Markets live chat transcript for the chat ending at 12:15 on 1 Oct 2009. Participants in this chat were: Izabella Kaminska, FT (IK) Bryce Elder (BE)
IK:
Hello and welcome to Markets Live, FT Alphaville’s daily stroll around the markets
IK:
Bryce is just getting his computer working
BE:
Hello
BE:
No, Tuna – the ladies have not taken over
BE:
Neil’s off today
BE:
Miles is off in Syria, doing dilligence on Gulf Keystone Petroleum
BE:
So we’ve drafted in Iz
IK:
hello all
BE:
And hopefully Paul will make an appearance later in the day
IK:
Tuna – Tracy’s coming in tomorrow
BE:
Anyway, we have a lot of news to push on with so let’s cut to the chase
11:06AM
BE:
So it’s day four of the great Legal & General guessing game
BE:
Shares motoring yet again, and on decent volume
Legal and General Group (LGEN:LSE): Last: 90.50, up 2.7 (+3.08%), High: 94.40, Low: 88.45, Volume: 49.52m
IK:
The story is that National Australia Bank has been running the numbers
BE:
Yeah, that’s the story being pushed around
BE:
and one which we reckoned seemed a bit leftfield.
IK:
NAB already sells Legal’s policies through its UK banks, doesn’t it?
BE:
I think so, yeah.
BE:
Plus the Aussies are in Britain at the moment for the Merrill Lynch banking conference
BE:
and NAB’s relatively cashed up, but undersized in the UK
BE:
They’ve been suggested as a bidder for plenty of building societies in recent weeks. Chelsea and the like.
IK:
but would they want L&G?
BE:
That’s a very big question
BE:
The indications via 
…
…BE:
are that, while they’re not going to deny anything outright, they’ve stressed that insurance really isn’t on their roadmap at the moment.
IK:
Wouldn’t L&G asset mangement side might be attractive to NAB?
BE:
it might, I guess
BE:
But loading up on another whack of synthetic CDOs and UK commercial property debt, not so much
BE:
Plus, I really have a lot of trouble seeing NAB shareholders wearing this kind of deal.
IK:
So you think we’re back to square one then?
BE:
I do.
BE:
Something’s definitely happening with L&G
BE:
And Resolution remains its most likely predator.
BE:
Now, there’s another story around, but I’m a bit cautious about repeating it.
IK:
So this is proper 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.
BE:
It is.
BE:
Raw fugu at that.
BE:
Potentially it’s very seriously damaging to your health.
BE:
But the suggestion we’ve heard is that Resolution has met with L&G over the past few days
BE:
Now obviously Cowdery couldn’t do anything until completing the Friends Provident deal
BE:
And there are very valid questions to ask about whether Resolution’s model could even work at these kind of prices
BE:
But the suggestion we keep hearing is that Resolution is now seriously considering its options
IK:
Interesting. So why are all these other names getting mentioned?
BE:
Dunno.
IK:
NAB, QBE, AMP …
BE:
I guess it’s plausible that L&G might be getting scared and sounding out white knights from Oz.
BE:
In fact, Panmure Gordon mentioned this general theme in a sector review mailed around late yesterday
BE:
Consolidation. We view further consolidation as both desirable and inevitable. Although valuations are recovering quickly, we believe that speculation over potential corporate activity will act as an additional driver to the sector in the short term. Resolution’s acquisition of Friends Provident has acted as a catalyst that should provide further upside at Legal & General. L&G is an obvious candidate for corporate activity given its relative size, discount to EV, and the ‘hidden’ value of its asset management arm LGIM. Should an unwelcome approach be made to L&G, we would not rule out a non-life insurer acting as a potential white knight given the diversity benefits under Solvency II and L&G’s management’s comments concerning the merging of two UK life companies.
BE:
However …
BE:
it’s worth underlining that the felts were denying on Monday that any talks had taken place
BE:
This is from our colleagues at MergerMarket
BE:
A person close to Legal & General said there had been “no unusual contact” with Resolution and added: “There’s no smoke under the bonnet.” A spokesman for Legal & General said: “We don’t comment on market rumour speculation.” Resolution declined to comment on the situation.
BE:
A person close to the situation said that Resolution had not started takeover discussions with Legal & General. “Resolution has done nothing to make Legal & General prepare a defence document. Apart from buying Friends Provident there has been no action.”
IK:
Ok – thanks for all that.
IK:
Should we move on to the wider market?
BE:
Sure.
11:14AM
BE:
Doctorj: I’ll see what we can do with the Panmure note.
BE:
And Chopper – yes, obviously I meant Gulfstands, not Gulf Keystone.
BE:
Sometimes the fingers work faster than the brain
IK:
Bryce, you shouldn’t have revealed where Miles was going on his hols
BE:
Nope – I probably shouldn’t.
IK:
He wanted it to be a secret
BE:
Partly because he jittery about getting into Syria
IK:
I heard it was because he booked himself on a yoga retreat?
BE:
Ha!
BE:
Rehab perhaps. Yoga … well, I can’t imagine it.
BE:
Anyway. Wider market …
11:16AM
IK:
How’s the footsie? It was up early this morn..
BE:
Now off 27 points at 5106
BE:
Welcome to the fourth quarter, everyone
IK:
What’s that down to then?
IK:
Data?
BE:
Well, PMI was a bit weak
BE:
We should have a look at that.
IK:
Yeah, apparently unexpectedly weaker for the 2nd month running.
IK:
Howard Archer at IHS Global Insight said it was a bit disappointing
IK:
“The second successive modest retreat in the manufacturing purchasing managers’ index in September is obviously disappointing, and highlights the fact that the UK economy still faces difficult times despite a probable return to growth in the third quarter.”
“The second successive modest retreat in the manufacturing purchasing managers’ index in September is obviously disappointing, and highlights the fact that the UK economy still faces difficult times despite a probable return to growth in the third quarter.”
