Markets live chat transcript for the chat ending at 12:11 on 9 Nov 2009. Participants in this chat were: Neil Hume, FT (NH) Miles Johnson, FT (MJ)
NH:
Hola
NH:
it’s 11:03am
NH:
and time for Markets Live
NH:
FT Alphaville’s daily whiz around the market
NH:
that’s likely to be reduced to rush hour type crawl this morning due to some technical problems
NH:
in fact those internet problems are the reason for the lack of posts on the site this morning
NH:
apologies for that
MJ:
so the détente with IT is over
NH:
well it’s being sorely tested this morning
NH:
all the more so given the unbelievable explanation for this morning’s outage
NH:
anyway
NH:
we all feel a bit like the characters in this episode of South Park
NH:
The day the internet stood still
MJ:
funny episode that
MJ:
“there’s no internet to find out why there’s no internet”
NH:
(Lorcan – no)
MJ:
“what did we used to do before we had internet to get the news?”
NH:
NH:
Bryce is having some IT issues as well
NH:
he was ‘moved’ during his break in Canada
NH:
and it has taken him at least 45 mins to get things up and running
NH:
and he still does not have Reuters
NH:
so no pricing
NH:
right
NH:
let’s get to the market
11:05AM
NH:
and…
MJ:
Up, up and away
MJ:
MJ:
FTSE up 81 points at 5223
MJ:
probably boosted by the G20 meeting over the weekend
MJ:
all present made it crystal clear that they are not going to withdraw liquidity any time soon
MJ:
anyway
MJ:
insurers leading the way this morning
NH:
and the miners
NH:
on the back of a weak dollar
NH:
what’s up with the insurers
NH:
is it this very complex Axa deal down under?
NH:
and associated fund raising
MJ:
Don’t think so. Probably more to do with this story
Prudential (PRU:LSE): Last: 606.50, up 28.5 (+4.93%), High: 609.50, Low: 595.00, Volume: 3.13m
Legal and General Group (LGEN:LSE): Last: 82.70, up 2.9 (+3.63%), High: 82.70, Low: 80.25, Volume: 4.68m
MJ:
from our insurance correspondent Paul J Davies this morning
Standard Life (SL:LSE): Last: 220.00, up 7 (+3.29%), High: 220.10, Low: 214.80, Volume: 1.00m
MJ:
: Legal & General, Prudential and Aviva should get a boost on Monay when the supervisory club influential in setting new European capital rules for insurers will allow more time for talks on the part that most hurts UK annuity businesses.
The move will be seen as improving the chances of a better deal for companies that provide retirement income for UK pensioners, which should reduce the threat to their profitability and to annuity rates.
The Committee of European Insurance and Occupational Pensions Supervisors is due to release papers outlining its advice to Brussels on how the new Solvency II rules should be applied.
The group’s consultation papers drew protests this summer from the industry, which said its interpretation of the rules was too conservative in what was seen as a needless reaction to the financial crisis.
The European insurance federation told the group it had “abandoned the principle-based and economic approach . . . in favour of crude ratcheting up of financial requirements”.
The move will be seen as improving the chances of a better deal for companies that provide retirement income for UK pensioners, which should reduce the threat to their profitability and to annuity rates.
The Committee of European Insurance and Occupational Pensions Supervisors is due to release papers outlining its advice to Brussels on how the new Solvency II rules should be applied.
The group’s consultation papers drew protests this summer from the industry, which said its interpretation of the rules was too conservative in what was seen as a needless reaction to the financial crisis.
The European insurance federation told the group it had “abandoned the principle-based and economic approach . . . in favour of crude ratcheting up of financial requirements”.
NH:
read that
NH:
interesting stuff
11:08AM
NH:
is there any read across from the Axa deal
NH:
the rough details of which are this
NH:
AXA ASIA PACIFIC (AXA AU) – Has rejected a cash and stock offer from AMP Ltd (AMP AU). Under the proposal, AMP would acquire all the shares of AXA APH, including those held by CS (53.9%), and the Asian operations of AXA APH would be sold to CS. 1 AXA APH share would equal AUD1.3796/sh in cash plus 0.6896 AMP share, giving an implied an offer price of AUD5.34 per share. The cash component varied with movements in the AUD / USD exchange rate, subject to a minimum value of AUD1.2071. The proposal was subject to a significant number of material conditions including extensive due diligence and numerous regulatory approvals.
NH:
The Independent board of AXA APH has deemed the proposal materially inadequate and not in the best interests of shareholders. Also says the non-financial terms of the proposal also imposed excessive uncertainty and risk on AXA APH’s minority shareholders. CS proposes to acquire AXA APH’s Asian businesses for USD7.036bn.
MJ:
well
MJ:
the only read across I can see is negative for L&G
MJ:
in as much as AMP were a rumoured bidder
MJ:
and Axa seems more intent on growth in Asia than in Europe
MJ:
but I guess this deal is a positive for the Pru
MJ:
they have a big Asian operation
MJ:
and this shows that most of Europe’s big companies are focused out there
NH:
shall we move on
NH:
and get all religious
11:10AM
NH:
because we are doing the Lord’s work here on Alpha
NH:
promoting the cause of the great banking sdcetor
MJ:
Amen
NH:
We are of couse talking about this weekend’s Sunday papers
MJ:
Loads of big stories
MJ:
Hmmm, where to start?
MJ:
There was the unmasking of the brute who threatened to slaughter Jordan’s horses
MJ:
And there were some provocative allegations against the family certain footballer
MJ:
And a British couple became the oldest couple in the world to get divorced
MJ:
At age 98!
