Markets live chat transcript for the chat ending at 12:19 on 18 Nov 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)
NH:
good morning
NH:
it’s 11.03am
NH:
and time for Markets Live
NH:
FT Alphaville’s daily markets chat
NH:
Miles is taking a breather today
NH:
which means Bryce has been drafted in
BE:
morning all
NH:
wow
NH:
loads of comments already this morning
NH:
it must be you Bryce
BE:
Hm.
BE:
I can’t imagine I get star billing here.
NH:
you’re too modest
NH:
right we should push on
NH:
and have a look at Cadbury
11:06AM
BE:
So, this is all about these overnight reports that Hershey is in talks with banks to make a rival offer for Cadbury on its own or with a partner
BE:
… which would be Ferrero Rocher
NH:
yep
NH:
which gives me an excuse to paste this link
BE:
Always welcome.
BE:
the ambassador advert
BE:
but seriously
BE:
what do we make of this?
NH:
well,Cadbury got above 800p briefly this morning
NH:
but have settled down now
NH:
up 8p at 796p
NH:
I think a bid from Hershey or a joint bid with Ferrero
NH:
are both long shots
NH:
these are two effectively private companies, with divided boards
BE:
hmmmm
NH:
but what it might do, is spook Kraft into increasing its offer
NH:
to something like 820p
BE:
with a higher cash component
NH:
I guess so
BE:
Lots more press coverage about the various permutations this morning.
BE:
The highlight of which was the Lombard column
NH:
(yes Lemmy, Hershey was not mentioned until the WSJ broke it last night)
BE:
Scene: a European embassy . Implausibly beautiful hedge fund managers, Quakers, Cadbury directors and long-only investors are sucking disconsolately on Creme Eggs and nibbling on processed cheese slices.
Voiceover: “The ambassador’s receptions are noted in society for their host’s exquisite taste that captivates his guests.”
To gasps, a liveried butler produces a delicious tray of foil-wrapped Ferrero Rocher chocolates, which Cadbury investors devour hungrily to cries of ” Eccellente !”, ” Delizioso !” and “At last! A white knight!”
NH:
BE:
Cut to Irene Rosenfeld, Kraft chief executive, smiling through gritted teeth at the ambassador: “Monsieur, with this rumour , you are really spoiling our attempt to buy a historic British company for less than 800p a share.”
Close-up on a pyramid of cash: “Ferrero-Cadbury: a sign of good timing.”
BE:
As Miles noted earlier, the Hershey CDS hasn’t even budged on this story
NH:
which is very odd
NH:
given the size of the deal
NH:
(The Guvnor, a huge placing at premium. don’t believe it at all)
NH:
have u got this Nomura note
BE:
Yeah
BE:
“not unreasonable” they reckon
BE:
The Cadbury ADR spiked +6% last night and closed +3% at USD 54 (equivalent to GBp 802 versus London close of GBp788) as the WSJ reported that Hershey is in talks with banks to make a rival offer for Cadbury on its own or with a partner (article cites that Hershey CEO has spoken to Ferrero bankers about a potential combination bid). This follows press reports over the past couple of days that Ferrero could be interested in a tie-up with Cadbury.
NH:
(The Guvnor 38p I have heard and only $100m)
BE:
For Hershey (and Ferrero) to look at Cadbury is not unreasonable, in our opinion, given the otherwise confectionery landscape consolidating around them. Cadbury would also help both groups diversify away from their developed market bias.
Financing a deal at above 900p is an uncertainty/unknown given Hershey’s limited fire power (see below) and more significantly Fererro’s unknown financing capability and desire for leverage/ dilution.
BE:
Previous scenario of Hershey’s involvement in a joint bid:
We outlined in our note Come on Irene! Dealt at 850p, that Hershey could play a JUINIOR role (to Nestle) to take on Cadbury’s chocolate business in five key markets, namely UK, Australia, South Africa, India and Canada for a consideration of $4.0bn (equivalent of 11.0x EV/EBITDA). We also highlighted that Hershey could finance the deal through a combination of asset disposal (rights of Kit-Kat and Rolo brands in the US sold back to Nestlé) and additional debt; this would leave Hershey on what we would see as a reasonable 3.2x net debt/EBITDA.
We remain NEUTRAL on Cadbury as we expect: 1) investors will most likely realise c.820p from a Kraft bid being formalised (money today/ 45% premium to pre bid levels); 2) or realise 780p from standalone fair value with management forced to paint a more convincing picture of full business potential (margin potential/cost savings/plans beyond 2011, etc); and 3) optionality into a counter offer/or Cadbury combination with another party valued at 900p+.
BE:
There’s also an epic note from JPMorgan in circulation
NH:
hang on, that’s ironic isn’t it
BE:
Why?
NH:
PM is longtime adviser to Hershey
NH:
and one of two banks to whom WSJ says Hershey has been talking about financing
NH:
but of course, as we all know, there are impregnable chinese walls
NH:
at these investment banks
BE:
So cynical
BE:
Actually, their analyst reckons it’s a non starter
NH:
really
NH:
the walls are working
BE:
Yup. And he provides a quite intimidating level of background detail
NH:
such as
BE:
All you wanted to know about Tic-Tac regional market share, but were afraid to ask
NH:
oh
NH:
would like to have a look at that
NH:
any sales data on Kinder Surprise Eggs?
