FT Alphaville » Markets live transcript 20 Oct 2009

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Markets live transcript 20 Oct 2009

Posted by Neil Hume on Oct 20 11:02.

Markets live chat transcript for the chat ending at 12:13 on 20 Oct 2009. Participants in this chat were: Neil Hume, FT (NH) Miles Johnson, FT (MJ) Paul Murphy (PM)

NH:

Good morning

NH:

it’s 11.03am

NH:

and that can only mean one thing

NH:

it’s time for Markets Live

NH:

FTAlpha’s daily markets chat

NH:

Miles is with me again

MJ:

Hello

NH:

and groan

NH:

the GKP fan club are here already

MJ:

Groan indeed

MJ:

Anyway we won’t be talking about that too much

MJ:

There are other much more interesting things going on this morning

NH:

there are

NH:

but let’s get GKP dealt with

NH:

stock is flying

Gulf Keystone Petroleum (GKP:LSE): Last: 127.25, up 9.5 (+8.07%), High: 127.25, Low: 113.00, Volume: 3.66m

NH:

word in the market is of another reserve upgrade on the way

NH:

huge numbers being talked about, predictably

NH:

though whether this comes before the cash call I don’t know

NH:

but a bit like the wider market

NH:

this one is moon bound

MJ:

NH:

for the time being

11:06AM

MJ:

As noted on the right, today appears to be Placing Tuesday

MJ:

Sainsbury’s shares bounced after the Barclays placing hit the tape

MJ:

The logic here being that the Qataris will now be extra flush

MJ:

and can now divert attention to Sainsbury

MJ:

Now, we will get onto the details of the BARC placing later

NH:

Selling one stake down to increase another, then?

NH:

(Reuters) – Sainsbury leads the blue-chip gainers, up 2.6 percent, as talk resurfaces that the Qatari Investment Authority is interested in making an offer for the supermarket in the wake of a sale of 379 million Barclays shares worth $2.1 billion.

MJ:

that theory doesn’t really make much sense though

MJ:

its not exactly like the Qataris would need the money

NH:

nope

NH:

the logic is a bit stretched to say the least

NH:

anyway

NH:

back to the Barclays placing

NH:

I thought a nice touch was Diamante Bob getting BarCap on the ticket. Some juicy fees in there, and league table ranking as well.

MJ:

Yup. BarCap, for all its big ticket hires, has failed to make significant headway in the ECM business so far

NH:

So every little helps.

MJ:

$2.1bn can’t be sniffed at, even by Bobby D and the gang

MJ:

Not quite sure how they will be divvying up fees with Credit Suisse, but that is a good bit of business

MJ:

Anyway, clearly the Credit Suisse-Barclays relationship is still going strong

MJ:

I remember hearing some tittle tattle from a rival broker that Barclays were miffed by Credit Suisse choosing to slot the previous Quatari stake

MJ:

That looks wide of the mark

NH:

(Debbie could you deal with b3gg pls. thanks)

NH:

Or maybe they reached a peace agreement by divvying up this deal?

NH:

Do we have an idea of how the placing is going?

NH:

pricing?

NH:

when will the book close

NH:

(look fwd to it Lemmy)

MJ:

Well

MJ:

At about half nine this morning I was told the stake was selling like hot cakes

MJ:

I gather the book was solid less than an hour after being announced

MJ:

But I haven’t heard final pricing so far

NH:

Where are the shares at now?

MJ:

BARC is down 17p at 364p

NH:

(b3gg this is not ADVFN. That’s a yellow card. One more and you are banned for life)

MJ:

And there an issue about shorting this deal isn’t there Neil?

NH:

Well the deal is settlement plus six days, meaning you don’t get your allocation until six days time.

NH:

For those looking to naked short, they need to cover in three days.

MJ:

Very clever

NH:

Not really going to make much difference though I hear. Barclays is liquid enough for people to be able to cover.

NH:

borrow is not too hard to find

NH:

but the timing on this is interesting. Some people are viewing this as a shrewd move in anticipation of a jumbo rights issue from Lloyds.

MJ:

What, as in institutions will sell some of their BARC holdings to take up their Lloyds rights?

NH:

That is the idea.

MJ:

Hmmm

MJ:

One thing I found interesting about the Lloyds situation was the lack of a proper story in the Sundays this week

NH:

So?

MJ:

After several consecutive weeks of briefing and counter briefing from the various dramatis personae – Lloyds, Treasury, institutions etc

MJ:

things go quiet

MJ:

Lloyd’s advisors have also shut up shop. Radio silence

NH:

Well, it smells of a situation that is very live, very sensitive, and is being thrashed out this week.

MJ:

Exactly. Certainly feels like thing have gone well past the preliminary stages

NH:

Would not be a great surprise if we saw something out of Pesto Wire over the coming weeks.

