Markets Live chat transcript for the chat ending at 12:17 on 6 Jan 2010. Participants in this chat were: Neil Hume, FT Bryce Elder
NH
good morning
NH
and welcome to Markets Live
NH
FT Alphaville’s daily markets wrap
NH
Bryce is here
NH
and er…
NH
actually that’s it
NH
Gwen not in
NH
Izy still ill
NH
Tracy gone home ill
NH
Stacy on specials ops and crossing the atlantic at the moment
NH
Miles now a UK companies reporter
NH
and Murph
NH
well
NH
er, he will wake up a bit later
NH
I hope
BE
so you’re the last man standing?
NH
yep
NH
and I have a headache and sore throat
BE
Oh no ………
NH
afraid so
NH
and it’s snowing at home, which means I might have to abandon ship and leave early today
BE
So FT Alphaville is the Mary Celeste?
NH
yep
NH
(Monkey – u know all about leaving somewhere early)
NH
but I will battle on
BE
You martyr.
NH
yes. yes, I know
NH
OK
NH
enough of the waffle
NH
on to the market
BE
Actually
BE
Berfore we do
BE
Murph will be cock a hoop today
NH
really
BE
Yeah. With the iSoft news.
NH
he will
NH
He was all over this scandal from day one
NH
and what a tale it is
NH
unfortunately we could never tell most of it because we were injuncted
NH
in the most aggressive manner possible
NH
and people like Sir Digby Jones who were on the board, kept knocking down our stories
NH
this all happened in our Guardian days
BE
in case you missed today’s news, here it is
BE
The Financial Services Authority (FSA) confirms that it has commenced criminal proceedings against four former directors of iSOFT Group Plc for the offence of conspiracy to make misleading statements, contrary to section 397 (1)(a) and (2) of the Financial Services and Markets Act 2000 and section 1 of the Criminal Law Act 1977.
BE
The individuals Patrick Cryne, Stephen Graham, Timothy Whiston and John Whelan have been summonsed to appear at City of Westminster Magistrates Court on 29 January 2010.
NH
better late than never I suppose
NH
the investigation was started back in the August 2006
NH
and the backstory here was that Isoft was one of the key players in the govt £6bn upgrade of NHS computers systems
NH
and it later transpired that has been using off balance sheet vehicles to shunt things from one place to another
BE
I wouldn’t be surprised if Murph flies back from the US to cover this case
NH
nor me
NH
hang on a moment
NH
what’s this?
NH
a statement from the Aussie company which bought what’s left of iSoft
NH
Sydney – 6 January 2010 – iSOFT Group Limited (ASX: ISF) – Australia’s largest listed health information technology company today welcomed the decision by the UK Financial Services Authority (FSA) to discontinue its investigation into iSOFT Group plc under S397 Financial Services & Markets Act 2000
NH
iSOFT Group Limited (formerly IBA Group Limited) acquired UK-based iSOFT Group plc in October 2007 post the events that were the subject matter of the investigation.
iSOFT Group Limited cooperated fully with the FSA throughout the investigation, which involved former management of iSOFT Group plc and had no bearing on any of the current management or employees of iSOFT Group Limited.
None of the former iSOFT Group plc directors that were investigated are employed by iSOFT Group Limited or any subsidiary of the company.
“The FSA result brings to a conclusion one of the remaining legacies of the former iSOFT which we acquired in 2007,” said Gary Cohen, iSOFT Group Limited Executive Chairman & CEO. “We cooperated fully with the investigation and welcome the FSA’s decision.”
BE
What!?
NH
(Monkey 
)
)BE
don’t they realise that criminal proceedings have now started?
NH
apparently not
BE
that’s pretty poor.
NH
yeah, looks stoopid
NH
Right, on to the market
11:09AM
NH
We are we Bryce?
BE
FTSE’s down 8.1 at 5514
BE
Drifting back from the 16-month high
NH
hmmm
NH
someone was just asking about the £4bn gilt auction
NH
and the results were
NH
hang on
NH
just getting it from the DMO website
BE
Hold on …….
NH
can’t copy paste from the PDF
NH
hang on
NH
to the Reuters machines
BE
Ok – it was 2.6 times covered
NH
LONDON, Jan 6 (Reuters) – Britain sold 4 billion pounds of
five-year gilts on Wednesday, drawing a strong response from
investors who put in bids worth 2.68 times the amount on offer.
five-year gilts on Wednesday, drawing a strong response from
investors who put in bids worth 2.68 times the amount on offer.
NH
hmmm
NH
obviously not heeding the warnings from Pimco
NH
people still want UK govt gilts
NH
thanks Lemmy
NH
full release here
BE
Ten-year’s up on that
BE
Yield’s back under 4%
BE
Cable’s at 1.5999
BE
And a euro gets you 89.77p
NH
thanks for that
NH
surprised it went so well
NH
but then Mandy was dragged out this morning
NH
so tell the world
NH
that the govt is really serious about tackling the deficit
NH
and that the chancellor and the PM
NH
are singing from the same sheet
NH
right
NH
some reaction to the auction
BE
Ok – shoot
NH
The March gilt future rallied by
more than 10 ticks to hit a session high after very strong
demand at a sale of 4 billion pounds of 2015 gilts on Wednesday.
The March contract hit a high of 114.59, up 18 ticks
on the day at 1042 GMT, rising from levels of around 114.44
before the auction result was published at 1035 GMT.
more than 10 ticks to hit a session high after very strong
demand at a sale of 4 billion pounds of 2015 gilts on Wednesday.
The March contract hit a high of 114.59, up 18 ticks
on the day at 1042 GMT, rising from levels of around 114.44
before the auction result was published at 1035 GMT.
NH
“I don’t think anyone should have been too surprised, but if
anyone had a short hedge against it they’d be rapidly taking it
off,” said Marc Ostwald, strategist at Monument Securities.
anyone had a short hedge against it they’d be rapidly taking it
off,” said Marc Ostwald, strategist at Monument Securities.
NH
“The question is whether there’s going to be a lot of follow
through — I wouldn’t expect so. We thought beforehand it would
fly out the window, and fly out the window it did. It’s cheap to
its peers and banks have a lot of gilts to buy. Bidding was
extremely tight.”
Ten-year gilt yields were down 1 basis point on the day
after the auction at 4.00 percent.
through — I wouldn’t expect so. We thought beforehand it would
fly out the window, and fly out the window it did. It’s cheap to
its peers and banks have a lot of gilts to buy. Bidding was
extremely tight.”
Ten-year gilt yields were down 1 basis point on the day
after the auction at 4.00 percent.
NH
So the banks
NH
still forced buyers of this stuff
BE
Yeah – so it seems.
11:16AM
NH
Right
NH
to some stocks
NH
has this silly rally in RBS finished yet?
BE
Nope
BE
Up for day three
BE
Ahead a penny at 36.5p
NH
hmmm
NH
the bears being squeezed still
NH
the amount of stock available to borrow
NH
now out on loan
NH
has shot up in recent weeks
NH
from 9% on Dec 15
NH
to around 26% now
BE
Hm. Dog squeeze
NH
(Wicket – 401-5. AB gone)
NH
Royal Dog of Scotland
BE
Actually, there is something else to add to the RBS story this morning
NH
go on
BE
Interesting note from Ian Gordon at BNP Paribas
NH
really
NH
he only upgraded on Monday
NH
and his target price is 40p
NH
is he still positive?
