Markets live chat transcript for the chat ending at 12:08 on 25 Sep 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)
NH:
good morning
NH:
and welcome to the final edition of Markets Live
NH:
…….
NH:
for this week
NH:
and we are a bit all over the place this morning
NH:
email server down
NH:
Bryce has been stuck on the tube
NH:
and only arrived 15 mins ago
NH:
Miles has gone on hols for a couple of weeks
NH:
and Bryce is having the usual trouble logging to Paul’s old computer
NH:
apart from that
NH:
SNAFU
BE:
Hi
BE:
In now, finally
BE:
Having been trapped under St Paul’s for an eternity due to an “incident” at Mile End
BE:
Please amuse yourself for a moment while we try to get things into some kind of order
BE:
[mood music]
NH:
right
BE:
where’s Miles gone anyway?
NH:
sorry that’s classified
NH:
don’t think hacks are too popular in that part of the world
BE:
I see
BE:
anyway, how are you
BE:
were you blubbing like a baby?
NH:
sorry
BE:
at the Hawksmoor
BE:
The meat had a depth of flavour that was almost tear-jerking”
BE:
quoth Giles Coren, The Times
NH:
oh sorry
NH:
thought you meant something else
NH:
the steak
NH:
yep, it was very good
NH:
didn’t make me cry though
NH:
certainly mouth watering
BE:
what did you go for?
BE:
The Bone-in Sirloin (600g)?
NH:
No rib-eye and some chips very nice
NH:
didn’t think too much of the main dining room
NH:
and it was a hell of trek to Commerical Road
NH:
and I had to get off the Tube at Aldgate East of all places
NH:
pearly kings and queens everywhere
BE:
Was kinda handy when I was at Wapping.
NH:
anyway, we had better move on
NH:
ROTR don’t tune in to hear restaurant reviews
BE:
that’s true, Giles Coren is much better than you
NH:
thanks very much for that vote of confidence
NH:
right, on to the market then
11:10AM
BE:
FTSE clawing back some of Thursday’s losses
BE:
We’re up 33 points at at 5112
BE:
and it has to be said, features are few and far between
NH:
ok
NH:
what about sterling then?
NH:
still losing value?
BE:
yep
BE:
Cable is $1.60
NH:
that will make Mr King happy
BE:
while a euro will buy you 0.9173p
BE:
actually I think sterling was trading a bit lower this morning
BE:
hit $1.5919
NH:
OK thanks
NH:
there is a bit of good news in all this
BE:
What’s that?
NH:
Murph’s pay is locked in at an exchange rate of $1.65 for the rest of the year
NH:
so he can continue lunching
BE:
That’s fortunate.
NH:
indeed
NH:
actually got a bit of comment on sterling
NH:
the pros and cons of Mr King’s efforts to talk it down
NH:
from Howard Archer
NH:
Clearly a weak pound will help the UK economy in a number of ways:
A weak pound will lift the competitiveness of UK companies, thereby boosting their exports and supporting them in their domestic UK markets against imports. The beneficial impact of the weak pound for exporters will hopefully be reinforced over the coming months by improving domestic demand in key export markets. Particularly important for UK exporters the US and Eurozone economies appear to be returning to growth. Meanwhile, by making imports relatively more expensive, the weak pound should help UK companies to gain market share in their domestic markets from importers.
NH:
Any improvement in exports and net trade is not only helpful for near-term recovery prospects but is also critical to the longer-term health of the economy. For sustainable, robust growth to occur, the UK needs to become less dependent on debt-supported consumer spending and to benefit from balanced contributions. However, for longer-term export growth, UK companies cannot just rely in a weak pound but need to be fully competitive and develop markets.
A weaker pound will make the UK more attractive as a tourist destination for foreign visitors. It could also encourage shopping breaks by foreigners. Meanwhile, people in the UK are more likely to take holidays or short breaks at home rather than go overseas, which will help spending in this country.
The UK will become cheaper and, therefore, relatively more attractive for overseas companies to invest in.
NH:
However, it should not be forgotten that there are also negative repercussions of a weak pound for the UK economy:
Hardest hit will be companies and retailers who source a significant amount of their supplies/products from overseas will be hit as they will be paying more in sterling terms
By pushing up import prices, a weak pound will have significant inflationary consequences. Inflation has already proved to be significantly stickier in coming down than elsewhere in Europe – with the weak pound clearly being a major factor. By pushing up inflation, a weak pound will hit people’s purchasing power and could lead the Bank of England having to raise interest rates sooner and more quickly than would otherwise be the case.
NH:
UK companies will find it more expensive to invest overseas and to make foreign takeovers.
Were sterling to fall too far, too quickly, it could seriously undermine investor confidence in the UK
On balance, a weak pound will probably do more good than harm for the UK economy in its current position. But it is not a free lunch and considerable harm could occur if sterling falls too far, too quickly.
BE:
that seems to be pretty much the consensus view
BE:
a good idea if you can control it
NH:
and central banks have no control over the FX market do they?
BE:
er … no
NH:
right, let get to some stock specific stuff
11:14AM
NH:
and people asking for some 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:
well my steak yesterday was medium rare
NH:
but as for market RAW
NH:
very little today
NH:
Coal of Arfica has been noted on the right
NH:
and yes Mittal has a 16% stake
NH:
but why in the world would he pay a 100% premium to take control of the company
BE:
A good question, that.
NH:
case closed then?
BE:
Hm.
Coal of Africa (CZA:LSE): Last: 123.00, up 4 (+3.36%), High: 130.25, Low: 122.00, Volume: 1.45m
BE:
Some people really want to believe this one, however.
BE:
for example.
for example.NH:
not the Taxi driver from Glasgow
NH:
BE:
Hm.
NH:
actually on that 250p takeover price
NH:
MOST started coverage this week
NH:
they were very positive
NH:
but only came up with a target price of 150p
NH:
here’s a little bit of the note
NH:
Initiate coverage with Overweight rating within the
Frontier Miners, Developers & Explorers segment.