BE:
Absolutely. Brace yourself.
BE:
Gum accounts for close to half of CBRY value. If a combined bid by Hershey and Ferrero were to materialize, presumably the companies would look to split the company. Our published TP assumes 45% of Cadbury’s value comes from gum, 40% from chocolate, and 15% from Halls/candy. Respective sales are 33%, 45%, and 21%, but we assume high teens margins vs. low teens for the other products and assign a higher valuation multiple to gum on margins, growth track record, and franchise strength (gum FV would be £5.5B, chocolate £5B, the rest £2B).
BE:
• The WSJ article implicitly assumes a product break up (not a geographic one) with Hershey taking chocolate (and Halls?) and Ferrero just gum. But how would that work? HSY has $5B in sales, $1B EBITDA, and close to $2B net debt, and we estimate at most it could take on another $4B deal-related debt before losing investment grade (the incremental Cadbury chocolate EBITDA would be only about $800M), or about £2.3B, so another £4.7B in equity would be needed (almost the size of the current HSY market cap; note KFT is increasing its equity by 25% with a single class share structure). The big question mark is how much equity can HSY raise from existing shareholders through a rights issue (we doubt Ferrero or Cadbury shareholders would take HSY non voting shares) without the Trust subscribing to the rights and HSY still keeping its dual class share structure (The Hershey Trust owns an 80% voting interest and a 32% economic interest in HSY). Sure, the math works (i.e. HSY could raise enough equity with the Trust still holding 50.1% voting control, assuming a minimal discount) but we are not sure 5-10% discounts would be tolerable for a rights issue of this magnitude. A rights issue would only work if the Trust decided to move to a single class share structure, but we see than as unlikely as it would lose control. We doubt HSY would sell the Kit Kat license back to Nestle to help fund this deal.
BE:
Ferrero’s background and product mix. Ferrero, a privately held company headquartered in Italy (the crown jewel of a traditional and wealthy Italian family), closed FY08 with sales of €6.2 billion and has 38 operating companies and 21,600 employees worldwide. Ferrero’s annual sales are comparable with Cadbury’s €6.7B; Hershey has sales of €3.5B. The primary products of the company include Ferrero premium chocolates (Rocher, Rafaello), Kinder Chocolates and Snacks, Tic-Tacs (Breath Mints), and Nutella Spreads. Based on Euromonitor data, we calculate that Chocolates are the primary business for the Company, accounting for 64%
of sales, Spreads account for 15%, Tic-Tac for 7%, while Snacking (Kinder) products and Dairy based drinks account for 6% and 8%, respectively. Again, according to the same source, in chocolates, Kinder Surprise is the biggest brand for Ferrero worldwide with €933mn in retail sales in 2008 followed by Ferrero Rocher with €848mn in sales.
of sales, Spreads account for 15%, Tic-Tac for 7%, while Snacking (Kinder) products and Dairy based drinks account for 6% and 8%, respectively. Again, according to the same source, in chocolates, Kinder Surprise is the biggest brand for Ferrero worldwide with €933mn in retail sales in 2008 followed by Ferrero Rocher with €848mn in sales.
BE:
Ferrero’s geographic reach. Ferrero’s chocolates have a strong position in the Western European market relative to other regions, with WE accounting for c74% of company chocolate sales, followed by Eastern Europe accounting for 11%, Latin America for 5%, Asia Pacific 4%, North America for 3% and 1% for Australasia and Middle East. Compared with Cadbury, for which the primary chocolate market is the UK and ROI (about half of its global chocolate sales, and c95% of its WE chocolate sales), Germany is Ferrero’s largest chocolate market accounting for 23% of Ferrero’s global chocolate sales The top 10 chocolate markets for Ferrero, besides Germany, include Italy, France, Russia, Spain, UK, USA, Mexico, Argentina and Poland (Germany, Italy and France combined, a/c for 56% of its global chocolate sales, according to Euromonitor). Ferrero chocolates currently have 19% market share of the WE market (12% for Cadbury) with the company holding leadership positions in Germany, Italy, Spain and France. US and UK market shares range between 1-3%.
BE:
Ferrero’s chocolate shares have minimal overlap with Cadbury and are rather complementary in WE. In Ferrero’s prime markets, Ferrero has 25% market share in Germany (Cadbury 0.2%), 23% in France (Cadbury 3%), 41% share in Italy (Cadbury 0%), 30% in Spain (0% for Cadbury). On the other hand in the UK, Cadbury has 31% market share compared to 3% share for Ferrero. In the US both lack significant presence, as Cadbury is licensed to Hershey and Ferrero has only 1% share. Cadbury’s top chocolate markets include the UK, followed by Australia, Ireland, Poland, Canada, India, South Africa, France, New Zealand and Russia. Thus the only somewhat meaningful overlap between Ferrero’s and Cadbury’s chocolate business would be in the UK (34% combined share), Poland (21%), France (21%) and Russia (8%), but clearly this would not be high enough to stimulate anti-trust proceedings.