“However, the survey is far from disastrous as it still shows output and new orders expanding for a third month running in September, albeit at a reduced rate. Furthermore, export orders expanded at the fast rate since the end of 2007, suggesting that the weak pound and improving domestic demand in key export markets is increasingly benefiting UK manufacturers.”
IK:
BoE credit conditions should have helped though. Apparently they’re improving.
BE:
Hang on … just getting a bit more comment on the eco
BE:
This is from HSBC
BE:
The manufacturing PMI released this morning was weaker than expected while the BoE credit conditions survey
showed some improvement in availability for corporate loans but lower availability for household loans.
The headline manufacturing index showed a second consecutive monthly decline in September, falling to 49.5, from 49.7 in
August (chart 1). The consensus had expected an increase to 50.2. The detail of the survey was a little disappointing too, with
output down to 50.8 from 54.7 and new orders falling back further to 51.8. The more encouraging developments were the
ongoing stabilisation of employment intentions at 44.0 and the further rise in export orders to 51.5.
showed some improvement in availability for corporate loans but lower availability for household loans.
The headline manufacturing index showed a second consecutive monthly decline in September, falling to 49.5, from 49.7 in
August (chart 1). The consensus had expected an increase to 50.2. The detail of the survey was a little disappointing too, with
output down to 50.8 from 54.7 and new orders falling back further to 51.8. The more encouraging developments were the
ongoing stabilisation of employment intentions at 44.0 and the further rise in export orders to 51.5.
BE:
Both prices components rose further but over the past couple of months the rise in input prices (now at 49.6) has been much
more dramatic, suggesting that UK manufacturers may be starting to find it less easy to maintain their margins (chart 2).
The details of the Bank of England’s latest credit conditions survey showed a modest improvement from Q2. On the supply
side, the availability of corporate loans increased in the last three months and is expected to rise further over the next few
months. However, credit availability to households, both secured and unsecured, was reduced. The reduced availability in
secured lending was unexpected in Q3 given that it had eased a little in Q2 but that was apparently driven by lenders who had
made lending commitments to the government. Maximum loan-to-value ratios were unchanged against expectations for a rise.
Secured lending is, however, expected to increase in Q4 while unsecured is expected to be reduced further.
more dramatic, suggesting that UK manufacturers may be starting to find it less easy to maintain their margins (chart 2).
The details of the Bank of England’s latest credit conditions survey showed a modest improvement from Q2. On the supply
side, the availability of corporate loans increased in the last three months and is expected to rise further over the next few
months. However, credit availability to households, both secured and unsecured, was reduced. The reduced availability in
secured lending was unexpected in Q3 given that it had eased a little in Q2 but that was apparently driven by lenders who had
made lending commitments to the government. Maximum loan-to-value ratios were unchanged against expectations for a rise.
Secured lending is, however, expected to increase in Q4 while unsecured is expected to be reduced further.
BE:
On the demand side, demand for loans for house purchase rose (and for remortgaging stabilised) but is expected to decline
somewhat over the next three months. Demand from non-financial corporates had increased in line with expectations for
medium-sized companies but had fallen for large companies. A rise is expected in Q4.
Unsurprisingly, given the stage of the cycle, default rates increased for unsecured household lending and for corporate lending
and are expected to rise further. The surprise was the fall in defaults on secured lending to households, but lenders do not
expect that to continue.
somewhat over the next three months. Demand from non-financial corporates had increased in line with expectations for
medium-sized companies but had fallen for large companies. A rise is expected in Q4.
Unsurprisingly, given the stage of the cycle, default rates increased for unsecured household lending and for corporate lending
and are expected to rise further. The surprise was the fall in defaults on secured lending to households, but lenders do not
expect that to continue.
BE:
(Fowke!)
IK:
I’ve got a bit more from RBC Capital Markets
IK:
on the credit conditions
IK:
Overall, a broadly favourable survey and, while not a glowing report, one which will provide some reassurance to the Bank that its QE efforts are finally beginning to have some bearing on lending, even as money supply growth remains stubbornly muted. Of course, the BoE is unlikely to be derailed from its unconventional policy path by such tentative signs of improvement in the credit sector. What these data perhaps do do, however, is reinforce the notion that any possible extension of QE come Nov will be limited. Our base case currently that of a £25bn extension which, in tiding the Bank over until the next Inflation Report in Feb, would effectively signal a phased withdrawal.
Overall, a broadly favourable survey and, while not a glowing report, one which will provide some reassurance to the Bank that its QE efforts are finally beginning to have some bearing on lending, even as money supply growth remains stubbornly muted. Of course, the BoE is unlikely to be derailed from its unconventional policy path by such tentative signs of improvement in the credit sector. What these data perhaps do do, however, is reinforce the notion that any possible extension of QE come Nov will be limited. Our base case currently that of a £25bn extension which, in tiding the Bank over until the next Inflation Report in Feb, would effectively signal a phased withdrawal.
IK:
In terms of the availability of credit over the past three months, a modest net balance of respondents reported a reduction in both secured and unsecured lending to households but an increase as regards that to corporates – the cost and availability of bank finding was cited as a supporting factor here.
BE:
Hey ho. At least we’re still eating pizza
IK:
Yeah, if dominos results today are anything to go by
IK:
We are drowining ourselves in pizza
IK:
Ordering more and more online as well.
BE:
Sufficated by deep-pan
BE:
Shares at a record high I think
IK:
When does cardiac arrest become an issue?
BE:
Never quite understood Dominoes
BE:
Franchise operation charging significantly more in a commoditised market
BE:
Everything about it seems somehow wrong
BE:
Yet …
Domino’s Pizza UK and IRL (DOM:LSE): Last: 293.50, up 1.5 (+0.51%), High: 307.00, Low: 290.00, Volume: 568.31k
BE:
Anyway, we should move on
11:25AM
IK:
Why’s Lonmin so weak?