This is a segment for investors with a high-risk / highreward
investment profile. With only one of Coal of
Africa’s (CoAL) three mines in the ramp-up stage and
the other two in development, there are many steps still
between extracting the ore and selling it at market.
However, if these steps (operational and infrastructure)
are executed successfully, our bull case sees the stock
more than quadrupling vs. halving in our bear case. We
think this attractive risk-reward profile warrants an OW.
Frontier Miners, Developers & Explorers segment.
This is a segment for investors with a high-risk / highreward
investment profile. With only one of Coal of
Africa’s (CoAL) three mines in the ramp-up stage and
the other two in development, there are many steps still
between extracting the ore and selling it at market.
However, if these steps (operational and infrastructure)
are executed successfully, our bull case sees the stock
more than quadrupling vs. halving in our bear case. We
think this attractive risk-reward profile warrants an OW.
NH:
Target price of 150p/share: Given that bulk of the NPV
is dependent on project execution, we give full DCF
value for the project already in ramp-up (Mooiplaats)
and 50% of the NPV for the projects in development
(Vele and Makhado) to derive our price target of 150p.
Strategic location and key supplier relationships.
CoAL’s assets are in close proximity to its key potential
customers such as ArcelorMittal and South Africa’s
Eskom, which gives the company a competitive pricing
advantage over its peers as well as the opportunity to
secure earnings stability in the future through long-term
off-take agreements. ArcelorMittal’s 16% shareholding
provides additional credibility to the investment case.
Exposure to coking and thermal coal – our favored
commodities. Vele and Makhado are mainly coking
coal producing assets while Mooiplaats is a thermal coal
mine, thus rendering CoAL a pure South African coal
play (c80% coking).
is dependent on project execution, we give full DCF
value for the project already in ramp-up (Mooiplaats)
and 50% of the NPV for the projects in development
(Vele and Makhado) to derive our price target of 150p.
Strategic location and key supplier relationships.
CoAL’s assets are in close proximity to its key potential
customers such as ArcelorMittal and South Africa’s
Eskom, which gives the company a competitive pricing
advantage over its peers as well as the opportunity to
secure earnings stability in the future through long-term
off-take agreements. ArcelorMittal’s 16% shareholding
provides additional credibility to the investment case.
Exposure to coking and thermal coal – our favored
commodities. Vele and Makhado are mainly coking
coal producing assets while Mooiplaats is a thermal coal
mine, thus rendering CoAL a pure South African coal
play (c80% coking).
NH:
Operational and execution risks raise the risk
profile. CoAL’s investment case is largely dependant on
the timely delivery of infrastructure projects that will
transport the mines’ output to seaport terminals for
export and on-time execution of the project pipeline.
Although agreements are in place for these
infrastructure developments, execution is ultimately out
of CoAL’s control.
profile. CoAL’s investment case is largely dependant on
the timely delivery of infrastructure projects that will
transport the mines’ output to seaport terminals for
export and on-time execution of the project pipeline.
Although agreements are in place for these
infrastructure developments, execution is ultimately out
of CoAL’s control.
BE:
Thanks – but why on earth is MOST employing resources to look at Coal of Africa?
NH:
stop it. that’s how rumours start.
11:18AM
NH:
Right
NH:
some more RAWish stuff
NH:
Dana Petroleum
NH:
rumoured a while back to be a takeover target for RWE
NH:
I still think that could be the case
NH:
but after today’s news
NH:
RWE are not going to pay up
NH:
over £20 for example
BE:
Why?
NH:
dry well
NH:
important one
NH:
Trolla well in Norway
NH:
Dana owns 30%
NH:
could have put 420p on the share price
NH:
no more
BE:
Right
NH:
here’s a bit of context from Citigroup
NH:
Det Norske (operator) has this morning announced that the Trolla prospect in
which Dana has a 30% working interest is dry. This has now been confirmed by
Dana and we expect a press release to be issued by the company later this
morning. A statement on the NPD website confirms that drilling at this well in
Block 6609/10-2 offshore Norway has been concluded and that the well has been
plugged and abandoned.
which Dana has a 30% working interest is dry. This has now been confirmed by
Dana and we expect a press release to be issued by the company later this
morning. A statement on the NPD website confirms that drilling at this well in
Block 6609/10-2 offshore Norway has been concluded and that the well has been
plugged and abandoned.
NH:
We expect Dana shares to underperform in reaction to today’s drilling news as the
Trolla prospect was one of the most material prospects within Dana’s near-term
drilling campaign representing c55% of our risked exploration value. The next
material prospect within Dana’s exploration portfolio is the Tornado prospect (59p
risked, 169p unrisked) in the West of Shetlands where drilling is set to commence
shortly.
Trolla prospect was one of the most material prospects within Dana’s near-term
drilling campaign representing c55% of our risked exploration value. The next
material prospect within Dana’s exploration portfolio is the Tornado prospect (59p
risked, 169p unrisked) in the West of Shetlands where drilling is set to commence
shortly.
BE:
Have we put up a Dana price?
NH:
no
Dana Petroleum (DNX:LSE): Last: 1,370, down 53 (-3.72%), High: 1,410, Low: 1,341, Volume: 1.21m
NH:
thanks
11:22AM
NH:
right before we move on and have a look at DSG
NH:
which seems to have run out of stock
NH:
according to one analyst
NH:
I wanted to say welcome back to Taxloss
NH:
was getting a bit worried about him
NH:
thought he might have defected to Zerohedge or something
NH:
but he’s back
11:23AM
NH:
Right
NH:
DSG
NH:
biggest faller in the FTSE 250 at the moment
NH:
down 1.73p at 26.27p
BE:
Yup – that’s on the back of a quite interesting note from MOST
BE:
Basically, one of their analysts tried to buy a TV
NH:
really
BE:
And found there was no stock
NH:
which branch?
