Markets live chat transcript for the chat ending at 12:18 on 11 Nov 2009. Participants in this chat were: Neil Hume, FT (NH) Miles Johnson, FT (MJ) Bryce Elder (BE)
NH:
hola
NH:
and welcome to Markets Live
NH:
FT Alphaville’s daily markets chat
NH:
Miles has been recalled this morning
NH:
and Bryce is on the substitutes bench
NH:
actually he’s not in yet
NH:
must be at a meeting
NH:
and he is missing out
NH:
because there lots and lots of good news
NH:
FTSE 100 at a new high for the year
NH:
and the highest since Sept 18 last year
MJ:
Whooohooooo
MJ:
etc
NH:
that’s right
NH:
bull market Britain
NH:
unemployment is slowing
NH:
RTRS-UK OCT CLAIMANT COUNT +12,900 (CONS. +20,000), SMALLEST RISE SINCE APRIL 08, JOBLESS RATE AT 5.1%
09:30 11Nov09 RTRS-UK ILO JOBLESS +30,000 IN 3 MTHS TO SEPT, SMALLEST RISE SINCE MAR-MAY 08, RATE 7.8% (CONS. 8.0%)
09:30 11Nov09 RTRS-UK LFS EMPLOYMENT +6,000 TO 28.927 MLN IN 3 MTHS TO SEPT, FIRST RISE SINCE MAY-JULY 2008
09:30 11Nov09 RTRS-UK AVG EARNINGS +1.2% 3 MTHS TO SEPT YY (CONS. +1.5%), SEPT ALONE +1.0% YY
09:30 11Nov09 RTRS-UK AVG EARNINGS EX-BONUS +1.8% 3MTHS TO SEPT YY VS +1.9% 3 MTHS TO AUG (CONS. +1.8%)
NH:
inflation is benign
NH:
The BoE maintained its forecast that CPI is likely to be below the 2%
inflation target in 2 years time, according to its central scenario in the
November Inflation Report, based on market expectations for a repo rate of
1.1% in Q3 of 2010 and 1.6% in Q4 of 2010.
inflation target in 2 years time, according to its central scenario in the
November Inflation Report, based on market expectations for a repo rate of
1.1% in Q3 of 2010 and 1.6% in Q4 of 2010.
NH:
Though there was range of views on the inflation forecast within the MPC,
noting significant risks in both directions, the inflation report set out
that the MPC judged that risks to CPI being below or above 2% in 2 years as
broadly balanced
noting significant risks in both directions, the inflation report set out
that the MPC judged that risks to CPI being below or above 2% in 2 years as
broadly balanced
NH:
actually I have a very funny comment on the inflation report
NH:
whcih I can put up in a bit
NH:
and there’s also some good news from the housing market
NH:
The Council of Mortgage Lenders (CML) reported that the number of mortgages granted for house purchases rose by 2% month-on-month to 50,600 in September and were up by 43% year-on-year. Within this, loans to first-time buyers rose by 5% month-on-month to 19,700 in September and were up by 45% year-on-year. Meanwhile, loans to home movers were flat month-on-month at 31,000 in September but were 43% higher year-on-year. The value of house loans rose by 1% month-on-month and 37% year-on-year in September to £7.0 billion.
NH:
The CML data indicate that mortgage activity continues to trend up gradually but steadily from the record low levels seen around the turn of the year, as it is supported by low mortgage interest rates and the significant fall in house prices from their 2007 peak levels to their March/April 2009 troughs. The CML also indicate that the temporary removal of stamp duty on properties costing less than £175,000 has had a modest impact in lifting housing market activity.
NH:
and if we could just find a way to sort out the huge fiscal deficit
NH:
then all is set fair
MJ:
pre-Xmas rally on the cards then?
MJ:
FTSE to what?
MJ:
5,500
NH:
er that looks a bit conservative
NH:
6,000
MJ:
Hume the Bull eh?
NH:
NH:
yep
NH:
MJ:
When the last bears turn… etc
NH:
where’s that City Index iphone app
NH:
let’s have £200 a point
NH:
on FTSE Dec call
NH:
come on
MJ:
I am starting to get worried
MJ:
Hope Paul can set you straight
MJ:
Yhis is very un-H&M Capital behaviour
NH:
why are you worried?
NH:
The UK is clearly coming out of recession
NH:
we are on the road to recovery
NH:
even if Merv’s comments
NH:
make litte sense
NH:
have a look at this
NH:
from a broker I know
NH:
made me laugh
NH:
BOE’s KING’s COMMENTS MURDERS GBP/EUR…
Sadly we don’t have Spitting Image, but the volte face view of
the BOE is almost a satire of its once grand self…
In Summary:
- King thinks Growth and Inflation will rise together…hmmm,
perhaps like Zimbabwe?
- King thinks QE will stimulate consumer spending…hmm, like
those savers that are in a position to spend don’t because
real yields are less than zero.
- King wants us to eventually get back to pre-crisis levels, hmm
was’nt that thing that caused all this?
- In short, the mkt see the bullsh*t for what it is, GBP is
going to parity & Fitch, sadly are correct…
Sadly we don’t have Spitting Image, but the volte face view of
the BOE is almost a satire of its once grand self…
In Summary:
- King thinks Growth and Inflation will rise together…hmmm,
perhaps like Zimbabwe?
- King thinks QE will stimulate consumer spending…hmm, like
those savers that are in a position to spend don’t because
real yields are less than zero.
- King wants us to eventually get back to pre-crisis levels, hmm
was’nt that thing that caused all this?
- In short, the mkt see the bullsh*t for what it is, GBP is
going to parity & Fitch, sadly are correct…
MJ:
MJ:
rather apt
11:08AM
NH:
Right
NH:
Miles where’s the FTSE 100 now
MJ:
up 57 points at 5287
MJ:
but it’s not really the UK employment or inflation data
MJ:
that’s doing it
MJ:
I think the driver is the stonking data we have had out of China overnight
NH:
that would explain why the miners are flying
Fresnillo (FRES:LSE): Last: 900.00, up 57.5 (+6.82%), High: 900.00, Low: 854.00, Volume: 334.02k
Randgold Resources (RRS:LSE): Last: 4,833, up 256 (+5.59%), High: 4,850, Low: 4,700, Volume: 256.57k
Rio Tinto (RIO:LSE): Last: 3,161, up 118 (+3.88%), High: 3,186, Low: 3,107, Volume: 2.89m
BHP Billiton (BLT:LSE): Last: 1,839, up 69 (+3.90%), High: 1,841, Low: 1,807, Volume: 5.05m
MJ:
actually the China take was very, very good
The Truth! Unvarnished. The price of rice always falls. Shanghai investors do not sell stocks. Torch protestors are vile.
