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Markets live transcript 16 Oct 2009

Posted by Neil Hume on Oct 16 11:02.

Markets live chat transcript for the chat ending at 12:19 on 16 Oct 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)

NH:
Hello
NH:
it’s 11.03am
NH:
and its time for Market’s Live
NH:
60 minutes of high quality discussion about the markets
NH:
well, 60 minutes of chat
NH:
chaotic chat
NH:
Bryce is here this morning
NH:
although Miles is lurking in the background somewhere
BE:
Hi
NH:
right
NH:
before we begin
NH:
we must sing happy birthday
NH:
to our glorious leader
BE:
what Murph?
NH:
yep
NH:
40 today
BE:
you’re kidding
NH:
yes
NH:
he was 40 years ago
NH:
when we were back at the Guardian
NH:
seem to recall there was a week of celebrations
NH:
very long lunches from which he did not return
NH:
some very late nights
BE:
ha
NH:
anyway
NH:
it’s also Itzman’s birthday
NH:
and my daughter’s
BE:
that’s a worrying coincidence
NH:
I know
NH:
and she was up at 5.00am
NH:
to open her presents
BE:
so you think she’ll be a hack we see grows up?
NH:
I hope not
NH:
NH:
right
NH:
to the market
11:06AM
NH:
and…..
BE:
Up
BE:
27 points at 5249
NH:
thanks
NH:
before we look at the market
NH:
and some stocks
NH:
seen this shop-a-Goldmanite campaign
BE:
Indeed I have
NH:
just been laucnhed by Gawker
NH:
Are you Facebook friends with a Goldmanite who just posted photos of his lavish bachelor party? Post them to our fancy new tag page, #GoldmanProject, or e-mail them to us. Are you a realtor who just sold a $4 million duplex a Goldman banker? Is your ex-boyfriend Goldman banker planning a year-end trip to Cabo to blow his bonus wad? Shoot us an e-mail. Likewise, if you catch any references to Goldman employees living large in the media, post them to #GoldmanProject to keep a running clipfile
NH:
If this sounds like a creepy exercise in crowd-sourced surveillance to you, understand that we’re not looking interested in digging up private details about private citizens. We just want to catalog how are tax dollars have been spent, and see where $23 billion goes. If Goldman’s employees earned those bonuses, they should spend them with pride. Own it.
NH:
It’s called the Goldman Project
NH:
and you can find details here
NH:
BE:
A GS witch-hunt, more like.
BE:
Open season on vampire squid.
BE:
Have any of these people courted publicity? Are any of them public figures?
NH:
well
NH:
that’s Stacy view
NH:
she says it pretty poor form
NH:
and an invasion of privacy
NH:
will be interesting to see if it takes off
NH:
I won’t be shopping any Goldmanite
NH:
and I know a few
NH:
one hosted a party last weekend in our home town
NH:
not a big swanky affair now
NH:
anyway
NH:
just looking at the Gawker stuff
NH:
they have a good pic of Viniar’s pad in Cali
NH:
when I say pad
NH:
it’s more like a palace
BE:
Tuna – on the bonuses, there has been quite a bit of comment on that I think
BE:
Was lead story both in the White Times and the Telegraph.
NH:
it was
NH:
Goldman bonuses fill Treasury coffers
NH:
that sort of stuff
NH:
obviously that’s the spin GS like
BE:
Just reading that Gawker thing …
BE:
One line jumped out at me
BE:
Seems interesting that Goldman made a killing on currency trading at a time when dollar is plummeting.
NH:
oh
NH:
a nationalistic tinge to it
BE:
A rather confused nationalistic tinge at that.
NH:
indeed
NH:
but
NH:
it could appeal to the masses
NH:
and I suspect Gawker know exactly what they are doing
NH:
dangerous stuff
BE:
Appealing to the rabble. The pitchfork-wielders.
BE:
(But not our rabble, obviously.)
NH:
no
NH:
our rable are much more sophisticated than that
11:15AM
NH:
Welcome back Milky
NH:
glad you could join us
NH:
Okay
NH:
we had better look at the train wreck
BE:
Huh?
NH:
National Express
BE:
Ah
BE:
Got to say, I got this one entirely wrong
BE:
Believing the advisors when they said “everything’s fine, just a technical hold-up”
BE:
Everything still on track
NH:
good pun
BE:
Whereas your gut instinct proved exactly right
NH:
well
NH:
it has come off the rails this morning
NH:
in spectacular sytle
NH:
shares down 124p at 347p
NH:
that’s a 25% decline
BE:
nasty this one
BE:
the acrid smell of burnt fingers wafting over Park Lane this morning
NH:
yes
NH:
a few hedges been blown apart by this
BE:
For anyone who missed the news, the Cosmen consortium has walked away ahead of today’s bid deadline
NH:
yes
NH:
and the recriminations have already started
NH:
people close to the Cosmen side are darkly hinting that it was the DD process that scuppered the bid
BE:
what, they found a black hole or something?