BE:
Hang on – just checking …
BE:
Evesham
NH:
where’s that?
NH:
Oxfordshire?
BE:
Commuter belt.
NH:
anyway
BE:
Then he tried to buy a printer at PC World Croydon.
BE:
(It’s all glamour in the world of scribbling)
BE:
Anyway, same story
NH:
I think it is good to see analysts out in the field
BE:
This led them to get AlphaWise to do a full check of stock via the websites …
NH:
and
BE:
No Apple available
NH:
really
BE:
Not much Dyson
NH:
no Ipods?
BE:
Very few Sony
BE:
Not much Nintendo
NH:
this is as bad as JJB Sports
NH:
can their supplier not get credit insurance?
BE:
And DSGi doesn’t really have the option of pushing their own tat to customers, like Sports Direct
NH:
right, I think we need to have a look at this note
NH:
author?
BE:
Geoff Ruddell
NH:
ah
NH:
he is good
NH:
yep, a sceptic
BE:
Yeah – he’s got a fair old rep.
BE:
Here’s the summary
BE:
DSGi remains by far the highest risk/reward stock in
our coverage universe…We have argued for some
time that DSGi shares could be worth 80p+ in a bull case
(if management delivers in full on its medium-term
recovery plan) but that a debt-holder control scenario
also remains plausible. Our view on this doesn’t change
today.
our coverage universe…We have argued for some
time that DSGi shares could be worth 80p+ in a bull case
(if management delivers in full on its medium-term
recovery plan) but that a debt-holder control scenario
also remains plausible. Our view on this doesn’t change
today.
BE:
…but we are becoming increasingly bearish for two
reasons:
1) We are concerned by the extent to which DSGi is
underperforming its main peers in the UK electricals
market. We believe that the most likely explanation
for this is poor instore availability. This report
summarises proprietary analysis conducted by
our AlphaWise colleagues, which we think
suggests Currys may have significant
availability issues at present.
reasons:
1) We are concerned by the extent to which DSGi is
underperforming its main peers in the UK electricals
market. We believe that the most likely explanation
for this is poor instore availability. This report
summarises proprietary analysis conducted by
our AlphaWise colleagues, which we think
suggests Currys may have significant
availability issues at present.
BE:
2) We see the competitive landscape in the UK market
as increasingly challenging. With Best Buy
preparing for a major assault, John Lewis planning a
new chain of out-of-town ‘Home’ stores, and
Comet’s repositioning continuing, the ‘service’ end
of the market is set to become very crowded.
as increasingly challenging. With Best Buy
preparing for a major assault, John Lewis planning a
new chain of out-of-town ‘Home’ stores, and
Comet’s repositioning continuing, the ‘service’ end
of the market is set to become very crowded.
BE:
We downgrade our rating to ‘Underweight’. Although
we believe that DSGi offers investors more leveraged
upside into a consumer recovery than any other stock
we cover, the prospect of our Bull Case scenario playing
out looks increasingly remote to us. With DSGi shares
up c.50% in the last three months, we think investors
should be taking profits now. We retain our central case
fair value, but no longer apportion probability weightings
to our scenarios, so we no longer set a price target.
we believe that DSGi offers investors more leveraged
upside into a consumer recovery than any other stock
we cover, the prospect of our Bull Case scenario playing
out looks increasingly remote to us. With DSGi shares
up c.50% in the last three months, we think investors
should be taking profits now. We retain our central case
fair value, but no longer apportion probability weightings
to our scenarios, so we no longer set a price target.
NH:
and what about the stock
NH:
i wanna know about the stock
NH:
or lack of
BE:
Our research suggests that ‘reservability’ at Currys is running at just
60%
60%
NH:
BE:
Overall, the chain’s in-store stock position was
such that products were reservable for immediate collection
only 60.5% of the time (ie in 39.5% of cases, the store tested
had less than three units of stock available of that line). This
average did not appear to be heavily distorted by lack of
availability on a group of slow-moving SKUs, nor by particularly
poor availability in a handful of stores2.
Worryingly, however, it did show considerable variability by
manufacturer, with many leading brands much lower than the
average (which was boosted by good availability on some
lesser-known brands).
such that products were reservable for immediate collection
only 60.5% of the time (ie in 39.5% of cases, the store tested
had less than three units of stock available of that line). This
average did not appear to be heavily distorted by lack of
availability on a group of slow-moving SKUs, nor by particularly
poor availability in a handful of stores2.
Worryingly, however, it did show considerable variability by
manufacturer, with many leading brands much lower than the
average (which was boosted by good availability on some
lesser-known brands).
BE:
…particularly if it is struggling to source inventory
Whether or not DSGi is able to improve availability before
‘Peak’ depends, in our view, on what is causing the problem. If
it is an operational issue (and the group is undergoing major
changes at the moment as part of its recovery plan) it is very
possible that availability could improve rapidly. There is a
possibility, however, that poor availability (and particularly the
variability shown in Exhibit 3) may be evidence that DSGi is
struggling to source enough inventory from some of its
suppliers. If that is the case then we think it unlikely that
availability levels will improve much this side of Christmas.
Indeed, in this scenario it could get significantly worse
Whether or not DSGi is able to improve availability before
‘Peak’ depends, in our view, on what is causing the problem. If
it is an operational issue (and the group is undergoing major
changes at the moment as part of its recovery plan) it is very
possible that availability could improve rapidly. There is a
possibility, however, that poor availability (and particularly the
variability shown in Exhibit 3) may be evidence that DSGi is
struggling to source enough inventory from some of its
suppliers. If that is the case then we think it unlikely that
availability levels will improve much this side of Christmas.
Indeed, in this scenario it could get significantly worse
BE:
Very detailed note this. Well worth a read in full.
BE:
And DSG are responding.
