH:
but the bulls are really in charge at the moment
MJ:
Rabble on the right might find it useful if you put some of that up
NH:
OK
NH:
here’s Teun from yesterday
NH:
A growth cycle is starting, we intend to buy on
weakness. We expect earnings to grow by 20% in 2010,
and M&A seems to be returning. After upgrading
equities in July, we would buy a bit more if MSCI Europe
falls 5-10% from its 28 August high, and start selling
again if it rises by 15%+, all things being equal.
weakness. We expect earnings to grow by 20% in 2010,
and M&A seems to be returning. After upgrading
equities in July, we would buy a bit more if MSCI Europe
falls 5-10% from its 28 August high, and start selling
again if it rises by 15%+, all things being equal.
Medium-term: range-trading for years to come, be
nimble and aim to identify the start of tightening.
We expect MSCI Europe to be in a broad range between
600 and 1200 (latest ~1000) for years, as is common in
the aftermath of secular bear markets. Serious
medium-term concerns remain, including deleveraging
and deteriorating government finances. Whether growth
/ inflation over- or undershoot will depend on
policymakers’ action. We expect a volatile stop-go
economic cycle in the next few years.
NH:
Near-term: the current equity rally has further to go.
The rebound rally should peak when the tightening cycle
starts (we expect the first Fed rate hike in Q3 2010). The
typical rebound rally in the aftermath of secular bear
markets has been 71% over 17 months, versus the
current rebound rally of less than 50% over 6 months
only. Our valuation measures versus rates look good
(e.g. CVI at -0.9), and sentiment is cautious (e.g., AAII
3-week moving average -7).
The rebound rally should peak when the tightening cycle
starts (we expect the first Fed rate hike in Q3 2010). The
typical rebound rally in the aftermath of secular bear
markets has been 71% over 17 months, versus the
current rebound rally of less than 50% over 6 months
only. Our valuation measures versus rates look good
(e.g. CVI at -0.9), and sentiment is cautious (e.g., AAII
3-week moving average -7).
NH:
and here’s Garthwaite
NH:
New targets: We introduce our mid-2010 S&P 500 target of 1,150 (our 2010 end-year target is 1,100). We stay overweight equities (having taken them down to benchmark in early June, and raised to overweight again on July 21):
NH:
This is the best phase of the economic cycle: GDP growth continues to be revised up (on the back of inventory rebuild, US housing turning, and signs that corporates over-shed labour and have under-invested, bank lending conditions are easing), yet inflation remains muted.
Earnings momentum is being revised up-and once it turns positive it usually stays so for eleven months. Earnings are being upgraded in spite of margins being at higher levels than at the troughs in previous recessions, due to extreme labour shedding and outsourcing of low-margin businesses. Our models estimate 20% and 18% 2010 EPS growth in the US and Europe.
NH:
Back to pre-Lehman levels: Many economic variables (ISM, consumer confidence) and market variables (VIX, investment grade credit spreads) are back to pre-Lehman levels, when the S&P 500 was at 1,250.
Valuations are not demanding on long-term measures: The P/E on trend reported earnings is 16.1x, only slightly above the long-term average. The equity risk premium is 4.6% on trend reported earnings, above its long-term average of 3.6%. On consensus operating earnings (on which the market might well be focusing), the ERP is 5.5%. Assuming that the ISM goes to 57 and credit spreads go to 250bps, the warranted ERP is 4.5%.
NH:
Only 53% of the announced QE has been implemented. As more is implemented, part of the additional liquidity is likely to end up in equities.
We do not exclude a period of near-term consolidation, given that some of our tactical indicators are sending a signal of caution (corporate net selling is high and market breadth is relatively poor). Yet, other indicators suggest it is too early to sell: risk appetite peaks six weeks after it hits euphoria; equity sentiment is in line with its average; insider buying is low but this was the same in 2004.
The time to go underweight strategically is when we get the second leg down of a W-shaped recovery, caused by: a) the Fed raising rates (unlikely until 2H 2010E); b) a funding crisis (unlikely until bank loan growth rises strongly, again not until 2H 10E); or c) China is clearly overheating (2011E).
MJ:
NH:
oh and I have just been pinged something from Merrill Lynch
NH:
guess what?
NH:
they are bullilsh too
NH:
1,200 target on the S&P now
NH:
hurry
NH:
buy while stocks last
NH:
SETQ marches further into bullish territory
This month’s SETQ reading of conditions in the US equity market rose by 7 points
to 69 out of 100, on the back of last month’s 14-point jump. Currently, 9 of our 16
component indicators suggest that the bottom is behind us, with only 2 continuing
to signal caution. This bullish reading, despite the market’s 50% recovery from the
March low, also supports our recently established S&P 500 12-month price target
of 1200.
This month’s SETQ reading of conditions in the US equity market rose by 7 points
to 69 out of 100, on the back of last month’s 14-point jump. Currently, 9 of our 16
component indicators suggest that the bottom is behind us, with only 2 continuing
to signal caution. This bullish reading, despite the market’s 50% recovery from the
March low, also supports our recently established S&P 500 12-month price target
of 1200.
