FT Alphaville » Markets live transcript 6 Nov 2009

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Markets live transcript 6 Nov 2009

Posted by Neil Hume on Nov 06 11:03.

Markets live chat transcript for the chat ending at 12:10 on 6 Nov 2009. Participants in this chat were: Neil Hume, FT (NH) Miles Johnson, FT (MJ)

NH:

good morning

NH:

and welcome to Markets Live

NH:

FT Alphaville’s daily markets chat

NH:

another busy day, in the City at least

NH:

results from BA

NH:

and RBS

NH:

including a fascinating break down of the toxic rubbish they are pouring into the asset protection scheme

MJ:

Morning all

MJ:

I wouldn’t mind seeing some details on that

NH:

Tracy has done a post I think, with a nice pie chart

NH:

but here’s a quick run down

NH:

the biggest categories are

NH:

£40bn commercial real estate lending going into the APS

MJ:

ouch

NH:

£25bn of leveraged finance

MJ:

hmmm

NH:

£28bn of structured finance

MJ:

ewwww

NH:

and £20bn of monoline exposure

MJ:

nice

NH:

that’s on page 160 of the trading statement – BTW

MJ:

wow

MJ:

how many pages are there?

NH:

173 in total

MJ:

jeepers

NH:

yep

NH:

and it’s that long because this is the new transparent RBS

MJ:

of course it is

NH:

exactly

NH:

because there are some areas that remain pretty opaque

NH:

such as global markets and banking

MJ:

that’s the investment banking arm

NH:

yep

NH:

have a look at this

NH:

Impairments of £272 million for the quarter included a large individual failure. Year to date impairments were £510 million, representing 0.48% of loans and advances to customers
compared with 0.02% in the prior year.

MJ:

hmmm – a large individual faliure?

MJ:

What does that mean I wonder?

NH:

dunno

NH:

and RBS arent saying

NH:

all we know is that

NH:

it is not related to Sempra

NH:

that’s the commods business

NH:

and there were some rumours around about that earlier this week

MJ:

Are we allowed to repeat those on here?

NH:

Better not

MJ:

Relate to two words

MJ:

one of which is “up”

NH:

moving on

MJ:

shares up on the back of the Q3 trading statement

MJ:

Up 2.6p to 37.8p – 7.5 per cent rise

MJ:

any idea why? They don’t look that good really

NH:

well I think

NH:

the idea seems to be

NH:

that there has been some quarter on quarter improvement

NH:

in terms of losses and bad debts

NH:

but as we have seen the IB is not performing too well

NH:

bad debts are expected to remain at elevated levels for the next couple of quarters

NH:

and there has been alarming growth in RWAs

NH:

but the statement is so long

NH:

I can’t believe anyone has formed a complete view

MJ:

Few will have the time or inclination to actually read the whole thing

MJ:

But presumably that has not stopped analysts form having a go

NH:

indeed

NH:

here’s Cazenove

NH:

with a few facts and figures

NH:

Pre tax loss £1.5bn, better than prior quarter -£3.5bn.
Net interest margin has been restated. Outlook is “stable” in the next few quarters.
Impairment lower than Q2 but Ulster and Citizens saw higher impairment. Overall group impairment “appears to be plateauing”.
Non-core run-off in line with targets; it will remain loss-making (obviously). Q3 loss £2.7bn vs Q2 loss £5.0bn.

NH:

Liquidity up to £140bn, retain target of £150bn.
RWA up 9% in three months attributed to fall in credit ratings for monolines (+4%age points), procyclicality (+2%age pts) and f/x (+2%age pts).
Book value flat despite loss due to gain in AFS and f/x.

NH:

Comment
Slightly more positive commentary on impairment, consistent with Tuesday’s statement, but overall still cautious on the outlook; reiterates group will be loss-making in 2010E.
Growth in RWA is uncomfortably high.

NH:

and I have this

NH:

from a sector specialist

NH:

TCE (tangible common equity):59p, vs 58p 1H09. -£1.8bn net loss offset by £2.9bn AFS uplift & £0.7bn FX translation. Diluted for £25.5bn B shares @50p = 55p; conservatively deducting the APS fee & cost of contingent capital, = 52p. Finally, remaining cumulative gains on own debt =2p. So, conservative TCE = 50p. At 35p, RBS trades on 0.7x p/ TCE. The ambition to minimise dilution from B share issuance & EU forced disposals logically could mean some form of contingent convertible equity exchange and / or new private sector equity issuance.

