Markets live chat transcript for the chat ending at 12:16 on 12 Oct 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE) Paul Murphy (PM)
NH:
Hello there
NH:
it’s 11.03am
NH:
and time for another Markets Live
NH:
FT Alphaville’s markets chat
NH:
Bryce is here
NH:
and we are thinking of having some t-shirts made up
BE:
are we?
BE:
Markets Live ones?
NH:
no
NH:
an ITV version
NH:
I haven’t been offered the ITV chairmanship
BE:
BE:
farce does not sum up what’s happening at ITV
BE:
it has gone beyond that
BE:
no-one wants the chairmanship or the CEO position
BE:
and now the interim CEO has said he will be off soon
NH:
I know – executive search fail
NH:
if you missed today’s news
NH:
click here
NH:
as it happens I know a media executive
NH:
who has years of experience
NH:
web savvy too
BE:
who’s that?
NH:
well I want a fee
NH:
for putting him forward
NH:
Murp
NH:
H&M Executive Search
NH:
a subsidiary of HM Capital Management
BE:
you joke, but things are so desperate that has to be a possibility
BE:
anyway, what’s the ITV share price doing?
NH:
up
NH:
and it has been all morning
NH:
1.99p at 48.2p
BE:
the market presumably betting on a bid
NH:
I guess so
NH:
but who?
BE:
Simon Cowell and Philip Green. Apparently.
NH:
well….
NH:
actually there is also a Goldman downgrade knocking around
NH:
upgrading ITV because TV ad revenues are getting better
BE:
Are they?
NH:
according to Goldman
NH:
We downgraded ITV from Buy to Neutral on September 3 and had
concerns going into the CEO announcement and CRR decision. Neither
announcement fulfilled our upside scenario, but they were consistent
with our base case assumptions. Although we were disappointed Tony
Ball was not appointed CEO, the restructuring potential outlined in our
June 12 note was not our base case and therefore is not part of our Buy
thesis
concerns going into the CEO announcement and CRR decision. Neither
announcement fulfilled our upside scenario, but they were consistent
with our base case assumptions. Although we were disappointed Tony
Ball was not appointed CEO, the restructuring potential outlined in our
June 12 note was not our base case and therefore is not part of our Buy
thesis
NH:
Further, the valuation case we see on ITV is not dependent on a
new CEO turnaround, but the return to 5.5p normalised/2012E EPS,
implying an attractive 8x P/E that is driven by a macro/advertising
recovery and regulatory and existing stated company cost savings. The
modest modification of CRR by Ofcom to include ITV1+1 was
consistent with our forecasts and indications of a full airtime review by
the regulator, as signalled by the IPA on September 7, is a meaningful
new regulatory positive in our view.
new CEO turnaround, but the return to 5.5p normalised/2012E EPS,
implying an attractive 8x P/E that is driven by a macro/advertising
recovery and regulatory and existing stated company cost savings. The
modest modification of CRR by Ofcom to include ITV1+1 was
consistent with our forecasts and indications of a full airtime review by
the regulator, as signalled by the IPA on September 7, is a meaningful
new regulatory positive in our view.
NH:
Finally, in the medium term we
continue to see plausible acquisition interest from RTL/Bertelsmann
which previously indicated interest in ITV to replace its Five channel
which continues to lose audience share in the UK market (FT, January
4, 2009).
continue to see plausible acquisition interest from RTL/Bertelsmann
which previously indicated interest in ITV to replace its Five channel
which continues to lose audience share in the UK market (FT, January
4, 2009).
NH:
Valuation
After recent underperformance versus broadcaster peers, relative
valuation is more attractive at 8x normalised P/E versus peers at 11x
and the media sector at 9x. Our 12-month price target remains 58p and
continues to be based on 10.5x normalised/2012E P/E, which already
reflects a structural discount; 10.5x equates to 13x discounted to
present day versus a 6-year average of 16x. Notably a return to the 16x
historical average implies >50% upside potential.
After recent underperformance versus broadcaster peers, relative
valuation is more attractive at 8x normalised P/E versus peers at 11x
and the media sector at 9x. Our 12-month price target remains 58p and
continues to be based on 10.5x normalised/2012E P/E, which already
reflects a structural discount; 10.5x equates to 13x discounted to
present day versus a 6-year average of 16x. Notably a return to the 16x
historical average implies >50% upside potential.
BE:
thanks for that
11:08AM
NH:
Right
NH:
let’s head to the wider market
NH:
and….
BE:
FTSE at a one-year high
BE:
Up 56 at 5218
NH:
but
NH:
things not looking so good for the GBK
NH:
0.9344 against the euro
NH:
and cable is $1.5789
NH:
Gordo’s car boot sale
NH:
not helped at all
BE:
Selling the junk in the loft
NH:
in fact the opposite
NH:
and then
NH:
there was this report from CEBR
NH:
which has some interesting forecasts
NH:
Base rates of 0.5% till 2011 at least; QE not rolled back before 2014; long bond yield down to 2.5% by 2013; £ to weaken to $1.40 and perhaps to go below €1.00
BE:
Neil’s having cut-and-paste issues.
NH:
New cebr forecasts for the UK economy released today are the first to build in the effect of a major fiscal consolidation in th UK after the election. The forecasts show that the fiscal consolidation is likely to be matched with an unprecedented monetary relaxation.
The forecasts show base rates of 0.5% to 2011 at least, remaining below 2% to 2014. They show an additional £75 billion of quantitative easing (purchasing a wider range of assets than hitherto). They indicate a sharp fall in the long bond yield to 2.8% by 2011 and 2.5% by 2013 and a weaker pound, falling to $1.40 and possibly below €1.00 (depending on whether the markets get worried about the long term sustainability of the euro).
The forecasts show base rates of 0.5% to 2011 at least, remaining below 2% to 2014. They show an additional £75 billion of quantitative easing (purchasing a wider range of assets than hitherto). They indicate a sharp fall in the long bond yield to 2.8% by 2011 and 2.5% by 2013 and a weaker pound, falling to $1.40 and possibly below €1.00 (depending on whether the markets get worried about the long term sustainability of the euro).