BE:
Tic-Tac and Halls are complementary. Tic-Tac, a breath freshener, had global retail sales of €538mn in 2008 compared to €1006mn annual sales for Halls in 2008.Of the Global Tic-Tac sales, WE sales account for 31%, NA for 31%, LatAm for 17%, EE for 13% and 2-3% for Asia Pac, Australasia and MEA each. Of the WE Tic Tac sales, Germany, France and UK together account for 70%. The largest market for Tic-Tac sales is the US, alone accounting f or 31% of sales. Halls sales are on the other hand more diversified with LatAm accounting for 26% of global sales, followed by NA 27%, Asia Pac 19% and WE 18%. The Biggest country market for Halls is the US with 22% of Global sales.
• Another reason why a HSY-Ferrero joint bid may not work is that in our view Ferrero might be more interested in the chocolate business than the gum business. Ferrero would likely be more interested in the Cadbury chocolate business, gum could be interesting but we wonder whether they would want to take on Mars-Wrigley (their chocolate business is niche, with premium Ferrero-Rocher and the Kinder line focused on a few markets), and we assume little interest on Halls (it has Tic-Tac).
NH:
Daddy in answer to your question it looks like Ferrero shifts half a bilion euro of Tic Tacs a year
11:15AM
NH:
Hershey RNS out
NH:
RTRS-HERSHEY- NOTES THE RECENT PRESS SPECULATION REGARDING A POTENTIAL OFFER FOR CADBURY
11:14 18Nov09 RTRS-HERSHEY- CONFIRMS THAT IT IS REVIEWING ITS OPTIONS
11:15 18Nov09 RTRS-HERSKEY – AT THIS STAGE THERE CAN BE NO ASSURANCE THAT ANY PROPOSAL OR OFFER FROM HERSHEY WILL BE FORTHCOMING
11:14 18Nov09 RTRS-HERSHEY- CONFIRMS THAT IT IS REVIEWING ITS OPTIONS
11:15 18Nov09 RTRS-HERSKEY – AT THIS STAGE THERE CAN BE NO ASSURANCE THAT ANY PROPOSAL OR OFFER FROM HERSHEY WILL BE FORTHCOMING
NH:
any advisor names on this
BE:
Nope
BE:
The flashes are longer than the actual statement
BE:
The Hershey Company (“Hershey”) notes the recent press speculation regarding a potential offer for Cadbury. Hershey confirms that it is reviewing its options and at this stage there can be no assurance that any proposal or offer from Hershey will be forthcoming. A further announcement will be made in due course if appropriate.
NH:
Apparently the Rothschild/ Ferrero link it complete rubbish
NH:
price reaction
NH:
up a whole 9p at 797p now
BE:
Yup. The underlying message here seems to be that it’s all very very preliminary.
BE:
And, with Cadbury already bumping 800p, I guess the risk-reward is not exactly stellar.
NH:
up 11p now
NH:
Okay
NH:
I think the readers
NH:
are getting a bit bored of chocolate
BE:
Understandably.
NH:
so shall we move on
11:18AM
NH:
let’s have a quick at the market then
NH:
FTSE reading?
BE:
Footsie is up 21 points at 5367.
BE:
Despite some hefty dividend expiries.
BE:
Although it’s all a bit dull, quite frankly.
BE:
Miners leading.
NH:
yes Barc, C&W, HSBC, SBRY, Unilever and Vod all ex-div today
NH:
you’re right
NH:
that is dull
NH:
and how are volumes
NH:
I have been watching them closely over the past week
NH:
both here and in the US
NH:
and we seem to have hit Xmas levels already
BE:
Yeah – volume’s 500m or thereabouts so far this morning.
BE:
That’s LSE only
BE:
Although even cross-exchange, it’s been struggling to break 1bn blue chips a day at the moment
NH:
so, new fresh cash coming into the market. probably not surprising after the run it has had
BE:
Yeah. Hence we’re down by about a third on the average.
NH:
that’s poor
BE:
Also makes movements much harder to read.
NH:
and slightly worrying for all those new broking outfits that have sprung up
BE:
True
NH:
and Reggie notes
NH:
it is Thanksgiving in the US next week
NH:
and that will kill things for half the week
BE:
Which day does that fall on?
NH:
Thursday
BE:
The worst possible option
BE:
Means three days when trading’s like the Mary Celeste.
NH:
yep
NH:
actually I wonder what Murph is doing for his first Thanksgiving
NH:
Tracy has ordered her turkey
BE:
Walking the streets of Manhattan in his $14.5k Madoff jacket, probably.
NH:
strange you should mention that because Murph is getting real fed up with people calling about the jacket
NH:
not the calls
NH:
but that no on believes him
NH:
NH:
anyway
NH:
let’s move on
NH:
and have a look at ITV
11:26AM
NH:
actually before we do
NH:
TB has justed emailed
BE:
Oh yeah?
NH:
with the first entry into the inaugrial best-places-to-have-participated-in-ML from
BE:
And?
BE:
Where was that?
BE:
Empire State Building?
BE:
Top of Ben Nevis?