MJ:

or Tresuary wire

NH:

or Kleinman wire

MJ:

Whats that?

NH:

a new service launched by Sky

NH:

actually it is good

NH:

worth checking out

NH:

outscooped Pestowire recently

Top News from Top Sources. The BBC’s Business Editor, Robert Peston, has played in important role keeping the British public fully informed during these difficult times.

11:17AM

NH:

forgot to put a Lloyds price in

Lloyds Banking Group (LLOY:LSE): Last: 91.95, down 0.05 (-0.05%), High: 92.98, Low: 90.40, Volume: 30.16m

NH:

and here’s some other bank prices

Royal Bank of Scotland Group (RBS:LSE): Last: 46.26, down 0.66 (-1.41%), High: 47.22, Low: 45.65, Volume: 65.08m

HSBC Hldgs (HSBA:LSE): Last: 704.30, down 5.6 (-0.79%), High: 711.70, Low: 698.70, Volume: 11.80m

Standard Chartered (STAN:LSE): Last: 1,567, up 3 (+0.19%), High: 1,577, Low: 1,555, Volume: 826.29k

MJ:

So, on to Party Gaming

11:18AM

NH:

yes, from one placing to another

NH:

The co-founder of Party Gaming is selling two thirds of his 28 per cent stake.

NH:

Anurag Dikshit

MJ:

Ah yes

MJ:

Some of a more puerile disposition find that man’s name very funny

NH:

and might try and get it through the swear filter

MJ:

We of course don’t. Any idea why Mr Dikshit is slotting?

NH:

Well he was caught up in that DoJ case last year

NH:

Dikshit pleaded guilty last December to breaking the law against Internet betting in the United States and agreed to forfeit $300 million.

NH:

Another interesting thing is who is doing the placing.

MJ:

Its Goldman Sachs no?

NH:

it is

NH:

and guess what

MJ:

What?

NH:

They raised their price target on Party Gaming this morning from 255p up from 245p.

MJ:

NH:

anyway, the placing is going well

NH:

the book is too close soon

NH:

we are looking at a price of around 250p for the stock on offer

MJ:

What are the shares doing at the moment?

NH:

down 36.3p at 248.2p

11:21AM

NH:

Right Lesson

NH:

you’re carded to. Let me repeat. THIS IS NOT ADFVN.

NH:

One more and a lifetime ban

NH:

MJ:

Neil calm down

MJ:

He is liable to go on a zapping frenzy if you are not careful

11:22AM

NH:

My Emobowl is glowing red

NH:

we need some humour

NH:

to calm things down

MJ:

Well Neil – what is that suit you are wearing?

MJ:

Looks a bit lustrous

NH:

Errr.

NH:

what are you going on about

MJ:

Certainly wouldn’t get past the fashion police at Nomura

MJ:

Look at this thing Tracy found

MJ:

A recent e-mail politely reminded staff in Nomura’s Tokyo headquarters that “gay colour nail polish and manucure” fell outside the company’s strict dress code.

Unsuitable clothes are listed by category. Under the “jacket and suit” heading, for example, bankers are reminded to avoid “the one of lustrous material”. Skirts may neither be extremely short nor be a “skirt that deep slit entered”.

NH:

What did they do, pump it through google translate?

MJ:

It would appear so. There was more

MJ:

September 30 marked the end of Nomura’s “Cool Biz” summer ecological campaign for its Tokyo headquarters — an annual scheme that amounts to turning the thermostat up slightly and allowing people to take their jackets and ties off.
With autumn now arrived those carefree, tie-less months are gone and the winter dress code is in force. “Bare foots”, said the memo, are no longer appropriate.

MJ:

That from the Times

NH:

that’s very amusing

NH:

as is this

11:25AM

MJ:

Pray tell

NH:

well, remember a couple of weeks ago

NH:

they was comment on the right

NH:

about the CEO of a big company

NH:

caught with his trousers down

MJ:

I don’t remeber that actually

NH:

well

MJ:

But would love to hear more…

NH:

fortunately we can, because this appeared in the Evening Standard today

NH:

* Which senior figure in insurance could soon be consulting his lawyers over a divorce, once his wife gets wind of the affair he is having with someone from the human resources department? We aren’t sure it is our business to say, but the tabloids are said to be on the case, which means the man in question may want to start making his excuses sooner rather than later…

NH:

http://www.thisislondon.co.uk/standard-business/article-23758373-boris-has-turned-on-city-bankers.do

NH:

now, we have an idea who it might be

NH:

but we can’t say

NH:

not in the public interest to reveal it

NH:

MJ:

Wise move that me thinks

NH:

yes

NH:

I think we should move on

11:27AM

NH:

Just having a look at the iBall video on Gulf Keystone

NH:

certainly worth viewinig

NH:

now this company is worth $1bn

NH:

http://iball.iii.co.uk/2009/10/14/gulf-keystone-petroleum-ltd-gkp

11:28AM

NH:

we had a very nice email from a reader yesterday

MJ:

do we get those?