This month’s improvements were in Economics and Quant
We continue to see rapid improvement across all disciplines. This month, Housing
Inventory (Economics) was upgraded from Neutral to Positive, while Estimate
Dispersion (Quantitative) was upgraded from Negative to Neutral. All of the BASML
macro disciplines are currently net positive, with the exception of Quantitative
Strategy, for which is now net neutral (see table below
11:21AM
NH:
Okay
NH:
enough of the fundamental stuff
NH:
time for a bit of 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:
Good rumour going ’round about BA
NH:
One for the shorts this…
NH:
Tracy passed it on this morning
NH:
Remember back in July when CEO Willie Walsh was talking about BA “fighting for survival”?
MJ:
That was before the convertible
NH:
Someone seems to have taken his word for it
NH:
Namely one of BA’s banks
NH:
And they’ve withdrawn BA’s facility
NH:
One of BA’s facilities, anyway
NH:
That’s the rumour
NH:
and one we should say that BA is shooting down
MJ:
And the shares are up
British Airways (BAY:LSE): Last: 204.00, up 11.2 (+5.81%), High: 204.00, Low: 192.30, Volume: 8.42m
11:24AM
NH:
what else have we got RAW wise
NH:
actually
NH:
I am picking up talk that someone is running the slide rule over Cobham
NH:
someone in Europe
NH:
the Italians have been linked in the past
Cobham (COB:LSE): Last: 209.60, no change, High: 210.50, Low: 208.00, Volume: 1.19m
MJ:
Some stuff coming out of Germany today
MJ:
Talk of a Deutsche Bank rights issue was weighing on its shares
MJ:
Rumour was going around an hour or so before this came out
MJ:
ACKERMANN SEES RISING NUMBER OF CAPITAL INCREASES IN BANKING
*ACKERMANN SAYS CORE CAPITAL REQUIREMENT SHOULD BE 8% 
BK GY
*DJ Deutsche Bank CEO: Banks Will Need More Capital
Ackermann Says Hopes Sal. Oppenheim Talks Have ‘Good End’
*ACKERMANN DECLINES TO COMMENT ON WHETHER HE WANTS MAJORITY
*ACKERMANN SAYS `VERY INTERESTED’ IN SAL. OPPENHEIM BK GY
*DJ Deutsche Bank CEO: Very Interested In Sal Oppenheim
*ACKERMANN SAYS HOPES SAL. OPPENHEIM TALKS HAVE `GOOD END’
*DJ Alpha Bank to Price Bond At Swaps +1.90 Area
*DJ Alpha Bank Plans 3Yr Euro Benchmark Bond
*DJ Deutsche Bk:Planning Steps With Sal Oppenheim In Next Wks
*ACKERMANN: TO ANNOUNCE `NEXT STEPS’ ON SAL. OPPENHEIM IN WEEKS
NH:
Not quite sure how DB are going to pay for the Sal Oppenheim stake. Mr Ackermann appears to be brimming with confidence though.
NH:
although
NH:
didn’t Caz issue a note a few weeks back
NH:
about Deutsche doing a run raising?
MJ:
Fund raising you mean
NH:
I do
NH:
just looking for the note
NH:
bear with me
NH:
can’t find it
MJ:
Elsewhere in Germany
MJ:
Hiedelberg Cement are rumoured to be announcing capital raise after the close today
MJ:
Off the back of reports in the German press over the weekend
MJ:
They were reporting that the company had got Deutsche Bank and Morgan Stanley to run some sort of capital increase
MJ:
Flaky rumour going round today is that they will raise between €1bn to a €1.9bn, priced at around €33
NH:
I thought Hiedelberg was bust
NH:
didn’t they pay a fortune for Hanson at the top of the market?
MJ:
And they have the banks owning the Merkle stake
MJ:
Seems a wierd one to me
NH:
Merkle being the guy who committed suicide
11:30AM
NH:
back to Deutsche for a mo
NH:
I have that Caz
NH:
note
NH:
Deutsche Bank – [DBK GY; DBKGn.DE], €49, IN-LINE, Sector: NEUTRAL
Recent placings by competitors have been heavily subscribed, demonstrating the environment for raising capital remains strong. While DBK is not in immediate need of equity, a buyout of Postbank could change this, while its interest in Sal Oppenheim could also pressure capital ratios. While not our base case, we think the chances of an opportunistic share placement are rising. In the near term, we believe the prospect may weigh on the company’s valuation.
Recent placings by competitors have been heavily subscribed, demonstrating the environment for raising capital remains strong. While DBK is not in immediate need of equity, a buyout of Postbank could change this, while its interest in Sal Oppenheim could also pressure capital ratios. While not our base case, we think the chances of an opportunistic share placement are rising. In the near term, we believe the prospect may weigh on the company’s valuation.
NH:
Sal Oppenheim
DBK is currently in talks to acquire a stake in Sal Oppenheim. It has already financed a capital injection made by the existing shareholders earlier this month via a €300m loan.
There are no details on the likely size of the stake but we think DPB could be the template with an intial >20% stake securing options for a move to majority control at a later date.
Sal Oppenheim currently has equity of €2.1bn and a 13.3% tier 1 ratio. We expect any stake purchase by DBK would aim to increase the tier 1 ratio closer to peer levels (eg Julius Baer on 16.7%). On this basis, we think an investment of €0.5-0.6bn is possible.
DBK is currently in talks to acquire a stake in Sal Oppenheim. It has already financed a capital injection made by the existing shareholders earlier this month via a €300m loan.
There are no details on the likely size of the stake but we think DPB could be the template with an intial >20% stake securing options for a move to majority control at a later date.