NH:
no, the very long champagne bar at St Pancras station
NH:
he has sent a lovely picture
NH:
with the bar stretching out for miles in the distance
NH:
and ML on a laptop
NH:
in the foreground
NH:
nice
NH:
hang on
NH:
breaking news from SKy
NH:
new CEO coming at M&S
NH:
Marks & Spencer: Close to Appointing Bolland as CEO, Sky Says…Bolland is
current CEO of MORRISONS and is widely regarded as having done a super job
there so would likely be considered a positive appointment.
current CEO of MORRISONS and is widely regarded as having done a super job
there so would likely be considered a positive appointment.
NH:
it’s the Morrison guy
NH:
that’s big news
NH:
and a real blow to Morrison
Morrison WM Supermarkets (MRW:LSE): Last: 292.90, down 2.6 (-0.88%), High: 297.30, Low: 292.50, Volume: 3.35m
BE:
Nothing on Kleinmanwire yet
NH:
probably on the box
NH:
talking about it
NH:
price checks?
NH:
hang on
Marks and Spencer Group (MKS:LSE): Last: 371.00, up 2.7 (+0.73%), High: 373.00, Low: 367.90, Volume: 1.00m
NH:
will turn the flat screen on
BE:
And, while Neil’s doing that, here’s the Ferrero statement.
BE:
Ferrero notes the recent press speculation regarding a potential offer for Cadbury. Ferrero confirms it is in the preliminary stages of evaluating its options in respect of Cadbury.
There can be no certainty that any proposal relating to Cadbury will ultimately be forthcoming.
BE:
Another “evaluating its options” holder statement.
11:30AM
NH:
Jeez
NH:
statement from M&S
NH:
all go this morning
BE:
We tempted fate by saying it was dull this morning.
BE:
Marks & Spencer appoints MARC BOLLAND as its new Chief executive
Marks and Spencer Group plc today announces the appointment of Marc Bolland as its new Chief Executive. He will take up his position in the New Year at a time and on terms to be confirmed. Marc, 50, joins from Morrisons where he was Chief Executive.
BE:
Commenting on Marc’s appointment, M&S Chairman Sir Stuart Rose said, “I am delighted that Marc is to be M&S’ next Chief Executive. He brings a wealth of consumer marketing experience and has made a great success of his time at Morrisons. We very much look forward to welcoming him and working together.”
Marc Bolland said, “M&S is one of the world’s great brands and I am very pleased to be given the opportunity to lead the company forward at this exciting stage. I am greatly looking forward to working closely with Stuart and the M&S team.”
On Marc taking up his position as M&S’ new Chief Executive, Sir Stuart Rose will continue as part-time Chairman of M&S to ensure a smooth transition. As previously announced, Sir Stuart will leave M&S by July 2011.
Marc joined Morrions in September 2006 as Chief Executive. Prior to that he was Chief Operating Officer and Executive Board Member at Heineken NV based in the Netherlands. He is also currently a Non-Executive Director of Manpower Inc in the USA.
NH:
that’s a huge, huge, hgue blow
NH:
for Morrison
BE:
It is
BE:
And a real coup for M&S
NH:
Morrison coming off now
NH:
down 10.6p at 285.1p
NH:
3.55% fall
NH:
quite a chunk off the market cap
BE:
I guess you can see this two ways …
NH:
for one guy
BE:
Bolland was hugely influential in the Morrison turnaround
BE:
But perhaps that job’s done now, and the company’s on a more stable footing
NH:
fair point
BE:
Although, I wonder ….
BE:
If he wants to attempt some major surgery at M&S …
NH:
although Bolland
NH:
did not appear interested in the job
NH:
a couple of months back
NH:
Questioned on whether he was among the candidates to replace Sir Stuart Rose as chief executive of Marks and Spencer, Mr Bolland said: “I love Morrisons. I am happy where I am.”
The comments came as sales rose from £7.1bn ($11.8bn) to £7.5bn in the six months to August 2, while like-for-like sales increased 7.8 per cent.
BE:
So he was happy, and now he’s not.
NH:
and Hot Chocolate
NH:
didn’t Sir Ken nearly ruin Morrison with the bungled integration of Safeway?
NH:
and didn’t Bolland pick up the pieces
BE:
That’s certainly how I remember it
NH:
anyway, the market is with us on this one
NH:
shares now down 14p at 281p
NH:
probably the shock of it
NH:
M&S rising now
NH:
up 12.7p at 380p
BE:
Personally, am interested to hear more about how the Bolland / Rose relationship is going to work.
NH:
and how he explains the decision to leave
NH:
any idea of package?
BE:
Statement’s just a bare bones job, sadly.
NH:
hmmm
NH:
I think it will be large
BE:
You’d imagine, yes.
BE:
What’s the going rate at the moment. £10-15m pay and “incentives” over three years?
NH:
well
NH:
we could have a look at ITV
NH:
but first
NH:
what about a bit of 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.
BE:
Yeah – good idea.
11:39AM
NH:
Tuna is asking about Centrica
BE:
Hm.
NH:
and we have been doing likewise this morning
NH:
lots of hot accounts buying
NH:
but no one seems to know why
NH:
we have had half a dozen calls on it
NH:
but it is all very vague
NH:
to the point of there actually being no story
NH:
but utilities or quasi utilities
NH:
seems to be the flavour of the month at the moment
BE:
Shares?
