Markets live chat transcript for the chat ending at 12:14 on 20 Nov 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)
NH:
right
NH:
it’s 11.03
NH:
and time
NH:
for Markets Live
NH:
FT Alphaville’s daily markets round-up
NH:
Bryce is here this morning
NH:
and it’s day two of the Great Oil Shark scandal
BE:
yes, proving a real distraction this
BE:
some of the comments on the Mail website are hysterical
NH:
actually I find the Mail site quite addictive. A unique mix
NH:
anyway
NH:
before we head to the markets
NH:
let us pray
BE:
what?
NH:
The Lloyd’s Prayer
BE:
is that typo?
NH:
no
NH:
The Lloyd’s Prayer
NH:
Our Chairman,
Who Art At Goldman,
Blankfein Be Thy Name.
Who Art At Goldman,
Blankfein Be Thy Name.
NH:
The Rally’s Come.
God’s Work Be Done,
We Have No Fear Of Correction.
God’s Work Be Done,
We Have No Fear Of Correction.
NH:
Give Us This Day Our Daily Gains,
And Bankrupt Our Nearest Competitors,
Just As You Taught Lehman And Bear A Lesson.
And Bankrupt Our Nearest Competitors,
Just As You Taught Lehman And Bear A Lesson.
NH:
And Bring Us Not Under Indictment.
For Thine Is The Treasury,
The House And The Senate
Forever And Ever.
Goldman.
For Thine Is The Treasury,
The House And The Senate
Forever And Ever.
Goldman.
BE:
very nice. Although we should emphasise that AV is non denominational.
NH:
yes
NH:
we welcome everyone
NH:
right
NH:
the wider market
11:06AM
NH:
and…
BE:
dead cat
BE:
BE:
Although even that’s beginning to get musty
BE:
FTSE up 5.3 points at 5273
BE:
We did get up to 5309 ealier
NH:
so
NH:
a fading dead cat
11:07AM
NH:
so what’s leading the market lower?
BE:
tour operators
BE:
Tui and Thomas Cook
TUI Travel (TT:LSE): Last: 243.80, down 11.4 (-4.47%), High: 252.00, Low: 243.80, Volume: 1.72m
NH:
hang on
NH:
breaking news
NH:
Rothschild set to announce Kingman hire on Monday
Rothschild, the independent investment bank, is planning to announce the hire of John Kingman, the departing chief executive of UKFI, the body responsible for managing the UK Government’s stakes in financial institutions, on Monday.
Rothschild, the independent investment bank, is planning to announce the hire of John Kingman, the departing chief executive of UKFI, the body responsible for managing the UK Government’s stakes in financial institutions, on Monday.
NH:
that’s from Financial News
BE:
Wow – that is interesting
BE:
Do they still serve swan in the Rothshild private dining rooms?
BE:
Perhaps that’s the attraction.
NH:
slightly odd appointment
NH:
not as if Rothschild have a big ECM department
NH:
and will be able to cash in on all those banking stakes being sold
BE:
Hm.
NH:
where were we
BE:
Hoidays, wasn’t it?
NH:
oh, yes tour operators
TUI Travel (TT:LSE): Last: 243.60, down 11.6 (-4.55%), High: 252.00, Low: 243.60, Volume: 1.73m
Thomas Cook Group (TCG:LSE): Last: 206.00, down 12.5 (-5.72%), High: 216.00, Low: 205.90, Volume: 3.20m
NH:
what’s happened
BE:
Jamie Rollo at Morgan Stanley has downgraded
NH:
ah
NH:
good analyst Mr Rollo
BE:
yep
NH:
he turned a seller of the Toxic Pub Company when he was still house broker
NH:
not many people do that
BE:
he did
BE:
and that probably lost them the account
NH:
so what’s he saying about the travel twins
BE:
well, he is concerned about a weaker operating environment
NH:
what
NH:
fewer people booking holidays
BE:
yep
BE:
and with the synergies from both companies recent mergers wearing off
BE:
they won’t be able to disguise any slowdown in trading
BE:
oh and they still have a fair bit of debt
BE:
We are downgrading our rating on TUI Travel from
Overweight to Equal-weight and on Thomas Cook from
Equal-weight to Underweight. We are reducing forecasts for
both to reflect a weaker operating environment and more
expensive debt refinancing. TCG appears to us to have the
most forecast risk as it has above-average margins and, we
believe, needs to refinance its debts quicker than the market
believes, potentially including new equity. TT is our preferred
tour operator owing to its potential for margin catch-up and
specialist holiday expansion, though the upside from these has
been pushed out somewhat further than we expected.
Overweight to Equal-weight and on Thomas Cook from
Equal-weight to Underweight. We are reducing forecasts for
both to reflect a weaker operating environment and more
expensive debt refinancing. TCG appears to us to have the
most forecast risk as it has above-average margins and, we
believe, needs to refinance its debts quicker than the market
believes, potentially including new equity. TT is our preferred
tour operator owing to its potential for margin catch-up and
specialist holiday expansion, though the upside from these has
been pushed out somewhat further than we expected.
BE:
Trading concerns. The mainstream tour operators have been
aided by substantial merger synergies, which are now running
out, and significant capacity cuts, which are getting harder to
deliver, we think. Both TUI Travel and Thomas Cook Group
have generated solid margin increases since their mergers, but
2010 looks like being a tougher year, with costs currently rising
faster than sales, given that fuel was hedged at much higher
prices. There are signs of unhelpful capacity additions from
Rewe and Alltours in the more fragmented German market,
and Kuoni recently made some worrying comments about
Scandinavia, the highest-margin mainstream market. We show
new analysis in this report of how low cost carriers are
expanding into medium haul markets. External risks also seem
to be growing: for example, swine ‘flu, unemployment, currency,
the UK general election and the 2010 World Cup.
aided by substantial merger synergies, which are now running
out, and significant capacity cuts, which are getting harder to
deliver, we think. Both TUI Travel and Thomas Cook Group
have generated solid margin increases since their mergers, but
2010 looks like being a tougher year, with costs currently rising
faster than sales, given that fuel was hedged at much higher
prices. There are signs of unhelpful capacity additions from
Rewe and Alltours in the more fragmented German market,
and Kuoni recently made some worrying comments about
Scandinavia, the highest-margin mainstream market. We show
new analysis in this report of how low cost carriers are
expanding into medium haul markets. External risks also seem
to be growing: for example, swine ‘flu, unemployment, currency,
the UK general election and the 2010 World Cup.
