FT Alphaville » Markets live transcript 13 Oct 2009

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Markets live transcript 13 Oct 2009

Posted by Neil Hume on Oct 13 11:04.

Markets live chat transcript for the chat ending at 12:19 on 13 Oct 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE) Paul Murphy (PM)

NH:

heloooooooooooo

NH:

it’s 11.03

NH:

an welcom to markes liv

NH:

FT Alphavile maket chat

NH:

Bruce is here

BE:

Neil … what’s wrong with you?

NH:

who me? Noting

BE:

your typing is even worse than normal

BE:

I can barely understand anything you are saying

NH:

sorry Bruce

NH:

we have been at a very pish champagne breakfast

BE:

with a bandit?

NH:

Nope, we have won an award

BE:

really

NH:

yep

NH:

a god one

NH:

sorry a good one, lots of really, really famous people at the bash

BE:

such as?

NH:

well famous in a media sense

NH:

Julia Hobsawm – Sarah Brown’s mate

NH:

Dylan Jones of GQ

NH:

that posh bloke off the Today programme

BE:

Ed Stourton?

NH:

that’s the one

BE:

OK and what were these awards called?

NH:

hang on let me get the brochure thingy

BE:

come on

BE:

the readers are waiting

NH:

Right, her we r

NH:

The Comment Awards

NH:

The Inugural Comment awards, organised by Editorial Intelligence

NH:

http://www.commentawards.com/

NH:

Editorial Intelligence (e.i) is a provider of media data and analysis, specialising in the comment and opinion, which also runs an extensive programme of thought leader networking forums and training workshops. Editorial Intelligence was the first media company to identify the prominence of ‘The Commentariat’ – the distinct group of columnists, leader and op-ed guest opinion writers in the UK national media whose opinions influence not only the dynamics of public debate, but also the shape and direction of surrounding policy, legislation and public opinion.

BE:

right. That’s enough of a plug

BE:

so what did you win?

NH:

best Online Newpaper Blog

BE:

well done

NH:

well done to you

NH:

you’re part of the team

BE:

where was my invite then?

NH:

er sorry about that

NH:

Murph organised it all

NH:

anyway we beat off competition from the Spectator and the Times

NH:

here’s what the judges said

NH:

actually it does not say much

NH:

just Paul Murphy is an award winning journalist, who has spent two decades commenting on financial news and breaking large takeover news

NH:

which is boring

BE:

NH:

anyway

NH:

I am buying a slap up lunch for everyone at the Gourmet Burger Kicthen

BE:

such class

11:09AM

NH:

right

NH:

Bryce

NH:

I have no idea what’s going on

NH:

so you will have to lead things

BE:

Well, first thing to deal with is the technology disclaimer

NH:

oh no

NH:

what’s gone wrong now

BE:

The login system’s gone wonky

BE:

Have a rake around in your email Neil. There should be a note from our ever-brilliant IT department

NH:

ah yes

NH:

here it is

NH:

Who should read this?
All staff.

NH:

What is happening?
We are currently intermittent experiencing problems with FT.com Subscriptions and Registrations and DAM services.

NH:

How will this affect me
At points users may be unable to access FT.com Subscriptions and Registrations and DAM products and services.

NH:

What action are we taking?
FT support staff are investigating.

NH:

Next Update
One Hour.

BE:

So – it’s being investigated.

BE:

Hooray.

BE:

So, if the ROTR comments are light, that’s the reason

NH:

BE:

Viewer numbers are, however, normal.

BE:

And, now that’s out of the way, wider market time.

11:12AM

BE:

FTSE drifting away from its 12-month high

BE:

And that’s largely because the banks are down

NH:

ah yes, Barclays a bit weak

NH:

off 10.75p at 362p

NH:

hearing people are selling Barc

NH:

to raise some cash

NH:

so they can back the massive Lloyds cash call that is coming down the slip way

NH:

and also

BE:

Makes sense

NH:

people are selling

NH:

because

NH:

Diamante Bob could be off

NH:

Bigger then Jesus Bob

BE:

Yeah – that was the story doing the loop yesterday

BE:

Going to Wall Street

BE:

To head up the mighty (mess that is) Bank of America Merrill Lynch

NH:

Bank of Bob then

NH:

or Diamond Bank

NH:

actually

NH:

I can believe this

BE:

BOAMLBD

NH:

it would really appeal to his ego

NH:

running a big investment bank

NH:

and a big clearing bank

NH:

and we all know

NH:

he wants to move back to the States

NH:

and of course

NH:

he could earn more there than he ever could this side of the Pond

BE:

He’s sold his house in the UK, hasn’t he?

