FT Alphaville » Markets live transcript 28 Oct 2009

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Markets live transcript 28 Oct 2009

Posted by Neil Hume on Oct 28 11:03.

Markets live chat transcript for the chat ending at 12:12 on 28 Oct 2009. Participants in this chat were: Neil Hume, FT (NH) Miles Johnson, FT (MJ)

NH:

hey there

NH:

this is FT Alphaville

NH:

and it’s 11.03am

NH:

which means it is time for Markets Live

NH:

an hour or so of market discussion

NH:

in the company of Miles and myself

NH:

So Miles

NH:

looks like we have a bit of a melt down on our hands

MJ:

yep it does

MJ:

time for the tin hat

MJ:

NH:

jeepers

NH:

been a while since we had to reach for the protective head gear

NH:

not sure I can fasten it

NH:

what notch shall we go for?

MJ:

well, there’s no need to panic at the moment

MJ:

let the strap hang loose

MJ:

but keep the headgear on

MJ:

although not sure how much volume there is behind it

NH:

right

NH:

where’s the market now

MJ:

FTSE 100 currently down 84 points at 5,116.51

MJ:

insurers and miners taking it in the neck at the moment

MJ:

miners in particular

MJ:

look at this

Xstrata (XTA:LSE): Last: 906.50, down 67 (-6.88%), High: 967.00, Low: 901.50, Volume: 8.60m

Kazakhmys (KAZ:LSE): Last: 1,146, down 78 (-6.37%), High: 1,217, Low: 1,142, Volume: 1.51m

Lonmin (LMI:LSE): Last: 1,554, down 97 (-5.88%), High: 1,659, Low: 1,537, Volume: 699.37k

Vedanta Resources (VED:LSE): Last: 2,096, down 119 (-5.37%), High: 2,206, Low: 2,080, Volume: 862.33k

NH:

oh dear

NH:

carnage

NH:

actually on Vedanta

NH:

got a note on that from BarCap

MJ:

Oh yeah

NH:

downgrade – shares up with events

NH:

We are downgrading Vedanta shares from 1-
Overweight to 2-Equal Weight in the context of our
positive view on the mining sector. The basis for
this downgrade includes Vedanta’s strong
performance YTD (stock price up 265% versus
sector up 82% and FTSE 100 up 18%) as well as
continued problems at Konkola Copper and the
potential for further delays at the company’s
bauxite mine project in India. In addition (although
not a basis for our downgrade), recent allegations
of fraud at Vedanta’s 55%-owned Sesa Goa Indian
iron ore subsidiary may prove to be an incremental
overhang on the Vedanta share price, even if
entirely untrue. We prefer shares of Rio Tinto (our
top pick) and Xstrata to shares of Vedanta at this
time.

11:06AM

NH:

So Miles

NH:

what’s caused the sell off

MJ:

Err…

MJ:

The wind changed?

MJ:

Its reall quite hard to find a convincing causation here

NH:

but

NH:

the usual risk indicators are flashing red

NH:

dollar back up

NH:

I guess that hurts the miners

MJ:

yes

NH:

do you think the UK weakness

NH:

has anything to do with the looming Lloyds cash call?

NH:

folk sitting on the sidelines waiting?

MJ:

Maybe a little bit

NH:

actually

NH:

when’s the rate decision due from Norway

NH:

they could be the first European CB to hike rates

MJ:

Its at 1 o clock

MJ:

UK time

MJ:

We should also mention US consumer confidence knocking the Dow a bit last night

MJ:

But, if that data came two months ago, the market would likely have shrugged it off

NH:

that’s true

NH:

hang on

NH:

Tracy has just sent a bit of comment over on the Norway decision

NH:

that’s from Marc ostwald at monument

NH:

and here’s something from Citi

NH:

Today, the Norges Bank published its 3Q survey of bank lending standards. The
new survey was carried out between 1 October and 9 October, i.e. during the
period where the Reserve Bank of Australia initiated its tightening cycle, lifting its
key policy rate by 25bp to 3.25%.

NH:

According to the new survey, Norwegian banks eased credit standards on corporate
loans while credit standards for households were unchanged in 3Q for the third
consecutive quarter.

NH:

Further ahead, banks expect credit standards for enterprises to ease further, while
lending conditions for households is seen unchanged in 4Q relative to 3Q 2009.
 On balance, today’s report confirms the Norges Bank’s latest assessment of
economic conditions in the domestic economy: “Activity in the global economy is
picking up. Conditions in international financial markets have improved … Growth
in the Norwegian economy has picked up at a more rapid pace than was expected
a few months ago.”