NH:
they are
NH:
and look pretty angry about this
NH:
RTRS-DSG SAYS AVAILABILITY IS BETTER THAN IT HAS BEEN FOR A NUMBER OF YEARS
11:31 25Sep09 RTRS-DSG SAYS VERY COMFORTABLE WITH OUR STOCK LEVELS ACROSS THE GROUP GOING INTO THE KEY CHRISTMAS TRADING PERIOD
11:31 25Sep09 RTRS-DSG SAYS AS WE SAID IN OUR TRADING STATEMENT ON 2 SEPTEMBER WE ARE TRADING SLIGHTLY AHEAD OF OUR EXPECTATIONS
11:31 25Sep09 RTRS-DSG
11:31 25Sep09 RTRS-DSG
NH:
so who is right?
NH:
I reckon we should all conduct an experiment this week
NH:
stock rallying on that
NH:
not an official statement though
NH:
now down just 1.5p at 26.5p
BE:
Must admit – I was in the South Ken branch of PC World the other week and it looked like Soviet Russia
NH:
BE:
But, of course, anecdotal evidence is no guide.
NH:
(Cya Taxloss)
11:33AM
NH:
right enough DSG
NH:
some more flashes
NH:
these came out a bit earlier
NH:
about the ongoing
NH:
DNO row
NH:
with the Kurds
NH:
RTRS-IRAQI KURDISTAN SAYS “HOPEFUL” WILL FIND A SOLUTION TO DNO SUSPENSION ROW
11:15 25Sep09 RTRS-TURKEY’S GENEL ENERJI TAKING OVER “DAY TO DAY” OIL ACTIVITIES OF DNO IN IRAQ – KURDISTAN GOVERNMENT
11:15 25Sep09 RTRS-TURKEY’S GENEL ENERJI TAKING OVER “DAY TO DAY” OIL ACTIVITIES OF DNO IN IRAQ – KURDISTAN GOVERNMENT
NH:
I wonder if that is positive for Heritage
NH:
in as much as they are merging with Genel
Heritage Oil (HOIL:LSE): Last: 479.50, down 5.5 (-1.13%), High: 491.30, Low: 479.50, Volume: 328.79k
BE:
Heritage just keeps drifting doesn’t it?
NH:
and Gulf Keystone keeps rising
BE:
Don’t mention GKP!
BE:
We’ll never get away in time for lunch.
11:36AM
NH:
right
NH:
the latest bull note from Barcap
NH:
has just arrived in my inbox
NH:
I think it was previewed in the paper this morning
NH:
but it is 80 pages
NH:
of bullishness
NH:
by Larry Kantor, who is the head of research at BarCAp
BE:
And?
NH:
well, the biggest risk to the really
NH:
is that it continues
NH:
the central banks gets spooked
NH:
and jack up interest rates
BE:
That’s the biggest risk?
NH:
yep
BE:
Interesting take.
NH:
and it could come before the end of the year
NH:
so actually
NH:
this is not the most bullish thing I have read
NH:
and therefore
NH:
interesting
NH:
I think
BE:
Can we have a look?
NH:
We have been advising investors to re-engage in the stock and corporate bond markets
since the March issue of the Global Outlook (“Green shoots have arrived”). The markets
have come a long way since then, and the question now is whether it is time to reduce
exposure. Our answer at this time is “not quite yet”.
since the March issue of the Global Outlook (“Green shoots have arrived”). The markets
have come a long way since then, and the question now is whether it is time to reduce
exposure. Our answer at this time is “not quite yet”.
NH:
It is true that valuations are no longer compelling. Stocks seem roughly fairly valued, and
corporate bonds may even have overshot somewhat, at least in some sectors. However, we
believe that a combination of surprisingly strong economic news and policy settings still at
“crisis” levels is a potent brew that will keep driving risky asset prices higher. While
economic recovery is now generally priced into markets, investors appear to be discounting
an unusually weak recovery in countries such as the US that have lagged the global
recovery. Yet the US is exhibiting all the characteristics of a classic, V-shaped economic
recovery – just as we have seen in most of Asia – that is typical following a severe recession.
corporate bonds may even have overshot somewhat, at least in some sectors. However, we
believe that a combination of surprisingly strong economic news and policy settings still at
“crisis” levels is a potent brew that will keep driving risky asset prices higher. While
economic recovery is now generally priced into markets, investors appear to be discounting
an unusually weak recovery in countries such as the US that have lagged the global
recovery. Yet the US is exhibiting all the characteristics of a classic, V-shaped economic
recovery – just as we have seen in most of Asia – that is typical following a severe recession.
NH:
In our view, the main risk to the current bull market in stocks and corporate bonds is not
that the global economic recovery will falter. Rather, we believe that it is the strength of the
recovery itself – or at least the recognition of it – that provides the greatest source of risk to
the continuation of the market rally. Once investors embrace that a “normal” recovery has
arrived, they will quickly conclude that the current “crisis” settings for policy – such as nearzero
interest rates – are no longer appropriate. That – along with the impending withdrawal
from direct purchases of duration by central banks – will drive interest rates higher and
make it much more difficult for stock and corporate bond prices to keep rising. In other
words, the good news that the patient has recovered will shift toward the more sobering
news that the bill has come due. That recognition – which is likely to be fostered by still
more positive surprises on the economic data front, especially in the US – will be the signal
to reduce exposure, and it could well come before the end of the year.
that the global economic recovery will falter. Rather, we believe that it is the strength of the
recovery itself – or at least the recognition of it – that provides the greatest source of risk to
the continuation of the market rally. Once investors embrace that a “normal” recovery has
arrived, they will quickly conclude that the current “crisis” settings for policy – such as nearzero
interest rates – are no longer appropriate. That – along with the impending withdrawal
from direct purchases of duration by central banks – will drive interest rates higher and
make it much more difficult for stock and corporate bond prices to keep rising. In other
words, the good news that the patient has recovered will shift toward the more sobering
news that the bill has come due. That recognition – which is likely to be fostered by still
more positive surprises on the economic data front, especially in the US – will be the signal
to reduce exposure, and it could well come before the end of the year.