NH:

I think so, some huge pad in Chelsea

NH:

if I remember correctly

BE:

At a 15M profit, if you want to believe the Daily Mail

BE:

http://www.thisismoney.co.uk/news/article.html?in_article_id=442531&in_page_id=2

BE:

The wealthy City banker hired by Boris Johnson to help raise money for London’s deprived teenagers has landed a £15m profit from selling his house.

BE:

Bob Diamond, Barclays Bank’s investment banking chief, bought the property in Kensington with his wife Jennifer for £10.5m three years ago. It is now said to be under offer at £25m.

11:18AM

NH:

Of course

NH:

if Diamond Bob does go

NH:

and this is all speculation and RAW at the moment

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:

it would mean another top member of the Barclays team leaving

NH:

Roger Jenkins, king of the tax stuff

NH:

has already left

NH:

Idzik has gone

NH:

if Bob goes

NH:

that leaves Varley

NH:

and if Bob did up sticks and leave

NH:

imagine the brain drain to Merrill

NH:

BarCap is a bit like a cult

NH:

they would all follow the leader

BE:

We should really stress the “if” in all that speculation, of course.

NH:

indeed

NH:

RAW, uncooked information

11:20AM

NH:

Right

NH:

that Ryanair press release

NH:

here it is

NH:

to give away 1.1m seats after Panorama lies

NH:

Ryanair, Britain’s favourite airline, today (Tue 13th Oct 09) released 1.1million FREE seats after BBC Panorama screened its ‘hatchet job’ on Ryanair last evening in which it uncovered – nothing, nada, rien, diddly squat. Ryanair criticised Panorama for its refusal of Ryanair’s offer of a live or uncut pre-recorded interview with Michael O’Leary, but this refusal isn’t surprising given that Panorama had no real case or valid points which would stand up to interview.

NH:

Last night Panorama made 11 false or misleading claims as follows:

NH:

do you want all 11?

NH:

or just a link?

BE:

I don’t.

BE:

However, I know Mr O’Leary tends to be a bit of a Marmite subject.

NH:

well, what about some selected highlights

BE:

Sure – go on then.

NH:

Panorama produced a ‘Professor of Corporate Reputation’ to suggest that ‘people feel cheated’ by Ryanair – which is clearly false when over 66 million passengers this year will choose to fly Ryanair because they feel cheated by BA’s and Easyjet’s high fares.

NH:

this is a good one

NH:

Panorama claimed that Ryanair’s 25 minute turnaround was a ‘record time’. This is false since Southwest Airlines in the US operates a 15 minute turnaround.

NH:

and this

NH:

Another Panorama actor claimed Ryanair had ‘no respect or dignity for pilots or cabin crew’ – this is a false claim put about by the British Airways pilots’ union. Respect and dignity in Ryanair come in the form of high pay, rapid promotion and job security – unlike at BA where pilots are facing job cuts and pay cuts.

NH:

Panorama falsely claimed that no food or drinks are provided to cabin crew without pointing out that each pilot and cabin crew member receives a food allowance on every flight to pay for their own food and drinks.

NH:

and finally

NH:

Panorama claimed that “O’Leary is a bully” – this is clearly false when the whole world knows that O’Leary is a kind and gentle, caring and thoughtful, sensitive and saintly human being widely beloved by all Ryanair’s 6,500 people and its 66m passengers.

BE:

Ho hum. I tend to take a “tree falls in the forest” attitude to O’Leary. If we’re not there to hear him he might stop making a noise.

NH:

actually I caught the second half of the programme

NH:

was late back from the swimming pool

NH:

and

NH:

an awful programme

NH:

they uncovered nothing

NH:

except that Ryanair are mean and lean

NH:

they are aggressive

NH:

and ruthless

NH:

they demand discounts from Boeing and Airbus

NH:

shock horror

NH:

total waste of license payer money

NH:

I have to say

NH:

it really did show anti business bias

NH:

it really did

NH:

and that’s sad

BE:

So what would Lord Pesto of Muswell Hill make of all this?

NH:

lord knows. probably massively embarassed

NH:

I would be

NH:

anyway

NH:

enough of that

NH:

shall we move on

BE:

Yes.

11:26AM

BE:

(Debbie: you’ll understand that we’re not hugely keen to say much about that here. But Twitter vs. Carter-Ruck is turning into an interesting fight.)

NH:

Okay

NH:

just repeating something from earluer

NH:

we are having tech issues today

NH:

with the registration system

NH:

that’s why it is taking so long to log in

NH:

looks as if it might have been fixed

BE:

Things to seem to be getting livelier on the right, yes.

BE:

Which is a mixed blessing. (Hello Taxloss ….)