BE
Yup – his upgrade was at least a part of the catalyst for the rally
BE
And today he’s done some work on the possibility of a tender offer for RBS’s preference shares
NH
can we have a look at the note
NH
seems an interesting angle
BE
It is
BE
RBS should act now to seize a key liability management opportunity
RBS has GBP14.1bn of preference shares and innovative tier 1 securities (as at 30
September 2009). Pursuant to the European Commission’s “burden sharing” edict,
c.GBP700m p.a. of coupons on (some of) these instruments are to be suspended for
two years. As a consequence, these instruments are (generally) trading below 50p in
the £. The solution seems obvious – RBS should act now to secure a discounted
buyback or conversion of a substantial portion of these instruments, and crystallise a
material gain, thereby further enhancing core tier 1 capital, and its key valuation
metric, tangible book value. For those with a little greater foresight than us, the
coupon-savings in 2012 and beyond would be accretive to future earnings too.
RBS has GBP14.1bn of preference shares and innovative tier 1 securities (as at 30
September 2009). Pursuant to the European Commission’s “burden sharing” edict,
c.GBP700m p.a. of coupons on (some of) these instruments are to be suspended for
two years. As a consequence, these instruments are (generally) trading below 50p in
the £. The solution seems obvious – RBS should act now to secure a discounted
buyback or conversion of a substantial portion of these instruments, and crystallise a
material gain, thereby further enhancing core tier 1 capital, and its key valuation
metric, tangible book value. For those with a little greater foresight than us, the
coupon-savings in 2012 and beyond would be accretive to future earnings too.
BE
Basel has impaired the regulatory value of non-equity tier 1
On the 3 November 2009 conference call, CEO Stephen Hester said “we are currently
resistant to the idea of decimating our store of Tier 1 capital ahead of understanding
how important Tier 1 is in the new regulatory regime.” As discussed in our note Basel
Committee proposals: more restrictive than expected, 18 December 2009, the
(provisional) answer would appear to be that, beyond core tier 1, little credit will be
given. Note that the GBP3bn gain we assume raises diluted tNAV by 2.8p per share.
On the 3 November 2009 conference call, CEO Stephen Hester said “we are currently
resistant to the idea of decimating our store of Tier 1 capital ahead of understanding
how important Tier 1 is in the new regulatory regime.” As discussed in our note Basel
Committee proposals: more restrictive than expected, 18 December 2009, the
(provisional) answer would appear to be that, beyond core tier 1, little credit will be
given. Note that the GBP3bn gain we assume raises diluted tNAV by 2.8p per share.
BE
Things can only get better (and better)?
We published our report Things can only get better? on 4 January 2010 and things
have indeed got 21% better for RBS shareholders over the past two days. However,
as discussed in that report, whereas we already assume that RBS will achieve a
GBP3bn gain through fresh liability management action in 2010, consensus does not.
RBS Management is already doing the right things to operationally reposition the
Group. It should act now to crystallise a gain of (we estimate) GBP3bn and/or secure
partial relief against the Government’s GBP1.6bn 5-year Contingent Subscription fee.
We published our report Things can only get better? on 4 January 2010 and things
have indeed got 21% better for RBS shareholders over the past two days. However,
as discussed in that report, whereas we already assume that RBS will achieve a
GBP3bn gain through fresh liability management action in 2010, consensus does not.
RBS Management is already doing the right things to operationally reposition the
Group. It should act now to crystallise a gain of (we estimate) GBP3bn and/or secure
partial relief against the Government’s GBP1.6bn 5-year Contingent Subscription fee.
NH
so this idea
NH
was already in his target price
BE
Yeah
BE
Although this note – which is a pretty comprehensive bit of research, incidentally
BE
talks about RBS “exploring fresh liability management options” with preference shareholders within the next couple of months
NH
ok
BE
This could give rise to a gain of the order of the GBP3bn we currently assume
in our (unchanged) forecasts, that consensus does not, as well as potentially triggering
material relief against the GBP1.6bn of Contingent Subscription fees expected to be
taken against equity over five years.
in our (unchanged) forecasts, that consensus does not, as well as potentially triggering
material relief against the GBP1.6bn of Contingent Subscription fees expected to be
taken against equity over five years.
NH
something to watch
NH
as it happens
NH
RBS is not the only dog of 2009
NH
heading higher today
NH
Wolseley is up
Wolseley (WOS:LSE): Last: 1,356, up 56 (+4.31%), High: 1,358, Low: 1,305, Volume: 563.28k
NH
and Segro too
SEGRO Plc (SGRO:LSE): Last: 349.70, down 2.2 (-0.63%), High: 357.00, Low: 348.40, Volume: 571.51k
NH
well
NH
they were first thing
NH
got up to 357p
NH
right
NH
where to now
NH
some retailers?
BE
I guess so.
11:23AM
NH
More of the same
NH
pretty impressive statement from Marks and Spencer
NH
on the face of it
NH
first quaterly underlying sales growth in two years
NH
and
NH
whack
NH
share price down
Marks and Spencer Group (MKS:LSE): Last: 386.30, down 18.6 (-4.59%), High: 391.90, Low: 382.90, Volume: 17.85m
BE
What’s caused that then?
NH
Well
NH
there are no big profit upgrades coming through
NH
and that’s a disappointment
NH
some people were also expecting another upgrade to gross margin guidance
NH
that didn’t happen either
NH
and some
NH
rather optimistically
NH
were looking for 1.8% in UK like for like sales
BE
So, it’s another “better to travel than arrive” story?
BE
Just like Next yesterday
NH
yeah, they performed well over Xmas. but the outlook does not look great
NH
and Sir Stuart Rose
NH
is banging on about a tought 2010
BE
Got any comment?
NH
yes
NH
here’s Merrill
NH
who rather presciently
NH
downgraded M&S yesterday
NH
now that looks a smart call now
NH
M&S this morning reported slightly worse than expected Q3 trading with UK likefor-
like sales +0.8% vs our +1.8% estimate. General Merchandise LFL was
+1.2% vs our +3.0% estimate, and Food LFL sales were +0.4% in line with our
+0.5% forecast. International sales were worse than we forecasted at +6.0%
(BofAMLe +12%) partly owing to a slowing of franchise sales eg in the Middle
East.
like sales +0.8% vs our +1.8% estimate. General Merchandise LFL was
+1.2% vs our +3.0% estimate, and Food LFL sales were +0.4% in line with our
+0.5% forecast. International sales were worse than we forecasted at +6.0%
(BofAMLe +12%) partly owing to a slowing of franchise sales eg in the Middle
East.
NH
In clothing, M&S gained 20bp of market share and LFL sales would have been
c.2pp better adjusting for the timing of the sale, as M&S has one sale day
included last year compared to none this year (we expected a c.1pp impact).
Nevertheless, this is a slight disappointment against easy comps and after two
years of negative growth over the crucial Christmas period (GM LFLs -8.9% Q3
09, -3.2% Q3 08), although it is the first positive quarterly LFL performance
posted in 2 years.
c.2pp better adjusting for the timing of the sale, as M&S has one sale day
included last year compared to none this year (we expected a c.1pp impact).
Nevertheless, this is a slight disappointment against easy comps and after two
years of negative growth over the crucial Christmas period (GM LFLs -8.9% Q3
09, -3.2% Q3 08), although it is the first positive quarterly LFL performance
posted in 2 years.