MJ:
look at this
MJ:
Industrial Production up 16.1% vs. 15.5% expected.
MJ:
Chinese retail sales up 16.2% vs. 15.7%
MJ:
urban fixed investment was reported up 33.1% YTD
MJ:
Trade surplus more than doubled from September to $24bn
NH:
(Marcus – Hello hope you are doing some DD)
MJ:
all in all
MJ:
it looks like China is going to grow by more than 10% this year
NH:
China bubble alert
NH:
somebody call Albert Edwards
MJ:
actually everything seems to be rising
MJ:
Outside of China
MJ:
Japan machinery orders up 10.5% in September (more than twice consensus forecasts)
NH:
wow
11:11AM
NH:
Right
NH:
lots of comment about Dragon Oil
NH:
and the bid from ENOC
NH:
here’s what caused the fuss
NH:
0918 GMT [Dow Jones] Opposition to a takeover bid on Dragon Oil (DRS.DB) from Emirate National Oil Company at 455p/share could grow following the rejection of the offer from Dragon’s largest shareholder Baillie Gifford, says NCB Stockbrokers analyst Peter Hutton. “Baillie Gifford hold 4.2% of Dragon – one third of the votes necessary to block the approval by 75% of the minority shareholders under the proposed scheme of arrangement.[This] will provide a significant catalyst around which other holders may choose to group. I have not yet spoken to any holder who has indicated that they are minded to accept the 455p.” Shares -0.7% at EUR4.88. (JHR)
NH:
and as DLC investor notes
NH:
this is a scheme
NH:
so 75% vote is required at the meeting
NH:
but Enoc cannot vote its holding
NH:
so
NH:
there is a chance
NH:
a real chance this could be block
NH:
if others join in
NH:
there has been heavy trading in the stock this morning
NH:
Cazenove doing most of the business
MJ:
Shares down 8p at 439p
MJ:
At one point this looked like a sure thing for many people
MJ:
Any idea when the shareholder vote is meant to be?
NH:
just checking the doc
NH:
for a timetable
NH:
not there
MJ:
Rats
NH:
will have to check
NH:
anyway
NH:
worth keeping tabs on
NH:
any idea who the other shareholders are
NH:
hang
NH:
on
NH:
reuters can help
NH:
JP Morgan Asset Management
NH:
3%
NH:
Axa 2.2%
NH:
and other JPM vehicle 2.45%
MJ:
That data can be a bit old though so woth double checking
NH:
Will do that later
11:16AM
NH:
Okay
NH:
we are very sorry
NH:
to hear about the demise of Taxloss’s lunch van
NH:
but we have a suggestion
NH:
another supplier
NH:
one that’s remarkably still i business
MJ:
Could it be…
MJ:
What, the bird food Sam used to get sent through?
NH:
to eat more healthily
grazing all day is a great way of getting more balance and variety by helping you eat plenty of healthy stuff. Whether graze completely replaces your lunch or you add a little something extra, it can do wonders for your work time nutrition
NH:
o get the most out of your workout
graze boxes are ideal if you are into fitness. graze gives you extra energy, vitamins and minerals to suplement a healthy diet. Check out our pre- and post-workout boxes.
MJ:
right
MJ:
Looks very tasty
NH:
ah
NH:
Sam’s lunchbox
NH:
good gag that
NH:
actually
NH:
the graze box wasn’t too bad
NH:
on Dragon Oil
NH:
I wonder if shareholders
NH:
might fancy staying in vehicle once it is delisted
NH:
has happened before
11:20AM
NH:
right enough of all this positive, upbeat stuff
NH:
let’s look at something a bit more negative
MJ:
Thats more like it
MJ:
what about the gangland-style execution at Reed Elsevier?
NH:
well
NH:
we will come to that
NH:
but first let’s have a look at National Express
NH:
because there has been another boardroom row
11:21AM
MJ:
So
MJ:
£360m cash call launched
MJ:
but the 18.5% shareholder voted against it
NH:
yep, Jorge Cosmen
NH:
and had a good rant to boot
NH:
have a look at this
NH:
from the rights issue announcement
NH:
MATTERS RAISED BY JORGE COSMEN
NH:
Whilst the Board has resolved to proceed with the Rights Issue, one of the directors, Mr. Jorge Cosmen, did not vote in favour of the relevant Board resolutions required in connection with its implementation. Mr. Cosmen has advised the Board that he feels, in accordance with his duties as a director of the Company, that the Rights Issue is not in the best interests of the Company and all Shareholders.
The Board considers it important to explain to Shareholders the reasons Mr. Cosmen expressed for his assessment, as conveyed to the Board by Mr. Cosmen at a Board meeting on 6 November 2009. They are reproduced below:
The Board considers it important to explain to Shareholders the reasons Mr. Cosmen expressed for his assessment, as conveyed to the Board by Mr. Cosmen at a Board meeting on 6 November 2009. They are reproduced below:
NH:
It is Mr. Cosmen’s opinion that the Group has experienced disappointing performance in recent years and that it currently lacks strong management, a clear strategy, and long term financial security. Mr. Cosmen’s belief is that the Group should not pursue the Rights Issue in isolation as it is, in his opinion, not the best solution for the Company and Shareholders to confront the Group’s short and long term challenges. He does, however, recognise that a rights issue, combined with a more comprehensive package, could form part of a better solution to these challenges.
NH:
In Mr. Cosmen’s opinion, the requirement to recapitalise the Group ahead of 31 December 2009, the next date as at which the Group’s bank covenants are tested, is an artificial deadline. This is based on Mr. Cosmen’s belief that lending banks have behaved rationally in every precedent situation, even when dealing with companies in much more serious financial difficulty. Mr. Cosmen believes that bank covenant amendments and maturity extensions in relation to debt facilities as a pre-condition to rights issues have become the norm. As Mr. Cosmen also believes that the Group will have to refinance the Facilities on less attractive terms when they reach maturity, he considers that the Group will therefore incur incremental interest expense in the near future in any event.