Lonmin (LMI:LSE): Last: 1,606, down 68 (-4.06%), High: 1,672, Low: 1,603, Volume: 658.28k
IK:
I thought Xstrata was free to bid from tomorrow?
Lonmin (LMI:LSE): Last: 1,606, down 68 (-4.06%), High: 1,672, Low: 1,603, Volume: 658.28k
BE:
Xstrata is
BE:
It’s the one-year anniversary of Mick The Miner paying £18.90 a share for what turns out to have been a pretty useless Lonmin minority stake
BE:
And the shares have been on a hell of a run over the past few weeks on hopes Xstrata will come back.
IK:
There were rumours to that effect again yesterday
BE:
There were, after Lonmin cancelled meetings in London at very short notice
BE:
However, there are some people who think the chances of another bid are dead in the water
BE:
And the (alleged) recent meeting no-shows might have more to do with an imminent cash call to pay down debt.
IK:
Who’s saying that?
BE:
Michael Rawlinson’s team at Liberum
BE:
Who are, for the avoidance of doubt, well worth listening to on such matters.
BE:
Here’s a few extracts from their morning note.
BE:
We consider it unlikely Xstrata will move imminently for Lonmin. At Lonmin’s current share price (ie: without a control premium) a 75% stake would cost Xstrata US$3.9bn, where a cash purchase would take Xstrata’s net debt to a punchy c.US$17bn or 51% gearing, a level which we feel is unacceptable for Xstrata’s management. More likely in our view is that Xstrata revisits its Lonmin options in Q2’10 once traction for its Anglo American merger of equals proposal becomes clearer plus Glencore’s US$2.25bn call option on Prodeco matures in March 2010.
BE:
We forecast Lonmin is loss making until 2012 on spot (EPS of -USc1/shr in 2011 and +USc7/shr in 2012) and trades on 2010 EV / EBITDA of 92.8x!!) we believe it is overbought on unmerited bid speculation.
IK:
92.8 times!
BE:
Incredible, isn’t it. Haven’t seen figures like that since dot-com.
BE:
Anyway, as noted by Lorcan on the right, the fundraising stuff all revolves around this statement that came out at 4pm yesterday
BE:
and was more or less ignored at the time
BE:
Lonmin confirms that discussions are on-going with the Historically Disadvantaged South African (“HDSA”) shareholders of Incwala and the HDSAs’ providers of finance regarding the future ownership of Incwala.
BE:
There can be no certainty that these discussions will be successfully concluded and, if no conclusion is reached, there is a possibility that Lonmin could be called upon under guarantees given at the time of the formation of Incwala in 2004. In these circumstances, these guarantees would be funded from Lonmin’s existing bank facilities.
BE:
Here’s Liberum again to explain what they think will happen
BE:
Lonmin liable for a US$82m cash call?
BE:
Before the close yesterday Lonmin issued a statement regarding its ZAR 618m (US$82m) indemnity that Lonmin has provided to Impala. The indemnity was provided by Lonmin in 2004 on behalf of its BEE partner Incwala Resources during their purchase of Impala’s 27% interest in Lonmin’s South African operating entities, for non-payment by BEE shareholders of debts due to Impala. These debts fell due on 30 September 2009 and we now expect the BEE shareholders’ loan to be in default, resulting in a potential US$58m cash call for Lonmin (US$24m falls due in 2011). This indemnity has been well flagged by Lonmin, most recently in its US$457m rights issue prospectus, thus it shouldn’t come as a surprise and it has c.US$975m in available debt facilities and we estimate September year end cash at US$181m.
BE:
We believe a Lonmin cash call represents the passage of least resistance for Impala to recover its debt. Although Lonmin could seek to recover the debt in the future, this comes at a time where Lonmin’s cash flow is under stress; we estimate YE2009 net debt at US$255m and at current spot PGM basket prices we forecast negative free cash flow of –US$194m in 2010. At current prices we estimate a US$58m cash call would push YE2010 net debt to a toppy c.US$510m (the May rights issue was launched at US$449m net debt). Lonmin owns 24% of its BEE partner Incwala and we also now wonder whether may explore ways to dispose of this once valuable asset.
IK:
Interesting. Thanks.
11:30AM
BE:
Just working through the comments on the right …
BE:
Mudcrab – you’re right to note NAB’s balance sheet is a strange old collection of stuff
BE:
So “cashed up” may not have been the right term
BE:
And, of course, the idea that AMP or similar could bid for L&G is likely to involve the latter’s shareholders taking the former’s paper
BE:
Anyway, before we get trapped on L&G again, anything else you think we should look at, Iz?
IK:
What’s this on BAE then?
BE:
Ah
BE:
A story that has, no doubt, made the Guardian very happy
BE:
BAE faces threat of bribe charges
IK:
BE:
Corruption investigators plan to press criminal charges over BAE Systems’ arms deals if last-ditch efforts to force the company to accept an agreed guilty plea fail, the Financial Times has learnt.
BE:
Efforts by the UK’s Serious Fraud Office to persuade the British group to accept a conviction and large fine could lead to an announcement either way by as early as Thursday, insiders said.
BE:
A plea deal or contested prosecution would bring to a head one of the UK’s most politically charged cases and threaten BAE with big financial penalties and the prospect of being barred from bidding for lucrative international public works contracts.
BE:
Charges by the SFO were likely to be announced soon if the high-risk strategy of trying to force the company into a US-style plea bargain did not work, insiders said.
IK:
How have the shares reacted?
BE:
Badly
BE:
Down 5.2% at 331p according to my screen
IK:
(Bryce has a special screen)
BE:
There’s a bit of surprise, I think, that the government is taking a hard line on this one
BE:
BAE previously having “the keys to the back door of No.10,” or whatever the quote was.
IK:
Got any research?