NH:

sometimes and I usually frame them

NH:

saying please could we cover more tech companies

NH:

now that’s not always easy

NH:

because there aren’t that many listed in the UK

NH:

and only Autonomy, Arm and Imagination Technology are really interesting

MJ:

what about Logica, Sage and Misys?

NH:

well, they are not that interesting are they?

MJ:

suppose

NH:

anyway

NH:

let’s have a look at Autonomy

NH:

who have put out another statement today?

MJ:

another one?

NH:

yes

NH:

but this one is not some piddly contract win

NH:

but Q3 results

MJ:

Erm, I thought they have been pre-announced

NH:

well there was a three paragraph statement a week of so ago

NH:

but that didn’t tell us much

NH:

unlike today’s numbers which contain lots of detail

NH:

detail that has alarmed a few analysts

MJ:

and investors by the looks of things

MJ:

Shares down 110p at 1485p

MJ:

what’s triggered the selling?

NH:

lots of little things

MJ:

Such as?

NH:

hang on

NH:

sales at the low end of pre-announced range

NH:

EPS boosted by a lower than expected tax charge

NH:

Gross margin lower than expected

NH:

large increase in cap ex – now that has really surprised analysts

NH:

and also the large deferred revenue release

MJ:

So it all comes back to these accounting concerns

NH:

yep

NH:

and really today’s figs don’t change a lot

NH:

those who are bearish remain so

NH:

and have more conviction than ever

NH:

and they supporters remain bullish

11:34AM

NH:

anyway

NH:

Here’s the biggest bear at Cazenove

NH:

Daud Khan

NH:

here’s his thoughts

NH:

but before we get those

NH:

Barc placing

NH:

hearing the range is 355p to 365p

NH:

back to Caz note

NH:

Q3 09 revenue of $192m and Adj. EPS of $0.20 was at the bottomend of the pre-announced range. The EPS
benefited from higher than expected R&D capitalisation and a lower tax charge. License growth ex-OEM was 2.6% vs.

NH:

Q3 pro-forma. Fx had 1% impact on revenue vs. Q3 last year.

Autonomy states organic growth of 15%. We await details of the mega deal backlog recognition in the quarter. In the comparable quarter last year it was $23m.

ASP was higher than expected at $436k (vs. $400k in Q2). 11 OEM deals were signed in the quarter (vs. 12 in Q2).

NH:

DSO at 97 days vs. 89 days in Q2 higher than recent historical range of 8590 days. Trade receivable at $218.5m vs.
proforma consolidated receivables position at Q4 was $183m (vs. $202m at the end of Q2). The rise in DSO is being
explained by additional revenue coming through on the last day of the quarter and late payment (of a day) by one debtor.
DSO’s are expected to trend back to normal levels next quarter. Other receivables at $43.9m vs. $41m in Q1. This is
surprising as Q2 is normally the peak in prepayments. Provision for doubtful accounts at under 10% of debtors which we
believe is high for a company serving large enterprises

NH:

Deferred revenue (short term and long term) of $169m is roughly flat on Q2. Notably deferred revenue release declined
sequentially from $60m to $58. This is the first sequential decline since Q3 2004.

NH:

Capitalisation of R&D was $11.7m, much higher than expected and higher than Q1 of $4.115m due to the capitalisation of IDOL SPE expenses. This was offset by $2.2m in amortisation charges arising from historical R&D capitalisation, and
the net credit of $9.5m represents an operating margin benefit of c 5%.

On a normalised basis (excluding R&D capitalisation, marketing expenses of $15m) the operating margin was 37.5% vs.
40% last year.

NH:

Recommendation and valuation
The stock trades on 24x 2010E PER and 7.6x EV/Sales. These results are disappointing relative to an upbeat pre-announcement. No upgrades and a low quality earnings beat.

NH:

this is from Numis

NH:

and their good tech analyst David Toms

NH:

Autonomy’s Q3 results show an excellent topline performance, but contain, to us,
plenty of surprises in the makeup of the bottom line. On the top line, revenue of
$191m looks like decent organic growth, with c. 20% organic licence growth on our
calculations, an excellent achievement against the global enterprise software
backdrop of double-digit licence declines. However, EPS of 20c (vs guidance 19c,
trad stat range 20-23c) appears to incorporate 4c of unexpected (at least by us)
benefit from a low tax charge (1c benefit) and high R&D capitalisation (3c benefit).
Unwinding these elements gives EPS of 16c, some way below the 19c guidance. We
are unclear as to why the company did not specify that guidance incorporated such
assumptions, or identify this in the trading statement. Guidance for FY09 is held
unchanged ($740m revenue, 105c EPS) and the implication is that this will not
incorporate further tax rate or R&D cap surprises in Q4. Cash flow is good, with
heavy debtor expansion (to 97 DSOs from 84) balanced by even larger creditor
expansion (+$43m), i.e. somewhere around 30% of the quarterly cost base.
Disclosure is substantially better as we had hoped.

