Markets Live chat transcript for the chat ending at 12:17 on 13 Jan 2010. Participants in this chat were: Neil Hume, FT Bryce Elder
NH
bonjour
NH
and welcome
NH
To Markets Live
NH
FT Alphaville’s daily markets chat
NH
which is now officially bored with snow
NH
and the transport chaos it causes
NH
Bryce had just about made it in
BE
Yep – struggling through arctic conditions.
BE
Still snowing out there
BE
Turning Southwark Bridge into an icerink, as usual.
NH
that’s not good
NH
it could be a very slow journey home this evening
11:05AM
NH
right
NH
let’s push on
NH
and get to the markets
NH
where are we?
BE
Down
BE
FTSE’s off 14.7 at 5484
BE
and that’s mainly down to this profit warning from Soc Gen
BE
which has triggered a bit of weakness in the banks
NH
indeed it has
HSBC Hldgs (HSBA:LSE): Last: 718.10, down 10.3 (-1.41%), High: 724.50, Low: 717.40, Volume: 7.95m
Barclays PLC (BARC:LSE): Last: 312.15, down 4.45 (-1.41%), High: 314.30, Low: 310.50, Volume: 22.93m
BE
also weighing on the index is Royal Dutch Shell
BE
Europe’s second-biggest etc …..
BE
The Bs are down 22.5p at 1801.5p
NH
interesting 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.
NH
and Shell have previous when it comes to that sort thing
NH
actually
NH
a post on Reuters now
NH
Shares in Royal Dutch Shell Plc fell 2.3 percent on Wednesday on market talk that the company was guiding analysts to reduce their forecasts for the oil major’s fourth-quarter earnings.
“Consensus for Shell’s Q4 appears to be falling sharply. Lower gas realisations and losses downstream suggest earnings of around $2.6 billion in the fourth quarter versus expectations previously closer to $3.3 billion,” one dealer said.
“I’m hearing the company is calling the street and downgrading numbers for the fourth quarter to $2.9 billion,” another dealer with a European investment bank said
“Consensus for Shell’s Q4 appears to be falling sharply. Lower gas realisations and losses downstream suggest earnings of around $2.6 billion in the fourth quarter versus expectations previously closer to $3.3 billion,” one dealer said.
“I’m hearing the company is calling the street and downgrading numbers for the fourth quarter to $2.9 billion,” another dealer with a European investment bank said
11:07AM
NH
but back to SG for a moment
NH
shares down 5% first thing
NH
but have rallied since
BE
Now off 3.8% at e49.68
BE
lots of sales desk broking the line that this isn’t really a profits warning
NH
what if you exclude the EUR1.4bn hit they have taken on the CDO revaluation
BE
yep. That’s the idea.
BE
strip that out and it is actually a beat
NH
hang a moment
NH
Soc Gen were supposed to have hedged/disposed of all this stuff
NH
and yet they are forced to take another hit this morning
NH
but that’s OK because the underlying business is going well
BE
Yeah. That’s the line.
NH
but what happens if there are more hits
BE
Not sure.
BE
but while the sales guys might be positive
BE
most analysts aren’t
BE
this is from Merrill
BE
SG released a profit warning this morning highlighting the following:
- Additional cost on legacy assets of €1.4 bn, mainly booked on CDO of RMBS
both among the trading portfolio and the reclassified assets
- Weaker CIB business witrh SG highlighting that revenes are down vs previous
quarter, especially in FICC, reflecting lower investor activity
- Additional cost on legacy assets of €1.4 bn, mainly booked on CDO of RMBS
both among the trading portfolio and the reclassified assets
- Weaker CIB business witrh SG highlighting that revenes are down vs previous
quarter, especially in FICC, reflecting lower investor activity
BE
- All this leads to a slightly positive net profit for the 4Q
This is bad news and is in contrast with our expected 4Q net profit of €1.2 bn,
which was not very different from consensus, after taking into account a €0.7 bn
gain on Amundi. Question mark now is weather, this is a final cost for SG’s legacy
assets that will clear the path for 2010 earnings. In our expectations, we had
estimatted total legacy assets related costs of close to 1bn, to be spread over 4Q
and 2010. Conference call at 7.30 am.
Read across: not that much and probably a SG specific than anything else. Still it
highlights the weaker 4Q trading environment.
In our very first approach, we do not believe this will change our EPS
expectations for 2010 and 2011, nor our valuation of €63.5.
This is bad news and is in contrast with our expected 4Q net profit of €1.2 bn,
which was not very different from consensus, after taking into account a €0.7 bn
gain on Amundi. Question mark now is weather, this is a final cost for SG’s legacy
assets that will clear the path for 2010 earnings. In our expectations, we had
estimatted total legacy assets related costs of close to 1bn, to be spread over 4Q
and 2010. Conference call at 7.30 am.
Read across: not that much and probably a SG specific than anything else. Still it
highlights the weaker 4Q trading environment.
In our very first approach, we do not believe this will change our EPS
expectations for 2010 and 2011, nor our valuation of €63.5.
BE
and Evolution
BE
EVO TAKE – SocGen (CORE SELL TP 47.7) issued a profit warning and said net profit was slightly positive in Q4. This compares to our estimate of €400m (and consensus at around €850m).
DETAILS – SocGen is taking a pre-tax hit of €1.4bn relating to CDOs of RMBS and uses more realistic assumptions. In our structured credit screen we highlighted SocGen as the most likely affected by additional mark downs and estimated potential losses of as much as €7.7bn (p. 50 of our Outlook report). The results also included a gain of €600m due to the merger of asset management of SGAM and CAM. It is also affected by a tiny €100m loss on own debt. U/L in line, except for CIB.
DETAILS – SocGen is taking a pre-tax hit of €1.4bn relating to CDOs of RMBS and uses more realistic assumptions. In our structured credit screen we highlighted SocGen as the most likely affected by additional mark downs and estimated potential losses of as much as €7.7bn (p. 50 of our Outlook report). The results also included a gain of €600m due to the merger of asset management of SGAM and CAM. It is also affected by a tiny €100m loss on own debt. U/L in line, except for CIB.
BE
VALUATION AND RECOMMENDATION – The stock is trading at 1.2 P/tNAV 2011E, with a RoRWA of 1.2%. We continue to see downside from current levels. The large legacy issues continue to make the shares unattractive (again underpinned by Q4 statement and we don’t think this charge will be the last). Our TP of €47.7 leaves 8% downside, mainly due to additional legacy issues. We reiterate our CORE SELL recommendation.
NH
legacy issues
NH
something of an understatement
11:11AM
NH
staying with the banks for a moment
NH
It was the IFR awards last night in Mayfair
NH
sort of an Oscars for the banking world
NH
big names there
NH
black tie event in a huge ballroom
BE
And?
NH
Well, Credit Suisse one the top prize
NH
but what was more interesting was the big charidee auction
NH
bankers love giving you see
BE
So what was the total?
NH
around £1m
BE
Just like old times, then.
NH
well
NH
I think they raised more money last year
NH
a lot more
NH
anyway
NH
you will be pleased to know the bank we all own 84% of
BE
RBS …..
NH
bid £75,000 for something
BE
What? £75k of our money?
NH
yes and that largesse compares with Goldman
NH
which bid just £20,000 for something
BE
Now that is shameful.
BE
That’d buy you 20 squids.
NH
indeed
NH
poor show
NH
and they were booed apparently
NH
by everyone in the hall
BE
NH
and while we are Goldman bashing
NH
let’s rehash the Dealbook email from yesterday
BE
Aha – good read this.
NH
Dear client,
We may from time to time discuss with you Trading Ideas generated by our Fundamental Strategies Group. As part of our commitment to managing conflicts of interest appropriately, this message is to explain how the Fundamental Strategies Group interacts with other parts of our organisation and how that impacts on the Trading Ideas.