NH
GUIDANCE UNCHANGED ON GROSS MARGIN, COSTS AND CAPEX, WE
WERE LOOKING FOR A GROSS MARGIN BEAT
M&S is continuing to guide for gross margin to be between 50bp and 100bp down
for the year compared to our expectation of flat. In clothing M&S showed much
better inventory control this year, however in Food “investment in innovation and
better value for our customers” (i.e M&S cut prices) drove the slightly better sales
performance. We still think M&S will achieve a full year gross margin guidance at
the top end of this range or beat it slightly but were hoping for slightly better.
WERE LOOKING FOR A GROSS MARGIN BEAT
M&S is continuing to guide for gross margin to be between 50bp and 100bp down
for the year compared to our expectation of flat. In clothing M&S showed much
better inventory control this year, however in Food “investment in innovation and
better value for our customers” (i.e M&S cut prices) drove the slightly better sales
performance. We still think M&S will achieve a full year gross margin guidance at
the top end of this range or beat it slightly but were hoping for slightly better.
NH
VALUATION MORE FAIR NOW AT A 10% PREMIUM
We reduced our rating on M&S to Neutral yesterday given our concerns about the
UK consumer outlook for 2010/11 and following a strong rally in the share price in
2009 (+90%). We believe the shares are now more fairly valued versus the sector
at c.12.5x cal. 2010E P/E, a 10% premium to the UK general retail sector, with
consensus estimates likely to remain unchanged in our view. We think M&S
deserves a premium on account of its size, asset backing and international
growth prospects, but we think the shares are likely to consolidate for a while as
earnings momentum has stalled and as we await the arrival of new CEO Marc
Bolland by May of this year. Given the strong run in the share price we may see
some profit taking in the shares.
We reduced our rating on M&S to Neutral yesterday given our concerns about the
UK consumer outlook for 2010/11 and following a strong rally in the share price in
2009 (+90%). We believe the shares are now more fairly valued versus the sector
at c.12.5x cal. 2010E P/E, a 10% premium to the UK general retail sector, with
consensus estimates likely to remain unchanged in our view. We think M&S
deserves a premium on account of its size, asset backing and international
growth prospects, but we think the shares are likely to consolidate for a while as
earnings momentum has stalled and as we await the arrival of new CEO Marc
Bolland by May of this year. Given the strong run in the share price we may see
some profit taking in the shares.
BE
Credit Suisse are also negative
BE
M&S Q3 sales were slightly below market consensus estimates and as such probably disappointing after yesterday’s sales
beat by Next. We do not anticipate any change to profit estimates today. The pick-out points in a not very exciting statement
are likely to be the continuing under-performance of food where margin pressure continues and sales growth is probably
almost 10% points below Waitrose’s over the quarter, and International where sales growth has trailed off to +6% despite
an obvious currency benefit from +16% in Q1.
Sales growth in General Merchandise of 1.2% LFL benefited we estimate by about 250bps from 30% growth in online
sales. Clearly there were some other influences as well in terms of weather and exclusion of a Clearance Day this year. We
felt that the Home sales figure was disappointing (total sales -0.7% despite evidence of more space going into this category
and Next’s comments yesterday).
beat by Next. We do not anticipate any change to profit estimates today. The pick-out points in a not very exciting statement
are likely to be the continuing under-performance of food where margin pressure continues and sales growth is probably
almost 10% points below Waitrose’s over the quarter, and International where sales growth has trailed off to +6% despite
an obvious currency benefit from +16% in Q1.
Sales growth in General Merchandise of 1.2% LFL benefited we estimate by about 250bps from 30% growth in online
sales. Clearly there were some other influences as well in terms of weather and exclusion of a Clearance Day this year. We
felt that the Home sales figure was disappointing (total sales -0.7% despite evidence of more space going into this category
and Next’s comments yesterday).
BE
Food sales were in our view disappointing. We believe that Waitrose will have posted LFLs near double digits in this quarter
against M&S’s +0.4%. M&S is still calling continuing need for price investment here and Asda’s price announcement
yesterday makes it clear that this is an area where conditions are unlikely to get easier any time soon.
Guidance on the P&L categories has been held. The company is still expecting to hit the top end of its gross margin
guidance of 50-10 bps down yoy (after -50bps in H1). It seems that H2 negative gross will all be in food, underlining the lack
of progress here on establishing a sustainable medium term position.
Our view here is the same. The business needs re-capitalising to deal with a range of issues – modernisation, re-positioning
and the pension fund to name a few. This may not be the predominant investment theme as the market anticipates the
arrival of new CEO Marc Bolland. But these issues will have to be dealt with in due course.
against M&S’s +0.4%. M&S is still calling continuing need for price investment here and Asda’s price announcement
yesterday makes it clear that this is an area where conditions are unlikely to get easier any time soon.
Guidance on the P&L categories has been held. The company is still expecting to hit the top end of its gross margin
guidance of 50-10 bps down yoy (after -50bps in H1). It seems that H2 negative gross will all be in food, underlining the lack
of progress here on establishing a sustainable medium term position.
Our view here is the same. The business needs re-capitalising to deal with a range of issues – modernisation, re-positioning
and the pension fund to name a few. This may not be the predominant investment theme as the market anticipates the
arrival of new CEO Marc Bolland. But these issues will have to be dealt with in due course.
NH
hmmm
NH
of course
NH
M&S
NH
has that massive spike on Bolland’s appointment
NH
they were probably always due to be hit by some profit taking
NH
if this did not really smash forecasts
NH
anyhow
NH
are we bored with retailers?
BE
Yeah
BE
And we’re going to get a lot more bored of them over coming weeks
BE
So let’s move on while we can
NH
yes
11:30AM
NH
Tuna
NH
we don’t know what’s happening with Wolseley
NH
the only explanation we have heard
NH
is the rest eco data from the US
NH
So Bryce
NH
any statement from Autonomy this morning?
BE
Yeah
NH
revenue warning?
BE
Well, the negative press yesterday certainly seems to have shaken them into action
NH
go on
BE
Take a look at this
BE
Every online consumer has a
specific set of criteria that will convert them from a casual browser to a
paying customer. Successful online business depends on the ability to
‘unlock’ that criteria, and deliver exactly the right content, at the right
time, to individuals. Autonomy Interwoven’s Meaning Based Marketing platform
builds on its deep heritage in search, pattern recognition, and web content
management (WCM) technologies to enable organizations to deliver an unmatched
level of precise and relevant content to consumers. As a result, Autonomy
Interwoven’s Advanced Search Marketing module transforms the casual search
from a bland, irrelevant experience to a stimulating and compelling process
that generates more revenue for businesses and higher satisfaction for
customers.
specific set of criteria that will convert them from a casual browser to a
paying customer. Successful online business depends on the ability to
‘unlock’ that criteria, and deliver exactly the right content, at the right
time, to individuals. Autonomy Interwoven’s Meaning Based Marketing platform
builds on its deep heritage in search, pattern recognition, and web content
management (WCM) technologies to enable organizations to deliver an unmatched
level of precise and relevant content to consumers. As a result, Autonomy
Interwoven’s Advanced Search Marketing module transforms the casual search
from a bland, irrelevant experience to a stimulating and compelling process
that generates more revenue for businesses and higher satisfaction for
customers.
NH
OMG
NH
they are still at
BE
That’s the first paragraph, to be clear.
