Markets live chat transcript for the chat ending at 12:15 on 8 Oct 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)
NH:
hello there
NH:
it’s 11.03 and that means it is time for
NH:
Markets Live
NH:
FT Alphaville’s markets discussion
NH:
With Miles still in Syria
NH:
I am joined by Bryce Elder from the London markets team
BE:
Hi
NH:
so
NH:
Lloyds planning record breaking £15bn cash call
NH:
Ladbrokes passing round the hat for £300m after losing a packet on football bets
NH:
and the market is…..
BE:
up of course
BE:
32 points better at 5,141
BE:
look – you just don’t get it do you
BE:
the dollar goes down
BE:
risk assets, such as equities, go up
BE:
Simple
BE:
look at the miners …
NH:
Hmmm
Vedanta Resources (VED:LSE): Last: 2,193, up 88 (+4.18%), High: 2,260, Low: 2,156, Volume: 1.43m
Xstrata (XTA:LSE): Last: 957.00, up 32 (+3.46%), High: 964.00, Low: 945.00, Volume: 7.32m
Anglo American (AAL:LSE): Last: 2,173, up 75 (+3.58%), High: 2,191, Low: 2,141, Volume: 3.34m
BE:
all flying this morning because the dollar index is down
BE:
and of course the results from Alcoa, which kicked off the US reporting season
BE:
and weren’t too bad
BE:
actually here’s a bit of comment on the figs from RBS
BE:
Alcoa gets everyone off to a good start
BE:
-MINING SECTOR
Alcoa beats 3Q09 nrs, moderate positive for Rio…Alcoa turned to
profitability in 3Q09 (one quarter ahead of expectations), on the back
of higher pricing and better than anticipated cost measures. Headline
3Q09 net income was US$73mn from continuous operations, or a profit of
USc7/share. Adjusted 3Q09 profitability (excluding US$34m of one offs)
came in at US$39mn, or a profit of Usc4/share, beating Bloomberg
Alcoa beats 3Q09 nrs, moderate positive for Rio…Alcoa turned to
profitability in 3Q09 (one quarter ahead of expectations), on the back
of higher pricing and better than anticipated cost measures. Headline
3Q09 net income was US$73mn from continuous operations, or a profit of
USc7/share. Adjusted 3Q09 profitability (excluding US$34m of one offs)
came in at US$39mn, or a profit of Usc4/share, beating Bloomberg
BE:
consensus of a loss of Usc9/share -which is positive for sentiment. We
think this result is a decent readthrough for steady progress at Rio
Tinto Alcan, as much of the improvement there is also expected on the
back of gradual volume improvments and cost delivery (Rio up just 1% in
Aus, in line w/BHP). Procurement savings and sustainable capex
reductions also good readthroughs for RTA targets. Alcoa aluminium
outlook relatively in line with RBS expecting 2H09 aluminium consumption
growth of 11%, vs our expectation of 10% growth in 2010.
think this result is a decent readthrough for steady progress at Rio
Tinto Alcan, as much of the improvement there is also expected on the
back of gradual volume improvments and cost delivery (Rio up just 1% in
Aus, in line w/BHP). Procurement savings and sustainable capex
reductions also good readthroughs for RTA targets. Alcoa aluminium
outlook relatively in line with RBS expecting 2H09 aluminium consumption
growth of 11%, vs our expectation of 10% growth in 2010.
11:07AM
NH:
Of course
NH:
how silly of me
NH:
I should have learnt by now
NH:
dollar down
NH:
everything else up
NH:
I just thought a tidal wave of issuance coming might have knocked sentiment
NH:
but you’re right
NH:
and in any case
NH:
cash calls have done nothing to dent the market all year
NH:
why should a £15bn issue from Lloyds make any difference
NH:
(meryn – very good)
11:08AM
NH:
Okay
NH:
let’s have a look at Lloyds
BE:
well, amazingly they opened the day higher
BE:
but have come under a pressure in the last hour or so
BE:
Down 3.25p at 92.4p
BE:
and the view among analysts at least seems to be
BE:
Lloyds will just be able to find the £25bn needed to withdraw completely from the APS
BE:
and that is good news because the scheme is expensive
NH:
hmmm
NH:
it’s expensive if you think bad debt charges have peaked like Eric Daniels
BE:
Indeed
BE:
of course, one unanswered question is why the government is going to back the cash call
BE:
as we reported this morning
NH:
that’s a good question
NH:
been trying to figure out an answer to that
NH:
another £6bn of tax payers money
NH:
into the Lloyds money pit
NH:
why
BE:
Hm
BE:
perhaps it looks good politically not to be on the hook for £200bn of toxic assets
BE:
anyway
BE:
here’s a quick round-up of the best analyst reaction
BE:
starting with Jonathan Pierce of Credit Suisse
BE:
What does that do to the numbers?
In totality then, we believe it is feasible that LBG could raise £25bn through, for example, £10bn of asset sales and liability management, and a £15bn rights issue with UKFI subscribing to just over £6bn of that. But execution risk is likely to determine whether this is allowed.
In totality then, we believe it is feasible that LBG could raise £25bn through, for example, £10bn of asset sales and liability management, and a £15bn rights issue with UKFI subscribing to just over £6bn of that. But execution risk is likely to determine whether this is allowed.
BE:
If they do manage to escape the grips of APS on the basis described, we think the share count of LBG would increase to over 50bn versus 41bn on the current plan (this does not take account of any rights issue discount, which will wash through in valuation terms via additional subscriptions to holders). On that basis 2013E normalised EPS would be diluted from our 12p forecast to 10p. However, the tangible NAV in 2013 would rise to around 110p from our current forecast of 80p, a function of the lack of APS fee payments (net of APS payouts) and B share coupons. In itself, this wouldn’t lead us to substantially change our view on the company. The big question, then, would be how the EC responds to a reduced level of state-aid.
BE:
Overall, we still think that LBG will struggle to escape APS altogether, with a marked reduction in participation most likely. But it is increasingly difficult to analyse this bank right now and hence we stand by recent comments – that watching this evolve from the sidelines is probably sensible.
BE:
here’s Noumra
BE:
In our view, the key judgment for investors is to compare the reported proposals with the current form of the APS.