We may from time to time discuss with you Trading Ideas generated by our Fundamental Strategies Group. As part of our commitment to managing conflicts of interest appropriately, this message is to explain how the Fundamental Strategies Group interacts with other parts of our organisation and how that impacts on the Trading Ideas.
NH
The Fundamental Strategies Group is a group of cross-capital structure desk analysts employed by our Securities Divisions to assist our traders. They develop Trading Ideas in conjunction with traders. We may trade, and may have existing positions, based on Trading Ideas before we have discussed those Trading Ideas with you. We may continue to act on Trading Ideas, and may trade out of any position, based on Trading Ideas, at any time after we have discussed them with you. We will also discuss Trading Ideas with other clients, both before and after we have discussed them with you.
NH
You should not consider Trading Ideas as objective or independent research or as investment advice. When we discuss Trading Ideas with you, we will not be acting as your advisor (including, without limitation, in relation to investment, accounting, tax or legal matters) and the provision of Trading Ideas to you will not give rise to any fiduciary or equitable duties on our part. We will not be soliciting any action based on Trading Ideas and it is your responsibility to seek appropriate advice.
NH
Any opinions that we express when we discuss Trading Ideas with you will be our present opinions only and we will not have any obligation to update you in the event of a change of circumstances or a change of our opinions. We prepare Trading Ideas based upon information that we believe to be reliable but we make no representation or warranty that such information is accurate, complete or up to date and accept no liability, other than for fraudulent misrepresentation, if it is not.
If you have any concerns about any of these matters, please do not hesitate to contact us.
If you have any concerns about any of these matters, please do not hesitate to contact us.
NH
Kind Regards
Jane Lattin
Jane Lattin
NH
(Yes it did BBB)
BE
So: “Dear customers – we’re front running you ….
NH
but we are being upfront about it
BE
Sincerely, Goldman.”
BE
Nice.
BE
But I guess we shouldn’re really be surprised by this.
NH
no
NH
you’d have to be pretty naïve to think this sort of thing doesn’t happen right across Wall Street
BE
And the City
NH
indeed
NH
only a few days ago we heard the sales desks of the one of the big houses was talking down Tomkins
NH
and low and behold
NH
its gets downgraded today
BE
By who?
NH
Merrill
BE
Go the note?
NH
yes
NH
here’s a summary
NH
We are downgrading Tomkins from Buy to Underperform following a
strong rise in the share price. Our price objective remains at 200p.
Tomkins is a well managed franchise and clearly has scope for cyclical
recovery (we classify it as a “Rebound” stock) with its heavy exposure to
automotive, construction and industrial markets, and about 2/3rds of
sales derived from North America. However, we think much of the
rebound scope is now priced in and its lack of emerging market
exposure gives us some concern on the sustainability of its recovery. We
would not be surprised to see the shares continue to appreciate in the
very near-term but would look to take profits if it occurred
strong rise in the share price. Our price objective remains at 200p.
Tomkins is a well managed franchise and clearly has scope for cyclical
recovery (we classify it as a “Rebound” stock) with its heavy exposure to
automotive, construction and industrial markets, and about 2/3rds of
sales derived from North America. However, we think much of the
rebound scope is now priced in and its lack of emerging market
exposure gives us some concern on the sustainability of its recovery. We
would not be surprised to see the shares continue to appreciate in the
very near-term but would look to take profits if it occurred
Tomkins (TOMK:LSE): Last: 207.10, down 4.2 (-1.99%), High: 207.80, Low: 204.50, Volume: 3.45m
11:18AM
NH
are we done with the banks?
BE
Nearly, but not quite.
BE
You know how we always accuse Barclays of being an investment bank?
NH
indeed
NH
one that’s really run by Diamante Bob
BE
That’s the idea.
BE
And it’s one shared by the team at Execution.
NH
(late Rivaldo we will have something)
NH
and
NH
what’s it worth
NH
this new global IB
NH
that has a charismatic leader?
NH
500p
NH
600p?
BE
386p.
NH
er right
NH
currently price?
Barclays PLC (BARC:LSE): Last: 312.75, down 3.85 (-1.22%), High: 314.30, Low: 310.50, Volume: 23.17m
NH
so they have rated Barc
NH
as a pure IB then
NH
does that mean
NH
the commerical stuff is stripped out
NH
and put into a good bank?
BE
Ouch.
BE
I think it’s probably best to let Execution explain themselves.
NH
ok
BE
Lead analyst seems to be Fiona Swaffield
BE
Rather than Joseph Dickerson, who’s the Lloyds bull
NH
ok
BE
Barclays Capital screens well on a peer group analysis
Barclays Capital continues to be the key driver of returns at 62% of group
pre-tax by 2012. The key issue remains the sustainability of fixed income at
75% of revenues (same as Deutsche Bank) given narrowing margins in H2
09. We expect underlying fixed income revenues to fall 19% in 2010, which
compares well with peers. Overall top line revenues at Barclays Capital
should fall 6% vs double digit at its peers. Barclays fixed income business
is more diverse than its peers helped by a strong commodities and
emerging markets business. We are confident also that equities and
investment banking should grow strongly in 2010-2012 driven by Lehman,
significant organic investment and secular disintermediation of bank
lending.
Barclays Capital continues to be the key driver of returns at 62% of group
pre-tax by 2012. The key issue remains the sustainability of fixed income at
75% of revenues (same as Deutsche Bank) given narrowing margins in H2
09. We expect underlying fixed income revenues to fall 19% in 2010, which
compares well with peers. Overall top line revenues at Barclays Capital
should fall 6% vs double digit at its peers. Barclays fixed income business
is more diverse than its peers helped by a strong commodities and
emerging markets business. We are confident also that equities and
investment banking should grow strongly in 2010-2012 driven by Lehman,
significant organic investment and secular disintermediation of bank
lending.
BE
Capital: fears overdone
The low economic capital allocation of Barclays Capital at 5% of rwas
relative to 15% for its Swiss peers is not a big issue in our view. If we
allocate the growth in core T1 in H2 09 to Barclays Capital this would rise
to 10% of rwas, close to Deutsche. On a group basis if Barclays has a core
T1 of 10% in the investment bank the implied core T1 for the rest of the
group is 8.2% which is respectable. Deutsche Bank’s other business
comes out at 3.5% core T1 on the same assumptions. Barclays is the least
affected of the European investment banks by the Basel 2 changes in
2010. Further out with the proposed changes in 2012 Barclays has a
decent core T1 starting point and also can take a lot of preventative action
given the largest cost would be the deduction of the Blackrock stake.
The low economic capital allocation of Barclays Capital at 5% of rwas
relative to 15% for its Swiss peers is not a big issue in our view. If we
allocate the growth in core T1 in H2 09 to Barclays Capital this would rise
to 10% of rwas, close to Deutsche. On a group basis if Barclays has a core
T1 of 10% in the investment bank the implied core T1 for the rest of the
group is 8.2% which is respectable. Deutsche Bank’s other business
comes out at 3.5% core T1 on the same assumptions. Barclays is the least
affected of the European investment banks by the Basel 2 changes in
2010. Further out with the proposed changes in 2012 Barclays has a
decent core T1 starting point and also can take a lot of preventative action
given the largest cost would be the deduction of the Blackrock stake.
BE
Gearing to economic recovery
While Barclays Capital dominates near term our 2012 forecasts for GRCB
are 18% below the 2007 peak. Forecasts for a decline in provisions remain
relatively conservative especially for the UK business. We estimate a 200bp
loan loss ratio for the UK book which should be broadly flat in 2010. Every
10bp down in group provisions adds 7% to pre-tax – vs 10% at Lloyds.