BE:
Debt concerns. We have been disappointed by the level of
cash generation and growing debts, particularly at TCG, driven
by weak working capital, adverse currency moves, higher than
expected exceptional costs, and acquisitions. Coupled with
lower interest income on customer deposits, net financial
charges have been rising faster than we anticipated. This is
likely to continue into 2010, we believe, with TT recently
refinancing its loans early via a convertible and new RCF, and
TCG needing to refinance its May 2011 facility soon given its
covenant steps down from 3.75x to 3.25x adjusted debt/
EBITDAR, leaving only 10% headroom on our forecasts.
Indeed, with TCG’s balance sheet weaker than TT’s, and with
its majority shareholder Arcandor now having sold out, we
would not rule out a small equity raising from TCG.
cash generation and growing debts, particularly at TCG, driven
by weak working capital, adverse currency moves, higher than
expected exceptional costs, and acquisitions. Coupled with
lower interest income on customer deposits, net financial
charges have been rising faster than we anticipated. This is
likely to continue into 2010, we believe, with TT recently
refinancing its loans early via a convertible and new RCF, and
TCG needing to refinance its May 2011 facility soon given its
covenant steps down from 3.75x to 3.25x adjusted debt/
EBITDAR, leaving only 10% headroom on our forecasts.
Indeed, with TCG’s balance sheet weaker than TT’s, and with
its majority shareholder Arcandor now having sold out, we
would not rule out a small equity raising from TCG.
BE:
New forecasts. We now assume a £50m underlying profit drop
in 2010 for TT and a £30m drop for TCG, and a £20m step up in
net financial costs. This leads to EPS cuts of around 15% for
both companies, such that we are around 10% below
consensus for TT and 15% below for TCG.
in 2010 for TT and a £30m drop for TCG, and a £20m step up in
net financial costs. This leads to EPS cuts of around 15% for
both companies, such that we are around 10% below
consensus for TT and 15% below for TCG.
NH:
hmmmm
NH:
interesting stuff
11:15AM
BE:
While on the subject of Toxic Taverns ……
BE:
this story in the People column caught my eye
BE:
With Punch Tavern’s shares trading at about 84p, investors who bought into its share placing of 100p a share this year may not want to look too closely at the group’s 2009 annual report out this week.
A total of £1.2m in payments were made to three directors – Andrew Knight , Deborah Kemp and Jonathan Paveley – who left the company over the past 12 months.
Chief Giles Thorley pocketed £874,000 from selling his share options in 2008, which vested from 2004 incentive plans. Stripping out the option gains, Mr Thorley saw his total package increase 20 per cent to £681,000 in 2009. In spite of racking up £406m in annual losses, £172,000 of bonuses were paid out to executive management, with Mr Thorley – who received no bonus in 2008 but was given £336,000 in 2007 – netting £60,000.
NH:
That’s disgusting.
NH:
A reward for failure.
NH:
disgusting
NH:
just
NH:
disgusting
BE:
Yeah.
BE:
Apparently, Punch’s flak was insisting it was in recognition of the amount of work that management has done to reduce debt
NH:
and whose fault was that? shareholders
NH:
I don’t think so
NH:
Getting rewarded for putting out fires that they lit in the first place.
BE:
Not uncommon in the sector, it seems.
BE:
Luminar, for example
BE:
the owner of grim suburban nightclubs
NH:
the UK’s biggest nightclub operator you mean
BE:
That’s the one. Although, for the avoidance of doubt, not operator of its biggest nightclubs.
BE:
Shares have halved this year. Company’s worth just £71m or thereabouts.
BE:
But Stephen Thomas, the chief executive, took home £694k in pay and bonuses
BE:
Anyway, going back to Punch ….
BE:
Pan Yuk, our leisure correspondent, highlighted to me the most curious bit of it
BE:
We know that Thornley banked £774k from selling share options in 2008
NH:
Sure.
BE:
But this wasn’t mentioned in the 2008 annual report
BE:
Then, skip forward a year, the share sale suddenly reappears in the 2009 one
BE:
With the £874k gain backdated to the total remuneration package for 2008.
NH:
So, basically
NH:
anyone looking at the 2009 annual report would think Thorley has taken another pay cut this year
BE:
Exactly
BE:
On paper he took home “only” £681k, compared to £1.5m last year.
BE:
But, between him and his bank manager, his salary rose 20%
NH:
That’s outrageous.
Punch Taverns (PUB:LSE): Last: 83.00, down 0.6 (-0.72%), High: 85.00, Low: 83.00, Volume: 683.46k
NH:
So investors buying into its rescue refinancing are sitting on a 15% loss
NH:
And the chief executive gets a 20% pay hike.
NH:
nice work if you can get it
BE:
I know.
BE:
It stinks.
BE:
This is the kind of thing the Daily Mail should be getting excited about.
NH:
they should
11:21AM
NH:
right
NH:
where now
NH:
sterling is weak this morning
NH:
a euro buying 90p a the moment
NH:
and cable
NH:
is $1.6523
BE:
Probably on the back of yesterday’s deficit news I’d assume.
NH:
I guess so
NH:
and Guvnor, I can’t believe a company can raise more than its market cap and do it at a premium. I don’t think it has ever happened before and for a highly speculative drilling campaign in deep water off the Falklands this won’t be the first.
NH:
i guess if they get the price up to 60p, 50p might be on
NH:
but otherwise
NH:
it would happen
NH:
sorry
NH:
got a bit distracted
11:24AM
NH:
Okay
NH:
time for Cadbury watch
NH:
what are the latest developments?
BE:
well
BE:
El Sole on the ball again
BE:
here’s a translation of their latest piece
BE:
It is a decisive week for Ferrero and Hershey in the battle for CBRY.
Banks are working on convincing the Ferrero family of the advantages of
the plan. The main assets of CBRY which are in Ferrero’s sights (gum and
candy) could be valued at around EUR5bn. The resistence of Michele,
traditionally a sceptic of major expansion is in contrast to his sons
Pietro and Giovanni. Nonetheless sources believe that the split could be
resolved in a short time. Everyone is noting the possibility that Kraft
raises its own offer for CBRY.