NH:
The forecasts are based on the assumption that the incoming government will need to take fiscal action of around £100 billion in tax rises and spending cuts to correct the fiscal deficit. If – as the bookmakers expect – the new government is Conservative, the forecasts suggest tax rises of £20 billion and spending cuts of £80 billion.
These forecasts are based on an updated assessment for the UK economy contained in the latest United Kingdom prospects report pblished today by the centre for economics and business research (cebr) – one of the country’s leading economics consultancies and respected commentators on business trends.
The forecasts assume that the incoming government will need to get the budget deficit down to £50 billion by 2014/15. Without fiscal action the forecasts predict a deficit of £143 billion in that year.
These forecasts are based on an updated assessment for the UK economy contained in the latest United Kingdom prospects report pblished today by the centre for economics and business research (cebr) – one of the country’s leading economics consultancies and respected commentators on business trends.
The forecasts assume that the incoming government will need to get the budget deficit down to £50 billion by 2014/15. Without fiscal action the forecasts predict a deficit of £143 billion in that year.
BE:
Right.
NH:
Limey – you are right. sterling down, market up
NH:
Bryce
NH:
some more details on what Gordo has put up for sale
BE:
The Tote
BE:
Your unpaid student loan, which I doubt is triple-A.
BE:
The Dartford tunnel
NH:
Everything must go
BE:
The uranium enrichment thingmy, in case North Korea’s in the market
BE:
The Channel Tunnel rail link
NH:
thanks
NH:
I am sure other assets will follow
NH:
someone suggested Tony Blair’s future earnings
NH:
securitise them
BE:
Not a bad idea.
BE:
He’s 6 figures per speech, isn’t he?
11:16AM
NH:
Right
NH:
Moody’s have been talking about the UK
NH:
here’s some flashes
NH:
Moody’s: Stable outlook for UK Sovereign debt reinforced by party conferences
NH:
RTRS-MOODY’S SEES WIDE UK POLITICAL AND PUBLIC CONSENSUS ON NEED FOR SPENDING CUTS, FISCAL CONSOLIDATION
BE:
“Reinforced by party conferences” ???!?
NH:
here’s the full story
NH:
The focus on the health of Britain’s public finances during the past three weeks of party conferences has reinforced the stable outlook for the country’s triple-A credit rating, ratings agency Moody’s told Reuters.
Moody’s reaffirmed its top rating for British government debt on Sept. 9, and unlike rival Standard & Poor’s kept a stable outlook — something which lead UK analyst Arnaud Mares said had been justified by the growing political consensus for fiscal consolidation.
Moody’s reaffirmed its top rating for British government debt on Sept. 9, and unlike rival Standard & Poor’s kept a stable outlook — something which lead UK analyst Arnaud Mares said had been justified by the growing political consensus for fiscal consolidation.
NH:
Britons better understand the need to reduce heavy public borrowing than the public in neighbouring countries with similarly stretched finances such as France, said Mares, who is also Moody’s lead analyst for French government debt.
“The outlook is as secure as it was previously, but the assumptions we have made over the past months have to some extent been vindicated by the messages that have been conveyed by senior politicians,” Mares told Reuters.
“The outlook is as secure as it was previously, but the assumptions we have made over the past months have to some extent been vindicated by the messages that have been conveyed by senior politicians,” Mares told Reuters.
NH:
Mares declined to comment on which party offered the better proposals for reducing the budget deficit, saying all parties now understood the need for tighter fiscal policy.
“The main message that we take from the conferences is that there seems to be a consensus among all major political parties about the need to curb expenditure significantly in coming years,” he said.
“There have been several precedents in the UK of a strong reduction in public expenditure as a share of GDP, so if there is public consensus, it can be done.”
“The main message that we take from the conferences is that there seems to be a consensus among all major political parties about the need to curb expenditure significantly in coming years,” he said.
“There have been several precedents in the UK of a strong reduction in public expenditure as a share of GDP, so if there is public consensus, it can be done.”
BE:
Why on earth are Moody’s trying to take conclusions from the usual dull rhetoric aimed at envelope lickers and Brighton pensioners?
BE:
Bizarre.
NH:
yes
11:19AM
NH:
Okay
NH:
thanks for Monkey
NH:
for is UBSOTD
NH:
but we have another one
NH:
now
NH:
who would be crazy enough to bet £10,000 a run on an international cricket match?
BE:
Go on – who?
NH:
a former manager
NH:
who has been in a bit of hot water recently
NH:
with the Souters of Stagecoach fame
NH:
have a look at this
NH:
sadly
NH:
I think it is true
NH:
A financier whose assets have been frozen over claims he owes investors
a fortune is being sued for £720,000 he lost on a single cricket match.
The investors claim they are owed millions of pounds by Nicholas Levene from deals in which they gave him substantial sums which he allegedly has not repaid.
a fortune is being sued for £720,000 he lost on a single cricket match.
The investors claim they are owed millions of pounds by Nicholas Levene from deals in which they gave him substantial sums which he allegedly has not repaid.
NH:
Mr Levene, a well-known City fund manager and vice-chairman of Leyton Orient Football Club, lost the £720,000 on a Twenty20 cricket game between South Africa and the West Indies in September 2007 after staking £10,000.
The gamble with betting giant IG Index is understood to have predicted a spread of runs by one of the teams in the match in Johannesburg, which South Africa won by eight wickets.
The gamble with betting giant IG Index is understood to have predicted a spread of runs by one of the teams in the match in Johannesburg, which South Africa won by eight wickets.
NH:
But Mr Levene, 45, lost £10,000 for each of the 72 runs outside the range he covered.
Now, IG Index, founded by millionaire former Tory donor Stuart Wheeler, has issued a High Court writ demanding £957,000 from Mr Levene.