While Barclays Capital dominates near term our 2012 forecasts for GRCB
are 18% below the 2007 peak. Forecasts for a decline in provisions remain
relatively conservative especially for the UK business. We estimate a 200bp
loan loss ratio for the UK book which should be broadly flat in 2010. Every
10bp down in group provisions adds 7% to pre-tax – vs 10% at Lloyds.
BE
Valuation
Barclays suffered the most significant de-rating of those banks with
investment banking gearing in Q4. While that has recovered somewhat it
still screens attractive relative to its investment banking peers. Our fair
value is based on 2012 forecasts discounted back 2 years. Using a COE of
10.7% (including a capital risk premium of 25bp for regulatory risk) we get
upside of 22%. On a PE basis the shares screen the lowest of the four
European Investment Banks at 6.6x 2012, just below Deutsche Bank.
Barclays suffered the most significant de-rating of those banks with
investment banking gearing in Q4. While that has recovered somewhat it
still screens attractive relative to its investment banking peers. Our fair
value is based on 2012 forecasts discounted back 2 years. Using a COE of
10.7% (including a capital risk premium of 25bp for regulatory risk) we get
upside of 22%. On a PE basis the shares screen the lowest of the four
European Investment Banks at 6.6x 2012, just below Deutsche Bank.
BE
And here’s a bit more on the core argument …….
BE
Investment Banking: A peer comparison
The table below shows the banks in our coverage that are the most geared to
investment banking. It illustrates why Barclays should be considered as an investment
banking peer. Post the Lehman deal, the sale of BGI and the recovery in investment
banking revenues, Barclays Capital makes a relatively similar contribution to the group
on our forecasts to investment banking at its peers. In fact on our 2010 figures
investment banking is the biggest contributor at Barclays although the contribution falls
as some recovery is seen in its other businesses by 2012. Also this is prior to the
consolidation of the UK large corporate loan book into Barclays Capital, which would
up the figure from the current level. The contribution in 2009 looks somewhat lower
but that is due to the magnitude of write downs taken at Barclays Capital. If we were
to instead consider ‘Top Line Income’ which excludes write-downs it would have
contributed 48% to nine month top line income – very similar to our assumption in
2010. The table below also underlines the continuing issue at Deutsche Bank as the
most geared to investment banking. The Swiss continue to be more balanced
courtesy of their wealth management franchises and improving growth in these due to
rising equity values means that the contribution of investment banking falls at CS over
time. For UBS the contribution is obviously heavily dependent on the trajectory of
recovery of the investment bank relative to the private bank. We would note that if we
took their aggressive guidance as per the investor day the split in pre-tax in the
medium term would be 40%, somewhat higher than our forecasts.
The table below shows the banks in our coverage that are the most geared to
investment banking. It illustrates why Barclays should be considered as an investment
banking peer. Post the Lehman deal, the sale of BGI and the recovery in investment
banking revenues, Barclays Capital makes a relatively similar contribution to the group
on our forecasts to investment banking at its peers. In fact on our 2010 figures
investment banking is the biggest contributor at Barclays although the contribution falls
as some recovery is seen in its other businesses by 2012. Also this is prior to the
consolidation of the UK large corporate loan book into Barclays Capital, which would
up the figure from the current level. The contribution in 2009 looks somewhat lower
but that is due to the magnitude of write downs taken at Barclays Capital. If we were
to instead consider ‘Top Line Income’ which excludes write-downs it would have
contributed 48% to nine month top line income – very similar to our assumption in
2010. The table below also underlines the continuing issue at Deutsche Bank as the
most geared to investment banking. The Swiss continue to be more balanced
courtesy of their wealth management franchises and improving growth in these due to
rising equity values means that the contribution of investment banking falls at CS over
time. For UBS the contribution is obviously heavily dependent on the trajectory of
recovery of the investment bank relative to the private bank. We would note that if we
took their aggressive guidance as per the investor day the split in pre-tax in the
medium term would be 40%, somewhat higher than our forecasts.
NH
thanks for that
NH
very interesting
NH
worth going through the whole note a bit later
NH
Ok
NH
are we bored with banks now?
BE
I think so. Although, of course, this discussion can continue ad nauseum in the Long Room.
NH
of course
NH
good idea
11:23AM
NH
(thanks Monkey for that)
NH
Right
NH
a few questions from the ROTR to answer
NH
some people asking about Borders & Southern
NH
one of these Falklands Oiland plays
NH
shares up this morning
NH
2.5p at 68.75p
NH
rumours swirling that they have got a rig
NH
to drill in the deep waters to the south of the island
NH
but the real story i think is this
NH
at a Falklands OIl & Gas meeting yesterday Mike Bushell said BHP intent on sending a drill ship from west Africa or a semi submersible.
NH
FoGL are next door to Borders
NH
so this has raised hopes
NH
that a rig will be heading down soon
NH
also
NH
Mirabaud also pushing stock this morning
NH
wtih a 200p price target apparently
NH
(Taxloss is there another Man Utd post from Monkey??)
BE
Is there any more raw around this morning then?
NH
not for the moment
NH
and we will return to the small caps
NH
a bit later
BE
Good.
BE
In the meantime, where now?
11:27AM
NH
good question
NH
what’s moving out there?
NH
on the upside?
BE
Admiral Group’s leading at the moment.
BE
…. although it defeats our autoquote system.
BE
Shares up 25p at £11.63
NH
this must down to the note out of merrill
NH
we raise PT’s in Admiral (1150p to 1200p),
NH
it’s in another very big sector note
BE
Give us a look then
NH
hang on
NH
Looking ahead to 2010: all about earnings
NH
If 2009 was the year of the balance sheet, 2010 will be the year of the earnings, in
our opinion. The financial market recovery has led to a significant easing of balance
sheet and capital adequacy worries. In other words, we have moved into the next
stage of the recovery phase and earnings momentum should be a major theme for
2010. We are comfortably ahead of consensus on many of the important life names
– ING and Prudential in particular – and 7% below consensus on the p-c sub-sector.
Finally, we expect a pick up in M&A this year driven by the desire to restructure
businesses in both the banking and insurance sectors.
our opinion. The financial market recovery has led to a significant easing of balance
sheet and capital adequacy worries. In other words, we have moved into the next
stage of the recovery phase and earnings momentum should be a major theme for
2010. We are comfortably ahead of consensus on many of the important life names
– ING and Prudential in particular – and 7% below consensus on the p-c sub-sector.
Finally, we expect a pick up in M&A this year driven by the desire to restructure
businesses in both the banking and insurance sectors.
NH
Financial market risks have been replaced by regulatory threats, in our view.
And as we move into 2010, solvency II looms large. Concerns over capital
adequacy and capital quality are likely to be largest for UK annuity writers and
smaller cap stocks. However, in a separate report on Solvency II published today
we argue for a benign outcome in most respects and would Buy into Solvency II
inspired weakness in a number of cases, particularly for Legal & General and
Prudential. Higher capital requirements overall are likely however and this, plus a
willingness to improve capital quality could dampen ROEs and dividend payouts
across the sector, in our opinion.
And as we move into 2010, solvency II looms large. Concerns over capital
adequacy and capital quality are likely to be largest for UK annuity writers and
smaller cap stocks. However, in a separate report on Solvency II published today
we argue for a benign outcome in most respects and would Buy into Solvency II
inspired weakness in a number of cases, particularly for Legal & General and
Prudential. Higher capital requirements overall are likely however and this, plus a
willingness to improve capital quality could dampen ROEs and dividend payouts
across the sector, in our opinion.