NH:
hang on
NH:
up 3.8p at 256p
BE:
Been inching up on the no-rumour rumour for a while though, haven’t they?
BE:
All utilities have, in fact.
BE:
“something” happening ….
BE:
Anyway, anything else on the RAW notepad this morning?
NH:
no I don’t think I have any more
NH:
actually that’s not true
NH:
more talk on Borders & Southern
NH:
the fund raising they won’t comment on
NH:
but are doing
NH:
could be priced around 38p
NH:
and it might be smaller than we think
NH:
odlly the stock is up today
NH:
oup 3.75p at 48p
NH:
but thats because some market punters think a small oil company can raise more than its market cap
NH:
and do it a premium
BE:
Right. Dream on.
NH:
indeed
11:44AM
BE:
Back to ITV then?
NH:
hang on
NH:
Pi wants to know about Resolution
NH:
we don’t think there is a right issue
NH:
Reuters ran the story yesterday
NH:
we think the share price decline is down to index trackers
NH:
and other funds
NH:
have holding in FP and Resolution
NH:
annd being forced to sell
NH:
and thanksMatthew Cheung on Centrica
NH:
but I can’t believe BG is interested
BE:
Reunification? Seems doubtful.
BE:
Demerger was in 1997.
NH:
right we must get to ITV
BE:
We keep getting sidetracked.
NH:
any thoughts?
BE:
well it is a positive I guess
BE:
Archie Norman is a big name
BE:
although he lacks media experience
NH:
I did have a gripe with his remuneration a little earlier
NH:
in as much as he was not committing any of his own capital
NH:
but I have since been informed by the company, that at some point Archie is going to buy stock
BE:
any idea who much he will buy?
NH:
nope
NH:
but he will be in the market either soon
NH:
or after he takes the hot seat in Jan
BE:
Hm.
BE:
This is all very different to Tony Ball of course
BE:
who wanted his stock awards backdated
NH:
yeah to something close to the lowest level of the year
NH:
he had actually had the balls to claim that his possible appointment had driven up the price up
NH:
and he should not be penalised for that
BE:
Media egos, eh
NH:
I know
NH:
huge aren’t they
NH:
anyway
NH:
the first thing in Archie’s in tray will be to find a new CEO
BE:
any comment on this?
NH:
hang on
NH:
here’s Liberum
NH:
Former Tory MP, Archie Norman, has been appointed as the new chairman of ITV, effective from January 2010. Mr Norman has a strong track record for business turnaround. He is credited with being one of the team that established and built Kingfisher and also led a turnaround at Asda, following which the company was sold to Wal-Mart at 8 times the initial price. More recently, Mr Norman acquired and refocused Energis before its sale to Cable and Wireless.
NH:
Remuneration will comprise annual fees of £300k plus 1.2m shares at today’s value, to be received in blocks of 400k. Mr Norman’s first task will now be to appoint a CEO. Latest candidates are mooted to be Malcolm Wall, the former head of content at Virgin Media and Guillaume de Posch, former chief executive of ProSiebenSat.1 Internal candidates are thought to include Peter Fincham, current head of creative and former COO and interim CEO John Cresswell. Mr Cresswell had previously announced he would step down once a new CEO was appointed. However, that decision was made before the appointment of a new chairman.
NH:
you got anything bryce
BE:
UBS
BE:
Archie Norman to become Chairman
ITV announced that Archie Norman, the former CEO of retailer ASDA, as its new
Non-Executive Chairman. We see the appointment of a heavyweight Chairman
with an established track record as a positive move for the company. Separately,
the news is likely to be a surprise to investors as his name was not previously
mentioned amidst the relatively high level of press coverage over the role.
Norman to appoint CEO
Norman will take up his position in January 2010, at which time Executive
Chairman Michael Grade will step down. John Cresswell (COO) will continue in
his role as Interim CEO until Norman appoints a successor. Sir James Crosby,
Chairman of the ITV Nomination Committee, will resign from the ITV board once
a successor is appointed.
ITV announced that Archie Norman, the former CEO of retailer ASDA, as its new
Non-Executive Chairman. We see the appointment of a heavyweight Chairman
with an established track record as a positive move for the company. Separately,
the news is likely to be a surprise to investors as his name was not previously
mentioned amidst the relatively high level of press coverage over the role.
Norman to appoint CEO
Norman will take up his position in January 2010, at which time Executive
Chairman Michael Grade will step down. John Cresswell (COO) will continue in
his role as Interim CEO until Norman appoints a successor. Sir James Crosby,
Chairman of the ITV Nomination Committee, will resign from the ITV board once
a successor is appointed.
BE:
If it’s not broken why fix it?
Amid a backdrop of improving ad momentum and a strong viewing share (SOCI)
performance, there may be a possibility that Norman may make limited changes to
the current executive line-up rather than look externally.
Expect +ve reaction. PT based on DCF
ITV trades on 19x 2010E EPS, falling to 11x in 2011E. We expect ITV shares to
react positively to the appointment of Norman and positive ad momentum over the
coming quarters (pull forward of government COI spend in Q1 and World Cup in
Q2) should support the stock. However, ITV’s level of gearing into a recovery will
hinge on the removal of CRR, where visibility remains limited.
