Markets live chat transcript for the chat ending at 12:09 on 7 Dec 2009. Participants in this chat were: Neil Hume, FT (NH) Bryce Elder (BE)
NH:
and time for Markets Live
NH:
FT Alpha’s daily chat about what’s going on and why in the markets
BE:
it will be a short show today then
NH:
things aren’t too bad
NH:
a few things going on
NH:
a private equity bid for Shanks Group
NH:
A new boss at National Express
NH:
and then there’s all the windfall tax stuff
BE:
well, it’s not really going to be a windfall tax is it?
BE:
more of a super tax on bankers’ bonuses
BE:
most of which are being paid in shares
NH:
(Tuna that’s a yellow. I am going to try and stamp this out early today)
NH:
even the govt isn’t dumb enough to super tax bank profits…. yet
NH:
and I reckon this won’t spark a mass exodus of bankers to Switzerland
BE:
of course, this story was broken by PestoWire
Top News from Top Sources. The BBC’s Business Editor, Robert Peston, has played in important role keeping the British public fully informed during these difficult times.
BE:
which appears to be back up and running after a bit of down time
NH:
this bonus stuff came out early evening yesterday
NH:
here’s what the official HM Treasury news service had to say
NH:
The Treasury is preparing to levy a windfall tax or super-tax on British-based banks, which could be announced as soon as Wednesday in the pre-Budget report and would raise considerably more than £1bn a year for two or three years (but see below for an important update, which discloses a refinement in Treasury thinking – such that the tax would be for one year only and would raise several hundred million pounds, or less than £1bn).
NH:
It is not 100% certain that such a tax will be announced, because there are formidable practical obstacles.
But if it is imposed, it won’t just apply to UK banks such as Barclays, HSBC and Royal Bank of Scotland. The British arms of overseas firms, such as Goldman Sachs, JP Morgan and Deutsche Bank, would also be liable.
NH:
However, several ministers and officials have told me that the government is determined to extract revenue from banks for taxpayers and simultaneously prevent the banks from awarding substantial bonuses to their employees.
“It is a matter of justice,” said one minister. “Investment banks are making exceptional profits as a result of the intervention of government and the Bank of England to limit the economic damage from the mess caused by those very same banks. So it would be outrageous if they paid those profits to employees and bonuses. We are determined to
prevent that.”
NH:
One route being considered is to levy a super-tax on bankers who receive bonuses over a certain low level. Another is to massively increase the employers’ National Insurance charge on banks that pay big bonuses, or to tax the profits of investment banks directly.
Whatever tax is finally chosen and announced (if any) would not last longer than two or three years.
The Treasury believes that the City of London would not lose massive numbers of employees or business to rival financial centres if a super-tax lasted just a few years.
BE:
and PestoWire has updated the story this morning
BE:
As I’ve already mentioned ……
BE:
such bonuses will largely be paid in shares this year – for reasons of balance-sheet prudence ordained by the Financial Services Authority.
BE:
But if those bonuses are taxed at say 80%, it would be rational for the owners of the banks – the big investment institutions – to instruct banks’ boards not to pay bonuses at all, because to do so would be to squander precious share capital.
BE:
In other words, such a super-tax might have the desired political effect of preventing bonuses from being paid.
BE:
But there might be almost no revenue from it for the Exchequer (even less than the few hundred million pounds expected by the Treasury).
Some would say, however, that the revenue implications are less important than the distributive and social justice of biffing bonuses
NH:
(Monkey that story was around late week, we have seen the court filling. but this is a family website so we didn’t pub)
BE:
Which may be so. But within any individual bank there’ll be lots of individual shouts of “it’s not fair”.
Think about a typical trading desk at Goldman Sachs, for example: the British contingent, and the few others domiciled here for tax purposes, would pay the tax; but the non-domiciled Asians, Americans, French and Germans would not.
So if a bonus super-tax were introduced, we would be disproportionately hurting our own, as it were.