Mr. Cosmen has advised the Board that, in his opinion, unless a more material amendment/ extension exercise is undertaken now in relation to the Facilities, the Group risks jeopardising any refinancing next year by completing a large rights issue in isolation. In Mr. Cosmen’s opinion, this is because the Group may not be in a position to return to the equity markets next year for a second time, if required.
Mr. Cosmen has advised the Board that, in his opinion, unless a more material amendment/ extension exercise is undertaken now in relation to the Facilities, the Group risks jeopardising any refinancing next year by completing a large rights issue in isolation. In Mr. Cosmen’s opinion, this is because the Group may not be in a position to return to the equity markets next year for a second time, if required.
MJ:
crikey
MJ:
but
MJ:
the question is, will Cosmen take up his rights?
NH:
not sure
NH:
and he hasn’t said
NH:
but he faces a pretty tough choice
NH:
say he doesn’t
NH:
his stake get diluted to around 5.5%
NH:
and he loses his board seat
MJ:
hobson’s choice then
NH:
yes
NH:
but
NH:
does he have the £70m to take up his entitlement in full
MJ:
hmmm
MJ:
if you flick back through the regulatory statements
MJ:
it looks as if he used his NEX stake a collateral for a loan
NH:
yep
NH:
and
NH:
these are just rumours
NH:
there is talk that Mr Cosmen has invested in a bit of Spanish property
MJ:
oops
MJ:
oh dear
NH:
I think what’s most likely here is a tail swallow
NH:
where by his sells enough nil paid shares to keep his holding above 10%
NH:
and thus his board seat
MJ:
presumably
MJ:
the rights issue is underwritten anyway
MJ:
so it doesn’t matter if Cosmen doesn’t take up his rights
NH:
yep
NH:
although there was some confusion about this first thing
NH:
and that’s why NEx shares fell to 300p
NH:
but have since rallied and are now down 4.3p at 333.7p
MJ:
any comment?
NH:
hang on
NH:
this is from Arbuthnot
NH:
The group has announced a fully underwritten 7-for-3 rights issue to raise net proceeds of c.£360m. The issue will take place at a price of 105p, a 69% discount to last night’s closing price of 338p. This is a 40% discount to our estimated TERP of 175p. Jorge Cosmen, Deputy Chairman, did not vote in favour of the board resolutions required to implement this rights issue. This raises material uncertainty over the intentions of the Cosmen family, the group’s largest shareholder with c.19% of the group. However, given that the rights issue is fully underwritten, we do not anticipate problems in raising the required funds.
NH:
Our initial analysis suggests that the rights issue proceeds should bring the group within the maximum 3.5x net debt/EBITDA covenant for the December 2009 test and leave the group with an acceptable level of leverage, even if the cross default clauses on the East Anglia and c2c franchises were to be enforced successfully by the Department for Transport.
Our Reduce recommendation and 340p target price are under review.
MJ:
Thanks for that
11:27AM
NH:
DLC Expert
NH:
a question
NH:
can ENOC delist
NH:
if they get to 75%
NH:
this refers to the Dragon Oil discussion from earlier
Dragon Oil (DGO:LSE): Last: 437.50, down 9.5 (-2.13%), High: 446.75, Low: 433.50, Volume: 9.49m
11:28AM
NH:
Right
NH:
Miles has to leave early today
NH:
lunch with the FD of a blue chip company
NH:
very flash
NH:
so
NH:
what you got for us?
NH:
any gossip Cadbury-wise?
MJ:
Well
MJ:
Paulson coming in has obviously set a few chins a-wagging
MJ:
For those that missed
MJ:
Mr Paulson, arch-shrewdie, disclosed a 2 per cent holding in Cadburys after yesterday’s close
MJ:
Bought in at 759.59p
MJ:
. KEY INFORMATION
Name of person dealing (Note 1) Paulson & Co. Inc.
Company dealt in Cadbury Plc
Name of person dealing (Note 1) Paulson & Co. Inc.
Company dealt in Cadbury Plc
Class of relevant security to which the dealings being disclosed relate (Note 2) Ordinary Shares
Date of dealing 2009-11-09
2. INTERESTS, SHORT POSITIONS AND RIGHTS TO SUBSCRIBE
(a) Interests and short positions (following dealing) in the class of relevant security dealt in (Note 3)
Long Short
Number (%) Number (%)
(1) Relevant securities 20,373,256 1.49%
(2) Derivatives (other than options) 8,116,401CFD 0.59%
(3) Options and agreements to purchase/sell
Total 28,489,657 2.08%
MJ:
There is the RNS, just as proof for doubters out there
MJ:
And here is a bit of the FT story
MJ:
Paulson & Co, the New York hedge fund, has disclosed a 2.08 per cent stake in Cadbury following Kraft’s £9.8bn hostile bid this week, indicating a rise in hedge fund interest in the confectionery group.
Paulson & Co was founded by billionaire John Paulson, who has become one of the most closely followed hedge fund managers after his bet against subprime mortgages became the most profitable trade in history in 2007, with profits of more than $10bn.
Paulson & Co was founded by billionaire John Paulson, who has become one of the most closely followed hedge fund managers after his bet against subprime mortgages became the most profitable trade in history in 2007, with profits of more than $10bn.
NH:
So Paulson is clearly expecting a bump.
NH:
How much is the current offer worth?
MJ:
Dunno
MJ:
need to look at the spreadsheet
MJ:
Or ask Taxloss
MJ:
Who is running a live one i think
NH:
yes
NH:
plugged into Yahoo finance
11:31AM
NH:
Lizzie 2% of a $10bn company
NH:
is a pretty big go
NH:
in a merger arb situationo
NH:
you don’t work at a newspaper do you?
NH:
anyway
NH:
Also discussions of tactics are being conducted among those in the arb community.