NH:
that said
NH:
actually that is it
BE:
That seems rather more measured than the Tim Bonds of this world.
NH:
it does
BE:
As Lemmy neatly summarises: “when things return to normal the bull run will end”
NH:
right, what else is moving?
11:41AM
BE:
Pubs?
BE:
We usually do pubs at about this time.
NH:
that’s true
BE:
Sun over the yardarm and all that.
BE:
Under a bit of pressure again this morning.
NH:
they are
Mitchells and Butlers (MAB:LSE): Last: 262.00, down 12.6 (-4.59%), High: 276.90, Low: 260.40, Volume: 1.54m
Wetherspoon J D (JDW:LSE): Last: 479.00, down 15 (-3.04%), High: 500.00, Low: 477.40, Volume: 123.77k
NH:
I am assuming this is onthe back of the profits warning from Luminar
NH:
of effective profits warning
NH:
Luminar is the biggest nightclub operator in the UK, no?
BE:
I think that’s right
NH:
and just glancing at the statement
NH:
seems to say
NH:
if trading does not pick up
NH:
we won’t meet forecasts
BE:
Brands such as Oceana … Liquid … The Jamhouse
NH:
nice
NH:
never been to one
NH:
i bet some of the ROTR have though
BE:
And Luminar’s asking, but people ain’t dancing.
NH:
hmmm
NH:
shares off 41.5p at 88.5p
NH:
which will come as a shock to those who backed the recent cash call
NH:
raised £25m at 95p
NH:
I wonder
NH:
if this is a sign of over indebted youngsters
NH:
pulling in the horns
NH:
and not spending
NH:
or perhaps the clubs aren’t up too much
BE:
Well, you can see it many ways I suspect.
BE:
The smoking ban had a big effect because most of the clubs don’t really have much outside space.
NH:
well, most of the analysts are seeing it one way this morning. downgrades galore
NH:
for example
NH:
Astaire Partners
NH:
Leisure: Luminar (LMR) ; 130p : SELL
Trading update for 6m to 27 August
Ø Luminar has this morning updated on trading for its first half-year to 27 August – the trading environment is described as ‘difficult’ with high and rising levels of unemployment impacting the group’s customer base
Ø Following the group’s share placing in July, trading in September is said to have ‘worsened’
Ø Weekend admissions in particular are below the board’s expectations and overall sales (continuing business) fell by 5.9% in the first 26wks
Ø As they were minus 3.3% in the first 18wks this implies something like minus 11% for the last 8wks (though the late August Bank Holiday may pull this back to around minus 7.5%)
Trading update for 6m to 27 August
Ø Luminar has this morning updated on trading for its first half-year to 27 August – the trading environment is described as ‘difficult’ with high and rising levels of unemployment impacting the group’s customer base
Ø Following the group’s share placing in July, trading in September is said to have ‘worsened’
Ø Weekend admissions in particular are below the board’s expectations and overall sales (continuing business) fell by 5.9% in the first 26wks
Ø As they were minus 3.3% in the first 18wks this implies something like minus 11% for the last 8wks (though the late August Bank Holiday may pull this back to around minus 7.5%)
NH:
Adjusting for the late bank holiday (H2 this year), LfL sales were minus 4.5% (footfall minus 2.9%, drinks revenue minus 6.6%)
Ø Margins are lower than H1 last year but up on earlier this year – there is a ‘significant risk’ that the co will not hit this year’s estimates and we are cutting our 02/10 forecast from £16m to £12m (c11p of EPS and no DPS)
Ø The company is reviewing its carrying value for 3DE (in which it has a 49% stake) and is not likely to accrue interest on its loan note – Eminence Leisure (20% stake) is also considering a creditors voluntary liquidation
Ø July’s share placing (£35.7m) will insulate Luminar somewhat and it is likely to be outperforming its peers – furthermore, Christmas trade is critical
Ø Margins are lower than H1 last year but up on earlier this year – there is a ‘significant risk’ that the co will not hit this year’s estimates and we are cutting our 02/10 forecast from £16m to £12m (c11p of EPS and no DPS)
Ø The company is reviewing its carrying value for 3DE (in which it has a 49% stake) and is not likely to accrue interest on its loan note – Eminence Leisure (20% stake) is also considering a creditors voluntary liquidation
Ø July’s share placing (£35.7m) will insulate Luminar somewhat and it is likely to be outperforming its peers – furthermore, Christmas trade is critical
Trading clearly worsened in August and has worsened again in September. LfL sales are currently running >10% down and, though the group will be outperforming its competitors, shareholders will be understandably concerned as to the achievability of profit targets. 3DE is not trading well and the Eminence situation is unhelpful. The High Street is clearly a difficult place in which to do business and, though we acknowledge that Luminar is the most successful operator in its field, we are reiterating our SELL recommendation.
NH:
and here’s KBC
NH:
The 20% downgrade only a month after the £37.5m
fundraising must raise questions about the growth
assumptions on which the money was raised, and for some
will cast doubt on the business model until recovery
begins to be seen. We reduce our target to 90p and rate the
shares a SELL
fundraising must raise questions about the growth
assumptions on which the money was raised, and for some
will cast doubt on the business model until recovery
begins to be seen. We reduce our target to 90p and rate the
shares a SELL
BE:
Hand there’s Douglas Jack at Numis, who has downgraded from buy
BE:
LFL sales have slipped from -3.3% after 18 weeks to -4.5% after 26 weeks. Due to
this and the company no longer accruing interest from 3DE, we are cutting our
forecasts by an average of 20%. This may prove over-cautious as the LFL sales and
gross margin comparatives should be easy in H2, but the trading outlook is very
unclear.
this and the company no longer accruing interest from 3DE, we are cutting our
forecasts by an average of 20%. This may prove over-cautious as the LFL sales and
gross margin comparatives should be easy in H2, but the trading outlook is very
unclear.