NH:
(Itzman, very, very good)
BE:
Along with a capital increase of £15bn, press reports indicate that the group is considering disposals and preference share/hybrid conversions to raise a further £10bn. Assuming that the effect of these other measures is the same as raising £15bn of equity, the result would be to increase the market cap of Lloyds from the current £40bn as proposed with the APS, by 25% to £50bn. This would therefore increase the required normalised earnings by 25%, making the valuation of the shares more demanding, in our view. In addition to this, the company will be retaining the £15bn of capital rather than paying HMT the fee for the APS. So investors need to consider the merits of a £25bn capital raising versus a £15bn capital raising with proceeds to the HMT in assessing which is the preferred route for generating value. We believe that exiting the APS would increase risk in the shares, as all the downside would be retained by the equity shareholders.
BE:
And here’s RBS
BE:
FT reports that Lloyds is approaching investors re a GBP15bn capital
raising in an effort to withdraw completely from GAPS. Our estimates are
that this would require minimum GBP20bn, in which case such a move would
likely also requires further capital raising from asset disposals and
b/s shrinkage, as well as new preference share issuance. 43% new equity
would likely be subscribed by existing govt stake. By our base case,
GAPS participation = 19p value destructive, ie avoidance would raise our
TP from 150p to 170p. But downside risk would return to equity
investors: so, any such move would require FSA approval, which last
month suggested that Lloyds would need GBP24bn new capital to pass their
stress test.
raising in an effort to withdraw completely from GAPS. Our estimates are
that this would require minimum GBP20bn, in which case such a move would
likely also requires further capital raising from asset disposals and
b/s shrinkage, as well as new preference share issuance. 43% new equity
would likely be subscribed by existing govt stake. By our base case,
GAPS participation = 19p value destructive, ie avoidance would raise our
TP from 150p to 170p. But downside risk would return to equity
investors: so, any such move would require FSA approval, which last
month suggested that Lloyds would need GBP24bn new capital to pass their
stress test.
BE:
If our industry analysis is correct, then Lloyds Q3 trading
update should be able to report notably improved margin trends (slowing
rate of erosion, with clear trend to sequential uplift by 1Q10), and
improved P&L impairment charges. Combined this should encourage
investors to support a new equity issuance in order to take advantage of
the RoE recovery that we anticipate from here through to 2013F, as well
as to reduce the risk of EU-forced asset disposals. If our industry
analysis is correct, then Lloyds Q3 trading update should be able to
report notably improved margin trends (slowing rate of erosion, with
clear trend to sequential uplift by 1Q10), and improved P&L impairment
charges. Combined this should encourage investors to support a new
equity issuance in order to take advantage of the RoE recovery that we
anticipate from here through to 2013F, as well as to reduce the risk of
EU-forced asset disposals.
update should be able to report notably improved margin trends (slowing
rate of erosion, with clear trend to sequential uplift by 1Q10), and
improved P&L impairment charges. Combined this should encourage
investors to support a new equity issuance in order to take advantage of
the RoE recovery that we anticipate from here through to 2013F, as well
as to reduce the risk of EU-forced asset disposals. If our industry
analysis is correct, then Lloyds Q3 trading update should be able to
report notably improved margin trends (slowing rate of erosion, with
clear trend to sequential uplift by 1Q10), and improved P&L impairment
charges. Combined this should encourage investors to support a new
equity issuance in order to take advantage of the RoE recovery that we
anticipate from here through to 2013F, as well as to reduce the risk of
EU-forced asset disposals.
BE:
and finally, if that were not enough, a little bit of Caz
BE:
We estimate that a straight £15bn rights issue would leave equity tier 1 at 8.8% by the end of this year and, due to losses, we expect 8.5% is the low point in 2010E. These figures are on a reported basis excluding the gain on HBOS debt that was recognised on acquisition (£9.7bn, 200bp). It is unclear if after the premium needed to entice preference shareholders to accept an exchange, how this gain would change. At 30 June, Lloyds had £4.9bn of preference shares, £6.8bn of preferred securities and £3.8bn undated subordinated debt (i.e. tier 2). Not all of these instruments trade at a discount, for example Lloyds issued £2bn of tier 1 notes earlier this year and they trade at around par. Further there is a question over the level of take-up of an offer. Though Lloyds may pass the coupon ultimately there can be no ordinary dividends until there is a resumption of interest payments.
BE:
The plan appears to be that the government would subscribe for its entitlement of £6.5bn (43.4%) leaving investors to buy £8.5bn, obviously a still substantial sum at around two thirds the size of the record £12.5bn HSBC rights issue.
BE:
To pass the FSA stress test, £15bn rights issue alone is probably insufficient and hence it appears Lloyds hopes to convert sufficient preference shareholders to exchange for mandatory convertibles, which trigger if the tier 1 ratio falls below a target level. Therefore the convertible prefs effectively provide insurance of £10bn capital (and de facto recognising the limited relevance of non-equity in the capital structure).
BE:
From the press reports it is unclear whether Lloyds will participate in the APS. Our view is that the authorities will require participation, but at a lower level.
As we go through the process of capital raising we expect that there will be selling elsewhere in the sector partly to fund the new money demanded by both Lloyds and, we expect, Royal Bank of Scotland (RBS.L RBS LN IN-LINE/NEUTRAL 50p). Specifically we expect weakness in the share price of HSBC (HSBA.L HSBA LN OUTPERFORM/NEUTRAL 706p).
As we go through the process of capital raising we expect that there will be selling elsewhere in the sector partly to fund the new money demanded by both Lloyds and, we expect, Royal Bank of Scotland (RBS.L RBS LN IN-LINE/NEUTRAL 50p). Specifically we expect weakness in the share price of HSBC (HSBA.L HSBA LN OUTPERFORM/NEUTRAL 706p).
