Markets live chat transcript for the chat ending at 12:12 on 27 Oct 2009. Participants in this chat were: Neil Hume, FT (NH) Miles Johnson, FT (MJ) Paul Murphy (PM)
NH:
hola hombres
NH:
and whatever the female equivalent is
NH:
welcome to Markets Live
NH:
FT Alphaville’s daily markets chat
NH:
once gain we are experiencing IT issues
MJ:
SNAFU
NH:
indeed
NH:
morning Miles
NH:
email went down at 6.00am, as did our Blackberry’s
NH:
came back up at 10.00am
NH:
and also I think there is a problem viewing this site and FT.com
NH:
Murph pls join in
NH:
We are currently experiencing problems with the FT.com website hosted in the US. This is related to an issue we have having with connectivity between our datacentes in the UK and US.
NH:
FT.Com is reported as intermittently not being available to some customers (geographically). The Editorial Teams are also reporting that the site is not updating with content as expected when it is served from the US.
NH:
so if you can’t log in
NH:
or are having trouble viewing
NH:
that could be why
NH:
anyway
PM:
Hi
NH:
we are making peace with IT today
PM:
IT working on it tho
MJ:
why so?
PM:
Tricky things — newspaper IT
NH:
they have a new boss
NH:
its seems the previous incumbent has left for Bupa
MJ:
crikey
NH:
my thoughts exactly
NH:
anyway, I think anyone receiving a hospital pass like that deserves our backing
PM:
NJ — because they have to deal with all sorts of legacy issues
PM:
etc
PM:
MJ — sorry
MJ:
actually, not a bad job to take
NH:
why’s that
MJ:
well, things can’t get much worse
NH:
that’s true
MJ:
and that means on a risk reward basis, there’s plenty of upside
NH:
NH:
right
NH:
let’s take a look at the market
NH:
but before we do
NH:
let’s say good morning America
NH:
hello Murph
NH:
up before 7.00am
PM:
hi there
PM:
Plenty going on i see
NH:
yep
PM:
Sucker rally over
NH:
much better than yesterday
PM:
BP?
NH:
yes
PM:
Vedanta
NH:
Yell
NH:
Reed
PM:
blimey
PM:
I should leave it to you tho
NH:
and the banks
PM:
I’m jsut reading myself in
NH:
which are weak again
NH:
let’s take a look at the market
11:07AM
MJ:
Well, London
MJ:
FTSE 100 up 30 points at 5,221
MJ:
but that’s almost single handedly down to BP
MJ:
which is motoring on the back of forecast busting figures
NH:
yep shares up 24.2p at 591.4p
NH:
a gain of 4.3%, which is a big move for a company the size of BP
NH:
and according to my index movers gadget on Reuters
NH:
is worth about 17 FTSE points
MJ:
yep around that
MJ:
So, shall we have a look at the BP results?
NH:
why, not
11:09AM
NH:
so, Q3 results pubbed this morning
NH:
and they have smashed expectations on just about every level
NH:
in fact they be could the company’s biggest beat in a decade
NH:
all hail Tony Hayward
MJ:
right
NH:
however, a couple of things stand out
NH:
first the tax rate, which has fallen sharply
MJ:
oh dear, the papers won’t like that
MJ:
greedy oil barons alongside the greedy bankers
NH:
yep, the Guardian will go for that
NH:
also, the figures reflect BP’s massive cost cutting programme
NH:
and one has to wounder
NH:
if it is repeatable
MJ:
but that’s been the story of this results season
MJ:
little top line growth but lots of cost cutting
NH:
and in the case of BP
NH:
they are still struggling to replace reserves
MJ:
shall we look at the figures in a bit more detail?
NH:
OK
NH:
so
NH:
this according to Citi
NH:
clean RCP of $4,684m was 48% ahead of consensus, albeit boosted by a clean tax rate of 29% – well below the 36% lower end of guidance. As a result, FY09 tax guidance falls to 32-33%.
MJ:
that’s a big fall in the tax rate
NH:
it is
NH:
but that should not distract too much from the decent operating performance
NH:
E&P — E&P Adjusted EBIT of $6,278m was 21% above consensus, 13% above
Citi forecast. Production volumes rose 7% Y/Y compared to 6% forecast. The
source of the beat appears somewhat US-centric, pointing to limited readacross
for peers. US production of 1061kboed was 6% above forecast with a
skew toward high-margin aiding the beat. Second, US gas realisations at
$2.73/mcf rose 10% Q/Q compared to Henry Hub market decline of -3%.
Citi forecast. Production volumes rose 7% Y/Y compared to 6% forecast. The
source of the beat appears somewhat US-centric, pointing to limited readacross
for peers. US production of 1061kboed was 6% above forecast with a
skew toward high-margin aiding the beat. Second, US gas realisations at
$2.73/mcf rose 10% Q/Q compared to Henry Hub market decline of -3%.
NH:
Costs & Cash — The FY09 cash cost reduction target of ‘above $3bn’ has been
upgrades to ‘around $4bn’, with units costs -18% Y/Y – clearly another benefit
to the operating result. FCF (pre-WC, pre A&D) of $3.2bn in a $68/bbl oil,
$3.17/mcf gas environment quarter gives an indication of BP’s cash breakeven
level.
upgrades to ‘around $4bn’, with units costs -18% Y/Y – clearly another benefit
to the operating result. FCF (pre-WC, pre A&D) of $3.2bn in a $68/bbl oil,
$3.17/mcf gas environment quarter gives an indication of BP’s cash breakeven
level.