Sal Oppenheim currently has equity of €2.1bn and a 13.3% tier 1 ratio. We expect any stake purchase by DBK would aim to increase the tier 1 ratio closer to peer levels (eg Julius Baer on 16.7%). On this basis, we think an investment of €0.5-0.6bn is possible.
NH:
Capital implications
Sal Oppenheim is unlikely to have major balance sheet implications but could be marginally negative for tier 1 (we estimate c.-10bps for a €0.6bn investment / 25% stake).
DPB is potentially much more material. A move to majority ownership would require full consolidation rather than the current equity accounting and would incur more onerous tier 1 treatment. The current minority stake resulted in a negative tier 1 impact of ~40bps whereas we calculate a move to full ownership would reduce tier 1 by ~180bps since it would trigger both goodwill recognition and the consolidation of DPB’s risk-assets.
Taken together, we estimate a minority position in Sal Op and majority ownership of DPB could result in DBK’s tier 1 ratio falling to close to 9%, below management’s 10% target. Equity leverage on the company’s definition would increase to 28x on our estimates against a 25x target.
To raise tier 1 back above 10% and lower leverage back to target would require additional equity of ~€5bn, we calculate. Management has authority to place ~€3bn without preemption rights. Allowing for the additional earnings from the increased DPB stake/participation in Sal Oppenheim, we estimate a capital raise at this level would be modestly EPS dilutive initially (~10% pre-synergies) and TNAV neutral.
Sal Oppenheim is unlikely to have major balance sheet implications but could be marginally negative for tier 1 (we estimate c.-10bps for a €0.6bn investment / 25% stake).
DPB is potentially much more material. A move to majority ownership would require full consolidation rather than the current equity accounting and would incur more onerous tier 1 treatment. The current minority stake resulted in a negative tier 1 impact of ~40bps whereas we calculate a move to full ownership would reduce tier 1 by ~180bps since it would trigger both goodwill recognition and the consolidation of DPB’s risk-assets.
Taken together, we estimate a minority position in Sal Op and majority ownership of DPB could result in DBK’s tier 1 ratio falling to close to 9%, below management’s 10% target. Equity leverage on the company’s definition would increase to 28x on our estimates against a 25x target.
To raise tier 1 back above 10% and lower leverage back to target would require additional equity of ~€5bn, we calculate. Management has authority to place ~€3bn without preemption rights. Allowing for the additional earnings from the increased DPB stake/participation in Sal Oppenheim, we estimate a capital raise at this level would be modestly EPS dilutive initially (~10% pre-synergies) and TNAV neutral.
NH:
Conclusions
DPB is the main swing factor, in our view. A move to full ownership is inevitable, the only question being timing. The structure of the deal with Deutsche Post means DBK has an incentive to expedite the minority buyout. This will require more capital. Management may decide to wait until closer to 2012 and we think this remains the more likely outcome. But an earlier move is possible and may have become more likely with DPB’s recent share price recovery as well as the currently conducive environment for equity issuance. DBK has underperformed recently (-20% over 1 month), largely, we think, on issues related to the Q2 numbers. But we feel the prospect of M&A and share issuance may also put a cap on performance in the near-term. On our valuation, the stock trades on 8.7x 2009E PER (CS 9.8x) and 1.4x P/TNAV (CS 2.6x, UBS 2.5x).
DPB is the main swing factor, in our view. A move to full ownership is inevitable, the only question being timing. The structure of the deal with Deutsche Post means DBK has an incentive to expedite the minority buyout. This will require more capital. Management may decide to wait until closer to 2012 and we think this remains the more likely outcome. But an earlier move is possible and may have become more likely with DPB’s recent share price recovery as well as the currently conducive environment for equity issuance. DBK has underperformed recently (-20% over 1 month), largely, we think, on issues related to the Q2 numbers. But we feel the prospect of M&A and share issuance may also put a cap on performance in the near-term. On our valuation, the stock trades on 8.7x 2009E PER (CS 9.8x) and 1.4x P/TNAV (CS 2.6x, UBS 2.5x).
NH:
I have some more to say on the banks
NH:
especially Lloyds
NH:
if a few moments
NH:
but first
NH:
Miles has a bit of small cap RAW
NH:
buyer beware and all that
NH:
Nothing like a bit of small caps related RAW to bring everyone back down to earth after all that Kradburys excitement .
NH:
Weren’t you getting some calls yesterday on Central African Mining?
MJ:
Yup. Former England cricketer Phil Edmond’s Central African Mining that is. Surprisingly large company – 500m market cap
NH:
Company is obviously in a takeover period at the moment.
NH:
After this
NH:
Statement re possible offer
CAMEC notes the recent speculation concerning a possible offer for the entire share capital of CAMEC.
CAMEC confirms that it has received preliminary approaches concerning a possible offer for the entire issued and to be issued share capital of the Company. These preliminary approaches may or may not lead to an offer being made for the Company.
This announcement has not been made with the agreement or approval of the potential offerors and there can be no certainty that an offer will be made or as to the terms on which any offer might be made.
CAMEC notes the recent speculation concerning a possible offer for the entire share capital of CAMEC.
CAMEC confirms that it has received preliminary approaches concerning a possible offer for the entire issued and to be issued share capital of the Company. These preliminary approaches may or may not lead to an offer being made for the Company.
This announcement has not been made with the agreement or approval of the potential offerors and there can be no certainty that an offer will be made or as to the terms on which any offer might be made.