BE:

Right – we should move on to some stock specific stuff

11:28AM

BE:

ITV on the move

NH:

oh, not more bid rumours

NH:

I thought we knocked that on the head

BE:

Thankfully, no

BE:

Although there was a line in the Journal today about management – whoever they might be – have 18 months to fix things or it’ll be broken up

BE:

Anyway, today there’s actual news

BE:

And I’m not sure who’s neen making the decisions,but whoever it was, they’ve made some

BE:

First, they’re raising £120m with a convertible

BE:

Which will pay down debt due in 2011, and goes some way to nipping in the bud all those rights issue concerns

BE:

and second, they’ve scrapped plans to sell SDN

BE:

Which is the Freeview multiplex thing that carries Channel Five and QVC

NH:

So, who is it at the controls overseeing all this? I thought ITV was the Mary Celeste

NH:

and as for SDN

NH:

I’m guessing nobody wanted it

BE:

Well, possibly.

BE:

But ITV’s managed to convince the pension fund trustees it’s worth something.

BE:

So, while the £40m or so of sales SDN generates will be put through ITV’s books as normal, the cash will be channeled into paying down the deficit.

NH:

So ITV pensioners own a shoppiing channel

NH:

that will make them sleep easier at night

BE:

Sort of, yes. They own the mechanism through which the shopping channel is broadcast.

BE:

I believe the technical term is the s###pipe.

BE:

Anyway, the share price reaction is largely on the current trading news

NH:

yes, up 3.52p at 50.85p – biggest riser in the FTSE 250 at the moment

BE:

It doesn’t look as bad as folk thought

BE:

Total ad sales seen down 3% year-on-year this month, with November looking similar.

BE:

Here’s Citigroup to put that in context

BE:

At our recent roundtable ITV indicated that the ITV family of channels was down only 7% in September. In the release today it indicates that October has improved and is only down 3% for the ITV Family. November is set to be down a similar level. This is a material improvement vs. our expectations – CIRA looks for -13% NAR decline for the ITV Family for FY09 and c. -10% for the 2H.

NH:

Any more of that?

BE:

On balance this is good news

There will be dilution from the convertible issue but this further tides over the balance sheet and probably avoids the need for a much more dilutive rights issue further down the line.

The lack of a sale of SDN could be read negatively – some will interpret this as a failure to find buyers. However, we see it as a positive that ITV has avoided a dilutive disposal and the deal with the pension trustees appears to make sense. While we need to see more detail on what this actually does to the deficit/cash funding requirements, we are minded to view it as a positive development.

BE:

The news on current trading is unalloyed good news. This may be partially down to phasing on the back of the group’s strong programming schedule (X Factor attracted over 14m viewers on Sunday night), but has by the far the most direct impact on group profits.

BE:

And here’s what Lorna Tilbian at Numis makes of it all

BE:

ITV has outlined better than expected Q4 trading, the retention of SDN and a £120m convertible; we view all of these developments positively. ITV plc advertising was down -15% in H1 and -12% in Q3, and we had been forecasting -10% for Q4 to give -13% for FY09. However, October and November are both down just -3% and accordingly we are upgrading our FY09 estimate to -11%; this adds £20m to our forecasts.

BE:

ITV, along with Trinity Mirror, has been our pick of the ‘death or glory’ stocks, although we recently moved to Hold to reflect the strong ytd share price performance and considerably uncertainty over management and therefore operational, strategic and financial strategy. We view today’s encouraging Q4 trading as providing a directly positive readacross to UTV and STV, and indirectly to other groups influenced by B2C display advertising (newspapers, agencies).

BE:

So, all in all, it’s not looking too bad for Murphy when he takes over as chairman

NH:

Yes

NH:

have the headhunters been in touch yet

NH:

after today’s award

NH:

Murph’s hot property

BE:

I’m sure. Definite industry buzz about the Murph up Islington way.

BE:

(Our finders’ fee is non-negotiable.)

NH:

Bob Diamonad off to BoA

NH:

Murphy off to ITV

NH:

we should move on

11:35AM

NH:

Let’s have a quick look at the GBK

BE:

Of course

BE:

euro’s 0.938

BE:

Cable’s 1.579

NH:

and that’s after news that CPI had hit its lowest annual rate in 5 years

BE:

Which gives the scope to extend QE. Maybe.

NH:

possibly

NH:

here’s the Reuters take

NH:

British inflation fell more than expected to its lowest annual rate in five years but analysts said this probably represented the trough and price pressures would start rising again over the next few months.
The Office for National Statistics said on Tuesday CPI inflation fell to just 1.1 percent in September — just over half the 2 percent target — from 1.6 percent in August as last year’s big rises in utility bills were not repeated.
Analysts had predicted a rate of 1.3 percent and the weaker than expected figures sent the pound down by around half a cent and gilts racing upwards as dealers bet that the Bank of England could still ease policy further.
“I think it’s minded to expand the quantitative easing programme. This just provides the additional reason to do it,” said Amit Kara, economist at UBS.