NH:
erm, Miles. I was thinking more along the lines of business stories
MJ:
Well, if we must
NH:
(Step the clue is in the fact the chairman is quoted)
MJ:
Might as well go straight to the biggie
MJ:
Bankers doing “gods work” of course
NH:
In STRNS.
MJ:
For anyone who missed
MJ:
the Sunday Times featured a kind of anti-Taibi profile of Goldman Sachs
NH:
I had a read this morning. It was very long.
NH:
Main splash of the paper, cover and ten pages of the Sunday magazine. And TV adverts.
NH:
Here are some excerpts for anyone who didn’t fancy cosying up under the covers on a Sunday and reading about the mighty Goldman machine.
NH:
Blankfein may be Wall Street’s Sun God, but, with the economic outlook stormy, he doesn’t want to advertise it, so the merest hint of a status symbol or — horror! — ostentation is airbrushed out of his life, publicly, at least.
NH:
The more time you spend in 85 Broad Street, the more you get the feeling that Goldman is the overachieving child of globalisation. It has the best, brightest and hardest-working in global finance and government in its pocket.
NH:
Whatever alchemy it uses, one thing is certain: Goldman has dodged the credit-crunch bullet and is emerging from the crisis stronger than ever. To the victor, the spoils.
NH:
pass the sick bucket
MJ:
It wasn’t all puff though. There were some critical parts
NH:
such as the discussion of GS’s access to market information.
MJ:
etc
MJ:
That is true. But the god’s work line appeared to be stretched too far
MJ:
Jeremy Warner at the Telegraph, for one, has cast a sceptical eye
MJ:
Thinks it was a joke that was remoulded into a splash
MJ:
Yes, obviously, this was meant as a joke, and it was one not of his prompting either, yet it was treated very seriously by the Sunday Times, which hyped it into a front page story, complete with feigned public outrage. It wasn’t until you read the whole feature that the story turned to dust before your eyes. Admittedly, this supposed “expose” did tell you a little bit about what makes Blankfein tick. In another life, he could have been a standup comic. But little else. In any case, I doubt the Sunday Times will be getting “unrivalled access” again.
NH:
It really was a huge piece though.
MJ:
Bobby D and the gang must be feeling rather green about that
MJ:
The story of the BarCap revolution only got something like six pages in the Sunday Times
MJ:
And talking of Bob Diamond
MJ:
and the growing presence of the big man upstairs in finance
MJ:
Lina Saigol in today’s paper has an exclusive reading from The Book of Bob
NH:
amusing this
MJ:
A reading from the book of Robert E Diamond III: Chapter One; Verse One
In the beginning there was Bob.
The earth was without form and void, and darkness was upon the face of the deep; and the Spirit of Bob moved upon the face of the waters and Bob said: “Let there be cash”; and there was cash.
In the beginning there was Bob.
The earth was without form and void, and darkness was upon the face of the deep; and the Spirit of Bob moved upon the face of the waters and Bob said: “Let there be cash”; and there was cash.
MJ:
And Bob saw the cash, that it was good, and said: “Let there be a firmament in the midst of the cash.”
And Bob made the firmament and called it Barclays Capital and gave it dominion over the fish of the sea, and over the fowl of the air, and Lloyds Banking Group of Gresham Street and Royal Bank of Scotland of Gogarburn.
And Bob said: “Let all the money under the heavens be gathered together into one place, and let BarCap reign supreme”; and it was so.
And Bob made the firmament and called it Barclays Capital and gave it dominion over the fish of the sea, and over the fowl of the air, and Lloyds Banking Group of Gresham Street and Royal Bank of Scotland of Gogarburn.
And Bob said: “Let all the money under the heavens be gathered together into one place, and let BarCap reign supreme”; and it was so.
MJ:
Then Bob sent away into exile all those who were not in his image and banished Frits Seegers from his kingdom for ever. And Bob began to replenish the earth with cash-bearing seed such as equities, mergers and acquisitions and fixed income, and Bob saw that it was good, and securitised all he saw about him.
And Bob said: “Let these markets teem with investment bankers”; and he made them in his own likeness, with shiny, white teeth.
And he let them rule over all governments, regulators, central banks, and they became the Masters of the Universe and John, Marcus and the other apostles worshipped at his feet.
And Bob said: “Let these markets teem with investment bankers”; and he made them in his own likeness, with shiny, white teeth.
And he let them rule over all governments, regulators, central banks, and they became the Masters of the Universe and John, Marcus and the other apostles worshipped at his feet.
MJ:
And the cash kept flowing and the bonuses kept growing and Bob saw it was good and wanted more and said: “Bring me rainmakers who will serve all the chairmen and chief executives on earth.”
And his headhunters raised up fallen angels from Citigroup and Morgan Stanley to serve as his seraphs and Bob gave them BarCap’s balance sheet and said: “Go forth and use this balance sheet to climb to the pinnacle of the league tables.”
And Bob saw everything that he had made, and, behold, it was very good and Bob decreed that his kingdom should last for ever and ever. And ever.
And his headhunters raised up fallen angels from Citigroup and Morgan Stanley to serve as his seraphs and Bob gave them BarCap’s balance sheet and said: “Go forth and use this balance sheet to climb to the pinnacle of the league tables.”
And Bob saw everything that he had made, and, behold, it was very good and Bob decreed that his kingdom should last for ever and ever. And ever.
NH:
very funny that.