NH:
so, it won’t him the non doms then
NH:
so if this banker tax plan if it is introduced will come with the pre-budget report
NH:
we have been hit by a deluge of PBR previews this morning
BE:
lots and lots of them
BE:
including one from Morgan Stanley which is a pretty solid effort
BE:
Pre-election positioning likely: This is an important Pre-Budget. It could lay out the broad shape of fiscal policy that the Labour party intends to go into the
election with. We assume that it will build in a bit more fiscal tightening for the years ahead than was apparent in the Budget or, at least, clearer plans on achieving the
tightening incorporated in the government’s existing plans. We may get a few eye-catching near-term measures that could include both stimulus and tax rises.
Revisions likely. Numbers will still look big: In addition to policy-related changes, we may get economic backdrop-related changes to the deficit projections. In the near term, GDP growth for 2009/10 seems likely to be revised down, although we don’t
expect major changes to the Treasury’s original forecast for a £175 billion deficit. Arguably there is a case for a smaller deficit than originally forecast for 2010/11.
Beyond 2010/11, the Treasury’s GDP growth forecasts continue to look on the high side to us. The deficit numbers will still imply large gross issuance in coming
years (around £215 billion in 2010/11 for example), and recent bank capital injections may push near-term issuance forecasts about £10 billion or so higher.
5s10s steepener a good tactical trade into PBR:
BE:
Despite a £10 billion increase, gross issuance between January and March 2010 will be in line with this year’s quarterly average. However, the BoE may end purchases of gilts towards the end of January, making FY4Q easily the biggest net supply quarter this fiscal year. Given that the yield curve is a similar shape to just
before the Budget, we don’t expect any major change in the allocation of gilt issuance across the curve. The implication for an increase in supply and an end of QE
next quarter is a steeper yield curve. In particular, we think that a 5s10s steepener is a good tactical trade going into the PBR.
NH:
just mulling what we should do with the PBR
NH:
live blogging it is probably pointless given all the TV coverage
NH:
and in previous years we have not really bothered with it
NH:
but this could be an important speech
NH:
and we could always poke fun at the GDP forecasts
BE:
I’m sure one of the FT’s in-house economics wonks will be live-blogging it
BE:
Market reaction tends to be somewhere between glacial and nil on the actual day.
BE:
Anyway, we should push on to the wider market.
BE:
bit all over the place this morning
BE:
traded as low as 5,250
BE:
Seems it has been tracking the dollar for most of the morning
BE:
it was if the market woke up and decided Friday’s rally in the dollar post the GDP figs was not actually a good thing for risk assets
NH:
yeah, the dollar index hit a five month high a little earlier today
NH:
and that hit the miners
NH:
which are still in the doldrums
Eurasian Natural Resources Corp (ENRC:LSE): Last: 890.00, down 31 (-3.37%), High: 922.50, Low: 886.00, Volume: 805.33k
Fresnillo (FRES:LSE): Last: 845.00, down 20 (-2.31%), High: 861.00, Low: 840.00, Volume: 297.96k
Lonmin (LMI:LSE): Last: 1,771, down 38 (-2.10%), High: 1,803, Low: 1,771, Volume: 346.79k
Randgold Resources (RRS:LSE): Last: 4,839, down 134 (-2.69%), High: 5,025, Low: 4,834, Volume: 205.06k
NH:
whcih presumably is being affected by the gold price
BE:
Down for a third straight day
BE:
Fell as much as $25.20 to $1,136.20 an ounce earlier
BE:
Standing at around $1,142 currently
BE:
And that’s after the biggest fall in almost a year on Friday post the payrolls data
BE:
Yup. 3.8% in the NY session.
NH:
Lorcan interesting thought
NH:
not sure Pearson would sell at this point in the cycle
Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.
NH:
certainly a interesting thought
NH:
personaly I have always seen
NH:
Thomson Reuters as a more likely buyer
BE:
They have enough on their plate right now, I’d argue.
NH:
but we should leave this media navel gazing
NH:
and look at some stock specific stuff
NH:
waste related gag so far today
BE:
The early yellow seems to have established discipline.
NH:
so the backstory here is that the company
NH:
rejected a 135p a share offer from private equity group Carlyle
NH:
and have said they want 150p
NH:
which analysts think is possible
NH:
but there are some interesting under currents here
NH:
it does look very much as if shareholders want this business sold
NH:
both support the talks
NH:
but management seem much less keen to sell
NH:
and reading between the lines
NH:
it seems there were a lot of people keen to see this come out
NH:
will Carlye offer 150p
NH:
what are the metrics like at that level?