BE:
In H1, underlying LFL sales fell by 4.5%, implying a -7% during the last eight weeks.
Trading has weakened at the weekends, undermined by higher youth unemployment and
distressed competitors discounting irresponsibly, during what is a quieter period of the
year. In H1, the weakness in LFL sales derived from drinks revenue (down 6.6% due to
lower drinks prices) rather than admission revenue (down 0.2%).
Forecasts. We are cutting our 2010E PBT forecast from £17.5m to £12.8m (EPS
10.9p) to now assume that:
n LFL sales fall by 6.5% in 2010E. In H1, LFL sales fell 4.5% versus a comparative of
-1.9%; our forecast assumes H2 LFL sales fall 8.5% versus a comparative of -7.5%.
Trading has weakened at the weekends, undermined by higher youth unemployment and
distressed competitors discounting irresponsibly, during what is a quieter period of the
year. In H1, the weakness in LFL sales derived from drinks revenue (down 6.6% due to
lower drinks prices) rather than admission revenue (down 0.2%).
Forecasts. We are cutting our 2010E PBT forecast from £17.5m to £12.8m (EPS
10.9p) to now assume that:
n LFL sales fall by 6.5% in 2010E. In H1, LFL sales fell 4.5% versus a comparative of
-1.9%; our forecast assumes H2 LFL sales fall 8.5% versus a comparative of -7.5%.
BE:
Gross margins fall by 50bps in 2010E. In H1, gross margins were c82%; our H2
forecast allows for 81.1% gross margins even though gross margins and prices are
increasing.
n The £1.7m pa interest income accrual from 3DE ceases from September 2009.
n There is no adjusted P&L impact and minimal exceptional exposure to Eminence
entering voluntary liquidation.
We have cut our 2011E PBT forecast from £20.5m to £16.8m (EPS 11.6p) to assume
-3% LFL sales and a slight improvement in gross margins and the initial benefits of
expansion.
Based on revised forecasts, we expect net debt:EBITDA to stabilise around 2.3x
(versus 3.0x covenant). We believe our 2010E downgrades may be over-cautious;
but possible reduced expansion is a risk to longer term growth. The 5.3x
EV/EBITDA (2010E) valuation is still lowly. As a well-capitalised, 40% freehold
operator Luminar should emerge as the last man standing in a sub-sector currently
falling in supply at 10.3% pa.
forecast allows for 81.1% gross margins even though gross margins and prices are
increasing.
n The £1.7m pa interest income accrual from 3DE ceases from September 2009.
n There is no adjusted P&L impact and minimal exceptional exposure to Eminence
entering voluntary liquidation.
We have cut our 2011E PBT forecast from £20.5m to £16.8m (EPS 11.6p) to assume
-3% LFL sales and a slight improvement in gross margins and the initial benefits of
expansion.
Based on revised forecasts, we expect net debt:EBITDA to stabilise around 2.3x
(versus 3.0x covenant). We believe our 2010E downgrades may be over-cautious;
but possible reduced expansion is a risk to longer term growth. The 5.3x
EV/EBITDA (2010E) valuation is still lowly. As a well-capitalised, 40% freehold
operator Luminar should emerge as the last man standing in a sub-sector currently
falling in supply at 10.3% pa.
11:49AM
NH:
thanks for that
NH:
what else
NH:
Yell down again
NH:
which is not surprising
Yell Group (YELL:LSE): Last: 57.35, down 2.65 (-4.42%), High: 61.00, Low: 57.00, Volume: 4.79m
NH:
but what is surprising
NH:
is Songbird
NH:
seen that?
NH:
up again
BE:
Endlessly surprising, this one.
NH:
Okay
NH:
shares are
BE:
up 0.76p at 3.12p
BE:
I am guessing there are people short of this
BE:
given the move it has had
NH:
well, I was told not, because there was no borrow
NH:
but it seems to be the only explanation
NH:
because why would anyone be buying in at such a premium to NAV
NH:
I was looking at a Caz note last night
BE:
Go on.
NH:
which attempted to come up with a pro-forma NAV reflecting the billions of shares that are going to be issued in its refinancing
BE:
and
NH:
they put it at around 1.27p I think
NH:
hang on let me get the note
NH:
What does the 1p per share price issue price imply? We estimate that it implies an office net initial yield of c.7.8% and
a capital value of £484psf, a 7.7% retail equivalent yield and a capital value of £603psf (our estimate).
We estimate the reported NAV of 33p translates into a proforma NAV of 1.27p. At this level, as we highlight above the
office net initial yield is 7.3% with a capital value of £517psf (our estimate), the retail equivalent yield is 7.2% with a
capital value of £644psf (our estimate
a capital value of £484psf, a 7.7% retail equivalent yield and a capital value of £603psf (our estimate).
We estimate the reported NAV of 33p translates into a proforma NAV of 1.27p. At this level, as we highlight above the
office net initial yield is 7.3% with a capital value of £517psf (our estimate), the retail equivalent yield is 7.2% with a
capital value of £644psf (our estimate
NH:
here’s bit more
NH:
The interim results were better than our expectations in terms of NAV (33p vs our forecast of 28p) as well as
profits (£89.7m vs our forecast of £58m reflecting higher than expected profit recognition on pre sold
properties). Whilst the occupational market is clearly tough (ERV’s down 12% over the 6 months to £37.50psf),
Canary Wharf’s vacancy rate remains relatively low at 2.3% rising to c.6.9% post the Morgan Stanley lease
break and there is a limited amount of new space coming on stream. The office properties were valued off a
7.3% average net initial yield which has arguably moved in since then given investor appetite for well let long
leased properties
profits (£89.7m vs our forecast of £58m reflecting higher than expected profit recognition on pre sold
properties). Whilst the occupational market is clearly tough (ERV’s down 12% over the 6 months to £37.50psf),
Canary Wharf’s vacancy rate remains relatively low at 2.3% rising to c.6.9% post the Morgan Stanley lease
break and there is a limited amount of new space coming on stream. The office properties were valued off a
7.3% average net initial yield which has arguably moved in since then given investor appetite for well let long
leased properties
NH:
However, the issue for Songbird over the past year has not been with the assets but the £880m Citi loan.