MJ:

(@BigBadBank – I agree, market causation is often a journalistic fallacy)

MJ:

Thanks for that

11:12AM

NH:

what shall we look at?

MJ:

Irish banks getting hit

NH:

yeah, pretty bloody

MJ:

We do have a strong Irish contingent on here

NH:

bank of ireland down 17.6% and Allied Irish off 15%

MJ:

ouch

MJ:

whats caused that?

NH:

well, it is the theme of the moment

NH:

concerns over potential EU state remedies

NH:

Irish bank shares extended declines today on concern over potential
requirements the European Union may impose in return for government
aid.
* Bank of Ireland Plc dropped 19 percent in Dublin today, while Allied
Irish
Banks Plc fell 20 percent
* Bank stocks across Europe have fallen this week after Dutch financial-
services company ING Groep NV agreed to EU demands that it sell its
insurance
units to secure approval for its bailout.
* Bank of Ireland and Allied Irish have received 7 billion euros ($10.4
billion) from the Irish government, which is now setting up a
so-called bad
bank known as the National Asset Management Agency to cleanse lenders’

balance sheets.
* “The scale of the requirements placed on ING seems to have taken the
markets
by surprise, which has impacted sentiment towards other banks,” said
an
analyst in Dublin.

NH:

Bank of Ireland filed a restructuring plan with the European
Commission in
September, while Allied Irish is scheduled to submit its plan next
month, the
Irish Independent reported today.
* While investors’ concerns for Irish banks stem from EU approval for
NAMA’s
valuation methodology for assets, Lalor said the government has
consulted
with the EU and it would be “surprising if the process had got this
far”
without “some indication to the Irish authorities that the EC is
generally in
support of the model.”

NH:

that’s some wire copy

MJ:

There was alot of stuff in the papers about the EU and the UK banks as well

NH:

(Enjoy SilverFox)

NH:

there was

NH:

but I can’t help thinking this is getting over done

NH:

and Lloyds and RBS

NH:

have rallied off their early lows

Royal Bank of Scotland Group (RBS:LSE): Last: 39.84, down 0.97 (-2.38%), High: 40.99, Low: 38.20, Volume: 122.54m

Lloyds Banking Group (LLOY:LSE): Last: 81.00, down 2.84 (-3.39%), High: 84.89, Low: 80.16, Volume: 92.66m

MJ:

Talking of UK banks

MJ:

We appear to have a new man heading up UKFI

MJ:

Robin Budenberg

NH:

Coming in on the day the Crock gets split into good and bad.

Readers may also know this former bank as Northern Rock.

NH:

So what do we know about him?

MJ:

Senior UBS banker. Worked there since 1984

MJ:

He also advised the government on the Crock, Lloyds and RBS bailouts.

MJ:

That’s probably why he got the nod ahead of John Crompton

MJ:

who was also in contention for the role

MJ:

Here is a Times profile from October last year

NH:

(BWB – yes we must do this)

MJ:

Robin Budenberg, of UBS, is a senior banker and already close to the Treasury, at a bank whose close connections to government have, on occasion, prompted comment.
UBS was hired by the Treasury last month to advise on the sale of British Energy to EDF, of France. Mr Budenberg, a former corporate finance director at Warburg, led the team that created Network Rail out of Railtrack in 2001. He has a lower profile than Mr Mayhew, but has a history, nonetheless, of leading a series of important deals for a range of clients.
He was behind last year’s £8billion purchase by Reuters of Thomson Financial and is believed to have come up with the idea of a dual share structure. He also advised ICI during its takeover by Akzo Nobel, of the Netherlands, and BAA during its takeover by Ferrovial, of Spain.

MJ:

As you say, the crock is back in the news today

MJ:

Familiar men, as I like to call them, were very busy last night

MJ:

briefing on what the all new and improved Crock is going to look like

NH:

The bearded pullover is well known to be sniffing around

MJ:

for new readers Neil is referring to Sir Richard Branson

MJ:

Author of this

MJ:

Business Stripped Bare: Adventures of a Global Entrepreneur

MJ:

And this

MJ:

Losing My Virginity: The Autobiography

MJ:

And this

MJ:

Screw it, Let’s Do it: Lessons in Life

MJ:

And this

MJ:

Business the Richard Branson Way: 10 Secrets of the World’s Greatest Brand Builder

NH:

All right, that’s more than enough of that.

