FT Alphaville » Markets live transcript 16 Nov 2009

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Markets live transcript 16 Nov 2009

Posted by Neil Hume on Nov 16 11:03.

Markets live chat transcript for the chat ending at 12:10 on 16 Nov 2009. Participants in this chat were: Neil Hume, FT (NH) Miles Johnson, FT (MJ)

NH:

Hey there

NH:

It’s 11.03

NH:

just

NH:

and time for Markets Live

NH:

FT Alphaville’s Daily Markets chat

NH:

and the home of small cap oil & gas stories

NH:

right

NH:

Miles is with this morning

MJ:

NH:

Okay

NH:

had a very strange email from Murph overnight

MJ:

oh yeah?

NH:

yeah

NH:

seems he went to the Madoff memorabilia auction on Sat

MJ:

right

NH:

expensive gig

NH:

apparently you had to pony up $250 cash deposit just to register

MJ:

crikey. That’s a bit steep

NH:

it is

NH:

great atmosphere though, according to Murph

NH:

and he managed to get an auction catalogue, which he says can be a prize in our next competition

MJ:

that’s cool – i’m sure there will be high demand

MJ:

So, did Murph bid for anything?

NH:

well, this is thing. I am not sure

NH:

his email wasn’t clear

NH:

think he might have bid

NH:

and won the Benrie’s New York Mets jacket

MJ:

hang on

MJ:

hang on

MJ:

That went for $14,500!!

MJ:

Now

MJ:

I don’t want to sound rude

MJ:

But I don’t think Murph’s credit would extend that far

NH:

you’re probably right, what with all the expense of moving to NY

NH:

but it’s the sort of thing he would do

MJ:

He would look very stylish in it, I do admit

NH:

and it could be a great investment, of course.

NH:

in the meantime, a nice piece of modern art to hang in his new flat

MJ:

hmmmm

MJ:

I am not sure about this

NH:

anyway

NH:

the auction of nearly 200 of Bernie’s personally possessions raised $1m

NH:

with all the proceeds going to the victims of the great Ponzi scam

NH:

and there’s a good piece in this morning’s paper about the auction

NH:

which you can find here

NH:

http://www.ft.com/cms/s/0/9f25bde4-d24f-11de-a0f0-00144feabdc0.html

NH:

and one final thing

NH:

Murph wants to the ROTR to know that he misses them

NH:

lots

MJ:

awww

MJ:

that’s nice

MJ:

very sweet

NH:

let’s move on

11:09AM

NH:

right, wider market

NH:

still blazing?

MJ:

sure is

MJ:

FTSE 100 up 64 points at 5359

MJ:

New high for the year and up for the fourth straight day

NH:

MJ:

index up 3% last week

NH:

MJ:

and it’s all down the miners

NH:

that’s pretty dull

MJ:

yep

MJ:

Look at this

Lonmin (LMI:LSE): Last: 1,721, up 129 (+8.10%), High: 1,733, Low: 1,627, Volume: 876.12k

Xstrata (XTA:LSE): Last: 1,064, up 50 (+4.93%), High: 1,075, Low: 1,044, Volume: 7.18m

Rio Tinto (RIO:LSE): Last: 3,291, up 157.5 (+5.03%), High: 3,304, Low: 3,235, Volume: 3.05m

Antofagasta (ANTO:LSE): Last: 902.00, up 34 (+3.92%), High: 905.00, Low: 879.00, Volume: 865.22k

Anglo American PLC (AAL:LSE): Last: 2,632, up 83 (+3.26%), High: 2,639, Low: 2,581, Volume: 2.58m

NH:

yawn

NH:

what’s triggered that?

MJ:

Standard routine

MJ:

weak dollar

MJ:

dollar index off 0.42%

MJ:

But more interestingly

MJ:

there was also the stronger than expected GDP data from Japan

NH:

of course

NH:

we should have a look at that

MJ:

there’s also results from Lonmin which look OK

NH:

and we can look at those later too

MJ:

oh, I should have also have mentioned

MJ:

the gold price has hit another record high

MJ:

At 1128.75 a troy ounce

MJ:

$ that is

NH:

that’s good for Randgold and the company whose name I can’t pronounce

Randgold Resources (RRS:LSE): Last: 4,925, up 218 (+4.63%), High: 4,967, Low: 4,892, Volume: 144.89k

Petropavlovsk (POG:LSE): Last: 1,300, up 36 (+2.85%), High: 1,320, Low: 1,300, Volume: 482.94k

11:13AM

NH:

Okay

NH:

a few piece of house keeping

NH:

Fitz

NH:

Xmas drinks

NH:

having chatted to a few readers

NH:

it looks like Fri Dec 18

NH:

could work

NH:

for some people

NH:

I think Taxloss is in the London area

NH:

as well as Monkey and TB

NH:

and Rossfromcross

NH:

Murph has relocated to NY

MJ:

Hence his ability to attend the Madoff auction

NH:

yeah, he wan’t one of those mystery bidders on the phone like you get at Christie’s

NH:

and TL

NH:

we don’t have to go to Ember

11:16AM

MJ:

Moving on

MJ:

Where to next?