NH:

Key financial trends: 1) better than expected financial performance of core bank: higher pre-impairment profit from GBM; better than expected net interest margin – especially UK corporate – and lower domestic UK impairments 2) Overall group loss broadly as expected, due to bigger than expected loss from non core operations (less revenues 3) TCE per share better than expected, due to positive shift on unrealised losses (AFS) and FX 4) Core tier 1 ratio weaker than expected due to sharp 9% sequential rise in RWAs, primarily in non core monoline credit migration, procycylicality & FX.

NH:

Outlook: 3Q has a number of encouraging trends, but economic recovery is likely to be slow, and unemployment still rising. Net interest margin is stabilising, but deposit competition is intense so likely stable rather than rising in coming quarters (from a higher base than previously expected). Impairments appear to have plateaued at around 1H09 levels, but expect further volatilility and likely to remain elevated over next few quarters. Reiteration that FY10F likely to be loss making, driven by non core; core business profitability will take time to recover, especially as GBM “normalises”. Full recovery in core bank RoE will only come through when short term interest rates and bad debts normalise; but new world regulatory capital ratios will require higher margins than before. Supports our Reverse Engineering view, that over the next 2-3 years bank RoE will recover as higher returns on assets offset reduced leverage. Geared play = Lloyds.

MJ:

Looks like a good summary

MJ:

But still not sure why they are up

MJ:

but there you go

NH:

well

NH:

I guess, Hester is getting to grips with things

NH:

although it remains a long haul

MJ:

A very long haul

11:13AM

NH:

right

NH:

let’s have a look at the market

MJ:

very, very, very quiet

MJ:

in trading terms

MJ:

those people that have actually come into work today

MJ:

are doing nothing ahead of the non farm payrolls

MJ:

FTSE 100 currently up 9.75 points at 5,135

NH:

Okay

NH:

the payrolls

NH:

what are we going for?

MJ:

hang on, I’ll dig some stuff out

NH:

well, here’s a bit of comment I got

NH:

non farm Friday

NH:

Aah, non farm Friday. Gone are the days when these deserved little more than a cursory glance and certainly no comment. Given that all roads lead back to the capacity or otherwise of the US consumer to spend (and to do this, stay in his/her job), they command more attention than I’d ideally like to give them these days. But they drive a bit more than sentiment. We’re loking for 135k in any case, consensus is at 175k. Let’s see. elsewhere, we have the yield curve fattening like Christmas Turkey, and a market that has shifted en masse out of beta. Seems my ‘buy the quality on these dips’ call is about as consensus as I’d least hoped it would be, so perhaps we begin to see a year end squeeze and rotation back into the recently dumped risk names. Hard to tell, as what felt like a large scale pain trade end Oct is, according to my better informed colleagues on the general sales desk, continuing at a less aggressive pace this month. But the big move is broadly done. Gross has come in and our traders tell me that desks are running much tighter limits at the moment. Conditions forming perhaps for a squeeze.

NH:

although rather bizzarely I have heard a whisper number of +100,000

NH:

which surely can’t be right

NH:

Miles

NH:

what you got

NH:

where’s consensus?

NH:

175,000?

MJ:

That is it

MJ:

That would be down from 263,000 jobs lost in September

NH:

Do we know what the squid are forecasting? That will be the number to watch.

MJ:

You mean Jan “the oracle” Hatzius?

MJ:

I’m not sure actually

MJ:

Anyway, after his uncanny last minute revision of last month’s payrolls

MJ:

he kind of blew it with his US GDP prediction

NH:

Maybe his model is especially fine tuned to employment figures?

MJ:

maybe

MJ:

Anyway, here is an interesting little curtain raiser

MJ:

by a man called Vincent Farrell

MJ:

Says the thing to watch is the number of temporary jobs

MJ:

That is the “canary in the coal mine” apparently

NH:

can you put up some of his thoughts?