MJ:
more cost cutting
MJ:
is there any more fat to trim at BP?
NH:
dunno, the target has been raised by another $1bn this morning
NH:
Operational recovery peaking — Without wishing to appear churlish on the back
of such a strong quarterly performance, looking beyond 3Q, we observe that
the operational turn-around, which commenced in late-2007 has been largely
delivered. The pace of Y/Y production growth is now expected to slow, refining
availability is back to pre Texas City levels, and much of plan to reduce
organisational complexity is fulfilled. As momentum slows and with valuation
full compared to peers – BP trades at an 8% premium to the sector on 2011e
EV/DACF – the relative case may become more challenging.
of such a strong quarterly performance, looking beyond 3Q, we observe that
the operational turn-around, which commenced in late-2007 has been largely
delivered. The pace of Y/Y production growth is now expected to slow, refining
availability is back to pre Texas City levels, and much of plan to reduce
organisational complexity is fulfilled. As momentum slows and with valuation
full compared to peers – BP trades at an 8% premium to the sector on 2011e
EV/DACF – the relative case may become more challenging.
MJ:
good point that
MJ:
got any more reaction?
NH:
yes
NH:
here’s Cazenove
NH:
they note
NH:
that production has not been too bad
NH:
BP – Q3 2009 results – 48% above consensus, largest % positive earnings surprise this decade [BP/ LN 567p] OUTPERFORM, Sector OVERWEIGHT
Key points: + clean Q3 2009 earnings of $4,674m is 48% ahead of the market consensus, BP’s largest % quarterly earnings surprise + another exceptional organic Q3-o-Q3 production growth of +7% + clean EBIT from E & P and R & M well above consensus, +21% and +62% respectively + group EBIT of $6,931m is 29% above market consensus + healthy signs of cost reduction upstream and downstream + DPS declaration of 14 cents (8.512 pence) + positive free cash flow in the quarter reduced net debt by $800m Q3-o-Q2 + guidance to lower FY 2009 tax rate of 32-33% (prior guidance was low end of 36-39%) – small change to FY 2009 capex guidance, now expected to be around $20bn (rather than less than $20bn).
Key points: + clean Q3 2009 earnings of $4,674m is 48% ahead of the market consensus, BP’s largest % quarterly earnings surprise + another exceptional organic Q3-o-Q3 production growth of +7% + clean EBIT from E & P and R & M well above consensus, +21% and +62% respectively + group EBIT of $6,931m is 29% above market consensus + healthy signs of cost reduction upstream and downstream + DPS declaration of 14 cents (8.512 pence) + positive free cash flow in the quarter reduced net debt by $800m Q3-o-Q2 + guidance to lower FY 2009 tax rate of 32-33% (prior guidance was low end of 36-39%) – small change to FY 2009 capex guidance, now expected to be around $20bn (rather than less than $20bn).
NH:
here’s the stuff on E&P
NH:
Exploration & production – EBIT of $6,929m includes net gains of $651m so the underlying EBIT is $6,278m which is 26% above our forecast of $4,982m and 21% above the consensus of $5,195m and 13% ahead of the top of the range ($5,575m) – so much better than expected. Q3 2009 production averaged 3,917 kboepd, above our forecast of 3,820 kboepd and represents Q3-o-Q3 growth of +7% (the same excluding PSA and OPEC effects) – a really exceptional performance, in our view. We note that unit production costs were down 18% Q3-o-Q3 adjusted for hurricane effects in Q3 2008. Note that YTD 2009 production has increased more than 4%.
PM:
(Wibble – we can sort that)
NH:
Valuation – BP’s 2009E dividend yield of 6.2% still feels too high for a dividend that is safe, in our view, especially given evidence of robust free cash flow generation. BP’s 2010E of just under PER 10x also feels too low. We note that 9-months 2009 EPS of 35.0 pence leaves just 6.6 pence to make the FY 2009 consensus (source: IBES) of 41.6 pence – so these results combined with the prevailing oil price strength and guidance to a lower FY 2009 effective tax rate (32-33% vs prior guidance around 36%) ought to induce some material FY 2009 EPS upgrades – we retain our 2009E EPS forecast of around 45 pence. As per our most recent e-mail (23 October – Upstream capex, keep it real), BP’s 2010E equity free cash flow yield is above 10%.
Performance & recommendation – YTD 2009 BP shares have generated a TSR (£) of +14% vs +14% from the European oil & gas sector, +13% from RD Shell B and -17% from Exxon Mobil (all stats in £). So BP has performed in line with the sector and outperformed RD Shell by a whisker and outperformed Exxon Mobil by 30%. We retain our OUTPERFORM recommendation [BP/ LN 567p], Sector OVERWEIGHT
NH:
and finally
NH:
something from Collins Stewart
NH:
who prefer Shell to BP
NH:
Although BP’s 3Q adjusted net income of $4.7bn (reported $5.0bn less $0.3bn of special items) was down 47% y/y, it was well ahead of the market consensus of $3.2-3.3bn. Results were well above expectations in both E&P and R&M, while the tax rate was below expectations (see fig 1 for detail).
NH:
Volumes up 7% y/y but comparisons will get harder in 4Q
BP’s 3Q production volumes of 3917kboed were up 7% y/y, a performance likely to be much better than most peers for the quarter. Y/Y growth was strongly influenced by two factors: 1) a high level of hurricane activity in 3Q08 (a loss of c.100kbd), without which y/y growth would have been around 4%, and 2) the impact of new startups, most importantly that of Thunder Horse. With Thunder Horse already having made a major contribution to 4Q08 figures, the 4Q09 growth rate is likely to slow significantly – we expect 4Q volumes to be up only around 1% y/y.