BE:
There are a couple of notes looking at that
BE:
It’s not that widely followed any more, of course.
BE:
Anyway, here’s Altium
BE:
Altium view: SKS has announced this morning the receipt of an unsolicited bid approach from a private equity firm, rumoured in the press to be Carlyle. SKS has taken soundings from its two largest shareholders, who have – according to SKS – supported the Board’s rejection of a potential offer of 135p per share. SKS has indicated that it would be prepared to consider an approach at 150p or more. The comment from SKS on the possible offer is accompanied by a comment that the group “remains confident” in “future prospects” and the benefits of the “recent decisive action by a strengthened management team”
BE:
Implications for estimates / valuation / recommendation: At this stage there is no certainty that the approach will be consummated; it is described in this morning’s announcement as “highly preliminary”. We believe that as a take-out price, 150p is a highly plausible platform, equating as it does to 7.1x EV/EBITDA (and a 75% premium to Friday’s closing share price). Given the confident prospects comment this morning, we are raising our target price to 135p (6.6x EV/EBITDA, 18x PE). However it is clear that further newsflow on the M&A front could generate a higher target price if a strategic premium is included (and bearing in mind the much higher valuations at which these stocks have changed hands in recent years).
BE:
And a line from Astaire
BE:
Possible offer at 135p, though the board believes 150p is more appropriate
Shanks has confirmed that it has received a preliminary and unsolicited approach from a third party valuing the company at 135p – the board believes that a cash offer of 150p is more appropriate, at which point it is trading on a rating of 19x for FY2011. Shanks has yet to talk to the third party, though it is reported in the press that the offer has the support of both L&G and Schroders who combined own approx. 26% of Shanks.
150p represents a 67% premium to Friday’s closing price.
We published a note on Thursday Dec 3rd entitled ‘Price target increased from 100p to 130p – we have reiterated the main points below.
BE:
At the interims, Shanks was able to demonstrate that it has done what it said it was going to do at the time of its rights issue in May. We see a number of further catalysts and have increased our target price from 100p to 130p to reflect the value of existing and potential projects and those in progress
Management team continues to impress. Net debt reduced to £198m from £295m, it is halfway through its cost cutting plan, performance targets at ELWA have been met, maintenance capex reduced, non-core assets sold and the dividend restored. FCF conversion was 63%, having improved from -34%, with guidance that it will be over 80% at the year end. What next?
BE:
Ø There is potential for upside: The almost doubling of recyclate prices since November 2008 has cost Shanks £2.5m in ‘lost profits’ during FY09.
Ø UK landfill taxes are now at a level which materially impacted Dutch attitudes towards recycling in the 1990s: This will favour Shanks.
Ø GDP will positively impact volumes in the Benelux region in 2010: GDP growth is expected from a region that accounts for over 90% of operating profits. 2Q profitability in the region increased over Q1 – this was the first such increase since Q4 2007/08 and the 2H promises to be even better.
Ø Contract wins: Shanks is currently shortlisted for three PFI waste management contracts. We expect it to win at least one, with an announcement in Q1 2010.
Ø Realisation of value in equity stakes in two PFI assets in Q1 2010. And
Ø Commencement of Anaerobic Digestion in the UK in 2010, which attracts EBITDA margins of 20%.
Astaire view: Needless to say we maintain a buy recommendation as today’s announcement is likely to be an opening shot, as Shanks has indicated a price at which it is prepared to recommend an offer. We can also not rule out an approach from another party.
NH:
I guess a counter bid cannot be ruled out here
NH:
as Mungers said, there are lots of other rivals out there
NH:
but do any have the appetite for a deal at the moment?
NH:
stock prices are pretty bombed out
NH:
and there’s the row of the Ofwat pricing
NH:
(cornhill – yellow for that. one more and you are off)
BE:
Seem to remember Severn Trent was also linked, many years ago
BE:
Doubt that’s a goer now though
NH:
seems unlikely one of the UK water co’s will bid
NH:
we are looking to the French
NH:
but one way or another
NH:
I suspect Shanks days are numbered
BE:
Montagu Private Equity and Global Infrastructure Partners bought Biffa last year
NH:
market does not seem to be pricing in a counter offer
BE:
Doesn’t, does it? It guess it’s very hard to gauge the health and/or appetite of the potential PE buyers.