BE:
Yeah – few things.
BE:
Here’s Credit Suisse
BE:
Which is remaining positive in the face of all adversity
BE:
Action – We reiterate our Outperform rating and would be a buyer into any weakness on the ongoing SFO six-year
investigation stories that are getting widespread press coverage today. We would see any settlement of the case (if it
happens) as a positive. We do not think this damages BAE competitiveness relative to peers.
investigation stories that are getting widespread press coverage today. We would see any settlement of the case (if it
happens) as a positive. We do not think this damages BAE competitiveness relative to peers.
BE:
The bribery investigations relate to BAE programmes in Tanzania, the Czech Republic, South Africa and Romania in
the 1990s and have been under investigation for six years.
the 1990s and have been under investigation for six years.
BE:
This follows stories earlier in the week
• on Monday (28/09) the Daily Mail reported BAE Systems may pay a fine of between £500m-£1bn in relation to
bribery charges. The report quoted sources close to BAE that there was a 50-50 chance a deal will be struck.
• last week on Thursday (24/09) Reuters reported that BAE had until 30 September to negotiate a settlement of the
case “otherwise, prosecution would be considered”.
• on Monday (28/09) the Daily Mail reported BAE Systems may pay a fine of between £500m-£1bn in relation to
bribery charges. The report quoted sources close to BAE that there was a 50-50 chance a deal will be struck.
• last week on Thursday (24/09) Reuters reported that BAE had until 30 September to negotiate a settlement of the
case “otherwise, prosecution would be considered”.
BE:
Is a settlement possible?
BAE has consistently denied wrong-doing in all of these cases. However, we believe it is possible the company could
settle the cases to get closure on the issue.
We have not had any guidance or any comment from the company at all in this regard, but believe six-years of negative
press could be enough for management to take a view.
Press reports are mixed on this (today’s Radio 4 commentary suggested the company could fight what may be a weak
case because bribery legislation came into law after BAE won work, but also acknowledge the opportunity for closure).
We would see a settlement as a positive event to give clarity on the issue and move forward.
BAE has consistently denied wrong-doing in all of these cases. However, we believe it is possible the company could
settle the cases to get closure on the issue.
We have not had any guidance or any comment from the company at all in this regard, but believe six-years of negative
press could be enough for management to take a view.
Press reports are mixed on this (today’s Radio 4 commentary suggested the company could fight what may be a weak
case because bribery legislation came into law after BAE won work, but also acknowledge the opportunity for closure).
We would see a settlement as a positive event to give clarity on the issue and move forward.
BE:
What scale of fine?
The Daily Mail suggestion of a fine of £500m to £1bn seems on the high side to us relative to the scale of the
programmes that are under investigation.
We can find no UK precedents for such a fine. Last week, a range of construction companies were fined single-digit
millions for colluding in bidding for public construction projects.
The Daily Mail suggestion of a fine of £500m to £1bn seems on the high side to us relative to the scale of the
programmes that are under investigation.
We can find no UK precedents for such a fine. Last week, a range of construction companies were fined single-digit
millions for colluding in bidding for public construction projects.
BE:
In the US various defence contractors have historically been fined for bribery:
• when Boeing was found guilty in 2004 of bribing a US government official, the Boeing CFO and the official were
sent to jail and it was fined $615m for bribery across various programmes.
• Titan was fined $28.5m in 2005 under the US Foreign Corrupt Practises Act (FCPA); and
• Lockheed Martin was fined $24.8m in 2005 under FCPA laws.
• when Boeing was found guilty in 2004 of bribing a US government official, the Boeing CFO and the official were
sent to jail and it was fined $615m for bribery across various programmes.
• Titan was fined $28.5m in 2005 under the US Foreign Corrupt Practises Act (FCPA); and
• Lockheed Martin was fined $24.8m in 2005 under FCPA laws.
BE:
Are there wider negative impacts for BAE:
BAE’s management has changed significantly since the programmes under investigation were signed. The current
Chairman (who joined in 2004) and CEO (who took over Sept-08) are in the process of implementing the 30
recommendations of the Woolf commission to raise the ethical practices (issued May-08). It appears to us they have a
strong claim that they have not (and have not for many years) won work through unethical practises.
We would also highlight that in the US a number of BAE’s peers have been found guilty of bribery and have continued
to win work. BAE is treated as a home supplier in the US (with its own CEO and 47,000 US employees).
BAE’s management has changed significantly since the programmes under investigation were signed. The current
Chairman (who joined in 2004) and CEO (who took over Sept-08) are in the process of implementing the 30
recommendations of the Woolf commission to raise the ethical practices (issued May-08). It appears to us they have a
strong claim that they have not (and have not for many years) won work through unethical practises.
We would also highlight that in the US a number of BAE’s peers have been found guilty of bribery and have continued
to win work. BAE is treated as a home supplier in the US (with its own CEO and 47,000 US employees).
BE:
That’s pretty comprehensive I hope
BE:
And here’s a quicker to read summary from Christophe Menard at Bryan Garnier
BE:
We would like to tone-down
the apparent dramatic turn of events, as both parties will certainly seek
to appease the situation in the interest of all stakeholders.
the apparent dramatic turn of events, as both parties will certainly seek
to appease the situation in the interest of all stakeholders.
BE:
The current media onslaught on BAE may die down in the coming days, but
today’s extensive press coverage will test whether BAE shares factor in the
corruption issues at stake.
today’s extensive press coverage will test whether BAE shares factor in the
corruption issues at stake.