BP’s 3Q production volumes of 3917kboed were up 7% y/y, a performance likely to be much better than most peers for the quarter. Y/Y growth was strongly influenced by two factors: 1) a high level of hurricane activity in 3Q08 (a loss of c.100kbd), without which y/y growth would have been around 4%, and 2) the impact of new startups, most importantly that of Thunder Horse. With Thunder Horse already having made a major contribution to 4Q08 figures, the 4Q09 growth rate is likely to slow significantly – we expect 4Q volumes to be up only around 1% y/y.
NH:
Cost reduction targets raised again
BP has raised its expectations for cash cost reductions once more as it proceeds with its efficiency drive. The company now expects FY09 cash costs to be around $4bn lower y/y vs original guidance of $2bn, and recent (2Q) guidance of $3bn. A large element of the cost savings will have come from currency gains and lower fuel costs, but BP maintains that over half of the improvement is from self-help and improved operational efficiency.
BP has raised its expectations for cash cost reductions once more as it proceeds with its efficiency drive. The company now expects FY09 cash costs to be around $4bn lower y/y vs original guidance of $2bn, and recent (2Q) guidance of $3bn. A large element of the cost savings will have come from currency gains and lower fuel costs, but BP maintains that over half of the improvement is from self-help and improved operational efficiency.
NH:
¦ FY capex $20bn; confidence on the dividend
BP now expects FY09 capex to come in at around $20bn (vs below $20bn previously). As yet, there is no guidance on 2010 capex, but comments from CEO Tony Hayward point to the company’s confidence in its ability to meet both its investment needs and its commitments to shareholders.
¦ A strong performance but we prefer Shell
The past year has been one of strong operational improvement for BP, which has been reflected in its shares’ outperformance relative to the global majors. However, at current levels we see better value in Shell (6.0x 2010E EV/CF vs 6.9x for BP), and the prospect of better 2010-11 momentum at Shell as well. Shell remains our preferred European supermajor
BP now expects FY09 capex to come in at around $20bn (vs below $20bn previously). As yet, there is no guidance on 2010 capex, but comments from CEO Tony Hayward point to the company’s confidence in its ability to meet both its investment needs and its commitments to shareholders.
¦ A strong performance but we prefer Shell
The past year has been one of strong operational improvement for BP, which has been reflected in its shares’ outperformance relative to the global majors. However, at current levels we see better value in Shell (6.0x 2010E EV/CF vs 6.9x for BP), and the prospect of better 2010-11 momentum at Shell as well. Shell remains our preferred European supermajor
MJ:
thanks for all that
11:15AM
MJ:
Should take a look at the banks?
NH:
I guess so
MJ:
Lloyds and RBS are looking weak
MJ:
among the biggest fallers in the FTSE 100 this morning.
Lloyds Banking Group (LLOY:LSE): Last: 86.44, down 2.9 (-3.25%), High: 89.51, Low: 84.08, Volume: 128.02m
Royal Bank of Scotland Group (RBS:LSE): Last: 42.40, down 2.02 (-4.55%), High: 44.64, Low: 40.35, Volume: 128.12m
NH:
More fallout from the ING split announced yesterday?
NH:
ING shares also got hammered at the open – fell another 14 per cent before coming back after some comments from the management.
PM:
Anything to do with Posen?
MJ:
The UK reaction is very interesting.
MJ:
It is almost as if parts of the market had forgotten that Neelie Kroes means business
NH:
EC verdict is expected to be announced by end of the month.
MJ:
And the fear is that, judging by the way the EC dealt with ING
MJ:
could mean there are some big changes to be made at the UK banks.
PM:
Interesting
MJ:
The sale of the ING US business for example
MJ:
What could this mean for RBS Greenwich Capital?
NH:
And Lloyds – the LBG rights issue prospectus is going to have to contain some disclaimers.
MJ:
Yeah – it is surely quite difficult to get institutions to put large chunks of money
MJ:
into a bank that no one knows how it will look in a month or two.
NH:
Gordon Brown might be able to wave UK competition law with the Lloyds-HBOS deal, but getting it past the EU could be trickier.
NH:
right now though no one can really make a clear call on this. EC are hard to read.
NH:
comment?
MJ:
got some desk stuff
MJ:
Lloyds and KBC both suffered major falls yesterday given their own dealings with the EU and overhanging decisions on asset sales depending on the level of state aid the companies receive. This is in our view why Lloyds is so keen to sidestep GAPS and go the independent route, as increasing EU scrutiny will likely result in a higher degree of forced asset sales. If you believe anything you read, the press has consistently been mentioning Halifax as the pivot point for EU discussions. One weekend it’s ‘Lloyds to dispose of Halifax’, and the next it’s just selling a few branches.
MJ:
Somewhere in between is a happy medium, which likely involves a C&G disposal, as well as the insurance assets (bancassurance is dead, remember?). In our most recent round of marketing, Ian and I encountered a large majority of investors who would not buy Lloyds until the decision with the EU was finalised. Given ongoing pressure on the likes of KBC and ING, Lloyds are accutely aware of the punitive impact of sizable state aid and the intrusion of the EU. But in simple terms, our 150p price target assumes full GAPS participation. We’d probably have to adjust this for any asset sales to follow, but it’s a high enough starting point for us not to worry too much about it. On the other hand, if Lloyds raise capital on their own, then the EU will have less of a beef over state aid, and asset sales diminish. Then you’re talking about capturing the upside from improving bad debts currently on their way to the UK taxpayer courtesy of GAPS. Should Lloyds avoid GAPS, there’s about a net GBP5bn for shareholders, or c. 20p per share, and that’s before we think about how wrong our GBP60bn cumulative bad debt forecasts could be.