Therefore, as highlighted several weeks ago the company is also taking the opportunity to announce a
£1.03bn (of which £620m is ordinary equity) capital raise today. The proceeds will be used to repay the loan
as well as acquire an additional 8.5% stake in CWG to increase Songbird’s total holding in CWG to c.69.3%.
The net effect will be twofold; financial stability as well as a simplified shareholder structure with an increased
interest in CWG
Therefore, as highlighted several weeks ago the company is also taking the opportunity to announce a
£1.03bn (of which £620m is ordinary equity) capital raise today. The proceeds will be used to repay the loan
as well as acquire an additional 8.5% stake in CWG to increase Songbird’s total holding in CWG to c.69.3%.
The net effect will be twofold; financial stability as well as a simplified shareholder structure with an increased
interest in CWG
NH:
puzzled by this one
BE:
Yeah – likewise.
BE:
But I guess there’s only so much you can read into the price as liquidity’s so poor.
NH:
right, Bryce anything a bit simpler to look at
BE:
Sure.
BE:
We can do a line or two on Petrofac
11:54AM
Petrofac (PFC:LSE): Last: 948.50, down 26.5 (-2.72%), High: 962.00, Low: 940.50, Volume: 1.44m
NH:
what’s happening there
NH:
NH:
was talking about this only yesterday
NH:
saying an upgrade was on the way
BE:
I’d like to say that surprises me … but ….
NH:
don’t tell me
NH:
they have been downgraded
BE:
Twice, in fact.
BE:
Here’s Merrill’s take
NH:
double downgrade
NH:
nice
BE:
Downgrading to Underperform
Petrofac shares have witnessed superior performance YTD, up 186% versus 85%
for the sector. This has been driven by (1) its superior project execution,
(2) steady development of its oil & gas production portfolio, and (3) new contract
awards which doubled the backlog to over US$8bn (at 1H09). However, we
believe that the stock is at the stage that it is priced for perfection offering no room
for disappointment. We downgrade PFC to Underperform with a PO of 930p.
Petrofac shares have witnessed superior performance YTD, up 186% versus 85%
for the sector. This has been driven by (1) its superior project execution,
(2) steady development of its oil & gas production portfolio, and (3) new contract
awards which doubled the backlog to over US$8bn (at 1H09). However, we
believe that the stock is at the stage that it is priced for perfection offering no room
for disappointment. We downgrade PFC to Underperform with a PO of 930p.
BE:
Margin sustainability remains the key question
Following its exponential backlog build up, the key questions remain the
company’s ability (1) to continue to execute at a high level and (2) maintain above
par margins in the E&C segment at a time when competition has heightened and
contract terms and conditions (and importantly, contingencies) have tightened. At
a group level near term margins are set to benefit from the higher contribution
from the Energy Developments segment. However, post 2010 we factor in slight
margin deterioration in the remaining divisions.
Following its exponential backlog build up, the key questions remain the
company’s ability (1) to continue to execute at a high level and (2) maintain above
par margins in the E&C segment at a time when competition has heightened and
contract terms and conditions (and importantly, contingencies) have tightened. At
a group level near term margins are set to benefit from the higher contribution
from the Energy Developments segment. However, post 2010 we factor in slight
margin deterioration in the remaining divisions.
BE:
Valuation looking stretched, downgrade to Underperform
We leave our 09-11E estimates unchanged. Although we continue to like
Petrofac’s strong position in the Middle East and its superior project execution, we
believe that the risk/reward is skewed to the downside. Our reverse SoP analysis
shows a stretched valuation. Stripping out the estimated NAV for the Energy
Developments (E&P arm) of 192p, the current share price puts the Service
segments (engineering plus operations) on 16.5x 2010E P/E, a c20% premium to
the sector average.
We leave our 09-11E estimates unchanged. Although we continue to like
Petrofac’s strong position in the Middle East and its superior project execution, we
believe that the risk/reward is skewed to the downside. Our reverse SoP analysis
shows a stretched valuation. Stripping out the estimated NAV for the Energy
Developments (E&P arm) of 192p, the current share price puts the Service
segments (engineering plus operations) on 16.5x 2010E P/E, a c20% premium to
the sector average.
BE:
That’s all part of a big sector note suggesting the easy money’s been made in the sector and people should be getting more selective from here.
NH:
like the rest of the market then
BE:
Indeed – it’s a common theme.
BE:
Goldman makes some similar conclusions
NH:
jeepers
NH:
Murph is awake
BE:
The European integrateds as a group are likely to
struggle to sustain the current level of production.
Current market valuations do not differentiate
companies on growth prospects, yet the Top230
winners (Shell, Statoil, BG) should benefit from
differentiated cash flow and production growth.
struggle to sustain the current level of production.
Current market valuations do not differentiate
companies on growth prospects, yet the Top230
winners (Shell, Statoil, BG) should benefit from
differentiated cash flow and production growth.
BE:
Play demand recovery through upstream, not downstream
We believe there will be a strong energy demand recovery in 2010, consistent with our economists’ 4.1% global GDP growth
forecast. This should benefit the oil price and refining margins. However, we believe the best way to exploit these trends is through
oil price exposure, rather than refining: our analysis shows that refining overcapacity will likely take many years to be absorbed in
Western Europe, while OPEC spare capacity will be consumed much faster than expected. We are upgrading our coverage view of
refining from Cautious to Neutral, but still prefer the Integrated Oils and Oil Services sub-sectors as plays on demand recovery.