NH:
which I believe we triggered
NH:
MJ:
The words “miner”, “former England cricketer” and “China Investment Corporation” never inspire confidence.
NH:
no
MJ:
But people who should know say the talks are now in advanced stages, and while its not yet a done deal there are three parties in active talks
MJ:
One person said that they had rejected an offer from the Chinese, China Investment Corporation to be precise, for 30 per cent of the company.
MJ:
Offer appernetly came in at around 30p a fortnight ago
MJ:
Vale and ENRC are meant to be the other two in the mix. Some people were even expecting an offer pitched “in the late 20’s” to come later this week or early next week
MJ:
That is pence by the way
MJ:
But I am hearing that sort of schedule is a getting a little ahead of things. Numbers will have been discussed but things are still at the talking phase, albeit at a serious stage
NH:
What are the shares doing?
MJ:
Up 5.5 per cent at 19.25p
NH:
Thanks for that.
11:34AM
MJ:
But you know what
MJ:
This Cadbury deal has several sector analysts panting this morning. Fantasy M&A overload
NH:
really
MJ:
Ian Shackleton over at Nomura reckons we could see a round of beer industry consolidation, and that “many of the Cadbury deal rationales cited by Kraft do have relevance for some operators in global beer
NH:
Ah, Shackleton. good analyst.
MJ:
The idea is that there is a similar dynamic to the Kraft offer work for SABMiller.
MJ:
Just as Kraft fell behind Mars after it bought Wrigley, SAB was the once the biggest in the beer game but has since been dwarfed by Anheuser InBev
NH:
So Nomura reckon SABMiller will be lured into the market sooner or later.
NH:
Have you got any of that?
MJ:
Coming right up
MJ:
Beverages: M&A landscape revisited
Sector Rating: Neutral
As we set out in our Profit pool analysis (1 July), we believe beer still offers strong growth potential for
companies in the right markets, and for many companies restructuring programmes are continuing to provide
EPS momentum, despite the slowdown in top-line growth. For companies like ABI and Carlsberg, which have
large exposure to strong profit pool growth, we see minimal need for acquisitions in the short to medium term;
however, we see many of the Cadbury deal rationales cited by Kraft do have relevance for some operators in
global beer. We would expect beer consolidation to continue as medium-size groups around the world look to
widen their footprint (eg, Kirin, Asahi) and as some of the larger operators seek to improve their country
weightings (eg, Heineken, SABMiller). For spirits, we see the slowdown in recent M&A as indicative that sellers’
valuations appear to have remained high in the last year since the V&S transaction (21x EBITDA), despite the
slowing fundamentals, and buyers have been unwilling to deal on this basis. A key question for spirits
profitability, and for M&A valuation, is who is right here, the buyer or the seller? In addition, many spirits
companies, eg, Pernod and Campari, are highly leveraged after recent acquisitions and no longer have the
firepower for deals.
Sector Rating: Neutral
As we set out in our Profit pool analysis (1 July), we believe beer still offers strong growth potential for
companies in the right markets, and for many companies restructuring programmes are continuing to provide
EPS momentum, despite the slowdown in top-line growth. For companies like ABI and Carlsberg, which have
large exposure to strong profit pool growth, we see minimal need for acquisitions in the short to medium term;
however, we see many of the Cadbury deal rationales cited by Kraft do have relevance for some operators in
global beer. We would expect beer consolidation to continue as medium-size groups around the world look to
widen their footprint (eg, Kirin, Asahi) and as some of the larger operators seek to improve their country
weightings (eg, Heineken, SABMiller). For spirits, we see the slowdown in recent M&A as indicative that sellers’
valuations appear to have remained high in the last year since the V&S transaction (21x EBITDA), despite the
slowing fundamentals, and buyers have been unwilling to deal on this basis. A key question for spirits
profitability, and for M&A valuation, is who is right here, the buyer or the seller? In addition, many spirits
companies, eg, Pernod and Campari, are highly leveraged after recent acquisitions and no longer have the
firepower for deals.
MJ:
Having slipped from joint no. 1 in global beer to half the size of ABI, we continue to see SABMiller as an acquirer
of assets; given the history of acquisitions here, we believe the market could warm to an emerging market deal
(such as Femsa or Anadolu Efes if family shareholders were to agree) but could be sceptical about a mature
market deal such as Fosters or Molson-Coors.
For Heineken, we believe the company needs to widen its geographical footprint to find better long-term growth;
given its high leverage and controlled share structure, M&A opportunities may be restricted, and we see this is
more likely to be accomplished through a merger. We believe this could include merging with a spirits company
such as Diageo, which would ensure that the company is at the endgame in global beer.
For Diageo with its relative low leverage, there are still buying opportunities in spirits, such as Moet-Hennessy,
possibly the Jim Beam brand out of Fortune Brands or the Jose Cuervo tequila brand, but only if the seller’s idea
of valuation comes down. Without that, we see Diageo continuing to pursue its TBA (Total Beverage Alcohol)
objective in the medium term and seeking a large alliance with a beer company such as Heineken or SABMiller.
We see Remy Cointreau as at risk of breaching its debt covenants and with large business risk following the
distribution changes made earlier this year; however, we suspect there would have to be further deterioration
before family shareholders decide to sell, and we do not see a large list of possible buyers.