Banks are working on convincing the Ferrero family of the advantages of
the plan. The main assets of CBRY which are in Ferrero’s sights (gum and
candy) could be valued at around EUR5bn. The resistence of Michele,
traditionally a sceptic of major expansion is in contrast to his sons
Pietro and Giovanni. Nonetheless sources believe that the split could be
resolved in a short time. Everyone is noting the possibility that Kraft
raises its own offer for CBRY.
BE:
In the next few days the Ferrero family will meet with their advisers
Mediobanca (main adviser) and Rothschild (operating from London) and
with other banks that are seeking a possible role in the financing of a
deal. Among these will be mostly Italian istitutions, including Intesa
and Unicredit.
Mediobanca (main adviser) and Rothschild (operating from London) and
with other banks that are seeking a possible role in the financing of a
deal. Among these will be mostly Italian istitutions, including Intesa
and Unicredit.
BE:
There is a bit of a buzz this week, mixed with a touch of disbelief.
Only a week ago, Ferrero – which in several years has never attempt a major such acuisition – finally decided to consider CBRY. Now that
Ferrero has confirmed its interest, everyone will be trying to get a
piece of the action. Many banks are however tied up financing the KFT bid. So a combined Hershey-Ferrero bid will need to find other sources
of funding. Ferrero can seek assistance from the major Italian banks,
while Hershey is speaking with private equity funds (KKR’s name is
circulating). One thing is certain, the Ferrero family will push the
case for not putting too much debt into the operation.
Only a week ago, Ferrero – which in several years has never attempt a major such acuisition – finally decided to consider CBRY. Now that
Ferrero has confirmed its interest, everyone will be trying to get a
piece of the action. Many banks are however tied up financing the KFT bid. So a combined Hershey-Ferrero bid will need to find other sources
of funding. Ferrero can seek assistance from the major Italian banks,
while Hershey is speaking with private equity funds (KKR’s name is
circulating). One thing is certain, the Ferrero family will push the
case for not putting too much debt into the operation.
BE:
The main objective is to break up CBRY, partly because the Ferrero
family has in the past had little inclination to run businesses together
with other parties. Of the EUR5bn value placed on the assets Ferrero
would like to own, half could probably be funded by bank loans. Looking
at the accounts of Ferrero International, it can be seen that this
commitment would be entirely be feasible for the family. The holding
company holds “distributable reserves” of some EUR2bn. There is a
shareholder loan worth EUR1.3bn. In the last nine years, Ferrero has
guaranteed to the family dividends worth over EUR1bn.
family has in the past had little inclination to run businesses together
with other parties. Of the EUR5bn value placed on the assets Ferrero
would like to own, half could probably be funded by bank loans. Looking
at the accounts of Ferrero International, it can be seen that this
commitment would be entirely be feasible for the family. The holding
company holds “distributable reserves” of some EUR2bn. There is a
shareholder loan worth EUR1.3bn. In the last nine years, Ferrero has
guaranteed to the family dividends worth over EUR1bn.
BE:
There is room to seek debt funding, up to EUR2bn. But possibly they will need less than that.
NH:
very impressive
NH:
I didn’t realise you were fluent in Italian
BE:
Non solo.
NH:
so
NH:
it does look as if Ferrero are serious
BE:
Yep.
BE:
and could probably find the funding
NH:
hmmm
NH:
I still think its more likely Hershey bids
NH:
and in order to pay down the debt it takes on sells bits to Nestle, Ferrero
NH:
however, I still think Kraft will blow them out of the water
NH:
anyway, Cadbury shares
NH:
are
NH:
up 4p at 795p
BE:
I’m sure you saw that interesting post from Miles on Cadbury/Hershey last night.
BE:
There is one solution that could make a Kraft-repelling Cadbury-Hershey merger possible: a dual listed company structure.
NH:
I did
NH:
very good that
NH:
if DLC Expert has logged on this morning
NH:
I would be very interested to know what he thinks
NH:
and of course
NH:
Monty
BE:
All fantasy M&A at the moment, obviously
BE:
But interesting fantasy M&A
11:30AM
NH:
Bryce
NH:
what’s the FTSE 100 doing?
BE:
Negative now
NH:
oh dear
BE:
5267.7
NH:
that will be worrying a few people
NH:
because
NH:
tonights closing price
NH:
will determine the winners of the Varsity competition
NH:
four pairs of tickets being given away to lucky readers
BE:
Yup – guess the closing level.
BE:
How many entries did we get?
NH:
dunno
NH:
and I have no idea who bid what
BE:
Right
NH:
it could take ages to figure out
NH:
we need someone like Lorcan on the case
NH:
for his Xmas drinks comp
NH:
he has got a great list drawn up
BE:
Good idea. We should outsource.
NH:
the four closest win
NH:
over and under
NH:
or just under
BE:
Either way, I think.
NH:
(Thank you Rain 
)
)NH:
winners will be announced on Monday
NH:
in a post I think
BE:
(And results will, of course, be scrutinised by an independent auditor.)
NH:
just before ML
BE:
(ie. Miles.)
NH:
Monkey – we said at the time and in every comp we have run, that AV reserves the right to change the rules at any time
11:35AM
NH:
Right
NH:
few people asking about the Bernstein oil note
NH:
which is good
NH:
so is the analyst
BE:
Oswald Clint is the senior
BE:
And Alex Prokofjevs, moonlighting from his day job in Franz Ferdinand.
NH:
ha
NH:
can you put some up
BE:
Sure
BE:
European E&Ps have outperformed the broader market by an average of 28% YTD in 2009.
Higher oil prices, and, in the case of some, exploration success have contributed to this strong
outperformance, and we think it will continue. Consequently, we remain positive on the European E&P
sector into the end of 2009 and 2010, and have updated our price targets to reflect 2011 earnings and
cashflow estimates. We also incorporate recent 3Q results and interim management updates, and adjust
currencies for current forward rates, all of which causes our price targets to rise by 17% on average. As
we forecast average oil prices around $100/bbl oil prices in 2011, our P/CF derived price targets now
coincide with our net asset values which also adopt a long term oil price close to $100/bbl.