MJ:
Nice riff on the currently cosy relationship between bankers and the almighty
NH:
Hmmmm. First Varley came out last week to reassure everyone that profit was not satantic
NH:
Then there is this Blankfein stuff.
MJ:
Now
MJ:
while I love the image of a hooded Varley uttering incantations to the “packed pews”
MJ:
it strikes me as strange that so much of this god loves bankers stuff is being said on this side of the pond
MJ:
Brits, as Alastair Campbell noted
MJ:
don’t always react that well to public figures talking god
NH:
Well, the bankers did recently have near-death experiences…born again Christians perhaps
MJ:
I just find it a puzzling PR strategy, if that is what it is
NH:
me too
NH:
invoking the name of the lord
NH:
seems a very curious way to approach this whole bonus thing
NH:
very very curious
MJ:
Unlikely to help matters much
MJ:
How long before the internet is awash with loonie Da Vinci Code-style banking conspiracy theories?
NH:
Probably already is.
NH:
praise be
11:20AM
NH:
Time for a spot of Cadbury watch.
MJ:
No offer this morning
MJ:
PUSU deadline is at 5 UK time tonight of course
NH:
it is
NH:
not sure what Kraft is playing at
NH:
are they trying to freak people out by waiting until 5.00
NH:
or will the offer come before the US open
NH:
or worse
NH:
perhaps
NH:
just perhaps
NH:
they have decided to walk
NH:
Hardly anyone is considering the possibility of an offer not coming in
MJ:
Yeah, I find that hard to see happening
MJ:
Even just in terms of the reputational damage it would do to Irene
NH:
fair point
NH:
but Irene has pressure
NH:
from shareholders like Buffett not to overpay
NH:
but
NH:
My view remains the same as Friday
NH:
Cadbury to go hostile with a formalised version of the preliminary approach, or there abouts.
MJ:
Cash element could well be increased
NH:
well, that’s JP Morgan are saying this morning
NH:
more cash
NH:
and that could explain the delay
NH:
Bottomline: We see little probability in KFT ratifying its offer (worth
714p now) and assign greater probability to a higher offer with a much
larger cash component (in the event KFT decides not to walk away – a
scenario that should not be ruled out). But we acknowledge Kraft may
have a lot less flexibility than is presently assumed (unless it can increase
its synergy estimates). We attach a sensitivity analysis table that may
come in handy assessing the potential headlines later today (KFT is
supposed to make a formal offer by 5pm UK time today
714p now) and assign greater probability to a higher offer with a much
larger cash component (in the event KFT decides not to walk away – a
scenario that should not be ruled out). But we acknowledge Kraft may
have a lot less flexibility than is presently assumed (unless it can increase
its synergy estimates). We attach a sensitivity analysis table that may
come in handy assessing the potential headlines later today (KFT is
supposed to make a formal offer by 5pm UK time today
NH:
Ratifying the offer on the table would make little sense to us. Based on
Friday’s closing price for KFT shares of $26.78 and the spot FX rate today
of 1.6766 $ per £, Kraft’s offer for Cadbury now stands at 714p compared
with 745p when it was announced on September 7th. There are those that
argue KFT will only ratify what is already on the table today given there
are no other bidders. But if the Cadbury Board, and presumably the
shareholder base, did not accept 745p why would they accept 714p now?
Friday’s closing price for KFT shares of $26.78 and the spot FX rate today
of 1.6766 $ per £, Kraft’s offer for Cadbury now stands at 714p compared
with 745p when it was announced on September 7th. There are those that
argue KFT will only ratify what is already on the table today given there
are no other bidders. But if the Cadbury Board, and presumably the
shareholder base, did not accept 745p why would they accept 714p now?
NH:
What has really changed since September 7th? No other bidders have
emerged; KFT’s largest shareholder (W. Buffett of Berkshire Hathaway)
has indicated he would not be in favor of increasing the stock component
of the offer; about 50% of the Cadbury shareholder base has turned since
September 7th (based on Bloomberg data); CBRY did its best to post a
strong third quarter and increased guidance (even though questions remain
about the quality of the quarter) while KFT posted a lackluster quarter.
emerged; KFT’s largest shareholder (W. Buffett of Berkshire Hathaway)
has indicated he would not be in favor of increasing the stock component
of the offer; about 50% of the Cadbury shareholder base has turned since
September 7th (based on Bloomberg data); CBRY did its best to post a
strong third quarter and increased guidance (even though questions remain
about the quality of the quarter) while KFT posted a lackluster quarter.
NH:
If KFT decides to increase the offer, it will likely have to increaser the
cash portion and take on more leverage. Kraft’s largest shareholder has
said the KFT offer is “full” as in his view KFT would have to issue what
he considers an undervalued stock (increasing the KFT share count by
over 25%). As such, we argue that if Kraft were to increase its offer it
could only increase the cash component; i.e. its own shareholders would
not want more equity being issued. We calculate KFT has room to do so
and still keep its investment grade rating and dividend per share.
cash portion and take on more leverage. Kraft’s largest shareholder has
said the KFT offer is “full” as in his view KFT would have to issue what
he considers an undervalued stock (increasing the KFT share count by
over 25%). As such, we argue that if Kraft were to increase its offer it
could only increase the cash component; i.e. its own shareholders would
not want more equity being issued. We calculate KFT has room to do so
and still keep its investment grade rating and dividend per share.