MJ:
I love the term “arb community”
NH:
(Rain in takeover situations any stake above 1% must be disclosed)
MJ:
Makes them sound like an endangered south American tribe or something
MJ:
anyway
MJ:
we do like to hear what the village elders of the arb community have to say
MJ:
As they are obviously very good at this sort of thing
MJ:
And one recent theory of how Cadbury could flush out a higher offer
MJ:
is to make a bid for something like Ferrero
NH:
Ferrero? You mean “Monsieur, with these chocolates, you’re really spoiling us”, Ferrero?
MJ:
Yup
MJ:
They do excellent business in embassies across the world etc
MJ:
Under UK takeover law Cadbury are not allowed to undertake any major corporate action
MJ:
such as a takeover, when it is itself in a takeover period
MJ:
Without a vote
MJ:
So a shareholder vote would have to be called
NH:
right
MJ:
But
MJ:
Simply put
MJ:
The idea is that Cadbury’s would then say to its shareholders
MJ:
if we do this we will be worth north of eight quid a share
NH:
This sounds a little far fetched don’t you think?
MJ:
Yeah it does
MJ:
But interesting as a tactical consideration
NH:
I can’t see how buying Ferrero would be a popular idea for Cadbury shareholders.
NH:
And we don’t really do poison pills in the UK like they do in the US.
NH:
in fact
NH:
it would be a really bad idea
NH:
a merger with Lindt
NH:
perhaps
NH:
that’s more realistic
MJ:
Its all speculation of course
MJ:
Not even 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.
MJ:
But gives an insight into where peoples heads are at after the offer
NH:
(Wing Wan – you are on a yellow card for stupidity)
11:36AM
NH:
Right
NH:
another question on the Dragon Oil stuff
NH:
so they can delist at 75%
NH:
but they would need 90%
NH:
to force a squeeze out
NH:
is that right?
NH:
of course
NH:
being a minority shareholder in a listed company is not fun
11:37AM
NH:
Right
NH:
Miles are you heading off
NH:
or do you have a few more mins
MJ:
Couple more mins
MJ:
Time to look at Reed at least
MJ:
so
MJ:
blood on the boardroom floor at the Anglo Dutch publisher
MJ:
chairman Anthony Habgood has knifed the CEO Ian Smith
NH:
yep, in the job for just 8 months
NH:
and that has unsettled the market
NH:
shares down 27.1p at 457p
MJ:
a fall of 5.6%
NH:
must say I am surprised by the reaction
NH:
(braveheart go here – http://teabagandtrombone.blogspot.com/2009/11/what-on-earthport-is-going-on.html#comments)
NH:
Smith was never the right man of the job
NH:
he had no media experience
NH:
and the guy Habgood – who by the way has a very good track record at Bunzl – he has brought
NH:
in a very good replacement
NH:
a Reed veteran with plenty of experience
MJ:
hmmm
MJ:
why the negative reaction?
NH:
not sure
NH:
the trading statement out today is not great
NH:
But not that bad
NH:
perhaps, the market thinks
NH:
the real reason for the knifing is that Smith was pushing for a merger with Wolters Kluwer
MJ:
NH:
and Smith’s has previous when it comes to transformational deal
MJ:
Taylor Wipeout, of course
MJ:
the merger of Taylor Woodrow and George Wimpey
MJ:
he mastermined that deal
MJ:
if that’s the right word
NH:
yep, six months after taking over as CEO
NH:
and don’t know whether Smith was plotting something smilar
NH:
or he was knifed because because of a strategy disagreement
NH:
the reason Reed was forced to raise $1bn earlier this year was partly to fund that
NH:
strategy
NH:
investing more in the business
NH:
but also to pay down the debt taken on the previous CEO
NH:
anyway
NH:
plenty of comment on this
NH:
but the best note I have seen is from Execution
NH:
so will put that up
.
.
NH:
Reed Elsevier announced today that Ian Smith has resigned as CEO (was appointed only in March to replace Crispin Davies), raising more uncertainty on the amount of incremental investments needed to restructure the business. The choice of an internal candidate (Erik Engstrom ex-CEO of Elsevier) also suggests that the board would not support a transformational deal, which was our best case scenario. Reed Elsevier is not cheap after adjusting for the risk of margin contraction, on our estimates. We advice switching to Pearson.
Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.
NH:
STRATEGIC DISAGREEMENT? – Ian Smith was appointed CEO only after full year results in February and he is resigning with effect from today. Ian Smith’s strategy centered around “tens of millions” of additional investments (Execution $100m) to restore organic revenue growth, a radical change from his predecessor’s strategy centered around margin expansion. But Ian Smith was also known for radical solutions (see merger of Taylor Woodrow after only six months of being appointed CEO), suggesting that he might have been in strategic disagreement with the Board with regards to a transformational deal: Wolters Kluwer (as widely rumored in the press) or Informa/UBM could all have allowed significant cost savings.
We don’t know what’s going on. The original source that detailed the Providence approach for Informa will not talk to us at present. If you own the shares and are worried that the bid will fail, sell the shares and stop worrying.
NH:
NEW CEO INTERNAL – Erik Engstrom (previously CEO of STM division) has been appointed group CEO, which comes as a surprise given that all internal candidates had been considered a year ago, but the Board had preferred Ian Smith. It also comes as a surprised because we understood that Andrew Prozes, CEO of Lexis Nexis, was originally considered to be the favourite internal candidate. However, the STM division was the only one posting positive organic growth at H1 results. In any case, the new CEO will need time to assess the level of investments needed for the group and will likely announce his new strategic plan no sooner than full year results next February.
NH:
WEAK/CAUTIOUS OUTLOOK – The company expects current trends to continue for the rest of the year and in 2010, worse than originally expected. The company also expects a “modest decline in adjusted operating margin in 2010″, suggesting increased risk of margin compression resulting from previous underinvestment. Reed has also brought forward its trading update to today. At group level, H1 trends continued (org rev growth was -7% in H1): (A) Elsevier is showing “revenue progress”, was +3% in H1; (B) Lexis Nexis showed “modest decline”, was -3% in H1; (C) B2B continuation of H1 trends, was -20%.