NH:

and in the interests of balance

NH:

here’s house broker Citi

NH:

who aren’t that bullish really

NH:

Q4 EPS risk… — As we highlighted at the trading update, Q4 implies c18%
organic growth and c60% OPM, which we think is a tall order. But consensus
has anticipated this and is discounting the guided EPS of $1.05 by around 4c.

NH:

…but 2010 upside — Consensus growth (Bloomberg) for 2010 is for c12%
(organic) and c9% EPS. Although there is risk to Q4 this seems too low given
historical trend growth and the feedback of the SPE launch.

NH:

DSO weak but cash strong — DSO +8 days, due to back-end loaded quarter
and late payment. However, cash was strong due to flattish def revs and sharp
increase in other payables (SPE costs), resulting in cash conv of 131%.

BUY — High Q3 costs put pressure on the FY guidance and while there is
upside risk to FY10, the market is likely to be disappointed after the +ve
trading update. Investing in AUTN is about timing and although some shortterm
downside is likely on these results, we believe investors should use this as
an opportunity to Buy the stock.

11:37AM

NH:

User4720403

NH:

you’re right

NH:

that was a sweeping statement

NH:

I guess the likes of Pace, Wolfson and CSR are of interest

11:38AM

MJ:

(couple of phone calls coming in)

NH:

sorry

NH:

some news coming out of Marshall Wace

NH:

someone senior leaving

NH:

just trying to get the press release

NH:

while we wait for that

PM:

hi there

PM:

Who is it?

NH:

we should have a look at Tate & Lyle

MJ:

Hi Paul

NH:

morning Murph

NH:

up early today

PM:

Ah well, it’s like The Wire here

PM:

Cops all over the place

PM:

SOmething’s gone down on one of the corners

PM:

So flashing police lights and stuff

PM:

Anyway, i interrupt

MJ:

Proabably another hedgie being busted for flinging that WMD

PM:

Who’s leaving Marshal Wace

NH:

we don’t know

NH:

trying to get press release now

PM:

And what has happened re Tate and Lyle>

NH:

or statement

NH:

right

NH:

back to Tate

NH:

it seems a large chunk of the sugar producer

NH:

has gone missing

MJ:

What? missing?

NH:

yep. Harbinger Capital

NH:

the US hedge fund run by the Midas of Misery

NH:

Philip Falcone has lost its stake

NH:

have a look at this

PM:

Dissolved maybe

NH:

came out on RNS today

MJ:

Rather careless really

NH:

The Harbinger Capital Partners Special Situations Fund, L.P. (“Special Fund”) held certain shares in the Issuer in an account at Lehman Brothers International (Europe) (“LBIE”). On 15 September 2008, LBIE was placed into administration and four partners of PriceWaterhouseCoopers LLP were appointed as joint administrators (“Joint Administrators”). The Joint Administrators have advised that 17,723,884

NH:

of the shares have been rehypothecated

NH:

The Special Fund believes at this time that rehypothecated shares will not be recoverable. The Joint Administrators have proposed a framework which, if approved, would entitle customers to a claim for the rehypothecated securities valued as of the close of market on 12 September 2008 which would be set off against amounts owed by such customer to LBIE. Accordingly, the Special Fund in this filing has reduced the number of shares of the Issuer held by it to the extent such shares were held at LBIE and were rehypothecated. By making this filing, the Special Fund does not waive any arguments that it is entitled to recover such shares and expressly reserves such arguments. Certain non-rehypothecated shares were also held at LBIE and the timing and likelihood of the return of such shares is uncertain at this time. Subsequent filings may be necessary to address a final determination regarding the disposition of such shares.

PM:

Oh dear oh dar

PM:

And it has only just admitted this??

NH:

yep

NH:

came out today

PM:

This iis a hypothication problem

PM:

which i cant spell at this time in the morning

MJ:

Whats the stake now?

NH:

gone from 60 to 42m

NH:

now

NH:

I don’t know what this means for shares in issue

NH:

that sort of stuff

NH:

by it is very odd

MJ:

has it moved the price much?