MJ:

What we need to see out of the jobs report that might affirm the thought the drought in job creation will end would be an improvement in the length of the workweek. It sits now at an all time low of 33 hours and every one tenth improvement represents a significant call on labor. The average hourly earnings number needs to go up as well. Improvement in wages is doubly beneficial. Rising incomes is a good thing and the willingness of employers to pay overtime is an indicator of better business that will lead to an increase in hiring.

MJ:

Buried in the report will be the tally of temporary jobs. Three months ago temp jobs fell some 200,000. Two months ago the decline was 80,000-ish, and last month temp jobs fell only 7,000. A turn in temp jobs would be a big deal. Employers are always reluctant to hire full time workers coming off the bottom fearing a commitment to what might be a short lived upturn. The “canary in the coal mine” is the temporary jobs number and a turn there would indicate full time jobs will follow. That will be more of my focus than any other aspect of the report.

NH:

Thanks for that.

NH:

that’s interesting part of the report to look for

NH:

I usually don’t

NH:

go in to that much detail

NH:

but nor it seems does the market

11:18AM

MJ:

There is also the argument

MJ:

that too good is actually bad

NH:

Why so?

MJ:

well, if the numbers look too rosy

MJ:

then people’s attention will swing back to exit strategies. 175k is meant to be the right balance

NH:

Not too good, not too bad. Just right. Haven’t I heard that somewhere before?

MJ:

Here is Jim Reid of Deutsche Bank opining on that subject

MJ:

With regards to today’s payroll number we can’t help thinking that the best outcome for the market would be for payrolls to gradually improve and not to get too close to positive territory until next year. The lagging nature of unemployment means that those with a bullish view on the recovery could still be right even if payrolls were negative in Q1 2010. If we get too rapid a recovery in payrolls then the market would again become obsessed with exit strategies, even if the authorities weren’t, and we’d again have difficult markets. Today’s consensus, which is -175k, would fit with the optimum scenario and would maintain the steady improvement seen since Q1 of this year.

NH:

thanks for that

NH:

payrolls out at 1.30pm

11:20AM

NH:

Right

NH:

a bit of breaking news from the FSA

MJ:

More?

NH:

not insider dealing dentists

NH:

but this

NH:

The Financial Services Authority (FSA) has today set out its new prudential regime for personal investment firms (PIFs) to ensure that they are better capitalised to withstand any future financial shocks.
Under the new rules, all PIFs will have to hold capital resources worth at least three months of their annual fixed expenditure in realisable assets such as cash. The minimum capital resources threshold for any firm will be set at £20,000.
Requiring PIFs to hold more capital resources will enable firms to provide redress for consumers and limit the compensation due from the Financial Services Compensation Scheme (FSCS) in the event that they are wound up.

NH:

not sure

NH:

how that affects some of wealth management readers

NH:

anyway

NH:

shall we take a look at BAY

NH:

sorry

NH:

that’s British Airways in english

11:21AM

NH:

that fantasy short position Miles

NH:

can you talk the ROTR through it

MJ:

Spectacular blow up

MJ:

BAY up 6.5 per cent at 198p

MJ:

In true H&M capital tradition

NH:

so what’s gone wrong?

MJ:

Results

NH:

(CityUnslick – I didn’t short GKP. no bottle for that)

MJ:

Although I am not sure why

MJ:

the figures look awful to me

MJ:

burning through cash

MJ:

rising pension deficit

MJ:

and

MJ:

they lost money in the summer

MJ:

for the first time ever

MJ:

Yet they are up

MJ:

what are they going to do in the winter?

NH:

they are up and that might have something to do with the fact

NH:

that BA is the most shorted stock in the FTSE, no?

MJ:

Exactly

MJ:

This from Data Explorers

MJ:

16% of BA’s shares are out on loan, the highest in the FTSE 100

MJ:

So there will be alot of unhappy shorts this morning I guess

NH:

well you and the rest of the bears are being burned this morning

NH:

MJ:

NH:

the market seems impressed by the cost cutting moves

NH:

and you have to say Willie Walsh is playing a very bad hand to the best of his abilities

MJ:

so these numbers are bad

MJ:

but the market was braced for worse

NH:

yep

NH:

operating loss comes in it £111m

NH:

some people were expecting £157m

NH:

premium traffic

NH:

that’s the people who turn left on entering the aircraft

NH:

that beat: -1.4% vs a -7% forecast and up from -7.9% in September.