NH:
well, no one is saying that
NH:
but if you want to draw that conclusion
NH:
etc, etc
BE:
I see
BE:
That’s the game they’re playing, is it?
NH:
although that all sounds slightly far fetched to me
BE:
Why?
NH:
first the Cosmen family know the business well – they can’t have been surprised by DD
NH:
I reckon what happened was this
NH:
at 500p the Cosmen bid was always going to be a stretch
NH:
and when they found out what they would have to pay to get Nat Express refinanced
NH:
it became clear
NH:
to CVC at least that it didn’t stack up
NH:
they couldn’t meet their hurdle rates
BE:
interesting
NH:
yep
NH:
it was just going to be too expensive to refinance NEX
NH:
and the numbers did not stack up
NH:
on top of that it was difficult to find the debt financing
NH:
RBS I think pulled out of the sydnicate
NH:
that meant the spanish having to stump up more cash
BE:
so why did Nat Express let them do DD
BE:
if there were question marks about the financing
NH:
good question
NH:
but they did at least do one smart thing
NH:
Nat Express insisted that Cosmen committed to backing a cash call if the deal fell apart
BE:
right
BE:
and when will the cash call come?
NH:
soon I think
NH:
Once the price has settled down
NH:
most of the work had been done
BE:
Ok
BE:
There’s plenty of comment on this
NH:
fire away
BE:
Panmure first
BE:
No reason has been given but we suspect it is related to difficulties refinancing NEX
debt or possibly the due diligence in North America.
National Express is now likely to raise new equity, possibly c£400m, in order to
strengthen its stretched balance sheet. It may also consider some disposals. As a result of
the Consortium walking way from NEX, Stagecoach is no longer in discussions with
Consortium to buy NEX’s UK bus and rail operations. SGC may do a separate deal with
NEX. The Cosmen family has indicated it is willing to support a NEX fundraising
subject to certain parameters.
In the near term we expect the share price of NEX to fall sharply towards £4, possibly
going below it. Stagecoach is also likely to weaken, although not as much.
BE:
here’s Astaire
BE:
The stock now trades on 10x CY EBIT, which is in line with the peer group; in PE terms, it’s on 8x vs 11. A 3 for 2 at ca.190p would raise about £400m, nearly halve net debt, and make for a TERP/E of about 11x. So, while this development is bound to hit the share price, it doesn’t look unduly exposed. Appointment of a new chief executive would now be welcome.
BE:
And Investec
BE:
Takeover collapses. CVC-Cosmen has this morning said that it no longer
intends to proceed with a takeover approach for National Express. No reason is
given for this, though press reports earlier this week suggested that due
diligence had hit snags in the US and that this was causing delays in bank
financing.
Rights issue looms. As an overleveraged company, National Express has now
indicated that it will raise equity through a rights issue. We expect it to raise
c.£300m in all. The Cosmen family (19% shareholders in National Express) says
it will support this equity issuance “within certain parameters” (not disclosed).
We do not expect NEX to sell individual business divisions in an attempt to raise
funds.
BE:
Rail: Cross default or not? We also note that uncertainty will re-emerge over
the shape of NEX’s UK business once it withdraws from the onerous East Coast
rail franchise in December. The Department for Transport believes that it will
have the right to strip NEX of its other rail franchises (East Anglia and c2c) as
well.
Valuation implications. Shares are clearly likely to weaken significantly today,
and we note that when the initial takeover approach came, they were at 330p.
However, were the company to raise the c.£300m that we expect, we think the
shares would be trading on a pro-forma c.10x P/E for calendar 2010 – broadly in
line with the peer group
BE:
National Express – outlook. While clearly a blow, we expect NEX to be
refinanced and left as a pure-play bus operator in the UK, US and Spain, which
would have clear defensive attractions. We could also not rule out the possibility
of a further takeover approach emerging in time. We would look to acquire
shares on weakness, and place our price target under review.
Impact on Stagecoach. Stagecoach had previously been in exclusive
discussions with CVC-Cosmen to acquire the UK bus/rail assets of NEX. This
will clearly no longer go ahead. We had thought that the deal could add c.2.4p to
our FY11E target of 10.2p EPS and losing this upgrade will likely cause share