NH:

not really

Tate and Lyle (TATE:LSE): Last: 471.40, down 1.6 (-0.34%), High: 474.70, Low: 467.00, Volume: 474.66k

11:45AM

NH:

Right

NH:

Miles has the Marshall Wace news

MJ:

Here goes

PM:

Didn’t this happen to Luqman Arnold’s holding in UBS?

MJ:

Marshall Wace Americas Fund Limited

Re: Change in head of trading

The Directors of Marshall Wace Americas Fund Limited (the “Fund”) wish to advise that Marshall Wace North America L.P., the Fund’s investment manager, has notified the Directors that Mr Scott Graczyk has ceased to be Head of Trading at the Investment Manager.

Mr Graczyk’s responsibilities will be assumed by other individuals at Marshall Wace North America L.P. with immediate effect.

PM:

Sorry — go with the Wace news

NH:

hmmm

PM:

ello ello

NH:

is that significant???

PM:

that sounds interesting

MJ:

more time with the family?

PM:

Yeah right

PM:

“We suggest you spend more time…

NH:

we must resist the obvious conclusion

MJ:

Indeed

PM:

Why?

PM:

Yes we should

NH:

we need to make some calls on this one

11:47AM

MJ:

Where now?

NH:

what about a trip to small cap corner

NH:

few things to look at this morning

MJ:

My favourite

NH:

including dear Frank Timis

PM:

Seeya later

MJ:

Back with a new plaything

NH:

but first

MJ:

See you Paul

NH:

let’s have a look at another small cap company we have been watching very closely

NH:

Earthport

MJ:

Right

NH:

very poor set of figures IMO

NH:

revenues well below expectations, even after the recent profits warning

NH:

big loss, which was made worse by the fact that the company has to take a hit on some options and warrant costs

NH:

but that is only just the start

MJ:

Really?

NH:

the results are expected to qualified when they are audited

MJ:

qualified with regards to what?

NH:

going concern status

NH:

basically cash flow

NH:

Earthport has around £832,000 in the bank at the end of June

NH:

and looking at the admin expenses they are burning around £500,000 a month

MJ:

so they won’t make it till Xmas?

NH:

no, no, no. I think they will

NH:

and that’s because buried in today’s results is news of a loan

NH:

In addition a £1m Loan dated 5 October 2009 has been fully subscribed to.

MJ:

er is that it?

MJ:

No more detail?

NH:

none

NH:

I have been told the loan was extended by one of the company’s biggest shareholders

NH:

And I have put that to the company who refused to comment

MJ:

Really?

NH:

yep

NH:

Now, I am by no means an expert here but I would think a shareholder lending money to a company is highly unusual

MJ:

gosh

NH:

especially if it is not fully disclosed

NH:

still there could be an explanation for all this, but Earthport won’t offer one at the moment

NH:

(B3GG has gone. Zapped)

MJ:

Had to be done really

MJ:

Lets look at the shareprice

MJ:

Crikey they are up!

MJ:

Up 3.5p at 33.25p

MJ:

Neil – what on earth is going on?

MJ:

(no pun intended)

NH:

good question

NH:

I guess they have been hit hard in recent weeks

NH:

and their house broker has issued a buy note this morning

MJ:

Ah that one

MJ:

slashed the target price to 44p though

MJ:

I can dig that out

NH:

go on

MJ:

significantly below our expectations. This was caused primarily by the £2.0m
revenue shortfall from a key partner in the Middle East, although costs are
also significantly ahead of our forecasts (albeit the majority of which are noncash
related). This will undoubtedly put back the time-line to which the
company will become profitable, which is clearly disappointing; however, we
do think that the long term growth opportunities of the company remain
significant if this can be executed correctly.

MJ:

Our target price gets scaled back
to reflect this time delay reaching profitability, albeit we still believe there is
strategic value in the Group. We therefore maintain a Buy recommendation
despite what is undoubtedly a disappointing set of results.

Final results: Adjusted PBT was -£6.9m vs. our forecast of -£2.9m and -£3.1m last
year. Revenues at £1.57m were -18.1% YOY, and even including the £2.0m shortfall
would have still undershot our forecast of £4.1m for the year by some 10%.

MJ:

Underlying operating costs were some £0.4m ahead of our forecast primarily due to higher staff-related costs, although share based payment costs at £2.3m (vs. our expectation of £0.8m) was the big swing factor due to the current volatility in the share price.

The combined factors of this revenue short fall, higher costs (most of which are non-cash) as well as its tax credit from last year being written off to the tune of £0.3m causes the company to report an adjusted loss per share of -8.7p vs. -5.1p last year. The company did manage to reduce debt from £1.1m to £0.7m during the period, although its cash balances also fell from £3.7m to £0.9m as at the year end.