VALUATION EXPENSIVE ON EV/ SALES – Reed Elsevier is a silver bullet sell for Q4. On our estimates (2% and 8% below consensus on EPS 09-10E), Reed Elsevier trades broadly in line with industry peers. The stock also trades in line with the industry average based on EV/EBITA and FCF yield. However, if our thesis of inferior organic growth and operating margin decline is correct, these valuation metrics may be less relevant. Interestingly, on an EV/sales Reed Elsevier is the most expensive stock in the European media sector. We rate the shares a sell with ~25% downside from current levels.
VALUATION EXPENSIVE ON EV/ SALES – Reed Elsevier is a silver bullet sell for Q4. On our estimates (2% and 8% below consensus on EPS 09-10E), Reed Elsevier trades broadly in line with industry peers. The stock also trades in line with the industry average based on EV/EBITA and FCF yield. However, if our thesis of inferior organic growth and operating margin decline is correct, these valuation metrics may be less relevant. Interestingly, on an EV/sales Reed Elsevier is the most expensive stock in the European media sector. We rate the shares a sell with ~25% downside from current levels.
NH:
actually, this is pretty good from MF Global
NH:
The exact reasons for Ian Smith’s sudden departure are still unclear: we can only speculate that his lack of specific experience in the information industry made it difficult for him alongside four highly-experienced divisional bosses.
Erik Engstrom is a very good choice in our view: he has been running Reed’s biggest division, Elsevier
Science & Medical, for 5 years, and prior to that was also steeped in media and publishing as a private equity investor and as CEO/COO of Random House and Bantam Doubleday North America.
TRADING: The trading update for 2009E suggests trends are broadly as we expected: 1H trends have continued in 2H09E. With regard to 2010E, Reed Elsevier now indicates that it expects the adjusted operating margin to decline modestly in 2010E.
NH:
This includes the so-called “step-up in investment” that Ian Smith had signalled in July. In
speaking to them, Reed Elsevier now describes the step-up in investment more as a “continuation of existing investment programs” which have been taking place, especially in Legal. We currently have a modest decline in the margin in 2009E to 25.6% but a modest rise back to 26% in 2010E, which therefore appears too optimistic now. (Recall that, despite all the challenges, the operating margin actually increased modestly in 1H09A).
speaking to them, Reed Elsevier now describes the step-up in investment more as a “continuation of existing investment programs” which have been taking place, especially in Legal. We currently have a modest decline in the margin in 2009E to 25.6% but a modest rise back to 26% in 2010E, which therefore appears too optimistic now. (Recall that, despite all the challenges, the operating margin actually increased modestly in 1H09A).
NH:
actually
NH:
this could be a good buying opportunity
NH:
reed is far from expensive
NH:
and I would back Habgood to sort things out
NH:
could be a long haul though
MJ:
Right I am really off now
MJ:
Bye all
NH:
see ya Miles
11:45AM
NH:
Daddy
NH:
you are right
NH:
Wing Wan
NH:
you’re off
NH:
second yellow
NH:
banned
NH:
BE:
OFF! OFF! OFF! OFF!
NH:
excellent Bryce has come off the bench for the last 15mins of the match
NH:
good morning
BE:
Hello.
BE:
On for the last 15 minutes.
BE:
The old journeyman replacing the wonderkid.
BE:
And, having just walked into the office, I don’t have a scoob what’s happening.
BE:
But there seems to be some interest in the Sainsbury statement to the right.
BE:
Is that worth looking at, Neil?
NH:
I think so
NH:
they are up
Sainsbury (J) (SBRY:LSE): Last: 336.30, up 8.7 (+2.66%), High: 342.00, Low: 330.10, Volume: 7.33m
NH:
must confess
NH:
I have been busy with other stuff
NH:
but any concerns that growth
NH:
might have been slowing
NH:
seems to have been hit on the head
NH:
have we got any comment?
NH:
here’s Oriel
NH:
J Sainsbury’s H1 figures are solid enough but the drama lies elsewhere in this sector:
slowing LFL at JS means that investors would be better off in Tesco or M&S.
PBT is a smidge ahead of us (£303m) and the market (£300m) at £307m: it seems that a
touch more operational gearing has dropped through the P&L.
slowing LFL at JS means that investors would be better off in Tesco or M&S.
PBT is a smidge ahead of us (£303m) and the market (£300m) at £307m: it seems that a
touch more operational gearing has dropped through the P&L.
NH:
There won’t be any change to FY numbers though: the expectation is for slowing LFL and
a shade more competition in the industry in H2 and we expect this expectation to be met.
Management has done a good job here but the momentum is with the “recovery” plays (if
ever you could call Tesco that). We remain convinced that the latter will put together a
sustained period of LFL outperformance and the eye-catcher in TNS and Nielsen
yesterday was M&S.
All the food retailers remain on the same multiple (c.13x (including M&S)): JS is no sell,
as bid rumours will always swirl, but it’s no BUY either. Buy Tesco and M&S.
a shade more competition in the industry in H2 and we expect this expectation to be met.
Management has done a good job here but the momentum is with the “recovery” plays (if
ever you could call Tesco that). We remain convinced that the latter will put together a
sustained period of LFL outperformance and the eye-catcher in TNS and Nielsen
yesterday was M&S.
All the food retailers remain on the same multiple (c.13x (including M&S)): JS is no sell,
as bid rumours will always swirl, but it’s no BUY either. Buy Tesco and M&S.
NH:
and here’s Merrill
NH:
Good half, very cautious outlook
Having already reported sales growth, the new news today is earnings.
Earnings were better than expected with the group reporting £307m of underlying
PBT versus our estimate of £299m which was in-turn, inline with consensus. The
beat was partly driven by better financials (£3m better than expected, plus a
further £1m for joint ventures) and better EBIT (£4m better).
Having already reported sales growth, the new news today is earnings.
Earnings were better than expected with the group reporting £307m of underlying
PBT versus our estimate of £299m which was in-turn, inline with consensus. The
beat was partly driven by better financials (£3m better than expected, plus a
further £1m for joint ventures) and better EBIT (£4m better).