price weakness today. However, we note that SGC still looks well positioned to
win its revenue support case with the DfT, which would add c.7.6p to our FY11E
estimates, implying pro-forma 17.8p EPS for FY11E and a P/E of 8.5p. Again,
we would look to acquire the shares on weakness today, but place our 200p
price target under review.
NH:
thanks for that
11:24AM
NH:
Right
NH:
what’s the price action in Sainsbury this morning?
BE:
down
BE:
inevitably some profit taking following yesterday’s big gains
BE:
Off 8.9p at 333.6p
NH:
hmmm
NH:
we got nowhere with this yesterday
NH:
nowhere
NH:
lots of shoulder shrugging and people saying, “not us”
NH:
we aren’t involved
BE:
yep
NH:
although this made me laugh
NH:
it’s by Ian King
NH:
the Deputy business editor at the Times
BE:
Superking
NH:
Roger Jenkins, the celebrity banker, would like it to be known he is not involved in any bid that the Qatari Government may or may not be preparing for J Sainsbury.
Happy to oblige. Readers may also be interested to know that when this newspaper contacted Mr Jenkins on July 9 this year, to ask whether it was true that he was about to leave Barclays, he denied it.
NH:
sorry I have missed out the punchline
NH:
On August 14, Barclays confirmed he was leaving
BE:
that’s very funny
NH:
now
NH:
there is a story out there today
NH:
that Qatar are buying
NH:
and were buying yesterday
NH:
and want their holding up to 29.9%
NH:
but if that’s the case
NH:
why did they not back the cash call earlier this year
BE:
Why indeed
BE:
anyway, back to the bid stuff
BE:
most analysts reckon the speculation was misplaced
BE:
if speculation can indeed be misplaced
NH:
speculation is speculation
NH:
you can’t misplace it
BE:
A rumour can be misplaced. Speculation not. Anyway ….
BE:
no-one thinks the op/co-prop/co thing is a runner anymore
BE:
and they also note the madness of leveraging up Sainsbury
BE:
in such a cutthroat industry
NH:
true but Qatar could just write a check out
NH:
if they wanted
BE:
True. But that’s always been true. And they’ve had better opportunities to get the chequebook out.
BE:
Here’s Merrill.
NH:
ah
NH:
this is good
NH:
had a glance at this earlier
BE:
Sensible, certainly.
BE:
Sainsbury bid speculation mis-placed, we believe
Sainsbury was up strongly yesterday following widespread speculation the group
may receive an offer from the Qatari Investment Authority (QIA) current 26%
holders in the business. This is far from the first time such speculation has arisen
in the name with a number of prices having been suggested for an offer -
yesterday’s speculation being at 420p per share. The upside from such a deal
would be, we expect, in exploring the potential value of the group’s property
assets separate from the retailing, in effect, moving to the so called ‘opco-propco’
valuation.
BE:
In July 2007, the QIA indicated it could make an offer of 600p per share for the
business but that approach was derailed due to a lack of management support,
together with opposition from the Sainsbury family and the groups pension
trustees. In the end, rather sensibly at that price we believe, the QIA walked
away. However, since then, speculation has been made on a number of
occasions that the QIA may consider making another offer.
Reading the mind of an investment vehicle prepared to pay such a price for the
business is inherently difficult. But, that said, we remain of the view that an
imminent bid, certainly at 420p for the business, is unlikely. In particular, we
would highlight the following:
BE:
- Management has indicated that the property value of the business
remains largely intact from its peaks at £7-8bn, as, for all the broader property
market has seen declines, the demand for top quality food retail space remains
high and supply restricted.
- Having gone to market in June to raise £430m to fund new space
openings, the prospects for the core retail business are arguably stronger than
they were in 2007.
BE:
- On the placing, the QIA had the opportunity to increase its stake at a
price of 310p but didn’t participate in the placing and thus allowed itself to be
diluted.
BE:
- The group’s pension scheme remains a significant barrier to any bid as,
although the net deficit is relatively small, the gross deficit is very large at £3.6bn
and is, by its nature, subject to material uncertainty.
BE:
In order to seal the approval of management, we expect that any bid on the
business would need to be in excess of 500p per share but, given that it would
likely necessitate the business taking on a substantial amount of debt or selling
off its property, it is likely to meet resistance still from the group’s pension