NH:

and also

NH:

BA says it is making good progress on Iberia merger

MJ:

there was a report about this in El Economista

NH:

go on

MJ:

Saying BA will hold a board meeting today to discuss whether to sign an initial agreement with Iberia

NH:

thanks

MJ:

Apparently they will start negotiating about where the new HQ would be

MJ:

and who gets to elect the CEO etc

NH:

anyway, having adopted the emergency landing position

NH:

looks like consensus numbers could rise by 10%

NH:

here are a few notes

NH:

to give you a flavour of the panglossian City view

NH:

Evolution

NH:

EVO TAKE – Weak but not disastrous – perhaps the market feared worse?
DETAILS – A bit weaker than expected – looks like 2Q was just above
water at the underlying operating level. Restructuring drove a pretax loss
similar to 1Q though. Net debt was where we expected and largely
unchanged from end of 1Q. Very downbeat statement which talks mostly
about the state of the industry rather than specifically about BAY. We feel
that some of this is aimed at employees, given the industrial relations
situation, but it also implies a wish to keep expectations down. BA is
structurally loss making if it only made £20m or so in a quarter that
normally makes £300m. We see a return to profitability in FY11E, but only
just and only if cost cutting plans succeed. Pension interim valuation of
-£2.6bn – better than our working assumption of -£3.2bn but still awaiting
final outcome of triennial actuarial valuation.

NH:

VALUATION AND RECOMMENDATION – We think more option value
can get into the price as we come out of the winter in BAY’s 4Q (calendar
1Q10). Discounting back a 500-550p peak share price 5-6 years out at an
8-12% discount rate gives PVs of 250-380p

NH:

Merrill

NH:

Operating loss better than forecast on lower costs
BA reported a Q2 operating loss of £(17)mn. Before severance costs (£39mn),
the underlying operating profit was £22mn (above our forecast for a loss of
£(20)mn). This included group revenue -15% y-o-y with passenger yields -14.5%
(vs.Q1 -9.7% and BofAMLe -15%). Operating costs were £2.136bn, 10.6% below
last year (and £40mn lower than our forecast) and included lower fuel costs. The
Q2 pre-tax loss was £(144)mn after severance (vs. BofAMLe £(145)mn).

NH:

No changes to overall estimates, latest data shows
encouraging trend in traffic and yield
BA’s latest monthly traffic data (October) reported RPK’s -1.9% and a 3.7pp
improvement in the load factor to 80.7%. While the comparatives were slightly
softer, there was a significant improvement in traffic mix with premium traffic -
1.4% (versus Sept -7.9% & H1’10 average -13.4%). Looking ahead the
comparatives become easier (average premium decline in Q3’09 -10.7%, Q4 -
15.6% incl. February -20%). Encouragingly, BA has also commented that
premium class yields are “slowly improving.” We have not changed our forecast
for an operating loss of £360mn this year (revenue -11% & costs -9.4%). For next
year, we are forecasting an operating profit of £140mn (incl. revenue +3.5%).

NH:

and Citi

NH:

Results better than expected — Operating loss for 1H was £111m vs £157m
expected. For 2Q, the operating loss was just £17m vs our expected £63m loss.
The 2Q result included £39m of restructuring cost vs our expected £50m.

 Better cost performance the main reason for the difference — Revenue of
£2.119bn was as expected. Revenue yield in the quarter fell by 13.3%, slightly
better than our -15%. Lower staff costs were the main line item better than
expected by around £40m. Loss per share in 2Q of 9.2p was in line with our
-8.9p. Despite better operating performance, some financial items were worse
than our expectation, although these were mainly non-cash and less important
items.

NH:

Revenue outlook would appear to be improving — BA claims in its presentation
that premium class load factors are improving, albeit at lower yields. But load
factor improvement is usually a precursor for yield improvement. Its revenue
guidance of £1bn lower revenue in the current year compared to last is in line
with our expectation.