MJ:

haven’t read any of them, but I sure each is rip-roaring yarn

MJ:

So, Branson has applied for a banking licence

MJ:

while national Australia Bank has also been reported as looking

NH:

And Tesco could be the wild card.

MJ:

That’s the idea

MJ:

but analysts say its not really historically Tesco’s style to do things like that

MJ:

Anyway, EU is supposed to approve the plan later today to split Northern Rock into “BankCo” the “good” bank

MJ:

and “AssetCo”, or CrapCo, which is the “bad” bank.

NH:

Miles, it is out. Just hit the wires.

MJ:

wow

MJ:

Just in time

NH:

EC approved the Crock package

MJ:

Got the snaps?

NH:

Good Bank

NH:

Crap Bank

MJ:

Any headlines?

NH:

hang on

NH:

here’s what the Crock has pledged to

NH:

in order to get approval

NH:

Northern Rock plc will limit new lending volumes to £4 billion in 2009, £9
billion in 2010 and £8 billion in 2011.
* Northern Rock plc will maintain retail deposit balances across the UK,
Ireland and Guernsey at or below £20 billion until the end of 2011.
* Northern Rock plc will not rank in the top three of Moneyfacts mortgage
categories for 2, 3 or 5 year fixed or variable mortgages before the end of
2011(excluding mortgages with an LTV ratio of greater than 80% and products for
first time buyers).
* Northern Rock (Asset Management) plc will continue to hold all existing
subordinated debt and, where it is contractually able, will not pay principal or
coupons on these instruments while it is in receipt of State Aid.

Any resulting deferral of subordinated debt payments will be made in accordance
with the terms and conditions of such subordinated debt, including providing
required notice to holders at the appropriate time.

MJ:

Investors better hope that this bit

MJ:

Northern Rock (Asset Management) plc will continue to hold all existing
subordinated debt and, where it is contractually able, will not pay principal or
coupons on these instruments while it is in receipt of State Aid

MJ:

Doesnt happen elsewhere

MJ:

But we have covered that alot already on the site

NH:

yes

NH:

this

NH:

http://ftalphaville.ft.com/blog/2009/08/18/67451/confirmation-crock-is-crock/

11:24AM

NH:

Miles

NH:

we are going to be guinea pigs

MJ:

eh?

NH:

actually

NH:

that’s not quite right, think us as critics

MJ:

What? reviewing what?

NH:

did I not mention this

NH:

City Index, WHO ONCE UPON A TIME USED TO ADVERTISE ON THIS SITE

NH:

but that’s another matter

NH:

are sending over an iPhone

NH:

so we can play around with their new trading app

MJ:

wow – how exciting

NH:

hang on

NH:

it’s more interesting than its sounds

MJ:

why?

NH:

because we are being given some fantasy credits to play with

MJ:

How much?

NH:

around £20,000 I think, which we can leverage

NH:

give us some serious firepower

MJ:

erm Neil. Who is going to manage that?

NH:

well I was thinking it could be divided up

NH:

Izy could have a oil and gas fund

NH:

Tracy a banking fund

NH:

and you a pre-event fund

MJ:

and you and Murph?

NH:

well, following the shocking performance of H&M Capital Management

NH:

I think we might sit on the sidelines

NH:

and provide back office admin functions

NH:

record the trades, opening and closing prices

NH:

that sort of thing

MJ:

A bit cowardly isn’t it?

MJ:

you just don’t want to be mocked by the readers

NH:

of course not

11:27AM

NH:

Right

NH:

some breaking news

NH:

coming over the wires

NH:

one for Sam Jones this

NH:

Oct. 28 (Bloomberg) — K1 Group, the German hedge fund firm
is embroiled in an international criminal investigation after
saddling banks, including Barclays Plc, JPMorgan Chase & Co. and
BNP Paribas SA, with about $400 million of losses, people with
knowledge of the probe said.
European and U.S. authorities are examining whether K1

NH:

do we know anything about K1?

MJ:

Not much

MJ:

Just looing at the website

MJ:

refers to them as

MJ:

the ultimate Hedge Fund Strategy

MJ:

Which is a rather high billing

NH:

I’ll say

NH:

not even H&M claimed that

MJ:

Doesn’t have much on it though

MJ:

The site that is

NH:

hang on Miles

NH:

I have more from Bloomie

NH:

European and U.S. authorities are examining whether K1,
which manages funds of hedge funds, deceived the banks when
borrowing money to ratchet up the size of its investments,
according to the people, who declined to be identified because
the investigation isn’t public. German and U.S. prosecutors may
announce the first charges in the case as soon as this week,
they said. JPMorgan inherited its exposure to K1 after acquiring
Bear Stearns Cos., which did business with the fund manager.