Higher oil prices, and, in the case of some, exploration success have contributed to this strong
outperformance, and we think it will continue. Consequently, we remain positive on the European E&P
sector into the end of 2009 and 2010, and have updated our price targets to reflect 2011 earnings and
cashflow estimates. We also incorporate recent 3Q results and interim management updates, and adjust
currencies for current forward rates, all of which causes our price targets to rise by 17% on average. As
we forecast average oil prices around $100/bbl oil prices in 2011, our P/CF derived price targets now
coincide with our net asset values which also adopt a long term oil price close to $100/bbl.
BE:
Our top pick in the European sector is Cairn Energy with a new price cashflow derived price
target of £36 which closely compares with our NAV of £37/share. This NAV includes only
£2.50/share of value for exploration, determined using the recent implied valuation from the Petronas
farm-in to the acreage. As discussed in our recent research about exploration potential offshore
Greenland, we believe there are untested Cretaceous plays for Cairn to exploit. With our calculated
NPV/bbl of $7-$8/bbl for a discovery in the region, Cairn’s early identified 14 leads (if converted to
drillable prospects) found in 2 of their 8 blocks could equate to material further upside. Specifically,
applying a 5% exploration success level to prospects in the 300Mbbls range (using Canadian analogues)
and our NPV/bbl would equate to £5.50/share. If success levels recorded offshore Eastern Canadian of
15-18% were achievable would lift this estimate much higher. Furthermore, our NAV assumes only a
50% probability of success for the enhanced oil recovery project at the MBA field, although we remain
confident it will be successful and deliver the full 300Mbbls – hence our NAV has further upside.
target of £36 which closely compares with our NAV of £37/share. This NAV includes only
£2.50/share of value for exploration, determined using the recent implied valuation from the Petronas
farm-in to the acreage. As discussed in our recent research about exploration potential offshore
Greenland, we believe there are untested Cretaceous plays for Cairn to exploit. With our calculated
NPV/bbl of $7-$8/bbl for a discovery in the region, Cairn’s early identified 14 leads (if converted to
drillable prospects) found in 2 of their 8 blocks could equate to material further upside. Specifically,
applying a 5% exploration success level to prospects in the 300Mbbls range (using Canadian analogues)
and our NPV/bbl would equate to £5.50/share. If success levels recorded offshore Eastern Canadian of
15-18% were achievable would lift this estimate much higher. Furthermore, our NAV assumes only a
50% probability of success for the enhanced oil recovery project at the MBA field, although we remain
confident it will be successful and deliver the full 300Mbbls – hence our NAV has further upside.
BE:
Russia’s energy sector has also performed strongly YTD with our five stocks outperforming the
emerging market index by an average of 49%, led by the Russian gas sector (78% relative
performance versus 30% for Russian Oils). While the movement in the Russian Oils has been strong
(and against our recommendations), we do however remain cautious on Russian oil output and still
expect visible declines in the near term. Added to cost escalation, growing maintenance capex, low
probability of further tax cuts and now lofty valuations, we remain cautious on the oil stocks at this time.
We continue to see fundamental reasons why the gas stocks (Gazprom and Novatek) should continue to
do well in 2010 and rate them both Outperform.
emerging market index by an average of 49%, led by the Russian gas sector (78% relative
performance versus 30% for Russian Oils). While the movement in the Russian Oils has been strong
(and against our recommendations), we do however remain cautious on Russian oil output and still
expect visible declines in the near term. Added to cost escalation, growing maintenance capex, low
probability of further tax cuts and now lofty valuations, we remain cautious on the oil stocks at this time.
We continue to see fundamental reasons why the gas stocks (Gazprom and Novatek) should continue to
do well in 2010 and rate them both Outperform.
BE:
Gazprom remains our top pick in the Russian energy sector with a price target of $32. We recently
disaggregated the profitability of Gazprom’s natural gas business and as a result we expect first-time
profitability from the domestic business by the end of 2009 due to liberalization of domestic prices. In
particular, we expect average EBIT/boe of $6/boe over last 5 years to rise to $10-12/boe from 2009-2013,
and argue that the stock should see a re-rating. Moreover, across the Bernstein energy coverage universe,
Gazprom is the cheapest stock with an EV per barrel of proven reserves of $1.70/boe versus an average
of close to $20/boe.
disaggregated the profitability of Gazprom’s natural gas business and as a result we expect first-time
profitability from the domestic business by the end of 2009 due to liberalization of domestic prices. In
particular, we expect average EBIT/boe of $6/boe over last 5 years to rise to $10-12/boe from 2009-2013,
and argue that the stock should see a re-rating. Moreover, across the Bernstein energy coverage universe,
Gazprom is the cheapest stock with an EV per barrel of proven reserves of $1.70/boe versus an average
of close to $20/boe.
BE:
Investment Conclusion
We continue to believe that oil prices will remain high, around or above the marginal cost of $75/bbl. We
believe we are now entering stage two of a classic upcycle and continue to recommend adding to high beta
E&Ps. We also continue to recommend exposure to natural-gas exposed names, rating BG, Gazprom and
Novatek outperform. For investors hoping to gain from the boost in oil, we recommend Cairn as our top oilleveraged
pick (Outperform). We also continue to rate Tullow Outperform and post our valuation update
see upside in Premier Oil, though not yet enough to warrant an Outperform rating.
We continue to believe that oil prices will remain high, around or above the marginal cost of $75/bbl. We
believe we are now entering stage two of a classic upcycle and continue to recommend adding to high beta
E&Ps. We also continue to recommend exposure to natural-gas exposed names, rating BG, Gazprom and
Novatek outperform. For investors hoping to gain from the boost in oil, we recommend Cairn as our top oilleveraged
pick (Outperform). We also continue to rate Tullow Outperform and post our valuation update
see upside in Premier Oil, though not yet enough to warrant an Outperform rating.
NH:
thanks for that
11:37AM
NH:
Someone on the right asking about Emblaze
NH:
a bonkers Israeli phone technology company
NH:
we don’t have anything to share really
BE:
Yeah – although the specific technology seems to change every six months.
NH:
apart from this
NH:
Dear Neil,
Please find attached an invite to the exclusive world unveiling of Emblaze Mobile’s long rumoured ‘Project Monolith’, now revealed as the ELSE device.
The private event is being held between 11 and 12am on November 24th at SKETCH, 9 Conduit Street, London W1S 2XG.
The ELSE is not a PDA, Smart Phone, or Feature Phone. The ELSE is an attempt to revolutionize the way we think about the handset industry, and what a handheld device can and SHOULD do.