On the basis of fundamental trading, our preferred stocks in the beverage space continue to be ABI (Buy),
Carlsberg (Buy) and Diageo (Buy) among the large market cap companies, and Britvic (Buy) among the midcaps.
of assets; given the history of acquisitions here, we believe the market could warm to an emerging market deal
(such as Femsa or Anadolu Efes if family shareholders were to agree) but could be sceptical about a mature
market deal such as Fosters or Molson-Coors.
For Heineken, we believe the company needs to widen its geographical footprint to find better long-term growth;
given its high leverage and controlled share structure, M&A opportunities may be restricted, and we see this is
more likely to be accomplished through a merger. We believe this could include merging with a spirits company
such as Diageo, which would ensure that the company is at the endgame in global beer.
For Diageo with its relative low leverage, there are still buying opportunities in spirits, such as Moet-Hennessy,
possibly the Jim Beam brand out of Fortune Brands or the Jose Cuervo tequila brand, but only if the seller’s idea
of valuation comes down. Without that, we see Diageo continuing to pursue its TBA (Total Beverage Alcohol)
objective in the medium term and seeking a large alliance with a beer company such as Heineken or SABMiller.
We see Remy Cointreau as at risk of breaching its debt covenants and with large business risk following the
distribution changes made earlier this year; however, we suspect there would have to be further deterioration
before family shareholders decide to sell, and we do not see a large list of possible buyers.
On the basis of fundamental trading, our preferred stocks in the beverage space continue to be ABI (Buy),
Carlsberg (Buy) and Diageo (Buy) among the large market cap companies, and Britvic (Buy) among the midcaps.
NH:
Interesting take that.
MJ:
Then there is this from Citi on UK asset management M&A
MJ:
M&A Making a Comeback — We expect M&A activity to stay focused on banks
selling asset management arms, and see strongly capitalised independents such as
Schroders and Man Group best placed to take advantage of this.
Top Pick — Schroders is our top pick due to its rising revenue margins, strong
operational leverage, and potential to take part in industry M&A and make an
earnings-enhancing acquisition. We rate the stock Buy/Medium Risk (1M) with
price targets of 1230p for the Voting shares and 1050p for the Non-Voting shares
selling asset management arms, and see strongly capitalised independents such as
Schroders and Man Group best placed to take advantage of this.
Top Pick — Schroders is our top pick due to its rising revenue margins, strong
operational leverage, and potential to take part in industry M&A and make an
earnings-enhancing acquisition. We rate the stock Buy/Medium Risk (1M) with
price targets of 1230p for the Voting shares and 1050p for the Non-Voting shares
NH:
thanks for that
NH:
lets give people a few moments to digest all that
NH:
you have been very busy this morning miles
11:38AM
NH:
Right
NH:
we have to look at the banks
NH:
in particular Lloyds
NH:
but first
NH:
this just flashed up on Reuters
NH:
RTRS-MORGAN STANLEY EXPECTS US BANKS TO REACH NORMALIZED EARNINGS IN 2012 & PERHAPS SOONER FOR JPMORGAN, FIRST HORIZON, HUDSON CITY
11:36 08Sep09 RTRS-MORGAN STANLEY RECOMMENDS GOING LONG ON US BANKS, BUT SAYS AVOID THOSE WITH HEAVY CRE EXPOSURE
11:37 08Sep09 RTRS-MORGAN STANLEY CONTINUES TO RECOMMEND INVESTORS SELECTIVELY BUILD POSITIONS IN MIDCAP AND LARGE-CAP BANKS
11:36 08Sep09 RTRS-MORGAN STANLEY RECOMMENDS GOING LONG ON US BANKS, BUT SAYS AVOID THOSE WITH HEAVY CRE EXPOSURE
11:37 08Sep09 RTRS-MORGAN STANLEY CONTINUES TO RECOMMEND INVESTORS SELECTIVELY BUILD POSITIONS IN MIDCAP AND LARGE-CAP BANKS
MJ:
So more people turning bullish on banks
NH:
yep
NH:
not as bullish as Alastair Ryan and John Paul Crutchley at UBS
NH:
seen what they have put out on lloyds
NH:
200p price target
NH:
on fundamentals
MJ:
what!
MJ:
on what basis?
NH:
hang on
NH:
let me dig out the note
NH:
Fundamentally undervalued – but who gets the upside?
On the basis of normalised earnings, around two years out, we see Lloyds as worth around 180p-200p/share, making the company worth around £80bn. In our view, the debate around the APS comes down to how this value is carved up between the UK Government and private shareholders.
Issuing stock to the UK Government was an easy call when the shares were
a.round 50p but brings the dilution debate into sharper relief with the stock above 105p.
On the basis of normalised earnings, around two years out, we see Lloyds as worth around 180p-200p/share, making the company worth around £80bn. In our view, the debate around the APS comes down to how this value is carved up between the UK Government and private shareholders.
Issuing stock to the UK Government was an easy call when the shares were
a.round 50p but brings the dilution debate into sharper relief with the stock above 105p.
NH:
Preference conversion adds an interesting option
Until recently, market debate has focussed upon Lloyds potentially selling assets and/or simply issuing new equity as an alternative to full participation in the APS.
Until recently, market debate has focussed upon Lloyds potentially selling assets and/or simply issuing new equity as an alternative to full participation in the APS.