MJ:

Panglossian view for sure

MJ:

Revenue outlook would appear to be improving

MJ:

Anyway, worth reading Tracy’s post on this

MJ:

Which you can find

MJ:

here

MJ:

http://ftalphaville.ft.com/blog/2009/11/06/81926/british-airways-defies-financial-gravity/

NH:

right

NH:

shall we move on?

11:31AM

MJ:

Have you got any RAW for us this morning Neil?

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.

MJ:

A nice bit if Friday RAW

MJ:

Somthing for the weekend

NH:

not much, but there are a couple of bits

NH:

one of which

NH:

I hesitate to mention

MJ:

Why so?

MJ:

Is it a

NH:

well if mention the letters

NH:

MJ:

Uh oh…

NH:

well

NH:

there’s talk

NH:

and it is just that

NH:

talk

NH:

of a very positive drilling update coming out next week

NH:

presumably it means they have reached target depth

NH:

and will update the market

NH:

anyway the shares are up

NH:

3.5p at 112p

NH:

but it could be the usual load of old hot air

MJ:

Well, that would make the GKP liberation front very happy

MJ:

But, have you got anything else?

NH:

there’s more on Metro

NH:

the German retailer

NH:

MEO GY …hearing market chatter co is planning convertible bond , strike @ 38

NH:

and then

MJ:

So, placing rumour on Metro yesterday

MJ:

Now a convert

MJ:

One to keep an eye on

NH:

well it is friday

NH:

and also we have some fantasy M&A stuff

NH:

I did a post on it earlier

NH:

BHP bidding for Rio again

NH:

actually

NH:

it could well be the least read post in Alpha history

NH:

but worth putting some of the note up here

NH:

especially if Lorcan is around

NH:

Risk to IOJV — The iron ore JV between BHPB and RIO still has to clear a
number of significant hurdles: 1) the signing of a binding agreement, 2)
clearance through the regulatory approvals, and 3) shareholder vote.
 Is it a Good Deal for RIO — With the balance sheet stress removed and growth
back on the agenda, selling down an interest in the highest returning/growth
division is looking less attractive, despite the US$10+b synergies on offer.
Adjusted equalization payment of ~US$4.8b is fair on our assumptions, but
looks less favourable in high growth scenarios given RIO’s port optionality.

NH:

Could BHPB bid for RIO — BHPB wants to use strong balance sheet for M&A,
but no transactions offer the synergies, asset quality and growth options like
RIO, and we doubt it will make a major move until the IOJV outcome is
clarified. RIO’s lower debt and divestment of some non-core assets leaves EC
as the major stumbling block. A remedy of spinning out Robe, IOC and
Samarco into a separate 80+mtpa producer could work if Robe port options are
retained.

NH:

Upside in RIO — Although production growth and commodity exposure favour
BHPB, RIO will likely outperform on any sniff of renewed bid. Question for RIO
shareholders is to either take US$5-13b (~4-10% upside) in synergies from the
IOJV or wait for 30+% bid premium from BHPB, then still get synergy upside.

NH:

Key Dates — Key dates are 1) 27 November – critical 12 months UK Takeover
Panel requirement before BHPB can return with lower bid, 2) 5 December –
binding IOJV agreement and 3) April/March – IOJV EC regulatory approval.

MJ:

So they can bid again from the 27th?

NH:

yep and the iron ore JV

NH:

gets voted on

NH:

in December

NH:

about a month from now

NH:

I think this rumour

NH:

might run

MJ:

Share prices?

NH:

hang on

Rio Tinto (RIO:LSE): Last: 2,909, up 34.5 (+1.20%), High: 2,922, Low: 2,876, Volume: 1.33m

BHP Billiton (BLT:LSE): Last: 1,701, up 1 (+0.06%), High: 1,717, Low: 1,693, Volume: 2.15m

NH:

and some more RAW

MJ:

good stuff

NH:

CNBC are reporting

NH:

ECB may be lending back covered bond purchases

NH:

The purchases, were for an amount of EUR 60 billion, that were distributed
across the euro area and were carried out by means of direct purchases.
- The decision was made to purchase euro-denominated covered bonds back in May.
- http://www.cnbc.com/id/33710613

NH:

and some more on this

NH:

from a friendly broker

NH:

There is spec doing the rounds that the ECB is lending some of its covered
bond purchases back into the market.
- Such a move would imply that the ECB was withdrawing some liquidity from the
market.
- EUR-USD made gradual upside progress to print an intra-day high of 1.4905.
European accounts and short term CTAs played the long side, with a supportive
backdrop on the daily charts and economic recovery hopes underpinning market
risk appetite. The market lacked the momentum to threaten offers at
1.4910-30, which are reportedly protecting stop losses above. The options
market is also helping the bid tone.