The demand is made up of a debt of £791,185 in losses on the bet plus interest of more than £160,000, continuing at £97.54 per day, court fees of £1,530 and solicitor’s costs of £100.
Now, IG Index, founded by millionaire former Tory donor Stuart Wheeler, has issued a High Court writ demanding £957,000 from Mr Levene.
The demand is made up of a debt of £791,185 in losses on the bet plus interest of more than £160,000, continuing at £97.54 per day, court fees of £1,530 and solicitor’s costs of £100.
NH:
Papers lodged by IG Index’s lawyers in the Queen’s Bench Division of the High Court reveal that by October, 2007, Mr Levene owed IG Index £1,778,500.
Between February and November last year, Mr Levene repaid debts of £987,315 in four separate tranches of between £200,000 and £350,000 each.
The writ states: ‘Accordingly, the sum of £791,185.03 remains due and outstanding.’
It adds that Mr Levene signed a written agreement that he owed the sum on June 14, this year, and that interest so far amounts to £164,212.
Between February and November last year, Mr Levene repaid debts of £987,315 in four separate tranches of between £200,000 and £350,000 each.
The writ states: ‘Accordingly, the sum of £791,185.03 remains due and outstanding.’
It adds that Mr Levene signed a written agreement that he owed the sum on June 14, this year, and that interest so far amounts to £164,212.
NH:
The row over the betting debt follows a High Court order issued last week that banned Mr Levene from selling the luxury mansion at Arkley, Hertfordshire, which he shares with his wife, Tracey, his office or shares and stake in Leyton Orient FC.
NH:
Now
NH:
a couple of things stand out there
NH:
the Leyton Orient stake
NH:
IG
NH:
we thought they had tightened up on their bad debts
NH:
but who signs off £10,000 a run?
BE:
Seems a bit hot, certainly.
BE:
What’s this guy’s background?
NH:
a fund manager
NH:
was a director at a company called Integrated Asset Management
NH:
along with the son of the guy who runs Perpetual
NH:
anyway
NH:
know as a big punter in the City
NH:
and he hit the headlines earlier this year
NH:
after his run in with the souters
BE:
Aha – this was the nil-paid rights issue shenanegans
NH:
it was
NH:
Mr Levene’s wealthy clients have included Ann Gloag and Brian Souter, the multi-millionaire founders of Stagecoach, the Perth-based bus company.
The Scottish brother and sister won a £17.8million High Court judgment against Mr Levene earlier this year after he undertook to buy shares on their behalf, but allegedly failed to return the money.
Ms Gloag and Mr Souter – who are worth an estimated £400million – had each invested £5million with Mr Levene and instructed him to buy shares in HSBC bank and mining giant Xstrata.
They then instructed Mr Levene to sell at what should have provided them with a £3.8million profit each.
Mr Levene denied any wrongdoing and claimed he paid the Stagecoach founders in full.
The Scottish brother and sister won a £17.8million High Court judgment against Mr Levene earlier this year after he undertook to buy shares on their behalf, but allegedly failed to return the money.
Ms Gloag and Mr Souter – who are worth an estimated £400million – had each invested £5million with Mr Levene and instructed him to buy shares in HSBC bank and mining giant Xstrata.
They then instructed Mr Levene to sell at what should have provided them with a £3.8million profit each.
Mr Levene denied any wrongdoing and claimed he paid the Stagecoach founders in full.
NH:
But a writ from Ms Gloag and Mr Souter in June claimed the cheques sent by Mr Levene had not been cleared by his bank. The pair sued Mr Levene for £5million, alleging breach of contract, breach of trust, plus profits, interest and costs.
Another investor, who is thought to have triggered the freezing order, has tried for weeks to reclaim £3million from Mr Levene, but has been unable to contact him.
Mr Levene is reported not to have returned calls or emails at Leyton Orient and has not been seen at games for several weeks.
Three weeks ago he is understood to have emailed Touch Group, a small listed technology company, to resign from the board explaining that he needed to ‘organise his personal affairs’
Another investor, who is thought to have triggered the freezing order, has tried for weeks to reclaim £3million from Mr Levene, but has been unable to contact him.
Mr Levene is reported not to have returned calls or emails at Leyton Orient and has not been seen at games for several weeks.
Three weeks ago he is understood to have emailed Touch Group, a small listed technology company, to resign from the board explaining that he needed to ‘organise his personal affairs’
NH:
apparently, Levene is now in Israel
BE:
I see.
NH:
(and Hidden Hand, you are right. Bet was two years ago. I guess that was par for the course back in the boom years)
NH:
anyway
NH:
interesting story that
NH:
and lots and lots of chat about it in the Sqaure Mile today
11:26AM
BE:
While we’re on the subject of City chat …
BE:
We can’t really go without mentioning the strange tale that is JJB.
NH:
no
NH:
the good news is
NH:
that the cash call should be done and announced tomorrow morning
NH:
now that these allegations
NH:
have all been checked and found to be nonsense
BE:
Hm.
BE:
Well, I’m not sure “nonsense” sums this up
BE:
It was a bit more serious than that
NH:
it is
NH:
the competition in this industry
NH:
is well so intense
NH:
it seems people will stop at nothing
NH:
and the trouble is
NH:
until we find out how Sir David Jones rapaid that loan to Mike Ashley
NH:
it might go on and on
BE:
Yeah.
NH:
the reputation of this industry is in tatters
NH:
and don’t forget there is also the small matter of a OFT investigation as well as all this
BE:
How long’s that been running? Seems like ages.