Conversion of preference
shares into equity would be interesting as it would potentially be accretive to book value while diluting the UK government stake. APS benefits largely transitory
The benefits of the APS are in the risk asset relief (that Lloyds will generate in time as legacy assets run-off) coupled with tail-risk protection on the HBOS loan book (which Lloyds may no longer need). The benefits of a stand alone strategy through higher longer-term capital ratios as the company avoids the amortisation of the APS fee of £15.6bn (£11bn after tax).
NH:
Valuation adjusted to include potential refinement of APS
Non-payment of the APS fee is equivalent to about 30p/share. We add 1/3 of this to our existing price target of 120p moving it to 130p.
Non-payment of the APS fee is equivalent to about 30p/share. We add 1/3 of this to our existing price target of 120p moving it to 130p.
MJ:
I don’t get this
MJ:
every paper I pick is telling me banks need more capital
MJ:
that they need to replace tier 2 debt
MJ:
so, they need to raised billions more – aside from any APS stuff
MJ:
the government has big stakes, which they could look to sell
MJ:
and yet
MJ:
they keep rising
NH:
actually on that note I hear Stephen Hester at RBS
NH:
is about to go on a roadshow, or is on a roadshow
NH:
and one messages coming out of meeting is that govt could be about to offload some of its holding
MJ:
But the shares just keep moving higher
NH:
I know
NH:
mental isn’t it
NH:
the lex note was spot on this morning
NH:
if you have not seen it
NH:
here’s a taster
NH:
o more funny money. Last Thursday, US Treasury secretary Timothy Geithner said banks needed more capital – yet bank stocks rallied. This weekend, G20 finance ministers repeated the same – adding the capital had to be higher quality, with lower pay-outs. Yet bank stocks have continued to rally.
Although the G20 has pledged to keep pumping in the stimulus, markets seem to be missing a trick. Bank share prices should be falling. Higher tier one capital ratios would shrink returns on equity. If banks have to hold a couple of extra cents for every dollar or euro that they generate, profitability will suffer. Even fat years could be lean if buffers have to be built up in them
NH:
anyway Lloyds are up
Lloyds Banking Group (LLOY:LSE): Last: 108.89, up 2.58 (+2.43%), High: 110.55, Low: 107.50, Volume: 45.11m
NH:
what are Barclays doing?
NH:
has that fine had any impact
MJ:
Well this came this came out earlier
MJ:
FSA fines Barclays £2.45m for failures in transaction reporting
The Financial Services Authority (FSA) has fined Barclays Capital Securities Ltd and Barclays Bank PLC (Barclays) £2.45m for failing to provide accurate transaction reports to the FSA and for serious weaknesses in systems and controls in relation to transaction reporting.
Firms are required to submit data for reportable transactions by close of business the day after a trade is executed. The FSA uses this data to detect and investigate suspected market abuse: insider trading and market manipulation.
The FSA discovered discrepancies in Barclays’ data while reviewing a suspected incident of market abuse by a third party. A subsequent review of Barclays’ transaction reporting arrangements revealed that it did not have adequate systems and controls in place to meet the transaction reporting requirements as well as a substantial number of errors in the data submitted to the FSA.
The Financial Services Authority (FSA) has fined Barclays Capital Securities Ltd and Barclays Bank PLC (Barclays) £2.45m for failing to provide accurate transaction reports to the FSA and for serious weaknesses in systems and controls in relation to transaction reporting.
Firms are required to submit data for reportable transactions by close of business the day after a trade is executed. The FSA uses this data to detect and investigate suspected market abuse: insider trading and market manipulation.
The FSA discovered discrepancies in Barclays’ data while reviewing a suspected incident of market abuse by a third party. A subsequent review of Barclays’ transaction reporting arrangements revealed that it did not have adequate systems and controls in place to meet the transaction reporting requirements as well as a substantial number of errors in the data submitted to the FSA.
NH:
whoops
MJ:
Its obviously time consuming becoming a top three investment bank
NH:
indeed
11:45AM
NH:
Okay
NH:
moving on
NH:
from one mad situation to another
NH:
seen Yell?
NH:
taken off again this morning
MJ:
amazing
MJ:
Up 7.1p at 60.5p
MJ:
what’s triggered that?
NH:
short sellers throwing in the towel, I think
NH:
still waiting to get the exact level of short interest from DataExplorers
NH:
but a lot of people are buying back
NH:
they have given up betting against Yell even though it needs a huge cash call
NH:
its business model is crumbling
MJ:
Haven’t Caz issued a note on them today?
NH:
they have
NH:
and I think that’s what spooked a lot people
NH:
they reckon Yell will keep on rising in the event of capital increase
NH:
Yell [Yell.l, Yell ln] 53p Stock – In Line
Although Yell has bounced c75% over the last month we believe the share price could still see further upside on a successful re-financing of the balance sheet and confirmation that trading conditions are gradually improving.
Reflecting the recent share price move, execution risk and continued trading uncertainty we do, however, remain on In-Line until visibility improves on both the timing and terms of the group’s re-financing.
Although Yell has bounced c75% over the last month we believe the share price could still see further upside on a successful re-financing of the balance sheet and confirmation that trading conditions are gradually improving.
Reflecting the recent share price move, execution risk and continued trading uncertainty we do, however, remain on In-Line until visibility improves on both the timing and terms of the group’s re-financing.