NH:
some good points in that, particularly the last one
NH:
I note RBS are down this morning
Royal Bank of Scotland Group (RBS:LSE): Last: 48.55, down 1.1 (-2.22%), High: 51.00, Low: 48.50, Volume: 53.67m
11:13AM
NH:
Okay
NH:
let’s give the ROTR a moment to digest that
NH:
before we move on and look at a real cash call
NH:
So
NH:
Ladbrokes
BE:
£275m cash call
BE:
and a pretty poor trading statement and the dividend wiped out
BE:
and unsurprisingly the shares have fallen pretty sharply on it
BE:
Down 12.9p at 168.3p
NH:
hang on a mo
NH:
there is some debate about that
BE:
why
BE:
surely you can’t be questioning our Reuters screen
NH:
well brokers are
NH:
they have been through the small print of the cash call
NH:
and note the following
NH:
this rights issue does not shareholder approval
NH:
to qualify you had to be on the register last night
NH:
and the nil paids start trading tomorrow
NH:
so that led some people to conclude they were trading ex-rights at the moment
NH:
and at a premium to the TERP
NH:
however, I have since been told that ani’t right
NH:
and they go ex tonight
NH:
anyway
NH:
that’s all irrelevant
NH:
what about the statement
11:16AM
BE:
Well, the explanation for the cash call looks pretty weak
BE:
it seems the management at Labdbrokes woke up recently and thought net debt to EBITDA of 3.5 times was not appropriate
BE:
and something had to be done
NH:
I suspect the reality is that there lenders told them something had to be done
BE:
Exactly
BE:
here’s the relevant bit from the statement
BE:
It has been apparent since early 2009 and following other re-financings that the banking market is unlikely to support future debt covenants in excess of 3.5 times net debt to EBITDA in the sector. This is materially lower than the Group’s current net debt to EBITDA covenant which is set at 4.25 times and compares with the Group’s reported ratio for the 12 months to 30 June 2009 of 2.7 times, including High Rollers (3.7 times, excluding High Rollers.)
NH:
right
NH:
and what about current trading
NH:
what’s been going on with those football bets
BE:
Here’s the profit warning
BE:
At the interim results for the half year ended 30 June 2009, the Group reported that trading had been adversely impacted by a deterioration in staking levels. Since that time, although staking levels have been broadly in line with August expectations (albeit lower than 2008 levels), profitability has continued to weaken largely as a result of lower gross win margins.
BE:
Group net revenue(1) (excluding High Rollers) from 1 July to 30 September 2009 was down 15 per cent. in comparison with the corresponding period in 2008.
The gross win margin was lower than in the corresponding period in 2008 mainly reflecting adverse horseracing margins and an exceptionally low football margin. In the first 66 English Premier League games there have only been four draws (ie. 6 per cent.) versus the five-year season average of 25 per cent. of drawn matches.
BE:
As a result of these factors Group operating profit(2) fell 58 per cent. to £22.4 million (2008: £52.8 million). Losses from High Rollers were £2.8 million, taking the year to date profit figure for High Rollers to £55.6 million.
NH:
amazing stats on the Premier League – just four draws.
NH:
against a five-year average of 25%
NH:
the house does not always win
BE:
That’s the spin, anyway. High rollers have taken them to the cleaners
BE:
because there have been no draws
NH:
hmmm
NH:
Ladbrokes will start lobbyiing for 2 points for a draw
NH:
get the average back up
BE:
Yeah, well ….
BE:
We’ve heard the “punters are winning too much” line quite a lot over the years
BE:
City blogger Slackbelly did a good post on this earlier in the week …
NH:
You’re not buying this then
BE:
I would echo these thoughts …
BE:
The old “struggling bookmaker” line is (of course) one of the oldest tricks in the turf accountant text book – as punters are encouraged to bet more having fallen for the idea that somebody else is the mug for a change. Not for long.
This PR puff story tends to surface each year, and only the details vary. One of the more imaginative efforts came in 2005, when William Hill blamed the Racing Post’s chief tipster Tom Segal for its woeful first half.
Did punters’ luck hold out? Of course not. When Hills eventually reported its full year numbers, both turnover and profit had experienced healthy hikes. What price on the same happening again?
This PR puff story tends to surface each year, and only the details vary. One of the more imaginative efforts came in 2005, when William Hill blamed the Racing Post’s chief tipster Tom Segal for its woeful first half.
Did punters’ luck hold out? Of course not. When Hills eventually reported its full year numbers, both turnover and profit had experienced healthy hikes. What price on the same happening again?
NH:
well, it’s certainly interesting these stories started to surface
NH:
and then bang
NH:
cash call
BE:
Hm.
NH:
anyway
NH:
got any reaction?
NH:
I guess the fund raising must have surprised a few people
BE:
As much as it’s possible to surprise an analyst, yes
BE:
Here’s Evolution
BE:
– While the fresh capital raise assuages some of our concerns over capital structure we remain concerned over the hotel liability black hole and stick with our Sell rating.
BE:
DETAILS – Ladbrokes’ rights issue comes as a surprise given management’s recently stated confidence in the sustainability of the debt structure. Market concern over poor sporting results means that the issue is being priced at a relatively very low share price. We believe trading results have been poor as a result of abnormal sporting results which will normalise. However, the online business appears to have lost its way and is now a drag on growth having once been seen as a potential future growth driver.
BE:
VALUATION AND RECOMMENDATION – Our negative view was founded on capital structure and the risk from Hilton Hotels. The rights issue reduces the capital structure risk but the hotel risk remains. We retain our Sell rating and 150p price target ahead of adjusting for the rights issue. The nil paid rights start trading tomorrow which may cause a technical squeeze on the shares.
BE:
Numis …
BE:
Ladbrokes has announced a I for 2 Rights Issue at 95p to raise £275m net. This will
reduce net debt to a proforma £687m at 30 June 2009, giving net debt to EBITDA of
2.6x (to 30 June 2009). In addition there is a trading statement from the company
which highlights further weak trading in the 3 months to end September: the over
the counter gross margin win percentage has fallen from 17.5% to 14.0% reflecting
a continued run of bad results. In addition there has been a 3% decline in OTC
amount staked (which management said was better than expected). Machine
income is disappointing with average gross win per machine down 1.3%. In
e-Gaming the Sportsbook has been under pressure with net revenue down 13% as
the gross win margin collapsed from 7.5% to 4.6%. Operational efficiencies are
promised. On a very tentative basis post the issue we project 13p of eps for FY’10
(previously we were on 21.4p) . At a TERP of 152p this would put Ladbrokes on a
FY’10 PE of c.11.7x and (assuming a resumption of dividends and 2x cover) a yield
of c.4%. Hardly cheap for a business that we would contend is in structural decline.