BE:

Got some UBS comment on this if you fancy

BE:

Amit Kara

NH:

yeah go for it

BE:

After several upside surprises today’s CPI print will provide comfort to the MPC ahead of its November meeting. The data
gives ammunition to the camp that expects a further expansion in QE at that meeting. In fact we expect a £25 billion
expansion.
The CPI outturn of 1.1% probably marks the trough in the index for this cycle. Various base effects, including those from the
VAT cut last year, should lift inflation data over the next few months and should also inflict plenty of volatility in the data. The
BOE will, however, look through this volatility in our view. Abstracting from this volatility we actually expect inflation to stay
subdued next year because of the size of the output gap and in particular because of subdued wage inflation and employment
prospects.
In our view the more relevant variable for the monetary policy will be asset price inflation and in particular house price
inflation. Recent data continues to point to strong inflation. Overall, we expect the MPC to raise policy rates from Q3 next
year, although that should be preceded by a liquidity withdrawal in 2010 H1.

11:39AM

BE:

Right.

BE:

Neil wants to talk about Gulf Keystone.

NH:

yes

NH:

coz Chopper Bear has just logged in

NH:

and says the GKP’ers

NH:

are not very happy with us

NH:

because we dare to say something critical about their company

NH:

anyway

NH:

there’s some news from the world’s next big oil company

BE:

Go on then.

NH:

they have a new nomad and broker

BE:

So – Goldman and Cazenove?

NH:

BE:

Credit Suisse and Hoare Govett?

NH:

nope

BE:

UBS and Merrill?

NH:

nooooo

NH:

do you give up

BE:

I do, yes.

NH:

Gulf Keystone is pleased to announce that it has appointed Strand Partners
Limited as Nominated Adviser and Mirabaud Securities LLP as Broker with
immediate effect.

BE:

Right.

NH:

yes, but let’s put in a share price

NH:

and point out

NH:

that with a nomad and broker

NH:

they can finally do that big fund raising

NH:

which I reckon will be taken positively by the market

Gulf Keystone Petroleum (GKP:LSE): Last: 97.75, up 0.75 (+0.77%), High: 99.00, Low: 97.00, Volume: 750.83k

11:42AM

NH:

(Lorcan – very good.

)

BE:

(Lorcan – officelols. Well done.)

BE:

While we’re here, have you seen that bit of consumer spending research out of Execution today?

NH:

just glanced at it

NH:

pretty bearish no?

BE:

Yup

BE:

Here’s the gist of it.

BE:

In this report we present the latest results of Execution’s
proprietary UK consumer survey analysis. These show that
consumers are taking a more cautious approach to their
spending now that the summer is over, implying that even
though the 4Q comps are easy, a consumer recovery is far
from assured. We thus reiterate our Underweight UK General
Retail recommendation. In addition to our recent downgrade
of M&S (from Hold to Sell), we downgrade Next from Buy to
Hold.

BE:

Earnings upgrades came through as expected, what next?
We recently downgraded the UK General Retail sector to Underweight as
we felt that the summer sales and earnings momentum was already priced
in. The September results season duly delivered 5-15% earnings upgrades,
but the sector has still underperformed the FTSE All Share by 3% (since we
downgraded on 20 August). It’s not much underperformance yet, partly
because Kingfisher and Kesa have been lifted in recent weeks by sterling’s
weakness against the Euro, but it does raise the question what more can
the retailers do to outperform the market? To help answer this we turn to
the latest results of Execution’s proprietary consumer survey work.

BE:

Consumers are feeling more cautious given expected tax rises
Our latest data comes from a survey that was conducted between the 1st
and 7th October, so it really is an up to date view of the health of the UK
consumer. Our key findings are: 1) consumer confidence is stabilising and
actually fell in September; 2) similarly perceived average disposable income
has been relatively stable, despite average mortgage costs falling to a low
of £550 per month; and 3) the summer spending boost has now eased and
consumers intend to rein back their spending as we go into the autumn.
The weak sales of last October/November mean the near term comps are
quite favourable but we have not seen any evidence from our survey that
the UK consumer is fundamentally recovering. Quite the opposite. 90%
believe the public finances are not in good shape (up from 76% in August)
and expectations of redundancy have picked up again (to 15%), particularly
among public sector workers. 50% of consumers now expect their taxes to
rise next year (up from 38% in July), and 46% say they are spending less as
a result of expected tax changes (up from 40%).