Please find attached an invite to the exclusive world unveiling of Emblaze Mobile’s long rumoured ‘Project Monolith’, now revealed as the ELSE device.
The private event is being held between 11 and 12am on November 24th at SKETCH, 9 Conduit Street, London W1S 2XG.
The ELSE is not a PDA, Smart Phone, or Feature Phone. The ELSE is an attempt to revolutionize the way we think about the handset industry, and what a handheld device can and SHOULD do.
NH:
A few weeks ago in Japan, ELSE and ACCESS unveiled ELSE INTUITION, the LINUX-based platform the ELSE handset would use. (http://www.access-company.com/news/press/ACCESS/2009/20091022_emblaze.html) This platform provides unmatched flexibility and configurability, enabling users to run multiple programs simultaneously and switch between them with ease, thanks also to a revolutionary intuitive interface system (more on that at the unveiling!). The ELSE INTUITION platform allows the ELSE device to cast off the ‘Phone loaded with gimmicks’ model and actually become the device its being used for, be it phone, camera, media player or GPS device.
BE:
Sketch?!
BE:
Crikey.
NH:
I know
NH:
pushing out the boat
NH:
obviously I won’t be going
NH:
because I have no idea
NH:
what the above means
NH:
none at all
NH:
LINUX-based platform the ELSE handset would use???????
BE:
By memory, you can’t actually get a mobile signal in Sketch’s bar.
BE:
Which may be a bit awkward.
NH:
that about sums it up
11:39AM
BE:
Right – enough of that. Do we have any RAW for the readers?
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
hmmm, something for the weekend.
NH:
let me think
NH:
only Heritage Oil I am afraid
NH:
talk that the Uganda deal/sale will be announced via the Sunday press
BE:
Aha – the good old “it’s going to be in the weekend press” rumour.
BE:
STRNS
BE:
?
NH:
dunno
NH:
but they have been good on Heritage in the past
NH:
anyway, the story is the same assets sold, large chunk of cash returned to shareholders
Heritage Oil (HOIL:LSE): Last: 494.90, up 11.9 (+2.46%), High: 510.00, Low: 487.20, Volume: 1.01m
NH:
also there has been a positive development in the Oracle/Sun deal
BE:
Which is?
NH:
this
NH:
RTRS-EU COMMISSION EXTENDS REVIEW OF ORACLE, , SUN MERGER PLAN
BE:
Right.
NH:
reading between the lines
NH:
they have agreed to extend the review, because Sun have backed down and put forward some possible remedies
NH:
and finally on the RAW front
NH:
Dragon Oil
NH:
the lead rebel shareholder
NH:
has picked up more stock
NH:
another 200,000
NH:
taking its holding 4.28%
BE:
Ballie Gifford, right?
NH:
yes
NH:
and also
NH:
here’s something that’s quite funny
NH:
Rescue Dragon from the clutches of ENOC
NH:
This site is intended to act as a meeting place for shareholders of Dragon Oil Plc, an Irish company that is in danger of being taken over by it’s majority shareholder ENOC (Emirates National Oil Company).
The current takeover offer made by ENOC of £4.55 seriously undervalues Dragon Oil plc. The company could be worth 100% to 200% more than this right now and far more in the years to come. Don’t sell out on the cheap!
Dragon Oil has valuable oil and gas assets in the Caspian Sea which are only just now starting to achieve their potential we must not allow ENOC to snatch this company away just as it’s starting to make good.
You should first read the NCP/Peter hutton research brief and then contact your stock broker and make sure you are able to vote. Most nominee accounts are not allowed to vote unless you make arrangements in advance.
This site is being run by me, Robert McKay. You may contact me at robert@mckay.com. I will try and get back to you.
NH:
(User4720403 )
)NH:
Today (Tuesday 17th of November) my copy of the Dragon Oil Shareholders register has finally arrived. In a box. Just over 3000 pages of printed text just slightly too big to scan in a normal scanner. After just over two weeks of sandbagging and delays this is what Capita Registrars finally sent me.
NH:
I think there is a lot that could be done to improve this process.. I understand they don’t want to make it too easy for direct junk mail marketeers however in situations such as the one we’re in with Dragon Oil there needs to be a better way for shareholders to communicate with one another. I would suggest some kind of electronic messaging system (preferably not email) maybe something a bit more like the RNS system where shareholders could send messages which would be automatically picked up by all the share websites and maybe also displayed on the websites of corporate registrars like capita.
NH:
anyway
NH:
there’s even some pics
NH:
of the share register
NH:
on that old style prining paper
NH:
the stuff with the green lines on it
BE:
Hm.
BE:
We see these kind of grassroots campaigns quite often
BE:
And I’m never totally convinced that they’re worth the effort expended.
BE:
I mean, good luck obviously, but they tend to have next to no effect on proceedings.
NH:
hang on
NH:
there’s a bit more from the site
NH:
Donate
Ross Evans has setup a google checkout account for accepting donations.
Ross has stated that the funds will be used as follows:
1. Reimbursing Robert for costs incurred in acquiring the shareholders register and other cost associated with its utilisation.
2. Fund expansion of google adwords campaign to ensure that the many shareholders that will be searching on google for terms relvant to the takeover see the savedragon.com link.
3. Placement of press releases stating shareholders dissatisfaction with the situation with PRWeb and related agencies, ensuing our views receive a wide audience.
4. Using contacts to have favourable articles placed in mid-tier online publications.
I (Rob) do not need to be reimbursed; please spend all the money on the other items instead.
NH:
hang on
NH:
what does 4 mean
NH:
4. Using contacts to have favourable articles placed in mid-tier online publications.
NH:
us?
NH:
am I not sure he should be saying stuff like that
BE:
“mid-tier”?
BE:
Way to offend absolutely everyone you’re trying to spin.
NH:
(Taxloss – that was bad)
NH:
(Yellow)
NH:
I think Ross
NH:
needs a wee bit of PR help
NH:
not the way to win friends and infleucen people
NH:
anyway
NH:
Dragon price?
Dragon Oil (DGO:LSE): Last: 414.75, down 3 (-0.72%), High: 420.00, Low: 410.00, Volume: 1.22m
NH:
hmmm
NH:
bounced from 400p level it got to
11:50AM
NH:
Now GKP
NH:
heard an amazing rumour yesterday
NH:
but I don’t think it is true
NH:
so I won’t share it
NH:
sorry to tease
BE:
Boo.