MJ:

Key performance drivers: Transaction volumes were +51% during the course of the
year, which compares to +81% last year and +33% during the calendar year. This reflects an element of slowdown recently, although this is not surprising given the distractions that have taken place with the bid approaches/strategic review as well as “decision making paralysis” we have seen across many companies in the current climate impacting adoption rates. That said, the gross margin at 74.4% was ahead of the 70% we had pencilled in for future years, which is encouraging from a profit conversion point of view. The company continues to burn cash, although should become highly cash generative when revenues start to build given the high margins it should deliver and low capital requirements.

MJ:

Forecasts: We cut our forecasts across the board to take account of this performance,
and now expect Earthport to remain loss making in 2010E as well. The business model is transaction-based and hugely scalable; therefore the key to this business becoming profitable will be fully executing what looks to be a continued pipeline of strong opportunities. However, from a timing perspective this is difficult to model with any certainty, with pre-contracted levels of revenue the key to improving the quality of earnings in this business.

MJ:

Target price reduced to 44p: We are cutting our target price to 44p (from 88p) to
reflect this disappointment, which broadly equates to the level of tax losses in the
business. Of course the company has to be profitable to fully utilise this, and we do not feel this fully reflects the true strategic value in the company. That said, it is difficult to say with any certainty when this company will become profitable, therefore the risk profile of this company remains extremely high. However, we continue to believe in the technology and potential market opportunities longer term, and maintain a Buy recommendation given the significant share price weakness that has taken place of late.

NH:

seems a pretty feeble reason for a buy recommendation – tax losses

NH:

they have to make some profit first

NH:

actually there is probably another reason for the decent performance of Earthport this morning

NH:

and that’s because they have a new chairman who looks to have a decent pedigree

MJ:

Who is that?

NH:

this guy

NH:

Lance is Vice Chairman of Standard Chartered Bank (China) Limited. Standard Chartered Bank is one of the very few international banks, which has a license to clear local currencies in China. He began his career in China in 1979 in engineering and finance and has continued to further his career there ever since. Past appointments in China include Chairman of the British Chambers in Shanghai and Beijing, Chief Representative of the 48 Group and Chairman of the Foreign Bankers Association. He is an Honorary Citizen of Shanghai and was awarded a CBE for his work and accomplishments in China.

NH:

which is a vote of confidence I guess

NH:

but what will be interesting to look at when the audited results come out

NH:

is what the board of Earthport have been paid in the last year

MJ:

is that not in today’s statement?

NH:

but you would expect it to be lower after such a difficult year

NH:

let’s move one

11:55AM

MJ:

We must talk about our favourite AIM-listed company director

NH:

what Frank?

MJ:

I’ve been calling him all morning

NH:

you have his mobile number?

MJ:

I do. Not wanting to have a chat with me though

MJ:

Bit hurt really

NH:

there’s a surprise

NH:

don’t feel to bad Miles

MJ:

What I’m really trying to find out is what are these fancy west African assets he has come to own via a trust

NH:

what

NH:

the ones being injected into Sound Oil

NH:

via a reverse takeover

MJ:

Thats the one

MJ:

Sound Oil, the upstream oil and gas company with assets in Indonesia, notes the recent press speculation and continued movement in its share price and confirms that it is in discussions about the possible acquisition of a private company, which is majority-owned by a trust connected with Mr. Frank Timis, with oil assets offshore West Africa. The transaction under discussion is expected to represent a reverse takeover under the AIM Rules and accordingly the Company has requested that trading in its shares be suspended. This suspension will be lifted on publication of an admission document relating to this transaction or at such time as discussions are terminated. Any agreement regarding the reverse takeover will be conditional on the approval of the Company’s shareholders in general meeting.

NH:

I didn’t know he had any oil assets in West Africa

MJ:

(Very tempting SilverFox)

NH:

he has been very active in Sierra Leone

NH:

but that was with diamonds

NH:

and iron ore

NH:

obviously his has found oil now

NH:

sadly Sound Oil has been suspended

NH:

while the talks continue

NH:

so this one can’t go moon bound like Gulf Keystone

NH:

but one must think the oil prospect

NH:

will be big

11:59AM

NH:

Right

NH:

Miles is dialing the great man again

MJ:

Phone is off now

NH:

he doesn’t want to speak to us

NH:

but he will speak to DealReporter

NH:

and they are a Pearson company

Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.