NH:

well

NH:

just let me put a bit of comment up on the Lonmin figures

MJ:

Sounds good

NH:

it is from Liberum

NH:

Lonmin reported its FY2009 results this morning. Revenue was $1,062mn (a 3% beat on consensus) and underlying EPS came in at $(0.59) vs consensus estimates of $(0.61) vs Liberum estimates of $(0.72). The earnings beat was primarily driven by the revenue beat given the production cash cost for the year 2009 was R6,742/oz (C1 before base metal credit), above our estimate of R6,583/oz. We believe that the costs have to be controlled to ensure future profitability of the company, especially in light of c.45% per annum electicity tariff increases over the next two years. Basic EPS came in $(1.64) after exceptionals which include one-off restructuring costs and losses on forward contracts and movement of derivative liability on rights issues proceeds. Net debt was $113mn, better than our estimate of $164mn primarily driven by lower than estimated capex.

NH:

A small beat on earnings; cash cost still an issue: Lonmin’s FY09 financials were a small beat on consensus and Liberum estimates. However, the production cash cost of R6,742/oz was slightly above our estimate of R6,583/oz which we believe remains the key to the future profitability and operational recovery of the company. We estimate that the company is still cash cost (including sustaining capex) negative at current costs. Lonmin generated $(252)mn of free cash during 2009 and $(132)mn in 2H 09. We forecast free cash flow of $(88)mn for FY2010 expecting the company to become cash flow positive by FY2011 with $63mn of free cash.

NH:

Set for operational recovery: We believe that the company is now near its operational nadir and is set for operational recovery in 2010 as evidenced here in significantly improved performance at Hossy + Saffy shafts. However, we forecast a slow recovery given furnace failure at Number One potentially impacting 1H 10 production and tough underground mining environment. During FY2009, the group had suspended production from uneconomical operations incurring one off costs of $49mn which is expected to deliver annual benefits of c$90mn. We expect the company’s production to increase to 701koz of platinum sales in FY2010 from 684koz in FY2009.

NH:

Outlook was bullish in the context of short-term headwinds: Outlook commentary was generally positive for PGM pricing in the context of difficult industry conditions. The company expects moderate improvement in demand in 2010 with a sharp increase in 2011, something we view as necessary given current input cost and Rand pressures. Production guidance for next year is in line with previous guidance at 700koz. Interestingly, the company now seems resigned to power tariff increases from Eskom to be in the realm of 45% in 2010 and a similar amount the year after.
 Capex guidance for FY10 ahead of expectations: The company expects to spend $270m in FY10 potentially increasing to between $300-$350m in FY11 and beyond as three new shafts ramp up – although capex beyond 2010 will be dependant on the demand environment. This is higher than our forecasts.
 Maintain HOLD reccomendation: Fair value of £14.23/shr on 1.75x NAV. We forecast a continued 2010 recovery in PGM prices and estimate Lonmin’s SOTP fair value at £14.23/shr. Due to Xstrata M&A optionality we maintain our HOLD recommendation.

MJ:

That should keep the mining enthusiasts happy for now

NH:

(BigBear – Dec 18th for AV Xmas drinks)

11:18AM

MJ:

where to next?

NH:

well

NH:

what about Cazenove, the Queen’s stockbroker

NH:

and a bit of reflection on the news that JP Morgan are going to buy out the joint venture

MJ:

yeah, that was plastered all over the Sundays

MJ:

and there look to be some big payouts on the way

MJ:

JPMorgan Chase is set to take ownership of Cazenove, the 190-year old stockbroker, in a £940m ($1.57bn) deal that will trigger bumper pay-outs for some of the City’s leading financiers.
The US investment bank, which entered a partnership with Cazenove five years ago, is in advanced talks to buy for 500p-525p per share the 50 per cent of a joint venture with the stockbroker it does not already own, people familiar with the situation said yesterday.
This is more than double the most recent quoted price of 245p in April this year.
Senior figures at Cazenove, as well as many high-profile former employees, stand to make huge gains from the sale.
David Mayhew, the chairman who joined the group 40 years ago, is set to receive the largest pay-out, of £18m-£19m. Mr Mayhew owned more than 3.6m ordinary shares and another 400,000 in restricted shares at the end of 2008, according to public filings.

MJ:

Michael Power, who took over as finance director in 2001 and joined Cazenove’s board five years ago, and Alan Carruthers, who has been head of equities for six years, are in line for £10m and £5m, respectively.

MJ:

hmmm

MJ:

£940m

MJ:

50% premium

MJ:

Now, obviously Caz have had a good year

MJ:

actually a great year

NH:

(big bear, not sure yet. Ember is out though)

MJ:

given they have managed to get on the ticket for just about every cash call

NH:

my thoughts exactly

NH:

I can’t imagine this year’s profits are going to be repeated

NH:

unless we see a wave of M&A

MJ:

yep, the corporate restructuring/ balance sheet repair stage is almost behind us

MJ:

although there could be a number of IPOs next year

MJ:

and you have to think Caz will be involved somewhere along the line

NH:

of course, the other interesting thing here

NH:

is who gets the top jobs once the deal is completed

NH:

will things stay the same, or will there be changes

MJ:

Wasn’t there some gossip about his wanting to retire a while back?

NH:

there was

NH:

but now I read

NH:

he wants to stay and head up the European business

NH:

anyway, look at the backstory here is

NH:

that JPM have just announced a big shake up of their IB operations

MJ:

yes, Bill Winters has gone

MJ:

blown away by Jamie Dimon

MJ:

Jes Staley now the top man

NH:

and it seems all of the top folk at JPM Caz will want to make the new man aware of their abilities

NH:

and talents

NH:

in particular Ian Hannam

NH:

he’s Caz’s hyper-active deal maker

NH:

and look at the plug he got in the Sunday Times

NH:

The early days of the venture with JP Morgan were not easy either.
The Americans looked down their noses at Cazenove. They saw it as a
fading star that had slipped down the rankings. Compared with the
high rollers at JP Morgan, the Cazenove partners, despite their
heritage, occupied the cheap seats in banking, picking up small fees
for advisory work.