BE:
(Tuna – thank you. Couldn’t remember how to spell Veolia.)
NH:
thought he could have a look at National Express
NH:
because they appear to be closing in on a new CEO
NH:
National Express closes in on new chief
By Gill Plimmer
Published: December 7 2009 00:20 | Last updated: December 7 2009 00:20
National Express is close to appointing Dean Finch, the boss of London Underground maintenance company Tube Lines, as its chief executive, ending months of uncertainty at the troubled bus and rail operator.
An announcement of the appointment of Mr Finch, a former chief operating officer of rival bus and rail operator FirstGroup, could come within days.
NH:
National Express has been searching for a chief executive since Richard Bowker resigned in July, after he decided that the company could no longer afford to run the lossmaking East Coast railway line. The rail service between Edinburgh and London was taken back into state hands last month.
NH:
this is not as bad as its sounds
NH:
first, he has only been there for 7 months
NH:
so the mess is not his fault
NH:
has a good track record
NH:
head of FirstGroup’s rail division (2001-04)
NH:
FirstGroup finance director (2004-07)
NH:
COO of the North American division (2007-09)
BE:
I guess that could be worse.
NH:
covers all the bases if you ask me
NH:
and he will understand the balance sheet
NH:
he will probably jump at this offer
NH:
even running Nat Exp must be more fun
NH:
than running the Tube
BE:
Yes – I imagine it is
NH:
here’s a quick bit of comment
NH:
Astaire view: Overseeing Tube Lines’ interminable funding disputes with TfL can’t have been much fun, and provides ample justification for Mr Finch to want alternative employment. He’s well known to the City from previous roles at FGP and, if confirmed, we would expect his appointment to be well-received. Importantly, his knowledge of the North American school bus market is second to none, making him well-equipped to sort out NEX’s indifferent performance in that market.
National Express (NEX:LSE): Last: 182.50, down 2.3 (-1.24%), High: 183.80, Low: 181.30, Volume: 528.26k
BE:
(ROTR: Settle down. No card for “track record”. Accidental pun. Ball played man.)
NH:
yep. I’m not taking a yellow for that
NH:
Viennese Banker is asking about the Gartmore IPO
NH:
but only at the lower end of the range
BE:
This just dropped onto Reuters
BE:
LONDON, Dec 7 (Reuters) – The initial public offering of UK fund manager Gartmore [GRTMO.UL] is fully covered, two banking sources said on Monday.
Gartmore is targeting around 400 million pounds offering up to 160 million shares for between 250p and 330p with final pricing due on Thursday. A Gartmore source confirmed the offer was covered.
One source told Reuters demand so far is split evenly between UK and U.S. investors with a number of continental European funds also on the book.
The other source said Gartmore management is promoting the sale on a roadshow meeting investors in London, New York, Boston, Edinburgh and Frankfurt.
One fund manager with knowledge of the IPO said: “The pricing was set at quite a wide range – most people trying to get into the book have been doing so at the bottom level.
BE:
Hang on – there’s an interesting line down the bottom
BE:
“I think it will probably get fully covered, but it’s a question of whether they are prepared to sell at the price it gets fully covered at.”
Gartmore said last week the offer was more than 50 percent covered which prompted a number of UK long-only funds to request one-on-one meetings with management, the first banking source said.
NH:
hmm. I wonder if this might go the way of Hochtieff
NH:
and get pulled at the last minute
NH:
institutions look to have played this quite well
NH:
and after being forced to bank all these cash calls
NH:
who can blame them for getting tough
NH:
straight RED for Autonomy
NH:
who continue to abuse RNS
NH:
this company really should be facing a life ban
NH:
look at this latest example of corporate puff
BE:
Give us the release then.
NH:
Cambridge, UK and SAN FRANCISCO – December 7, 2009 – Autonomy Corporation plc (LSE: AU. or AU.L), a global leader in infrastructure software for the enterprise, today announced that Autonomy iManage, its division dedicated to providing cutting-edge technology to the legal and professional services sector, has been named Technology Provider of the Year at the British Legal Awards 2009, hosted by Legal Week. The prestigious accolade celebrates Autonomy iManage’s significant business success, high levels of customer satisfaction, and thought leadership. The British Legal Awards are considered a benchmark in the sector with a judging panel comprising leading general counsel and senior business figures and commentators.