NH
So the market wants to know about trading
NH
instead we get more PR puff
NH
more RNS abuse
NH
hang on
NH
breaking news
NH
AUTN statement
NH
out
NH
a proper one
NH
trading statement
BE
BE
“in line with market consensus”
NH
here comes the full statement
NH
Autonomy Corporation plc (LSE: AU. or AU.L), a global leader in infrastructure software for the enterprise, today announced that it expects to report 2009 Full Year results in line with analyst consensus estimates1 of revenues of approximately $740 million and fully diluted EPS (adjusted) of $0.97.
NH
Autonomy Corporation plc (LSE: AU. or AU.L), a global leader in infrastructure software for the enterprise, today announced that it expects to report 2009 Full Year results in line with analyst consensus estimates1 of revenues of approximately $740 million and fully diluted EPS (adjusted) of $0.97.
NH
The company expects to report strong cash conversion for the year, consistent with its peers of similar growth rates, and one of the highest rates of conversion from revenues to cash seen in the industry.
NH
As expected the fourth quarter saw very strong cash collection with Days Sales Outstanding (DSOs) returning to the traditional pre-third quarter 2009 levels. Cash conversion in the fourth quarter exhibited expected seasonality as flagged at the third quarter 2009 results, and the tax rate was in line with the anticipated full year rate of 28%. Finally, in the fourth quarter 2009 required research and development capitalization under IAS 38 is expected to return to traditional levels, and the company neither entered into nor completed any acquisitions during the quarter.
NH
hmmm
NH
no Q4 breakdown
BE
That looks nearly identical to their Q3 trading statement
BE
“strong cash collection”
NH
market seems to like it
NH
shares up 25p at £14.97
BE
“expected seasonality”
BE
Hm.
NH
that really does not tell us much
NH
as with the Q3 trading statement
NH
we will need to see the results
NH
before we can really comment on cash conversion
NH
etc
BE
Well, I guess the bears can point out that the shares were steady after the Q3 trading update
BE
Then dived two weeks later when the actual results were printed
NH
up 31p now
BE
…….And sparked the usual concerns about cash conversion etc.
NH
bear closing
BE
Yeah – short squeeze by the looks of it.
BE
Ok – where do we want to go now?
NH
well
NH
a couple of bits and bobs
NH
I spotted this morning
BE
Go on
NH
did you see this?
NH
DP World seeks dual listing on London Stock Exchange
NH
In March 2009 the Board of DP World stated it would evaluate all available
options to address its continued disappointment with the markets valuation of
the company.
options to address its continued disappointment with the markets valuation of
the company.
NH
After an extensive period of review with advisers, and discussions with
shareholders, the Board of DP World has decided to seek a premium listing on
the London Stock Exchange whilst maintaining the existing primary listing on
Nasdaq Dubai. It is currently envisaged that we will seek admission for
listing in the second quarter of 2010.
shareholders, the Board of DP World has decided to seek a premium listing on
the London Stock Exchange whilst maintaining the existing primary listing on
Nasdaq Dubai. It is currently envisaged that we will seek admission for
listing in the second quarter of 2010.
NH
The Board remains committed to our shareholders in the region and believe that
they will also benefit from this move.
they will also benefit from this move.
BE
I see
BE
So they reckon a London listing will help close the valuation gap?
NH
it would seem so
NH
although
NH
this vehicle
NH
does not have any grand property schemes in it
BE
This is the thing that bought P&O, isn’t it.
NH
yep
NH
ports ops
BE
Infrastructure.
BE
Not outrageously flaky, in comparison to some other bits of the empire.
NH
P&O Maritime Services is a specialist provider of maritime services to industry and government. Based in Melbourne, Australia, P&O Maritime Services owns, operates and manages a fleet of specialist vessels, to provide government shipping, cargo, defence, port, charter and agency services to a diverse range of government and industrial customers in Australia, Papua New Guinea, Singapore, Ireland and Argentina.
BE
And that’s it?
BE
So it’s P&O Ports relisting in London?
NH
it would seem so
NH
and looking to raise some money as well
NH
what goes around…
NH
DP World is one of the largest marine terminal operators in the world, with 49 terminals and 12 new developments across 31 countries(1). Its dedicated, experienced and professional team of nearly 30,000 people serves customers in some of the most dynamic economies in the world.
DP World aims to enhance customers’ supply chain efficiency by effectively managing container, bulk and other terminal cargo.
The company constantly invests in terminal infrastructure, facilities and people, working closely with customers and business partners to provide quality services today and tomorrow, when and where customers need them.
In taking this customer-centric approach, DP World is building on the established relationships and superior level of service demonstrated at its flagship Jebel Ali facility in Dubai, which has been voted “Best Seaport in the Middle East” for 15 consecutive years.
11:41AM
NH
also
NH
I have some good comment on
NH
Iceland and the Icesave decision
NH
from an outfit called GaveKal
NH
We haven’t followed this
NH
mainly because Izy has been ill
NH
but this round up is quite good
NH
At this time of year, with snow blocking airports and bone-chilling
blizzards, our clients are probably inclined to think of warm
destinations with nice beaches and coconut trees. Unfortunately, this
daily is not about Thailand, Indonesia or Brazil, but is instead about
Iceland. This is because we believe that Iceland’s decision yesterday
to hold a referendum on a depositor accord with the UK and the
Netherlands is momentous.
blizzards, our clients are probably inclined to think of warm
destinations with nice beaches and coconut trees. Unfortunately, this
daily is not about Thailand, Indonesia or Brazil, but is instead about
Iceland. This is because we believe that Iceland’s decision yesterday
to hold a referendum on a depositor accord with the UK and the
Netherlands is momentous.
NH
In the boom years, Icelandic banks strolled around Europe like titans,
buying up assets all across the continent. As the domestic pool of
Icelandic savings was far too shallow to finance this expansion
(Iceland only has some 320k people), Icelandic banks pooled savings in
the UK and Holland by offering retail savers higher rates than local
banks. Then, as the crisis ensued, Icelandic banks went bust or were
nationalized and policymakers found with horror that thousands of
British and Dutch depositors risked losing their hard-earned, but
poorly invested, cash. Governments in the UK and Holland stepped in to
protect local depositors and then turned around and presented a
US$5.5bn bill to Iceland
buying up assets all across the continent. As the domestic pool of
Icelandic savings was far too shallow to finance this expansion
(Iceland only has some 320k people), Icelandic banks pooled savings in
the UK and Holland by offering retail savers higher rates than local
banks. Then, as the crisis ensued, Icelandic banks went bust or were
nationalized and policymakers found with horror that thousands of
British and Dutch depositors risked losing their hard-earned, but
poorly invested, cash. Governments in the UK and Holland stepped in to
protect local depositors and then turned around and presented a
US$5.5bn bill to Iceland
NH
And it is this fairly large bill which the
Icelandic president has vetoed, opting instead to let the people
decide in an upcoming referendum. This comes after more than 60,000
people signed a petition denouncing what has been known as the
‘Icesave accord’. Polls show some 70% of Icelandic people do not
really see why they should pay up because British and Dutch people
were careless enough, or simply too greedy, and placed their money
with Icelandic banks which then squandered it. So it is most likely
that the referendum will be voted down. In turn, the failure to pass
the “Icesave accord” could jeopardize an international bailout
agreement and payments from the IMF; a possibility which yesterday led
Fitch to downgrade Iceland debt to ‘junk’ status.