trustees.
BE:
In addition, as a highly leveraged entity, Sainsbury would be very exposed to
competitive pressures in what is a predominately low-leverage industry.
The shares have mostly settled back from their intra-day peaks and we expect
that, following their recent weakness, some corners of the market are attempting
to remind investors on the material upside should the business be valued at full
‘opco-propco’ valuation. The market has however moved away from such metrics
as the property is only worth what the retailing can afford to pay. For Sainsbury
therefore, it looks to be business as usual in what remains a rational industry.
BE:
And, for sake of a counterpoint, here’s what Jefferies has been saying
NH:
(@Sparts – fair point)
BE:
Speculation of a renewed QIA approach for Sainsbury
Key Points
• Market conjecture suggests that QIA approached the Sainsbury
family with a 420p offer for c.16% of the equity that they control.
Combined with the 26% owned by the QIA, this would force a
bid for the free-float of at least the same price.
• We view this speculation with some skepticism but we cannot
fully rule out that a renewed approach may materialise.
• We note how circumstances have changed since the QIA’s first
attempt of a Sainsbury take-over in 2007: the leverage potential
has reduced significantly, property yields have fallen sharply,
Sainsbury has disposed of a further c.£500m of ancillary assets
and pension trustees would be even more hard-nosed.
• The bounce in the stock has taken the equity back to more
sensible valuation levels. However, we hesitate in advising
investors to back the suspicion.
• In a wider context, we reflect on the solid property backing
displayed by the sector. This is despite the recent fall in
superstore property values (of 200bps to 6.4% according to
British Land). We note that Morrison enjoys the highest property
value to enterprise value coverage (we estimate at 0.95x). This
ratio is also very healthy at both Sainsbury (0.92x) and Tesco
(0.79x).
NH:
thanks for all that
NH:
i am sure we have not heard the last of this tale
NH:
and i suspect
NH:
there is some Jenkins involvement somewhere
NH:
that said
NH:
could Qatar end up selling
NH:
rather than buying
NH:
they did in Barclays
NH:
anyway
NH:
GE is out
NH:
and here are the snaps
11:32AM
NH:
RTRS-GE REPORTS 3Q ’09 EPS OF $0.22 (INCLUDES $0.05 RESTRUCTURING & OTHER CHARGES); INDUSTRIAL CASH FLOW OF $4.4B IN 3Q AND $11.5B YTD, UP 1%; INDUSTRIAL SEGMENT PROFIT UP 4%; BACKLOG UP TO RECORD $174B; CAPITAL FINANCE EARNS $263MM
11:30 16Oct09 RTRS-GE Q3 SHR $0.22 FROM CONTINUING OPERATIONS
11:30 16Oct09 RTRS-GE Q3 SHR $0.22
11:30 16Oct09 RTRS-GE Q3 REVENUE $37.8 BLN
11:30 16Oct09 RTRS-GE SAYS CAPITAL FINANCE EARNED $263 MILLION IN THE QUARTER
11:30 16Oct09 RTRS-GE SAYS GENERATED $18.4 BILLION IN INFRASTRUCTURE ORDERS, A DECLINE OF 18% YEAR-OVER-YEAR
11:30 16Oct09 RTRS-GE SAYS TOTAL COMPANY ORDERS OF $18.4 BILLION, DOWN 18%
11:30 16Oct09 RTRS-GE SAYS EQUIPMENT ORDERS UP $0.7 BILLION FROM 2Q ’09
11:30 16Oct09 RTRS-GE SAYS GE CAPITAL COMPLETED 2009 LONG-TERM DEBT FUNDING PLAN; PRE-FUNDED; >90% OF 2010 PLAN TO DATE
11:30 16Oct09 RTRS-GE SAYS CONTINUED AGGRESSIVE COST REDUCTIONS IN THE QUARTER
11:30 16Oct09 RTRS-GE SAYS SEEING SIGNS OF STABILIZATION IN ENVIRONMENT FOR GE CAPITAL
11:30 16Oct09 RTRS-GE SAYS PREPARING GE CAPITAL TO BE A SMALLER, MORE FOCUSED FRANCHISE
BE:
Got a Frankfurt price in GE?
NH:
hang on
NH:
right
NH:
looks to be $16.45
NH:
cclosed at $16.79 last night
NH:
what’s the negative in there?
NH:
simple miss?
BE:
Looks that way
BE:
Wide too
BE:
Going through the detail on GE’s always a nightmare though
BE:
Like trying to get your head around The Totality.
NH:
11:35AM
NH:
Where now?
NH:
some chat about Nick Levene on the right
NH:
and the FT has a story on the fugitive financier this morning
NH:
who may actually be in the Priory
NH:
anyway
NH:
here’s a little story
NH:
here’s how the hillarious Levene used to answer the phone when he was a broker
NH:
Nick Levene , broker to the queen
BE:
Oh the hilarity.
NH:
indeed
NH:
imagine
NH:
if someone thought the had called Cazenove
NH:
potential for hours of comedy confusion
NH:
enough of that
NH:
let’s move on
11:37AM
BE:
Ok – we should set up the raw warning
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
BE:
Anything on your notepad, Neil?
NH:
A few things
NH:
some of the bandits that were buying Sainsbury yesterday
NH:
have turned their attention to British Land
BE:
BLand’s up 7.5p at 478.5p at the moment
NH:
now, I am not sure why and I am wary of this story
NH:
but
NH:
wasn’t there a middle east bid story around a while ago
BE:
There was
BE:
One of the greatest phantom bid stories of recent times, in fact
NH:
(Milky, i very much dount it)
NH:
what worse than Danone?
BE:
Well ….
BE:
Investor group pitches up to broker, says “we’re interested in buying some property …”
BE:
Broker says they could probably sort out some but to lets …
BE:
Investor group says “what about buying British Land?”
BE:
And is promptly thrown off the premises.
NH:
NH:
and from that
NH:
we got a full bid story
NH:
instructive though
BE:
Yup
NH:
shows how these things get legs
NH:
anyway
NH:
some more RAW
NH:
and this could be connected to Bland
NH:
there is talk
NH:
that Morgan Stanley are aggressively buying sterling for a client this morning
NH:
perhaps to finance an M&A transaction
BE:
I see
BE:
What’s the GBK doing anyway?
NH:
well
NH:
it is firmer
NH:
cable is $1.63
NH:
and a euro buys 0.9146
NH:
perhaps there is something in it
NH:
and finally some small cap RAW
NH:
Dragon Oil
BE:
NH:
seems the biggest shareholder might be about to strike
NH:
but not with a very generous offer
NH:
425p tops
Dragon Oil (DGO:LSE): Last: 412.25, up 12.25 (+3.06%), High: 416.75, Low: 397.50, Volume: 1.70m
NH:
and there has also been some nosey buying of a thing called
NH:
Indus Gas
11:45AM
BE:
(Q – we just had that exact thought regarding the Milky/Zoomy similarity, funnily enough ….)
NH:
yep
NH:
mind meld moment
NH:
I was just thinking that
NH:
are you Zommy in disguise??
BE:
Lorcan – you were the one who directed the talk towards Finnegan’s Wake. You only have yourself to blame.
11:46AM
NH:
more on this sterling rumour
NH:
Rumours yesterday that the big move in SEK/GBP was M&A related
BE:
Scandi buyer?
NH:
i know
NH:
for what?
Gulf Keystone Petroleum (GKP:LSE): Last: 106.75, down 1.25 (-1.16%), High: 109.00, Low: 106.25, Volume: 1.41m
BE:
Well, that’s the obvious choice of course.
NH:
well I had to mention it
BE:
(Bloody hell – 107p.)
NH:
i know
11:48AM
NH:
Bryce
NH:
anything you want to look at?
BE:
Well, this Cadbury/Unilever note out of Panmure last night has been getting a lot of attention
NH:
it has
BE:
You did a post on this earlier, right?
NH:
yep
NH:
fantasy M&A
NH:
i was going to put up a headline
NH:
Unilever to bid for Cadbury
NH:
but Miles made me put in a ?
NH:
otherwise the Bloomie newsbot
NH:
might have got confused
NH:
and the price could have roofed
BE:
BE:
Here’s the post for anyone who missed it
BE:
BE:
And just as a footnote to that
BE:
Quite an interesting story in the New York Post about Kraft flogging Maxwell House to Sara Lee
NH:
right
NH:
got any more
BE:
Well, the Post says a sale would not be part of sweetening the deal
BE:
while Kraft is close to raising $9bn in financing to make a official offer for Cadbury, it’s not enough to raise its $16bn offer for the company.
BE:
Kraft has nine banks raising around $1bn each. A source close to the situation said Kraft told lenders they have to commit to the financing and not join any other side. Kraft won’t consider borrowing more because it doesn’t want to risk its investment credit rating, noted the report.
BE:
So, still playing hardball. Or making noises to that effect, anyway.
Cadbury (CBRY:LSE): Last: 788.50, up 2.5 (+0.32%), High: 792.00, Low: 785.50, Volume: 2.21m
NH:
thanks for that
11:53AM
NH:
Right
NH:
I want to flag something up in Yell
BE:
Go on then
NH:
deadline for lenders to agree to the proposed terms of the company’s re-financing is today at 5pm tonight
BE:
Aha
BE:
Didn’t know that
NH:
nor did I
NH:
and we should get a statement about it on Monday
BE:
And will the vote go through?
NH:
well….
NH:
there are lots of people to vote
NH:
300 lenders
NH:
I they get 95% acceptance
NH:
then
NH:
cash call ahoy
NH:
Yell will go pretty quickly
NH:
but
NH:
an interesting footnote
NH:
spotted at Scott’s this week
NH:
Bob Wigley
BE:
With?
NH:
Bob is the chairman of Yell
NH:
annd former Merrill banker
NH:
and he was lunching with
NH:
Simon Mckenzie Smith
BE:
Hm.
BE:
Senior Merrill banker.
NH:
and Wigley looked slightly worried
NH:
according to my spies
BE:
Just two old Merrill rainmakers having a chat over lunch.
BE:
Totally innocent I’m sure.
NH:
clearly
NH:
but Scott’s is a fun place
NH:
to spot
NH:
celebs
NH:
financiers
NH:
anyway
NH:
what’s the Yell price?
BE:
up 0.75p at 62.75p
NH:
thanks
BE:
(63p! Bloody hell ….)
NH:
I have a Cazenove preview note on all of this
NH:
and 63p
NH:
the price has been primed for the cash call
NH:
doubled in a matter of months
NH:
The deadline for lenders to agree to the proposed terms of the company’s re-financing is today at 5pm and we expect the group to update the market early next week with regards to the outcome of the vote. While we do see further upside to the shares in the event of a successful re-financing we retain an In Line rating at this stage reflecting the overall execution risk. The next scheduled newsflow from Yell is the group’s interim results on 10 November. As a reminder the main terms of the proposed re-financing are:
NH:
Extension of debt maturities to April 2014 (facility A) and July 2014 (facility B).
Increased covenant headroom reflecting current trading conditions and expected future profitability levels
A margin of between 350bp and 400bp over LIBOR + a 125bp one-off fee
The intention to launch an equity offering of at least £500m
The intention to reduce senior debt by a further £300m within 18 months, by way of a receivables securitisation, high yield bond, larger initial equity issue, or other means
NH:
In order to proceed with the equity raising, agreement from 95% of lenders (by value) is required. At the time of the detailed announcement of the proposed re-financing (23 September) we understand that Yell had already held discussions and received indications of support from the group’s largest lenders representing around 40% of the debt. Overall we understand that the debt syndicate is made up of about 300 lenders suggesting a relatively long ‘tail’ of holders. If 95% or more of the lenders successfully vote in favour of the re-financing proposal we would expect Yell to launch the equity raising with relatively short notice. As a reminder the group has committed to raising ‘not less’ than £500m post lender approval. If £650m or more is raised the interest margin on the group’s new facilities fall by 25bp on both facility A (375bp to 350bp) and B (400bp to 375bp) respectively. The group’s market cap. at yesterday’s close was £487m.
NH:
In case the 95% threshold is not reached by 5pm today we believe management has a number of other options available:
The deadline could be extended. We believe the use of this option is likely to depend on the mix of votes received. If a relatively small proportion of votes are against the proposal (1-2%) and votes in favour are running near the required 95% level we would expect Yell to extend the deadline.
The debt terms could be adjusted and lenders required to vote again. In our view this is relatively unlikely as we believe a material re-negotiation of the debt terms raises the risk that shareholders do not support the rights issue at the required level (minimum £500m).
Scheme of arrangements could be introduced in the event of a negative vote. We believe that the group has various options with regards to a scheme of arrangements if the required 95% level is not reached. This could in theory be binding for all debt holders on a lower 75% threshold. At this stage we do, however, have limited insight with regards to the details of this and to what extent it would delay the timing of the re-financing (we would estimate a 6-8 week timetable).
NH:
Recommendation and valuation
We expect the shares to remain volatile until visibility improves on the outcome of the announced re-financing. In the event of a successful outcome of the lender vote we would expect the shares to re-test the previous highs pre the profit warning (80-90p). We believe failure to achieve the required level of votes at the first deadline is likely to increase uncertainty about the execution of the re-financing and could result in a potentially material negative share price reaction depending on whether additional information about the vote is released or not (mix of votes for/against, number of overall votes etc.). On our forecasts the shares are trading on a calendar 2010E PE of 3.3x and 6.8x EV/EBITDA. Based on the proposed debt terms and £500m of new equity we estimate the 2010E PE ratio expands to 5.3x at the current share price. While we do see further upside to the shares in the event of a successful re-financing we remain on an In Line rating at this stage reflecting the overall execution risk.
BE:
That’s a good and handy bit of research.
BE:
A York Notes on the situation.
NH:
it is
NH:
and worth watching Yell today
11:59AM
NH:
OKay
NH:
it is almost midday
NH:
and we have a couple of things to mention
NH:
Felix Salmon
BE:
uber Reuters blogger
NH:
A Blog ambassador no less
NH:
and there’s a bit of gossip
BE:
Go on
NH:
a US rival to Alpha
NH:
is putting this around
NH:
New Atlantic Business Site Poaches Felix Salmon From Reuters