Amid a backdrop of improving ad momentum and a strong viewing share (SOCI)
performance, there may be a possibility that Norman may make limited changes to
the current executive line-up rather than look externally.
Expect +ve reaction. PT based on DCF
ITV trades on 19x 2010E EPS, falling to 11x in 2011E. We expect ITV shares to
react positively to the appointment of Norman and positive ad momentum over the
coming quarters (pull forward of government COI spend in Q1 and World Cup in
Q2) should support the stock. However, ITV’s level of gearing into a recovery will
hinge on the removal of CRR, where visibility remains limited.
11:51AM
NH:
Okay, I am warming a little to this Centrica story
NH:
some good people come on
NH:
talking Gazprom
NH:
400p a share
NH:
and apparently
NH:
there has been some decent option activity
NH:
in the past couple of weeks
NH:
assive buying Dec260 and 270 calls last week CNA
NH:
says one broker
BE:
Gazprom? Haven’t seen that one for … what …. must be nearly a year.
NH:
yes
NH:
old but gold
NH:
time to dust down
NH:
and give a fresh airing
NH:
but this is one of those stories
NH:
you just can’t rule out
BE:
The “politically sensitive” angle may be a little less explosive as time passes, I guess
BE:
Anyway, shares starting to move.
NH:
just been digging around in the FT archive on this
NH:
we have done a lot of stuff on it
NH:
this is from Fed 2006
NH:
The UK government warned on Thursday that Gazprom would face “robust scrutiny” if it tried to take over Centrica, the owner of British Gas, after an executive with the Russian gas giant said his group was considering a deal.
Centrica shares jumped up to 25 per cent after a senior official confirmed that Gazprom was interested in a possible takeover of the UK’s biggest energy supplier. The stock closed up 11 per cent at 300p, giving Centrica a market value of £11bn.
Alexander Shkuta, deputy general manager of Gazexport, Gazprom’s export arm, told an investor conference call that Gazprom was looking at Centrica. Mr Shkuta was quoted by Interfax, the news agency, as saying “the possible acquisition of Centrica . . . is at the moment being analysed and examined. No decision has been taken.”
NH:
and here’s an old Lex note
NH:
Earlier this week, Alan Johnson, the UK’s industry secretary, lamented French resistance to Arcelor falling into the hands of Mittal Steel. Then Gazprom casually said it might buy Centrica, the UK’s largest energy retailer. Mr Johnson’s department did not come right out and shriek “Hands off!” Instead, in typically English fashion, the Russians were threatened darkly with “robust scrutiny”.
An odd beast like Gazprom understandably provokes suspicion. Centrica, however, does not really amount to a strategic UK asset. More than 60 per cent of its enterprise value lies in re-selling – by and large, other people’s gas and power through other people’s pipes and wires. That is precisely why fast-rising wholesale energy prices have left it vulnerable.
NH:
The question is, why would Gazprom want Centrica? The whole point of a liberalised energy market is that upstream suppliers do not need to “own” customers. Synergies look virtually non-existent. On Citigroup’s estimates, a 300p per share offer for Centrica would yield an 8 per cent return on investment, but only if its retail margins, forecast to be negative this year, recovered to 5 per cent. Gazprom’s cost of capital is over 9 per cent, and it can earn double-digit returns on upstream projects.
If Gazprom still wants Centrica for its trophy value, perhaps letting it proceed would be the sensible thing to do. After all, it is hardly likely to cut off supplies to its own subsidiary.
NH:
hmmm
NH:
just bringing myself back up to seepd on this
BE:
They last denied the story in June of last year, it appears.
NH:
over a year then
NH:
since this one last surfaced
BE:
Well, it’s been around in the background for a while
BE:
But CEO Vitaly Vasiliev said last year that the company would be spending money instead on upstream and midstream energy assets
BE:
Centrica was an “unlikely” target
NH:
ok, thanks for that
NH:
it’s getting close to midday
NH:
and there are still a number of things
NH:
we must look at
NH:
including small cap corner
11:58AM
NH:
(lizzie mail me if you want some notes)
BE:
What’s caught your eye among the minnows?
NH:
right, I want to look at a little thing called Metals Exploration
NH:
which has one main project: Runruno, a gold-molybdenum project on the island of Luzon in the northern Philippines
BE:
right
BE:
and weren’t the shares suspended yesterday?
NH:
yep
NH:
pending a resource update
BE:
that’s doesn’t sound good.
NH:
no
NH:
and I don’t think it will be
NH:
apparently there will be a downgrade
BE:
okay.
NH:
but what’s interesting here, in fact surprising
NH:
is the biggest shareholder
BE:
go on
NH:
the Candy Brothers
BE:
Seriously?
NH:
yep
BE:
what do they know about gold-molybdenum?
BE:
or the Philippines?
NH:
dunno
NH:
but they invested in this
NH:
£12m earlier this year
NH:
have a look at this
NH:
christian Candy, beneficial owner of Solomon Capital, comments:
NH:
‘Solomon Capital (our private equity business) has now committed £11.5 million to Metals Ex. We have done so because we believe the company to be significantly undervalued with substantial upside potential.