JP Morgan had bigger ambitions and had a balance sheet it wanted to
use. After some early losses of big clients, the business started to
hum. Cazenove was reinvented, it had access to debt, bond issuance
and other areas that hitherto its clients had never been involved in.

NH:

Then the joint venture caught the wave of overseas companies floating
in London. The City became an important profit contributor to JP
Morgan and helped it to become a bulge-bracket investment bank.

At a small gathering at Brooks’s, in the heart of London’s clubland,
one of the top brass at Cazenove gave a farewell speech some months
back. He said on behalf of his children and his children’s children
that he would like to thank one man who wasn’t there.

That man is Ian Hannam, a deal maker who joined the venture from the
JP Morgan side. The reason he was singled out is that he has helped
shake up Cazenove and turn it from trusted confidant to a money-
making machine. It was a flattering remark and there are others who
have played a key role such as Cazenove’s David Mayhew and his chief
executive Robert Pickering (who has since left). Cazenove holds
Mayhew in high regard but some say his style is that of a big oak
tree that doesn’t allow little acorns to grow in its shadow. The tie-
up with JP Morgan clipped a lot of the lower branches, allowing more
individuals to shine.

NH:

This joint venture now competes on a bigger stage — and in a world
where financial mergers typically end in tears, it has been an
exception to the rule.

MJ:

Stop

MJ:

Stop

MJ:

I am going to cry

MJ:

He said on behalf of his children and his children’s children
that he would like to thank one man who wasn’t there

MJ:

wow

NH:

I know. 80’s style business journalism

NH:

of course, this isn’t the first time the Sunday Times

NH:

brought the achievements of Mr Hannam – who is the architect of the Heritage/Genel deal FYI – to a wider audience

NH:

have a look at this from April 2008

NH:

DAVID MAYHEW, chairman of JP Morgan Cazenove, is leading the search for a new chief executive to replace the departed Robert Pickering. It is becoming clear that external candidates are being preferred against internal ones.

At what cost, however? The most prolific dealmaker within JP Morgan Cazenove is Ian Hannam. Last year he was accountable for a large slice of the investment bank’s revenues, advising on a string of deals.

Hannam has the skills to become chief executive, and if he is overlooked he could pack his bags.

That would be a giant headache for Pickering’s replacement and rich pickings for another firm that wants one of London’s most successful bankers.

NH:

Hannam has the skills to become chief executive, and if he is overlooked he could pack his bags.

MJ:

NH:

and 2005

NH:

THIS week will be a milestone for JP Morgan banker Ian Hannam when the Kazakh copper group Kazakhyms joins the FTSE 100. It will be the fourth Footsie company he has been heavily involved in creating and there are not many in the City who can match that.

Other firms that Hannam has been involved in include SAB Miller, the brewing group, and BHP Billiton, the mining giant, where he played a key role in bringing the two entities together and listing in London.

The other is Xstrata, the mining firm, where Hannam worked closely with its chief executive, Mick Davis, to create the group. In three years, through a series of acquisitions, Xstrata’s market value has grown from Pounds 2billion to Pounds 8.7billion.

MJ:

hang on

MJ:

I see a pattern developing here

NH:

er yes

NH:

shall we move on

MJ:

good idea

MJ:

but before we do

MJ:

I found an interesting article about Hannam’s 50 birthday party

NH:

go on

NH:

it wasn’t a Simon Cowell affair was it?

MJ:

a bit more refined than that

MJ:

but the prose in this Euromoney article is gushing

MJ:

Ian Hannam is another colossus of the capital markets. I was invited to his 50th birthday party in my guise as a “corporate wife”. Several hundred guests gathered in Belgravia for drinks, dinner and dancing.
Ian, unlike most anodyne bankers, has led an interesting and varied life. A renown rainmaker, he is chairman of equity capital markets at JP Morgan Chase. Hannam’s extensive deal list includes the merger and London listing of BHP Billiton, the creation of Xstrata and the flotation of South African Breweries.

MJ:

Ian became a boy soldier when he joined the Artists’ Rifles aged 17. I am enamoured of the Artists’ Rifles, which was formed in 1859 by art student Edward Starling. Dressed in grey surplus US Confederate Army uniforms, the regiment initially consisted largely of volunteers from the creative and professional classes. Painters, sculptors, actors and musicians marched with architects and lawyers. During the First World War, poets Rupert Brooke, Edward Thomas and Wilfred Owen all enlisted with the Artists’ Rifles. In 1946, the Artists were the only regular volunteer unit considered flexible enough to become part of the British elite fighting force, the SAS and were renamed the 21st Special Air Service (Artists) (Volunteers). Should Mack consider employing the Artists’ Rifles to scale the Lehman ramparts and bring back his former foot soldiers?