reduce net debt to a proforma £687m at 30 June 2009, giving net debt to EBITDA of
2.6x (to 30 June 2009). In addition there is a trading statement from the company
which highlights further weak trading in the 3 months to end September: the over
the counter gross margin win percentage has fallen from 17.5% to 14.0% reflecting
a continued run of bad results. In addition there has been a 3% decline in OTC
amount staked (which management said was better than expected). Machine
income is disappointing with average gross win per machine down 1.3%. In
e-Gaming the Sportsbook has been under pressure with net revenue down 13% as
the gross win margin collapsed from 7.5% to 4.6%. Operational efficiencies are
promised. On a very tentative basis post the issue we project 13p of eps for FY’10
(previously we were on 21.4p) . At a TERP of 152p this would put Ladbrokes on a
FY’10 PE of c.11.7x and (assuming a resumption of dividends and 2x cover) a yield
of c.4%. Hardly cheap for a business that we would contend is in structural decline.
BE:
And KBC
BE:
Given previous comments from management the rights
issue has come as a bit of a surprise but not a total one.
Clearly trading has forced management’s hand and this
gives us some concern. This could well be trough earnings
but in a rapidly changing gaming environment we question
whether Ladbrokes will be a winner.
issue has come as a bit of a surprise but not a total one.
Clearly trading has forced management’s hand and this
gives us some concern. This could well be trough earnings
but in a rapidly changing gaming environment we question
whether Ladbrokes will be a winner.
BE:
Rights issue to raise £275m Poor trading since the half year has persuaded
management that it is time to address the balance sheet. The company is raising
£275m via 1 for 2 rights issue at 95p. This will reduce net debt to c. £687m.
management that it is time to address the balance sheet. The company is raising
£275m via 1 for 2 rights issue at 95p. This will reduce net debt to c. £687m.
BE:
Poor trading since H1 Q3 revenues have declined by 15%, while operating
profits are 58% lower at £22.4m. Our initial thoughts are to downgrade our PBT
by £40 – £50m; this would give us PBT of c. £100m before high rollers.
profits are 58% lower at £22.4m. Our initial thoughts are to downgrade our PBT
by £40 – £50m; this would give us PBT of c. £100m before high rollers.
Trough earnings, but is it enough? We should now be close to trough
earnings and the debt issue has been removed. However, we continue to have
concerns about strategy
NH:
thanks for that
NH:
I am just getting some feedback from the conference call
NH:
and it does not seem to be going at all well
NH:
call wasn’t great. Lots of blame for the poor trading performance
on the run of results – especially in football. They refute the idea that
footfall in the shops is declining – but we are dubious on this. Machine
income is weak – surprising if footfall has been maintained, as the punters
have been winning more (the “bad” results have given them an additional £30m)
and you would expect much of this to be recycled into the machines. I suspect
that the 13p of earnings that I suggested for FY’10 looks optimistic.
on the run of results – especially in football. They refute the idea that
footfall in the shops is declining – but we are dubious on this. Machine
income is weak – surprising if footfall has been maintained, as the punters
have been winning more (the “bad” results have given them an additional £30m)
and you would expect much of this to be recycled into the machines. I suspect
that the 13p of earnings that I suggested for FY’10 looks optimistic.
NH:
you could be right Bryce
NH:
no one is buying the footie line
NH:
also
NH:
been pointed out
NH:
that Lad’s three biggest shareholders are American
NH:
and might struggle to back the cash call
NH:
could be some selling pressure on the nils
NH:
whhen they start trading
NH:
anyway
NH:
William Hill also weak on today’s news
NH:
down 8.7p at 167.5p
11:26AM
NH:
Right
NH:
the ROTR are discussing the VF article
NH:
which is very, very good
NH:
John Mack comes out of it very well
BE:
He does, yes.
NH:
the other thing that comes over
NH:
is about Goldman
NH:
it seems everyone was very wary
NH:
esp on the Wachovia deal
NH:
which was in the end ditched because it would look too much like a Goldman bailout
NH:
also
NH:
I didn’t know Paulson had to swear an oath
NH:
promising not to get involved in GS matters
NH:
the Government Sachs conspiracy theorists won’t like all that
BE:
Yes. True.
11:29AM
BE:
Here’s a link to that Vanity Fair article, by the way
BE:
Well worth reading over lunch
NH:
I second that
11:30AM
BE:
Ok – we’re halfway through
BE:
Do we have any raw to share?
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
I do
NH:
the first one is a bit stale
NH:
being hanging around in the kitchen for yonks
NH:
but one day it will happen
NH:
SSL International
BE:
Oh, here we go.
NH:
look, up 8% in two days
NH:
Glaxo
NH:
and Reckitt said to be sniffing around
NH:
SSL makes Durex and Scholl sandals
NH:
in case you were wondering
NH:
anyway
NH:
here’s what’s doing the rounds
NH:
Since we rumoured this 2 days ago, the stock has rallied a further +8% with no comment from GSK, RB/ LN. With no update from the company either, silence is almost an endorsement that something’s afoot…A reminder of the deal… – GSK’s Pharma growth is unched & has fallen from double digit in the last 3
years, whereas its Consumer Healthcare average 2 years growth is +12.5%
- GSK’s paltry rating, 10x this year & next is largely due to perception that
its run out of ideas on its core pharma & its pipeline is lacking.
- SSL dominates world condom sales:20%, but also, its medical & footwear sales
bulk this up to core product sales being +60%. In the the growing Europe &
Asian mkts, its growth is 17% and 15% respectively & its +6% growth in the
US could offset GSK predicted -7% fall in US sales.
- In short, SSL represents a cheap solution to GSK considerable operational
& perception problems.
years, whereas its Consumer Healthcare average 2 years growth is +12.5%
- GSK’s paltry rating, 10x this year & next is largely due to perception that
its run out of ideas on its core pharma & its pipeline is lacking.
- SSL dominates world condom sales:20%, but also, its medical & footwear sales
bulk this up to core product sales being +60%. In the the growing Europe &
Asian mkts, its growth is 17% and 15% respectively & its +6% growth in the
US could offset GSK predicted -7% fall in US sales.