NH:
Potential offer scenarios. Despite our skepticism about Cadbury’s 2011
goals, the 714p offer represents a hefty 40% discount to what Mars paid
for WM Wrigley on a 1-year forward basis at 10x vs. 16.4x (taking
Cadbury management guidance) and 11.1x on 2009e, results in 20c EPS
accretion for KFT and IROIC of 9.3%, leaving the balance sheet at a very
manageable 3x 2010 net debt to EBITDA. Our base case of 780p takes
12x FV/EBITDA on 2009, results in 16c EPS accretion (+6%), 8.5%
IROIC and an also manageable 3.2x 2010 net debt to EBITDA (assuming
0.2589 KFT shares per CBRY share as in the base offer, resulting in the
stock portion being valued at 414p or 53% of our base case offer of 780p).
goals, the 714p offer represents a hefty 40% discount to what Mars paid
for WM Wrigley on a 1-year forward basis at 10x vs. 16.4x (taking
Cadbury management guidance) and 11.1x on 2009e, results in 20c EPS
accretion for KFT and IROIC of 9.3%, leaving the balance sheet at a very
manageable 3x 2010 net debt to EBITDA. Our base case of 780p takes
12x FV/EBITDA on 2009, results in 16c EPS accretion (+6%), 8.5%
IROIC and an also manageable 3.2x 2010 net debt to EBITDA (assuming
0.2589 KFT shares per CBRY share as in the base offer, resulting in the
stock portion being valued at 414p or 53% of our base case offer of 780p).
MJ:
Thanks for that
NH:
what are the shares doing?
MJ:
If they are trying to freak people out, it is not working
MJ:
Cadbury up 8p at 766p
NH:
thanks for that
MJ:
One theory knocking about is that an offer could come at the NY open
MJ:
Though I am not too sure about that
MJ:
I also have a bit more fresh comment
MJ:
Alex Smith at Nomura has put out a note this morning which I will share a bit of
NH:
ok
MJ:
He has drawn up a probability table of the three broad outcomes
NH:
put it up
NH:
(Daddy six months)
MJ:
1. Kraft is successful with an offer (probably hostile) at around 820p. Although this would value Cadbury on only 12.5x EBITDA 2009E and 11.0x 2010E (or 13.1x and 11.8x consensus), we can see investors tempted to accept on the basis of money today
(represents a 45% premium) to pre-bid levels.
(represents a 45% premium) to pre-bid levels.
2. Kraft walked away leaving Cadbury management under pressure to paint a much more convincing picture as of why it allowed the offer to slip. We would expect more details on the ‘good mid teens’ margin goal and more explicit plans on how to get
there. We would also highlight that following the ‘shock’ of the Kraft approach, Cadbury management is likely to be in a much stronger position in terms of garnering internal/ union support for additional head count/plant reduction over what is currently proposed – the rationale likely being better cooperate with what you know than risk Kraft coming back again in six months.
Note we forecast an operating profit margin of 15.8% by 2011, compared with consensus of 14.5%, resulting in us being 12% ahead of consensus at the EPS level (2011E). Hence we see the stock justifying a 780p stand alone value (today), which we believe to be above consensus stand alone fair values.
We would also expect Cadbury to elaborate more on plans beyond 2011. We have previously argued that even beyond VIA, Cadbury will have far too many plants (60). Further plant rationalisation could lead to a next leg in the margin story, or more likely in our view release savings to fund the next expansionary mode into emerging markets where the confectionery landscape remains highly fragmented.
We have increased the probability of this outcome from previously 5% to 25% based on what we assess to have been hints from Kraft CEO Irene Rosenfeld with the Q3 results that Kraft will not push to maximum level of cash financing (“its about how much Cadbury is worth”). At the same time, although some may argue that the weaker-than-expected Q3 sales may highlight the need for Kraft to acquire Cadbury, we believe it may also rekindle demands from Kraft shareholders that there is more to be done in terms of turning around the existing business (which had shown signs of improvement in recent quarters) before approaching a large acquisition form a
preferred position of strength.
MJ:
3. Another bidder steps up and we start to move bids north of 900p. We do not interpret an apparent lack of counterbid interest at this stage as indicative of a lack of eventual interest. Surely any counter bids would only materialise once Kraft has shown its hand, given its financing limitations.
In our note ‘Come on Irene! Dealt at 850p’ September 11, we outline a counterbid scenario of a Nestle-Hershey combination bid at 940p per Cadbury share, incentivised by the threat of an otherwise more competitive confectionery landscape and desire for lower costs arising from production/ brand sharing benefits.
While we still do not rule this scenario out, Nestle with its heightened commitment to buy back shares at the time of its Q3 sales (raised the buy back from CHF4bn in 2009 to CHF7bn) would suggest it is not exploring a (combination) bid for Cadbury.
We have previously argued that Unilever may have interest in acquiring Cadbury to expand its category exposure; however, the economics are less favourable given a lack of manufacturing synergies. Also according to the Telegraph 5 November Unilever CFO Jim Lawrence is alleged to have said Unilever is not interested in a Cadbury bid. Similar to Unilever, PepsiCo would be limited in its scope of extracting manufacturing synergies, though the strategic logic stacks up from a distribution perspective and we should not rule out interest here nor from private equity either.
We have lowered our probability of a counter bid scenario from 25% to 20% based on net recent developments outlined above.
NH:
ta
11:26AM
MJ:
Where next?
NH:
(TL, I think the market has underestimated the chance the Irene will walk. 600p without a bid?)
NH:
can I just mention some fees changes at the LSE
MJ:
er, do you have to?
MJ:
sounds rather dry
NH:
well, it is
NH:
but interesting also
NH:
the LSE are getting rid of this 10p fee
MJ:
eh?