MJ:

The guest list for Ian’s party was impressive. Over drinks, clients, financial heavyweights (such as David Mayhew, chairman of JP Morgan Cazenove, and Naguib Kheraj, finance director of Barclays) mingled with Ian’s old army comrades. At dinner, I was seated between Peter Hambro, chairman of Peter Hambro Mining, and Philippe Jabre, former star trader with hedge fund GLG. “A story on either side,” a friend cackled.
Jabre was utterly delightful and appeared unruffled by his recent battle with the Financial Services Authority. “Gold is going to $650 an ounce,” he predicted correctly. It was $580 that day. I look forward to discovering his next career move.
The urbane Mr Hambro asked whether I was a Russophile and chided me for never having visited Russia where his company is one of the largest gold producers. Perhaps I should take Peter’s advice and pen a future column from Moscow. I might look quite fetching in one of those Dr Zhivago-style Busby fur hats, although perhaps not in high summer.
There are many Hannam anecdotes: tales of his bravado and bravery abound. The one I like best was told to me by his glamorous wife Debbie. In 1980, Ian was toiling away as an engineer in the heat and dirt of deepest Nigeria. An enormous, air-conditioned, chauffeur-driven limousine drew up in front of the mine’s headquarters. Out stepped a balding, bespectacled ‘suit’, who, it transpired, was the company accountant. This defining moment convinced Ian that the coal-face was a career cul-de-sac. He went to the London Business School and reinvented himself as an investment banker. I am reminded of an old Zulu proverb: “Life is a wheel. The bottom becomes the top and the top the bottom.”

NH:

life’s a wheel eh

NH:

actually when’s that article from

MJ:

Aint that the truth

NH:

gold at $650!

MJ:

A long time back

MJ:

May 2006 actually

MJ:

makes JAbre look shrewd anyway

11:28AM

NH:

Right

NH:

let’s have a look at some stock specific stuff

NH:

what’s moving other than the miners?

MJ:

Utilities look weak

MJ:

Nothin more on the Buffet bid story?

NH:

(Emptyend – you were there. Cool. You move in higher circles than us.)

NH:

er no

NH:

gone quiet on that front

NH:

and that’s probably because

NH:

the OFWAT final determinations on pricing are looming

MJ:

Whens that?

NH:

26th Nov

NH:

so that’s next week

MJ:

That is one explanation being given by credit analysts

MJ:

For why the divi yeild on Europan utilties is now higher than the bond yield

NH:

could be

NH:

anyway

NH:

Merrill Lynchis flagging up the pending news

NH:

and saying

NH:

OFWAT won’t back down

NH:

have a look at this

NH:

No material changes likely in OFWAT’s final determinations
Although we expect the regulator to ease marginally its final PR09 position
vs July’s draft, this is unlikely to alleviate the significant challenges facing
the sector. OFWAT will announce final 2010-2015 price review determinations on
26th November and we see the -0.2% pa draft price limits moving up to potentially
c0.5%pa. Broadly, +0.5% in price limits means only +2% on 2010/11E EPS and a
material squeeze in 2010/11E earnings is still in prospect.

NH:

Even with an expected modest relaxation, we believe consensus expectations
remain too high, particularly for United Utilities, and that valuations haven’t yet
fully corrected for the realities of AMP5. We do not expect OFWAT to change its
4.5% WACC assumption. Thus we anticipate that appellants to the Competition
Commission will include Thames Water which has stated that 5.25% is the
minimum acceptable WACC.

NH:

Amongst the quoted quartet, Severn Trent Water may emerge with something
less punitive than its draft determination (-1.5% pa price limit), having argued that
it was harshly treated on a number of aspects including leakage, and power costs.
Companies have two months to consider their final determinations; we do not
expect quick responses. Thus share price prospects may well not be clarified until
2010; likewise, there’s no imperative to immediately delineate AMP5 DPS policy.

NH:

UK water still unattractive; prefer Severn Trent over peers
There are no changes to our recommendations and POs. United Utilities
(Underperform, PO 400p) remains our least preferred UK Water stock on
valuation grounds and earnings/dividends/rights issue risks. The start of asset
sales by United Utilities, albeit small, highlight the difficult balance sheet situation
at the company. Pennon (PO 385p) and Northumbrian Water (PO 200p) are
relatively well placed at the review, but remain Underperform on valuation
grounds. Severn Trent (Neutral, PO 1070p) is more attractive on valuation.

NH:

2009/10 interims – pretty flat at operating level
Pennon kicks off the reporting season on Thursday 19th; the other trio all report at
the start of the following week before OFWAT’s final determinations on 26th Nov.
Industrial demand has continued to fall so we’re expecting weak revenues. Profits
will also be impacted by reorganisation costs as all seek to lower their opex bases
ahead of AMP5. Interest costs should benefit from deflation. Since the companies
have little incentive for short term out performance, we expect flattish operating
profits. Outlook statements are unlikely to be revelatory ahead of the PR09 finale.

MJ:

Thanks for that

MJ:

You have some share prices to share?

United Utilities Plc (UU:LSE): Last: 469.50, down 3.5 (-0.74%), High: 476.90, Low: 469.40, Volume: 1.36m

Severn Trent (SVT:LSE): Last: 988.50, down 8.5 (-0.85%), High: 1,000, Low: 982.50, Volume: 401.31k

11:32AM

NH:

I was also looking at the retailers this morning

NH:

because there were some really very poor figures out of H&M

NH:

have they had any impact

MJ:

(We should add, not that H&M)

NH:

yes, this is the clothes retailer not the imfamous fund management company

NH:

anyway

NH:

really poor figures

NH:

and I would have thought

NH:

and Debs under pressure because of it

MJ:

Well, Next are slightly weaker

Next (NXT:LSE): Last: 2,013, down 8 (-0.40%), High: 2,028, Low: 2,010, Volume: 445.55k

Debenhams (DEB:LSE): Last: 87.90, up 0.75 (+0.86%), High: 88.25, Low: 87.05, Volume: 6.27m

NH:

hmmm

MJ:

have you got any detail on the H&M trading statement?