NH:
but here’s the jey bit
NH:
did not think Yell could raise enough equity to make a real difference
NH:
I thought it would just allow them to live on as a zombie company
NH:
but Caz says I am wrong
MJ:
NH:
they are looking for a £625m to £725m cash call
NH:
which would take debt net debt to ebitda to around 4.4 times
NH:
and because Yell is soooooo cash generative it can live with that amount of debt
NH:
and prosper
MJ:
yeah, right
NH:
here’s the key pars from the Caz piece
NH:
: remain at relatively high levels (4.4×4.6x EBITDA in our two scenarios). Importantly we do,
however, still expect the company to generate between £600m and £650m in annual cash flow
pre interest over the coming three years.
We therefore believe the group will still be able to support a relatively high level of leverage, even
if the current market conditions persist for some time. On our current forecasts, we expect Yell to
delever by 0.20.3x EBITDA per year implying that the group will be near the mid point of the
34x target range by the next refinancing in 2014. As we expect the cyclical pressures to
gradually ease as the cycle turns, we would overall
however, still expect the company to generate between £600m and £650m in annual cash flow
pre interest over the coming three years.
We therefore believe the group will still be able to support a relatively high level of leverage, even
if the current market conditions persist for some time. On our current forecasts, we expect Yell to
delever by 0.20.3x EBITDA per year implying that the group will be near the mid point of the
34x target range by the next refinancing in 2014. As we expect the cyclical pressures to
gradually ease as the cycle turns, we would overall
MJ:
Right, so that is Yell sorted
NH:
yep
NH:
Yell debt riddle solved
NH:
that wasn’t so difficult was it?
11:50AM
NH:
right
NH:
just getting some more details on this Barclays fine
NH:
take from Dow Jones
NH:
The FSA said it found discrepancies in Barclays’ data while it was investigating suspected market abuse by a third party. It then reviewed Barclays’ transaction reporting arrangements and found the bank’s systems and controls to report transactions were inadequate, as well as errors in the data it submitted to the FSA.
The review, between Nov. 1, 2007 and Oct. 31, 2008, found 57.5 million reportable transactions with inaccuracies. Among them, Barclays didn’t submit a report at all for 17 million transactions – mainly proprietary stock positions, failed to provide the name of a transaction’s actual counterparty on 7 million futures contracts, and didn’t correctly record prices on 1.1 million credit default swap transactions.
The review, between Nov. 1, 2007 and Oct. 31, 2008, found 57.5 million reportable transactions with inaccuracies. Among them, Barclays didn’t submit a report at all for 17 million transactions – mainly proprietary stock positions, failed to provide the name of a transaction’s actual counterparty on 7 million futures contracts, and didn’t correctly record prices on 1.1 million credit default swap transactions.
NH:
now there are some big numbers in there
NH:
17 million transactions
NH:
7 million futures contracts
NH:
1.1 million credit default swap transactions.
MJ:
Wowzers
MJ:
3.5 million, as has been pointed out on the right, is pretty low for a fine, no?
NH:
because they co-operated withe authorities
NH:
Because Barclays cooperated fully with the FSA on the investigation and agreed to an early settlement, its fine was reduced from GBP3.5 million.
A spokesman for Barclays said: “We have worked constructively and in full cooperation with the FSA throughout the investigation. The regulatory reporting errors were caused by inaccuracies in our data feeds to the FSA. No counterparties, clients, or financial reports were affected in any way.”
A spokesman for Barclays said: “We have worked constructively and in full cooperation with the FSA throughout the investigation. The regulatory reporting errors were caused by inaccuracies in our data feeds to the FSA. No counterparties, clients, or financial reports were affected in any way.”
NH:
and apparently
NH:
it was a data connection feed problem
MJ:
I see
MJ:
Itch makes a good point as well
NH:
fair point
11:53AM
NH:
someone asking about Hotel stocks this morning
NH:
which are in demand
InterContinental Hotels Group (IHG:LSE): Last: 819.00, up 51 (+6.64%), High: 819.50, Low: 784.00, Volume: 1.54m
NH:
for example
NH:
I think Credit Suisse is giving them a push
NH:
and remember
NH:
Whitbread announced an improving trend at Premier Inn yesterday
NH:
here’s the CS note
NH:
or the highlights of it
NH:
Upgrade to Outperform-IHG (TP 910p) and Whitbread (TP 1,331p), on recovering RevPAR and cheap valuations relative to the sector. We also revise our Accor target price to Eu39.4, but maintain our Neutral rating.
• Early recovery rates look encouraging: We believe RevPAR has bottomed. There are risks (primarily the pace of corporate recovery), but we now forecast positive growth in 2010E RevPAR. We believe that the main risk to our forecasts is a stronger than forecast occupancy-led recovery. For instance if RevPAR recovers quicker than expected we could add 92p to our IHG fair value.
• Early recovery rates look encouraging: We believe RevPAR has bottomed. There are risks (primarily the pace of corporate recovery), but we now forecast positive growth in 2010E RevPAR. We believe that the main risk to our forecasts is a stronger than forecast occupancy-led recovery. For instance if RevPAR recovers quicker than expected we could add 92p to our IHG fair value.
NH:
Further potential upside for the hotel stocks could come from the long-term retention of the structural cost savings announced by Accor (Eu150m), IHG ($65m) and Whitbread (£25m).
• IHG our top pick. Of the large European hotel universe, IHG is the most exposed to a potential RevPAR recovery, as it is a pure hotel company with high exposure to the US; with brands that are taking market share and is reaching the final stages of a reorientation of its business model. Our new DCF-derived, SOTP-supported TP is 910p (from 527p), possibly rising by an incremental 92p if RevPAR recovery is quicker than forecast, and a further 70p if 50% of its structural cost saving target is retained.