BE:
Anyway, back to JJB specifically …
BE:
Couple of bits of comment
BE:
This from Altium
BE:
Altium view: JJB has issued a statement refuting rumours circulating late last week
about Sir David Jones’ personal financial affairs. An internal investigation has
established that the rumours were without foundation. Based on the statement and
press comment over the weekend there would appear to have been an elaborate
attempt to derail the £100m fund-raising that JJB is seeking to complete. Separately,
press reports have placed Steve Johnson’s name in the frame as a possible CEO for
JJB. It is only a rumour at this stage, but, based on our contact with Johnson in his
days at Asda, we would regard such an appointment as positive.
about Sir David Jones’ personal financial affairs. An internal investigation has
established that the rumours were without foundation. Based on the statement and
press comment over the weekend there would appear to have been an elaborate
attempt to derail the £100m fund-raising that JJB is seeking to complete. Separately,
press reports have placed Steve Johnson’s name in the frame as a possible CEO for
JJB. It is only a rumour at this stage, but, based on our contact with Johnson in his
days at Asda, we would regard such an appointment as positive.
BE:
§ Implications for estimates / valuation / recommendation: The statement stresses
that JJB is committed to pursuing the fund-raising which has received strong support.
The strength of that support and recent market strength suggest our target price might
be too aggressive, but we suspect that the issue will nevertheless be sufficiently
dilutive to support our SELL recommendation. It would seem we do not have too long
to wait for clarification on the scale and pricing of the fund-raising.
that JJB is committed to pursuing the fund-raising which has received strong support.
The strength of that support and recent market strength suggest our target price might
be too aggressive, but we suspect that the issue will nevertheless be sufficiently
dilutive to support our SELL recommendation. It would seem we do not have too long
to wait for clarification on the scale and pricing of the fund-raising.
BE:
And Freddie George at Seymour Pierce has cut to sell
BE:
£100m capital raising
Stock downgraded to SELL (Hold since 25 September 2009) in
advance of a highly dilutive £100m equity issue. Based on our
assumptions, the additional equity would value the company on
a FY12E multiple of 18.1x (vs. JD Sports 6.5x) which is, in our
view, difficult to justify given uncertainties still surrounding the
future success of the company.
Stock downgraded to SELL (Hold since 25 September 2009) in
advance of a highly dilutive £100m equity issue. Based on our
assumptions, the additional equity would value the company on
a FY12E multiple of 18.1x (vs. JD Sports 6.5x) which is, in our
view, difficult to justify given uncertainties still surrounding the
future success of the company.
BE:
Fund raiser significantly greater than our expectation
Following press speculation JJB has announced plans to raise £100m through an
equity issue; almost double our expectation. We anticipate this to take the form of a
placing and open offer, priced in the region of 20-25p. The programme should be
finalised during the early part of this week.
A rescue remedy
The company recently posted interim adjusted pre-tax losses of £46m and
corresponding operating cash outflow of £41.6m. On our revised full year forecast
loss of £48m, we are expect a net debt position at the end of FY10E of c.£50m;
exceeding the current £35m facility.
Implied rating premium difficult to justify
On our assumptions set out over page the fundraising would put JJB on a
prospective FY12E PER multiple, the first year we forecast the company to break
even, of 18.1x as opposed to 8.2x FY12E earnings at present. This compares with
JD Sports, a more healthy business, on 6.5x, and is difficult to justify in light of the
uncertainty which still surrounds the future success of the company.
Following press speculation JJB has announced plans to raise £100m through an
equity issue; almost double our expectation. We anticipate this to take the form of a
placing and open offer, priced in the region of 20-25p. The programme should be
finalised during the early part of this week.
A rescue remedy
The company recently posted interim adjusted pre-tax losses of £46m and
corresponding operating cash outflow of £41.6m. On our revised full year forecast
loss of £48m, we are expect a net debt position at the end of FY10E of c.£50m;
exceeding the current £35m facility.
Implied rating premium difficult to justify
On our assumptions set out over page the fundraising would put JJB on a
prospective FY12E PER multiple, the first year we forecast the company to break
even, of 18.1x as opposed to 8.2x FY12E earnings at present. This compares with
JD Sports, a more healthy business, on 6.5x, and is difficult to justify in light of the
uncertainty which still surrounds the future success of the company.
NH:
thanks for that
NH:
of course
NH:
one things remains to be cleared up
NH:
has Sir Dave sold that footballers’ wives house in Yorkshire
NH:
the last time we looked it was still on that property website
NH:
we should have another look
BE:
Will scan back to see if I can find the link
NH:
ok thanks
NH:
JJB share price
JJB Sports (JJB:LSE): Last: 34.50, up 1.75 (+5.34%), High: 35.25, Low: 33.25, Volume: 5.66m
BE:
Looks like it’s still on the market
NH:
ah, let’s have a look
NH:
oh, yes there it is in all its premier league glory.
NH:
not to my taste
NH:
and Sir Dave also has this holiday home in Spain
NH:
and it is interesting that these latest rumours surfaced
NH:
just as he was flying out to Spain
NH:
anyway, i think we should move on
11:36AM
BE:
Ok – what should we look at now?
NH:
I have one bit of RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
and then we could have a quick look at Gulf Keystone
BE:
Oh. Well, give us the raw first please.
NH:
Persimmon
NH:
talk of stake building by Qatar
BE:
Really?
NH:
To complement their holdings in the other UK developers, there is speculation that those naughty Qataris are looking for large blocks of Persimmon & offering the holders premium bids….
Persimmon (PSN:LSE): Last: 463.00, up 11.5 (+2.55%), High: 463.50, Low: 454.20, Volume: 488.50k
NH:
and that’s about if for RAW today
BE:
What holdings in other UK developers?
NH:
I think they have some JV with Berkeley Homes
NH:
anyway Gulf Keystone
11:40AM
NH:
Now, obviously we have called this one wrong
NH:
badly wrong
NH:
but
NH:
why is company sitting on so many billions of barrels of oil
NH:
use one of these equity draw down facilities
NH:
why won’t someone just lend them cash
BE:
Why indeed
NH:
beats me
NH:
I would have thought all that oil was good collateral
NH:
but anyway
NH:
this popped up on RNS today
NH:
Gulf Keystone Petroleum Ltd. (AIM: GKP), an independent oil and gas exploration and production company with assets in Kurdistan and Algeria announces that it has today drawn down £4,500,000 of its £30 million Standby Equity Distribution Agreement (“SEDA”) with YA Global Master SPV Ltd (‘YA’), the signing of which was announced by Gulf Keystone on the 7th May 2009.
