Markets Live chat transcript for the chat ending at 12:14 on 28 Jan 2010. Participants in this chat were: Neil Hume, FT Bryce Elder
NH
Hola
NH
and welcome
NH
to Markets Live
NH
FT Alphaville’s daily markets chat
NH
sorry we are late
NH
log on issues again
NH
Bryce is here
NH
somewhere
NH
he is trying to log in
AstraZeneca (AZN:LSE): Last: 3,044, down 1.5 (-0.05%), High: 3,067, Low: 3,035, Volume: 792.72k
NH
first reaction to figures looks negative
BE
Hello – in at last.
NH
ASTRAZENECA 4Q EPS EX-ITEMS $1.42; ANALYST EST. $1.54
NH
looks a big miss
NH
Morning Bryce
NH
so, tell me
NH
time for the Rally Monkey?
NH
Bryce
NH
are you there?
NH
come in Bryce
BE
Hello. Bloody internet.
NH
while we wait
NH
Murray goes 2-1 up in semi final
NH
COME ON TIM
11:06AM
BE
No, it’s not time to release the rally monkey.
NH
what a pity
BE
but it certainly is time for this
BE
NH
of course
NH
the dead cat
BE
It does feel rather deceased feline out there this morning
BE
Up 50 or so points early on
BE
and it has been slipping away ever since
BE
Footsie now up 21 at 5238
BE
all very unconvincing
BE
and I can’t think of any reason why it will rally
NH
yeah I agree
NH
although this could help
NH
France, Germany et al in covert Greek bail out talks. Hi-lites: 1.they will lend direct to Athens 2. will bring forward structural payments
NH
picked that up off my Twitter feed early
NH
amid all the DavosPukeFest stuff
BE
!
BE
what, like this
BE
@arusbridger
BE
Just bumped into David cameron and andy Coulson @ davos. Yes, it’s that kind of place.
BE
it certainly is that kind of place
BE
as Davos Deville, our correspondent in the queue for raclette, will tell you.
NH
NH
right
NH
shall we get on with some stock specific stuff?
BE
(http://twitter.com/DavosDeville)
BE
So where do you want to start?
NH
actually before we go there
NH
some more on this Greekl bailout rumour
NH
the French and German’s coming to the rescue
NH
the Economist has an intersting take on line
NH
IN Brussels policy circles, the question asked about a bailout of Greece used to be: are European Union governments willing to do this? Now, I can report, the question among top EU officials has changed to: how do we do this?
NH
Twice in the past 48 hours I have heard very senior figures—both speaking on deep background—ponder the political mechanics of how large sums in external aid could be delivered to Greece in the event of that country being faced with the prospect of defaulting on its debts: a crisis that would have nasty knock-on effects for the 16 countries that share the single currency.
NH
One figure said yesterday that heads of government had to take a decision in the next few months, and probably before the summer. Greece’s draft plans for reducing its deficit from around 13% to 3% in three years did not seem credible, said this source. Thus a crisis loomed. “We need to help them,” he said. This means “external aid” of some sort, in exchange for strict conditions. As a top priority, conditions would have to include a complete change in the way that economic statistics are collected in Greece, ending years of political manipulation and book-cooking so that data from Greece can be relied upon (indeed, the distrust is so deep that nobody would be astonished if even the latest Greek deficit number of almost 13% underestimates the full horror of the situation).
NH
Both senior figures confirmed that it was politically unthinkable for the International Monetary Fund to intervene in a member of the euro zone. But Greece would have to agree to spending cuts every bit as painful as those that would be imposed by the IMF, it was said.
BE
Hm. All rather concerning.
NH
yes
NH
very worrying
NH
actually
NH
let’s just have a quick look at the euro
BE
Euro’s $1.40
BE
And it buys you 86 British kroner.
NH
very weak against sterling
NH
hmmmmm
NH
shall we get to some stocks?
BE
Where do you want to begin?
NH
Er
NH
we could do Nokia
BE
(*NOKIA 4Q REPORTED EPS EU0.26; ANALYST EST. EU0.16)
NH
but let’s come back to that later
NH
what about the miners
BE
OK
BE
What about them?
NH
they are up
NH
obviously it is a bit of dead cat
NH
but there is also some positive news out of China
NH
on the iron ore pricing negotiations
NH
This is from Blue Oak North Square
NH
China has altered its approach to the annual steel price negotiations
has changed. China Iron and Steel Assoc will not be leading the process
and instead Boasteel and the Ministry for Industry and Information and
Technology. This Ministry is seen to be taking a less aggressive stance
to the process and should be pushing to set up a fairer way to set long
term pricing.
has changed. China Iron and Steel Assoc will not be leading the process
and instead Boasteel and the Ministry for Industry and Information and
Technology. This Ministry is seen to be taking a less aggressive stance
to the process and should be pushing to set up a fairer way to set long
term pricing.