NH:
but we all know another drilling report is coming
NH:
let’s just see what it says
Gulf Keystone Petroleum (GKP:LSE): Last: 108.50, down 0.25 (-0.23%), High: 109.00, Low: 106.25, Volume: 496.56k
11:50AM
NH:
Where next
BE:
Paragon?
NH:
hmmm
NH:
the sub prime mortgage lender in run off
NH:
is amazingly still listed
BE:
That’s the one.
NH:
and being pushed by UBS this morning
BE:
Really?
NH:
yep
NH:
set a 211p target price
BE:
That’s against what today?
NH:
up 4p at 146p
BE:
Punchy.
BE:
You got the note?
NH:
a summary of it
NH:
Robust cash generation, outlook on return to growth underlie our upgrade
We upgrade PT to 211p and rating to Buy. We see rapidly expanding cash flow on Paragon’s
back book, as well as expecting the group to return to originating new assets from 2011. The
s.tock is trading at 0.7x P/BV 2009E
We upgrade PT to 211p and rating to Buy. We see rapidly expanding cash flow on Paragon’s
back book, as well as expecting the group to return to originating new assets from 2011. The
s.tock is trading at 0.7x P/BV 2009E
NH:
Cash flow rapidly improving despite assets being still in a run-off mode
We estimate cash flow available to shareholders at £ 68m for 2010 and £70m for 2011, more
than 15% pa of market cap. This robust picture is thanks to a fall in redemptions, which supports
stable assets volumes and rising spreads as the share of “teaser” rate mortgages falls away.
Good underwriting and low rates have kept Buy-to-let losses at 12bps. The mechanics of
P.aragon’s securitisations allow the rising cash flow to drop out the bottom to shareholders.
We estimate cash flow available to shareholders at £ 68m for 2010 and £70m for 2011, more
than 15% pa of market cap. This robust picture is thanks to a fall in redemptions, which supports
stable assets volumes and rising spreads as the share of “teaser” rate mortgages falls away.
Good underwriting and low rates have kept Buy-to-let losses at 12bps. The mechanics of
P.aragon’s securitisations allow the rising cash flow to drop out the bottom to shareholders.
NH:
We expect PGC to return to growth in 2011
Demand for BTL is supported by a combination of low interest rates and resilient rent yields.
There are first signs of recovery in the securitisation market. We expect PGC to return to assets
origination in 2011.
Demand for BTL is supported by a combination of low interest rates and resilient rent yields.
There are first signs of recovery in the securitisation market. We expect PGC to return to assets
origination in 2011.
NH:
Valuation
We value PGC discounting 5 year forecast cash flows (12% discount rate), noting that free cash
flow is well ahead of IFRS PBT in the near-term. Even so, our 2010 EPS forecast is almost 50%
ahead of consensus. Value of cash flow beyond 2014E is captured in the TV, derived assuming
4% nominal asset growth. Previously, the valuation was based mainly on discounting cash to be
returned to shareholders from its securitisation vehicles (run-off assumption).
We value PGC discounting 5 year forecast cash flows (12% discount rate), noting that free cash
flow is well ahead of IFRS PBT in the near-term. Even so, our 2010 EPS forecast is almost 50%
ahead of consensus. Value of cash flow beyond 2014E is captured in the TV, derived assuming
4% nominal asset growth. Previously, the valuation was based mainly on discounting cash to be
returned to shareholders from its securitisation vehicles (run-off assumption).
NH:
actually could be interesting this
NH:
run off of the securitisation
NH:
I expect a few big brains are looking at it
BE:
Just having a look through the full note. All 17 pages of it.
BE:
Might be one for the “usual place”.
11:54AM
NH:
Right
NH:
a wee bit of breaking news
NH:
concerning National Express
NH:
now
NH:
where does this leave the cash call
NH:
LONDON (Dow Jones)–The Cosman family, National Express Group PLC’s (NEX.LN) largest shareholder, bought a further 500,000 shares in the U.K. transport company Thursday, raising its stake to around 19% from 18.6%, a spokesman said Friday.
NH:
He added the share buy indicated the family is committed to the company and to being a long-term shareholder in the business.
It’s not clear yet whether the Cosmen family will participate in an upcoming GBP360 million rights issue the company has planned.
Last week a spokesman for the family said Jorge Cosmen, who represents the family on the board of National Express, “voted against the rights issue as a member of the board of directors, but the Cosmen family is evaluating whether it will support the rights issue.”
A full vote on the rights issue by shareholders is scheduled for Nov. 27.
It’s not clear yet whether the Cosmen family will participate in an upcoming GBP360 million rights issue the company has planned.
Last week a spokesman for the family said Jorge Cosmen, who represents the family on the board of National Express, “voted against the rights issue as a member of the board of directors, but the Cosmen family is evaluating whether it will support the rights issue.”
A full vote on the rights issue by shareholders is scheduled for Nov. 27.
NH:
National Express blamed the “marked underperformance” of its East Coast rail franchise as well as high debt following an acquisition spree for its financial position, and said the rights issue was the best way to proceed.
The group had net debt as of Sept. 30 of about GBP1.1 billion, with significant refinancing necessary in September 2010, and again by June 2011.
National Express last month abandoned merger talks with rival bus-and-rail operator Stagecoach Group PLC (SGC.LN) to focus on reducing its debt with an equity fund raising.
The group had net debt as of Sept. 30 of about GBP1.1 billion, with significant refinancing necessary in September 2010, and again by June 2011.
National Express last month abandoned merger talks with rival bus-and-rail operator Stagecoach Group PLC (SGC.LN) to focus on reducing its debt with an equity fund raising.
National Express (NEX:LSE): Last: 349.30, up 8.3 (+2.43%), High: 349.60, Low: 339.20, Volume: 732.53k
NH:
I guess they wouldn’t be buying
NH:
if they could not take up their rights
NH:
500,000 shares
NH:
at 350p is a bit of a go
BE:
Right.
BE:
Oh – and if I can just return to Punch for a second
NH:
good
BE:
While we’re live, I just want to make it absoutely clear ….
BE:
That the 774k share-sale gain was mentioned in the 2008 annual report – it just wasn’t included in the tally for Giles’ total remuneration the way it is this year.