NH:

The inquiry focuses on whether K1, founded by German
psychologist Helmut Kiener, 50, engaged in circular transactions
with a network of investment firms in the U.K., the U.S. and
other countries to create the illusion that K1 had more money
available to backstop loans from the banks, the people said. The
K1 Web site says Kiener’s investment system generated an 825
percent return from 1996 through last June.

NH:

rosecutors in Wuerzburg, Germany, are investigating
Helmut Kiener, their spokesman, Dietrich Geuder, said in a
telephone interview today. He declined to provide more details.
There was no answer today at one phone number listed for
Kiener, who resides near Frankfurt. Another phone listed in his
name was disconnected.
“We are fully cooperating with law enforcement,” said
Daniel Hunter, a spokesman for London-based Barclays, the
U.K.’s second-biggest bank. David Wells, a spokesman for New
York-based JPMorgan, the second-biggest U.S. bank by assets,
declined to comment.

MJ:

Hmm

MJ:

Not the best fortnight for that industry really

NH:

indeed

NH:

I guess there’s not much more we can add at the moment

NH:

so let’s move on

11:31AM

MJ:

Where to?

NH:

the insurers are also taking a bit of shoeing this morning

NH:

which is odd

NH:

because I thought the numbers from the Pru were OK

MJ:

well they are OK

MJ:

the sales numbers aren’t outstanding but there’s nothing in there to be concerned about

MJ:

here’s some comment

MJ:

this is from Caz

MJ:

The Pru has delivered good Q3 sales, 8% above consensus and close to our high end of the range forecast. The margin comments are consistently positive, and the elevated H1 margins may be more sustainable than
we had forecast. We currently estimate H2 margins of 47%, compared to 52% in H109, and 43% for FY08. The stock is trading at an undemanding prospective PER of 7.3x, which is in line with the sector average,
despite above average growth prospects, driven by Asia. OUTPERFORM.

MJ:

and Citi

MJ:

Sales ahead of consensus. Prudential reported 9M09 new business sales in
annualised premium equivalent terms (APE) of £2.02bn, 2% ahead of consensus
expectations of £1.972bn. 3Q09 sales were £700m, 7% ahead of overall
consensus expectations of £653m. Overall 9M09 sales fell year over year (at
actual exchange rates) by 9%, with an 18% decline at constant exchange rates.
Asia and US sales were ahead, while UK sales was below consensus expectations

NH:

not helped the stock though, shares down 33p at 578p

NH:

Legals also weak

NH:

as are Aviva

Legal and General Group (LGEN:LSE): Last: 78.20, down 4.35 (-5.27%), High: 82.65, Low: 77.10, Volume: 17.29m

Aviva (AV:LSE): Last: 405.60, down 14.9 (-3.54%), High: 422.80, Low: 402.30, Volume: 3.71m

NH:

i guess they are trending with the market

NH:

which is almost off 100 points now

MJ:

FTSE update

MJ:

Now down 95 points to 5105

MJ:

Sea of red

11:35AM

NH:

so, is there anything going up Miles?

MJ:

yep

MJ:

mainly defensive stuff

MJ:

drugs, drinks telecoms that sort of thing

MJ:

actually

MJ:

BT were a good market earlier today after a push from BarCap

NH:

BarCap?

NH:

didn’t know they followed the Euro telcos

MJ:

Well

MJ:

they do now

MJ:

in fact

MJ:

Diamnate Bob’s boys and girls start coverage of a new sector every day

MJ:

yesterday it was leisure

MJ:

the day before retail

MJ:

and now

MJ:

the telecos

NH:

Bar Cap to rule the world

NH:

and BT?

MJ:

One of their top picks

NH:

got the note?