NH
The sector’s underperformance last year means supportive valuation arguments
are not difficult to find. And this is particularly true of p-c orientated stocks.
However, looking at valuations on a normalised 2012E view of the world, life
stocks actually screen cheaper than p-c at 8.3x vs 8.7x. And this is consistent
with the message from our cashflow report a few months ago. Finally, as markets
settle down, embedded values may re-gain some credibility in 2010, providing
further support to some life stocks
are not difficult to find. And this is particularly true of p-c orientated stocks.
However, looking at valuations on a normalised 2012E view of the world, life
stocks actually screen cheaper than p-c at 8.3x vs 8.7x. And this is consistent
with the message from our cashflow report a few months ago. Finally, as markets
settle down, embedded values may re-gain some credibility in 2010, providing
further support to some life stocks
NH
We are adding St James’s Place to our list of life company Buy ratings. Our three
highest conviction Buys for 2010 are ING, Prudential and Storebrand. Our three
highest conviction Underperforms are Catlin, Swiss Life and Swiss Re.
highest conviction Buys for 2010 are ING, Prudential and Storebrand. Our three
highest conviction Underperforms are Catlin, Swiss Life and Swiss Re.
BE
Hm
BE
There was some sniffy buying of the insurers yesterday.
NH
yep
BE
No real rumours doing the rounds, but some odd punters interested in some odd names.
NH
from some of the warmer spread betting accounts
NH
yeah
NH
people think a deal is about to happen
NH
so stand by for more
NH
Resolution are set to buy something speculation I guess
BE
The guidance there has always been pretty broad of course.
BE
But I do remember “end of January” being mentioned as some kind of target for Cowdery to start things moving.
BE
Always hard to see through the fug with that one though.
BE
Also, while on the sector ….
BE
RSA mentioned to the right by Cityunslicker.
NH
On RSA, Caz have published a note this morning looking into some more asbestos related claims, which they say are not material
NH
not followed this case
NH
and I don’t think I want to
NH
but….
BE
I’ve had one eye on it, mostly for nationalistic reasons, and it’s not too pleasant.
BE
Caz does give a good summary of the case.
NH
but we don’t need to see all of it though
NH
just the bit where they say it doesn’t matter
NH
it’s not material
NH
can we have that bit pls
BE
First, here’s Jefferies with the York Notes version …..
BE
Key Points
• UK pleural plaques. Pleural plaques is lung scarring caused by
asbestos but with no immediate ill effects. This used to be
covered by insurers before the House of Lords ruled that there
was no compensationable injury. The ruling was upheld after
appeal in October 2007. Last Friday, Scottish parliament
overturned this decision paving the way for further claims
(subject to further appeal by UK insurers). The ruling raises the
possibility that the UK government will take a similar approach.
• UK pleural plaques. Pleural plaques is lung scarring caused by
asbestos but with no immediate ill effects. This used to be
covered by insurers before the House of Lords ruled that there
was no compensationable injury. The ruling was upheld after
appeal in October 2007. Last Friday, Scottish parliament
overturned this decision paving the way for further claims
(subject to further appeal by UK insurers). The ruling raises the
possibility that the UK government will take a similar approach.
BE
• Potential exposures vary widely. In 2008 the Ministry of
Justice estimated a total cost of £3.7-£28.6bn in the event of
pleural plaques being reinstated. The range is wide reflecting
huge uncertainty but more importantly is based on extremely
onerous US experience. A more recent study published in early
2009 indicated a range of £0.2-£0.4bn. RSA’s exposure, if any,
would be less than 10% of any (post government) exposure.
Justice estimated a total cost of £3.7-£28.6bn in the event of
pleural plaques being reinstated. The range is wide reflecting
huge uncertainty but more importantly is based on extremely
onerous US experience. A more recent study published in early
2009 indicated a range of £0.2-£0.4bn. RSA’s exposure, if any,
would be less than 10% of any (post government) exposure.
BE
• Scottish ruling raises awareness but little else. There is
heavy political pressure on the UK government to legislate
against the House of Lords ruling. The Justice Secretary, Jack
Straw, was due to pronounce before the summer recess, but
this didn’t happen. With a UK election looming and bearing in
mind that there would be significant costs for the government
itself, an imminent adverse decision looks unlikely. We also
take some comfort from other recent medical conclusions from
related organisations.
heavy political pressure on the UK government to legislate
against the House of Lords ruling. The Justice Secretary, Jack
Straw, was due to pronounce before the summer recess, but
this didn’t happen. With a UK election looming and bearing in
mind that there would be significant costs for the government
itself, an imminent adverse decision looks unlikely. We also
take some comfort from other recent medical conclusions from
related organisations.
NH
thanks
NH
a good summary there
BE
And here’s Caz, who are the ones giving RSA a push
BE
A recent Scottish Courts ruling and resultant press report have brought asbestos
related insurance claims into focus again. RSA and three other insurance firms have
seen their application for judicial review of a 2009 Scottish legal bill dismissed.
The Scottish legislation in question rules that insurers should pay out damages not just to
sufferers of asbestosrelated mesothelioma (malignant cancer) and asbestosis, but also to
individuals with the benign condition called pleural plaques. The Scottish Parliament ruled that
asbestosrelated pleural plaques are a “personal injury which is not negligible”. In contrast, the
remainder of the UK is still governed by the 2007 House of Lords ruling that pleural plaques are a
benign condition and therefore not cause for insurance damages; hence the insurance companies’
appeal against the Scottish legislation. The insurers have said that while contesting legislation on
pleural plaques they remain committed to paying compensation for asbestosrelated diseases
such as mesothelioma. Axa, Aviva, RSA and Zurich Insurance have 21 days in which to make an
appeal, which if it fails could then be appealed again to the Supreme Court.
related insurance claims into focus again. RSA and three other insurance firms have
seen their application for judicial review of a 2009 Scottish legal bill dismissed.
The Scottish legislation in question rules that insurers should pay out damages not just to
sufferers of asbestosrelated mesothelioma (malignant cancer) and asbestosis, but also to
individuals with the benign condition called pleural plaques. The Scottish Parliament ruled that
asbestosrelated pleural plaques are a “personal injury which is not negligible”. In contrast, the
remainder of the UK is still governed by the 2007 House of Lords ruling that pleural plaques are a
benign condition and therefore not cause for insurance damages; hence the insurance companies’
appeal against the Scottish legislation. The insurers have said that while contesting legislation on
pleural plaques they remain committed to paying compensation for asbestosrelated diseases
such as mesothelioma. Axa, Aviva, RSA and Zurich Insurance have 21 days in which to make an
appeal, which if it fails could then be appealed again to the Supreme Court.
BE
The Scotsman reported various estimates for total potential costs of pleural plaque claims. The
highest estimate quoted by the Scotsman was £8.6bn of total claims in Scotland alone (at £76m
to £607m per year). This was taken from an October 2008 extrapolation of Ministry of Justice
information by the ABI (Association of British Insurers), but the insurance companies no longer
stand by these estimates. More recent, and in our view most likely more accurate estimates, were
given by the Scottish Parliament last year, indicating that total potential claims were much lower,
at £60m to £131m in total for Scotland. Therefore the risk to the insurers is not that significant in
our view. Additionally, if the appeals do fail, an insured party will still need to be able to give
evidence of a period of exposure to asbestos and provide corresponding proof of valid insurance
cover held by their employer. We do not believe that RSA has a material claims exposure should
the Scottish legislation be upheld, and we currently think it unlikely that the Scottish legislation is
taken on in the remainder of the UK. We therefore reiterate our Outperform recommendation.
highest estimate quoted by the Scotsman was £8.6bn of total claims in Scotland alone (at £76m
to £607m per year). This was taken from an October 2008 extrapolation of Ministry of Justice
information by the ABI (Association of British Insurers), but the insurance companies no longer
stand by these estimates. More recent, and in our view most likely more accurate estimates, were
given by the Scottish Parliament last year, indicating that total potential claims were much lower,
at £60m to £131m in total for Scotland. Therefore the risk to the insurers is not that significant in
our view. Additionally, if the appeals do fail, an insured party will still need to be able to give
evidence of a period of exposure to asbestos and provide corresponding proof of valid insurance
cover held by their employer. We do not believe that RSA has a material claims exposure should
the Scottish legislation be upheld, and we currently think it unlikely that the Scottish legislation is
taken on in the remainder of the UK. We therefore reiterate our Outperform recommendation.