NH:
well, in the past if you stuck an big order up and got hit say 1000 times
NH:
before it was finished by algos and black boxes
NH:
you paid 10p a hit
NH:
but thee LSE have now changed this to a fee per transaction
NH:
so say it takes you 1,000 hits to sell 500,000 Vodafone
NH:
or whatever
NH:
there is a flat fee now of 10p per transaction
MJ:
Right
MJ:
That will make some of the private client brokers happy
NH:
indeed
NH:
here are the rule changes
NH:
and note
NH:
that the LSE is also allowing hidden orders
NH:
again this seems to be something to stop the black boxes
NH:
mucking around with orders
NH:
and it is different to an iceberg
NH:
which the LSE use at the moment
NH:
Enhancements to London Stock Exchange’s Order Book Pricing and Functionality effective 1 December
Pricing Changes
On 1 September 2009 London Stock Exchange Group implemented a new fee structure for its UK order books. Following customer feedback, the Group is pleased to announce further enhancement to its UK pricing designed to increase the predictability of trading fees and lower the overall cost of trading. Members will benefit from an overall reduction in trading fees.
NH:
Summary of Changes
The minimum charge of 10p will be charged once per executed order, rather than per execution.
Removal of SETS internaliser trading tariff for self-executed trades.
Customers who have opted into the SETS internaliser Post Trade Service, where self executed trades do not progress onto clearing & settlement will continue to benefit from the post trade savings. Self executed trades will continue to be included in the volume discount scheme.
The minimum charge of 10p will be charged once per executed order, rather than per execution.
Removal of SETS internaliser trading tariff for self-executed trades.
Customers who have opted into the SETS internaliser Post Trade Service, where self executed trades do not progress onto clearing & settlement will continue to benefit from the post trade savings. Self executed trades will continue to be included in the volume discount scheme.
NH:
Introduction of Hidden Orders
Hidden orders will become available on SETS and the international order books. Hidden orders will enable customers to execute larger sized orders on the central order book, with the opportunity for mid price execution. All customers will be able to benefit from the additional liquidity and the opportunity for price improvement.
NH:
Features of hidden orders:
Hidden orders will be subject to MiFID ‘Large in Scale’ criteria. Non-MiFID securities will also be subject to a minimum order size.
Customers can configure a Minimum Execution Size.
Hidden orders can be entered with a ‘limit’ price or at a ‘mid’ price. Mid-price executions can be intra-tick.
Hidden orders can be pegged to Mid Price or to Best Bid and Offer (BBO pegs only available through FIX 5.0 interface)
Hidden executions will be charged to the user at 0.25bp premium to the standard tariff. Counterparties will be charged as standard.
Icebergs will move to value based charging. Fixed order entry fees for Iceberg orders will be removed, visible peaks will be charged at the standard rate and the passive hidden portion charged at the hidden rate.
Hidden orders will be subject to MiFID ‘Large in Scale’ criteria. Non-MiFID securities will also be subject to a minimum order size.
Customers can configure a Minimum Execution Size.
Hidden orders can be entered with a ‘limit’ price or at a ‘mid’ price. Mid-price executions can be intra-tick.
Hidden orders can be pegged to Mid Price or to Best Bid and Offer (BBO pegs only available through FIX 5.0 interface)
Hidden executions will be charged to the user at 0.25bp premium to the standard tariff. Counterparties will be charged as standard.
Icebergs will move to value based charging. Fixed order entry fees for Iceberg orders will be removed, visible peaks will be charged at the standard rate and the passive hidden portion charged at the hidden rate.
NH:
if you are interested
NH:
the rest can be found at
MJ:
LSE share price?
NH:
hang on
NH:
they look to be up 21.5p at 919p#
11:32AM
MJ:
what else is moving?
NH:
well
NH:
Bryce is moving out of his desk
NH:
because his reuters screen
NH:
is not connected to the network
NH:
bit of an issue for a markets reporter
NH:
anyway
NH:
markets wise
NH:
Inmarsat are moving
NH:
now, this is probably one of the least followed companies in the FTSE 100
MJ:
Satellite communications right?
NH:
yep
NH:
sat phones
NH:
shipping tracking
NH:
that sort of thing
MJ:
Must be popular post Raj no?
NH:
what sat phones?
MJ:
Yup. New must-have bandit item apparently
MJ:
All the cool kids have them
NH:
indeed
MJ:
So I have heard
NH:
anyway
NH:
excellent set of results from ISat today
NH:
blew expectations out of the water
NH:
big demand from its shipping customers
MJ:
is that pirate related?
NH:
dunno
MJ:
Aharrrr
NH:
think most of it is for Imarsat’s maritime broadband service
NH:
got a couple of notes on this
NH:
which should explain it
NH:
First
NH:
here’s Investec
NH:
Q3 results blow away forecasts
Q3 results are excellent, with core revenues +8.7% YoY and EBITDA a frankly
astonishing +9.3% vs. consensus. Driving this is Maritime data revenues and
strong demand for Fleet and FleetBroadband services. Stratos figures are
more mediocre, but with EBITDA inline, costs are being well controlled. We
expect material bottom-line upgrades to core forecasts, slightly tempered by
Stratos. But these results reaffirm ISAT’s defensive growth qualities. BUY
Q3 results are excellent, with core revenues +8.7% YoY and EBITDA a frankly
astonishing +9.3% vs. consensus. Driving this is Maritime data revenues and
strong demand for Fleet and FleetBroadband services. Stratos figures are
more mediocre, but with EBITDA inline, costs are being well controlled. We
expect material bottom-line upgrades to core forecasts, slightly tempered by
Stratos. But these results reaffirm ISAT’s defensive growth qualities. BUY
NH:
Demand for maritime data has driven sales of Fleet and FleetBroadband, with
overall active terminal growth of +12.0% YoY. This drove Maritime revenues
+9.2% YoY (+6.3% vs. our forecasts), and specifically data +13.1% YoY.