BE:
Much do about nothing. Yesterday, the SFO had to deny that it had imposed
a September 30th deadline on BAE Systems. Speculations that emerged on
Sunday and surfaced again on Wednesday afternoon in the Financial Times
seem to be too sensational to be true: a £1bn fine appears extremely high for a
£40m contract in Tanzania and a tender offer in the Czech Republic that never
brought any business to BAE Systems. If the case had been so promising, the
SFO would not have sought a settlement before going to court: it would have
gone to court immediately.
a September 30th deadline on BAE Systems. Speculations that emerged on
Sunday and surfaced again on Wednesday afternoon in the Financial Times
seem to be too sensational to be true: a £1bn fine appears extremely high for a
£40m contract in Tanzania and a tender offer in the Czech Republic that never
brought any business to BAE Systems. If the case had been so promising, the
SFO would not have sought a settlement before going to court: it would have
gone to court immediately.
BE:
Putting an end to the investigation would be in the sake of public
interest. Both the SFO and BAE appear to have spent considerable time and
money investigating the issue. Bringing criminal charges against BAE would
certainly start a long process leading to a trial. The attorney General may have
to judge whether this must be pursued in the safe of public interest. In
addition, it could impede BAE from being awarded public-funded projects. It is
obvious that such investigation draws much public attention, after the case on
the Tornado sale to Saudi Arabia was dropped. Still, in times of economic
hardships, penalising one of the national champions at the potential expense of
jobs may be short-sighted political calculations. Our view is therefore that both
the SFO and BAE will strive to close the case without imposing a prohibitive fine
on BAE.
interest. Both the SFO and BAE appear to have spent considerable time and
money investigating the issue. Bringing criminal charges against BAE would
certainly start a long process leading to a trial. The attorney General may have
to judge whether this must be pursued in the safe of public interest. In
addition, it could impede BAE from being awarded public-funded projects. It is
obvious that such investigation draws much public attention, after the case on
the Tornado sale to Saudi Arabia was dropped. Still, in times of economic
hardships, penalising one of the national champions at the potential expense of
jobs may be short-sighted political calculations. Our view is therefore that both
the SFO and BAE will strive to close the case without imposing a prohibitive fine
on BAE.
IK:
Thanks for that
IK:
what next?
11:41AM
BE:
Should we have a go at small cap corner?
IK:
Er … Do we have to?
BE:
I think so. It’s a popular segment.
IK:
But I’ve seen some of the emails you guys get
BE:
You mean the sweary stuff?
BE:
The folks who wish us an eternity rotting in hell?
IK:
Yes. And those are just the ones that get past the spam filter.
BE:
It is curious, I admit.
BE:
We take the rip indiscriminately.
BE:
Have accused miriad Footsie companies of lying, cheating or fiddling the figures
BE:
But as soon as we make any kind of reference to an AIM explorer or bluesky concept stock, the email goes totally nuts
IK:
In every sense
BE:
Yup.
BE:
Reams of this tinfoil-hat stuff about how we’ve got an agenda
IK:
Perhaps you need a disclaimer
IK:
“The author does not hold a personal position in …”
IK:
“The views expressed do not represent those of …”
BE:
It’s all just a bit silly, to be honest.
BE:
If the one-punt fanatics don’t get what Markets Live is …
BE:
ie, a freewheeling, unashamedly subjective chat about what some old hacks have heard around the traps that morning …
BE:
then there’s a little box marked X in the corner of the browser in which to register their disapproval.
IK:
You’re beginning to rant now.
BE:
I am. Sorry.
BE:
We should push on with matters in hand.
11:43AM
IK:
So let’s get on to your favourite subject
IK:
Regal Petroleum
BE:
IK:
They’re having a bit of a bad time today
IK:
Drilling update right?
BE:
Right.
BE:
Somewhere between disappointing and inconclusive, depending on how you speak to.
BE:
After unloading the completion brine and diesel cushion, the MEX-106 well continues to stabilise and is currently delivering new production of 50,000 m3/d gas (1.76 MM scf/d) and 10 m3/d condensate (63 bpd) on a 10mm choke. The down-hole measurements indicate that around 90% of the flow is coming from the B20 layer, at the anticipated reservoir pressure of around 350 ATM (5,100 psi). Flow was also expected from the B23 layer, but to date this has been limited and a review is being conducted to assess whether vertical connectivity of this particular sand with other neighbouring historical wells may have contributed to more extensive local depletion than initially envisaged.
IK:
Sounds like a bit of overdrilling?
IK:
Debbiedowner?
IK:
Classic Pennsylvania oil rush mistake.
IK:
except it’s gas of course
IK:
All in all a bit of a mess
IK:
secondary drilling objective failed too
BE:
Hm.
BE:
How are the shares doing?
IK:
Regal down 12.3% at 94.5p
IK:
That’s steep, even for Regal
BE:
It is
BE:
And that’s despite the brokers lining up to say this is a buying opportunity
BE:
As is their wont.
BE:
Here’s Merrill Lynch
BE:
Regal this morning provided an update on MEX-106 – the first of two new generation wells drilled at the company’s MEX-GOL and SV fields in Ukraine. The well has been brought on stream with the flow rate of 60mcm/d mainly coming from the B20 layer. Lower than expected flow rate from another (B23) layer is likely to be explained by the interval’s connectivity with the neighbouring wells, while the perforation of T-sands and D-sands (source of the NAV upside) has been suspended due to a minor (and likely temporary) mechanical issue. With the Regal expected to perforate T-sands and D-sands on MEX-106 in the coming weeks (after brining SV-58 on stream), the MEX-106 productivity could still reach 180mcm/d by the year end – our estimate of the average flow rate for Regal.
BE:
…but the SV-58 flow rates expected in early November Regal is expected to test B-sand, T-sand and D-sand individual flowstreams from the SV-58 by November. With the SV-58 encountering 20m of net pay in a newly discovered B24 reservoir and showing three times higher than anticipated pressure, the potential of SV-58 is vast. The ability to achieve sustainable commercial flow rates from the T-sands, D-sands and B24 horizon could present additional NAV uplift for Regal, while higher than expected pressure could enable
Regal to increase total production to over 3,000 boe/d, which is the company’s
guidance, by the year end.