NH
ta for that
BE
So, plenty to read there for fans of asbestos-related ailments.
RSA Insurance Group (RSA:LSE): Last: 127.30, up 0.8 (+0.63%), High: 128.70, Low: 126.60, Volume: 2.66m
NH
okay
NH
moving on….
11:37AM
NH
ROTR
NH
asking about the gilt auction
NH
2049 issue
NH
and here are the results
NH
headlines first
NH
10:57 13Jan10 RTRS-CORRECTED (OFFICIAL) – UK DMO SAYS GETS 0.4 BPS YIELD TAIL AT 2049 GILT AUCTION (NOT 0.3 BPS)
10:58 13Jan10 RTRS-CORRECTED (OFFICIAL)-UK DMO SAYS GETS 7 TICK PRICE TAIL AT 2049 GILT AUCTION (NOT 6 TICKS)
10:58 13Jan10 RTRS-RPT-DEBT MANAGEMENT OFFICE SAYS GETS 1.81 COVER AT SALE OF 2.25 BLN STG OF 4.25 PCT 2049 GILT
10:58 13Jan10 RTRS-CORRECTED (OFFICIAL)-UK DMO SAYS GETS 7 TICK PRICE TAIL AT 2049 GILT AUCTION (NOT 6 TICKS)
10:58 13Jan10 RTRS-RPT-DEBT MANAGEMENT OFFICE SAYS GETS 1.81 COVER AT SALE OF 2.25 BLN STG OF 4.25 PCT 2049 GILT
NH
and some copy from Reuters
NH
Jan 13 (Reuters) – Britain sold 2.25 billion pounds
of conventional gilts due 2049 on Wednesday, enjoying reasonable
demand from investors who bid for 1.81 times the amount on
offer.
of conventional gilts due 2049 on Wednesday, enjoying reasonable
demand from investors who bid for 1.81 times the amount on
offer.
NH
Tracy
NH
has just done a post
NH
she says the outcome is mixed
NH
bid to cover ratio is down
NH
but
NH
yield tail is ok
NH
so mixed really
NH
different pseudonym – yellow. watch it or just sling your hook.
NH
Tracy’s post on this
NH
should be up so
11:39AM
NH
On the subject of sovereign debt
NH
a rather large Moody’s report today
NH
which can be found in the usual place
NH
but if you are not a memeber
NH
here’s a little taster
NH
Diverging Conditions Heighten Significance of Exit Strategies
NH
“Prediction is very difficult, especially about the future” No doubt 2010 will turn out to be as unpredictable as 2009 was, but at this stage two factors look likely to dominate our European rating actions this year:
BE
“Prediction is very difficult, especially about the future”
BE
That’s brilliant.
BE
They should have that carved in stone above the office door.
NH
JL – yellow for you too
NH
yes
NH
First, will countries that have adopted counter-cyclical policies during the downturn come up with successful exit strategies as the recovery gains traction? The ratings of those countries that do will be more secure than those that do not as their debt metrics should improve accordingly.
NH
Second, what happens if “adjustment fatigue” sets in? Will countries that face more deep-seated economic or fiscal problems overcome them – or even be inclined to try to overcome them? Again, the ratings of those countries that do stay the course of reform will be more secure than those that do not as they should be able both to restore any lost competitiveness and avoid a structurally higher debt burden.
NH
Are European ratings particularly at risk? European ratings will likely be scrutinised even more closely than usual. European governments have seen some of the most dramatic deteriorations in their debt metrics. Also, our assumptions about those countries that will be able to restore their economic and fiscal health and those that will not be able to, particularly in the Aa-A range, will be tested.
NH
What can go wrong? A key factor that has prevented complete economic and financial meltdown has been the collapse in interest rates. As a result, debt affordability has not deteriorated anywhere near as much as it would otherwise have done. However, if for example markets were to switch concerns about weak activity to fears of inflation and market rates were to rise significantly, thereby revealing the true cost of the crisis in terms of making debt less affordable, more highly indebted countries could perhaps find their ratings tested.
NH
and the pay off line
NH
Is there any “good news”? Expectations are low. No-one is under any illusions about the scale of the task facing economies and policymakers. And that is no bad thing, frankly.
NH
so
NH
there you have it
NH
expectations are low
NH
and that’s a good thing
BE
Right.
BE
It gets less interesting after the Niels Bohr quote.
NH
indeed
11:43AM
NH
Right Bryce has some on bonds
NH
corporate one though
BE
Yeah
BE
Interesting note from Evolution’s head of fixed
NH
gary jenkins
BE
Yup
BE
The long term average spread for BBB’s from 1919 to the present day is 188bps. They are now trading through this level and indeed are closer to the average of 162bps which you get if you exclude the worst of the 1930’s depression and the most recent crises.*
BE
This seems remarkable when considering how close we are in time to what was almost a complete meltdown of the entire financial system (and that spreads hit 556bps in December 2008) but it is in fact in line with the trend evidenced in the credit markets that any very sharp widening of spreads is normally followed by a sharp tightening of spreads.
BE
Even so, with the strength and sustainability of the economic recovery still uncertain it does seem extraordinary that spreads have come back so far so fast. Obviously there has been huge demand for the asset class and whilst under normal circumstance we might expect this to abate somewhat as spreads tighten there are few signs of this at the moment as credit remains relative value against other asset classes if no longer cheap per se.
BE
The big question then is can the spread tightening continue and how long can credit spreads remain well supported? This will depend on a number of different factors of course but the likelihood is that fundamentals as measured by either the default rate or upgrade / downgrade ratio will continue to improve over the next 12 months. We published a note late last year which examined what happens in the Year 3 of a cycle where the first year has been a period where spreads widened aggressively and the second year a period where spreads have experienced significant tightening. We found that spreads tend to tighten during Year 3 and any widening tends to be limited in magnitude
BE
History does not always repeat itself of course.
NH
thanks for that
NH
interesting stuff
NH
credit bull market
11:46AM
NH
back to equities for a moment
NH
on Shell
NH
its seems no one would be surprised if they talked down Q4
NH
and that’s because of the recent Chevron warning
NH
Chevron Corporation reported in its interim update late
Monday that earnings for the fourth quarter 2009 are expected
to be lower than in the third quarter 2009. Upstream earnings
are projected to be in line with third quarter results, but
downstream results are expected to disappoint due to poor
refining margins.
Get used to it. That is going to be the theme through the
fourth quarter earnings season. What’s more, at the rate in
which this year opened, losses in the downstream will temper
upstream earnings through the first quarter earnings season
Monday that earnings for the fourth quarter 2009 are expected
to be lower than in the third quarter 2009. Upstream earnings
are projected to be in line with third quarter results, but
downstream results are expected to disappoint due to poor
refining margins.