NH:

talking of which

NH:

did I mention the excellent results from Pearson this morning

Pearson (PSON:LSE): Last: 842.50, up 20.5 (+2.49%), High: 845.00, Low: 824.50, Volume: 3.19m

MJ:

No you didn’t. But I don’t think we should

MJ:

Some very interesting stuff on the Timis situation in the Longroom

MJ:

Will have a closer look in a bit

12:02PM

NH:

it’s past midday

NH:

so we need to wrap things up

NH:

and some of the ROTR

NH:

were asking about Imagination Technology

NH:

now

NH:

I guess today’s move

NH:

is down to the excellent results from Apple overnight

NH:

IMG provide bits and pieces for the iPhone

NH:

here’s a bit of comment from Seymour Pierce

NH:

Yesterday Apple released Q4 results comfortably ahead of market expectations.
Revenues of $9.9bn (from $7.9bn prior year) were head of market consensus of
around $9.2bn. The strong performance came in most areas of the business with the
only signs of weakness in the iPod area where sales are in decline. 7.4m iPhones
were sold – up 7% from the prior year. We believe that although the read across is
unlikely to change IMG analysts’ expectations by much it is another piece of good
news to drive the shares higher – much like the newsflow on netbooks. We hold the
view that with so much of the UK Tech market either stale or simply blue sky,
Imagination offers investors a rare opportunity to invest in a technology growth story
where the end market drivers are visible without having to dig too far. We retain our
BUY stance on the stock

Imagination Technologies Group (IMG:LSE): Last: 248.30, up 16.4 (+7.07%), High: 250.00, Low: 232.10, Volume: 1.14m

NH:

actually

NH:

there is another play

NH:

that is apparently even more geared to apple

NH:

and that’s something called IQE

NH:

another chip play

NH:

which features heavily in the 3GS

NH:

I am told

IQE (IQE:LSE): Last: 19.98, up 1.23 (+6.56%), High: 19.98, Low: 18.75, Volume: 3.12m

12:04PM

NH:

Tuna

NH:

just looking at the note pad

NH:

for some 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 …

NH:

nothing really

MJ:

Everyone keeping a low profile after the Raj arrest?

NH:

could be

NH:

and neither Sainsbury

NH:

or PartyGaming leaked

NH:

which is unusal

NH:

and keeping with the tech theme

NH:

here’s a wider piece

NH:

on the implication of Apple’s results

NH:

for Euro tech companies

NH:

from RBS

NH:

Readthrough for Euro Semis. We view better than expected sales of iPhone (7.4m vs our
estimate of 6m), as positive for Euro Semis, particularly IFX, which supplies the 3G platform
(including baseband, power management, RF transceiver and GPS) in iPhone 3G S. In addition
Further, the increasing demand for smartphones is significantly positive for ARM, given that
smartphones typically have higher number of ARM cores compared to lower end handsets. Apple
comments of lower gross margins going forward reflecting lower ASPs and higher volumes is in
our view particularly positive for IFX, in our view. However, given that much of the demand was
driven by iPhone 3G S, we view this as neutral for CSR (compensated by Nokia ramp)
and negative WLF (lost most Apple sockets and loss of market share at Samsung), which have
failed to retain the sockets in iPhone 3G S. We maintain our Buy rating for IFX (TP 4.50), CSR
(TP 500p) and ARM (TP 180p) and Sell rating WLF (TP 97p).

NH:

Readthrough for Euro Telecom Equipment. Based on Apple comments that their iPhone
blended ASP was slightly above US$600, we estimate that Apple smartphone sales reached
US$4.5bn, beating Nokia smartphone revenues of US$4.46bn for the first time. In other words,
although Nokia remains the smartphone leader in terms of unit shipments, it has lost for the first
time its leading value share in the high-growth smartphone market. Going forward this may
reverse slightly as component shortages ease in 4Q09f for Nokia but could reverse again in
1Q10f as distribution of the iPhone broadens substantially (China, UK, Canada). We maintain our
Hold rating and TP of EUR 9.50.

NH:

Readthrough for the Euro IT Hardware stocks

NH:

ARM (ARM LN, Buy). We see TXN’s strong 3Q09 results (revenues up 17% qoq) and better than
expected 4Q09 guidance as positive for ARM, given that TXN is ARM’s largest customer. Further,
we note that TXN more than double its FY09 capex budget, likely implying solid volume growth in
the coming quarters. We currently expect ARM’s PD royalty units to increase 21% qoq in 3Q09f
(reflective of 2Q09f industry shipments) and grow further by 17% qoq in 4Q09f (reflective of
3Q09f industry shipments). We reiterate our Buy rating and TP of 180p.
CSR (CSR LN, Buy). TXN reported 18% growth in their wireless segment driven by strong
demand for connectivity solutions. TI attributes this growth to smartphones which are having a lot
more connection options and features beyond just cellular connections. Along with their Bluetooth
solution TI mentions especially their GPS and WiFi solutions which have experienced good
growth this quarter. This increased demand for connectivity solutions at TI is a positive
indication for CSR who compete in the same market and are one of the leading Bluetooth
suppliers and also have a comprehensive connectivity portfolio with Wi-Fi and GPS solutions
(SiRF acquisition). CSR are ramping this quarter their next-generation Bluetooth device (Bluecore
7000) and have also launched their latest generation GPS chips SiRFstarIV and SiRFatlasIV. We
reiterate our Buy on CSR with a TP of £5.00.