MJ:
Either way, Lloyds remains a buy for us. ING, on the other hand, is a Hold that has been too much of a consensus love affair in the past few months to appear attractive to us, but given the increasing revulsion over the new look company, is beginning to look like more of an interesting valuation again. At EUR8.30 (where the stock has plunged to while I’ve been typing), there’s a theoretical 20% or so upside to fair value if you pick the low end of the spectrum for insurance asset sales (again, please refer to the sheet attached, which is, I should stress, very much a first stab). Leaving themselves open to shorts until the 25 Nov EGM won’t help, but technicals aside, this is beginning to look cheap for the first time in a long time.
NH:
some interesting points in that, especially the conclusion
NH:
buy Lloyds
NH:
actually
NH:
barclays also down this morning?
NH:
some overhang from that recent Qatar placing
MJ:
BARC is off 7.4p at 345p
MJ:
maybe those shrewdie Quataris really did call the top of the market?
NH:
(oundle – nice place Airbourne)
NH:
so Barc
NH:
is now below the placing price?
MJ:
(Sorry Baz)
MJ:
yep – that was at 365p if memory serves
NH:
hmmm
11:23AM
NH:
And insurers are were a bit weaker on worries over the banks subject to EC action not to paying the coupons on their subordinated debt.
Aviva (AV:LSE): Last: 420.80, down 0.8 (-0.19%), High: 423.50, Low: 403.90, Volume: 4.58m
Legal and General Group (LGEN:LSE): Last: 83.15, down 0.2 (-0.24%), High: 84.00, Low: 81.45, Volume: 11.01m
MJ:
That issue has come up again
MJ:
BNP Paribas wrote a note on it this morning
MJ:
Good news for coupons on hybrids, calls more
uncertain
Along with the planned measures listed below, ING said
it does not expect the EC to force the bank to defer
coupons on hybrids whether before or after the formal
approval of restructuring plan by the EC (expected in
November).
ING however added it would consult the EC before taking
any decisions on whether to call T1 and T2 capital and
that currently it did not plan any tender/exchange offers.
Good news for coupons on hybrids, calls more
uncertain
Along with the planned measures listed below, ING said
it does not expect the EC to force the bank to defer
coupons on hybrids whether before or after the formal
approval of restructuring plan by the EC (expected in
November).
ING however added it would consult the EC before taking
any decisions on whether to call T1 and T2 capital and
that currently it did not plan any tender/exchange offers.
MJ:
Management said that at this stage it understood that
government-injected capital should not be used to
redeem capital instruments so calls are uncertain at least
until the government securities have been fully repaid
(plan is to repay them by end 2011, see below).
Furthermore, management mentioned on the call that
economic incentives might play a role in their future call
decisions, hinting that ‘refinancing costs’ would be an
important decision factor. The ING € and £ T1 bonds
have relatively small reset rates which make economic
calls more unlikely, although the calls are some time
away.
government-injected capital should not be used to
redeem capital instruments so calls are uncertain at least
until the government securities have been fully repaid
(plan is to repay them by end 2011, see below).
Furthermore, management mentioned on the call that
economic incentives might play a role in their future call
decisions, hinting that ‘refinancing costs’ would be an
important decision factor. The ING € and £ T1 bonds
have relatively small reset rates which make economic
calls more unlikely, although the calls are some time
away.
NH:
that seems rather at odds with some of the press comment I have seen this morning
MJ:
Well I suppose the BNP stuff relates more to the ING bonds
MJ:
rather than some of the other securities held by the insurers
MJ:
Should probably have a word with tracy on this – she loves this stuff
NH:
right
NH:
enough on banks
NH:
and insurers
NH:
let’s have 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.
11:26AM
MJ:
Right – but it is half term in the UK remember
NH:
don’t tell LYO that
MJ:
We hate half term
MJ:
It means many of the most prominent RAW peddlers are off playing football with their kids in the park
NH:
Now, we fully support such parent-child bonding, but
MJ:
These people should remember their responsibilities
NH:
So London is pretty quiet. Are you hearing much Miles?
MJ:
Well
MJ:
London is indeed quiet
MJ:
but I have been hearing some things from our chums on mainland Europe
NH:
What, you mean some sophisticated continental bandits?
MJ:
Totally
MJ:
Gaulois smoking, beret wearing, Sartre-reading types
PM:
Eurobandits
MJ:
Le Bandit if you will
PM:
INdeed
NH:
NH:
Murph do you want to zap LYO?
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.
MJ:
Well they are not that suave actually
MJ:
Some are very nice, some are some of them are just low grade rumour peddlers
PM:
Leave it with me
NH:
So Miles, what has been going around these pernod drinking market philosophers this morning?
MJ:
nothing spectacular by any means
MJ:
Infineon got hit on the back of chatter it lost the iPhone contract
MJ:
Then Reuters banged it up after some German brokers zinged it around the email lists
MJ:
and the company moved to deny the story
NH:
Classic. happens a lot at the moment that sort of thing.