NH:
Heading into H2, the group sounds relatively cautious suggesting that it is happy
with current PBT estimates of £586m and its 3-4% LFL guidance. Given the beat
to H1 profits and a normal shape of profit split 50:50, that looks especially
cautious for all there is a little extra expense from new space growth. In addition,
whilst inflation is now more or less out of the system, effective LFL guidance of 0-
2% for H2 looks fairly cautious and could disappoint some. We would expect
consensus to drift up a touch but Sainsbury seems relatively content to not let
expectations run away
with current PBT estimates of £586m and its 3-4% LFL guidance. Given the beat
to H1 profits and a normal shape of profit split 50:50, that looks especially
cautious for all there is a little extra expense from new space growth. In addition,
whilst inflation is now more or less out of the system, effective LFL guidance of 0-
2% for H2 looks fairly cautious and could disappoint some. We would expect
consensus to drift up a touch but Sainsbury seems relatively content to not let
expectations run away
NH:
The dividend of 4p for the half is as expected with working capital was a little
weaker than expected. The group also highlighted the value of its property
increased £1bn to £8.5bn, £800m of which was due to yield changes.
Reading the share reaction this morning is difficult with even a little bidspeculation
still priced in. The beat to H1 profits should help move the shares
higher but the very cautious outlook is likely to put a cap on that this morning. We
expect the shares flat to slightly up this morning.
weaker than expected. The group also highlighted the value of its property
increased £1bn to £8.5bn, £800m of which was due to yield changes.
Reading the share reaction this morning is difficult with even a little bidspeculation
still priced in. The beat to H1 profits should help move the shares
higher but the very cautious outlook is likely to put a cap on that this morning. We
expect the shares flat to slightly up this morning.
BE:
Got Credit Suisse as well, if you’re interested.
BE:
H1 results were slightly ahead of market expectations. As expected ahead of
the important Christmas/New Year trading period, there was no update on
current trading or any material change to outlook. Also unsurprisingly, there is
no reference to recent takeover speculation. We would expect consensus
2009/10E PBT, which we have long considered low, to now increase by 1-2%.
Details. Underlying PBT was £307m (+18.5% y-on-y after adjusting for IAS19
pension accounting), compared to our estimate of £303m and consensus of
£301m (Reuters). Underlying operating profit was £342m (CS estimate £340m)
and margin was 3.28%, which are increases of 10% and 15bp respectively (of
which 6bp due to lower fuel prices). Underlying EPS (11.9p) and DPS (4.0p)
were similarly slightly ahead of our expectations. At all levels, we consider this a
robust performance in a very tough 2009 retail environment. However in our
view, margin recovery continues to be relatively modest compared to Morrison.
the important Christmas/New Year trading period, there was no update on
current trading or any material change to outlook. Also unsurprisingly, there is
no reference to recent takeover speculation. We would expect consensus
2009/10E PBT, which we have long considered low, to now increase by 1-2%.
Details. Underlying PBT was £307m (+18.5% y-on-y after adjusting for IAS19
pension accounting), compared to our estimate of £303m and consensus of
£301m (Reuters). Underlying operating profit was £342m (CS estimate £340m)
and margin was 3.28%, which are increases of 10% and 15bp respectively (of
which 6bp due to lower fuel prices). Underlying EPS (11.9p) and DPS (4.0p)
were similarly slightly ahead of our expectations. At all levels, we consider this a
robust performance in a very tough 2009 retail environment. However in our
view, margin recovery continues to be relatively modest compared to Morrison.
BE:
Elsewhere within the detail, Sainsbury has confirmed the acceleration of the
store opening/extension programme and strong non-food growth (2.5x the rate
of food). It is targeting 15% pre-tax IRR from its investments. It has also
updated on property valuation – up by £1bn to £8.5bn since last valued in
March. On a more cautionary note, the net pension deficit has increased to
£668m from £222m in March due to a lower discount rate (now 5.4% from
6.5%) and higher assumed inflation (to 3.1% from 2.8%).
Our view. Although the shares have come back from the recent takeover
speculation highs, we still think the fundamentals are already discounted. On
our top-end-of-the-range estimates, the shares trade at 13.7x and 12.1x P/E for
2009/10E and 2010/11E, which is similar to both Morrison (which we think has
more margin/profit recovery) and Tesco (more diversified growth).
store opening/extension programme and strong non-food growth (2.5x the rate
of food). It is targeting 15% pre-tax IRR from its investments. It has also
updated on property valuation – up by £1bn to £8.5bn since last valued in
March. On a more cautionary note, the net pension deficit has increased to
£668m from £222m in March due to a lower discount rate (now 5.4% from
6.5%) and higher assumed inflation (to 3.1% from 2.8%).
Our view. Although the shares have come back from the recent takeover
speculation highs, we still think the fundamentals are already discounted. On
our top-end-of-the-range estimates, the shares trade at 13.7x and 12.1x P/E for
2009/10E and 2010/11E, which is similar to both Morrison (which we think has
more margin/profit recovery) and Tesco (more diversified growth).
NH:
thanks for that
11:52AM
NH:
RAW time
BE:
Good good.
NH:
with some small cap corner mixed in
NH:
RAW
NH:
it’s not working
BE:
Miles triggered it earlier I think.
NH:
right
NH:
so
NH:
a buzz around in legal & general this morning
NH:
talk of a break up bid
NH:
led by Resolution doing the rounds
BE:
Hm.
NH:
someone buying the asset management arm
NH:
and the rest going elsewhere
BE:
Legal up 5% at 85.5p at the mo
NH:
that said
NH:
there could be another explanation
NH:
this was covered by
NH:
the FT earlier in the week
NH:
CEIOPS
BE:
What’s that then?
NH:
Committee of European Insurance and Occupational Pensions Supervisors
NH:
well
NH:
they have sent a letter to the Eu
NH:
campaigning about the new solvency rules
NH:
here’s the cover letter
NH:
Following your letter of 12 June 2009, in which you asked CEIOPS to deliver
final advice on the vast majority of areas covered in the first and second
round of consultation by October 2009, I am pleased to submit to you the
final advice adopted during CEIOPS Members’ Meeting held on 29 and 30
October 2009.
Two consultations were held on 37 papers from March to September 2009.
CEIOPS received more than 3.600 comments during the first wave (CP 26 –
37) and close to 20.000 comments during the second wave (CP 39 – 62).
Comments were submitted by national and European associations as well as
by individual insurance undertakings. 11% of the submissions came from
stakeholders other than (re)insurance industry, such as academia,
consultants and lawyers, showing the increasing interest in the Solvency II
project.
final advice on the vast majority of areas covered in the first and second
round of consultation by October 2009, I am pleased to submit to you the
final advice adopted during CEIOPS Members’ Meeting held on 29 and 30
October 2009.