BE:

Housing market recovery not enough in our view
On the positive side consumers believe that house prices have broadly
stabilised. However while 4.9% of consumers expect to buy a home in the
next 12 months, only 1.2% will be first time buyers, suggesting to us that
the UK housing market is not “off to the races”. Taking all these factors into
account, we continue to believe that retail sales growth will be moderate at
best next year, with the risk skewed to the downside particularly if the VAT
rate is raised to more than 17.5%.

BE:

Maintain Underweight sector recommendation, downgrade
Next to Hold
As a result we maintain our Underweight positioning on the UK general retail
sector and downgrade Next to Hold following its relative outperformance.
This leave just Debenhams as our only Buy in the sector as the stock has
underperformed and trades on just 10x our 2010 EPS. We have raised our
2011 PBT forecast for Kingfisher by 5% and our fair value increases to
230p because of the recent weakness in Sterling against the Euro.

NH:

hmm

NH:

interesting stuff

NH:

and Next are one of the bigger fallers this morning

NH:

down 35p at £17.72

NH:

and weak sterling is IMO

NH:

a really big issue for the retailers this Xmas

NH:

must be really hurtiing them

NH:

although

NH:

might they have locked in their Xmas stock

NH:

already?

BE:

Possibly.

BE:

Although the idea through the past six months or so was ruthless inventory control to stop stuff getting dumped out during the sales

BE:

So that might come back to bite the sector for Christmas

NH:

of course none of that will affect DSG

NH:

BE:

Obviously. They have NO STOCK ISSUES.

BE:

NONE.

NH:

obviously

NH:

NONE AT ALL

11:49AM

NH:

Right

NH:

back to GKP for a moment

NH:

broker says we should note this

NH:

the ex CANA ..mining/gas&oil team are at Mirabauld…….they do know what they are doing

NH:

so there you go

NH:

CANA = Canaccord I think

11:49AM

BE:

Anything else you want to look at, Neil?

NH:

Dana

BE:

Sure.

NH:

had a few voicemails on that today

NH:

moved sharply higher earlier, no?

BE:

Yeah – up 32p at 14.36 now

BE:

Was as high as 14.73

NH:

more bid spec?

NH:

RWE again?

BE:

Not that I’ve heard

BE:

However, Merrill has been giving them a shove

BE:

Here’s the note

BE:

Raising NAV by 266p to 1,706p following asset review – Buy
We take the opportunity to review Dana’s oil & gas portfolio. Whilst, YTD, Dana’s
exploration effort has had mixed results, we believe that the depth of its N.Sea &
Egyptian portfolio, along with the company’s good risk management, continue to
present investors with an attractive risk/reward proposition. In addition, its UK
producing (or near-producing) gas assets could prove extremely attractive to Euro
utilities looking to expand upstream. Reflecting a more constructive view on the
exploration portfolio (+125p), further de-risking the Babbage gas field (+95p) and
a further uptick in volumes (GKA and Ettrick fields, +77p), partially offset by the
recent Trolla dry well (-31p), we raise our NAV by 266p to 1,706p. We reiterate
our Buy on Dana; our new of PO 1,706p (from 1,440p) reflects our NAV changes.

BE:

Attractive N.Sea gas position; Babbage project moves ahead
Eon – Dana’s partner in the Babbage (NSea) field – has recently confirmed that
installation of the production platform at the field is progressing, with first gas due
to take place in April. This progress significantly reduces the risk for delays/cost
overruns. Importantly, using Wood Mackenzie data, now Dana boasts c400bcf
(65mmboe) of UKCS gas resources, making it the largest independent gas
resource holder in the UK. This could prove of extreme interest to Euro utilities
looking to increase security/flexibility of supply and we could see Dana trying to
crystallise the value of these assets medium term.

BE:

High-impact exploration near term; waiting on Tornado
We continue to see Dana well placed on the exploration front, both in the N. Sea
and Egypt. In the N. Sea, we highlight the imminent Tornado well results (W.
Shetlands, risked 36p; unrisked 102p), which could prove transformational, given
its size and frontier location. Offshore Egypt, Dana enjoys a prime position in the
prolific W. El Burullus area with the forthcoming Papyrus (risked 3p; unrisked 15p)
well and next year’s Bamboo prospect (risked 5p; unrisked 33p).

NH:

hmmm

NH:

thanks for that

NH:

while we are taking about extraction

NH:

what about the miners

NH:

shall we have a quick look at the sector

NH:

keep Lorcan happy

11:53AM

BE:

Ok – we should start with Kazakhmys

NH:

hang on

NH:

breaking news

NH:

from the IT dept

NH:

Update: This incident is now resolved. FT.com Subscriptions and Registrations and DAM services are all now available again.