Icelandic president has vetoed, opting instead to let the people
decide in an upcoming referendum. This comes after more than 60,000
people signed a petition denouncing what has been known as the
‘Icesave accord’. Polls show some 70% of Icelandic people do not
really see why they should pay up because British and Dutch people
were careless enough, or simply too greedy, and placed their money
with Icelandic banks which then squandered it. So it is most likely
that the referendum will be voted down. In turn, the failure to pass
the “Icesave accord” could jeopardize an international bailout
agreement and payments from the IMF; a possibility which yesterday led
Fitch to downgrade Iceland debt to ‘junk’ status.
NH
To be honest, we were surprised to learn that Iceland was not already
rated junk. After all, the implosion in its financial industry in 2008
was really second to none. However, beyond the downgrade (which did
not make Bloomberg’s top stories), we find this news item interesting
in that it may very well lead to copy-cat behavior across Europe.
Indeed, in our latest Quarterly, we argued that one of the most
important questions for investors was whether the populations of
various European countries would continue to take it on the chin in
order to remain a member of the greater ‘European project’, or whether
some may decide that tightening belts to ensure that foreign investors
and/or domestic retirees continue to earn their coupons is no longer
politically feasible.
rated junk. After all, the implosion in its financial industry in 2008
was really second to none. However, beyond the downgrade (which did
not make Bloomberg’s top stories), we find this news item interesting
in that it may very well lead to copy-cat behavior across Europe.
Indeed, in our latest Quarterly, we argued that one of the most
important questions for investors was whether the populations of
various European countries would continue to take it on the chin in
order to remain a member of the greater ‘European project’, or whether
some may decide that tightening belts to ensure that foreign investors
and/or domestic retirees continue to earn their coupons is no longer
politically feasible.
NH
Indeed, in the past few months, we have seen countries such as Latvia
and Ireland announce dramatic deflationary budgets with reductions in
pensions, public employee wages, hospital and educational services
larger than any ever seen in a democracy in peace time. And these two
countries may actually get away with it (Latvia’s population may make
do as it is desperate to trade the cold embrace of Russia for the
warmer brotherhood of the European Union, while Ireland has the
advantage of being an English speaking country and so desperate young
people can always emigrate to Canada, Australia, the US, the UK…).
But will Greece? Will Hungary? Will Spain and Italy? Will the local
populations decide that paying up to settle the interest owed to
foreigners is simply not worth taking large cuts in public benefits?
And if that is the case, will the local populations be offered the
Icelandic way (a democratic referendum) to make their point? Or will
they have to take to the streets?
and Ireland announce dramatic deflationary budgets with reductions in
pensions, public employee wages, hospital and educational services
larger than any ever seen in a democracy in peace time. And these two
countries may actually get away with it (Latvia’s population may make
do as it is desperate to trade the cold embrace of Russia for the
warmer brotherhood of the European Union, while Ireland has the
advantage of being an English speaking country and so desperate young
people can always emigrate to Canada, Australia, the US, the UK…).
But will Greece? Will Hungary? Will Spain and Italy? Will the local
populations decide that paying up to settle the interest owed to
foreigners is simply not worth taking large cuts in public benefits?
And if that is the case, will the local populations be offered the
Icelandic way (a democratic referendum) to make their point? Or will
they have to take to the streets?
BE
Interesting stuff
NH
Okay
NH
time for 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.
11:43AM
BE
So, what do you have?
NH
UK Coal
NH
now, rumours of bid interest
NH
fleetingly mentioned in the Telegraph today
NH
and the idea seems to be
NH
according to bandits
BE
Bandit rating on this one?
NH
BE
Ah.
NH
that Peel Holdings
NH
is going to take advantage of the weak share price
NH
and bid
NH
over 100p apparently
NH
the plan then is
NH
to sell the coal division to a utility company
NH
someone like Eon
NH
and Peel takes up the brownfield property
BE
Ok
BE
Peel’s John Whittaker isn’t it?
NH
it is
BE
The bloke who owns John Lennon Airport
NH
indeed
NH
and the trafford centre
NH
and large chunks of manchester
NH
now,
NH
there might be a few issues with a bid
NH
including the a pension fund deficit
NH
and the fact that UK Coal’s land is pretty dirty
NH
but that’s the rumour
NH
in addition
NH
UK Coal has made a good appointment today
NH
they have had really issues with there coal ops
NH
and now have someone to boss
NH
UK Coal has announced the appointment of Gareth Williams as Director of Mining. He has over 20 years’ experience with Anglo American’s coal mining operations, and is currently Head of Operational Performance for the group’s Canadian and South American division. Separately, UK Coal has confirmed production for 2009 of about 5.7Mt from underground and 1.4Mt from surface, in line with our reduced expectations. The group will suffer an extended face gap at the Daw Mill colliery but the mine should still be able to reach our 3.0Mt forecast for 2010. Buy.
BE
Where’s that from?
NH
Evo
BE
Any more?
NH
one oment
NH
UK Coal has strengthened its board in terms of coal experience with the addition of Gareth Williams, a welcome development for the company which has struggled in recent times to achieve forecast productions. Mr Williams is currently employed by Anglo Coal as head of operational performance for Anglo Coal Canada and South America and has operational experience from some of Anglo Coals largest operations.
The company has also guided that 2009 production will be at the lower end of guidance given in November which was for 7.1Mt (this was a cut of 500kt at the time) lower production is due to poor geological conditions at its three operations. This is being addressed however the tone of the statement looks likely that guidance for 2010 will be lowered when the company puts out its pre close statement at the end of January. Powered roof support installation at Daw Mill was supposed to be in place in January, this has been pushed back by a month to Feb. Kellingley and Thoresby appear to be on track.
We retain our 120p target price for the moment with the expectation that the company will mitigate some of this lost production with higher prices, however we expect to see the shares softer today.
NH
that was from Arbuthnot
NH
and a share price
UK Coal (UKC:LSE): Last: 74.50, down 3 (-3.87%), High: 77.25, Low: 74.00, Volume: 602.53k
NH
obviously the rumours not being taken too serious at the moment
NH
(No Poppy, I zapped him. Never heard of Riter)
NH
Gank
NH
banned for life
BE
(I have, but don’t know anything. Think they were supposed to be selling their autos division. That story was about a month ago though, so no idea if it’s moved on since.)
BE
(And on that, goodbye Gank.)
BE
Bear with us – Neil’s on the phone
NH
sorry about that
NH
some US RAW coming through
NH
something called PDL Biopharma
NH
smallish biotech
NH
apparently Roche are looking at them
BE
This needs a huge Raw warning by the sounds of it.
NH
oh yes
NH
it does
NH
and apparently there has been massive interest in something called
NH
hang on
NH
trying to get the name
NH
no
NH
need to check the spelling on that
11:54AM
NH
Also
NH
getting some feeback on the Autonomy statement
NH
some people reckon it was a miss
NH
Actually a small miss at the eps line. they guided to 100-1005p now saying 97p. They said they would make 95p if the economy was good as they would invest in growth and 105p if the economy was tough if they cut expenditure. Now saying the ecomomy is tough and making 97p??? More of a relief rally I would think. Wait for the figs for more detail
BE
Autonomy’s still motoring though.
BE
Up 46p at 1516p
NH
hmmm. and that above comment was not from Astaire
NH
just for the record
BE
Worth noting also that the consensus had drifted back from that previous company guidance
NH
also
NH
Patrick Cryne
NH
one of the Isoft directors
NH
has sent through a mail
NH
or rather his flak has
NH
“Since the FSA commenced its investigation into the affairs of iSoft Group PLC in July 2006 it has had my full and complete co-operation. I am surprised and disappointed at the position arrived at by the FSA. I am however absolutely satisfied that in due course my position will be completely vindicated.”