NH:
that is just desperate
NH:
Technology Provider of the Year at the British Legal Awards 2009, hosted by Legal Week
NH:
Now, I know it is getting quite boring
NH:
mentioning these awards
NH:
but it has to be stopped
BE:
What was last week’s? The Widget Magazine’s best company in the software category?
NH:
yeah something rubbish like that
NH:
and someone at Autonomy must be awarded out
NH:
all those tedious black tie events at Park Lane hotels
BE:
I do like it when they try to explain what the product actually is.
BE:
About Autonomy iManage
Autonomy iManage is the leader in information management applications for
the legal and professional services market. Building on Autonomy’s advanced
Meaning Based Computing platform, Autonomy iManage offers the most
comprehensive suites of information management applications all on a common
platform. Autonomy iManage has over a decade of experience working with law
and accounting firms to understand how these professionals interact with
information and their need to find, manage and process large volumes of
content quickly and intuitively. Organizations from all over the world,
including 75 of the top 100 global law firms, are standardizing on Autonomy
iManage which uniquely spans the complete EDRM on a single technology
platform, including document and email management, information governance,
archiving and records management, knowledge management, policy management and
eDisclosure, legal hold and review. Autonomy iManage can now link over 1,400
law firms with the data inside over 20,000 corporate clients using powerful,
familiar tools, and is the only vendor to offer the ability to access and
analyze corporate information in-place for a case, eliminating point solutions
and the risky and costly hand-offs of data used for investigations and
litigation.
BE:
Basically, you could replace everything from the third par onwards with “blah blah blah”
BE:
And nobody would notice.
BE:
It’s a database. Let’s just say “it’s a database”. Done.
NH:
(lorcan
)
NH:
Bryce has an interesting note I think on BA
BE:
BA was of course fly….. sorry …. doing very well last week
BE:
Up about 12% in the five days after Citigroup was positive
BE:
Now Tim Marshall at Redburn has joined the chorus
BE:
That’s Marshall formerly of UBS, top rated in the sector
BE:
And he’s very positive
BE:
There is a clear road map for BA. We expect approval of anti-trust immunity with American Airlines and Iberia to be taken well, for investors to become more comfortable with Iberia merger synergies and for underlying improvement in fundamentals to lead to revenue recovery.
British Airways is seeing signs of improving trends in two key areas: premium traffic and the north Atlantic. The discipline of the US airlines on the Atlantic should continue with the schedules showing capacity down 14% in Q409. We assume the recovery in corporate travel spending continues into next year and against easy comparisons, revenues will look good. We forecast an operating profit in FY11.
BE:
Anti-trust immunity (ATI) would allow BA to co-ordinate transatlantic schedules and pricing with American Airlines and Iberia. Air France-KLM believes its ATI with Delta enhances revenue by 5%, so with £5bn in combined revenue with American Airlines alone, this could add £150m in revenue, or 47p per share, to BA. This implies no slots are divested, so we assume the value uplift is a more conservative 30p per share.
Our analysis of BA back to 1974 shows its ability to reach a 10% margin after each sharp downturn. Cost cutting has been key but this management is tackling some of the more fundamental barriers to a higher profitability. Our 250p price target assumes an underlying value for BA of 180p to which we have added 40p from Iberia and 30p from ATI with American Airlines. The underlying business trades on 13x our FY12 EPS estimate.
BE:
That’s the summary with 250p target, but the bull case is exceedingly bullish
BE:
The bull case for British Airways is straightforward:
Costs: British Airways has shown itself very capable of cutting costs in the past, particularly through the ‘Future Size and Shape’ programme post 9/11. This year, the initial target of £220m in non-fuel cost savings was surpassed at the H1 results with £275m savings already made. This is before further staff cost savings the company hopes will come from cabin crew and the other groups following the new terms and conditions in effect from November this year.