NH:

I have. H&M reported October LFL sales -3% vs our and consensus estimates of
+5%

MJ:

That is a big miss

NH:

yeah, and it is maninly down a poor performance in Europe and the US

NH:

although H&M

NH:

has been lagging a bit

NH:

as Merrill Lynch has noted this morning

NH:

OCTOBER SALES BELOW ESTIMATES AGAIN
H&M has reported October LFL sales -3% vs our and consensus estimates of
+5%, with total sales +7% vs SME Direkt consensus of +14.5%. Sales in
Scandinavia, Central Europe and Asia are described as “very satisfactory” while
most other markets, primarily France, Spain and the US were weak. This is a
disappointing result in our view as although sales are on an improving trend from
a very poor August and September, when LFL sales were down -11% and -7%
respectively, we think sales should have benefited from some pent up demand as
temperatures dropped in October in western Europe, plus some mid season sale
activity.

NH:

SALES UNDERPERFORMANCE CONTINUES
H&M sales have underperformed the trend seen in its major markets this year,
and October was no exception, as October sales were +12% for the German
apparel sector and Lindex reported sales growth of 12% in the Nordic region in
October. We think H&M’s sales have been weak owing to the need to raise prices
earlier this year in anticipation of currency cost pressure, H&M’s focus on full
price sales and unemployment trends being more skewed towards younger
shoppers. Although we think H&M’s prices are becoming more competitive, it will
likely take time for customer price perception to improve.

NH:

JIMMY CHOO COLLECTION SHOULD BOOST DEMAND IN NOVEMBER
Going forward we expect sales to be boosted in November by the Jimmy Choo
collection, which ran on Saturday November 14. H&M is also running another
designer collection in December this year for the first time in several years, Sonia
Rykiel lingerie, with a knitwear collection coming from the same designer in
February.

NH:

MARGIN CONCERNS PERSIST ALTHOUGH CURRENCY SHOULD HELP
AGAIN
H&M’s weak sales trend is likely to cause some impact on gross margin from the
need to clear excess stock, as H&M’s mid season sale appears to start around
ten days earlier this year. However, this should be mitigated by less industry wide
promotional activity now in the run up to Christmas and gross margin should be
further supported by a further currency boost from hedging the flow of goods
internally (BofAMLe gross margin -90bp in Q4 and -120bp for FY09). As such we
do not expect significant changes to consensus estimates following today’s
figures.

NH:

INVESTMENT THESIS – BUY
We have a Buy rating on H&M shares as we think the market has underestimated
the durability of its growth in fragmented clothing markets, in particular in Asia, we
believe the German market still offers relatively easy pickings for H&M and we
see H&M as a key beneficiary of the globalisation of fashion. Valuation at c.20x
cal. 2010 P/E is midway between the company’s historical range of 14-26x.

MJ:

Ok, that is all very interesting, but how does it square with these John Lewis numbers?

MJ:

At this time of the year John Lewis releases its weekly sales early and has reported that
sales for the week to Saturday 14 November have surged by 17.1%.
• Much of this growth appears to be around home and technology sales and marks a
significant move to the positive whilst building on an increasingly strong trend.
• In our view this signals a very strong kick off to the Christmas selling season and bodes
well for the UK high street in the important coming weeks.
• We would see this as a significant positive for DSGi (BUY) and Dunelm (BUY) who we
would see as benefitting from the same trend.
• Overall this will reinforce the suspicion that forecasts remain too low across the sector
and we reiterate our positive stance.

NH:

er not sure

NH:

and I also note

NH:

that Debs have announced £250m of price cuts today

NH:

British department store group Debenhams announced a four-day sale starting on Nov. 18 in a move which it predicts could spark a price war reminiscent of the frenzied discounting in the run-up to last Christmas.
Debenhams said on Monday its price cuts would total 250 million pounds ($418 million), up from 200 million last year, though this is partly because the group now sells a higher proportion of own-bought goods compared with concessions.
“Customers everywhere continue to feel the pinch in this recession. In fact many feel that there still is no light at the end of the tunnel,” said deputy chief executive Michael Sharp.

MJ:

That could be a pretty bloody christmas then

NH:

yep

NH:

although

NH:

I bet the share prices of the retailers won’t crumble

11:38AM

NH:

Any 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:

Well this isnt really RAW actually

NH:

go on

MJ:

Just been looking at some developments in Cisco-Tandberg

MJ:

After weeks of banging on about how the NKr153.50 first offer was fair

MJ:

and hinting it was more likely to walk than bump…

NH:

They went and bumped!

MJ:

That’s right. Up to NKr170 for a final offer

MJ:

The new offer expires on December 1

MJ:

and that it has got 40 per cent pre-acceptance from Tandberg investors

MJ:

All well and good, but this makes Cisco look rather weak I think

NH:

Certainly makes it hard to take Cisco seriously going forward.

MJ:

The important thing here is not Tandberg

MJ:

but the precedent this deal sets for future Cisco acquisitions, of which there are likely to more to come over the next year

MJ:

Tandberg is Cisco’s first overseas acquisition

MJ:

and so the first where it has had to wrestle with shareholders, and it has rolled over pretty easily

NH:

Sends out a message.

MJ:

All you need to do is kick and scream and they will bump

NH:

But couldn’t Cisco say they are moving quickly to make things cleaner, and that they are still getting Tandberg cheap?

MJ:

They could, and will

MJ:

Clearly a fair bit of background negotiation has gone on here

NH:

share price?