- In short, SSL represents a cheap solution to GSK considerable operational
& perception problems.
BE:
Hm
BE:
There’s been a lot of talk about Reckitt looking around for acquisitions …
NH:
there has
NH:
a couple of big notes
NH:
one from JPM I think
NH:
have you got that
NH:
and of course
NH:
GSK is very keen on its consumer side nowdays
BE:
Thing is, pretty much the entire branded goods sector’s had a run on the back of the Cadbury bid and Unilever buying Sara Lee’s personal care business
NH:
true
BE:
AG Barr, Britvic, all sorts have been motoring
BE:
And SSL does have a trading update next week I think
NH:
and I guess the logic of a deal
NH:
would be
NH:
push SSL’s good through a bigger distribution network
NH:
and cut costs by shutting down its network
BE:
That’s always been the logic. It has been since 1999, when I first heard this particular rumour.
NH:
Old but gold this rumour
BE:
Ok – here’s that Reckitt note from JP Morgan, as promised
BE:
Core business continues to perform strongly and drive rating. Despite
our bearish industry scenario of weak P/M growth, we expect RB’s core to
grow 5-6% LFL in 2009E and 2010E with c20-30bps annual operating
margin increase – ahead of HPC peers. Short-term resilient pricing and a
benign cost environment should provide support, though the Health &
Personal Care division remains the growth engine: we forecast 11% LFL
09/10e with an operating margin of c.30%. With potential M&A firepower
of £4bn, we look at potential candidates as consolidation in the pharma
industry could herald a consolidation in the fragmented OTC market.
our bearish industry scenario of weak P/M growth, we expect RB’s core to
grow 5-6% LFL in 2009E and 2010E with c20-30bps annual operating
margin increase – ahead of HPC peers. Short-term resilient pricing and a
benign cost environment should provide support, though the Health &
Personal Care division remains the growth engine: we forecast 11% LFL
09/10e with an operating margin of c.30%. With potential M&A firepower
of £4bn, we look at potential candidates as consolidation in the pharma
industry could herald a consolidation in the fragmented OTC market.
BE:
So, 4bn quid to spend.
NH:
wow
BE:
While on the subject of Reckitt
BE:
I think today’s the day its heroin substitute loses patent exclusivity
NH:
Suboxone
BE:
That’s the one
NH:
over the counter methodone
BE:
No generics have appeared yet though
NH:
right
NH:
some share prices
NH:
SSL
SSL International (SSL:LSE): Last: 639.50, up 3.5 (+0.55%), High: 667.50, Low: 638.50, Volume: 440.50k
NH:
Glaxo
GlaxoSmithKline (GSK:LSE): Last: 1,235, up 3.5 (+0.28%), High: 1,243, Low: 1,232, Volume: 2.71m
NH:
and
NH:
Reckitt
Reckitt Benckiser Group (RB:LSE): Last: 3,125, up 30 (+0.97%), High: 3,134, Low: 3,085, Volume: 595.58k
11:38AM
NH:
Right
NH:
another bit of RAW
BE:
What’s that then?
NH:
WPP
NH:
talk of some up beat meetings with management
BE:
And the shares are having a good old move today
WPP (WPP:LSE): Last: 557.00, up 14.5 (+2.67%), High: 564.00, Low: 545.50, Volume: 3.04m
NH:
the idea seems to be that consensus forecasts
NH:
may prove conservative
NH:
have a look at this
NH:
WPP met selective investors yesterday and their message was astonishingly good….. – Their assesment for next years eps will 60 per share as opposed to consensus 45, this represents a 30% uplift from the company itself. – This is due to the mkt misunderstanding how they have accounted for cost cutting costs. ie They have taken the next 18 months of cost cutting cost already & so when those savings feed thro, it will go straight to the bottom line as opposed to how the mkt perceives as ‘accrued savings offset by accrued costs’. In short, this will be earnings transforming for the Co & certainly a point that the vast majority of analysts have missed… – Watch for the upgrades…you have been warned!
NH:
and finally
NH:
Legal & General
NH:
the story that will not die
NH:
is back around again
NH:
and this time
NH:
they rejected a 110p a share bid from AMP on Monday
BE:
[yawn]
NH:
I know
Legal and General Group (LGEN:LSE): Last: 85.70, up 2.15 (+2.57%), High: 85.95, Low: 84.30, Volume: 9.74m
NH:
Okay
NH:
so
NH:
after yesterday’s rant
NH:
Mike Lynch and the crew at Autonomy
NH:
have actually published something on RNS
NH:
that is genuinely price sensitive
BE:
Indeed
BE:
I guess they are required to make one qualitative announcement every quarter
BE:
And this one, it has to be said, was EXTREMELY well flagged
NH:
LONDON, Oct 8 (Reuters) – British software firm Autonomy said on Thursday it expected to report third-quarter results ahead of market expectations after seeing significant demand for its products, sending its shares up 3 percent.
The company, whose software helps companies search data across phone calls, email, videos and instant messages, said it anticipated reporting revenues of between $191 million and $193 million, ahead of the company-supplied consensus estimate of $183 million.
The Cambridge-based group said it expected to report underlying earnings per share of between 20 and 23 cents, compared with a company-supplied consensus of 19.8 cents.
Chief Executive Mike Lynch said the company had benefited from more of its anticipated second-half revenues falling in the third quarter than expected.
“We experienced less of the seasonal weakness which was a risk at the onset of the quarter,” he said.
New product-related costs were slightly above the top end of the $10-$15 million range which the company had set.
The company, whose software helps companies search data across phone calls, email, videos and instant messages, said it anticipated reporting revenues of between $191 million and $193 million, ahead of the company-supplied consensus estimate of $183 million.
The Cambridge-based group said it expected to report underlying earnings per share of between 20 and 23 cents, compared with a company-supplied consensus of 19.8 cents.
Chief Executive Mike Lynch said the company had benefited from more of its anticipated second-half revenues falling in the third quarter than expected.
“We experienced less of the seasonal weakness which was a risk at the onset of the quarter,” he said.
New product-related costs were slightly above the top end of the $10-$15 million range which the company had set.
BE:
Now ….
BE:
The analyst guidance is for $740m in revs for the year.