Revenue: we are currently at a low ebb in the cycle, which should be followed by increasing yields over the coming quarters. The aftermath of 9/11 and the Gulf War at the start of the century was followed by strong revenue growth, particularly driven by a strong UK economy and growth on the Transatlantic.
BE:
Merger with Iberia: the merger with Iberia was eventually agreed in November. The initial announcement suggested up to €400m in annual synergies, a third coming from revenue and the remainder from cost savings. Assuming a rather conservative 5x multiple on these synergies adds 40p+ in value to British Airways’ fair value.
Anti-trust immunity with American Airlines: the application to discuss pricing and scheduling of Transatlantic business is awaiting clearance by the various regulatory bodies. Attempts in 1998 and 2002 failed as the airlines were asked to give up slots at Heathrow deemed to be more valuable than the benefits from ATI. However, since then, Open Skies has opened access to Heathrow and offered hope that ATI will be allowed, as the SkyTeam and STAR Alliance members have. Combined BA/AA Transatlantic revenue is around £5bn. Assuming synergies are similar to the 5% of revenue AFKL suggested for its ATI with Delta, then BA could yield a £150m profit uplift; using the same multiple as Iberia, this would add another 47p in value to the shares.
BE:
Even without Iberia and ATI, history suggests BA can return to the 10% operating margin often visited but rarely surpassed. We think BA – standalone – could reach £10bn in revenue within five years. A 10% margin would yield £1bn in operating profit, c40p EPS. At 10x P/E (the markets’ preferred valuation method when earnings are positive) and adding the Iberia/ATI value results in a 510p or 150% upside.
NH:
510!!!!!!!!!!!!!!!!!!!!!
British Airways (BAY:LSE): Last: 210.70, down 1.3 (-0.61%), High: 212.90, Low: 207.50, Volume: 2.38m
NH:
could we just look at the banks for a moment
NH:
this Four Seasons Healthcare story
NH:
and some of the cast too
BE:
Yeah – that was the vehicle that was going to buy Sainsbury
BE:
Paul Taylor pulling the strings
NH:
but he has got away lightly
NH:
they have only lost the £100m equity slice
NH:
RBS has lost £300m in debt for equity swap
NH:
and the banks in total £800m
NH:
By Anousha Sakoui
Published: December 6 2009 20:00 | Last updated: December 6 2009 20:00
Royal Bank of Scotland, which is set to become the single largest shareholder in Four Seasons Healthcare, has given up rights to influence the heavily-indebted UK care home operator.
The move will avoid delaying a long-awaited £1.6bn debt restructuring.
NH:
The Qatari-owned Four Seasons is expected this week to secure final sign-off from lenders on its debt restructuring plan.
Creditors will write off roughly half of their debt claims in exchange for ownership of the business.
RBS, and the special opportunities fund that it runs, is set to take a 40 per cent stake in exchange for writing off about £300m in debt claims.
However it will not have any voting rights attached to its shares or receive board information.
The bank’s interests in the Priory Group and other healthcare providers had raised concerns about a potential competitive overlap in certain towns.
NH:
this does not really affect the share price
NH:
supporting £1.6bn of debt
BE:
Drop in an ocean of cruddy investments on RBS’s books, sadly.
NH:
most of which are now insured by the UK taxpayer
NH:
what about a bit of small cap corner
BE:
“Intellectual property” type toy importer.
BE:
Always seems to have the “must have” toy every November.
NH:
yep, last week they were talking about a toy shortage in the UK this Xmas and why it would be so good for them
BE:
………….And it usually delivers a profit warning every December.
NH:
and the share price is under pressure today
NH:
well remember those Go Go Hamster things
BE:
Er. I’m going to say yes.
NH:
well, Character are the UK distributor
NH:
cancer killer hamsters
BE:
I guess that’s not intentional.
BE:
Have you been on the Daily Mail headline generator again?
NH:
no, no I haven’t. that’s a real headline. these things are killers.
NH:
The maker of a must-have Christmas toy has strongly denied claims its product contains dangerous amounts of a cancer-causing chemical.
NH:
A US consumer group contended that Go Go Hamsters, which scurry and squeal when poked, have higher-than-allowed levels of the element antimony.
The group tested three Mr Squiggles models from the range, which in the US is marketed as Zhu Zhu Pets.