MJ:
It was a bit far fetched even before it was formally reported
MJ:
another take I heard
MJ:
From a 
sort of guy
sort of guyMJ:
was that this could have something to do with the rather stale story about the Russian state taking a strategic stake in Infineon
MJ:
that they had pulled out or something like that
MJ:
But
MJ:
a usually clued in Frankfurt local said the move was most likely due to some stop losses being triggered after yesterday’s falls
PM:
(LYO scuttled.)
NH:
then some creative brokers trying to explain the move with the iPhone rumour, and then latecomers trading on it after Reuters reported it.
NH:
Das Bandits strike again
MJ:
infineon shares are off 4.4 per cent to EUR3.22
MJ:
There was also local stuff about Lonza warning on profits
NH:
and some stuff about Commerzbank talking down numbers
MJ:
That sort of thing
NH:
back in Blighty
NH:
the only thing we picked up
NH:
again
NH:
was Churchill Mining
NH:
and talk of a bid on the back of yesterday’s resource update
NH:
lots of crazy numbers being mentioned
MJ:
Ah yes – some, ahem, lively characters in that one
NH:
yes
PM:
(LYO – yeah yea, hear you)
NH:
including
NH:
NH:
The Taxi Driver
PM:
(Person masquaradign as you has been zapped for a bit
11:34AM
MJ:
As has been noted, we haven’t talked about Yell yet
MJ:
which is wierd
NH:
actually a busy day in the media sector
NH:
Yell is one story
NH:
another is Reed
NH:
shares flying at the moment
NH:
up 17p at 474.8p
MJ:
Second biggest riser in the FTSE 100
MJ:
what’s caused that?
MJ:
not those UBM bid rumours
NH:
don’t say that
MJ:
why?
NH:
Reed a bit sensitive on that
NH:
and it is of course complete rubbish – they aren’t looking to bid for UBM
NH:
the reason for today’s move is a note out of Exane
NH:
they love the company
NH:
have upgraded to “outperform”
NH:
set a 600p target price and are telling people that the concerns about LexisNexis are massively overdone
MJ:
are they?
NH:
according to Exane
NH:
here’s the note
NH:
Upgrade to Outperform
Following 16% relative underperformance year to date, we raise our recommendation
on Reed Elsevier plc and Reed Elsevier NV shares to Outperform (from
Underperform). We see respectively 31% and 30% upside on our revised target
prices of 600p for Reed Elsevier plc and EUR10 for Reed Elsevier NV.
Following 16% relative underperformance year to date, we raise our recommendation
on Reed Elsevier plc and Reed Elsevier NV shares to Outperform (from
Underperform). We see respectively 31% and 30% upside on our revised target
prices of 600p for Reed Elsevier plc and EUR10 for Reed Elsevier NV.
► LexisNexis to drive a re-rating
We believe concerns on LexisNexis are overdone. LexisNexis should benefit from the
upcoming rollout of new products and a potential rerating of its Risk Solutions division
following the recent IPO of a competitor. Our industry contacts suggest that sales
growth has resumed in the US legal information market in Q3 2009. Elsevier should
benefit from market share gains as weaker competitors bear the brunt of budget cuts.
NH:
► Improvement in cyclical businesses not yet priced in
Reed Elsevier derives c.30% of its 2009e revenues from cyclical businesses and
these are showing signs of improvement. Our proprietary tracking of exhibitors
suggests that trends are improving sequentially and we believe the consensus is too
prudent on the cyclical upturn.
► Additional cost savings to fuel investments
We have increased our 2011e cost savings estimate by c.20% as we expect Elsevier
to benefit from the gradual phasing out of print academic journals over the next three
years and further efficiency gains.
Reed Elsevier derives c.30% of its 2009e revenues from cyclical businesses and
these are showing signs of improvement. Our proprietary tracking of exhibitors
suggests that trends are improving sequentially and we believe the consensus is too
prudent on the cyclical upturn.
► Additional cost savings to fuel investments
We have increased our 2011e cost savings estimate by c.20% as we expect Elsevier
to benefit from the gradual phasing out of print academic journals over the next three
years and further efficiency gains.
► Compelling valuation and catalysts ahead
Reed Elsevier trades at the low end of its peer group on EV/EBIT for 2011e of 8.0x
and close to historical lows. We see a good buying opportunity ahead of the
announcement of a new three-year plan in February 2010 which would underpin our
assumption of a return to mid single-digit organic revenue growth
MJ:
that’ll please the new CEO
NH:
indeed
MJ:
so what about Yell
NH:
well
NH:
big turnaround
NH:
stock was weak first thing
NH:
hit a low of 44.05p
NH:
but now
NH:
down just 0.35p at 51.65p
NH:
Now, the lenders still have not signed off on the restructuring programme
NH:
but the deadline has been extended and everyone is confident an agreement will be reached in the next couple of days
NH:
and I think a deal will be reached
NH:
but
NH:
one has to ask what sort of agreement will be announced
NH:
are some of the lenders playing hardball
NH:
will they demand harsher terms
MJ:
I certainly would
MJ:
the Yell business model is pretty much bust
NH:
indeed
NH:
it can’t support the amount of debt the company envisages post a rights issue IMO
NH:
what’s needed here is a debt for equity swap
NH:
not periodic infusions of capital
NH:
and hope that things will get better or Yell might crack the web
NH:
the Zombie stock approach just won’t cut it
MJ:
zombie stock?