BE
Interesing
BE
Han’t seen that.
NH
this also helping the diggers
NH
big push from Nomura
NH
Paul Cliff, their mining analyst
NH
been telling clients to use the dip to buy back in
NH
he reckons the Chinese tightening will not impact demand for industrial metals
NH
in fact he reckons Chinese demand will surprise on the upside
NH
here’s the note
NH
for all you diggers out there
NH
Investment Conclusion
We advise clients to buy the current dip in mining equities. Our top picks remain Rio Tinto (Buy, TP £43) and Anglo American (Buy, TP £35). The current correction in mining equities is in-line with our view in early December (see “Switching from copper to iron ore and coking coal exposure”, Dec 03, 2009) that fears over tighter monetary policy in China, potential US$ strength and/or rolling-over of OECD leading economic indicators would produce a better entry point in early 2010. The key catalyst for the current correction is the fear of draconian monetary tightening in China and its impact on metals demand. However, we believe such fear is misplaced and we expect Chinese demand for industrial metals to continue to surprise on the upside through 2010. More importantly, history suggests that the mining sector actually outperforms through tightening cycles. The current correction in mining equities reminds us of the short-lived correction at the beginning of China’s tightening cycle at the end of 2004.
We advise clients to buy the current dip in mining equities. Our top picks remain Rio Tinto (Buy, TP £43) and Anglo American (Buy, TP £35). The current correction in mining equities is in-line with our view in early December (see “Switching from copper to iron ore and coking coal exposure”, Dec 03, 2009) that fears over tighter monetary policy in China, potential US$ strength and/or rolling-over of OECD leading economic indicators would produce a better entry point in early 2010. The key catalyst for the current correction is the fear of draconian monetary tightening in China and its impact on metals demand. However, we believe such fear is misplaced and we expect Chinese demand for industrial metals to continue to surprise on the upside through 2010. More importantly, history suggests that the mining sector actually outperforms through tightening cycles. The current correction in mining equities reminds us of the short-lived correction at the beginning of China’s tightening cycle at the end of 2004.
NH
Summary
Fears of draconian tightening measures in China are misplaced. We expect further tightening measures in China to be mild and wellpaced. Nomura’s China economist – Mingchun Sun, expects to see another 50bp Reserve Requirement Ratio (RRR) hike in 2Q10; a raising of the benchmark interest rate by 27bp per quarter in 1Q, 2Q and 3Q; and the resumption of CNY/USD appreciation by around March. By the end of 1Q10 we would expect the market’s attention to return to strong and sustainable Chinese metals demand and CNY/USD appreciation with its associated positive impact on metals prices via steeper cost curves.
Fears of draconian tightening measures in China are misplaced. We expect further tightening measures in China to be mild and wellpaced. Nomura’s China economist – Mingchun Sun, expects to see another 50bp Reserve Requirement Ratio (RRR) hike in 2Q10; a raising of the benchmark interest rate by 27bp per quarter in 1Q, 2Q and 3Q; and the resumption of CNY/USD appreciation by around March. By the end of 1Q10 we would expect the market’s attention to return to strong and sustainable Chinese metals demand and CNY/USD appreciation with its associated positive impact on metals prices via steeper cost curves.
Our analysis shows that miners consistently outperform through initial phases of monetary tightening, either in China or the US. This proved to be the case through tightening cycles in China through the last decade and the four major tightening cycles in the US over the past two decades.
NH
We advise clients to stick to bulk commodity exposure, mainly iron ore and coking coal. We estimate that iron ore contract prices are likely to rise by 40-50% y-o-y in 2010 with a rapidly rising probability of 2010 coking coal contracts at $200+ (2009 at $129/t). Although copper has slipped from top spot in our order of commodity preferences, we think the risk of a significant short-term correction has been overplayed. Copper remains our preferred base metal exposure and we advise against switching into aluminum exposure.
Mining valuations remain attractive with the sector trading on a marked-to-market (i.e. current spot metals prices and FX) of just 8.1x in 2010 compared with a mid-cycle average of circa 12x. On P/NPV, the sector now trades at an average of 76%, on our estimates.
NH
Although we expect mining equities to remain choppy through 1Q10 due to the expected short-term rise in Chinese CPI inflation and likely peak in OECD leading economic indicators (see our December note for a more detailed discussion of Nomura’s Leading Indicators (NOLI) we would buy the sector now.