This draw down of funds is the third under the SEDA and brings to £6,900,000 the amount of funds drawn down to date. The remaining undrawn funds under the SEDA facility are £23,100,000.
Under the terms of the SEDA, the Company has allotted, conditional on admission, 5,015,715 new common shares of $0.01 each to YA. These shares will rank pari passu in all respects with existing issued common shares in the Company. The new common shares have been issued at approximately 89.72 pence per share representing a five per cent discount to the average of the three lowest daily volume weighted average prices during the five trading days prior to this announcement.
BE:
A Standby Equity Distribution Agreement. I see.
NH:
yep
NH:
or death spiral
NH:
as they are know in certain circumstances
NH:
or financing of last resort
BE:
Thought they were only for minnows in trouble.
NH:
indeed
NH:
like Tadpole Technology
NH:
remember that one
BE:
History now, of course.
BE:
But was always good for a colourful story or two
NH:
indeed
NH:
but I guess what this tells us
NH:
is Gulf Keystone
NH:
will probably go for an equity fund raising soon
NH:
we know they have been sounding people out
NH:
about raising between $40-$80m
NH:
but with a shareholder register packed full of retail punters
NH:
it will take time to pull off
NH:
anyway
NH:
here’s a bit of comment from a good sector follower
NH:
Confirmation on the tape this morning that GKP has drawn down on its equity standby facility again with YA Global Master SPV ltd. So about 5m more shares in issue, and now about £6.9m out of £30m drawn. Not too excited about this either way, but this should confirm that the company will be raising money sooner rather than later. So don’t buy it yet – whilst the story has been improved hugely by the light oil discovery in the Triassic, there will be an opportunity to buy into this cheaper soon. HOLD, or SELL and BUY back in any placing.
BE:
Shares?
NH:
here you go.
Gulf Keystone Petroleum (GKP:LSE): Last: 99.75, up 3.25 (+3.37%), High: 100.00, Low: 97.50, Volume: 1.43m
NH:
(Debbie you can say but we can’t possibly comment!)
11:45AM
NH:
Bryce
NH:
people are asking about the Toxic Pub Co
NH:
biggest faller in the FTSE 250 at the moment
NH:
down 9.3p at 111.7
BE:
That’s after the Sunday Times did a preview of their earnings on Wednesday
NH:
£600m write down on the pub portfolio
NH:
oddly enough I thought that would be seen as good news
NH:
as in just £600m
NH:
i reckon the pubs are worth much, much less
BE:
Hm.
NH:
I think the portfolio was last valued at £6bn
NH:
which seems incredible
BE:
Also worth noting that one of the bigger Toxic Taverns bulls has turned cautious this morning
NH:
who is that?
BE:
Paul Hickman at KBC
NH:
right
BE:
Here’s his note
BE:
Bond discount reduced. We take Friday’s repurchase of £120m nominal A8
bonds at a discount of 2.1% as a signal that the 30% discounts achieved up to
pre-close will not continue. This in turn could mean that the company would have
to be more selective in the scope of pub sales going forward. Punch trades on
FY10E 6.9x PER and 8.9x EV:EBITDA. Now assuming a 5% bond discount over
the next three years, we reduce our target to 120p.
bonds at a discount of 2.1% as a signal that the 30% discounts achieved up to
pre-close will not continue. This in turn could mean that the company would have
to be more selective in the scope of pub sales going forward. Punch trades on
FY10E 6.9x PER and 8.9x EV:EBITDA. Now assuming a 5% bond discount over
the next three years, we reduce our target to 120p.
BE:
Asset downgrades Press reports are that the write-down will be £600m. This
will reduce the 3.6x interim asset covenant cover. However, assuming that
£150m of the £350m fundraise is applied to bonds, we would still expect cover to
remain above 2x.
will reduce the 3.6x interim asset covenant cover. However, assuming that
£150m of the £350m fundraise is applied to bonds, we would still expect cover to
remain above 2x.
BE:
Major profit decline. We forecast pre-tax £160m (-39%) and EPS 36.4p (-54%).
The scale of the decline may generate headlines but is expected with consensus
£160m /41p (barring some corrections to EPS on placing dilution).
The scale of the decline may generate headlines but is expected with consensus
£160m /41p (barring some corrections to EPS on placing dilution).
BE:
Trading consistent or better. At pre-close in late August trading was no worse,
with tenancy still -11% LFL EBITDA, and managed improved LFL at -0.6% in H2
(-2.3% H1, -1.4% FY). We would not expect significant change from this in
current trading .
with tenancy still -11% LFL EBITDA, and managed improved LFL at -0.6% in H2
(-2.3% H1, -1.4% FY). We would not expect significant change from this in
current trading .
BE:
Progress on managed pubs. As well as reduction of LFL declines, improving
margin (H2 -250bps vs H1 -400bps, FY -350bps) shows evidence of new
management starting to gain traction, also helped by reducing cost pressures.
We expect these trends to continue into FY2010. A turnround in managed pubs
is a major opportunity in the next 1 – 2 years.
margin (H2 -250bps vs H1 -400bps, FY -350bps) shows evidence of new
management starting to gain traction, also helped by reducing cost pressures.
We expect these trends to continue into FY2010. A turnround in managed pubs
is a major opportunity in the next 1 – 2 years.
BE:
Debt progress. Punch reduced net debt by £650m in year to August, excluding
the placing, of which £500m was in H2. Disposals have accelerated as the
process with individuals and pub groups developed. We would expect c£100m
disposals since year-end.
BEC and referral concerns. The ending of the industry/tenant group
negotiations without agreement leave open the possibility that the call for referral
to the Competition Commission by the Commons committee will proceed. There
is a distant prospect that the beer tie might be modified,although we do not think
it will be abolished. But the uncertainty persisting for the present and the
receding prospect of a clean end to the issue will not help the ratings of pubcos
specialising in tenancy.
the placing, of which £500m was in H2. Disposals have accelerated as the
process with individuals and pub groups developed. We would expect c£100m
disposals since year-end.