Land revenue growth of +4.0% YoY is a solid performance, with ARPUs hitting a
peak level this year at $274 per month. Meanwhile Aeronautical revenue growth
of +10.1% YoY is below our (bullish) forecast of +25%, but this is more than
offset by the strong performance in the other reporting lines.
Core revenues of $177m (+8.7% YoY, +2.6% vs Cons) are +1.7% vs. IBP; the
key outperformer was Maritime. Tight cost control means that core EBITDA at
$133m (+18.4% YoY) is up a frankly astonishing +9.3% vs. consensus.
This has helped core FCF to grow +90.6% YoY to $102.9m – a very positive
indicator after a lacklustre Q2 performance.
In Stratos revenue of $160m (-4.8% YoY, -3.5% vs. IBP) is weaker than
forecast; MSS is the key culprit here ($138m, -3.5% YoY). Meanwhile Stratos
broadband revenues of $22m (-12.7% YoY, +2.7% vs. IBP) are modestly better
than expected. However weaker revenues have been offset by cost cuts, with
EBITDA of $27.0m (-6.5% YoY, -1.8% vs. consensus)
overall active terminal growth of +12.0% YoY. This drove Maritime revenues
+9.2% YoY (+6.3% vs. our forecasts), and specifically data +13.1% YoY.
Land revenue growth of +4.0% YoY is a solid performance, with ARPUs hitting a
peak level this year at $274 per month. Meanwhile Aeronautical revenue growth
of +10.1% YoY is below our (bullish) forecast of +25%, but this is more than
offset by the strong performance in the other reporting lines.
Core revenues of $177m (+8.7% YoY, +2.6% vs Cons) are +1.7% vs. IBP; the
key outperformer was Maritime. Tight cost control means that core EBITDA at
$133m (+18.4% YoY) is up a frankly astonishing +9.3% vs. consensus.
This has helped core FCF to grow +90.6% YoY to $102.9m – a very positive
indicator after a lacklustre Q2 performance.
In Stratos revenue of $160m (-4.8% YoY, -3.5% vs. IBP) is weaker than
forecast; MSS is the key culprit here ($138m, -3.5% YoY). Meanwhile Stratos
broadband revenues of $22m (-12.7% YoY, +2.7% vs. IBP) are modestly better
than expected. However weaker revenues have been offset by cost cuts, with
EBITDA of $27.0m (-6.5% YoY, -1.8% vs. consensus)
NH:
We expect material upgrades to core forecasts, tempered modestly at the
revenue line by weaker Stratos figures. Nonetheless our group bottom-line
forecasts are likely to increase by c.10%, driven by the excellent core EBITDA
profits.
revenue line by weaker Stratos figures. Nonetheless our group bottom-line
forecasts are likely to increase by c.10%, driven by the excellent core EBITDA
profits.
NH:
and Caz
NH:
Inmarsat Core (83% of group EBITDA): Excellent results with strong growth in all areas and good cost control. Q3 revenues $176.7m (+8.7%), 3% above consensus (source: Company). Core EBITDA of $133m (+18%), 10% above consensus, helped by cost phasing and F/X.
Stratos (17% of group EBITDA): Revenues 3% below our estimate at $160m (-5%), but EBITDA only 1% below at $27m (-6%).
Outlook unchanged: “We are well positioned to deliver our targets for the full year.”
Stratos (17% of group EBITDA): Revenues 3% below our estimate at $160m (-5%), but EBITDA only 1% below at $27m (-6%).
Outlook unchanged: “We are well positioned to deliver our targets for the full year.”
NH:
Estimate changes: For Inmarsat Core, we see scope to increase our revenue and EBITDA estimates by 2-3% to $690m (+9%) and $493m (+14%). For Stratos, we reduce our revenue and EBITDA estimates by 1-2%. At a group level, this translates to unchanged revenue estimates at $1,035m (+4%) but a 3% increase in our EBITDA estimates to $595m (+12%). This implies around a 5% increase in EPS to $34 cents.
NH:
but here’s the thing on ISat
NH:
growing quickly
NH:
but not cheap
NH:
and I am not sure Harbinger are ever going to bid
NH:
For 2009, we estimate Inmarsat is trading on an EV/EBITDA of 9.9x, a PER of 29x, an equity free cash flow yield of 6.5% with a normalised free cash flow multiple of 16.8x and a 3.2% dividend yield. This highlights a significant re-rating of the shares year to date that reflects both a strong share price performance and the recent strength of sterling against the US dollar (Inmarsat remains a geared play on the US$ broadly with a 3:2 relationship in theory).
MJ:
29x earnings?
NH:
We remain strong supporters of the story given the strong secular growth plus 40% of revenues from government related areas. However, we would also highlight the shares have performed strongly in the run up to today’s results. The unknown factor continues to be the value of Inmarsat’s spectrum as implied by the interest from Harbinger in the US and the award of S-band spectrum in Europe. This spectrum provides Inmarsat with significant option value over and above its core business. However, the timing of any value realisation in this respect remains difficult to judge and potentially still some way off.