Regal to increase total production to over 3,000 boe/d, which is the company’s
guidance, by the year end.
IK:
DebbieDowner says it’s always tough not to damage well bore though.
IK:
But OK well for them prior to issues
BE:
Right. Does that mean they’ve made a pig’s ear of it?
IK:
Hmm, not too sure. My geophysics isn’t good enough. Debbiedowner is the man to ask.
IK:
Geology even
BE:
In the meantime, here’s a line from Seymour Pierce.
BE:
Regal has provided an update on its three new-generation wells in the Ukraine.
MEX-106 is onstream and producing gas and condensate at good rates from one
zone in the B Sands. The company had expected a further sequence in the B Sands
to produce but as yet its contribution has been limited and Regal is conducting a
review as to its likely future productivity. Mechanical problems have, thus far,
prevented testing of the lower T and D Sands. On well SV-58, Regal is continuing
with completion work across all the identified gas zones ahead of running a testing
programme. Drilling on the third new-generation well (SV-61) is progressing to plan.
These are deep, complex and high pressure wells that have to be handled with care.
The delays are substantially mechanical issues and do not detract from the reserveupside
story. BUY.
MEX-106 is onstream and producing gas and condensate at good rates from one
zone in the B Sands. The company had expected a further sequence in the B Sands
to produce but as yet its contribution has been limited and Regal is conducting a
review as to its likely future productivity. Mechanical problems have, thus far,
prevented testing of the lower T and D Sands. On well SV-58, Regal is continuing
with completion work across all the identified gas zones ahead of running a testing
programme. Drilling on the third new-generation well (SV-61) is progressing to plan.
These are deep, complex and high pressure wells that have to be handled with care.
The delays are substantially mechanical issues and do not detract from the reserveupside
story. BUY.
11:51AM
BE:
Still in smallcap corner …
BE:
Quintain Estates
Quintain Estates and Development (QED:LSE): Last: 227.00, up 16 (+7.58%), High: 228.00, Low: 215.25, Volume: 167.28k
IK:
Why’s that then?
BE:
A generally upbeat trading statement
BE:
Green shoots
BE:
Rental collection at 96.5%, with three tenants in admin
BE:
And they’ve tapped up investors for £49m to pay down debt
IK:
This is the company that’s building houses around Wembley, right?
BE:
It is, yeah.
BE:
And some gasworks near the Isle of Dogs, which they’ve rebranded Greenwich Peninsula
BE:
Anyway, Arbuthnot thinks a cash call is coming
BE:
Quintain has advised that it is continuing to repatriate cash. In particular, it has received cash of £49.0m from putting some of its investment properties into a vehicle as seeding for a new fund. We still estimate that gearing is likely to be 140%, as compared to the covenant of 150%.
BE:
In our opinion, following the improvement in the market and the recent appointment of William Rucker as non-executive Chairman, we consider that the company is likely to be looking to raise further equity in the near future.
11:54AM
IK:
As Debbie points out, GE’s NBC stake is in the news again
IK:
Speculation about what GE is going to do with Vivendi’s 20% stake
IK:
If Vivendi opts to sell it
IK:
Vivendi has an annual period to exercise its option to sell that runs from Nov. 15 to Dec. 10
IK:
And apparently, this time round the odds it will sell are higher than usual, because it might want to cash for further acquisitions
IK:
If that happens there’s lots of speculation about what GE might do with the stake. It could buy it itself, IPO it, or sell off the entire business, as it’s always been a problematic fit for GE
IK:
According to the WSJ though GE is doing a frightful amount of due dilligance already, much more than needed for option 1 or 2.
IK:
Comcast is the main name being linked to a sale, although apparently they’ve now denied reports they had reached an agreement.
IK:
That story by the way was nicely positioned on the top of CNBC’s front page this morning. (NBC of course owns CNBC).
IK:
Anyway here’s some thoughts from Barcap on GE’s options
IK:
NBC Universal owns several interesting properties including USA Network, Bravo, CNBC,
SyFi, MSNBC, Universal Studios, the NBC network, broadcast stations, Universal Studios
and theme parks. FYE09 revenue is estimated at $15.1bn, down from $16.9bn in 2008
with EBIT forecast at $2.3bn, down from $3.1bln y/y. It is difficult to tease a truly
comparable EBITDA number for NBCU from GE’s results given differences in reporting.
We believe assigning a 9x multiple results in a $32-33bn value for NBCU, or $6.5bn for
Vivendi’s 20% stake. Given higher cable networks values and trough EBITDA, we could
argue a higher sum-of-the-parts valuation.
SyFi, MSNBC, Universal Studios, the NBC network, broadcast stations, Universal Studios
and theme parks. FYE09 revenue is estimated at $15.1bn, down from $16.9bn in 2008
with EBIT forecast at $2.3bn, down from $3.1bln y/y. It is difficult to tease a truly
comparable EBITDA number for NBCU from GE’s results given differences in reporting.
We believe assigning a 9x multiple results in a $32-33bn value for NBCU, or $6.5bn for
Vivendi’s 20% stake. Given higher cable networks values and trough EBITDA, we could
argue a higher sum-of-the-parts valuation.
IK:
Vivendi has been open in that it views its stake as ultimately a source of liquidity to fund
other M&A options. As a result, we think it is very unlikely the company will increase its
stake, with disposal simply a matter of time. With Vivendi no longer bidding for Zain,
the urgency around exercising the put may have faded somewhat. Nonetheless, Vivendi
CEO Levy indicated at an investor conference that the company has not yet decided if it
will exercise the put.
other M&A options. As a result, we think it is very unlikely the company will increase its
stake, with disposal simply a matter of time. With Vivendi no longer bidding for Zain,
the urgency around exercising the put may have faded somewhat. Nonetheless, Vivendi
CEO Levy indicated at an investor conference that the company has not yet decided if it
will exercise the put.