Business blogger Felix Salmon is quitting his (we hear relatively lucrative) gig at Reuters.

He’s joining the Atlantic’s new business site, which will be led by Michael Kinsley and is set to launch in 2010.

Prior to Reuters, Felix wrote for Condé Nast’s Portfolio.com.

BE:
Do we have to do the smoked salmon pun?
NH:
yes
NH:
Smoked Salmon
BE:
inevitable really, after the Breaking Views deal
BE:
and that intemperate (but entirely justified at the time) post Felix wrote back in summer
NH:
(Pineapple. can’t even bothered. CYA)
NH:
what this one?
NH:
NH:
If I had to guess, I’d say that (a) Breakingviews has had talks with Thomson Reuters in the past, before we set up our own commentary service; that (b) faced with mounting losses Breakingviews called another meeting; and that (c) it then promptly leaked that meeting to the Times, characterizing it as “preliminary talks”, in an attempt to scare up some other buyer.
NH:
When I joined Reuters’s commentary group, it was clear to me that we were a Breakingviews killer: we were going to provide better commentary than they do, at the unbeatable price of $0.00. Reuters can afford to do that because journalism is always a loss center here: the profits come from terminal sales, and introducing a commentary service adds value to the terminals and makes them easier to sell. It doesn’t need to be priced separately.
BE:
Still makes my skin crawl when I read that
NH:
me too
NH:
anyway, Reuters are denying the story
NH:
they say Salmon has not left
BE:
……… Yet
NH:
well, exactly
NH:
he may not have resigned
NH:
but what he signed up to a year ago has changed so much that would it really be surprise
NH:
Okay, readers
NH:
media navel gazing over
NH:
back to the market
NH:
quickly
NH:
As a tribute to Pineapple
NH:
as we wave him off to ADVFN
NH:
or the BB at iii
NH:
or the Motley Fool
NH:
where he will be among friends
NH:
here’s an interesting note
NH:
on Lloyds
NH:
that’s has moved the price today
NH:
by Deutsche Bank
NH:
Upside in either case – Upgrade to Buy
We see LBG as trading at 5.6x / 6.5x normalised EPS assuming APS entry / self
insurance with a £14.5bn rights issue. Though avoiding the APS may strengthen
the case with the EU we appreciate the short term certainty, higher long term EPS
and surplus capital of the APS route. That said, with the stock trading at 10.5x
forward EPS pre-crisis we see upside in either case and see the 15% pullback in
the share from recent highs as an opportunity. Our fair multiple is increased to
7.5x from 6.5x, TP from 100p to 115p. Upgrade to Buy given 24% upside.
NH:
Pullback provides an opportunity
LBG is 15% below its recent peak, despite a stronger economy and higher
residential and commercial property prices. We see share price upside inside or
outside the APS, though the complexity and capital demand of the self-insurance
threatens to make the short term volatile. Our calculations have the stock trading
at 5.6x / 6.5x normalised EPS assuming APS entry / self-insurance and at around
2012E book value in either case. Given the lower complexity, better EPS outcome
and significant surplus capital we think APS entry is a very defensible possibility as
it provides downside protection, does not demand up-front money from market,
and leaves LBG exposed to loan write-backs in the medium term.
NH:
Upgrade to Buy
We value LBG on post-crisis EPS, a justifiable approach in our view given the
bank’s ability to recapitalise with or without the APS. We are increasing our fair
value multiple from 6.5x to 7.5x, 3 P/E points below pre-crisis levels, reflecting
regulatory risks and time value of money. On this basis we calculate 33% upside if
LBG enters the APS and 15% if it doesn’t (pursuing instead a £14.5bn rights issue
at a 40% discount to the current share price). The weighted average upside is
24%, leading to our revised target price of 115p. Given 24% upside, we upgrade
to Buy. (See page 16 for detail.)