NH:
keeping companies alive
NH:
with cash calls
NH:
every now and again
MJ:
palliative treatment
NH:
but the fact is Yell has too much debt for its business model in the internet age
NH:
it needs a debt for equity swap
NH:
anyway
NH:
here’s Caz on our favourite directories company
NH:
Yell – [Yell.l, Yell ln] 52p Stock – In Line
Although we see the second extension of the lender vote as a setback for the re-financing process we believe it is worth highlighting that the company does have other options in the event of a negative vote. These include a scheme of arrangement which we estimate would delay the re-financing by 6-8 weeks but lower the vote threshold to 75%.
While we do see 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.
Having failed to get to the 95% threshold at Monday’s 5pm deadline, Yell has announced a two day extension to the deadline for the lender vote. The new deadline is tomorrow (28 October) at 5pm.
Although we see the second extension of the lender vote as a setback for the re-financing process we believe it is worth highlighting that the company does have other options in the event of a negative vote. These include a scheme of arrangement which we estimate would delay the re-financing by 6-8 weeks but lower the vote threshold to 75%.
While we do see 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.
Having failed to get to the 95% threshold at Monday’s 5pm deadline, Yell has announced a two day extension to the deadline for the lender vote. The new deadline is tomorrow (28 October) at 5pm.
NH:
While the statement does not disclose any details about the vote the FT reports that ‘more than 80%’ of lenders have accepted the proposed debt terms. 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.
While we believe management prefers to execute the re-financing via 95% support in the lender vote we believe the company does have other options if the required threshold is not reached, including a scheme of arrangement. We understand that this in theory could make the new debt terms binding for all lenders 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 estimate a 6-8 week timetable).
While we believe management prefers to execute the re-financing via 95% support in the lender vote we believe the company does have other options if the required threshold is not reached, including a scheme of arrangement. We understand that this in theory could make the new debt terms binding for all lenders 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 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. On our forecasts the shares are trading on a calendar 2010E PE of 2.3x and 6.5x EV/EBITDA. Based on the proposed debt terms and £500m of new equity (announced by the company as the minimum intended amount to be raised) we estimate the 2010E PE ratio expands to 4.8x 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.
We expect the shares to remain volatile until visibility improves on the outcome of the announced re-financing. On our forecasts the shares are trading on a calendar 2010E PE of 2.3x and 6.5x EV/EBITDA. Based on the proposed debt terms and £500m of new equity (announced by the company as the minimum intended amount to be raised) we estimate the 2010E PE ratio expands to 4.8x 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.
MJ:
ta
MJ:
Lets give the ROTR some time to read all that
11:41AM
NH:
right
NH:
where next
NH:
currencies?
NH:
what’s the GBK doing?
MJ:
up agianst the dollar
MJ:
at $1.6377
MJ:
Up on the euro as well
MJ:
at EUR1.1008
NH:
thanks
NH:
market giving up some of its gains
NH:
11:43 27Oct09 RTRS-U.S. STOCK INDEX FUTURES CUT GAINS, S&P 500 TURNS FLAT
11:43 27Oct09 RTRS-U.S. STOCK INDEX FUTURES CUT GAINS, S&P 500 TURNS FLAT
MJ:
hmm. Will be intersting to see if this is it, so to speak
NH:
what do you mean?
MJ:
You know, the naked lunch moment – the point when everyone just starts selling
MJ:
No major trigger – just somthing in the air changes and…
MJ:
wham
NH:
like the Shanghai suprise of 2007
NH:
bang – something comes out of the blue
NH:
actually there are some negative technicals around as well
NH:
Now, I don’t understand this but
NH:
there’s some called negative divergence happening at the moment
NH:
A Negative Divergence forms when the security advances or moves sideways, and the MACD declines. The Negative Divergence in MACD can take the form of either a lower High or a straight decline. Negative Divergences are probably the least common of the three signals, but are usually the most reliable, and can warn of an impending peak
NH:
and according to some very pretty chart
NH:
we are now there
NH:
or close to it
11:46AM
MJ:
So Neil, weren’t you looing at some tech stuff?
NH:
yep
NH:
been looking at the nimbers from ARM
NH:
shares not doing too much
NH:
up 0.8p at 150p
NH:
but the numbers look pretty good
NH:
although guidance has not been increased
MJ:
Any commment to share?
NH:
yes, I have something from Panmure
NH:
for tech fans out there
NH:
Q3 ahead, but FY09E guidance not upgraded
The Q3 results are ahead of expectations driven by the benefits of some
lumpy revenue in Development Systems and better gross margins due to
favourable revenue mix. Q3 EPS beat by 15% and we would expect to
upgrade FY09E EPS by around 2-4%. This is a solid set of numbers, but
given the Q3 outperformance, it is a little disappointing that guidance is not
upgraded as this point. We continue to believe that there will be a lack of
material catalysts to sustain the rich valuation at current levels and re-iterate
our Sell recommendation.
The Q3 results are ahead of expectations driven by the benefits of some
lumpy revenue in Development Systems and better gross margins due to
favourable revenue mix. Q3 EPS beat by 15% and we would expect to
upgrade FY09E EPS by around 2-4%. This is a solid set of numbers, but
given the Q3 outperformance, it is a little disappointing that guidance is not
upgraded as this point. We continue to believe that there will be a lack of
material catalysts to sustain the rich valuation at current levels and re-iterate
our Sell recommendation.
NH:
Guidance that revenue for FY09E should be at least in-line with market expectations is
re-iterated. The company guides that revenue from Development Systems in Q4 should
revert to its $10-12m underlying rate. It also guides opex in Q4 should be $46-48m
(Panmure $46.1m, Consensus $46.6m).