NH
some prices pls
BE
Sure
Xstrata (XTA:LSE): Last: 1,075, up 25 (+2.38%), High: 1,090, Low: 1,065, Volume: 6.37m
BHP Billiton (BLT:LSE): Last: 1,894, up 5.5 (+0.29%), High: 1,926, Low: 1,889, Volume: 2.63m
Rio Tinto (RIO:LSE): Last: 3,176, up 44.5 (+1.42%), High: 3,239, Low: 3,173, Volume: 3.08m
Kazakhmys (KAZ:LSE): Last: 1,297, up 32 (+2.53%), High: 1,312, Low: 1,284, Volume: 974.52k
Lonmin (LMI:LSE): Last: 1,868, up 32 (+1.74%), High: 1,899, Low: 1,855, Volume: 310.75k
NH
ta for that
11:17AM
NH
and one more bit of China news
NH
China XD Electric Co., the nation’s biggest maker of electricity transmission and distribution equipment, fell in its first day of trading in Shanghai, the
first mainland company to drop below its offer price since 2006.
first mainland company to drop below its offer price since 2006.
China XD Electric fell 1.4 percent to 7.79 yuan in Shanghai
today from the initial public offering price of 7.90 yuan. The
benchmark Shanghai Composite Index rose 0.25 percent.
“The infallible tale of China’s IPO shares has finally
been dashed,” said Larry Wan, the Shanghai-based deputy chief
investment officer at KBC-Goldstate Fund Management Co., which
oversees about $583 million. “Higher offer prices and weak
market sentiment are the two major reasons behind XD Electric
falling below its IPO price.”
NH
China XD Electric’s debut comes as the Shanghai index has
slumped 8.6 percent this year, making it the 10th-worst
performer among the 94 benchmarks tracked globally by Bloomberg.
The Xi’an, western China-based company’s IPO raised 10.3 billion
yuan ($1.5 billion) this month after initial sales in China
raised more than 240 billion yuan since July 2009, when
regulators ended a moratorium on new listings.
slumped 8.6 percent this year, making it the 10th-worst
performer among the 94 benchmarks tracked globally by Bloomberg.
The Xi’an, western China-based company’s IPO raised 10.3 billion
yuan ($1.5 billion) this month after initial sales in China
raised more than 240 billion yuan since July 2009, when
regulators ended a moratorium on new listings.
BE
so, the first IPO flop since 2006
BE
amazing stat that
NH
indeed
NH
as is this
NH
RTRS-CHINESE ECONOMIC OFFICAL SAYS NO INFLATION IN CHINA NOW – STATE TV
NH
china take
The Truth! Unvarnished. The price of rice always falls. Shanghai investors do not sell stocks. Torch protestors are vile.
NH
China Take
BE
(Ticker: we’re allowed to misquote Mark Twain, but you’re not. This is not a democracy. Live with it.)
11:19AM
BE
Well, I guess we can’t avoid it any longer.
BE
We should look at the technology innovation of the decade
BE
perhaps even the century
BE
Honey I Blew Up The iPhone
BE
So will you be buying one Neil?
NH
No. Can’t see the point of it.
NH
And I’d break it within about a week
BE
That is a concern, yes.
BE
Can’t see the logic of carrying around a 10 inch bit of unprotected glass
BE
just to check email and browse the internet, when my phone does that stuff anyway
BE
Sure – it might be able to do those things a bit better than my phone
BE
Just like a bulky SLR camera does things a bit better than a compact
BE
But I don’t carry around an SLR either.
BE
And it’s worth remembering that Apple tends to do well when redesigning stuff that already sells well, like the MP3 player or the smartphone
BE
But rarely has a commercial success when trying to create an entirely new market
BE
Did anyone here buy an Apple Newton? Or a Pippin?
NH
Apple Newton. That’s a gag right?
NH
There really wasn’t such a device
BE
Nope. Newton was their first shot at the handheld computer thing.
BE
A prototype for Palm Pilots and the like
BE
“ahead of its time,” the fanboys say
BE
Unfortunately, it sold about three units.
NH
anyway, in spite of the mixed reaction to this electronic photo frame
NH
can you imagine taking that into Starbucks
NH
Apple shares rose
BE
Yup. By about 1%, after a rather choppy session
NH
You got any comment?
BE
And, contrary to our cynicism, the analysts seem to quite like this thing
BE
Loads around, starting with RBC
BE
Not Everyone Initially Liked the Ten Commandments Either – But They Endured
NH
WTF
NH
This Jesis tablet thing is going too far
BE
New Growth Engine. The iPad’s launch partially exceeded hype, but, owing to a) high 3G pricing and b) the absence of hoped-for features, investors may be uncertain whether or not Apple has created a new computing category. We believe iPad may become an enduring growth engine.