MJ:

(There is this strange 1980′s cop show ringtone going off in the office at the moment)

MJ:

(Driving people crazy)

NH:

can someone stop it

NH:

now

MJ:

Seriously

NH:

thank god

NH:

it’s finished

MJ:

Phew

NH:

that was annoying

11:42AM

MJ:

I was having quite a good time reading through the latest on Galleon

NH:

yep

NH:

like an episode of the Wire

MJ:

Bat phones?

MJ:

I mean really?

MJ:

And the codenames as well

MJ:

“The Greek”

NH:

“The Rat”

MJ:

“The Hilton Hit”

MJ:

And Paul made the very good point

MJ:

that the informers appear to have made more money than the accused

NH:

arghhhhhhhhhhhhhhhhhhh

MJ:

Which must be nice for them

NH:

the ring tone is back

NH:

and what was all this about

NH:

Burning phones?

MJ:

not burning

MJ:

One of the guys chewed up his sim card

MJ:

to destroy the evidence

MJ:

Its all very colourful stuff

MJ:

More here

MJ:

http://www.ft.com/cms/s/0/969afd40-ca68-11de-a3a3-00144feabdc0.html

MJ:

(very good Poppy)

NH:

hmmm

NH:

they are fascinating reads

MJ:

Neil, what bandit rating would have you given Raj?

NH:

and interesting that the SEC and FBI

NH:

publish it all

NH:

and holding big press conferences

NH:

Raj

NH:

dunno

NH:

MJ:

Just a

MJ:

Fair enough

MJ:

Right

MJ:

Moving on

NH:

shall we go rat catching?

MJ:

Say again?

11:48AM

NH:

Rentokil

NH:

biggest faller in the FTSE 100 at the moment

NH:

down 8p to 103.8p

NH:

a loss of 7.3%

MJ:

Why so?

NH:

results, which didn’t look too bad to me

NH:

but then again

NH:

they had a good run into the numbers

NH:

thanks to a push from Merrill’s yesterday

NH:

actually

NH:

there isn’t that much wrong with the figures

NH:

but the outlook i guess is uncertain

NH:

even if the problem parcels division is making progress

MJ:

What about that big contract they were rumoured to have won?

NH:

nope, nothing about TFL

NH:

as far as I can see

NH:

(very good Vintage)

MJ:

Got any notes?

NH:

yep

NH:

hang on

NH:

here’s Deutsche Bank

NH:

they are a fan

NH:

Another excellent set of results from the new team. Constant currency revenues
-3.2% vs -3.2% in Q2. Co states that trading conditions still challenging
but contract portfolio is stable in constant currency and up 8% reported
FX. APBITA of £65.4 vs consensus (from Rentokil) of £59/60, APBTA of
£49.6m vs cons of £46.3 so 7% beat

NH:

Beat driven by a little bit better in Pest
and lower central costs. Co not updating on FY cost savings but will give an
update on “Project Olympic” at year end. City Link guidance upped to -£7m
for FY implying only £1m in operating profit in Q4 which looks too conservative.
Cash flow from ops stunning at £104m and net debt stands at
£1170m vs our YE forecast of £1183m.

NH:

There should be meaningful upgrades
today. At 9m stage co have posted £104.7m vs cons of £143.1m
implying only £38m in Q4, which should at the Group level be seasonally
stronger. Assuming only flat £50m in Q4 would imply 8% upgrade and this
includes conservative City Link guidance.