BEC and referral concerns. The ending of the industry/tenant group
negotiations without agreement leave open the possibility that the call for referral
to the Competition Commission by the Commons committee will proceed. There
is a distant prospect that the beer tie might be modified,although we do not think
it will be abolished. But the uncertainty persisting for the present and the
receding prospect of a clean end to the issue will not help the ratings of pubcos
specialising in tenancy.
NH:
that’s interesting. So, the bond arb game is up. I guess it was only a matter of time before the holders got wise and jacked up the price.
NH:
and just looking at the junior Toxic Pub Co
NH:
they are also under a bit of pressure
Enterprise Inns (ETI:LSE): Last: 121.50, down 3.5 (-2.80%), High: 128.60, Low: 120.80, Volume: 1.71m
NH:
any comment on the pub portfolio
NH:
from analysts?
NH:
on Punch
BE:
Sure
BE:
Here’s Hugh-Guy Lorriman at Seymour Pierce
BE:
Punch has some £6bn of assets on its Balance Sheet so the supposed
£600m write down represents a 10% decrease in value. This seems reasonable in
light of earnings declines in the business over the last year. Punch has been
arguably more conservative than other operators taking a £300m impairment charge
in FY08. Asset values are important relative to securitisation debt covenants. As well
as debt service based covenants most securitisations have loan to value covenants.
Asset write downs have not been very deep across the sector so far in our view.
£600m write down represents a 10% decrease in value. This seems reasonable in
light of earnings declines in the business over the last year. Punch has been
arguably more conservative than other operators taking a £300m impairment charge
in FY08. Asset values are important relative to securitisation debt covenants. As well
as debt service based covenants most securitisations have loan to value covenants.
Asset write downs have not been very deep across the sector so far in our view.
BE:
We don’t see this press newsflow as materially changing our view on Punch – either
for the better or worse. With the group’s recent extensive debt reduction we assume
that the group has balanced off such reduction vs. asset declines. However we will
find out more on Wednesday.
On an arguably more negative note, Punch announced on 9 Oct that it has
purchased £100m of principal of the Class A8 Secured Floating Rate Notes due June
2033 issued by Punch Taverns Finance B Limited at an average cost of 98% of Par.
This follows an invitation to tender made on 2 Oct. Arguably this news could be seen
as heralding the end of Punch’s successful debt reduction vs. asset sale value
creation story.
For now we reitera
for the better or worse. With the group’s recent extensive debt reduction we assume
that the group has balanced off such reduction vs. asset declines. However we will
find out more on Wednesday.
On an arguably more negative note, Punch announced on 9 Oct that it has
purchased £100m of principal of the Class A8 Secured Floating Rate Notes due June
2033 issued by Punch Taverns Finance B Limited at an average cost of 98% of Par.
This follows an invitation to tender made on 2 Oct. Arguably this news could be seen
as heralding the end of Punch’s successful debt reduction vs. asset sale value
creation story.
For now we reitera
NH:
who is this from?
BE:
For now we reiterate our SELL recommendation on Punch, due to long term
concerns over the business model and continuing high absolute debt to EBITDA
levels – at over 7x. With the group’s ability to retire debt at significant discounts
apparently much curtailed the long term trading story should become the key driver
again and on this we are not positive.
concerns over the business model and continuing high absolute debt to EBITDA
levels – at over 7x. With the group’s ability to retire debt at significant discounts
apparently much curtailed the long term trading story should become the key driver
again and on this we are not positive.
BE:
The chaps at Seymour Pierce
NH:
any more?
BE:
Quick line from Credit Suisse, also saying the Sunday Times story wasn’t much of a story ….
BE:
The Sunday Times reported that Punch is expected to write down the value of estate by 10% or £620m following write downs
of £295m at the end of FY08 and £147m at the H1 2009 interims. Given the declines in profitability across both the leased
and managed estates, the altered financing market and disposals at 5% below book value this would be unsurprising to us.
• As part of our valuation analysis on Punch we have assumed a 20% decline in pub values from the 2007 peak from which we
arrive at a 2010E NAV per share of 193p. If we assume a £620m write down (a total 17% decline from peak) in the 2009
accounts we would arrive at an August 2009 adjusted NAV per share of 205p per share, 70% above the current level. As such
we would still view the asset backing as supportive of our medium term positive stance, although we are conscious more
bullish published NAVs have exceeded 300p. We continue to await a regulatory update which we think should present a good
buying opportunity.
of £295m at the end of FY08 and £147m at the H1 2009 interims. Given the declines in profitability across both the leased
and managed estates, the altered financing market and disposals at 5% below book value this would be unsurprising to us.
• As part of our valuation analysis on Punch we have assumed a 20% decline in pub values from the 2007 peak from which we
arrive at a 2010E NAV per share of 193p. If we assume a £620m write down (a total 17% decline from peak) in the 2009
accounts we would arrive at an August 2009 adjusted NAV per share of 205p per share, 70% above the current level. As such
we would still view the asset backing as supportive of our medium term positive stance, although we are conscious more
bullish published NAVs have exceeded 300p. We continue to await a regulatory update which we think should present a good
buying opportunity.
NH:
thanks for that.
11:51AM
NH:
And I see the GKP fan club have arrived
NH:
we had a charming email from one fan the other day
NH:
expletive heaven
BE:
It’s remarkable the stuff we get can work its way through the firewall
NH:
yes
NH:
that was particularly nasty
NH:
anyway
NH:
that’s if that’s the level of debate
NH:
we should quickly move on
NH:
there’s a few more things I want to have a look at
NH:
before today’s session closes
11:53AM
BE:
Right then – what?