MJ:

one sec

MJ:

up NKr6.4 to NKr164

NH:

thanks

MJ:

So trading below the offer

11:42AM

NH:

Okay, some breaking news for all your petrol heads out there

NH:

RTRS-DAIMLER SAYS MERCEDES-BENZ WILL START 2010 FORMULA 1 SEASON WITH OWN TEAM
11:24 16Nov09 RTRS-DAIMLER SAYS MCLAREN BUYS BACK STAKE IN F1 TEAM
11:25 16Nov09 RTRS-DAIMLER SAYS CAN STAGE FORMULA 1 TEAM MORE EFFICIENTLY
11:33 16Nov09 RTRS-DAIMLER SAYS TO COOPERATE WITH MCLAREN ON F1 ENGINES
11:34 16Nov09 RTRS-DAIMLER SAYS BRAWN GP TEAM WILL CONTROLLED BY MERCEDES-BENZ

NH:

No idea of the price Merc have paid

NH:

but it says a lot about what they think of the McLaren car

NH:

oh sorry

NH:

Merc to go it alone

NH:

interesting news

NH:

Asher missed Top Gear last night

MJ:

Is asher saying this news was broken on Top gear?

NH:

didn’t know it had restarted

NH:

I was watching the X Factor

NH:

MJ:

How are Jedward doing?

NH:

they have made it to the next round

NH:

Right

NH:

before we go off topic

NH:

like the ROTR

NH:

shall we pay a visit

NH:

to small cap corner?

MJ:

Yes please

MJ:

My favourite

11:46AM

MJ:

what we got

NH:

some more exploration in the Falklands

NH:

Borders & Southern to be precise

MJ:

ah, yes

MJ:

big fund raising on the way?

NH:

yep

NH:

as much as $180m, I now hear

NH:

Panmure Gordon and Mirabaud doing it

NH:

bit puzzled why the company has not said anything

NH:

after all it is in the market

NH:

and

NH:

having denied it a week ago

NH:

the PR guy did not even have the courtesy to return my call on Friday

MJ:

NH:

which sort of suggests something is happening

MJ:

would that be Simon Hudson at Tavistock?

NH:

that’s the guy

NH:

anyway

NH:

the fund raising roadshow is in full swing, I hear

NH:

and they seem confident of getting the cash

MJ:

hmmm

MJ:

That would be rather ambitious

MJ:

given their market cap is $150m

NH:

yep

NH:

and the water they are drilling is so deep

NH:

that they will probably need a winterised drill ship

NH:

and there are only eight of these in the world, someone told me this morning

NH:

although perhaps

NH:

Debbie Downer can correct me

NH:

if I am wrong

MJ:

So there are only eight of these things in the world

NH:

apparently

MJ:

where are they goign to get one from?

NH:

well, it is possible that Falklands Oil & Gas might get one

NH:

they are prospecting next door to Borders and have a farm out agreement with BHP

NH:

BHP might be able to swap one of their rigs in the Gulf of Mexico for Exxon drill ship

MJ:

any idea what the placing is going to be done at?

NH:

they want a small discount but some of the shareholders are kicking up a bit of a fuss

MJ:

and who are they?

NH:

hang on

NH:

one moment

NH:

Lansdowne Partners Limited Partnership 27,125,000m 13.96%
Stephen James Douglas Posford 26,695,000m 13.74%
Zila Corporation 26,670,000m 13.72%
Allianz SE 18,460,000m 9.50%
Howard Kevin Obee 10,000,000m 5.15%
Credit Suisse Securities 6,151,673m 3.1%

NH:

so that’s Peter Davis at Lansdowne

NH:

two other big shareholders are directors i think

NH:

Zila is Harry Dobson’s vehicle

MJ:

So will they get it away?

NH:

I would think so, but they have having to talk to big funds in New York

NH:

and in spite of the deep water there is the prospect of big finds in the South of the Falklands

MJ:

if they can ever get it out

NH:

exactly

NH:

and the bloke who runs Borders is an ex-BHP guy that everyone seems to rate very highly

NH:

Howard Obee was appointed Chief Executive when the Company was incorporated in June 2004. He has a PhD in structural geology from Imperial College, and has spent 20 years in the oil industry, initially with BP (1985-1992), and subsequently with BHP Billiton (1992-2004). He trained as an exploration geologist, but has been appointed to various technical and commercial roles, incorporating exploration, new ventures, strategic planning, and business development. His most recent roles for BHP Billiton were West Africa Asset Team Leader, and Exploration Manager, London. He has experience of executing seismic and drilling programmes in frontier basins, including those in deep water.

MJ:

deep water experience

MJ:

that will come in handy

NH:

indeed

11:51AM

NH:

Right

NH:

it is almost lunchtime and I am hungry

NH:

Miles fancy a pizza?

NH:

sorry

NH:

should have put in a Borders & Southern share price

NH:

unchanged at 47.25p

MJ:

So, pizza? I sense some discussion of Dominos coming on…

NH:

yeah, I don’t understand what’s happening this morning

NH:

welcome to the weird world of Domino’s Pizza

NH:

right

NH:

directors have sold a load of stock this morning

NH:

to improve liquidity etc

MJ:

right

MJ:

So the normal excuse

NH:

yeah

NH:

: Domino’s Pizza UK & IRL plc (“the Company”) today announces that, following the earlier announcement of a tender offer by the Company on 16 November 2009 (“the Tender Offer”), it was informed of the following on-market transactions in respect of ordinary shares of 1.5625 pence each in the capital of the Company (“Ordinary Shares”), which are in addition to the named Directors’ participation in the Tender Offer.

NH:

Stephen Hemsley, the Executive Chairman of the Company, (and trusts of which Stephen Hemsley and his family are potential beneficiaries) disposed of 1,845,789 Ordinary Shares in on-market transactions on 16 November 2009, following the announcement of the Tender Offer, at a price of 310 pence per Ordinary Share.