Get used to it. That is going to be the theme through the
fourth quarter earnings season. What’s more, at the rate in
which this year opened, losses in the downstream will temper
upstream earnings through the first quarter earnings season
NH
as well. As such, Chevron et al. have taken measures to
address this issue. In Monday’s statement Chevron
reported that during the first two months of the fourth
quarter, U.S. refinery crude input volumes were down 50
Mbbl/d or around 6%.
address this issue. In Monday’s statement Chevron
reported that during the first two months of the fourth
quarter, U.S. refinery crude input volumes were down 50
Mbbl/d or around 6%.
NH
that was from Izy
NH
but as Debbie says
NH
Q4 is backward looking
BE
Of course, BP overtook Shell as Europe’s biggest oil company earlier this week
NH
yes
NH
saw that
NH
I never know whether to add the two bits of Shell together
BE
Default to the Bloomberg CORP page for that, personally.
NH
yes
NH
prolly a good idea
11:49AM
NH
Okay
NH
it is fast approaching midday
NH
so let’s pay a little visit
NH
to small cap corner
BE
BE
What’s caught your eye?
NH
everyone’s favourite gold stock
NH
or at least
NH
one that the ROTR seem to like
BE
Which one’s that?
NH
Vatukoula Gold Mines
NH
released its first independently calculated JORC resource today
NH
and…
NH
its shows…
NH
the company is in possession of a world class, high grade gold deposit
BE
Oh really. Is that right. Ok then.
NH
well
NH
that’s the view of house broker Arbuthnot
NH
but they do seem
NH
genuinely excited by this stock
NH
Vatukoula Gold Mines (VGM) have released its first independently calculated JORC resource and resource estimate since re-admission which continues to demonstrate the company is in possession of a world class, high grade gold deposit. The updated estimate confirms the multi-million ounce magnitude of the resources, stating measured, indicated and inferred resources of 4.3Moz. This estimate includes reserves of 0.68 Moz at 10.9 gram per tonne at a very conservative gold price of 750/oz assuming operating costs equivalent to the current cash costs of c.$650/oz. The reserves therefore support at least a 5+ year mine life with good potential for further extensions provided the vast resource base continues to be converted into reserves
NH
Scale underappreciated by the market
NH
While these updated estimates are a reduction to the 2006 estimates included in the re-admission document (reflecting the removal of less accurate face sampling data and depletion), the difference is not really significant as neither estimate are reflected in the company’s current share price. The company’s reserves and resources currently trade at a large discount to the company’s peers. On a EV/Resource basis, VGM trades at c.$23/oz – a 75% discount to peers and only marginally above the discovery cost of many companies. At the current valuation, the company’s resources therefore would make an attractive acquisition for a company looking to add resources at near the cost of exploration without much of the exploration risk. On a EV/reserve base the company trades at $144/oz, a near 50% discount to its peers. We expect this discount should be eliminated as the company achieves its fully funded production ramp up of 60koz in 2010 and 100koz in 2011 as investors’ confidence in the company’s ability to produce profitable ounces improves.
NH
Execution is the key
With this update confirming the size and quality of the high grade resource, we to expect that company continue to perform well provided production targets are achieved. This will unlock the mine’s profitability and potentially even bring the company into the crosshairs of larger producers struggling to find or replace ounces.
With this update confirming the size and quality of the high grade resource, we to expect that company continue to perform well provided production targets are achieved. This will unlock the mine’s profitability and potentially even bring the company into the crosshairs of larger producers struggling to find or replace ounces.
BE
Ok – so it’s actually a reduction from the reserve estimate in the re-admission document ….
NH
ah, but the quality has gone up and its still a world class deposit.
NH
look
NH
if you can broke SG profit warning
NH
as an upgrade
NH
this can be broked as good news too
BE
I guess so. “Never mind the size, feel the quality!”
NH
yes
NH
that’s the idea
11:53AM
NH
Right
NH
let’s move on to diamonds
NH
and Frank Timis
BE
Oh dear.
BE
What now?
NH
well African Minerals have sold their diamond operations
NH
and guess who the buyer is
BE
Who?
NH
Obtala Resources
BE
Should I have heard of them?
NH
well
NH
you may have heard of the chairman
NH
who is Frank Scolari
NH
and he was
NH
the chairman of Regal once upon a time
BE
Aha
BE
That’s all very cosy.
NH
yes
NH
Frank likes it that way
NH
Under the terms of the sale and purchase agreement (the “Agreement”), AML has agreed to transfer to Obtala the entire issued share capital of Sierra Leone Hard Rock Limited, the Bermuda incorporated holding company of Sierra Leone Hard Rock (SL) Limited. The latter company holds the assets, including the mining leases and exploration licences, for AML’s diamond operations in Sierra Leone.
Consideration for the Agreement is the issue by Obtala to AML of 21,170,422 fully-paid ordinary shares in Obtala, representing 9.9% of the enlarged issued share capital of Obtala and valuing the transaction at £4,260,547 (based on the closing mid market price for Obtala shares of 20.125p as at 12 January 2010). Under the Agreement AML is required to hold the Obtala shares for a period of 12 months following the date of admission to trading of those shares.
NH
“This agreement reinforces the Company’s intention to pursue value-adding strategies for its non-core assets and allows us to continue to focus on the development of the Tonkolili iron ore project, already one of the largest reported magnetite deposits world-wide”.
NH
that last bit was from Frank
NH
who is now developing
NH
5.1bn tonne magnetite iron ore resource at Tonkolili
NH
in Sierra Leone
NH
with the help of his new chinese friends
11:56AM
NH
Okay
NH
one more small cap
NH
to have a quick look at
NH
Petra Diamonds have finally
NH
release their production update
NH
and this does look quite good
NH
even if the shares are down
Petra Diamonds (PDL:LSE): Last: 61.50, up 1.25 (+2.07%), High: 62.50, Low: 60.25, Volume: 882.15k
BE
Seem to have rallied a bit.
NH
and I have some comment on this for Rivaldo
NH
this comes from Ambrian
NH
Petra Diamonds has released 2H production figures. Total production of 614,594cts was 13% above 1H levels, while the weighted average price per carat (excludes large diamond from Cullinan) rose 64% from US$68/ct to US$111/ct. This resulted in an outstanding increase of 84% in the total value of production, which lifted from US$37.1m to US$68.5m on a 100% basis, showing that the underlying mines are in an excellent state of health. Total sales were US$62.4m, 33% above 1H sales.
The majority (59%) of the production lift came from Cullinan, where production rose from 433,000cts to 473,000cts, and benefitted from a dramatic 74% increase in price from US$50/ct to US$87/ct. Operational performance was good, with mining and processing improvements netting a 5% increase in grade.
The majority (59%) of the production lift came from Cullinan, where production rose from 433,000cts to 473,000cts, and benefitted from a dramatic 74% increase in price from US$50/ct to US$87/ct. Operational performance was good, with mining and processing improvements netting a 5% increase in grade.
NH
Production from existing mines was outstanding, and reflected excellent onsite mine management under Petra. There is not much we can comment on here other than to say that management has done an excellent job over the period. More materially, diamond prices have recovered impressively, although we don’t see such growth as continuing at the current pace. This leaves the company in very good health.
NH
Recommendation
The push-back on tailings at Cullinan is more than offset by the increase in recovered grade there. However, both are dwarfed by the faster-than-expected recovery in diamond prices, which substantially increases our FY10 income forecasts. As such, we increase our target price from 87p to 95p, based on a company-wide 0.75x NAV, with the discount based on the significant proportion of the valuation coming from future growth, which is yet to be delivered.
The push-back on tailings at Cullinan is more than offset by the increase in recovered grade there. However, both are dwarfed by the faster-than-expected recovery in diamond prices, which substantially increases our FY10 income forecasts. As such, we increase our target price from 87p to 95p, based on a company-wide 0.75x NAV, with the discount based on the significant proportion of the valuation coming from future growth, which is yet to be delivered.