I have visited site at Runruno and seen the potential for myself. We met with Government officials and saw at first hand that the permitting and regulatory process in the Philippines is run in a professional and efficient way. I have been impressed with the Government’s commitment to support responsible mining development as a means of contributing to economic growth. Metals Ex’s focus on the local environmental and humanitarian issues was a major consideration in our investment. I am delighted with the Company’s recent award at the Asia Mining Conference in Singapore for its community development programmes.
NH:
This investment removes any financing risk from the Metals Exploration equation and will allow the management team to focus on maximising the value of the business. Our team at Solomon intends to work closely with management to help them achieve this, and with more than £200 million in liquid funds, CC1 (as part of CPC Group) is in a strong position to look for opportunities outside, as well as inside the property sector.’
NH:
not all property you know with Candys
NH:
or falsh boats
NH:
they do mining as well
BE:
Excellent stuff.
BE:
good to hear about the Candys again
NH:
and here’s a bit more detail on Solomon
NH:
Christian Candy’s Solomon Capital is 100% owned by Guernsey based CC1 Group – his private equity vehicle. The group made an initial 29.9% investment (£3.5 million) into Metals Exploration in January 2009, via a new placing of shares. The Metals Ex transaction is one of CC1′s first significant investments outside of the property business. Christian Candy is better known as joint CEO and Founder of design and development management firm, Candy & Candy.
BE:
(Other than from people moaning about traffic snarls in Knightsbridge, of course.)
12:02PM
BE:
Ok – this Centrica rumour’s really gaining some traction.
BE:
Neil’s just looking at the recent options trading.
NH:
yep
NH:
just been looking on Bloomie
NH:
at the open interest
NH:
in the Dec 09 calls
NH:
so we have 9,270 contracts of the 270p calls
NH:
8,600 of the 270p calls
NH:
and 1500 of the 280p calls
NH:
which seems an awful lot
BE:
That’s certainly a red flag.
BE:
Though many people are understandably cautious about this Gazprom link.
NH:
sorry that should have been 9,270 of the 260p calls
NH:
looking again at Bloomie
NH:
little open interest
NH:
in the Mar 2010 series
NH:
none at all
NH:
all concentrated on Dec
NH:
all of it
12:07PM
NH:
Okay it is past midday
NH:
so we should start to bring things to a close
NH:
before we do
NH:
strange move in Arm Holdings today
ARM Holdings (ARM:LSE): Last: 170.00, up 10.3 (+6.45%), High: 171.60, Low: 159.20, Volume: 4.58m
NH:
trying to fund out what’s behind it
NH:
also British Airways
NH:
told there has been some shorting this morning
NH:
which presumably is because
NH:
the company will soon announce the size of the deficit in its pension fund
NH:
which of course has the potential
NH:
to scupper the Iberia merger
British Airways (BAY:LSE): Last: 210.10, up 1.6 (+0.77%), High: 211.40, Low: 209.30, Volume: 1.93m
NH:
and also
NH:
Ladbrokes up today
Ladbrokes (LAD:LSE): Last: 132.50, up 5.5 (+4.33%), High: 134.00, Low: 130.50, Volume: 4.99m
NH:
Merrill pushing on valuation grounds
NH:
Raising to Buy from Underperform, PO to 160p
Ladbrokes has recently hit an all-time low and has fallen by c40% since its 1-year
peak in April, underperforming the market by c.60% since then. As we are
approaching the end of 2009 we roll out onto 2011 forecasts for valuation
purposes and consequently raise our PO to 160p and recommendation to Buy.
Attractive valuation, catalysts
Ladbrokes has recently hit an all-time low and has fallen by c40% since its 1-year
peak in April, underperforming the market by c.60% since then. As we are
approaching the end of 2009 we roll out onto 2011 forecasts for valuation
purposes and consequently raise our PO to 160p and recommendation to Buy.
Attractive valuation, catalysts
NH:
Valuation appears inexpensive on 10x 2010E PE vs an historical average of 13x
(ex high rollers). Catalysts include strong high roller figures, a bounce in sports
margin, and the World Cup 2010 which could all lift the share price back to a 13x
PE multiple, i.e. a possible 30% rerating which would come on top of potential
earnings upgrades.
(ex high rollers). Catalysts include strong high roller figures, a bounce in sports
margin, and the World Cup 2010 which could all lift the share price back to a 13x
PE multiple, i.e. a possible 30% rerating which would come on top of potential
earnings upgrades.
We see a number of potential positives
1) Worst news over: since the last trading update football results have
normalised (see table inside). We believe sports margin will recover next year
to some extent and that the industry could show more discipline in its pricing
NH:
2) Sale of Italian assets: we expect €30-60mn from the sale of these assets,
which have a book value of c.€50mn
which have a book value of c.€50mn
3) Better retailer comments: recent results by UK retailers point to a more
resilient consumer and Q4 potentially getting better
4) We think retail sports margins will remain structurally under pressure.
However, we note that a) our forecasts currently don’t anticipate a return to
18% levels and b) we expect OTC to represent 55% of Ladbrokes sales in
2009. The other 45% of the business, online (where margins are already low)
and machines (with the rollout of newer units) have better prospects.