BE:
Assuming they hit $193m in Q3, which is the top of the indicated range
BE:
They still would require a blow out $222m in Q4
NH:
so plenty to do
NH:
that will mean
NH:
more press puffs on RNS
BE:
Yup – every tealady who walks past the server rack will be listed on RNS as a “strategic partner”
BE:
Also, here’s a line from a keen company watcher that might be worth following up on …
BE:
This line “leading to a larger than expected proportion of second half revenues falling within the third quarter of 2009″ begs the question of whether that’s Q4 revenues pulled forward into Q3. If so, you’d think a tough target just got harder.
BE:
So – it’s the usual bull-bear argument for Autonomy.
NH:
software companies and revenue recognition
NH:
an age old problem
BE:
Shares?
NH:
in spite of it all being so well flagged, the are up 33p at £16.48
11:46AM
BE:
Couple of things to look at in world of telecoms.
BE:
First up is BT Group
BE:
Which is on the move after Cazenove has taken another run at the job cuts.
BE:
Here’s the gist of it
NH:
more jobs cuts?
BE:
Well, possibly the same job cuts being double counted
BE:
Caz is not entirely clear on the point
BE:
Note incoming
BE:
We reiterate our near-term positive view on BT given scope for an improved performance resulting from a strong focus on costs. We retain our longer term fundamental concerns given BT’s strategic challenges but also highlight that BT remains a geared play on the market. On this basis, BT’s recent share price performance (-9% relative to the market since 1 September) would suggest a decent trading opportunity
BE:
We expect BT’s Q2 results on 12 November to suggest continued progress on the turn-around at Global Services, supported by further cost savings. Given the size of BT and the weakness seen in 2008/09, we believe strong management action should be able to deliver several quarters of improved performance. In Q2, we expect cash operating costs to be down 4% year on year in Q2 from growth of 2% in Q1 and 8% in 2008/09; helping offset the expected revenue weakness (Caz est -3% in Q2).
BE:
Valuation
BE:
BT’s reported equity free cash flow of £850m in 2009/10 suggests a yield of only 8.4% in 2009/10E compared with the sector of 11.6%. As a result, its dividend yield is 5.0% compares with the sector yielding 6.2%. This reflects BTs £525m annual pension deficit payments, its loss-making Global Services division and the cost of restructuring, offset by minimal tax payments.
BE:
However, further progress on the Global Services turnaround may result in investors focussing on the cash flow generation of the group ex Global Services. On this basis, the group would generate closer to £1.4bn of equity free cash flow. A sector multiple on this figure would suggest a share price over 150p, albeit one that was discounting a recovery from Global Services, which remains a significant challenge.
BE:
And that’s got BT up 3% or thereabouts
BE:
Alhough numbers from Carphone Warehouse have also helped, apparently
BE:
TalkTalk added 77k new broadband customers against consensus of 41k.
BE:
But much of this is customers churning away from Tiscali, and the overall group growth was only 15k
BE:
We’ve not much to say about the Carphone numbers, other than they’re quite dull
BE:
So here’s Investec to say it for us
BE:
Carphone Warehouse has reported an unexciting but solid set of Q2 KPIs – note
there are no financial figures today. The recent rally in the shares looks
unwarranted to us, and with no acceleration of the demerger timetable, we
reiterate our Sell stance.
there are no financial figures today. The recent rally in the shares looks
unwarranted to us, and with no acceleration of the demerger timetable, we
reiterate our Sell stance.
BE:
TalkTalk net broadband adds at 77k are ahead of consensus of 41k. This puts
the overall broadband base at 2.93m, showing healthy +5.1% growth YoY. This
is a credible performance, in our view, and 79% of the base is now unbundled -
compared to 51% of the Tiscali base on LLU.
the overall broadband base at 2.93m, showing healthy +5.1% growth YoY. This
is a credible performance, in our view, and 79% of the base is now unbundled -
compared to 51% of the Tiscali base on LLU.
BE:
Meanwhile, Tiscali has seen a decline in its broadband subs base of 62k to
1.34m, broadly in line with forecasts. But the Tiscali deal has seen its first hiccup
with an “adjustment” to the subs base on completion of -160k (over 10% of the
base). Once the base is agreed, CPW will receive a true-up payment from funds
held in escrow to reflect the lower subs on acquisition.
1.34m, broadly in line with forecasts. But the Tiscali deal has seen its first hiccup
with an “adjustment” to the subs base on completion of -160k (over 10% of the
base). Once the base is agreed, CPW will receive a true-up payment from funds
held in escrow to reflect the lower subs on acquisition.
BE:
On the retail side, handset connections of 3.17m are in line with forecasts
(consensus 3.11m), showing 2% growth YoY. Management has reiterated its
guidance and expectations to open its first “Big Box” store in spring 2010.
(consensus 3.11m), showing 2% growth YoY. Management has reiterated its
guidance and expectations to open its first “Big Box” store in spring 2010.
BE:
This is a solid (if unexciting) set of results, which demonstrates that CPW has
avoided any major impact from the economic slowdown. We see no change to
forecasts or the demerger timetable which is set for Q1/Q2 2010.
avoided any major impact from the economic slowdown. We see no change to
forecasts or the demerger timetable which is set for Q1/Q2 2010.
BE:
Indeed the share price rise of +9% this week (mostly on rumours of an
accelerated demerger timetable) looks wholly unwarranted to us. At 15.1x
FY10E P/E with a paltry 4.1% FCF yield, the shares are expensive and we
reiterate our SELL stance with a 140p target.
accelerated demerger timetable) looks wholly unwarranted to us. At 15.1x
FY10E P/E with a paltry 4.1% FCF yield, the shares are expensive and we
reiterate our SELL stance with a 140p target.
Carphone Warehouse Group (CPW:LSE): Last: 205.70, up 0.7 (+0.34%), High: 216.10, Low: 202.10, Volume: 938.31k
NH:
thanks for that
11:51AM
NH:
Large Yacht Owner.
NH:
Paul is fine and making friends in a round about way about the locals, including some of the CNBC stars. That’s about all I can say at the moment. Although you might have noticed this post last night.