But the toy’s marketer in Britain, Character Options, has refused to recall the product, insisting it is safe and has passed rigorous testing.
NH:
Managing director Jon Diver said: “Character Options is confident that Mr Squiggles and all the toys in the Go Go Pets collection are completely safe.
“The pets are tested in independent accredited laboratories during the manufacture and again before shipment through our own internal diligence programme; their safety has always been ratified.”
The group also pointed out that the toy had passed EU and US government safety standards.
The watchdog GoodGuide said the three hamsters they tested had 93 parts per million of Antimony in the hamster’s fur and 106 parts per million in their noses.
NH:
GoodGuide’s chief executive Dara O’ Rourke told The Sun that the biggest danger was children putting the toy in their mouth – which he said could lead to cancer.
But the Toy Retailers Association in the UK has told Sky News that the tests carried out by GoodGuide scientists do not stand up because they did not test the soluble levels of the chemical.
NH:
iggest danger was children putting the toy in their mouth – which he said could lead to cancer.
BE:
For the traditional Character Group profit warning could yet materialise
NH:
yep it looks that way. they do it every year, near enough in spite of having this year’s toy
BE:
It’s becoming a fixture of the festive season.
BE:
The Bond film, the Queen’s speech, the Character Group profit warning.
NH:
cancer killer hamsters
NH:
a few more thinhs to look at before we go
NH:
Cadbury, any response to these weekend stories of talks between Hershey and Nestle
BE:
Not really, to be honest
BE:
Shares down 5p at 790p
BE:
Not sure “early stage talks” told us anything we didn’t already know.
NH:
hmm, looks to me as if Hershey just sounding out Nestle about buying the gum business
NH:
or taking back the US rights for kit-kat
NH:
they have to fund this bid somehow
NH:
what else have you got Bryce
BE:
Sticking on the retail side of things ……
BE:
The Amazon bricks & mortar story was mentioned above
BE:
Amazon flaks are denying
BE:
An Amazon spokesman said: “We have no plans to open physical stores anywhere in the world.”
BE:
While we’re about it, there’s quite an interesting note from Morgan Stanley on HMV this morning
BE:
All about the games market post Woolworths
BE:
They’re saying HMV, Game etc have lost the edge
BE:
This is from Charlie Muir-Sands
BE:
What’s proprietary: Our consumer survey suggests video games demand will remain lackluster. We surveyed c.1,200 UK consumers on their video games shopping plans for this Christmas. On balance the results suggest a slight decline in year-on-year demand.
Additionally, UK store-based specialists are losing share. More interestingly, however, our survey suggests that versus last year more people plan to conduct their video game shopping at supermarkets and online retailers. Conversely, the high street specialists appear to be losing share of footfall, despite the
withdrawal of Woolworths and Zavvi. Price and convenience appear to be the main reasons for retailer preference, which we think the specialists will struggle to address.
Our findings support our pessimistic expectations for HMV. 20% of HMV UK’s sales are video games and while we already expected a declining market, we are now also concerned about these channel trends.
We believe F2009/10 could be ‘as good as it gets’. With likely closure of Borders UK and Books Etc, HMV Group will become the ‘last man standing’ in specialist bookselling, in addition to music and video. We expect these categories to slowly decline. Our survey findings reaffirm our belief that video games will no longer mitigate these structural trends. Hence we expect F2009/10 will represent HMV’s peak EPS at 12.9p.
Hence we reiterate our Underweight rating. Our base case intrinsic valuation of 95p implies 15% downside potential and our bear case is just 28p. We therefore remain Underweight. For UK General Retail exposure, we prefer Overweight-rated Next and Debenhams, and our preferred pan-European pick remains Inditex.