12:08PM
NH:
Bryce
NH:
anything
NH:
you want to add
BE:
Not much …
BE:
On Arm, this Infineon tie-up doesn’t look like it should have moved the dial
NH:
big move in the share price now
NH:
Arm that is
BE:
Some people have been talking about Arm as a takeover target recently, albeit in a very hypothetical way.
NH:
Intel?
BE:
Well, that’s going to have competition implications …
BE:
Arm’s gaining ground in the netbook space, where it’s head to head with Intel
BE:
There’s an idea going around that Microsoft is working to lauch Windows for Arm cores
BE:
Anyway, this is one we can revisit later …
12:12PM
NH:
Thanks
NH:
right I have some more tickets to give away
NH:
no comp this time
NH:
they come from the people column
NH:
A premier at the Oden Leicester Square tomorrow night
NH:
Tenacity on the Tasman
NH:
first people to mail me gets them
NH:
you will have to pick them up from FT towers though
BE:
In 2005, after 124 days alone at sea Olly (Oliver) Hicks returned to Falmouth having just set two world records: he is the first person to row solo from America to England and the youngest ever, at 23, to row an ocean. The expedition introduced the British public to an ambitious, brave and new-age explorer. Setting foot on land in Falmouth, Olly was greeted by his sponsor Sir Richard Branson and by his friend Prince William. It was then that Olly announced his new plan: to row solo around the world.
BE:
For Olly, the Atlantic was just a testing-ground. Indeed, on this first voyage he was planning the next ‘epic’ ocean adventure – rowing around Antarctica in the Southern Ocean, an ocean row that would take in all the world’s oceans. Fellow explorer, Sir Richard Branson, who had part-financed Olly’s earlier row, came onboard as expedition title sponsor with his Virgin global super-brand. Google soon followed.
‘Tenacity on the Tasman’ charts a global sponsorship campaign, medical and logistical preparations, embarkation for the treacherous and unforgiving waters of the Southern Ocean – the ultimate act of courage – and nearly 100 days at sea. .
NH:
Right
NH:
one for the salty sea dogs out there
BE:
I guess so.
12:14PM
NH:
and finally for Fitz
NH:
some comment on the MPC minites
NH:
from RBC Capital
NH:
With the Nov vote split revealing there to a smaller-than-expected degree of momentum behind the asset purchase programme and with the Committee seriously entertaining the notion of a cut in its deposit rate (albeit perhaps not imminently), today’s minutes are positive for the very front end of the curve (on the back of an anticipated flow of BoE reserves into short-dated bonds – these matching the maturity of banks’ liabilities) but bad news for the belly (as hopes of a continuation of QE come Feb take a knock). Taken together, this is clearly supportive of steepening positions and, in the wake of these minutes, we are considering closing our short-sterling flattener and re-entering the 3s-10s steepener we recently booked profits on.
The MPC was split three ways in Nov with 7 supporting the £25bn increase in the QE limit, one (Miles) calling for £40bn so as to maintain the earlier pace of QE purchases (once the planned end-Dec break in the purchase programme was factored in) and one (Dale) calling for no change (owing, in part, to concern further stimulus “might result in unwarranted increases in some asset prices that could prove costly to rectify”).
NH:
Of considerable note, meanwhile, was the evident seriousness with which the Committee entertained the possibility of cutting the rate at which it remunerates bank reserves. The fact that short term rates are already low and the conclusion that asset purchases were “a more effective instrument for affecting monetary conditions” saw members agreeing that they “did not wish to make use of this option at the present time” but that it “should be available in the future”.
As we have argued previously, it would make sense to use this tool once the end of the QE road has been reached – this, as the Bank shifts from building up the stock of money to attempting to boost its velocity. With today’s vote indicating a smaller-than-expected degree of momentum behind the asset purchase programme (7-2-1 being the average call), a vote to both pause QE and cut the the deposit rate in February (once the new QE limit has been exhausted and alongside the Feb Inflation Report) seems a clear possibility.
BE:
And we haven’t even had time to address that question about the next Scotland manager ….
NH:
how sad
NH:
right
NH:
we must go
BE:
Yup – thanks for all the comments.
BE:
Oh hang on …
BE:
Neil’s got some more on the Nomura competition
NH:
I have
NH:
Nomura’s 
NH:
has been in touch
NH:
and its not just the tickets
NH:
our lucky winners will get
NH:
Our prize packs have now arrived and we can offer the following:
4 pairs of tickets for the Varsity Match on 10 December
8 Nomura branded bags
8 Varsity Match t-shirts
8 Varsity Match mini rugby balls
NH:
t-shirts
NH:
balls
NH:
someone is going to be very happy on Friday
NH:
actually we need a FTSE update
NH:
up 21 points at 5,367
BE:
And, since we’re 18 already minutes over deadline, here’s my two cents on the Scotland post: I’d go for Jim Jefferies, or perhaps even Jimmy Calderwood. Boring, negative and dislikeable club managers who would be cynical enough to do a job with technically terrible players.
BE:
Right. Let’s put this to bed.
BE:
We need to get the transcript into the lunchtime wrap.
NH:
we do
NH:
I don’t want to stop Tracy having her lunch
NH:
thanks for all the comments
NH:
good stuff on Gazprom
NH:
cya tomorrow
BE:
Bye