NH:

Very happy still to be buyers of Rentokil. Our 143p target price assumes a
further £80/90m of cost savings and we expect this may be conservative
given the £500m in admin costs that need reducing, procurement gains and
City Link efficiencies still to come. Sits on 15x DB 10e P/E and 11x 11e vs
cons 16x 10e and 13x 11e. Out of 18 peer recommendations, 7 Buys and 9
Holds, so it already has its followers, but we remain very happy to be buyers

NH:

and here is Merrill

NH:

Rentokil has reported Q3 results which are 9% ahead of consensus, before
restructuring costs, and we’d expect FY consensus PBTA to move up from
£143m to around £155m on the same basis. Parcels was in-line but management
raised FY guidance from a £12m to £7m loss, as widely expected (this includes
minimal benefit from the Royal Mail strike, which we estimate has only added
c£1m sales in Q4 to date). Textile & Washroom and Facilities Management were
both better than expected as a result of cost savings. Cash flow was also strong
thanks to a further £23m working capital inflow and low capex in Q3 – debt fell by
£47m, despite a £40m negative FX movement.

NH:

Management state that they are focusing on the development of a strong growth
agenda and operational initiatives to drive industry leading service whilst reducing
admin/overhead costs. They are likely to target around £50m savings in 2010,
which is not fully reflected by consensus. ML EPS estimates of 7.3p and 9.5p are
4% and 10% ahead of consensus for 2010 & 2011 respectively.We believe that
there is scope to double margin and EPS over the medium term.
The shares are up 147% YTD & now trade on 15x PE and 13x price/FCF in 2010,
a premium to the market but still in our view not reflecting the full turn-around
potential.

NH:

as Monty notes

NH:

a very good management team at Renotkil

NH:

lots of scope for further cost cutting

NH:

and management always have the option of busting the thing up

NH:

should they wish to

MJ:

So, aren;t the management team supposed to be heavily incentivised on the share price or somthing?

NH:

I think they are

NH:

hang on

NH:

let me dig the details out

NH:

from when they were appointed

MJ:

one sec

NH:

blast

NH:

our achive not coming up

NH:

with what I want

NH:

one more min

NH:

here we go

NH:

The trio will have to decide whether to keep Rentokil’s portfolio intact, sell a few divisions or break the company up. Some analysts believe there is no value in breaking up the business, others say it is inevitable.

Mr McAdam will receive a salary of £350,000, Mr Brown will be paid a base salary of £775,000 and Mr Ransom £450,000. The new directors will each receive 7.5m shares if the company meets set targets, including a minimum share price of 120p in the next five years.

They will only get all the shares if the share price reaches 180p. Above 180p there is the potential to earn more shares if the price rises to 280p.

NH:

they need the price at 180p

NH:

I guess a break up might

NH:

eventually be the way to go

NH:

bit like Cable & Wireless

MJ:

Pretty far off then at the moment

NH:

a lot of work still to be done

11:56AM

NH:

Beefer is asking about Cadbury

NH:

we are expecting lots of press this weekend

NH:

my view

NH:

is they go hostile

NH:

with original offer

NH:

but don’t declare it a final one

NH:

so they bump at a later date

NH:

hoping the market

NH:

has come off in the meantime

NH:

Miles

NH:

you view?

MJ:

Similar

MJ:

Why would they bid against themselves?

MJ:

There is no need to come in with a much bigger offer now

MJ:

They could increase the cash component

MJ:

And they haev the bridgeing finance in place now

MJ:

But I am not expecting anything shocking come monday

Cadbury (CBRY:LSE): Last: 762.00, no change, High: 762.50, Low: 747.50, Volume: 7.55m

11:59AM

NH:

and Hoof

NH:

very funny

NH:

and correct

MJ:

Nov 6 (Reuters) – Deutsche Boerse has placed a final bid to buy a controlling stake in the Warsaw Stock Exchange from the Polish government, the German operator said on Friday.
“In our offer we emphasise that Deutsche Boerse wants to fully support the Treasury Ministry’s actions to strengthen Warsaw Bourse’s position as a leading financial market in central eastern Europe,” Senior Vice President Deutsche Jochen Biedermann was quoted as saying in a statement.

NH:

Liam – all quiet on the HOIL front

Heritage Oil (HOIL:LSE): Last: 444.70, up 1.6 (+0.36%), High: 448.80, Low: 435.80, Volume: 318.29k

NH:

no news on when the merger docs will be out

NH:

or the FSA investigation into Genel

MJ:

We wait with bated breath of course

NH:

need to mug up on the political siutation in Kurdistan

NH:

to see when the new govt is in place

NH:

the company say

NH:

that’s the key factor on when the merger documentation can be sent out

12:00PM

NH:

Right we are done

NH:

lunch beckons

NH:

and has anyone been to this place?