MJ:

Coming up

MJ:

BarCap on BT

We favour stocks with cash flow surprises and positive economic gearing. Our top picks are Telefonica, DT, BT and KPN. All of these offer valuation upside, have significant scope to increase free cash flow, return it to shareholders, and stand to benefit from economic recovery, in our view. Nordic stocks have rerated as emerging markets have bounced, and we see limited scope for cash return surprises; we therefore rate TeliaSonera, Tele2 and Elisa 3-Underweight (Telenor 2-Equal Weight). We rate Vodafone, France Telecom and TI at 2-Equal Weight. Our key out-of-consensus stock calls are BT, C&W (both 1-Overweight), and Inmarsat (3-Underweight). 1-Overweight

MJ:

BT Group – We see clear upside potential for FCF generation due to aggressive cost
cutting and regulatory rulings, which should raise hopes of rising dividend prospects (or deleveraging at least). We are mindful of the material pension deficit with the results of the triennial review due shortly, but see material valuation upside potential should BT execute the plan. We have a 169p price target, implying 25% potential upside from current levels.

MJ:

Cable & Wireless – We believe C&W offers investors attractive upside potential with positive gearing to an EM recovery, exposure to an increasingly benign UK corporate market, and attractive upside in a demerger scenario. We see post 1H10 results (November 5) as a sensible entry point and have a 175p price target, implying 24% potential upside from current levels.

NH:

thanks for that

NH:

some share prices

Cable and Wireless (CW:LSE): Last: 147.90, down 0.2 (-0.14%), High: 148.20, Low: 146.20, Volume: 5.70m

NH:

BT up 0.5p at 134p

Vodafone Group (VOD:LSE): Last: 138.50, up 0.7 (+0.51%), High: 139.00, Low: 137.00, Volume: 26.16m

11:39AM

MJ:

Breaking news

MJ:

EU SAYS NO DATE YET FOR LLOYD’S, RBS DECISION

NH:

interesting

NH:

I though the deadline was Sat

NH:

when Neelie K leaves

MJ:

This raises the question again

MJ:

How do they sell the rights issue when they don’t know when the EU decision is coming?

NH:

good point

NH:

more uncertainty?

MJ:

Yup

MJ:

(by the way – i would highly recomend looking at the K1 website. Its like a star trek terminal)

NH:

Yes

NH:

trying to log in now

MJ:

http://www.k1fund.com

NH:

I think it might give us some clues

11:41AM

NH:

Right, let’s head off to small corner

MJ:

My favourite

MJ:

whats going on?

NH:

and a company called Kopane Diamond Developmennts

NH:

which if I am not mistaken

NH:

is run by a former chairman of Regal Petroleum

MJ:

I see

MJ:

one of them

NH:

bit of a punters favourite this

NH:

after it was supposed to have found a huge deposit

NH:

anyway

NH:

some good news from the company today

NH:

it has raised some capital

NH:

raising £3.6m via a placing at 14p

MJ:

So they have placed them at the same as the market price?

NH:

yes

NH:

but this placing is not what it seems

NH:

have a look at this

NH:

they have placed the stock with a hedgies

NH:

and then entered into some massively complex swap transaction

NH:

which involves an equity drawdown facility

NH:

see if you can understand this

NH:

The Company is proposing to raise approximately £3.59 million before expenses by the issue of the Placing
Shares pursuant to the Placing at 14p per share. The Placing Shares have been conditionally placed with
institutional and other investors subject to, inter alia, the Resolution being approved by Shareholders at
the GM.

As part of the Placing, subject to the passing of the Resolution, 22,500,000 of the Placing Shares at 14p
per share will be issued to Lanstead Capital L.P., an institutional investor, for an aggregate subscription
price of £3,150,000. In addition, the Company will enter into an Equity Swap Agreement with Lanstead so
the Company will retain much of the economic interest in the shares issued to Lanstead. The Equity Swap
Agreement will allow the Company to secure much of the potential upside arising from near term news flow.

NH:

The Equity Swap Agreement provides that the Company’s economic interest will be determined and payable in
24 monthly tranches as measured against a Benchmark Price of 18.67p per share. If the measured share price
exceeds the Benchmark Price, for that month the Company will receive more than 100 per cent. of the monthly
payment due. There is no upper limit placed on the proceeds receivable by the Company as part of the
monthly tranche payments. Should the share price be below the Benchmark Price, the Company will receive
less than 100 per cent. of the monthly payment due, and there is no lower limit placed on the proceeds
receivable. In no case would a decline in the Company’s share price result in any increase in the number
of Ordinary Shares received by Lanstead or any other advantage accruing to Lanstead. The mid market price
of an Ordinary Share at the close of business on 27 October 2009 (being the latest practicable day prior to
the publication of this announcement) was 14p. The costs of entry into the Equity Swap Agreement including
legal and due diligence fees is approximately £350,000, £35,000 of which has been paid in cash and the
balance will be satisfied by the issue of 2,250,000 of the New Ordinary Shares to Lanstead. There is also
a carrying cost arising from the Equity Swap Agreement anticipated to be approximately £16,000 per annum.
In total Lanstead will be issued 24,750,000 Ordinary Shares representing 9.8 per cent. of the Company’s
enlarged issued share capital following the Placing. The Board is pleased to have secured these funds on
these terms which allow the Company and its shareholders to further benefit from the potential positive
near term news flow.