NH:

you should all be able to comment now

NH:

yipeeee

NH:

sorry, where were we?

BE:

Kazahkstan

NH:

ah, right

BE:

Talking about power plants

BE:

Or, to be specific, a chunk of a power plant that Kaz got stuck with

BE:

And has finally managed to shift

BE:

Here’s Merrill with the detail

BE:

KAZ sell 25% of Ekibastuz to Samruk
Kazakhmys PLC announced the sale of a 25% stake in its Ekibastuz GRES -1 power plant to the National Welfare Fund Samruk-Kazyna JSC for consideration of $339 million in cash. Proceeds will be used to repay debt. We view this announcement as a marginal positive as our sense is that the market was frustrated that this deal hadn’t been completed despite an MOU being signed in October 2008. Maintain BUY, we view KAZ as cheap copper exposure trading on 7x our 2010E EPS, 5x ex-its 26% ENRC stake.

BE:

Valuation not so meaningful
The transaction implies a gross valuation for the Ekibastuz power plant of $1,356 million. We think the valuation, at about 19x current year/15x next year EBITDA isn’t particularly meaningful. The transaction has been well flagged and inasmuch as the price is, as previously indicated, based on KAZ’s original purchase price +
share of invested capital so this shouldn’t surprise the market.

BE:

About Ekibastuz power plant
Ekibastuz is the largest power plant in Kazakhstan and has the potential to significantly increase capacity over the next 5 years, from the current available capacity of 2,250 MW back to the plant’s original nameplate capacity of 4,000 MW. In a market increasingly short of power supply, Ekibastuz will be a key asset to meet Kazakhstan’s future power needs. The transaction is subject to regulatory consents and approvals and completion is expected by the end of 2009. Kazakhmys will retain management control of Ekibastuz following the transaction.

Kazakhmys (KAZ:LSE): Last: 1,193, up 20 (+1.71%), High: 1,198, Low: 1,154, Volume: 1.40m

NH:

and Lorcan was asking about Xstrata

NH:

selling something

NH:

and whether this meant anything re the Anglo American bid

NH:

and I think the answer is no

NH:

here’s some comment from Merrill

NH:

Quick Comment: Xstrata has announced that it has
entered into a formal sale agreement with Barrick Gold
Corporation for Xstrata’s 70% interest in El Morro SCM,
the holder of the El Morro copper-gold project, and
associated rights and assets, for a total cash
consideration of US$465 million. The company expects
the transaction to close by the end of January 2010.

NH:

Marginal cash inflow upside to our NAV. El Morro
was a project at feasibility study stage and was not
incorporated into our estimates (neither in production
nor in capex), so is broadly neutral to our earnings as
well. The $465mn takes the net debt to close to $10bn
by 2009 year-end, we estimate, and is worth a marginal
10p per share on the NAV.

NH:

El Morro was a longer-dated project. El Morro had
c487mt of ore reserves, with 0.56% copper grade and
0.44 g/t of gold. Our working estimate for valuing
optionality was that production to come on-stream was
105ktpa on an attributable basis, with capex of $1.7bn,
and that El Morro was expected to commence
construction work in late 2011 with estimated completion
timeline in early 2014. Due to the longer-dated nature of
the project, the NPV at $2.5/lb copper and a WACC of
10% was around $470mn, with a 15% IRR threshold at
$2.54/lb copper. Hence we think $465mn is a fair value
for giving up the optionality, especially given the transfer
of execution risk and deep inventory of further projects.

NH:

Copper optionality remains. With greenfield options at
Las Bambas, Tampakan, Frieda River and El Pachon
and brownfield options at Collahuasi and other current
operations, the copper project inventory is deep (though
still a bit long-dated). All these projects still have the
potential to add 1.1-1.3mt to Xstrata’s managed copper
production (doubling its current size) over the next five to
eight years.

NH:

FWIW

NH:

we think Xstrata will shut up

NH:

but

NH:

keep a close eye on Anglo

NH:

annd if they slip up

NH:

try again

BE:

Got a bit more on this

BE:

From Oddo

BE:

Who, in summary, are saying “eh?”

BE:

The disposal of one of the
group’s flagship projects in the copper segment (low operating cash cost:
<$ 0.70/lb), with a modest impact in terms of value creation (+10p to 780p), is
somewhat puzzling, given the major structural deficits anticipated in this market in
the medium/long term (a consensual vision).

BE:

We remain sceptical regarding the
outcome of the attempted link-up with Anglo American, the search for a friendly
solution, which is indispensable in our view to maximise its chances of success
(corporate nationalism), is more consistent with the scenario of a 40/60 or a 50/50
link-up +400p (i.e. $ 8.0bn vs. 51/49 at close), for which we estimate the dilutive
impact at around 80p.