NH:
National Express
NH:
shares under a bit of pressure today
NH:
down 7.4p at 472p
NH:
and it looks as if the Cosmen family are struggling to get the finance
NH:
they have had a month
NH:
and still struggling
BE:
CVC’s struggling to raise the cash?
BE:
That seems a bit peculiar.
NH:
yep and lots of execuses are coming out
NH:
about needing more time for DD
NH:
and analysts are aren’t buying it
NH:
well Astaire isn’t
NH:
According to press reports this morning, the CVC-led consortium is to request more time to complete due diligence and arrange financing.
Ø The latter is “taking longer than expected”, says the FT.
Ø The existing deadline is this Friday, 16 October…
Ø …five weeks after NEX gave CVC permission to look at the books.
Ø The latter is “taking longer than expected”, says the FT.
Ø The existing deadline is this Friday, 16 October…
Ø …five weeks after NEX gave CVC permission to look at the books.
NH:
Astaire view: five weeks plus, say, another two is surely sufficient time to get this sorted out. Are the banks being awkward?
BE:
Hm.
NH:
I know
NH:
this doesn’t feel to good
NH:
anyway
NH:
here’s a bit more comment from Caz
NH:
The latest put-up or shut-up (PUSU) deadline for the Cosmen/CVC consortium to make an offer for National Express expires at 5.0pm on Friday this week (16th). Articles in the FT and Daily Telegraph this morning indcate that the consortium will ask for a futher extension as the renegotiation of National Express’ debts “is taking longer than expected.” The request for a further extension is “not thought to indicate problems with the deal.” As a reminder, the indicative offer by the consortium is 500p in cash subject, among other things, to due diligence. The consortium revised its indicative offer for National Express on 3rd September and at the time requested four weeks’ due diligence. The four week period ended on Friday 9th October, leaving a further week for the formal bid to be finalised. Aside from the benefits to NEX shareholders of a bid which we believe will be forthcoming, we believe that Stagecoach’s potential acquisition of certain NEX assets would be a positive catalyst for the shares, subject to price paid. We would make the following points:
NH:
(Tuna )
)NH:
National Express – the issue for investors in our view is what if a bid did not arise? National Express management have made no secret of the need for a rights issue to strengthen the balance sheet if the group was to continue on a stand-alone basis. We believe that a stand-alone strategy is perfectly viable, however the absence of a bid might give rise to concerns about what was revealed in the due diligence process, making a rights issue incrementally harder to execute in our view.
NH:
We estimate that the group will need to raise some £350m to bring net debt:EBITDA into a more comfortable range. If National Express continued to pursue an independent strategy we believe that the risk of cross default on the two remaining rail franchises would remain. As a reminder, the group will return the East Coast rail franchise to government ownership once its contracted financial commitments have been fulfilled, namely the drawdown of the £40m subordinated loan. At this point the group will have technically defaulted on its obligations under the contract and, the government contends, would forfeit its other two rail franchises (c2c and East Anglia). National Express has taken legal advice to suggest that this is an incorrect interpretation of the contract. We set out our valuation matrix in the table below. For the purpose of this exercise we have assumed that the rights issue was priced at 240p a c50% discount to the current price.
BE:
So – no bid would mean they’d have to pull the trigger on a rights issue.
NH:
yep
NH:
and as you can see
NH:
there would be a pretty chunky discount
BE:
Ok – one to keep on the watch list.
11:57AM
BE:
Taxloss – good idea
NH:
The GKP one, would take some beating
NH:
for its sheer lack of creativity or wit
BE:
Flamewatch might be a Long Room theme to consider.
NH:
yes
11:58AM
BE:
Right – nearly midday.
BE:
Anything you want to end with?
NH:
Some strategy stuff to finish up on
NH:
from Goldman
NH:
Peter Oppenheimer
NH:
and interesting there are going ever so slightly more cautious on equities
NH:
they aren’t bearish
NH:
but more cautious
BE:
Can we have a look then?
NH:
Equity index returns are likely to advance at a slower pace as economic momentum slows. As we move froma beta driven ‘valuation’ phase to an ‘earnings’ driven phase, we expect greater alpha opportunities, both
within the credit and equity markets. We emphasize our Dispersion basket GSSTDISP and GS SUTAIN as ways to find undervalued growth.
within the credit and equity markets. We emphasize our Dispersion basket GSSTDISP and GS SUTAIN as ways to find undervalued growth.
NH:
From a ‘valuation’ to ‘earnings’ driven market
NH:
Recent signs that the momentum of economic activity might be slowing are not a reason to get bearish, in our
view. We do expect equity prices to rise, but at a slower pace. This shift of momentum is not atypical as the market transitions from a ‘valuation’ driven to an ‘earnings’ driven phase. The valuation rerating that drove the sharp rebound in the markets from Q2 has largely completed; our GS DDM model suggests the market is at ‘fair value’ given current risk premia.
view. We do expect equity prices to rise, but at a slower pace. This shift of momentum is not atypical as the market transitions from a ‘valuation’ driven to an ‘earnings’ driven phase. The valuation rerating that drove the sharp rebound in the markets from Q2 has largely completed; our GS DDM model suggests the market is at ‘fair value’ given current risk premia.
NH:
Low valuation dispersion implies quality, growth is undervalued
The dispersion of valuations in the market has fallen, even when adjusting for company beta. This is partly
explained by the sharp jump of the most leveraged or cyclical companies as the market has repriced risk and
reassessed economic prospects. Indeed, our ‘Recovery’ basket (Bloomberg ticker GSSTRCOV), which
comprises the most financially and operationally leveraged companies, has jumped by 140% from its March
low. This suggests that sustainable growth companies are not enjoying the premium ratings that we would
normally expect to see. Our credit strategists observe a similar anomaly.
The dispersion of valuations in the market has fallen, even when adjusting for company beta. This is partly
explained by the sharp jump of the most leveraged or cyclical companies as the market has repriced risk and
reassessed economic prospects. Indeed, our ‘Recovery’ basket (Bloomberg ticker GSSTRCOV), which
comprises the most financially and operationally leveraged companies, has jumped by 140% from its March
low. This suggests that sustainable growth companies are not enjoying the premium ratings that we would
normally expect to see. Our credit strategists observe a similar anomaly.