We believe there will be a strong energy demand recovery in 2010, consistent with our economists’ 4.1% global GDP growth
forecast. This should benefit the oil price and refining margins. However, we believe the best way to exploit these trends is through
oil price exposure, rather than refining: our analysis shows that refining overcapacity will likely take many years to be absorbed in
Western Europe, while OPEC spare capacity will be consumed much faster than expected. We are upgrading our coverage view of
refining from Cautious to Neutral, but still prefer the Integrated Oils and Oil Services sub-sectors as plays on demand recovery.
BE:
This is a huge note best suited to be discussed elsewhere, but here’s the basics
BE:
We make the following rating/List changes: PGS
(Conviction Buy from Buy); CGG (Buy from Sell);
Subsea 7, Acergy, Soco, Motor Oil (Buy from
Neutral); Wood Group, Aker Solutions (Neutral
from Conviction Buy);Petrofac, Saras (Neutral
from Buy); Hellenic (Neutral from Sell); Prosafe
(Sell from Neutral).
(Conviction Buy from Buy); CGG (Buy from Sell);
Subsea 7, Acergy, Soco, Motor Oil (Buy from
Neutral); Wood Group, Aker Solutions (Neutral
from Conviction Buy);Petrofac, Saras (Neutral
from Buy); Hellenic (Neutral from Sell); Prosafe
(Sell from Neutral).
NH:
thanks for that
NH:
right Paul
NH:
is logged in from his new flat
NH:
and wants to talk chocolate
NH:
can you paste on the left pls
11:59AM
NH:
Paul
NH:
you there?
BE:
Feel free to join us over this side, boss.
NH:
while we wait for that
NH:
an interesting article in Gulf Keystone
NH:
in the Eveninng Standard
NH:
Gulf Keystone, the AIM-listed Kurdistan explorer made a major discovery in Northern Iraq last month and saw its shares hit the stratosphere — rising from 9p to 90p in a little under three weeks. The joy of cheering Gulf Keystone shareholders however has been tempered a little by the realisation that 50% of the find is in the hands the company’s joint venture partner, something calling itself ETAMIC.
Investigations into who or what ETAMIC is, however, have come up short with only an explanation that it is a private investment group based in the UAE. There is no further information on who its beneficial owners might be. Which has posed some scurrilous questions over whether ETAMIC might in fact be linked to Gulf Keystone directors.
Investigations into who or what ETAMIC is, however, have come up short with only an explanation that it is a private investment group based in the UAE. There is no further information on who its beneficial owners might be. Which has posed some scurrilous questions over whether ETAMIC might in fact be linked to Gulf Keystone directors.
NH:
But a spokesman for the company declares there are no cross-shareholdings or related party relationships with anyone at Gulf. Which make the following all the more intriguing: take the first letters of Gulf’s executive directors Ewen Ainsworth, Toss Kosel, Adnan Sumarrai, Mohamed Messaoudi, J(I)ohn Gerstenlauer and Chris Garrett and you get ETAMIC.
What an extraordinary coincidence.
What an extraordinary coincidence.
12:01PM
NH:
12:01PM
NH:
Paul
NH:
not sure there is a transcript
NH:
my understanding is the conference
NH:
was a speed dating one
NH:
no big speech by Todd
NH:
just lots of one to one meetings
NH:
you get 10 mins with Todd
NH:
he moves on
NH:
now I guess those conservations could have been recorded
NH:
and presumably Todd would have had a laywer and minder from the TP with him
NH:
but
NH:
will there be a transcript?
NH:
dunno
BE:
Hm. I wonder how good Simon Archer’s shorthand is?
NH:
anyway
NH:
Cadbury is making some pretty heavy allegations this morning
NH:
By Keith Campbell
Sept. 25 (Bloomberg) — Cadbury Plc contacted the U.K.
Takeover Panel over “serious misrepresentation” of Chief
Executive Officer Todd Stitzer’s remarks at an investor
conference, according to spokesman Trevor Datson.
“We have proactively been in contact with the panel in
regards to some of the serious misrepesentation of Todd
Stitzer’s comments,” Datson said by phone, declining to
comment further.
The Financial Times reported earlier that the regulator was
examining the CEO’s remarks. A Reuters report of his discussions
at Bank of America-Merrill Lynch’s conference this week said he
discussed a fair value for his company, which has been
approached by Kraft Foods Inc. Merrill subsequently said Stitzer
hadn’t discussed a valuation for a Cadbury sale.
Sept. 25 (Bloomberg) — Cadbury Plc contacted the U.K.
Takeover Panel over “serious misrepresentation” of Chief
Executive Officer Todd Stitzer’s remarks at an investor
conference, according to spokesman Trevor Datson.
“We have proactively been in contact with the panel in
regards to some of the serious misrepesentation of Todd
Stitzer’s comments,” Datson said by phone, declining to
comment further.
The Financial Times reported earlier that the regulator was
examining the CEO’s remarks. A Reuters report of his discussions
at Bank of America-Merrill Lynch’s conference this week said he
discussed a fair value for his company, which has been
approached by Kraft Foods Inc. Merrill subsequently said Stitzer
hadn’t discussed a valuation for a Cadbury sale.
NH:
serious misrepresentation
NH:
not that is heavy
NH:
(very good Emptyend)
)BE:
(And hello Keith Campbell – a regular reader.)
BE:
Did you see the New York Post story about Kraft fighting to get funding
NH:
yeah
NH:
not sure what to make of that
NH:
it was very badly written
NH:
not that that means anything
NH:
right
NH:
I have loads to do this afternoon
NH:
so we should bring this to a close
NH:
DSG note
NH:
and Kantor of BarCap
NH:
will appear soon in the usual place
NH:
no lunch today Sport
NH:
Friday is the day from hell for me
NH:
anyway
NH:
thanks for the comments
NH:
today
BE:
We didn’t have to zap any of Murphy’s comments, which is a bonus.
Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.
NH:
and all week
NH:
Bryce will be here with me next week
NH:
so see you then
BE:
Bye.
NH:
cya
NH:
and come back safe Taxloss