• IHG our top pick. Of the large European hotel universe, IHG is the most exposed to a potential RevPAR recovery, as it is a pure hotel company with high exposure to the US; with brands that are taking market share and is reaching the final stages of a reorientation of its business model. Our new DCF-derived, SOTP-supported TP is 910p (from 527p), possibly rising by an incremental 92p if RevPAR recovery is quicker than forecast, and a further 70p if 50% of its structural cost saving target is retained.
NH:
Whitbread also attractive. We view positively the sensitivity to RevPAR improvement aided by the roll-out of the automated revenue management system and use of new distribution channels, and the ability to drive restaurant lfls on the joint estate. We use a DCF-derived TP (1,331p, from 900p) supported by a view that the stock should trade at a 15% February 2011E P/E premium to the UK market.
• Accor-special situation. With Prepaid Services demand inversely correlated to rising unemployment and no demerger news likely prior to end-2009, we see little incremental stock-specific news over the rest of 2009. We raise our target price to Eu39.4 (from Eu34.30) and retain our Neutral rating
• Accor-special situation. With Prepaid Services demand inversely correlated to rising unemployment and no demerger news likely prior to end-2009, we see little incremental stock-specific news over the rest of 2009. We raise our target price to Eu39.4 (from Eu34.30) and retain our Neutral rating
NH:
hope that helps
11:55AM
NH:
Miles
NH:
anything else you want to look at?
MJ:
I am all done I think
NH:
Dollar index at one-year low
NH:
reserve diversification into gold
NH:
apparently doing the damage
NH:
sparked by that UN report
NH:
which is Izy has been talking about
MJ:
Here: http://ftalphaville.ft.com/blog/2009/09/07/70386/un-weighs-in-on-the-dollar-reserve-debate/
NH:
good post that
MJ:
Also. have a look at the Trading Room
MJ:
New online FT.com feature looking at everything to do with exchanges
MJ:
Run by our resident expert Jeremy Grant
MJ:
Here: http://www.ft.com/markets/trading-room
NH:
Thanks for the plug
11:59AM
NH:
before we wind up today
NH:
let’s just summarise on regal
NH:
yesterday’s news was not what the market has been waiting for
NH:
but it showed progress on drilling
NH:
the real news is due soon
NH:
this note from house broker Merrill
NH:
should explain what we are waiting for
NH:
and the word in the market is that it will be good news
NH:
although Regal has disappointed many times in the past
NH:
The third “new generation” well spudded
Regal Petroleum has this morning announced the successful spudding of
development well SV-61 in Ukraine on September 5. This is the third “new
generation” well to be spudded using the brand new US built rig contracted from
Saipem. Regal expects to reach a target depth of 6,000m at SV-61 in
approximately 6 months time.
Regal Petroleum has this morning announced the successful spudding of
development well SV-61 in Ukraine on September 5. This is the third “new
generation” well to be spudded using the brand new US built rig contracted from
Saipem. Regal expects to reach a target depth of 6,000m at SV-61 in
approximately 6 months time.
NH:
Expect the results of the first two “new generation” wells soon
MEX-106 is currently being prepared for a production test with the tests results
due within 2 weeks. The results from SV-58, which was spudded a month after
MEX-106, are due within a month. The results of these two wells could be
transformational for the company: reserves could potentially double over time,
NAV could increase by c.65p/sh, while the discount to NAV is likely to narrow.
MEX-106 is currently being prepared for a production test with the tests results
due within 2 weeks. The results from SV-58, which was spudded a month after
MEX-106, are due within a month. The results of these two wells could be
transformational for the company: reserves could potentially double over time,
NAV could increase by c.65p/sh, while the discount to NAV is likely to narrow.
NH:
BUY: near term catalysts and attractive valuation
Regal is still the cheapest stock in the sector on both NAV and reserve valuation,
trading at: (1) a c.50% discount to our 180p/sh total risked NAV (based on a longterm
US$75/bl oil price) vs the peer average discount of 10%, and (3)
US$1.1/boe (US$2.3/boe booked 2P reserves), c. 90% discount to the European
E&P average of US$11/boe. Our investment case for the stock are: (1) material
near-term catalysts, (2) strong M&A potential, and (3) an extremely attractive
valuation.
Regal is still the cheapest stock in the sector on both NAV and reserve valuation,
trading at: (1) a c.50% discount to our 180p/sh total risked NAV (based on a longterm
US$75/bl oil price) vs the peer average discount of 10%, and (3)
US$1.1/boe (US$2.3/boe booked 2P reserves), c. 90% discount to the European
E&P average of US$11/boe. Our investment case for the stock are: (1) material
near-term catalysts, (2) strong M&A potential, and (3) an extremely attractive
valuation.
NH:
so
NH:
the results of the two wells, which could be company changing, are due in the next few weeks
MJ:
On a different tack, be sure to keep an eye out for the Kraft share price when the US opens. Will be very interesting to see how people react after the holiday
NH:
it will
NH:
right that’s it for today
NH:
thanks for joining us
NH:
cya you tomorrow
MJ:
Bye
NH:
and yes Tolstoi – Regal at binary stock
NH:
either 1 or 0
NH:
ulimate binary stock
NH:
aling with gulf keystone
NH:
bye