NH:
Poison Gasbag
BE:
Yes – very amusing post that one
BE:
Attracted some interesting feedback
NH:
it did
NH:
the people who read
NH:
Alpha
NH:
you wouldn’t believe it
11:53AM
NH:
Okay
NH:
what else is there to look at while we wait for the BoE decision??
NH:
Halfords moving higher today
NH:
and that’s in spite of dragging retail analysts
NH:
to a store visit
NH:
in lovely Tottenham
NH:
assuming that is
NH:
Tottenham high road is open
NH:
after Monday’s ganglands assinination
NH:
anyway
NH:
the trip followed the release of a trading statement
NH:
which by all accounts was quite good
NH:
The shares had run well into the figures, implying increased expectations but Halfords
has smashed even the higher whisper range with its Q2 LFL and H1 profits guidance.
• Last we saw it, LFL was 0.1% but the company warned that this would not be sustained.
We didn’t realise that they meant they’d accelerate in Q2!
• 2.2% LFL clearly benefits from the greater number of Brits staying home this summer:
there were good sales of leisure products (bikes, camping etc) and the larger number of
cars on the road has meant car maintenance excelled too.
• Mix wise, this is great news for Halfords and the gross margin was probably up 200 bps
(and they also talk about a clean stock position).
• H1 will see PBT of £59-61m: we feared it, and indeed we were absolutely miles out with
£53m. Full year forecasts will go up from £96m here to £107m. That’s 37p of earnings.
• The shares had done well but this will have exceeded even the biggest bulls’ hopes.
Rather than the usual “travel well, arrive badly” performance of the retail sector’s shares
into upgrades, we suspect the Halfords could continue its run.
• Any weakness would be gilt-edged chance to buy this one on a single digit PE.
has smashed even the higher whisper range with its Q2 LFL and H1 profits guidance.
• Last we saw it, LFL was 0.1% but the company warned that this would not be sustained.
We didn’t realise that they meant they’d accelerate in Q2!
• 2.2% LFL clearly benefits from the greater number of Brits staying home this summer:
there were good sales of leisure products (bikes, camping etc) and the larger number of
cars on the road has meant car maintenance excelled too.
• Mix wise, this is great news for Halfords and the gross margin was probably up 200 bps
(and they also talk about a clean stock position).
• H1 will see PBT of £59-61m: we feared it, and indeed we were absolutely miles out with
£53m. Full year forecasts will go up from £96m here to £107m. That’s 37p of earnings.
• The shares had done well but this will have exceeded even the biggest bulls’ hopes.
Rather than the usual “travel well, arrive badly” performance of the retail sector’s shares
into upgrades, we suspect the Halfords could continue its run.
• Any weakness would be gilt-edged chance to buy this one on a single digit PE.
NH:
that was from Oriel
BE:
More staycation nonsense, I guess
NH:
shares up 25.8p at 390.1p
11:56AM
NH:
T – 5mins
NH:
to the BoE
NH:
do we have anything from small cap corner
BE:
Not much, really
NH:
actually I have something
NH:
but you go first
BE:
Sure – I seem to remember the ROTR have some Monitise followers among their number
BE:
So this might make someone happy
BE:
Jeffries has started coverage with a 24p target
Monitise (MONI:LSE): Last: 14.75, up 0.25 (+1.72%), High: 14.95, Low: 14.55, Volume: 1.05m
BE:
Here’s the summary
BE:
• Well positioned to capitalise on the growth of mobile banking and payments
• Monitise is hitting key positive news-flow triggers on the road to break-even
• Acquiring 100,000 customers/month; run-rate break even expected in 2 years
• Initiating at Overweight with a conservatively-framed 24p price target
• Monitise is hitting key positive news-flow triggers on the road to break-even
• Acquiring 100,000 customers/month; run-rate break even expected in 2 years
• Initiating at Overweight with a conservatively-framed 24p price target
BE:
And, while we’re down here, heard some chatter about a significant contract win for something called Iofina
NH:
what’s that?
BE:
I’ll have to default to the website …
BE:
Iofina plc is the holding company of a group of companies involved in the exploration and production of iodine and natural gas which has been discovered on acreages that the Group has acquired and is currently acquiring. Iofina is fully vertically integrated into specialty chemical manufacturing through its wholly owned subsidiary Iofina Chemical.
BE:
Although contract wins are notoriously hard to predict …
BE:
As what’s significant to the stockroom guy might not be so significant to shareholders
NH:
Right
NH:
it is time
NH:
BoE time
11:59AM
NH:
waiting
NH:
…..
NH:
…..
NH:
Wibble
NH:
that’s naughty
NH:
remember the financial comet
NH:
here we go
BE:
No change
NH:
RTRS-BANK OF ENGLAND SAYS LEAVES QUANTITATIVE EASING TOTAL UNCHANGED AT 175 BLN STG
12:00 08Oct09 RTRS-BANK OF ENGLAND HOLDS KEY UK INTEREST RATE AT 0.5 PCT
12:00 08Oct09 RTRS-BANK OF ENGLAND HOLDS KEY UK INTEREST RATE AT 0.5 PCT
BE:
We’re pausing to consider whether there’s anything worth saying about that
NH:
and
NH:
there isn’t
NH:
but DebbieDowner
NH:
that’s very good
12:02PM
NH:
on to some interesting breaking news
NH:
and a fine for Seymour Pierce
NH:
FSA fines Seymour Pierce £154,000 for failing to prevent employee fraud
The Financial Services Authority (FSA) has today fined London-based investment bank and stockbroker Seymour Pierce Limited £154,000 for failing to establish effective controls to guard against employee fraud.
The Financial Services Authority (FSA) has today fined London-based investment bank and stockbroker Seymour Pierce Limited £154,000 for failing to establish effective controls to guard against employee fraud.
BE:
Ouch.
NH:
As a result of Seymour Pierce’s failings, an employee was able to steal approximately £150,000 completely undetected from the firm’s internal and private client accounts in 36 separate transactions over a three year period.
A number of the illicit transactions involved making unauthorised changes to static data (such as the client’s name, address, bank account and payment instructions) on existing client accounts or taking advantage of dormant accounts. In one instance the employee transferred a personal trading loss into one of Seymour Pierce’s internal accounts.
A number of the illicit transactions involved making unauthorised changes to static data (such as the client’s name, address, bank account and payment instructions) on existing client accounts or taking advantage of dormant accounts. In one instance the employee transferred a personal trading loss into one of Seymour Pierce’s internal accounts.