NH
The share price is now close to the level of the recent placing, which we see as outstanding value given that the operations are now substantially de-risked post-placing given their reported health. The perception of SAAD overhang remains, but we still believe that the stock is strongly undervalued at current levels, and should see a move to over 80p in the coming six months, and grow steadily thereafter.
BE
Cool – thanks for that.
NH
small cap corner
NH
is over for today folks
11:58AM
NH
Okay
NH
looks S&P is trying to broke the SG profit warning as good news too
NH
Societe Generale Ratings Unaffected By Sizable Write-Downs On Structured Assets For Fourth-Quarter 2009
NH
PARIS (Standard & Poor’s) Jan. 13, 2010–Standard & Poor’s Ratings Services said that its ratings on French bank Société Générale remain unaffected after the bank announced today that it will post €1.4 billion in write-downs on its most-at-risk structured assets to fourth-quarter 2009 earnings. These are in addition to the €2.5 billion it has already posted for the first three quarters. The write-downs highlight the bank’s remaining vulnerability to this portfolio, one of our main areas of concern.
NH
but
NH
These write-downs are higher than our central expectation. However, they are notably more than counterbalanced by strong revenues from the bank’s corporate and investment banking business line that we foresee for full-year 2009. In the fourth quarter, SocGen also reinforced the level and quality of its capitalization. We will continue to review the bank’s earnings and risk metrics in the coming quarters and monitor its ratings accordingly.
NH
I think John Authers was spot on today
NH
when he said the markets had got to confident
NH
that’s today’s short view
12:00PM
NH
Thanks for that Pakora
NH
can H&M Capital Management invest?
NH
put us down for £5m pls
12:01PM
NH
Right
NH
it’s midday
NH
so let’s wrap things up
NH
Gen wants comments on SIG
NH
which has been shorted of late
NH
people expected a really bad statement today
NH
and while not good
NH
no disaster
NH
and stock has spiked
SIG (SHI:LSE): Last: 126.20, up 9.4 (+8.05%), High: 128.20, Low: 118.20, Volume: 6.01m
BE
Let me dig out some comment
NH
(ZAP!!!!!!)
Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.
BE
Lotus Notes being rubbish
NH
Chopper – New Year’s resolution. we are not allowed to mentioned THAT oil company for a month)
BE
OK – here’s Numis
NH
ta
BE
SIG
Q4 IMS
There are no major surprises in the SIG IMS, but the fact that H2 has seen softening
in the major geographic markets, and that 2010 will remain “very challenging”
underpins our argument that the late cycle nature of the group will limit attractions
relative to earlier cycle plays. We continue to favour Galiform and Travis Perkins
within the merchanting sector, and believe that there are still downside trading
risks for the group in 2010 as the public sector starts to weaken in earnest.
Q4 IMS
There are no major surprises in the SIG IMS, but the fact that H2 has seen softening
in the major geographic markets, and that 2010 will remain “very challenging”
underpins our argument that the late cycle nature of the group will limit attractions
relative to earlier cycle plays. We continue to favour Galiform and Travis Perkins
within the merchanting sector, and believe that there are still downside trading
risks for the group in 2010 as the public sector starts to weaken in earnest.
BE
Q4 trading has been in line with expectations, and in the IMS the group points to PBT
being “not less than £60m”. We are accordingly revising up our 2009 forecast by £6m
to take account of this, but leaving our 2010 estimate unchanged due to the challenging
and uncertain outlook in key markets at this time. net debt of £260m was in line with our
forecast.
n UK LFL sales have not seen the major calendar YoY bounce that the likes of Travis
Perkins and Galiform have seen, with LFL sales remaining at around -20%. The group
points to a better residential market but “increasingly challenging” non-residential
sectors. In that non-residential is over 50% of end-user sales for SIG, and has yet to
see the impact of lower public sector spending, we expect a tougher year in 2010 than
2009.
n European LFL has seen an improvement (Q4 LFL constrant currency sales to
November were -8.5%, to end December were -6.8%), but the group points to softer
demand in Western Europe and Poland/CEE remaining “very challenging”.
being “not less than £60m”. We are accordingly revising up our 2009 forecast by £6m
to take account of this, but leaving our 2010 estimate unchanged due to the challenging
and uncertain outlook in key markets at this time. net debt of £260m was in line with our
forecast.
n UK LFL sales have not seen the major calendar YoY bounce that the likes of Travis
Perkins and Galiform have seen, with LFL sales remaining at around -20%. The group
points to a better residential market but “increasingly challenging” non-residential
sectors. In that non-residential is over 50% of end-user sales for SIG, and has yet to
see the impact of lower public sector spending, we expect a tougher year in 2010 than
2009.
n European LFL has seen an improvement (Q4 LFL constrant currency sales to
November were -8.5%, to end December were -6.8%), but the group points to softer
demand in Western Europe and Poland/CEE remaining “very challenging”.
BE
And here’s a bit of Merrill
BE
SIG has released a pre-close update ahead of its results in March. Overall, the
group indicates that full year PBT will be ‘not less’ than current consensus
estimates of £60m (BofAML £65m).
Trading through 2H showed some slowing in the rate of decline, although
conditions are obviously still very challenging. Group LfL sales are down 15.6% in
constant currency for the year, slighlty better than our forecast of -16.1%. The
trend of improvement has continued through 2H – we estimate the rate of decline
for the last 2 months of the year was more like -11%.
In UK & Ireland, 2009 LfL sales were down 22% (-20.2% in UK, -42.6% in
Ireland), in line with our forecasts. There has been some improvement in
residential new build activity from summer onwards, although non-residential
activitiy is still challenging. Unsurprisingly, the group highights the recent weather
as a hinderance over Christmas.
group indicates that full year PBT will be ‘not less’ than current consensus
estimates of £60m (BofAML £65m).
Trading through 2H showed some slowing in the rate of decline, although
conditions are obviously still very challenging. Group LfL sales are down 15.6% in
constant currency for the year, slighlty better than our forecast of -16.1%. The
trend of improvement has continued through 2H – we estimate the rate of decline
for the last 2 months of the year was more like -11%.
In UK & Ireland, 2009 LfL sales were down 22% (-20.2% in UK, -42.6% in
Ireland), in line with our forecasts. There has been some improvement in
residential new build activity from summer onwards, although non-residential
activitiy is still challenging. Unsurprisingly, the group highights the recent weather
as a hinderance over Christmas.
BE
In Europe, 2009 LfL sales were -7.9%, better than our forecast of -8.7%. There
appears to have been consistent improvement over the course of H2 and the
statement notes that the sales decrease was ‘less pronounced’ than the UK.
Other than that there has been no change since the November update.
Cash generation has been slightly better than expected, with year end net debt
£260m. Net debt/EBITDA for 2009 is 2x, comfortably within covenants.
Cost savings now total £98m cumulative, up £6m since the last update. There will
be a £52m restructuring charge in 09.
appears to have been consistent improvement over the course of H2 and the
statement notes that the sales decrease was ‘less pronounced’ than the UK.
Other than that there has been no change since the November update.
Cash generation has been slightly better than expected, with year end net debt
£260m. Net debt/EBITDA for 2009 is 2x, comfortably within covenants.
Cost savings now total £98m cumulative, up £6m since the last update. There will
be a £52m restructuring charge in 09.
NH
Ok Pakora put us down for £10m and lets have the warrants
NH
OK
NH
think were are done
NH
Different Pyseud
NH
has been zapped
NH
due to idiotic comments
NH
and Monkey
NH
I will be having a look at your Man Utd work
NH
thanks
NH
on Man Utd
NH
there now seems to be some doubt
NH
that demand will be strong for the bond
NH
this went up on Bloomie yesterday
NH
Manchester United Plc may struggle to sell 500 million pounds ($806 million) of junk bonds because it isn’t rated and investors have other options, said Jonathan Moore, high-yield analyst at Evolution Securities Ltd.