IK:
If Vivendi exercises its put, we would expect a transaction to be announced in the first half
of 2010. The majority of the cable/media names have spent the past 12 months
deleveraging and/or executing liability management transactions clearing out front-end
maturities. This has effectively built a significant amount of capacity for M&A or increased
shareholder returns in 2010, as we continue to believe the space is not permanently
resetting credit metrics tighter. For media specifically, we think structural issues such as
internet video, increased DVR penetration, and potentially higher growth international
opportunities could lead to a pick-up in M&A. We did not anticipate Disney’s acquisition of
Marvel, nor would we have valued Marvel that highly. In addition, we note that values for
the Travel Channel represented in the press are well above our initial expectations.
of 2010. The majority of the cable/media names have spent the past 12 months
deleveraging and/or executing liability management transactions clearing out front-end
maturities. This has effectively built a significant amount of capacity for M&A or increased
shareholder returns in 2010, as we continue to believe the space is not permanently
resetting credit metrics tighter. For media specifically, we think structural issues such as
internet video, increased DVR penetration, and potentially higher growth international
opportunities could lead to a pick-up in M&A. We did not anticipate Disney’s acquisition of
Marvel, nor would we have valued Marvel that highly. In addition, we note that values for
the Travel Channel represented in the press are well above our initial expectations.
IK:
At a recent conference, Comcast COO Steve Burke indicated that the company could add
programming assets. Ever since the company’s failed bid for Walt Disney, the market has at
various points anticipated another large content acquisition from Comcast. We do think
that should GE shop the Vivendi stake, Comcast would have to be considered a likely buyer.
programming assets. Ever since the company’s failed bid for Walt Disney, the market has at
various points anticipated another large content acquisition from Comcast. We do think
that should GE shop the Vivendi stake, Comcast would have to be considered a likely buyer.
BE:
Ok – thanks for that.
11:58AM
BE:
Nearly midday
BE:
And there’s loads of stuff we haven’t mentioned
BE:
Cisco’s $3bn bid for Tandberg, for instance
BE:
More tech M&A
IK:
That would be the Norwegian conferencing specialist
BE:
Miles, I think, was following this one very closely
BE:
The rest of us were sick of it after the bid collapsed at the eleventh hour last time
BE:
And blew several high-rated bandits to smithereens.
BE:
Anyway, shares trading a wee bit through the offer price last time I checked
BE:
There’s a story going around that Ericsson might counterbid.
BE:
Although the feedback I’ve been getting this morning is that the Tandberg price is already pretty full
BE:
The deal’s on friendly terms
BE:
And the sale process was effectively a beauty parade
BE:
All of which, you’d think, limits the chances of someone else appearling
BE:
(Lorcan – it’s 7am in Manhattan. Give the man a break.)
BE:
Also, we haven’t mentioned Ken Lewis
IK:
Ahhh Ken Lewis
BE:
Great line in the Journal this morning …
BE:
One sign to company insiders that something was up: Mr. Lewis returned to work after Labor Day in a full beard, which no one at the bank had ever seen before. He shaved it off after one day
BE:
Right – do we have time for a quick look at oil, Iz?
IK:
Yeah, why not
12:05PM
BE:
Massive spike yesterday. What was the story there?
IK:
I think people are confused
IK:
about what oil is
IK:
Yesterday’s EIA data didn’t help
IK:
with the confusion that is
IK:
The analysts interpreted it as bearish
IK:
The media just saw the spike and put it down to the stockdraw
IK:
Except of course the stock is only being drawn because of a weakening contango which means it makes more sense to process the crude into product and store that in a contango structure.
IK:
Doesn’t necessarily mean more demand.
IK:
Some good stuff from Harry Tchilinguirian from BNP Paribas on the matter.
IK:
Nothing in this afternoon’s US oil inventory statistics was bullish: crude stocks built more than expected; changes in the product inventories failed to dent surplus supplies and contraction in distillate demand (tied to the health of the economy) widened to 9.2% y/y. And in the broader economic picture, US job losses in the private sector came above expectations in the ADP report while today’s release of the Chicago PMI reminds us, if need be, that the recovery is fragile by falling back into contractionary territory.
Yet oil is up this afternoon, which gives as the opportunity to re-iterate what we have stated in previous commentary: oil has been trading more like an investment asset since the financial crisis and less as a consumption asset. So despite its bearish fundamentals, it remains buffeted between FX and equity moves. If US equities are currently down on the economic data this afternoon, the USD on the other hand is weakening today against the Euro and commodity currencies like Aussie or Canadian Dollar (see below).
IK:
And here’s JBC Energy
IK:
On the last trading day of the third quarter, crude oil futures surged on the back of what was interpreted as bullish EIA inventory data. At least newswires attributed the 6% gain in the oil complex to a 1.7-million-b/d gasoline stockdraw and a 5.4% increase in implied demand (4-week average). Without question this looks fine at the first glance, but in reality it is a sign of how much the market is based on hope, rather than solid analysis of facts. As for the stockdraw, it comes after counterseasonal builds amounting to 9 million barrels in the last three weeks (compared to 5-year average). More importantly, while EIA weekly implied demand data is known for its inaccuracy, at the moment the comparison is against a period in 2008, when hurricanes Gustav and Ike coincided with the full start of the recession. Accordingly, final September 2008 gasoline demand figures were down by a hefty 8.2% yoy. Furthermore, taking an average of Mastercard Advisors’ data shows that gasoline sales
were in fact down by 0.6% in the last four weeks!
were in fact down by 0.6% in the last four weeks!
Another sign of how much the market has dislocated from the fundamentals methinks.
IK:
Apparently sugar is the new oil anyway
BE:
Really?
IK:
sure is
IK:
At it’s highest since the start of the month
BE:
That’s an argument I haven’t heard since the biofuelrush.