BE:
it was reported separately in the bit on LTIP
NH:
but the point still stands
NH:
it looks like he got paid less
NH:
and he didn’t
NH:
he got paid more
BE:
Absolutely – smoke and mirrors
BE:
(Vintage – no. the 
has not been in touch. Just anticipating the call.)
has not been in touch. Just anticipating the call.)NH:
just back to National Express and the Cosmen’s. It seems they gave that interview to Dow Jones, two minutes before the RNS announcing their share purchase came out.
11:58AM
NH:
Anything else to look at.
BE:
Well, I think this Intertek news is quite interesting
BE:
in talks with Den Norske Veritas,
BE:
the Norwegian ship classification business,
BE:
to buy its business assurance division
BE:
Which would put it among the top three in systems certification
BE:
In other words, this bit: http://www.intertek-sc.com/
NH:
And this is interesting? why?
BE:
Well, it’s not a massive deal
BE:
The unit generates sales of £200k a year
BE:
Yet Intertek wants to pay with equity
BE:
Which is going to make DNV a “substantial” shareholder
BE:
And that’s despite Intertek having pleny of capacity to do the deal with cash
NH:
So you’re thinking this might be a poison pill against a takeover?
BE:
Well, that’s what SocGen thinks
BE:
Here’s their note
BE:
This is surprising as ITRK does not normally pay in shares for its acquisitions and with a FY10e Net Debt to EBITDA ratio of just 0.5x, we believe it could support an all-debt deal. With DNV possibly becoming a key shareholder in ITRK, the deal could in fact be interpreted as a defensive move by ITRK as DNV’s potential holding could make it harder for, say, SGS (Hold, CHF1,460) or Bureau Veritas (Buy, TP €44) to make an
approach.
approach.
BE:
We calculate that on a consideration of £340m (i.e. 1.7x EV/sales equivalent to the sectors
current multiple) payable with ITRK shares at yesterdays closing share price, and a margin of
17% for DNVs certification division, the deal would be neutral to ITRKs EPS in year 1. SGS
and BVs margin in that division are 19.7% and 18.4% respectively but it is highly likely that,
as a foundation, DNVs profitability is not as high. However until we know the full terms of the
deal a more accurate impact on ITRK accounts is hard to calculate.
The forces of consolidation clearly seem to be at work in this sector.
current multiple) payable with ITRK shares at yesterdays closing share price, and a margin of
17% for DNVs certification division, the deal would be neutral to ITRKs EPS in year 1. SGS
and BVs margin in that division are 19.7% and 18.4% respectively but it is highly likely that,
as a foundation, DNVs profitability is not as high. However until we know the full terms of the
deal a more accurate impact on ITRK accounts is hard to calculate.
The forces of consolidation clearly seem to be at work in this sector.
BE:
There was a bit of excitement around Intertek shares four or so months ago
BE:
Talking about various consolidation theories
BE:
Came to nothing though.
NH:
ta for that. Let’s just get a share price on what must be one of the least followed companies in the FTSE 100
Intertek Group (ITRK:LSE): Last: 1,225, down 35 (-2.78%), High: 1,273, Low: 1,225, Volume: 915.78k
12:02PM
NH:
quick update on NEX
NH:
share price motoring now
NH:
up 20p to 361p
NH:
why?
NH:
do people think the Cosmen’s are going to put the company back into play
BE:
I guess that must be the theory
NH:
I suppose
NH:
if they take up their rights in full
NH:
and aren’t diluted
NH:
they could push for a Stagecoach merger again
NH:
post cash call
NH:
(Lemmy, i have yellow carded myself)
12:04PM
NH:
Right it is past midday
NH:
and we need to bring things to a close
NH:
on Dana
NH:
FWIW
NH:
I think a utility like RWE is the most likely buyer
BE:
Hm.
BE:
Would RWE want a bunch of long term prospects dotted around Egypt?
NH:
no
NH:
but they might want the North Sea stuff
NH:
given their ambitious targets
BE:
We should highlight also that Dana had a big sell-side analyst meeting yesterday afternoon.
NH:
post the IMS?
BE:
Which, according to my man on the floor, was “boring and incomprehensible.”
NH:
any notes
NH:
(Ptolemy of course)
BE:
Hang on …
NH:
in the meantime
NH:
the FTSE has come off quite a bit
NH:
now down 35 points at 5,233
NH:
not good for the bulls in the Varsity comp
BE:
True
BE:
For all fans of Dana, here’s Morgan Stanley
BE:
A detailed update at the capital markets day
yesterday: Dana highlighted both the value in the
existing portfolio and upside from 2010 exploration and
longer-term opportunities in Morocco, Mauritania and
Guinea. Cashflow remains a key priority with asset
swaps into producing assets increasingly likely to fund
exploration. 2009 exploration results and
communication has been unquestionably disappointing.
Yesterday’s update offered little materially new, but it
should reassure investors that the asset trading/
exploration model is intact – importantly the E&A
program for next year is largely unchanged and still
offers investors material upside potential. Our NAV at
the forward curve is 1,548p/sh.
yesterday: Dana highlighted both the value in the
existing portfolio and upside from 2010 exploration and
longer-term opportunities in Morocco, Mauritania and
Guinea. Cashflow remains a key priority with asset
swaps into producing assets increasingly likely to fund
exploration. 2009 exploration results and
communication has been unquestionably disappointing.
Yesterday’s update offered little materially new, but it
should reassure investors that the asset trading/
exploration model is intact – importantly the E&A
program for next year is largely unchanged and still
offers investors material upside potential. Our NAV at
the forward curve is 1,548p/sh.
BE:
Guinea acreage – potentially exciting but early
days: Current 2D seismic has indicated a lead with up to
3.6bn bbl potential (P90 c.600mb). A further 9,000km of
2D seismic is being acquired at the moment to aid the
relinquishment decision by year-end. 3D seismic
acquisition is expected to take place in 2010 with a
commitment to spud a well by end-2011.
2010 drilling program intact: A c.14 well program with
high impact wells at Anne-Marie (UK), Tolmount (UK)
and Bamboo (Egypt) remains on schedule and worth in
aggregate up to c.£6/sh unrisked at the forward curve.
Bamboo will be one of the first results in the new year
and alongside Papyrus will be important in ensuring
West El Burullus is commercially viable and sanctioned.
Development highlights: First gas from Babbage (UK)
is expected in 2Q10, modestly pushed back from 1Q10
to allow for further work on the platform offshore.