NH
“Most traditional high-yield investors won’t touch this,” said London-based Moore. “It’s unrated, so some investors can’t take it, and there’s a very busy new-issue calendar so there are plenty of alternatives. Most people just won’t focus on something with far too much leverage, limited free cash flow and lumpy earnings.”
NH
The club “seems to assume” it will pay about 9.25 percent interest on its new bonds, based on so-called pro forma figures in the offer document that outline what its finances would look like if it currently had the bonds, said Moore. These show pro forma gross indebtedness of 512 million pounds and an interest bill of 46.3 million pounds a year, or 9.04 percent.
European borrowers with comparable debt profiles are in the B category, according to Moore. Investors currently demand yields of more than 9.5 percent to buy their debt, Merrill Lynch’s Euro High Yield, B Rated Index shows
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Manchester United Finance, the company selling the bonds, hired Bank of America-Merrill Lynch, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., KKR & Co. and Royal Bank of Scotland Group Plc for the deal.
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All interesting stuff.
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ok
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we are done
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market update
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down 18 points at 5,479
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anything more from you Bryce?
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Not much, really.
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Interesting story in the Hong Kong press that Li Ka-shing’s going to throw $100m into the IPO of Rusal.
NH
(let’s hope Sol doesn’t have any more of his issues though Frog)
BE
And, as it was mentioned by the ROTR, here’s the gist of that Autonomy upgrade from Nomura
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and a sell note from Canaccord
BE
BE
Nomura first, since it appears to be winning
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go on
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Following Autonomy’s Q4 pre-announcement, a
substantial contract win with BAE Systems and
with our forecasts based on a new differentiated
revenue model, we upgrade Autonomy to Buy with
a target of £18.70, indicating 17% upside potential
from current levels. Recent events are, in our
view, very reassuring: Given a continued strong
growth momentum and substantial installed base
opportunities with large Fortune 1000 customers,
our new top-line model indicates that growth in
Autonomy’s ‘Protect’ and ‘Power’ business could
surprise on the upside in the current year.
Autonomy is trading on a 15% discount to the
historical two-year EV/sales multiple and on a 44%
discount to the four-year average P/E basis. We
have arrived at our target price of £18.7 valuing
the shares on 21.2x forward and 18.3x 2012E
earnings, still a substantial discount to historical
levels.
substantial contract win with BAE Systems and
with our forecasts based on a new differentiated
revenue model, we upgrade Autonomy to Buy with
a target of £18.70, indicating 17% upside potential
from current levels. Recent events are, in our
view, very reassuring: Given a continued strong
growth momentum and substantial installed base
opportunities with large Fortune 1000 customers,
our new top-line model indicates that growth in
Autonomy’s ‘Protect’ and ‘Power’ business could
surprise on the upside in the current year.
Autonomy is trading on a 15% discount to the
historical two-year EV/sales multiple and on a 44%
discount to the four-year average P/E basis. We
have arrived at our target price of £18.7 valuing
the shares on 21.2x forward and 18.3x 2012E
earnings, still a substantial discount to historical
levels.
NH
punchy price target
BE
That’s from analyst Dr. Gunnar Plagge
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Trust him, he’s a doctor.
NH
indeed
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meannwhile at Canaccord
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hang on
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notes melt down
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here we go
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Q4 preview
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Expense growth
As per last week’s trading update, Autonomy expects to report fully diluted EPS of $0.97 for 2009, below the low end of the model’s range of $1.00-1.05. Given revenue is expected to be in line with the analyst model estimate of $740 million, costs and expenses have tracked above model estimates.
We now estimate Q4 expenses to be about $85 million, significantly ($7 million) ahead of Q3 ongoing expenses of $78 million. (In Q3, expenses were $98 million, but c$20 million of this was new product-related spend that the company did not expect to recur.) We believe a minority of the expense growth in Q4 may be driven by higher depreciation and amortization from the large jump in capex and expenditure on product development in Q3. We expect clarification on the reasons for higher expenses at the results.
As per last week’s trading update, Autonomy expects to report fully diluted EPS of $0.97 for 2009, below the low end of the model’s range of $1.00-1.05. Given revenue is expected to be in line with the analyst model estimate of $740 million, costs and expenses have tracked above model estimates.
We now estimate Q4 expenses to be about $85 million, significantly ($7 million) ahead of Q3 ongoing expenses of $78 million. (In Q3, expenses were $98 million, but c$20 million of this was new product-related spend that the company did not expect to recur.) We believe a minority of the expense growth in Q4 may be driven by higher depreciation and amortization from the large jump in capex and expenditure on product development in Q3. We expect clarification on the reasons for higher expenses at the results.
NH
Cash conversion and deferred revenue release growth
Other areas of focus include cash conversion and deferred revenue release growth. We expect cash conversion (CFFO/EBITDA) to fall to 53% in Q4, without the one-off inflow from payables that boosted cash conversion to 131% in Q3. For the full year 2009, we expect cash conversion to be 77%, surprisingly unchanged from 78% in 2008, despite the acquisition of Interwoven, which achieved over 100% cash conversion in 2008. In terms of deferred revenue release growth, in Q3 it fell sequentially (-3%) for the first time in at least 11 quarters. For Q4, we expect 4% sequential growth to $60 million.
Other areas of focus include cash conversion and deferred revenue release growth. We expect cash conversion (CFFO/EBITDA) to fall to 53% in Q4, without the one-off inflow from payables that boosted cash conversion to 131% in Q3. For the full year 2009, we expect cash conversion to be 77%, surprisingly unchanged from 78% in 2008, despite the acquisition of Interwoven, which achieved over 100% cash conversion in 2008. In terms of deferred revenue release growth, in Q3 it fell sequentially (-3%) for the first time in at least 11 quarters. For Q4, we expect 4% sequential growth to $60 million.
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Forecasts and valuation
Overall, our 2010 forecast (shown on the left) is slightly below analyst model estimates of $878 million in revenues and $1.25 in EPS. We expect the debate over cash conversion and organic earnings growth to weigh on the shares. We maintain our SELL rating and DCF-based target price of 1,300p.
Overall, our 2010 forecast (shown on the left) is slightly below analyst model estimates of $878 million in revenues and $1.25 in EPS. We expect the debate over cash conversion and organic earnings growth to weigh on the shares. We maintain our SELL rating and DCF-based target price of 1,300p.
BE
So it’s the usual bipolar argument on Autonomy then.
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Gold or sh… Take your pick.
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yep
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and some late RAW
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for you all
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VOLKSWAGEN PREFS: weakness being attributed to
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UNCONFIRMED chatter of a
capital increase.
capital increase.
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which would be fun
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right
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we are done
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We are. Thanks for all the comments.
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(oldie – explain pls)
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*BLOOMBERG USERS IN U.S. TURN MOST BULLISH ON STOCKS SINCE 2007
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that’s gotta be a sell signal
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time for H&M
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to come out of hibernation
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and resume our short position
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That’s their own confidence survey, which does indeed tend towards reverse indicator status.
NH
what time does our CIO wake up
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in NY
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let’s get nice and short
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I will update
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on my conservation with Murph tomorrow
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Lorcan
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H&M
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was restructured
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after a gate was put in place
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but we are now up and running
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we have a position in Pakora Exploration PLC
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and soon a big index short!
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right
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we must go
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We must, yes.
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the Lunch Wrap has to go out
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and some bloke is trying to attach something to Bryce’s PC
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bye
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Not sure what. Possibly electrodes.