IK:
Here’s barcap
IK:
Sugar rises to its highest since the start of the month on supportive fundamentals; we
anticipate further price gains.
Prices with the exception of sugar and corn closed on a weaker note yesterday. Prices are
broadly higher across the complex this morning buoyed by supportive outside markets and
a weaker dollar. Front-month ICE sugar prices closed 3.6% higher yesterday, at 23.5
cents/lb – the highest close for prices since early September when they surged to 28 and a
half year highs. We continue to believe that market fundamentals continue to offer furtive
grounds for additional price gains
anticipate further price gains.
Prices with the exception of sugar and corn closed on a weaker note yesterday. Prices are
broadly higher across the complex this morning buoyed by supportive outside markets and
a weaker dollar. Front-month ICE sugar prices closed 3.6% higher yesterday, at 23.5
cents/lb – the highest close for prices since early September when they surged to 28 and a
half year highs. We continue to believe that market fundamentals continue to offer furtive
grounds for additional price gains
IK:
). Having experienced a poor harvest in 2008-09 due to inadequate
Monsoon rains, distortions in the cane pricing mechanism, and competition from strong gur
prices, the current Indian 2009-10 crop has suffered at the hands of another very poor
Monsoon season – the worst for several decades – which has contributed, as with the
previous year, to a continuous stream of reduced output estimates. Brazil meanwhile, had
been expected to offer an ameliorating effect on the global deficit with a record level of
sugar production. While still up close to 12% y/y, poor weather conditions in June and July
have helped to cut short available crushing days as well as sucrose content. On the demand
side, the apparent v-shaped recovery in the global economy has provided further broad
impetus. With this balance in mind, we expect prices to average 22 cents/lb in Q4 09 and
then 24.5 cents/lb in H1 10. As with all agricultural markets, higher prices inevitably send a
positive output signal to the supply side, yet it takes 12-18 months for a sugar crop to
mature and that needs to be slotted in with the current crop cycle, thus any assumption of a
bumper 2010-11 crop may be presumptuous. In India especially, such will be the weakness
in stock levels by that stage that we think it will be very difficult for prices to fall with
anything but hesitancy.
Monsoon rains, distortions in the cane pricing mechanism, and competition from strong gur
prices, the current Indian 2009-10 crop has suffered at the hands of another very poor
Monsoon season – the worst for several decades – which has contributed, as with the
previous year, to a continuous stream of reduced output estimates. Brazil meanwhile, had
been expected to offer an ameliorating effect on the global deficit with a record level of
sugar production. While still up close to 12% y/y, poor weather conditions in June and July
have helped to cut short available crushing days as well as sucrose content. On the demand
side, the apparent v-shaped recovery in the global economy has provided further broad
impetus. With this balance in mind, we expect prices to average 22 cents/lb in Q4 09 and
then 24.5 cents/lb in H1 10. As with all agricultural markets, higher prices inevitably send a
positive output signal to the supply side, yet it takes 12-18 months for a sugar crop to
mature and that needs to be slotted in with the current crop cycle, thus any assumption of a
bumper 2010-11 crop may be presumptuous. In India especially, such will be the weakness
in stock levels by that stage that we think it will be very difficult for prices to fall with
anything but hesitancy.
IK:
. If in addition we factor in higher oil prices and moderate support on
the demand side from the recovery in the global economy, then even with the likely
penetration of positive supply expectations for India for 2010-11 as we move towards H2
10, price declines are likely to be moderate. We forecast the average in H2 10 to be 21
cents/lb. In news this morning, the executive director of the Indonesian Sugar Refiners’
Association said Indonesia has cut import duties for white and raw sugar to 400 rupiah and
150 rupiah/ kg, respectively, from 790 and 550 rupiah, in order to boost stocks and ease
prices, adding that the finance minister had already issued a decree on the tax cut on 24
September, with the new import duties applicable to shipments arriving during the period
from October to December (Reuters). Grains prices are mixed, with soybean and wheat
prices edging higher, while corn prices, which have been leading the grains higher over the
week, have eased overnight.
the demand side from the recovery in the global economy, then even with the likely
penetration of positive supply expectations for India for 2010-11 as we move towards H2
10, price declines are likely to be moderate. We forecast the average in H2 10 to be 21
cents/lb. In news this morning, the executive director of the Indonesian Sugar Refiners’
Association said Indonesia has cut import duties for white and raw sugar to 400 rupiah and
150 rupiah/ kg, respectively, from 790 and 550 rupiah, in order to boost stocks and ease
prices, adding that the finance minister had already issued a decree on the tax cut on 24
September, with the new import duties applicable to shipments arriving during the period
from October to December (Reuters). Grains prices are mixed, with soybean and wheat
prices edging higher, while corn prices, which have been leading the grains higher over the
week, have eased overnight.
BE:
Ok – thanks
12:10PM
BE:
Right – we’re 10 minutes past deadline
BE:
And we haven’t even had time to mention the banks
BE:
Namely this
BE:
Oct. 1 (Bloomberg) — Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, rescued by British taxpayers last year, injected 3.03 billion euros ($4.4 billion) into their Irish units during the past 10 months amid rising real estate losses.
BE:
And, of course, this
BE:
Applegarth comes in from cold to join Apollo as a senior adviser: Mr Applegarth has joined Apollo Management as a senior adviser to its European fund, which invests in loans that have turned sour.
IK:
But he’s only an adviser, so doesn’t FSA approval
BE:
Phew.
IK:
doesn’t need fsa approval, rather
BE:
Anyway, we have places to go so we’ll have to allow you to make your own snide comments about that.
BE:
Thanks for all your comments today
BE:
And thanks Izzy for stepping in
IK:
No problemo
BE:
Tracy will be here tomorrow.
IK:
Get your airline questions ready
BE:
Indeed.
BE:
Until then, goodbye.
IK:
Bye