BE
Them’s fighting words.
NH
indeed
NH
bring it on
NH
I will see you in court
11:56AM
NH
Right
NH
it is nearly midday
NH
and a few things to look at
NH
winners from the cold snap
BE
Really?
NH
yep
NH
Drax was a good market yesterday
NH
but apparently they won’t benefit from demand for extra heating
NH
because they have forward sold their output
NH
(Taxloss – stop it 
NH
apparently Centrica is the one that will do well
NH
they own British Gas
BE
Think our colleagues at Mergermarket wrote something yesterday about Drax being a “medium term bid target”
BE
Which is an old chestnut
NH
what does that mean?
BE
Not entirely sure
NH
(SA have declared at 447-7. Eng set 466 to win.
NH
right
NH
back to Drax
NH
have a good note on this from Cazenove
NH
Drax – [DRX.L, DRX LN, 444p] In-Line; Centrica – [CNA.L, CNA LN, 281p] Outperform
Drax’s share price rose 5.7% yesterday, we believe on the back of increased optimism around the outlook for gas and power prices triggered by the recent cold weather in the UK which is forecast to last for the next couple of weeks.
We believe it is worth making the following points about the recent rally in near-term gas prices:
The rally in near term gas prices has been driven by a large increase in gas demand: According to National Grid data total UK gas demand in December 2009 was 11,794 mcm which was 9.8% higher than the average December over the last 10 years and 5.5% higher than December 2008. So far in 2010 total gas demand has been 2,053 mcm, 16.8% higher than the 10 year average for the first 5 days of the year and 8% higher than last year.
Drax’s share price rose 5.7% yesterday, we believe on the back of increased optimism around the outlook for gas and power prices triggered by the recent cold weather in the UK which is forecast to last for the next couple of weeks.
We believe it is worth making the following points about the recent rally in near-term gas prices:
The rally in near term gas prices has been driven by a large increase in gas demand: According to National Grid data total UK gas demand in December 2009 was 11,794 mcm which was 9.8% higher than the average December over the last 10 years and 5.5% higher than December 2008. So far in 2010 total gas demand has been 2,053 mcm, 16.8% higher than the 10 year average for the first 5 days of the year and 8% higher than last year.
NH
Despite the higher demand, day ahead gas prices remain below last year’s level: UK day ahead gas prices have risen 33% year to date from 35p/ therm to 46.5p/ therm which is still some 24% below their level of one year ago despite the record levels of demand.
Gas storage levels are higher now than they were this time last year. According to National Grid figures total gas in storage as at 3rd January 2010 was 39,092 GWh some 8.5% higher than at the same time last year.
The forward gas curve has had a muted response: According to Bloomberg data, winter 2010/11 gas prices have only risen 1.5% since the beginning of the year to 49.75p.
Forward clean dark spreads have fallen since the beginning of the year: On our estimates winter 2010/11 clean dark spreads have actually fallen since the start of the year, due to the sharp rise in thermal coal prices.
Gas storage levels are higher now than they were this time last year. According to National Grid figures total gas in storage as at 3rd January 2010 was 39,092 GWh some 8.5% higher than at the same time last year.
The forward gas curve has had a muted response: According to Bloomberg data, winter 2010/11 gas prices have only risen 1.5% since the beginning of the year to 49.75p.
Forward clean dark spreads have fallen since the beginning of the year: On our estimates winter 2010/11 clean dark spreads have actually fallen since the start of the year, due to the sharp rise in thermal coal prices.
NH
We believe that the rally in near term gas prices has little financial implications for Drax as:
Drax is strongly contracted for 2010, with around 22.2 TWh of capacity contracted representing around 93% of expected output for this year; and
Forward dark spreads have actually fallen over the last couple of days, as the gas forward curve has not followed the spot price up but forward coal prices have rallied.
Drax is strongly contracted for 2010, with around 22.2 TWh of capacity contracted representing around 93% of expected output for this year; and
Forward dark spreads have actually fallen over the last couple of days, as the gas forward curve has not followed the spot price up but forward coal prices have rallied.
NH
We believe that the rally in near term gas prices has little financial implications for Drax as:
Drax is strongly contracted for 2010, with around 22.2 TWh of capacity contracted representing around 93% of expected output for this year; and
Forward dark spreads have actually fallen over the last couple of days, as the gas forward curve has not followed the spot price up but forward coal prices have rallied.
Drax is strongly contracted for 2010, with around 22.2 TWh of capacity contracted representing around 93% of expected output for this year; and
Forward dark spreads have actually fallen over the last couple of days, as the gas forward curve has not followed the spot price up but forward coal prices have rallied.
NH
In our view, the main beneficiary of the recent cold snap is Centrica, which should see a material increase in sales in its residential gas supply business. We believe that when Centrica announces full year results for 2009 on 25th February it is likely to beat expectations based on higher gas demand in December. If we assume around 65% of the increase in December gas demand was attributable to residential customers, then we calculate that higher gas demand in December increased Centrica’s gas sales by around 108m therms. With Tier 2 residential gas tariffs at around 88p/ therm (standard tariff, including direct debit discount excluding VAT), average day ahead prices of 31.4p in December and distribution charges around 22.5p/ therm this would imply a gross margin of 34p/ therm and increased operating profit of £36.8m and higher earnings of £26.5m (around 0.5p of EPS). This is 2.4% of our 2009E EPS of 20.8p which compares to Reuters consensus of 20.2p.
NH
Using a similar methodology based on the uplift in gas demand due to the colder weather and using current day ahead gas prices then we believe that Centrica is making around £1.5m of additional earnings per day in January from the cold snap. In addition the moderate rally in day ahead gas prices combined with the fairly alarmist newspaper commentary around gas shortages may help to deflect some of the political pressure for a cut in retail prices. Our 2010 estimates are based on Centrica cutting retail gas tariffs at the end of Q1 by around 5%, therefore any delay in cutting prices would be positive for estimates. We retain our Outperform recommendation on Centrica and see it as the best balanced power company in the UK with unmatched optionality and structural growth through its services division.
BE
Ok – so Centrica’s making £1.5m per day from the cold snap?
BE
I see a Daily Mail front page right there.
NH
NH
or an Alpha post
NH
anyway
NH
some shar prices
Drax Group (DRX:LSE): Last: 443.00, down 1 (-0.23%), High: 449.80, Low: 436.50, Volume: 881.51k
NH
and
Centrica (CNA:LSE): Last: 279.80, down 1.3 (-0.46%), High: 282.30, Low: 279.10, Volume: 2.54m
12:01PM
NH
Actually
NH
Caz have published another good note
BE
What’s that on?
NH
Ryanair
NH
investor day tomorrow
BE
Ah. “Come and meet O’Leary”
NH
where we will learn how O’Leary is going to run the business for cash
NH
after the bust up with Boeing
BE
So what are they expecting?
NH
A special dividend of €1.12 is equivalent to a yield of 32% on the current share price.
BE
That looks quite nice.
NH
yes
NH
wanna set the full note?
BE
Go on.
NH
Ryanair Caz
Ryanair – [RYA.I RYA ID] €3.46 Outperform Sector Neutral
Update ahead of investor day
Ryanair management will hold an investor update meeting on Thursday. This follows the announcement just before Christmas that Ryanair and Boeing had failed to agree terms for a new order for 200 737 aircraft for delivery after 2010. As a consequence the group has stated that it will now “bring forward plans to significantly reduce growth and capital expenditures, in order to maximise cash balances for distribution to shareholders during the period 2012-2015.” This is likely to involve a significant reduction in FY2011 and FY2012 capital expenditure as the group reduces its rate of capacity growth.