MJ:

errr

NH:

I know

NH:

why not just place it with ordinary investors

NH:

this is so complex

MJ:

Neil?

NH:

for a company with a market cap of £30m

MJ:

So what is going on then

NH:

looks like

NH:

they can draw down cash every month

NH:

for two years

NH:

and the amount is determined by the share price

NH:

and the company that pays out

NH:

is hedged because they own stock at 14p

NH:

something like that

MJ:

hmmm

MJ:

Sounds inventive

11:48AM

NH:

Right

NH:

Miles

NH:

any movement in the Yell share price?

MJ:

Down 2.4p at 50p – about 5 per cent

NH:

hmmm

NH:

we should find out today

NH:

if the its lenders are backing the restructuring

NH:

but I have a feeling they won’t

NH:

and Yell will have to try and get this done via a schem of arrangement

NH:

now

NH:

that could take 6-8 weeks

NH:

in which time

NH:

the market might have turned

NH:

and they won’t be able to get away

NH:

a £500m cash call

MJ:

Right

MJ:

And who knows if people will be willing to back that in the new year?

NH:

(thanks TL. I supsect there must be a short position in here somewhere)

NH:

indeed

NH:

actually

NH:

this stuff on a scheme of arrangement

NH:

was touched on by Caz yesterday

NH:

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.
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.

NH:

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).
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.

MJ:

Thanks for that

11:51AM

MJ:

Some people on the right were aksing after Debenhams.

MJ:

Any morenews after your scoop on that yesterday?

NH:

(Bohmie – nice spread for them)

NH:

what on the TPG holding

NH:

and the new mystery owner

MJ:

thats the one

MJ:

any ide a who it could be?

NH:

well, as much as i would have wished it to be Philip Green

NH:

or Qatar Holdings

NH:

it is a hedgie

NH:

Ozch Ziff we think

NH:

now I don’t know why they want 9% of Debs

NH:

a retailer without any asset backing

NH:

and in a fierecely competitive market

NH:

here’s what one sector watcher made of the news

NH:

Debenhams (Neutral) – -the raider of 9% of Debenhams last night is rumoured to have been Och-Ziff taking TBG’s holding down to zero at a price of 82p. This is no surprise seeing as CVC placed their stock at 80p and TBG said they were sellers at 82p. Don’t forget that DEB has NO – Yield, Freehold or pricing power (additcted to discounting) so the apparent cheapness of PE is not as unjustified as you may think. If you think DEB is cheap then NXT must be cheap on a similar PE – we have both DEB and NXT management in over the next few weeks (NXT next thurs, DEB 17.11)

MJ:

Debenhams shares down 1.6p to 82.7p

11:55AM

MJ:

Just been showed a K1 performance chart by Tony Tassel from the main news desk

NH:

and

NH:

it goes up in a straight line

MJ:

Well, this of course implies no wrong doing,

MJ:

have a look at this

MJ:

http://www.k1fund.com/k1/index.html

MJ:

Hope that link works

NH:

11:57AM

NH:

Okay

NH:

some of the ROTR

NH:

want to know about

NH:

curates egg

NH:

these results

NH:

well that’s what brokers tell me

NH:

here’s MOST

NH:

Volume miss masks a number of positives: A third
implicit downgrade to 2009 volumes in the last 12
months is no doubt a negative. We estimate the impact
of a delay to Hasdrubal will lower 2009 growth to c.5%
compared to previously lowered guidance of 6-7%
provided in July. However, today’s update includes a
number of positives. These include: 1) Production is now
c. 700kboe/d, which is up 12% relative to the 4Q08
average, 2) a 40p/th reset on 60% of its UK gas volumes
is reassuring given increased risk to gas markets, 3) the
LNG business is on track to meet and potentially beat 09
guidance of £1.4-1.5bn EBIT and 4) further substantial
progress in Brazil and Australia. The repeated failure to
deliver near-term volumes will dominate today –
however, we argue the platform for medium-term growth
is unchanged and if anything has improved – we would
use near-term weakness as a buying opportunity