Chris Moore, Chief Executive Officer of the Company, disposed of 553,927 Ordinary Shares in on-market transactions on 16 November 2009, following the announcement of the Tender Offer, at a price of 310 pence per Ordinary Share.

NH:

MJ:

NH:

So, how do you square that

NH:

improving liquidity etc

NH:

with this?

NH:

Introduction

NH:

The Company announces that it intends to return up to approximately £19 million of cash to Shareholders by way of a tender offer (the “Tender Offer”), pursuant to which Numis Securities Limited (“Numis”), as principal, will offer to purchase up to 3,000,000 Ordinary Shares and Altium Capital Limited (“Altium”), as principal, will offer to purchase up to 3,000,000 Ordinary Shares, in each case, at 317 pence per Ordinary Share (the “Tender Price”) from Qualifying Shareholders following which the Company will have the option to repurchase for cancellation from Numis and Altium respectively on market and at the Tender Price all those Ordinary Shares purchased under the terms of the Tender Offer.

NH:

Qualifying Shareholders are not obliged to tender all or any of their Ordinary Shares if they do not wish to do so and the Directors are making no recommendation as to individual Qualifying Shareholders’ participation in the Tender Offer.
The Circular providing more information in relation to the Tender Offer and setting out the formal terms and conditions of the Tender Offer will be posted to Shareholders tomorrow (the “Circular”).

MJ:

I’ll pass on that

MJ:

so you improve liquidity on one hand…

NH:

yep

MJ:

and take it back with the other

NH:

bizzare

NH:

shares up on the news

NH:

3.3p at 320p

NH:

good company thought Domino’s though

NH:

fanchise model in the UK

NH:

one just over the river from here

MJ:

Think you might have blown our chances of being sent a free pizza now

NH:

I just said they are a good company Miles

NH:

we stand a chance, I think

NH:

hope

MJ:

fingers crossed

NH:

(JWT – pass. Ask Murph).

11:56AM

NH:

Right

NH:

one more small cap to look at

NH:

Dragon Oil

NH:

more shareholders revolting

NH:

French investment manager Carmignac Gestion (0.64%) has become the third institutional shareholder to reject ENOC’s takeover offer for Dragon Oil.
“We believe that the offer fails to recognize the substantial value of Dragons assets, existing cash on the balance sheet and future cash flow generation,” said the fund in a statement, adding that “ENOC does not bring any strategic, operational, managerial or financial synergies for Dragon’s independent shareholders, and that its offer would transfer a disproportionate share of the value of the company away from these shareholders”.

MJ:

(Monkey – that is terrible

)

NH:

I might zap him for that

Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.

NH:

just going back to Dragon Oil for a moment

NH:

Mail on Sunday also had a story on this

NH:

The Mail on Sunday notes that Baillie Gifford’s opposition to ENOC has ‘sparked a grass-roots rebellion’. Notes that the rebellion’s merits are clear, namely that the offer price is below the target prices forecast by just about every City analyst following the stock. Says the rebels will probably not succeed, but it could be close. Notes that Baillie Gifford holds 4.2% and so must convince investors holding a further 8% or so of the shares to vote with it, which may not sound like much, but when the other rebels are likely to be very small shareholders with tiny stakes in comparison it could prove a tall order to mobilise such a rebel force.

MJ:

share price?

NH:

off another 3p at 429p

MJ:

Does sound a bit like disgruntled shareholders trying to whip up a bit of press

NH:

Nosey, nothing really to say on Solo. Looks like exisiting shareholders are getting a bit of rough deal and the placing price was in the event much lower than we were hearing last week. Not sure why

MJ:

Right – I am going to have to run off to lunch.

MJ:

Appols for the sudden departure

MJ:

Bye all

NH:

cya

NH:

thanks for your help Miles

NH:

and it looks like

NH:

I am about done too

NH:

quick FTSE 100 price update

NH:

57 points higher at 5,355

NH:

miners still flying

NH:

(Thanks FJP73. That would make a bit of sense)

12:01PM

NH:

before I go someone wanted to know if we had soome comment on Robert Wiseman

NH:

and er, we do.

NH:

this is from Investec

NH:

RWD’s better-than-expected 1H margin bodes well for 2H, in our view. Even
though some cost inflation is feeding through, this should be partly offset by
current higher cream returns, allowing us to lift FY10E PBT estimates by
around 8%. Strong cash flows are bringing net debt down quickly, even with
ongoing capex plans, and we expect a healthier dividend payout for FY10E.

NH:

all down to cream prices apparently

NH:

Robert Wiseman Dairies (RWD) reported interim results comfortably ahead of our
forecasts (PBT £21.0m versus our forecast of £19.4m), principally reflecting a
marked recovery in margins versus the comparable half in 2009. This year the group
has achieved better cost recovery and managed to hold margins at the 2H09 level, a
far more respectable 2.5ppl.

NH:

Looking out to 2H10E and hence full year estimates, there are two factors we need
to bear in mind. First, costs are rising, for both packaging and diesel (the group has
flagged this as costing around £4m extra in 2H10). Second, commodity markets
have been buoyant since September and this is feeding through to more favourable
cream returns for RWD.