We expect management to provide details of the capital expenditure plan at the meeting on Thursday and to flesh out the practicalities of running the business for cash. This is likely to involve a degree of network rationalisation and a focus on higher yielding routes while maintaining cost discipline. As the rate of capacity growth slows in the coming years it is likely that the group will experience some unit cost pressure, measured on a per passenger basis, but this is likely to be offset by commensurate improvements in yield.
Ryanair – [RYA.I RYA ID] €3.46 Outperform Sector Neutral
Update ahead of investor day
Ryanair management will hold an investor update meeting on Thursday. This follows the announcement just before Christmas that Ryanair and Boeing had failed to agree terms for a new order for 200 737 aircraft for delivery after 2010. As a consequence the group has stated that it will now “bring forward plans to significantly reduce growth and capital expenditures, in order to maximise cash balances for distribution to shareholders during the period 2012-2015.” This is likely to involve a significant reduction in FY2011 and FY2012 capital expenditure as the group reduces its rate of capacity growth.
We expect management to provide details of the capital expenditure plan at the meeting on Thursday and to flesh out the practicalities of running the business for cash. This is likely to involve a degree of network rationalisation and a focus on higher yielding routes while maintaining cost discipline. As the rate of capacity growth slows in the coming years it is likely that the group will experience some unit cost pressure, measured on a per passenger basis, but this is likely to be offset by commensurate improvements in yield.
NH
Our analysis, set out in our note of 11 December, suggests that, all else being equal, a moderation in the rate of capacity growth would actually generate higher EPS than we currently expect so long as it was accompanied by yield growth in excess of 3% p.a.
As can be seen from the table below, our no growth scenario suggests that Ryanair EPS could emerge 20% higher than our present forecasts in FY2011 and 35% higher in FY 2012. We expect to refine our assumptions after the management presentation on Thursday.
As can be seen from the table below, our no growth scenario suggests that Ryanair EPS could emerge 20% higher than our present forecasts in FY2011 and 35% higher in FY 2012. We expect to refine our assumptions after the management presentation on Thursday.
NH
Moreover we estimate that the group could return about €1.7bn of cash to shareholders in FY2013 if it decided to run the business for cash, equivalent to €1.12 per share. This is based on our no growth scenario of 6.5% p.a. yield growth, which would take average fares back up to FY2009 levels by FY2013.
A special dividend of €1.12 is equivalent to a yield of 32% on the current share price.
On our current forecasts, based on assumed capacity growth of 15% in the year to March 2011 the stock trades on a 2010E calendar adjusted PER of 16.2x, which compares to 11.2x for easyJet, where the share price has recent come under some pressure following the announcement of the departure of the CEO.
If our no growth scenario turns out to be correct the PER falls to 13.7x which is undemanding in our view. Thus the prospect of faster EPS growth and tangible cash returns in a few years time makes this stock attractive and we reiterate our Outperform recommendation.
A special dividend of €1.12 is equivalent to a yield of 32% on the current share price.
On our current forecasts, based on assumed capacity growth of 15% in the year to March 2011 the stock trades on a 2010E calendar adjusted PER of 16.2x, which compares to 11.2x for easyJet, where the share price has recent come under some pressure following the announcement of the departure of the CEO.
If our no growth scenario turns out to be correct the PER falls to 13.7x which is undemanding in our view. Thus the prospect of faster EPS growth and tangible cash returns in a few years time makes this stock attractive and we reiterate our Outperform recommendation.
NH
Ryanair
NH
ticking up
NH
0.7% higher at eur3.48
12:05PM
NH
OK, Bryce
NH
anything else from you
BE
A few things, yeah
BE
First, RBS has started coverage of Gulfsands Petroleum
NH
really
NH
why?
BE
Search me.
BE
This is Phil Corbett, who’s got a good reputation
BE
Not least for tipping Cairn before most buyers cared.
BE
Here’s the note.
BE
US and Iraq operations remain on the periphery, diversification would be welcome
Ongoing selective investment in Gulfsands.s mature US assets makes sense to us, although
we would be supportive of efforts to divest these interests sooner rather than later. We also
see little chance of any progress on the Maysan gas-gathering project in Iraq. As a result, we
believe the investment case would benefit from diversification, and management needs to
articulate more clearly where and how it wants to expand.
Ongoing selective investment in Gulfsands.s mature US assets makes sense to us, although
we would be supportive of efforts to divest these interests sooner rather than later. We also
see little chance of any progress on the Maysan gas-gathering project in Iraq. As a result, we
believe the investment case would benefit from diversification, and management needs to
articulate more clearly where and how it wants to expand.
BE
Valuation discount could lead to Sinochem acquiring Gulfsands.s Block 26 interest
We calculate a core NAV of 271p and risked exploration upside of 56p for the identified 2010
exploration wells in Syria. This results in a total valuation of 327p. With growing production
from Syria and what is, in our view, an attractive 2010 exploration programme, we believe
the current share price discount is unjustified. If this is sustained, and there is
encouragement from the early wells in the drilling campaign, we believe Sinochem (as the
other partner in Block 26) could move to acquire Gulfsands.s interest. We derive a 325p
target price, implying 35% potential upside from current levels, and initiate coverage with a
Buy recommendation
We calculate a core NAV of 271p and risked exploration upside of 56p for the identified 2010
exploration wells in Syria. This results in a total valuation of 327p. With growing production
from Syria and what is, in our view, an attractive 2010 exploration programme, we believe
the current share price discount is unjustified. If this is sustained, and there is
encouragement from the early wells in the drilling campaign, we believe Sinochem (as the
other partner in Block 26) could move to acquire Gulfsands.s interest. We derive a 325p
target price, implying 35% potential upside from current levels, and initiate coverage with a
Buy recommendation
NH
So the Sinochem bid rumours lives on
NH
it could happen
NH
really it could
BE
Shares up 2.5p at 242.5p.
BE
Also, we’ve had results from Biomet
BE
The privately owned plastic hip maker
NH
a readacross for Smith & Nephew
BE
Indeed
BE
Although S&N’s still down
BE
And BNP thinks the figs are positive
BE
These results confirm that growth in hip/knee is reaccelerating slightly, especially in
the US (sequential improvement of 2-3%), while Europe’s growth should remain
subdued until H2 2010. This bodes well for a slight pick up in demand in Q4.
the US (sequential improvement of 2-3%), while Europe’s growth should remain
subdued until H2 2010. This bodes well for a slight pick up in demand in Q4.
NH
(Dre – sorry we missed that. Was that the one from Shiret?)
BE
“Reassuring for Smith & Nephew”
NH
(QLD – mail murph and tell him any problems you have. the system has been upgraded)
BE
What about you Neil – anything to round up with?
NH
yes
NH
quick check on the Cadbury price
NH
down 5.5p at 773p
NH
just 9p above the Kraft offer now
NH
I am with Pesto on this
NH
and Taxloss
NH
Cadbury remains independent
NH
(paul.murphy@ft.com)
NH
but not everyone takes that view
NH
this has just come out from Investec
NH
Berkshire Hathaway’s entrée into the Kraft/Cadbury saga has generated plenty
of drama, but has it changed the fundamentals? We read Berkshire not as
trying to impose a veto, but challenging Kraft’s management to back their
convictions with more cash (debt) and less equity. Given what we see as the
strength of Kraft’s intent (and enhanced capacity for leverage post the Pizzas
disposal) we leave our TP of 795p unchanged. Hold and await events.
of drama, but has it changed the fundamentals? We read Berkshire not as
trying to impose a veto, but challenging Kraft’s management to back their
convictions with more cash (debt) and less equity. Given what we see as the
strength of Kraft’s intent (and enhanced capacity for leverage post the Pizzas
disposal) we leave our TP of 795p unchanged. Hold and await events.