Two consultations were held on 37 papers from March to September 2009.
CEIOPS received more than 3.600 comments during the first wave (CP 26 –
37) and close to 20.000 comments during the second wave (CP 39 – 62).
Comments were submitted by national and European associations as well as
by individual insurance undertakings. 11% of the submissions came from
stakeholders other than (re)insurance industry, such as academia,
consultants and lawyers, showing the increasing interest in the Solvency II
project.
BE:
Yeah – vague memories of all this ….
BE:
Some theory about UK insurers having to raise £50bn
BE:
Scare story.
NH:
yeah
NH:
to cover annuity policies
NH:
anyway
NH:
this lot are campaiging against that
NH:
and seem to making some headway
NH:
other than that
NH:
someonne mentioned a Lengias stock earlier
BE:
NH:
right
NH:
shares up 19% to 0.95p
NH:
talk in the market
NH:
is that the company is preparing a fund raising
NH:
and the proceeds
NH:
will be used to buy into something exciting in Africa
NH:
with Tullow
NH:
and another small cap company
BE:
Er – which of Leni’s copious portfolio are we talking about here?
NH:
sorry Solo Oil
11:59AM
NH:
actually
NH:
while we are on the oils
NH:
interesting note out of Citi today
NH:
on Shell
NH:
and its Pearl GTL
NH:
I really did not realise how big this is
BE:
Huge, is it?
NH:
an $18bn investment employing 50,000 people
NH:
in Qatar
NH:
will represent around 25% of growth at Shell
NH:
over the next five years
BE:
Presumably you’re mentioning this because there’s an analyst trip planned?
NH:
yep, in one
NH:
and Citi
NH:
have done a little preview on it
NH:
More than ‘Kicking the Tyres’ — The Nov 23/24th analyst & investor field-trip to
Qatar is an important milestone in the rehabilitation of the Shell investment thesis.
With Pearl GTL the most significant consumer of capital and contributor to growth,
cash recovery and valuation, a perception that the asset is on-time, on-budget and
can deliver the expected cash-flow accretion is key in our view.
Qatar is an important milestone in the rehabilitation of the Shell investment thesis.
With Pearl GTL the most significant consumer of capital and contributor to growth,
cash recovery and valuation, a perception that the asset is on-time, on-budget and
can deliver the expected cash-flow accretion is key in our view.
NH:
Moving to Delivery Mode — With Pearl a microcosm of the concerns around project
execution that the market has leveled at Shell, this trip is both a coming-out for the
most significant of the ‘mega-projects’ and signals a change in emphasis from
management, who over the next year should be able to move on to the front-foot on
project delivery – underpinning our positive thesis.
execution that the market has leveled at Shell, this trip is both a coming-out for the
most significant of the ‘mega-projects’ and signals a change in emphasis from
management, who over the next year should be able to move on to the front-foot on
project delivery – underpinning our positive thesis.
NH:
No Revelations, Potential to De-risk — Representing c25% of 2010-12E growth, a
c$9bn invest-to-harvest swing in FCF, and c10% of our Shell SOTP valuation this is
an unusual instance for an IOC where the perception of a single asset has a
noteworthy impact at the group level. If the takeaway from this trip is that this asset
is on time (2011 ramp-up), on budget (not materially above $18bn 2006 guidance)
and can deliver the expected cash accretion, we argue that the expected 12-18
month de-risking of the investment thesis is underway.
c$9bn invest-to-harvest swing in FCF, and c10% of our Shell SOTP valuation this is
an unusual instance for an IOC where the perception of a single asset has a
noteworthy impact at the group level. If the takeaway from this trip is that this asset
is on time (2011 ramp-up), on budget (not materially above $18bn 2006 guidance)
and can deliver the expected cash accretion, we argue that the expected 12-18
month de-risking of the investment thesis is underway.
NH:
Investment Thesis — Shell (RDSa.L; £18.60; 1M)/(RDSb.L; £18.15; 1M) is our
preferred of the European Super Majors. We believe that the market discounts
an inconsistent outlook for volumes and capex, with project delivery over the
next 12-18 months set to de-risk a valuation range of £20-23/sh between $65-
80/bbl mid-cycle.
preferred of the European Super Majors. We believe that the market discounts
an inconsistent outlook for volumes and capex, with project delivery over the
next 12-18 months set to de-risk a valuation range of £20-23/sh between $65-
80/bbl mid-cycle.
BE:
“rehabilitation of the Shell investment thesis” seems a bit strong.
NH:
yeah
NH:
but
NH:
I hadn’t realised how important this project was
BE:
Similar to Thunderhorse at BP I guess
BE:
Or that big Brazilian project for BG
NH:
actually I have something else to toss into the mix on big oil
NH:
and where they might be looking next
BE:
Go on
NH:
i guess it has read across to Regal et al
NH:
it’s from a sector watcher
NH:
The logical follow-on to the RDS / TLW news is a little contribution to the debate we’ve been having here recently. It seems self-evident that the big boys (with the honourable exception of XOM, interestingly) are very shy about conducting high impact wildcat exploration. All the big new basin discoveries in the past while have been independent-led: TLW / Kosmos / APC in Ghana, TLW / HOIL in Uganda, CNE in Rajasthan (and potentially Greenland in 2011).
NH:
Whilst XOM has been active in new plays – think of the Mitra farm-in in SE Asia, and Sterling in Madagascar – it seems to have been the model to let others discover the resources and reserves, and then buy them wholesale – ENI has been particularly active this way, reaching a long way down the size scale – think of Burren and First Calgary, for example.
NH:
Whilst the one swallow of RDS farming into Guyana does not make an exploration-led summer, we think it is inevitable that the big boys are seeing themselves outbid for discovered resources by the cash buyers from the East, and will be forced to move themselves back into the exploration game in a meaningful way sooner rather than later. So, bottom line? Keep an eye on new high potential basins (Falklands, East Africa) and pick your targets carefully, and you may get an accelerated result as the big boys bulk up their exploration & acquisition budgets to reflect the 2010 oil price expectations and the necessity for reserve replacement.