BE:

They’re saying an offer for Lonmin looks the “less radical, more realistic” alternative

Lonmin (LMI:LSE): Last: 1,634, up 25 (+1.55%), High: 1,638, Low: 1,573, Volume: 751.56k

NH:

thanks for that

BE:

Think Lonmin had a big investor meeting thing yesterday. Mostly just top-down type stuff about the platinum market though.

12:00PM

BE:

Ok – it’s midday

NH:

so it is

NH:

time flies

NH:

when you have been at a champagne breakfast

BE:

I bet it does.

BE:

Few things to wrap up with I guess

NH:

I have a Moodys report

NH:

on Spanish banks hiding losses

NH:

what have you got

BE:

Well – Caz downgrade of the real estate groups

BE:

British Land downgrade from In Line to UNDERPERFORM
Land Securities downgrade from In Line to UNDERPERFORM
Helical Bar downgrade from In Line to UNDERPERFORM
Development Securities from In Line to UNDERPERFORM

BE:

From a share price point of view is this NAV growth enough to justify share prices trading at 19% premium to trough NAV? Most probably not. In our view, the shares only look about fair value given forecast NAV growth would need to be nearer to c.20% pa to justify this level of premium rating. Even then, history suggests that these premium ratings are not sustainable in anything other than the short term. Therefore, whilst we are happy with our NEUTRAL recommendation in the context of the wider market, we see little absolute upside amongst the large cap REITs. For example, assuming the large cap REIT shares trade at NAV two years out (better than historical average), this implies a total return of c.7% pa over the next two years with 4.0% of this coming from dividends. The upside potential amongst the smaller companies is more varied and we would highlight the relative attractiveness of Big Yellow, Local Shopping REIT, Grainger and UNITE.

BE:

Tate & Lyle getting some support on the back of a Credit Suisse upgrade ….

BE:

Tate & Lyle – Credit Suisse

We are raising our forecasts (4% next year, 7% the following), price target (to 550p) and rating to Outperform (was Neutral). We add Tate & Lyle to Credit Suisse Europe Focus List.

BE:

Improving trading: As an industrial producer of starch, we entered the year with some trepidation over trading, but in the event the business has held up pretty well. 1: Industry starch volumes are recovering (well are trending less negative). 2: US exports of HFCS to Mexico are growing and thus keeping capacity utilisation tight in North America. This should ensure that
HFCS cash margins hold up in the next round of negotiations in December. 3: Corn prices (input costs) remain low, with the USDA now projecting the second highest crop on record. 4: Finally ethanol prices have started to edge up, such that ethanol margins look distinctly more encouraging. All this and a stronger $ sees our forecasts raised 4% next year, 7% the year after.

BE:

A turnaround story: But there is more to the T&L story. A new CEO (from Reckitt) will likely bring the returns and cash flow disciplines associated with that company into a Tate business that has perhaps been rather too cosy in the past. Working capital and return on assets will be the focus.

• Valuation: So better trading, a 5%+ yield and a new management story – what’s not to like? Our problem has always been how to value the group with its historically volatile earnings stream. Here we have adopted a new method (eschewing our old DCF approach). We have taken the average return on assets over the cycle (last 15 years) of 15.3% and applied that to the asset base to give a “mid-cycle” earnings of 46p. The average 12-month forward PE over this period has been 12.2x. Applying that to the normalised earnings gives us a price target of 550p.

BE:

And JPMorgan has been indulging in a bit of fantasy M&A …

NH:

right

BE:

Tipping Croda and Johnson Matthey are possible targets. Sort of.

BE:

We view the recent uptick in M&A in the broader market as a signal that further consolidation is likely in the European chemicals sector although the scope for value creation remains questionable, in our view.

Rising valuations favour sellers although long-term value creation remains a concern. The European chemicals sector has gained 17% yoy, with its P/E now up 70% yoy on depressed earnings. We view the current environment as favourable for sellers of non-core assets (BASF, DSM, Clariant) given the increased scope for near-term value accretion.
However, long-term value creation remains questionable given likely depressed disposal multiples vs. sellers’ “mid-cycle” potential.

BE:

“mid-cycle” potential.
Buyers likely to focus on structural growth although scarcity implies a price. Recent economic challenges have highlighted a further need for portfolio improvement with the majority of companies looking to reduce cyclicality or acquire GDP++ growth. From our screen of chemicals assets within our coverage universe — in addition to the 100+ opportunities currently held in private hands (Appendix) — we believe Croda, Johnson Matthey and Umicore could potentially be more strategically attractive assets. However, we note that these companies have not commented on their willingness to participate in consolidation.