NH:

http://www.cinnamon-kitchen.com/menus.aspx

NH:

Cinnamon Kitchen

NH:

we have a lunch their on Monday

MJ:

Cinnamon Kitchen offers evolved Modern Indian cuisine in a relaxed setting in the heart of the City

MJ:

looks nice

NH:

good god, it’s in the east end

MJ:

Thats not the actual east end

NH:

it is to me

MJ:

Down the road

NH:

mains
aubergine tasting plate, aubergine-peanut rice £14.00
seasonal root vegetables in spinach curry £12.00
tandoori king prawns with bengali kedgeree £20.00
plaice with sweet tamarind, curried yoghurt £15.00
seared haddock, devon crab and kokum crust £16.00
french black leg chicken, fresh fenugreek £16.00
roast lamb saddle, mint-onion sauce, pilau rice £18.00
rajasthani spiced roast red deer, stir-fried mushroom
£32.00

NH:

hmmm

NH:

not sure

NH:

I agree with the idea of Indian food at lunchtime

NH:

on a work day

MJ:

roast lamb saddle, that sounds good

NH:

what about the deer

NH:

that’s sounds interesting

MJ:

I’m sure it will be fine

MJ:

Wine list?

NH:

hang on

NH:

red wines 125ml 750ml
2005 chinon, dom a. lorieux, 5.50 30.00
loire valley, france
2004 valplicella classico, 5.90 34.00
vigneti casterno, veneto
2006 merlot reserva, fabre montmayou, 6.50 36.00
mendoza, argentina
2005 backblock syrah, brookfields, 6.90 38.00
hawkes bay, new zealand
2003 selectionada, quinta de covela, 7.60 42.00
minho, portugal

NH:

pinot gris réserve, cave de hunawhir 29.00
2006 riesling tradition, organic, 31.00
dom a mann & m j barthelme
loire
2006 muscadet sèvre et maine, 26.00
sur lie vielles vignes,
r. luneaudom, dom de la grange
2007 saumur, cuvée la pierre frite, 27.00
dom du pas saint martin
2006 cour-cheverny, r & s simon, 34.00
dom de moncy
2007 pouilly-fumé, la roche blanche, 39.00
dom laporte
2007 sancerre p. thomas 42.00
burgundy
2005 macon solutré, d. bouchacourt, 35.00
mâconnais
2004 chablis, 1er cru vosgros, j.p ellevin 45.00

NH:

Right

NH:

Rain

NH:

will ask Murph if he can do a US ML

NH:

might be a bit earlier for him

NH:

and Stacy is snowed under on Raj stuff

NH:

she was on the telly state side last night

NH:

Aig results coming through

MJ:

And on FT Video

NH:

06Nov09 RTRS-AIG Q3 SHR $0.68 – SEC FILING
12:03 06Nov09 RTRS-AIG Q3 NET INVESTMENT INCOME $8,656 MLN
12:04 06Nov09 RTRS-AIG Q3 SHR VIEW $1.98 — THOMSON REUTERS I/B/E/S
12:04 06Nov09 RTRS-AIG Q3 PREMIUMS AND OTHER CONSIDERATIONS $16.04 BLN

MJ:

on that note

NH:

we must dash

NH:

thanks for joining us this week

NH:

and for all the comments

MJ:

Have a good weekend

MJ:

Bye

NH:

yep

NH:

we will be back next week

NH:

when hopefully

NH:

the market will pick up a bit

NH:

it always seems to be dull

NH:

when we have lots of results

NH:

everyone is fixated on them

MJ:

(Hi Head of IT – systems are fine today thanks)

NH:

actaually

NH:

we have not had

NH:

an IT melt down for a while

MJ:

We are now tight with IT

MJ:

But you are tempting fate saying that Neil

NH:

true

NH:

right

NH:

we are done

NH:

cya

MJ:

This entry was posted by Neil Hume on Friday, November 6th, 2009 at 11:03 and is filed under Uncategorised. Edit this entry.

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Markets live transcript 6 Nov 2009

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