NH:
Near term risks around market confidence/flows, EU / regulation, double dip
Key downside risks relate to deteriorating equity market confidence at the time of
a large capital increase by the group, substantial and short-dated restructuring
demands from the European Union Competition Commission under state aid
provisions, a “double dip” in UK economic growth, or substantially more
aggressive than expected bank regulatory change reducing / deferring the receipt
of normalised earnings from the group. (See page 17 for detail.)
BE:
Lloyds up 2p at 93 and a third.
BE:
Volume very strong, as it has been all week.
NH:
thanks
NH:
BOA news breaking
NH:
CHARLOTTE, N.C., Oct. 16 /PRNewswire-FirstCall/ –

— Approximately $2.6 Billion in Writedowns From Improvement in Company
Credit Spreads

— Terminating Government Guarantee Term Sheet Costs $402 Million

— Merrill Lynch Platform Continues to Boost Results

— Extends $183.7 Billion in Credit in the Third Quarter

— Tier 1 Capital Ratio Rises to 12.46 Percent; Tier 1 Common Ratio Rises
to 7.25 Percent

— Adds $2.1 Billion to Reserve for Credit Losses

NH:
Bank of America Corporation (NYSE: BAC) today reported a third-quarter 2009 net loss of $1.0 billion. After deducting preferred dividends of $1.2 billion, including $893 million related to dividends paid to the U.S. government, the diluted loss per share was $0.26.
BE:
And where’s the stock trading?
NH:
hang on $17.5 vs a close of $18.10 last night
NH:
and the wider market has rolled over too
NH:
FTSE 100 now in negative territory
NH:
off 7.4 points at 5,215
NH:
on BOA
NH:
looks like the market expected a 7 cent loss
NH:
not 26
NH:
but there are loads of funnies in there
NH:
but the revenue line looks like too
BE:
Needs a lot of work to get a useable comparison figure.
BE:
Very, very messy set of numbers.
12:08PM
NH:
NH:
that’s the full release
12:09PM
NH:
OKay
NH:
it is well past midday
NH:
the birthday boy has not surfaced
NH:
but a few things to wrap up on
NH:
Lloyds
NH:
there are whispers it comes next week
NH:
the cash call that is
NH:
govt take up shares
NH:
but don’t underwrite
NH:
pricing around 70pish
BE:
There were whispers that it’d come this week too
NH:
true
BE:
Wish they’d just bloody get on with it.
NH:
and on that FX raw from earlier
NH:
this could explain it
NH:
GBP/SEK…related to Vattenfall
NH:
This in the Times yday: Sweden’s Vattenfall may seek to acquire a stake in the UK Hinkley Point and Sizewell projects
- The investment by Vattenfall could be more than £1B.
NH:
so that could explain it
NH:
and the link I meant to put up
NH:
was to the BOA results
NH:
BE:
Ta
NH:
and on the Falkland placings
NH:
both going well
NH:
Desire could be next week
NH:
they are covered in the low 70′sa easily
NH:
but they may decide to price higher
NH:
lots of demand for Rockhopper to
BE:
And while we’re on smallcaps … the traditional Minerva Friday rumour is doing the rounds
BE:
We’re of the understanding that there’s not much new to say
BE:
Some banks are having a look, but that’s been the case for ages apparently.
Minerva (MNR:LSE): Last: 40.00, no change, Volume: 257.71k
BE:
(Thought that’d cheer you up, Cityunslicker.)
NH:
Bryce we must bring this to a close
NH:
I am hungry
NH:
see you all on Monday
NH:
although not sadly Pineapple
NH:
you won’t be missed
BE:
Yup thanks for joining us on ML, the Pineapple Memorial Edition.
NH:
NH:
strange comment
NH:
coz I think there has been more markets stuff since Paul left
NH:
anyway
NH:
I did not zap him
Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.
NH:
just let him go
BE:
Yup – see the rest of you, in the usual place, on Monday.
NH:
cya
NH:
have a good weekend
NH:
hang on
NH:
Monty is here
NH:
welcome
NH:
and thanks
NH:
that chimes with what we were hearing
NH:
if we had time
NH:
it would be good to have a discussion
NH:
about all these IPOs that are coming
NH:
lots of brokers very bullish
NH:
and excited
NH:
but not only stuff like New Look
NH:
some mid cap stuff
NH:
and thanks TB for tonight’s invite
NH:
couldn’t make it anyway
BE:
Ok – you guys need to get the lunchtime wrap completed. ENOUGH.
NH:
look forward to it Monty
NH:
sometime early next week
NH:
that really is it
NH:
BYEEEEEEEEEE

This entry was posted by Neil Hume on Friday, October 16th, 2009 at 11:02 and is filed under Uncategorised. Edit this entry.

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