NH:

hope all that helps

NH:

Miles

NH:

you got anything else to share?

MJ:

I am done

NH:

I have one more thing

NH:

a very aggressive note our of JP Morgan on Cadbury

NH:

which updates tomorrow

MJ:

Can we quickly see a bit of that?

NH:

sure

NH:

Bottomline: More than whether it can beat/meet/miss 3Q sales guidance
and estimates when it releases the 3Q IMS this Wednesday (market data
signals a miss, but we would not underestimate the company’s aggressive
promotional shipment push since August when it first heard from Kraft),
Cadbury management may need to better persuade investors it has built an
indeed sustainable model, that it can reach EBIT margins of 15% by 2011,
and that long term growth potential has not been sacrificed for the sake of
short term margin targets. Some of the questions/issues we have,

NH:

Is the company under investing in marketing? In 2008 what Cadbury
calls “Marketing and Selling” expenses amounted to £584M (proforma; post
sale of Australian beverages unit) or 10.8% of sales. For most food
companies, selling expenses (salesforce mostly) would tend to be 7-8% of
sales. In confectionery because of the nature of the distribution channel, we
estimate selling expenses could be 8-9%. If this is indeed the case, then this
would imply Cadbury spends only 2-3% of sales in Marketing. Such a
number would seem low compared with WM Wrigley which in 2007 (before
being acquired) we estimate spent 13% of Sales in Marketing (it disclosed
that what it called Advertising was 10.8% of sales, and “selling and other
marketing” was 10.5% of sales, which would mean non-Ad marketing was
2-3% of sales). We also note that in 1H09 Cadbury management said
marketing/sales was down due to “timing issues”.

NH:

True, cocoa continues to go up, but has Cadbury taken more pricing
than was warranted by cost inflation? Cost inflation for Cadbury was at
the low end of 6-8% in 1H09 as per management guidance. Also, as per
guidance, we know input costs are one third of sales. So if this is indeed the
case then Cadbury needed to realize 2pt of pricing in 1H098. In 1H09
management said LFL sales were up 4% with pricing contributing 6pt. In
another words, pricing was 3x as much what was needed to pass on higher
costs. The Nielsen data supports this notion; for the 12w thru Sep 19,
Cadbury realized 12pt of pricing in UK chocolate (where it had 52w share of
32%, vs. 23% for Mars and 18% for Nestle) compared with 5% for both
Mars and Nestle. We worry these increases eventually will be rolled back

NH:

How much of the profit margin expansion has indeed come from Vision-
Into-Action? If all the profit margin expansion at Cadbury is coming from
VIA, how is it then that EBIT margin was up in line with Nestle in 2008? In
2008 Nestle Confectionery EBIT margins increased 150bp (to 13.1%)
almost in line with Cadbury’s expansion of +170bp reported (to 11.8%), and
almost in line when adjusting for FX; Cadbury reported almost 7pt of
confectionery LFL pricing in 2008 and Nestle 6.5%. We believe in 2008
both companies benefited from pricing ahead of costs (in confectionery), but
as mentioned in the previous paragraph, Cadbury has apparently continued
this practice in 2009 (at a pace well above peers). In fact, in 1H09 Cadbury’s
margin expansion was ahead of peers (VIA? Pricing ahead of costs?). Nestle
Confectionery EBIT margins increased 50bp in 1H09, while Hershe

12:09PM

NH:

that’s it

NH:

for today’s session

NH:

thanks for joining us

NH:

lots of comments

NH:

and readers today

NH:

which is very pleasing

NH:

thanks Paul

MJ:

Paul is ramping on the right

MJ:

NH:

shall we 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:

put it to public vote

NH:

Monkey says Zap

MJ:

That is very harsh Neil

NH:

Lorcan yellow

NH:

Right

NH:

PM wants to be zapped

NH:

he wants to feel the pain and humilation

MJ:

I suppose it would be interetsing to know what it feels like

NH:

he wants to join those on ADVFN

NH:

he is a machoist

NH:

right

NH:

off, off, off

MJ:

So what is the verdict?

NH:

banned

NH:

zapped

NH:

gone

MJ:

You are brutal

NH:

and so are we

NH:

gone that is

NH:

cya all tomorrow

MJ:

Bye everyone

NH:

bye

NH:

Chopper

NH:

watch it!

This entry was posted by Neil Hume on Tuesday, October 20th, 2009 at 11:02 and is filed under Uncategorised. Edit this entry.

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Markets live transcript 20 Oct 2009

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