Given the Q3 revenue outperformance, it is a little disappointing that FY revenue
guidance has not been upgraded. We would expect to upgrade our FY09E EPS modestly
by around 2-4% and leave FY10E broadly unchanged. We continue to believe that the
valuation, at P/E of 30x FY09E and 23x FY10E still looks rich given the lack of
visibility of long term revenue growth and that there won’t be the material catalysts
needed to sustain it.
re-iterated. The company guides that revenue from Development Systems in Q4 should
revert to its $10-12m underlying rate. It also guides opex in Q4 should be $46-48m
(Panmure $46.1m, Consensus $46.6m).
Given the Q3 revenue outperformance, it is a little disappointing that FY revenue
guidance has not been upgraded. We would expect to upgrade our FY09E EPS modestly
by around 2-4% and leave FY10E broadly unchanged. We continue to believe that the
valuation, at P/E of 30x FY09E and 23x FY10E still looks rich given the lack of
visibility of long term revenue growth and that there won’t be the material catalysts
needed to sustain it.
11:49AM
NH:
Right
NH:
another thing we should look at is Vedanta
NH:
shares off 70p at £22.63
NH:
following reports of a fraud investigation
NH:
at its Indian iron business
NH:
now complex company Vedanta
NH:
basically a holding company
NH:
for lots of Indian and Congo mining assets
NH:
most are listed in some form, with Vedanta owning the balance
MJ:
and this focuses on its iron ore buisiness?
NH:
that’s right – Sesa Goa, wich has been the company’s main growth driver in the past
NH:
year
MJ:
So not good news then?
NH:
no, and it highlights the risks of investing in Vedanta
NH:
very complex company
NH:
anyway
NH:
here’s today’s press release
NH:
Sesa Goa Limited (“Sesa” or the “Company”) wishes to clarify its position regarding certain statements made in the media which suggest that an inquiry has been initiated by the Serious Fraud Investigation Office (“SFIO”) with respect to the Company on certain alleged matters that appear to pertain to the period prior to its acquisition by Vedanta Resources plc.
As of 27 October 2009, the Company has not received any notification or communication from the SFIO on this matter and is currently not in a position to comment on such statements in the media. Sesa and its management are committed to the highest levels of corporate governance and transparency and will fully cooperate with any inquiry. Sesa continues to conduct its business in full compliance with all applicable laws and regulations.
MJ:
Also
MJ:
Here is a link to the post you did on this: http://ftalphaville.ft.com/blog/2009/10/27/79776/vedanta-hit-by-indian-fraud-investigation/
NH:
thanks
NH:
can’t find any comment on this at the moment
NH:
but interesting development
NH:
Ved paid around $1bn for this business
11:53AM
NH:
where next?
MJ:
market update
MJ:
FTSE now up 28 points at 5220
MJ:
BP still motoring
NH:
where are the Scum trading?
MJ:
?
NH:
Tottenham Hotspur
NH:
RNS statement from the Scum this morning
NH:
about their new staduim plans
MJ:
Oh right – I thought we agreed to not be partisan on ML about football
NH:
well
NH:
this is an exception
MJ:
Might alienate all the scum fans who are reading
NH:
well, we will have to take that risk
NH:
if you missed the news
NH:
here it is
NH:
LONDON, Oct 27 (Reuters) – English Premier League soccer club Tottenham Hotspur has submitted plans for a new 56,250-seat stadium in Haringey, north London, that will see it leave White Hart Lane, its home for 110 years.
The club said on Tuesday that if the Northumberland Development Project planning application was approved, “hundreds of millions of pounds” would be invested in the north Tottenham area.
If consent from Haringey Council was gained in early 2010 construction could start later that year, or early in 2011.
The new stadium could be open in its initial capacity for the 2013/14 season, and be fully complete for the start of the following year.
Tottenham’s existing 36,000-seat stadium has remained unchanged for over a decade, while the club has over 70,000 members and a waiting list for season tickets of over 23,000.
The club said on Tuesday that if the Northumberland Development Project planning application was approved, “hundreds of millions of pounds” would be invested in the north Tottenham area.
If consent from Haringey Council was gained in early 2010 construction could start later that year, or early in 2011.
The new stadium could be open in its initial capacity for the 2013/14 season, and be fully complete for the start of the following year.
Tottenham’s existing 36,000-seat stadium has remained unchanged for over a decade, while the club has over 70,000 members and a waiting list for season tickets of over 23,000.
NH:
now, that’s all very well
NH:
but there are no public transport links in that area
NH:
long walk to Seven Sisters
NH:
and White Hart Lane station is tiny
NH:
what are the shares doing?
MJ:
one sec
MJ:
Unchanged at 81p
MJ:
But they can’t be very liquid can they?
NH:
I don’t think they are
NH:
actually on footie
NH:
The Rangers news was interesting
NH:
came out late last night
MJ:
Some readers have said the Rangers news has read across to the HBOS stuff
MJ:
HBOS calling in loans
MJ:
haven’t looked at this one myself
NH:
The board of directors of The Rangers Football Club plc (“Club”) is aware of
the recent speculation and various comments in the media over the weekend. The
Club’s board has been advised by its principal shareholder, Murray
International Holdings Limited (“MIH”), that it is considering options
regarding its shareholding in the Club and this may or may not lead to MIH
disposing of some or all of its stake in the Club to a third party.
the recent speculation and various comments in the media over the weekend. The
Club’s board has been advised by its principal shareholder, Murray
International Holdings Limited (“MIH”), that it is considering options
regarding its shareholding in the Club and this may or may not lead to MIH
disposing of some or all of its stake in the Club to a third party.