NH:

and Merrill

NH:

BG reported 3Q09 adjusted net income of GBP 474mn, 8% above BofAMLe and
the consensus. The beat versus BofAMLe and consensus came in largely below
the operating line due to a lower than modelled tax rate of 39.5% (v our 42.5%).
The low charge in the current quarter reflects an adjustment for the first nine
months due to revised 42% FY09 tax charge guidance (from 42.5%). At the
operating level, 3Q09 adjusted operating profit of GBP856mn, 2% ahead of the
consensus but in line with our GBP855mn.
At the divisional level, the operating beat was largely driven by a stronger
showing in the LNG and T&D divisions.
The LNG division enjoyed stronger trading profits than anticipated as the
company exploited widening gas price differentials between the Atlantic basin and
Asia.

NH:

On production guidance, a modest disappointment with production on hasdrubal
now set to start on 30 November, driving the miss in 3Q volumes and likely
pulling our 4Q09 production down approximately 10kbbl/d
BG, in our view, remains a core holding amongst the European large-cap oils.
Our positive investment thesis on the shares is predicated on its (1) Sectorleading
volumes growth (7% CAGR) to 2012, driven by a quality upstream
portfolio; (2) a strong global LNG position, whose competitive advantage is set to
extend as new production sources (Egypt, Nigeria and Australia) come onstream;
and (3) an attractive cost base. With the shares trading at an 11%
discount to our 1,260p/sh NAV, we see good value in the shares post recent
underperformance. We reiterate our Buy recommendation.

BG Group (BG:LSE): Last: 1,101, down 32 (-2.83%), High: 1,119, Low: 1,090, Volume: 4.95m

11:59AM

MJ:

Some outrage being voiced about AIG on the right

NH:

but

NH:

that does not stop us

NH:

from putting some of the story up

NH:

http://www.bloomberg.com/apps/news?pid=20601109&sid=a7T5HaOgYHpE

NH:

Oct. 27 (Bloomberg) — In the months leading up to the September 2008 collapse of giant insurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.

Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

Among AIG’s bank counterparties were New York-based Goldman Sachs Group Inc. and Merrill Lynch & Co., Paris-based Societe Generale SA and Frankfurt-based Deutsche Bank AG.

By Sept. 16, 2008, AIG, once the world’s largest insurer, was running out of cash, and the U.S. government stepped in with a rescue plan. The Federal Reserve Bank of New York, the regional Fed office with special responsibility for Wall Street, opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and effective control of the insurer.

The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion.

Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps — insurance-like contracts that backed soured collateralized-debt obligations.

NH:

and if you are interested in that

NH:

this is a good take on the story

NH:

http://epicureandealmaker.blogspot.com/2009/10/never-send-boy-to-do-mans-job.html

MJ:

100 cents on the dollar is pretty rich

MJ:

Very good deal in anyones view I would hazard to say

NH:

yes

NH:

very lucky

NH:

right

NH:

we have results from GSK

NH:

hot off the press

NH:

these flashes

NH:

12:00 28Oct09 RTRS-GLAXOSMITHKLINE PLC – DIVIDEND OF 15P UP 7%
12:00 28Oct09 RTRS-GLAXO SAYS Q3 TURNOVER 6,758 MLN STG (THOMSON REUTERS I/B/E/S MEAN WAS 6,811 MLN STG)
12:00 28Oct09 RTRS-GLAXOSMITHKLINE PLC – CONTINUED IMPROVEMENT EXPECTED IN Q4
12:00 28Oct09 RTRS-GLAXOSMITHKLINE SAYS Q3 EPS BEFORE MAJOR RESTRUCTURING 28.5P (THOMSON REUTERS I/B/E/S MEAN WAS 28.7P)
12:00 28Oct09 RTRS-GLAXOSMITHKLINE SAYS Q3 ADVAIR SALES 1.2 BLN STG (THOMSON REUTERS I/B/E/S MEAN WAS 1,164 MLN STG)
12:00 28Oct09 RTRS-GLAXOSMITHKLINE PLC – FURTHER GROWTH EXPECTED IN Q4 2009 INCLUDING SIGNIFICANT SALES OF INFLUENZA PRODUCTS
12:01 28Oct09 RTRS-GLAXOSMITHKLINE PLC – US SALES -12% PRIMARILY DUE TO CONTINUED ADVERSE IMPACT OF GENERIC COMPETITION
12:01 28Oct09 RTRS-GLAXOSMITHKLINE PLC – SEEING DIRECT EVIDENCE OF SUCCESS IN OUR STRATEGY TO GROW AND DIVERSIFY
12:02 28Oct09 RTRS-GLAXOSMITHKLINE PLC – RELENZA SALES WERE £182 MILLION