NH:
We remain strong supporters of the story given the strong secular growth plus 40% of revenues from government related areas. However, we would also highlight the shares have performed strongly in the run up to today’s results. The unknown factor continues to be the value of Inmarsat’s spectrum as implied by the interest from Harbinger in the US and the award of S-band spectrum in Europe. This spectrum provides Inmarsat with significant option value over and above its core business. However, the timing of any value realisation in this respect remains difficult to judge and potentially still some way off.
MJ:
Neil are you there? (he says covered in soot and bits of computer)
MJ:
Helooo?
MJ:
Widepsread internet faliure. Neil is still locked out
MJ:
(FT Alphaville would like to appologise for the current delay to your service etc etc)
MJ:
My own comments also come up about a minute after I have posted them
11:55AM
NH:
Right
NH:
no sure how long for
MJ:
Wow – we are back?
NH:
in fact
NH:
I might just give up and go home
NH:
Okay
NH:
Miles where were we?
MJ:
I think we were talking about Inmarsat
NH:
yes, decent results
NH:
but I think we covered that
11:56AM
NH:
What about some RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
(Oldie – watch it. that’s a yellow)
MJ:
I think people could do with a bit if RAW after that
MJ:
Anything on the boil?
NH:
er not really
MJ:
(to mix metaphors)
NH:
although
NH:
Sun Orcale
NH:
more rumblings that things not going well
NH:
apparently the EU met Oracle last week, and they were not able to iron out their differences
NH:
so, we can expect a statement of conditions this week
NH:
somehow think this deal is not going to happen
11:58AM
NH:
damn
NH:
just lost my Reuters screen
NH:
what are the oil stocks doing Miles
MJ:
crash, bang, wallop
NH:
the bigs ones that is?
MJ:
One sec
BP (BP:LSE): Last: 594.00, up 10.1 (+1.73%), High: 595.60, Low: 584.00, Volume: 7.59m
Royal Dutch Shell (RDSB:LSE): Last: 1,788, up 33.5 (+1.91%), High: 1,791, Low: 1,755, Volume: 1.07m
NH:
hmmm, right. Interesting note from Cazenove out this morning. Pushing the idea that BP will start to increase its dividiend
NH:
among other things
NH:
here it is
NH:
Big oil – we stay OVERWEIGHT in Q4 2009
Market expectations are set low – After years of disappointing investors with respect to earnings oil price capture, operational reliability, resource regeneration and production growth, ‘big oil’ may finally be turning itself around. Investor expectations – as judged by the sector’s high yields and low PE multiples – are, perhaps unsurprisingly, set low. Following some usually large earnings beats in Q3, we continue to feel that 2009 and 2010 consensus earnings expectations are now set fair – so measured PE multiples are more credible than they have been for some time.
Market expectations are set low – After years of disappointing investors with respect to earnings oil price capture, operational reliability, resource regeneration and production growth, ‘big oil’ may finally be turning itself around. Investor expectations – as judged by the sector’s high yields and low PE multiples – are, perhaps unsurprisingly, set low. Following some usually large earnings beats in Q3, we continue to feel that 2009 and 2010 consensus earnings expectations are now set fair – so measured PE multiples are more credible than they have been for some time.
NH:
We stay downstream averse, we still favour BP and BG Group – Although the sector has historically showed a tendency to underperform the market during Q4, we stay OVERWEIGHT the space to play valuation recovery. In the final quarter of 2009, we also stay downstream averse and continue to favour companies with secure dividends, restructuring momentum, differentiated production growth and triggers such as exploration related news flow. This still leads us to names such as BG Group, BP and Chevron.
BP – we now forecast measured dividend growth from BP in 2010 – a 5% dividend yield and a PE multiple of 11x support a share price of 700p.
BP – we now forecast measured dividend growth from BP in 2010 – a 5% dividend yield and a PE multiple of 11x support a share price of 700p.
NH:
BG Group – we wait for 2-3 key well tests in the pre-salt to undermine any authority behind the market’s more bearish estimates of this resources likely unit value. If we were to raise our conservative NPV estimate from $3.5 to $4.5 per pre-salt boe, it would add 50 pence to our core NAV of £12 per share.
ENI – We maintain our cautious outlook on this name. The lack of a clear and credible dividend policy and exposure to the very weak outlook for European gas demand are negatives that will continue to weigh on the share price. We have an IN-LINE recommendation on ENI.
OMV – We believe that the recent underperformance of the stock vs the European sector will continue. We highlight OMV’s operating earnings exposure to weak European refining margins and acquisition risk – two strong negatives for the stock, in our view. We have a UNDERPERFORM recommendation on OMV.
ENI – We maintain our cautious outlook on this name. The lack of a clear and credible dividend policy and exposure to the very weak outlook for European gas demand are negatives that will continue to weigh on the share price. We have an IN-LINE recommendation on ENI.
OMV – We believe that the recent underperformance of the stock vs the European sector will continue. We highlight OMV’s operating earnings exposure to weak European refining margins and acquisition risk – two strong negatives for the stock, in our view. We have a UNDERPERFORM recommendation on OMV.
12:01PM
NH:
right
NH:
let’s pay a quick visit to small cap corner
MJ:
yippee
MJ:
I do like this bit
MJ:
So
MJ:
what we got?
NH:
well, there’s results from Earthport
NH:
this is the small money transfer company we have been following
MJ:
and?