NH:
The employee was dismissed prior to the discovery of the misdemeanours which only came to light when his replacement noticed serious accounting discrepancies.
BE:
Wow.
NH:
Seymour Pierce agreed to settle at an early stage of the investigation meaning it qualified for a 30% discount. Without the discount, the fine would have been £220,000.
NH:
In deciding the scale of the fine, the FSA took into account a number of mitigating factors: Seymour Pierce co-operated fully with the authorities once the frauds had been discovered and instigated internal reviews into the failings and implemented new systems to protect against future failings. The firm also took steps to ensure that its affected clients were fully reimbursed.
BE:
Well that’s nice. They got a discount for settling early.
12:03PM
BE:
Ok – we were going to return to small cap corner, weren’t we?
NH:
yes, yes
NH:
a bit more RAW
NH:
hearing JJB might be close to launching a cash call
NH:
they have been sounding out shareholders
NH:
they were looking for £50m
NH:
it could be more now
NH:
but
NH:
there is some debate about the placing price
NH:
some people think 20p is too low
NH:
and are pushing for something higher
NH:
either way
NH:
if the cash call gets done
NH:
i suspect the market will take it well
BE:
Yes – it’ll allow JJB to buy some trainers.
NH:
JJB Sports (JJB:LSE): Last: 32.50, down 0.75 (-2.26%), High: 34.00, Low: 32.25, Volume: 2.03m
NH:
right
NH:
I think we are done for today’s session
NH:
unless you have anything else to add Bryce
BE:
Don’t think so
BE:
FTSE check – up 28 point at 5137
NH:
thanks
NH:
and I can’t believe
NH:
no one asked my about these Falkland Island explorers
NH:
two of the trying to raise £100m
NH:
which is pretty impressive
NH:
to drill for the first time since 1988
BE:
100m quid? For the Falklands?
BE:
Bubble time’s back.
BE:
Wanna buy some tulip bulbs?
NH:
NH:
six months ago
NH:
there was no cash around
NH:
now you can raise £100m
NH:
to drag a rig from the North Sea
NH:
to the Falklands
NH:
and drill four wells
NH:
how things have changed
NH:
we are, of course, talking about Desire Petroleum
NH:
and
NH:
Rockhopper
Desire Petroleum (DES:LSE): Last: 99.75, no change, High: 100.00, Low: 97.50, Volume: 162.35k
Rockhopper Exploration (RKH:LSE): Last: 84.25, down 1.25 (-1.46%), High: 86.50, Low: 81.60, Volume: 111.18k
BE:
While on this subject, we’re happy to plug the new mining table in the Long Room, presided over by Lorcan
NH:
(Chopper – he doesn’t like GKP. It is not personal)
NH:
yes
NH:
do have a look at Lorcan’s table
NH:
should be lots to talk about on there
NH:
I wanted to call it
NH:
the Frank Timis Table
NH:
but Murph blocked that
12:11PM
NH:
and more breaking news
NH:
England team to tour South Africa announced
NH:
Bryce
NH:
turn away now
NH:
Test squad
NH:
Test squad:
Andrew Strauss (Middlesex, captain)
Alastair Cook (Essex, vice-captain)
James Anderson (Lancashire)
Ian Bell (Warwickshire)
Stuart Broad (Nottinghamshire)
Paul Collingwood (Durham)
Steven Davies (Surrey)
Graham Onions (Durham)
Kevin Pietersen (Hampshire)
Liam Plunkett (Durham)
Matt Prior (Sussex)
Adil Rashid (Yorkshire)
Ryan Sidebottom (Nottinghamshire)
Graeme Swann (Nottinghamshire)
Jonathan Trott (Warwickshire)
Luke Wright (Sussex)
Test squad:
Andrew Strauss (Middlesex, captain)
Alastair Cook (Essex, vice-captain)
James Anderson (Lancashire)
Ian Bell (Warwickshire)
Stuart Broad (Nottinghamshire)
Paul Collingwood (Durham)
Steven Davies (Surrey)
Graham Onions (Durham)
Kevin Pietersen (Hampshire)
Liam Plunkett (Durham)
Matt Prior (Sussex)
Adil Rashid (Yorkshire)
Ryan Sidebottom (Nottinghamshire)
Graeme Swann (Nottinghamshire)
Jonathan Trott (Warwickshire)
Luke Wright (Sussex)
NH:
No Monty
NH:
Harmy
NH:
but Plunkett back in?????
BE:
Onions, Sidebottom and Plunkett.
BE:
What a sport.
NH:
One Day Squad
NH:
One-day squad:
Andrew Strauss (Middlesex, captain)
James Anderson (Lancashire)
Tim Bresnan (Yorkshire)
Stuart Broad (Nottinghamshire)
Paul Collingwood (Durham)
Alastair Cook (Essex)
Joe Denly (Kent)
Sajid Mahmood (Lancashire)
Eoin Morgan (Middlesex)
Graham Onions (Durham)
Kevin Pietersen (Hampshire)
Matt Prior (Sussex)
Adil Rashid (Yorkshire)
Graeme Swann (Nottinghamshire)
Jonathan Trott (Warwickshire)
Luke Wright (Sussex)
Andrew Strauss (Middlesex, captain)
James Anderson (Lancashire)
Tim Bresnan (Yorkshire)
Stuart Broad (Nottinghamshire)
Paul Collingwood (Durham)
Alastair Cook (Essex)
Joe Denly (Kent)
Sajid Mahmood (Lancashire)
Eoin Morgan (Middlesex)
Graham Onions (Durham)
Kevin Pietersen (Hampshire)
Matt Prior (Sussex)
Adil Rashid (Yorkshire)
Graeme Swann (Nottinghamshire)
Jonathan Trott (Warwickshire)
Luke Wright (Sussex)
NH:
Okay
NH:
that really is it
NH:
we mush dash
BE:
Yup
BE:
Thanks for all your comments
BE:
Especially DebbieDowner, who was excellent today.
NH:
indeed
NH:
thanks for joining us
NH:
c u all tomorrow
NH:
for another ML
BE:
Bye
NH:
cya
12:15PM