These considerations are still at an early stage and may or may not lead to any
offer for the issued shares of the Club.
The directors of the Club will keep shareholders advised of key developments.
MJ:
So, Middle Eastern sugar daddies for Rangers?
NH:
not sure
NH:
will have to ask the Taxi Driver
NH:
he hails from Glasgow
MJ:
Maybe he is a Celtic man though
NH:
don’t think so
11:59AM
NH:
Right
NH:
it is midday
NH:
we should bring things to a close
NH:
I have a lunch with a fund manager and a broker
MJ:
Anywhere nice?
NH:
let me check
NH:
Covent Garden I think
MJ:
Hope they serve “tear jerkingly” good stake there
MJ:
Do you have a name?
NH:
this place
NH:
I think
NH:
PJ’s has been a permanent fixture at the Covent Garden party since 1982. Musicals and shows have all come and gone, the stunning Royal Opera House being completely redeveloped and the whole area revitalised. In the years since, PJ’s, like the values that built it, has also endured and flourished.
The ‘club’ aura is palpable and ever-present. A glance around its warm, interior reveals groups of lunchers wreathed in gossip, well-heeled young folk at the wooden bar and cast members relaxing after a shift. The life of Covent Garden is enacted and re-enacted on a nightly basis within its comfortable, welcoming, elegant walls.
PJs offers a classic, authentic, Covent Garden theatre bar experience, and it has done so for a long period of time. Our longevity brings unexpected benefits – we’re delighted now to play host to the sons and daughters of some of original guests from the 1980s who’ve made the special effort to come and see the place their parents whiled the hours away in times gone by. Our second generation guests are sometimes the ones that make us happiest.
MJ:
Looks like a bit of a luvvies place
NH:
looks like it
NH:
that’s the wine list
NH:
must be close to Joe Allen’s this place
NH:
I had better get my skates on
MJ:
We will all be expecting a comprehensive reivew on your return
NH:
thanks for joining us today
MJ:
Thanks
NH:
Reckitt figures just coming out
MJ:
And thanks for the comments
MJ:
have you got those?
NH:
RTRS-RECKITT BENCKISER GROUP PLC – RAISING OUR FULL YEAR TARGET FOR NET REVENUE GROWTH TO +6-7%
12:02 27Oct09 RTRS-RECKITT Q3 ADJUSTED NET INCOME 357 MLN STG (I/B/E/S POLL 343 MLN STG)
12:02 27Oct09 RTRS-RECKITT BENCKISER GROUP PLC – FOR ADJUSTED NET INCOME GROWTH, WE ARE RAISING OUR TARGET TO +12-13%
12:02 27Oct09 RTRS-RECKITT BENCKISER GROUP PLC – TOTAL NET REVENUE +7% (CONSTANT EXCHANGE), +5% (CONSTANT) EX-RBP.
12:02 27Oct09 RTRS-RECKITT
12:02 27Oct09 RTRS-RECKITT BENCKISER GROUP PLC
12:02 27Oct09 RTRS-RECKITT BENCKISER GROUP PLC
MJ:
Shares are off a bit
MJ:
off 13p at 3068
MJ:
Anyway
MJ:
Must bring things to a close
MJ:
Same time tomorrow
MJ:
Bye
NH:
hang on
NH:
ROUBINI SAYING RECESSION OVER
MJ:
NH:
not sure where that’s from
NH:
trying to get the full story
NH:
but there was a great fuss last time he was supposed to have said this
NH:
claimed his was misquoted
NH:
but this could be the sell signal
MJ:
When the bears turn etc
NH:
nothing on Reuters
NH:
will try bloomie
NH:
nothing there
NH:
right
NH:
we will have to update on this later
NH:
perhaps with a post
NH:
it would be quite a turnaround if true
MJ:
Nice one Daddy
NH:
on Oct 8 he was saying the world financial crisis was not over
MJ:
By Michael Patterson
Oct. 27 (Bloomberg) — The U.S. recession seems to be over,
said Nouriel Roubini, the New York University professor who
predicted the financial crisis.
Roubini, chairman of New York-based research and advisory
service Roubini Global Economics, spoke via satellite to a
conference in Cape Town, South Africa.
Oct. 27 (Bloomberg) — The U.S. recession seems to be over,
said Nouriel Roubini, the New York University professor who
predicted the financial crisis.
Roubini, chairman of New York-based research and advisory
service Roubini Global Economics, spoke via satellite to a
conference in Cape Town, South Africa.
NH:
so big u-turn
NH:
from Nouriel
NH:
so in 20 days
NH:
we have gone from doom and gloom
NH:
and the sunny uplands
MJ:
What happened to him?
NH:
dunno
NH:
are there any bears left out there
NH:
or has everyone capitulated?
MJ:
There will always be the die hard
MJ:
Like Dave
MJ:
And Albert Edwards
NH:
Morning Taxloss
MJ:
Interesting indicator anyway
NH:
and Murph
NH:
he’s still a bear
NH:
right
NH:
I need to be in Covent Garden in 10 mins
MJ:
Murp the bear
MJ:
(h)
MJ:
Im out of here
MJ:
as well
MJ:
bye bye (for real this time)
NH:
cya
NH:
thanks for logging in