GlaxoSmithKline (GSK:LSE): Last: 1,240, down 16.5 (-1.31%), High: 1,267, Low: 1,239, Volume: 2.90m

12:04PM

NH:

Okay

NH:

I think we are done

MJ:

lunch time

NH:

the IPhone arrives tomorrow

MJ:

Maybe we should touch on RAW before we head off though

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:

not sure this is really RAW

NH:

but

NH:

National Express are weak

MJ:

so they are

MJ:

off 11p at 370p

NH:

doesn’t look like a stock

NH:

that is going to be bid for by Stagecoach

NH:

does it?

MJ:

12:06PM

NH:

Right

NH:

Lizzie

NH:

wants some comment on Carpetright

NH:

the carpet selling that trades on around 30 times earnings

NH:

Carpetright delivered a strong trading performance in Q2 and H1, as it
continued to gain market share and benefit from additional revenue streams,
capacity withdrawal and increased activity in the UK housing market. Whilst
we do not anticipate significant changes to consensus forecasts on the back
of today’s update, we expect to upgrade our forecasts and will review our Sell
stance, albeit with a still cautious view of the housing market for cal 2010E.

NH:

this is Investec

NH:

Outlook According to the company, the overall UK carpet market continues to
be down 22% yoy. Whilst current performance implies market share gains and
despite management’s ongoing optimism on the UK housing market, we prefer
to err on the side of caution. Monthly housing transaction volumes remain 38%
below the historic average of 118K and 60% below the historic high in
November 2006. Subdued housing transaction volumes coupled with tight
lending criteria continue to paint a disquieting picture of the UK housing market
outlook in our view. Moreover, the VAT restitution in January next year may also
have a negative impact on consumer mindsets.

NH:

Valuation and forecasts In light of ongoing benefits from new revenue streams
and capacity withdrawal, the management expects consensus to settle in the
range of £33-35m for FY10E. We shall therefore be looking to upgrade our
forecasts. This said, whilst cyclicals appear to have de-rated in the Retail sector,
Carpetright’s share price continue to fire on all cylinders. On a consensus cal.
2010 EPS of 38p, the stock would be trading at 23.7x vs. the Retail sector on
13.4x, which would still imply a significant premium. We are placing our target
price and recommendation under review.

MJ:

23X earnings?

MJ:

hmm

NH:

and something from Altium

NH:

on the world’s most expensive carpet sell

NH:

23 times forward earnings

NH:

Altium view: Sales growth in the UK accelerated in Q2. UK LFL sales were +5.6% compared to +1.4% in Q1. Total UK sales increased 12.2% in Q2 almost twice the 6.6% recorded in Q1. Both numbers were better than we expected. What’s more the negative mix impact on gross margins resulting from rollout of Sleepright has been smaller (60bp) than we expected. Hence, despite disappointing performance in Europe, CPR expects to beat interim expectations (we are not aware of a consensus interim forecast). We will review forecasts more carefully after this morning’s conference call but our initial inclination is to change as shown in table 1. There may be further upside from H2 currency translation effects.

NH:

Okay

NH:

I think we are done

NH:

Taxloss, very interested in your comment on Kopane

NH:

very interested

NH:

i thought it smelt odd

NH:

and it seems as if that’s the case

NH:

(Lizzie, they must be)

MJ:

Thanks for the comments

NH:

we must go

NH:

thanks for logging in

NH:

see you all tomorrow

NH:

FTSE update

NH:

down 84 points at 5,117

NH:

bye

MJ:

bye

NH:

Poppy – not sure

NH:

don’t know what teams Arsene or Rafa will play

NH:

I suspect Liverpool might field a strongish side

NH:

could their best chance of trophy

NH:

and ours

NH:

but Wenger will stick with the kids

NH:

even if we go out

NH:

well done Monkey

NH:

i see Poppy managed a win last night

NH:

you must be in shock

This entry was posted by Neil Hume on Wednesday, October 28th, 2009 at 11:03 and is filed under Uncategorised. Edit this entry.

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Markets live transcript 28 Oct 2009

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