NH:
so
NH:
keep an eye on
NH:
Rockhopper
NH:
Desire
NH:
and even
NH:
Borders & Southern
BE:
Right.
BE:
Well, it’s a theory I guess.
NH:
just a talking point
NH:
and of course
NH:
I guess
NH:
we could mention GKP
NH:
in the same breath
12:06PM
NH:
Right
NH:
we must bring things to a close
NH:
Bryce and I have lunch
NH:
with the CEO
NH:
of a City stockbroker
BE:
Hang on – what’s this Earthport stuff about to the right?
NH:
some blog. I read it earlier. doesn’t really say anything new
NH:
goes over a lot of old ground
NH:
Blog is called Market Main
NH:
i guess the key question with Earthport now
NH:
is that it needs to deliver some revenue
NH:
if not
NH:
things look grim
Earthport (EPO:LSE): Last: 25.75, down 0.75 (-2.83%), High: 25.75, Low: 25.75, Volume: 72.18k
NH:
and on pay
NH:
there is something very subtle going on
NH:
the chairman and CEO
NH:
weren’t paid £250,000
NH:
that’s there cost to the company
BE:
Eh?
BE:
Can you shed any more light on that?
NH:
I can’t I have asked
NH:
but the company seem confident
NH:
they won’t need a cash call
NH:
anyway
NH:
some late RAW
NH:
on Heritage
Heritage Oil (HOIL:LSE): Last: 455.30, up 5.3 (+1.18%), High: 461.60, Low: 451.90, Volume: 140.38k
NH:
Chatter about big divi to shareholders if they sell Ugandan assts
NH:
thanks VP
NH:
Aero Investory
NH:
has gone
NH:
predictable really
NH:
RTRS-AERO INVENTORY PLC – APPOINTMENT OF JOINT ADMINISTRATORS
12:09 11Nov09 RTRS-AERO INVENTORY PLC – BANKS HAVE NOT BEEN PREPARED TO PROVIDE ADDITIONAL SHORT TERM FUNDING
12:09 11Nov09 RTRS-AERO INVENTORY PLC
NH:
Following the announcement of 3 November 2009 the contracts of employment of
Rupert Lewin (Chief Executive), Hugh Bevan (Finance Director) and Martin Dodge
(Chief Operating Officer) were terminated, although Rupert Lewin and Martin
Dodge remain as directors.
Rupert Lewin (Chief Executive), Hugh Bevan (Finance Director) and Martin Dodge
(Chief Operating Officer) were terminated, although Rupert Lewin and Martin
Dodge remain as directors.
The reviews into the value of stock as well as the accuracy of recent financial
reports provided to the banks referred to in the Company’s announcement of 3
November 2009 have yet to be completed. These matters are now under the control
of the joint administrators.
NH:
and to think
NH:
they turned down a bid in excess of 600p
NH:
a year or so ago
BE:
28 July: offer talks called off
BE:
Nov 11: company goes belly up
BE:
Who are the noddies on this one?
NH:
well, there’s an BarCap guy
NH:
Roger Davis (born 4 June 1956)
Non-executive Director
Non-executive Director
Roger Davis joined the Company as a non-executive director on 8 January 2007. Mr Davis worked for Barclays plc from 1997 until December 2005. From January 2004, he was a director of Barclays plc and held the position of Chief Executive, UK Banking. Mr Davis had been a member of the Barclays Group Executive Committee since February 2003 and his previous roles for the Barclays Group included Chief Executive of Business Banking; Chairman and Chief Executive of Barclays Capital, Asia Pacific. Before joining Barclays, he spent 12 years in the British Army and 10 years in investment banking at Robert Fleming. He is Chairman of Gem Diamonds Limited and is also a non-executive director of Experian Group Limited.
NH:
another City hand
NH:
Laurence Heyworth re-joined the Company as a non-executive director on 7 September 2007. He was Chairman of the Company at the time of its flotation in 2000, before becoming executive Deputy Chairman in 2001-04 during which time he helped structure the business and played a key role in recruiting a number of the current management team in preparation for a period of substantial growth. He ceased to be an executive director in 2004 in order to establish two new businesses, in the fields of media and insurance. Between 1980 and 2000 Mr Heyworth worked for Robert Fleming (the investment bank) in various roles including Head of European Capital Markets.
NH:
and an aerospace
NH:
executive
NH:
called Frank
NH:
Frank Turner joined the company as a non-executive director in May 2000. He was appointed non-executive Deputy Chairman in June 2000 and became non-executive Chairman in July 2001 until stepping down on 1 January 2005. A fellow of the Royal Academy of Engineering, he spent 33 years at Rolls-Royce, becoming a main board director in 1988. He was Managing Director of Lucas Aerospace Limited as well as a director of Lucas Industries plc from 1992 to 1995. He was Chief Executive of British Midland Aviation Services Limited from 1996 to 1999 as well as a main board director of British Midland plc from 1997 to 1999, Chairman SRTechnics AG from 2001 to 2007 and Chairman of Symmetry Medical Inc from 2003 to 2009. He is currently Chairman of Oxford Aviation Academy and Potenza Group Limited and an advisor on aerospace to Star Capital Partners. A former Council Member of the Society of British Aerospace Companies and the Royal Aeronautical Society, he is currently President of the International Federation of Airworthiness.
BE:
Hugh Bevan, the FD, resigned a week ago
NH:
resigned???
BE:
Sorry – that should have said “resigned”
NH:
NH:
right
NH:
we are done
NH:
we have played an extra 15mins of injury time
NH:
and really must go
BE:
Yup – thanks for all the comments
NH:
indeed
NH:
thanks for logging in
NH:
(Tuna )
)BE:
(Liam – in that Tullow is selling, and they’re Hoil’s partner in Uganda, it’s not too outlandish to start adding 2 with 2 …)
NH:
and some breaking news
NH:
RTRS-RUSSIAN OIL FIRM GAZPROM NEFT SIGNS MEMORANDUM OF UNDERSTANDING WITH IRAN’S NIOC TO DEVELOP IRANIAN FIELDS
NH:
until the morrow
NH:
goodbye
NH:
I wonder
NH:
how the state department
NH:
are going to take that
NH:
cya