HMV Group (HMV:LSE): Last: 112.50, up 1.5 (+1.35%), High: 114.90, Low: 110.70, Volume: 1.54m
Game Group (GMG:LSE): Last: 143.00, down 2.2 (-1.52%), High: 144.80, Low: 142.10, Volume: 751.85k
NH:
meeting with a company
NH:
that does those equity credit lines
NH:
over at the Royal Exchange
NH:
so I will leave Bryce to bring things to a close
NH:
forgot to bring my work shoes today
NH:
so will have to go in trainers
NH:
thanks for logging in today
BE:
Ok – just to wrap things up
BE:
Couple more notes getting a bit of attention today
BE:
UBS giving Dignity a push on the basis that it can gear up and do a cash return
BE:
Upgrade to Buy
Quality defensive growth undervalued
We believe Dignity’s quality defensive growth attributes have been overlooked this year as cyclicals have recovered. Dignity has underperformed the FTSE 250 by 46% in 2009, and at 13.2x is trading close to its all time 12 mth forward PER low. We believe Dignity will rerate as investors look to increase exposure to defensive quality stocks, helped by a possible return of cash to shareholders should Dignity choose to gear up its balance sheet.
Potential upside from future cash return
Dignity has net debt / EBITDA of under 4x, well below its target level of gearing of 6x. The debt is long dated and has a fixed repayment profile making it highly predictable. This high level of financial gearing is supported by steady profits and strong cash generation. We see a strong possibility that Dignity will look to increase gearing in the next 12-18 months by way of a bond issue and return of cash to shareholders. This would enhance EPS by c10%.
Share price underperformance presents buying opportunity
Dignity is trading on a Dec 10e PER of 13.2x, close to its low of 13x and on a premium to the FTSE 250 of only 9%, compared to an average premium of 42% historically. We believe this presents investors with an attractive entry point into this quality defensive growth stock.
Valuation: PT increased to 650p
We set our valuations using UBS VCAM with a WACC of 7.6%. Dignity’s year end is at the end of December. We next expect to hear from Dignity at the beginning of March when it publishes its full year results.”
Dignity (DTY:LSE): Last: 582.50, up 11.5 (+2.01%), High: 588.00, Low: 581.50, Volume: 37.67k
BE:
And CSR getting hit for a second day
BE:
After RBS put out a piece talking about chipmakers integrating Bluetooth into their own cores
BE:
Which I, for one, thought was blatantly obvious to anyone investing in CSR, but what do I know ….
BE:
While we remain positive on CSR’s growth prospects for the next 12 months, we downgrade our recommendation from Buy to Hold with a lower TP of 410p as we believe that Bluetooth could be integrated in the baseband in the next two years.
Bluetooth integration risk is back on. With attach rates for Bluetooth technology in GPRS/EDGE phones reaching 100%, we believe that integration of Bluetooth in the cellular baseband is a risk that cannot be ignored. We estimate that by 2011/12, 2G baseband vendors like Infineon, ST-Ericsson and Broadcom could offer a ’super-chip’ that combines a 2G cellular chip (baseband, RF and PMU), audio and video processing but also, crucially, Bluetooth and FM radio capabilities. By then, we expect Bluetooth chips will have become too small to be sold separately and technology will have matured, with no room left for innovation. Clearly, the technical challenges involved in such integration can not be underestimated. History, however, shows that technical barriers are there to be overcome.
CSR is the most at risk from this technology evolution, in our view. We estimate that the GPRS/EDGE handset market will still account for around 25% of CSR’s unit shipments by 2011, and more than half its unit shipments into the mobile phone segment. As such, we believe CSR is the most at risk, of the companies we cover, from the integration of Bluetooth in 2G baseband chips. Even though we expect CSR to reduce its dependency on Bluetooth chips by selling more WiFi and GPS chips, as well as broadening its end-market exposure away from handsets, we believe that the stock is unlikely to perform well in this context, as margins may fall.
Downgrade to Hold, not Sell, as a takeover bid is still possible. We have slightly reduced our FY11 estimates, reflecting the early negative impact of integration at key customers such as LG and Samsung. However we expect the bulk of the revenue impact is likely to take place from 2012 onwards. Thus, we are reducing our DCF-based TP from 575p (14.3% EBIT margin) to 410p (11% EBIT margin). We have not cut the stock to Sell, as CSR’s assets could be attractive to a third party, as we have discussed previously (see our report dated 30 October).
CSR (CSR:LSE): Last: 383.90, down 18.9 (-4.69%), High: 398.00, Low: 378.60, Volume: 346.78k
BE:
OK – before we get overwhelmed by death puns I’ll close this
BE:
We’re currently operating a pun amnesty
BE:
However, the zapper is charged and ready
BE:
Thanks everyone for tuning in