BE
Hits and Misses. With iPad, Apple creates a revolutionary e-reading, browsing, media, gaming experience. Newspapers, webpages, books ‘come alive’ with video, animation, color and fullscreen touch. However, the 3G iPad is expensive (16GB $629 + data plan) with no EVDO/Verizon (yet) and lacks a
camera, dual-mode 3G radio, multitasking, Flash support, USB
camera, dual-mode 3G radio, multitasking, Flash support, USB
BE
Simplicity=Power. Like the first iPod and iPhone, uptake may in time surprise as future versions improve and costs decline. The iPad’s intuitiveness and simplicity at key tasks (browsing, email, media, watching videos, games, reading, working) may appeal to consumers for whom existing PC experiences
are intimidating, inadequate, delivering 90%+ of the features of traditional PCs with less complexity than traditional PCs. Uptake however may require in-store demos to truly experience the richness of iPad’s experience.
are intimidating, inadequate, delivering 90%+ of the features of traditional PCs with less complexity than traditional PCs. Uptake however may require in-store demos to truly experience the richness of iPad’s experience.
BE
Attractive Long-Term Opportunity. While iPad offers a near-term upgrade path for 30M+ iPod Touch users and may complement existing Macs, we believe over time iPad may address a segment of the home PC market (est. 35M+ units/year growing 25% CAGR).
BE
• Impact. We are preliminarily maintaining our Base Case estimate (5M units, $0.30 accretive to EPS with $600 ASP, 30% margin), based on our Tablet Scenario Analysis. Our Financial Estimates ($11.68 F10) do not yet reflect iPad, pending additional checks/proprietary data regarding demand elasticity and cannibalization, in view of visibility to features and pricing.
BE
• Reiterate OP. Apple’s valuation may be range-bound near-term, as we expect some debate amongst reviewers and analysts over the iPad’s upside impact. We would be accumulating on any related volatility, given our strongly positive view of Apple’s superior fundamentals, pending catalysts 2H/CY10, and compelling valuation.
NH
Five million units! That’s heroic.
NH
when is that by?
NH
I thought they were trying to shift 1m in year one
BE
Well, forecasts are all over the place on this.
BE
But I can’t really see the upgrade path from iPod Touch to iPod Fatty myself
BE
One’s principally a music player, the other’s a liability while walking through Brixton
BE
Anyway, Deutche Bank has recast its forecasts based on between 3m and 7m sales
BE
And Credit Suisse has, with admirable precision, pencilled in 3.93m units this year
NH
nice
BE
While Morgan Stanley’s even more confident against the vapourware predictions
BE
Here’s it’s note
BE
1) We view the unit opportunity at the lower than expected price as larger than we originally expected and raise our CY2010 unit forecast to 6 million from 4 million (CY11 units move to 9 million from 6 million). We now assume a $660 iPad ASP, down from $800 previously. We believe our forecast may prove conservative and note that the market for $500-700 consumer notebook PCs is 4x the size of the market for $700-900 consumer notebook PCs.
BE
2) The newly introduced Apple designed processor in the iPad could also be used across the company’s iPhone/Touch product line and serve to lower bill-of-material costs as volumes scal (in addition to performance + battery life benefits). Assuming a similar skew towards higher memory capacities as we’ve seen for the iPhone/Touch, we believe the iPad gross margin is higher than corporate average though likely lower than the current iPhone gross margin of ~60%. We currently assume an iPad gross margin of 45%.
BE
3) The price of the iPad 3G plan ($15 for 250MB/$30 for unlimited data) is competitively priced versus 3G data cards and does not require a contract. That said, the lack of carrier diversification away from AT&T’s network may constrain iPad 3G demand in the near-term.
BE
Changes to earnings forecast: Due to the iPad unit and ASP adjustments noted above, our CY2010 revenue and EPS increase to $61.6 billion and $13.20 (from $60.8B/$13.00) and CY2011 revenue and EPS move to $71.8B/$15.00 (from $70.8B/$14.75).
NH
hang on a moment
NH
so in 2010 they reckon Apple will shift up to 6m electronic frames
NH
and the year after up to 9m
NH
I can’t believe that
BE
I know. I know. I know. For a market that doesn’t even exist yet, these figures sem absurd.
NH
Bohemia – very good point. It will interesting to see the tear down on this
NH
to see if an Arm chip is in there
NH
or one from Imagination Technology
NH
I wonder if they might get a boost?
NH
any share price action?
BE
Not much, surprisingly.