NH:

The net result is still for margins to potentially decline slightly in 2H10E relative to
1H. However, with a higher start point, we are still able to lift our FY10E PBT
expectations by around 8%. Our new FY10E PBT forecast is c.+23% higher than
FY09 (admittedly a tough year) and at £40m, would be an new high for group profits.
Whilst we need to be aware that the return on cream is unlikely to stay at these high
levels, and thus there will be a certain degree of “windfall” in 2H10E results, it is
currently serving to offset raw material cost inflation. If the group is not able to
recover these costs in the future from additional cream revenue, it is likely, of
course, to seek to recover them from customers. As such, we do not envisage a
margin setback in FY11E.

NH:

Our valuation increases in line with forecasts. We continue to believe RWD should
trade on a sector average EV/EBITDA (of 6.1x CY10E), and this now suggests a
target price of 540p (prev 500p). Our FCF model suggests a value of 568p. We
reiterate our BUY recommendation.

12:03PM

NH:

Okay

NH:

I think I am done

NH:

other to reflect on a Citi note which came out on Sainsbury this morning

NH:

it gives the real reason for the recent fund raising

NH:

ie – it was not for expansion

NH:

Breakfast meeting with Citi
Notes post meeting with Justin King (CEO) and Darren Shapland (CFO):

NH:

The reason for the capital raising earlier this year was that they feared a rating d/g
to BBB- because, though not apparently leveraged, rating agencies do not take
into account property backing in their ratings. Just cash flow coverage ratios.
In the coming years, it appears the company is fairly confident it will get a margin
tailwind as the cost of building out non-food infrastructure and new space
leverages/annualises.

Sainsbury (J) (SBRY:LSE): Last: 341.20, down 1.5 (-0.44%), High: 343.00, Low: 337.30, Volume: 2.62m

NH:

also some bearish comment on SBRY in the Times today

NH:

about them losing market share

NH:

and Asda are being very aggressive at the moment

NH:

two tins of Roses for £7

12:05PM

NH:

actually

NH:

here is a bit more of the Sainsbury note

NH:

with some stuff on Asda

NH:

Justin King believes Asda is currently enjoying the biggest price gap with its
nearest industry peers it has had for a long while.
There has been no net new footage in the UK this year according to Justin King –
all the net new space growth of Big 4 is coming from the small players. Going
forward there will be some food space growth, but the greater part of Big 4 space
growth will be for non-food. In their case ¼ of the new space will be in food, ¾
non-food.

NH:

The average IRR of new investments = 15% (this is a fully-costed IRR which
includes DC incremental costs etc). New stores have sub-15% returns,
convenience stores and extensions have returns over 15% (not surprising since
convenience stores tend to be leasehold and store extensions require lower
incremental capex). The cash payback period is 2 to 3 years for convenience
stores (Coop stores included), 5 years for extensions and 7-10 years for new
supermarkets (again because they are freehold).

NH:

Loyalty cards. Justin King noted that, on average, you need to offer the customer a
1% saving on a loyalty card to attract their attention. Such schemes lose money, if
one looks at them in isolation: they do not drive incremental sales. What loyalty
schemes do provide is valuable information about the customer which can then be
used to drive sales. He noted an important difference between Tesco and
Sainsbury cards – Tesco cardholders must redeem them within a specified period
but Sainsbury customers can hold onto them as long as they like. This usually
means Sainsbury customers save up points until Christmas, which suits JS as it
means customers will go to them for their Christmas shopping. On the Tesco
“double points”, he believes they need a 3-4% sales uplift to justify it (assuming it
is more than a reshuffling of overall price investment in the offer).

12:07PM

NH:

Right

NH:

that is it for today

NH:

thanks TB for slaping down Monkey

NH:

and Emptyend we would love to hear more about Hannam’s party

NH:

and Lizzie

NH:

especially for you

NH:

Amlin

NH:

from KBC

NH:

Amlin has reported a strong trading update noting that
“performance has been better than expected”. We expect
to upgrade our forecasts and retain our BUY
recommendation.

NH:

Strong premium growth has been driven by the integration of Fortis Corporate
Insurance) completed on 22 July as well as average renewal rate rises of 4.4%.
The group confirms there is still a divide between property and casualty rates,
with US property up 6.6% and US casualty rates down 1.7%.
 Low level of losses and positive movement in reserves. No major
catastrophe events were witnessed in Q3 and this should drive exceptional
underwriting returns, particularly in US catastrophe lines, where Amlin has a high
level of exposure. A reserve release of £39.2m was recorded in Q3, which is
marginally ahead of the H1 release of £72m.

NH:

5.3% investment return is above average for the sector. Amlin is benefiting
from its diverse portfolio of investments, with its 9% equity allocation returning
16.9% in 2009, property up 18.3% and bonds up 7%.
 Amlin continues to show strength and remains the superior company in
the sector. Management expects RoE to once again exceed 15% and our
valuation is based on a cross-cycle Return on Net Tangible Assets of 16.1%, the
highest in the sector.
 Potential for Capital Return. We still believe Amlin’s strong performance in
2009 will give the group potential to return capital to shareholders, particularly if
the non-catastrophe outlook remains weak in 2010. Our estimates suggest the
group has some c£500m of surplus capital.

12:09PM

NH:

And FJP73

NH:

on a fund raising at Earthport

NH:

I would be very surprised

NH:

if it happened

NH:

if it does I have been seriously midlead

Earthport (EPO:LSE): Last: 25.00, up 2.25 (+9.89%), High: 25.50, Low: 24.75, Volume: 72.82k

12:10PM

NH:

Okay

NH:

that’s it

NH:

see you all tomorrow

NH:

thanks for the comments

This entry was posted by Neil Hume on Monday, November 16th, 2009 at 11:03 and is filed under Uncategorised. Edit this entry.

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Markets live transcript 16 Nov 2009

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