NH:
well
NH:
not great
NH:
there’s a pretty big qualification
NH:
In forming our opinion on the financial statements, we have considered the adequacy of the disclosures made in the financial statements concerning the following matters:
NH:
the disclosure made in note 2 to the financial statements explaining that the financial statements have been prepared on an ongoing basis, the validity of which depends on the Company’s and Group’s ability to generate sufficient cash flows to finance current and future liabilities as they full due. We have been unable to obtain sufficient evidence that the Company and Group will be able to generate sufficient cash flows to finance these liabilities.
NH:
Opinion: disclaimer on view given by financial statements
Because of the potential significance, to the financial statements, of the matter referred to in the paragraph above, we are unable to form an opinion as to whether:
• the financial statements give a true and fair view of the state of the Group’s and the parent Company’s
affairs at as 30 June 2009 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Because of the potential significance, to the financial statements, of the matter referred to in the paragraph above, we are unable to form an opinion as to whether:
• the financial statements give a true and fair view of the state of the Group’s and the parent Company’s
affairs at as 30 June 2009 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
MJ:
Err, that doesn’t look good
NH:
and then there are a few other curios
NH:
such as this
NH:
As at the balance sheet date, £20,000 was due to the Company from J Bergman, a director of the Company, relating to unpaid share capital. Since the balance sheet date this amount has been paid by J Bergman.
NH:
which sounds
NH:
very unusal
NH:
but at least he has paid it back
NH:
also Mr Bergman and chairman Mike Harrison, who some of you might remember as the chairman of Cedar Group
MJ:
yes, a special IT blow up that one
NH:
yes
NH:
anyway
NH:
in spite of presiding over failed takeover talks, a profit warning
NH:
and a share price that has tanked
NH:
well, they are both paid £2450,000
MJ:
hang on a non executive chairman paid £245,000
MJ:
that’s a bit odd no?
NH:
what the fact they have doubled their salaries in a terrible year for the company
NH:
I’d say that was odd
MJ:
So, one question
MJ:
why, oh why are the shares up?
NH:
well, Earthport have stuck some statement out about the middle east
NH:
and well the market thinks it is positive
NH:
personally I think it is meaningless
NH:
totally meaningless
NH:
have a look
NH:
Earthport, the global payments utility, is pleased to announce an update on the adoption of its service following the sales and marketing efforts of Earthport Middle East Ltd. (a fully owned subsidiary of Earthport Plc).
NH:
Following a number of incremental client wins, Earthport’s service is now operational in 119 Exchange House branches offering a “To Bank” remittance service, where Earthport is the exclusive provider of this service and technology. Leading Exchange Houses across the United Arab Emirates are offering this functionality to their customers on a white-label basis.
NH:
Earthport expects to see further adoption of this service before the end of December 2009 to additional branches in the United Arab Emirates, Kuwait, Oman and Jordan.
More than US$8Bn was remitted from the United Arab Emirates in 2008 through Exchange Houses and this market is estimated to be growing at 5% annually.
MJ:
Really now. Where are the numbers?
Earthport (EPO:LSE): Last: 25.00, down 0.25 (-0.99%), High: 28.75, Low: 25.00, Volume: 564.22k
NH:
er dunno
NH:
there aren’t any
MJ:
Allw well and good saying that last bit, but there is very little detail there
NH:
indeed
12:08PM
NH:
OK
NH:
we have made it through
NH:
amazingly
NH:
apologies for the loss of service midway through today’s show
MJ:
A large individual faliure, as RBS would put it
NH:
Who should read this?
All staff.
All staff.
What is happening?
We are currently experiencing issues with our Internet Access.
How will this affect me?
Internet Access has either been slow or intermittently unavailable.
What action are we taking?
FT support staff are investigating with our 3rd Parties.
The next update is due:
The next update will be in 30 minutes or sooner if the incident is fully resolved.
NH:
Internet Access (Degradation)
MJ:
That is to prove we are not just slacking
NH:
but everyone seems more interested in Izy’s video
NH:
so tomorrow
NH:
we will just open up the show to that
NH:
and hit the streets on a story hunt
NH:
before we go
NH:
this made me laugh at the weekend
NH:
from the Sunday Times
NH:
Kemsley puts Pele in goal
YOU couldn’t make it up. Paul Kemsley – Lord Sugar’s former Apprentice lieutenant, whose £500m property empire imploded in June – has bought America’s most famous soccer club, the New York Cosmos.
Kemsley plans to turn the team, dormant since 1985, into a global lifestyle brand with retail, leisure and music arms. But how? Last I heard, “soccer” wasn’t all that popular in America.
He will have some help from Pele, the world’s greatest footballer, who ended his playing career at the Cosmos in 1977: Pele will be president of the company. Simon Greenberg, Chelsea football club’s departing communications and public affairs director, is also said to be on board. It is unclear whether there will be any role for Kemsley’s other pals, including Sports Direct founder Mike Ashley or Topshop’s Sir Philip Green.
NH:
The club’s first game under new management will be held next summer in Central Park. It will see the Cosmos play Kemsley’s beloved Spurs – he was vice-chairman at the club until October 2007. In the meantime, presumably, he will draft in some players and coaches. Rumours that he will try to lure David Beckham have so far proved unfounded.
Kemsley bought the rights for an undisclosed amount from Cosmos president Peppe Pinton. Just how much of his fortune the former property tycoon has retained since his firm Rock Investment went into administration will now be revealed as he attempts to build the side up.
A friend of Kemsley’s is unambiguous: “This will be the biggest bounceback since Donald Trump.” Just what we need.
NH:
that’s me done
NH:
I have had enough
NH:
cya tomorrow
NH:
bye
MJ:
Bye all
MJ:
Thanks for putting up with the delays
MJ:
and thank you for the comments