Western Isles remains the key mid-term development
where project sanction is targeted for 4Q10 with first oil
in 2013 at initial rates of up to c.25kb/d (net Dana).
Near-term catalysts: The Papyrus well in the West El
Burullus concession, Egypt is currently drilling with a
result expected by late December (unrisked c.20p/sh).
Elsewhere look for an update on Dana’s interest in
Guinea post the November 30 deadline for a letter of
intent to Hyperdynamics by another party.
days: Current 2D seismic has indicated a lead with up to
3.6bn bbl potential (P90 c.600mb). A further 9,000km of
2D seismic is being acquired at the moment to aid the
relinquishment decision by year-end. 3D seismic
acquisition is expected to take place in 2010 with a
commitment to spud a well by end-2011.
2010 drilling program intact: A c.14 well program with
high impact wells at Anne-Marie (UK), Tolmount (UK)
and Bamboo (Egypt) remains on schedule and worth in
aggregate up to c.£6/sh unrisked at the forward curve.
Bamboo will be one of the first results in the new year
and alongside Papyrus will be important in ensuring
West El Burullus is commercially viable and sanctioned.
Development highlights: First gas from Babbage (UK)
is expected in 2Q10, modestly pushed back from 1Q10
to allow for further work on the platform offshore.
Western Isles remains the key mid-term development
where project sanction is targeted for 4Q10 with first oil
in 2013 at initial rates of up to c.25kb/d (net Dana).
Near-term catalysts: The Papyrus well in the West El
Burullus concession, Egypt is currently drilling with a
result expected by late December (unrisked c.20p/sh).
Elsewhere look for an update on Dana’s interest in
Guinea post the November 30 deadline for a letter of
intent to Hyperdynamics by another party.
BE:
So – that’s all kinds of everything in there.
BE:
(Yellow carded myself.)
12:08PM
NH:
Right, we are having problems with the registration system so people may be having trouble logging in this morning. apologies for that.
NH:
and on Ukraine
NH:
the rumour is going round the market now
NH:
The initial story is that Ukrainian Rail has a bond to Barclays which has now defaulted. There is a secondary bond to Deutsche Bk, underwritten by the Govt & if this defaults, it would count as a Sovereign Default….
NH:
Swedbank (SWEDA SS) and sooner or later, the Baltic problem will
resurface so watch out SEBA SS & the rest of the Scandi Bubble which is
bursting…
resurface so watch out SEBA SS & the rest of the Scandi Bubble which is
bursting…
12:10PM
NH:
Okay
NH:
think we are done for this week
NH:
thanks for joining us
BE:
Yes – and thanks for all your comments.
NH:
almost forgot to put this up. interesting note on BP from JPM
NH:
on the pension fund
NH:
and a possible deal with OFcom
NH:
Ofcom’s pension proposals to be revealed in the next
few weeks. Potential upside, within limits – ALERT
few weeks. Potential upside, within limits – ALERT
Yesterday we spoke to Ofcom about its forthcoming publication on the
question whether BT’s access charges should take account of its pension
deficit contributions. We learnt that this publication is due ‘in the next few
weeks’. We believe the review has upside potential for BT, however some
positive outcome is already expected and we present a number of reasons
why we don’t think the review will be transformational.
NH:
• Ofcom has promised to review its treatment of pension deficit
contributions: Ofcom’s proposed charge controls (mainly unbundled
line, wholesale line rental, and interconnect charges) do not take into
account BT’s pension deficit. In the light of the increased materiality of
pension deficit contributions (BT’s annual top ups have increased from
£280 to £525m a year since the last triennial valuation) Ofcom earlier
this year promised a review which has given rise to hopes by some that
they would follow the ‘precedent’ set by other UK regulators.
contributions: Ofcom’s proposed charge controls (mainly unbundled
line, wholesale line rental, and interconnect charges) do not take into
account BT’s pension deficit. In the light of the increased materiality of
pension deficit contributions (BT’s annual top ups have increased from
£280 to £525m a year since the last triennial valuation) Ofcom earlier
this year promised a review which has given rise to hopes by some that
they would follow the ‘precedent’ set by other UK regulators.
• Ofcom looks like the odd one out: At present Ofcom is the only UK
regulator which does not fully or at least partially recognize pension
deficit contributions in its price control calculations. For instance
Ofwat is recovering 50% of the deficit over 5 years (for a useful
overview of other UK regulator approaches to this question please see
http://www.ofgem.gov.uk/networks/Documents1/Centrica%20pension
%20appendix.pdf). Of course of full recovery of BT’s £6.8bn post tax
pension deficit through price controls would be a huge positive for BT,
with the current deficit at 88p/share (60% of the market cap).
NH:
Ofcom’s public comments have been vague: In its July analyst
presentation Ofcom said, ‘Companies … are cash-called in order to fill
the (pension) hole and take the view that this is a part of the cost base
and we need to address that question directly, whether it is or it isn’t, or
whether some parts of it are and some parts of it aren’t,’ but also
cautioning ‘that it is a complex and potentially quite important issue
and while we have previously had a policy on this in relation to charge
controls, it is probably also the case that we haven’t been completely
explicit about what has driven that policy in the past and we felt it was
appropriate to open it up to consultation so we could get a view… from
stakeholders as to the appropriate treatment of these issues’.
presentation Ofcom said, ‘Companies … are cash-called in order to fill
the (pension) hole and take the view that this is a part of the cost base
and we need to address that question directly, whether it is or it isn’t, or
whether some parts of it are and some parts of it aren’t,’ but also
cautioning ‘that it is a complex and potentially quite important issue
and while we have previously had a policy on this in relation to charge
controls, it is probably also the case that we haven’t been completely
explicit about what has driven that policy in the past and we felt it was
appropriate to open it up to consultation so we could get a view… from
stakeholders as to the appropriate treatment of these issues’.
12:11PM
NH:
fjp73 – we have heard exactly that
NH:
on Ascent Resources
BE:
Sorry – interesting off-air conversation …
NH:
on Tolstoi
BE:
Haven’t seen him in a while.
BE:
Hope he’s well, and still tuning in.
NH:
yes
NH:
right that’s it
NH:
time for food
NH:
have a good weekend everyone
NH:
and see you all next week
BE:
Bye.
NH:
for some more ML fund and games