BE:

Consolidation key to improving industry returns. We view ongoing overcapacity as likely to fuel a steady stream of distressed assets and further consolidation. We favour M&A for consolidation over diversification as we view the latter as key to improving pricing discipline and industry returns, and we see scope for further consolidation across much of the chemicals sector (excluding gases and catalysts).

BE:

Right – that’s plenty to go on with.

NH:

(loafer- show some manners pls. Otherwise the Zapper comes out!)

NH:

it is

12:05PM

NH:

and before we go

NH:

and by popular demand

NH:

Moody’s on Spain

NH:

now

NH:

whenever we say anything critical about Spain

NH:

a huge row kicks off

NH:

makes the GPK’ers look like amatuers

NH:

this is real, proper grown up abuse

NH:

not just a few swear words

NH:

right here it is

NH:

Madrid, October 13, 2009 — The fundamental credit outlook for the Spanish
banking system remains negative, reflecting the impact of the ongoing
economic recession and severe asset quality deterioration on domestic
banks’ risk absorption capacity, says Moody’s Investors Service in its
new Banking System Outlook on Spain.

Moody’s negative outlook for the Spanish banking system expresses the
rating agency’s view on the likely future direction of fundamental credit
conditions in the industry over the next 12 to 18 months. It does not
represent a projection of rating upgrades versus downgrades.

NH:

“Over the past 12 months, the pressure on Spanish banks has broadened,
resulting in: (i) an accelerated deterioration of asset quality; (ii) a
further weakening of the existing cushions against losses, such as
retained earnings, generic (anti-cyclical) provisions and unrealised
capital gains; and (iii) a still challenging wholesale funding market and
increased competitive pressure on the retail funding side,” says Maria
Cabanyes, Moody’s lead analyst for the Spanish banking system.

NH:

On the face of it, Spanish banks have so far demonstrated remarkable
resilience to these pressures, but Moody’s remains concerned that many
entities appear to be avoiding recognition of the true scale of the asset
quality deterioration in their books, which could result in the banking
sector remaining weak (and in continuing low standalone ratings) unless
this is addressed more decisively.

NH:

any comments

NH:

pls fwd to Moodys

BE:

NH:

Chopper

NH:

the GBK’ers aren’t very articulate

NH:

just swear a lot

NH:

and go on about ramps

NH:

which is very dull

BE:

It is.

BE:

Which is why we should leave it there.

NH:

perha[s

NH:

we should leave GKP there

NH:

on a permanant basis

NH:

like an airport abandoned by Ryanair

NH:

yep let’s ban

NH:

GKP

BE:

Its fan club are happy with their fortunes, paper or otherwise, and we don’t have to read email vitriol every afternoon.

BE:

GKP banned.

BE:

(Until it all goes wrong of course.)

NH:

OKay

NH:

that’s it

BE:

Yup – time to get yourself a strong black coffee Neil.

NH:

apologies for the IT issues at the start of the day

NH:

ironic the ROTR

NH:

could not comment on the Day we WON

NH:

the Comment Awards

NH:

anyway

NH:

time for the GBK

NH:

washed down

NH:

with the Oreo milkshake

NH:

yum

BE:

Goodbye all, and thanks for your comments and/or patience.

NH:

and

NH:

Comment drinks

NH:

worth thinking about

NH:

will ask Murph

NH:

see if we can get some sponsorship

NH:

perhaps GKP could chip in

NH:

Comment Aware Drinks sponsored by Gulf Keystone

NH:

and Chopper

BE:

Stop it.

NH:

we can’t print Murph’s comments here

NH:

legal matters

NH:

you know

NH:

right

NH:

that really is it

NH:

thanks for tuning in

NH:

goodbye

BE:

Bye.

NH:

see ya

PM:

Hi there

NH:

Paul

PM:

Nie one

NH:

I was just about close the session

NH:

hello

PM:

Late to the party

PM:

What’s going on

PM:

BE:

You want a full summary, Murph?

NH:

IT issues

PM:

Nah nah

NH:

no one could log in

PM:

I know you have 3 star lunches to get in to

BE:

And you won something, of course.

PM:

And you Bryce

NH:

Actually I have doubled booked myself

NH:

supposed to be at a stockbrokers for 12.30

NH:

for a coffee with the head of trading

NH:

burgers will have to wait

NH:

right I must dash

NH:

but you guys keep taling

PM:

Maybe we could celebrate as a site by fixing our log in problems

NH:

talking even

BE:

Ok – closing session in T-5. Thanks everyone once again.

This entry was posted by Neil Hume on Tuesday, October 13th, 2009 at 11:04 and is filed under Uncategorised. Edit this entry.

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Markets live transcript 13 Oct 2009

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