NH
Warren Buffett has once again stolen the headlines in a dramatic intervention in
the Kraft/Cadbury bid saga. In a press release issued at 14.27 yesterday
London time, 9.4% Kraft shareholder Berkshire Hathaway indicated that it was
intending to vote ‘no’ to Kraft’s proxy call for new equity. In a pungently-worded
comment, Berkshire has challenged Kraft’s management to justify both the bid
per se and its dependence on Kraft equity. This has led some commentators to
conclude that Kraft’s move on Cadbury is now dead in the water.
the Kraft/Cadbury bid saga. In a press release issued at 14.27 yesterday
London time, 9.4% Kraft shareholder Berkshire Hathaway indicated that it was
intending to vote ‘no’ to Kraft’s proxy call for new equity. In a pungently-worded
comment, Berkshire has challenged Kraft’s management to justify both the bid
per se and its dependence on Kraft equity. This has led some commentators to
conclude that Kraft’s move on Cadbury is now dead in the water.
NH
But we are not inclined to unfurl the Union Jack bunting just yet. Berkshire
Hathaway’s intervention, while embarrassing for Kraft management, is arguably
ultimately not unhelpful to their cause, and nor should it necessarily be toxic for
Cadbury’s share price.
Hathaway’s intervention, while embarrassing for Kraft management, is arguably
ultimately not unhelpful to their cause, and nor should it necessarily be toxic for
Cadbury’s share price.
NH
With Kraft’s shares rising 4.7% yesterday on the news, their offer for Cadbury
now stands at 765p per share as of last night’s close. This is 3% higher than its
initial value of 740p on 7 September. The value of Kraft’s acquisition currency
has therefore risen, giving succour to the conspiracy theorists who have
speculated overnight that this was Berkshire’s ultimate objective
now stands at 765p per share as of last night’s close. This is 3% higher than its
initial value of 740p on 7 September. The value of Kraft’s acquisition currency
has therefore risen, giving succour to the conspiracy theorists who have
speculated overnight that this was Berkshire’s ultimate objective
NH
We don’t necessarily share this perspective. However, yesterday’s events
notwithstanding, we are maintaining our fundamental view on Kraft’s ability to
pay for Cadbury. We continue to think that Kraft can afford a bid of up to 820p
aggregate value, of which (pace the Pizzas disposal) well north of £4 could be in
cash, consistent with maintenance of an investment grade rating.
notwithstanding, we are maintaining our fundamental view on Kraft’s ability to
pay for Cadbury. We continue to think that Kraft can afford a bid of up to 820p
aggregate value, of which (pace the Pizzas disposal) well north of £4 could be in
cash, consistent with maintenance of an investment grade rating.
BE
(DSGI – Credit Suisse and Execution both reiterated positive views in their 2009 ballgazings. And we mentioned both over the past couple of days.)
NH
now in the Investec note
NH
the analysts says the cash component can be increased
NH
and Kraft does not bust its credit rating
NH
As our analysis shows, Kraft could increase the cash element of its offer from
300p to 450p and stay on the right side of an investment grade rating (we
continue to assume a net debt:EBITDA limit of 4.3x, the way the rating agencies
might look at it). The underlying factor is that, post the disposal of Pizzas, Kraft
now has material incremental debt capacity. We think that its pro-forma net
debt:EBITDA should now come down to c.2.2x on a stand-alone basis.
300p to 450p and stay on the right side of an investment grade rating (we
continue to assume a net debt:EBITDA limit of 4.3x, the way the rating agencies
might look at it). The underlying factor is that, post the disposal of Pizzas, Kraft
now has material incremental debt capacity. We think that its pro-forma net
debt:EBITDA should now come down to c.2.2x on a stand-alone basis.
NH
Importantly, our indicative scenario above would also address Berkshire’s
concerns around dilution. With the increased cash component of the deal and
Kraft’s shares up by 5%, only c.280m new shares would need to be issued. This
would be substantially below the 370m for which Kraft are currently requesting
authorisation and with which Berkshire are apparently so unhappy.
concerns around dilution. With the increased cash component of the deal and
Kraft’s shares up by 5%, only c.280m new shares would need to be issued. This
would be substantially below the 370m for which Kraft are currently requesting
authorisation and with which Berkshire are apparently so unhappy.
NH
The acid test of the scenario – which we think is precisely what Berkshire is
trying to enforce – is whether management really are confident of the delivery of
$625m of synergies. Bear in mind that our scenario terms have been calibrated
to equate only to earnings neutrality, not accretion as Kraft have specified. And,
with leverage up towards the max, any slippage could tip them out of investment
grade and/or imperil the dividend. Think Premier Foods/RHM for the ultimate
nightmare scenario from Kraft’s point of view
trying to enforce – is whether management really are confident of the delivery of
$625m of synergies. Bear in mind that our scenario terms have been calibrated
to equate only to earnings neutrality, not accretion as Kraft have specified. And,
with leverage up towards the max, any slippage could tip them out of investment
grade and/or imperil the dividend. Think Premier Foods/RHM for the ultimate
nightmare scenario from Kraft’s point of view
12:13PM
NH
Ok
NH
I think that is it for today
NH
I must do the Lunch Wrap
NH
and a million and one other things
NH
but I will leave you with this
NH
Jan. 6 (Bloomberg) — Kuwait’s parliament approved a bill that would force the government to buy all 6.7 billion dinars ($23.3 billion) of consumer loans, write off the interest and reschedule the payments.
The plan, which the government opposes and says is unconstitutional, passed with 35 votes in favor and 22 against in the final round of voting today, speaker Jassim al-Kharafi said.
The government plans on asking Emir Sheikh Sabah al-Ahmed al-Jaber al-Sabah to reject the law, Deputy Prime Minister for Economic Affairs Sheikh Ahmed al-Fahad al-Sabah said on Jan. 4, the state news agency KUNA reported. The central bank said yesterday that the bill includes legal and technical violations and can’t be applied, Kuna reported, citing a bank statement.
Kuwaitis stepped up borrowing as a decade-long oil boom through 2008 fuelled growth. Like spenders worldwide, Kuwaitis used bank loans to pay for homes, cars and vacations and many struggled to meet payments. The issue of bailing out debtors led to political rows in the oil-rich country, which has run a budget surplus for the past decade.
NH
“You are rewarding careless financial behavior, depleting limited resources and distributing it to people just to consume,” Jassim al-Saadoun, head of Al-Shall Economic Consultants in Kuwait, said by telephone. “It’s a bad moral message.”
BE
Er – what?
BE
They’re buying $23bn of consumer loans and writing them off?
NH
yep
NH
bizzare
BE
Brilliant.
BE
I’d vote for that.
NH
Right
NH
we must go
NH
thanks to logging on everyone
NH
Eng – 4-0 in reply
BE
We must. Thanks all.
BE
And good afternoon.
NH
cya
NH
and hopefully
NH
a normal service will resume tomorrow
NH
bye