NH:
Our Dispersion basket (GSSTDISP) and GS SUSTAIN offer opportunities
Our ‘cyclically adjusted’ dispersion analysis suggests this is beginning to change. We recommend our revised
Dispersion basket, Bloomberg ticker GSSTDISP as well as GS SUSTAIN as ways of taking advantage of low
valuation differentiation.
Our ‘cyclically adjusted’ dispersion analysis suggests this is beginning to change. We recommend our revised
Dispersion basket, Bloomberg ticker GSSTDISP as well as GS SUSTAIN as ways of taking advantage of low
valuation differentiation.
NH:
sorry
NH:
that did not appear in a quote
BE:
Ok – thanks
12:01PM
BE:
Hello to Murph – slumming it among the rabble on the right.
NH:
Paul could you provide Lizzie (and us) with an answer pls.
NH:
(DJP – just thinking that)
BE:
Also, feel free to give us a review of Le Bernardin while you’re here Paul.
PM:
I could try, but I seem to be getting stuff stuck in the pipe
NH:
pipe?
NH:
internet pipe at your house?
PM:
Well, stuff not appearing
PM:
See
NH:
OK
PM:
PM ROTR about to say greying problem
NH:
but
NH:
right
PM:
Confuisng eh
NH:
so no MLUS
NH:
until the tech issues are sorted
NH:
so
NH:
it is the new year then?
PM:
Nah, Neil we should get it going
12:05PM
NH:
Just going back to that GS note for a moment
NH:
Paul has made an interesting point
NH:
is that Blackstone story in the paper today
NH:
a signal that the market has topped?
BE:
Which Blackstone story’s that?
PM:
Well, if find that story fascinating
NH:
about them floating loads of their portfolio companies
PM:
They are going to list a series of cos and sell some
NH:
looks like a rush to get them all out the door
NH:
here’s the piece
NH:
by Henny Sender
NH:
so the sourcing will be impeccable
NH:
Blackstone, the world’s largest buy-out firm, is planning to list up to eight companies it owns and sell at least five others, marking a reversal of its pessimistic view of the global economy and financial markets.
Steve Schwarzman, Blackstone’s founder, told investors in a letter sent on Friday: “We see the world changing once again. At least for private equity, the worst is behind the industry.”
NH:
Mr Schwarzman’s stance is noteworthy because no other leading buy-out firm anticipated the economic downturn to the extent that Blackstone did, nor turned as bearish as early.
Blackstone was among the most active private equity buyers in 2005 and 2006 but grew cautious after leading the investment group that bought Freescale Semiconductor in September 2006.
NH:
In his letter, Mr Schwarzman expressed some qualifications about the recovery, saying it was the product of fiscal stimulus and inventory rebuilding, both one-time events.
He made clear Blackstone was acting to capitalise on improved conditions. “We are seeing the beginning of realisations through strategic sales and public equity offers,” he said.
PM:
So last time Blackstone was a selling to the public markets — the roof fell in thre months later
NH:
Mr Schwarzman said Blackstone was in the process of selling five companies it owns – at values twice as high as those estimated at the end of 2008. Investors are likely to receive about $2.8bn (€1.9bn) as their share of the profits, with about $1.2bn coming from the expected sale of Kosmos Energy.
Blackstone is considering listing eight other companies in which it has invested collectively more than $4bn, during the next year, and the “expected valuation compares very favorably to our costs, in some cases significantly”.
BE:
Yup – Blackstone tends to be very shrewd with its timing.
NH:
hmm
NH:
interesting story that
NH:
and on Kosmos
NH:
it looks like there could be a bid battle
NH:
with the Chinese coming in
NH:
to go up against Exxon
BE:
Yeah – that was around on Friday
Tullow Oil (TLW:LSE): Last: 1,227, up 19 (+1.57%), High: 1,231, Low: 1,214, Volume: 1.17m
NH:
I have some comment on this
NH:
but Lotus Notes has crashed
NH:
is there any email format
NH:
it actually likes
NH:
right working
NH:
this from Arbuthnot
NH:
It has been widely reported that ExxonMobil (XOM) has bought Kosmos Energy for c.$4bn. The transaction has not yet been officially confirmed by either side and has yet to be approved by the Ghanaian government. However, it has been reported that state-run GNPC may still be interested in a deal. In anticipation of XOM clinching the deal, we examine what it could mean for those involved. We view this as positive for Ghana as it would help to de-risk both the country and its assets. Consequently, we have upgraded our Tullow Oil rating to Strong Buy and increased our target price to 1,489p.
12:11PM
NH:
Right, we really must go
NH:
but before we do
NH:
Nobel prize for economics has been announced
NH:
and it has not, as rumoured on Friday, gone to Zerohedge
BE:
NH:
but this guy
NH:
Oct. 12 (Bloomberg) — Elinor Ostrom and Oliver Williamson won the Nobel Prize in economics, the Royal Swedish Academy of Sciences said at a press meeting in Stockholm today.
BE:
Isn’t Elinor a woman?
NH:
Yes. sorry here’s her Wiki entry. http://en.wikipedia.org/wiki/Elinor_Ostrom
NH:
Her current work emphasizes the multifaceted nature of human-ecosystem interaction and argues against any singular “panacea” attempt to solve individual social-ecological system problems.
BE:
Transaction cost economics.
NH:
Oliver Williamson is credited with the development of the term “Information Impactedness”, which applies in situations where it is difficult to ascertain what the costs to information are. This condition exists
12:14PM
PM:
Im feeling a bit impactedness also
PM:
Go to go
NH:
me too
PM:
Seeya latere
NH:
thanks for all the comments
NH:
see you all tomorrow
BE:
Bye Paul, and bye everyone else.
NH:
cya