ARM Holdings (ARM:LSE): Last: 200.00, up 6.4 (+3.31%), High: 205.00, Low: 199.10, Volume: 6.57m
Imagination Technologies Group (IMG:LSE): Last: 265.30, up 8.5 (+3.31%), High: 268.50, Low: 257.40, Volume: 230.30k
NH
hmmmm
NH
so both a bit higher
NH
any other iPad plays??
BE
I think there was some talk that Vodafone would get the exclusive on this.
BE
Although there was the same talk with the iPhone, which proved wrong.
BE
Anyway ….
Vodafone Group (VOD:LSE): Last: 135.05, up 0.25 (+0.19%), High: 136.00, Low: 134.70, Volume: 29.19m
BE
Anyway, returning to ARM and the new Apple A4 processor
BE
Here’s comment from RBC
BE
Although it is still not confirmed that the ARM processor is driving the iPad,
we are 99.9% certain that it must be. Impressively long standby and operating
times for the device coupled with the knowledge that existing Apple Apps will
all work on the iPad are pretty large clues. We view this as positive for
sentiment for ARM’s credentials in a new computing form factor, but see little
financial impact on an 18 month view.
we are 99.9% certain that it must be. Impressively long standby and operating
times for the device coupled with the knowledge that existing Apple Apps will
all work on the iPad are pretty large clues. We view this as positive for
sentiment for ARM’s credentials in a new computing form factor, but see little
financial impact on an 18 month view.
NH
(Taxloss – Red. Off)
BE
The iPad launch has focused investors on which semi chip is driving it. The
core chip is an Apple A4 built by PA Semi (acquired by Apple in April 08)
boasting very low power with 1 month standby and 10 hours of operating
time
• We believe PA Semi has a long relationship with ARM, although Apple’s
secrecy has ensured PA Semi does not appear on ARM’s lists of licensees
• A variety of blogs are reporting the A4 is based on an ARM Cortex A9
processor. However, ARM will still not confirm or deny whether the ARM
processor is in the device, but the 2 obvious clues are that the Apple App’s all
work on the iPad, and Flash is still not supported
• We are therefore 99.9% certain that the architecture is the same and this is an
ARM based processor, but until a tear down can be done it cannot be
confirmed
• There are blogs suggesting that the graphics processor is an ARM Mali, but
since Apple is a significant investor in Imagination Technologies which
Apple has used to date, we consider this unlikely.
• The impact for ARM is much more sentiment related than financial on a 1-2
year view in that royalties are already based on 4B units and several million
iPad units will not move the dial.
core chip is an Apple A4 built by PA Semi (acquired by Apple in April 08)
boasting very low power with 1 month standby and 10 hours of operating
time
• We believe PA Semi has a long relationship with ARM, although Apple’s
secrecy has ensured PA Semi does not appear on ARM’s lists of licensees
• A variety of blogs are reporting the A4 is based on an ARM Cortex A9
processor. However, ARM will still not confirm or deny whether the ARM
processor is in the device, but the 2 obvious clues are that the Apple App’s all
work on the iPad, and Flash is still not supported
• We are therefore 99.9% certain that the architecture is the same and this is an
ARM based processor, but until a tear down can be done it cannot be
confirmed
• There are blogs suggesting that the graphics processor is an ARM Mali, but
since Apple is a significant investor in Imagination Technologies which
Apple has used to date, we consider this unlikely.
• The impact for ARM is much more sentiment related than financial on a 1-2
year view in that royalties are already based on 4B units and several million
iPad units will not move the dial.
BE
Longer term ARM’s position in this new form factor of computing should
drive revenues more meaningfully and could be as much as 10% of PD
royalties in 3-4 years time.
drive revenues more meaningfully and could be as much as 10% of PD
royalties in 3-4 years time.
BE
Ok – I think that’s more than enough on Apple.
NH
indeed
NH
Bored of Apple
NH
Bored of Job
NH
(Taxloss that wasn’t a ban – juist rejected the post)
11:32AM
NH
Let’s move on
NH
quick update on Astra
NH
down 114p at £29.31 now
NH
and the problem seems to be
NH
generic competition to Toprol XL
NH
that hit sales
NH
here’s a quick bit of comment from Matrix
NH
AstraZeneca – we were looking for EPS Q$ US$1.52 AZN delivered US$1.42. Sales showed a decline in Q4 (because of generic competition to Toprol XL). Guidance for EPS full year is US$5.75 to 6.15 (we expected a range of US$6.,0 to 6.20…) there are likely to be downgrades given consensus is on US$6.00 like us but there are uncertainties surrounding further generic competition which is due to arrive this year. Company has guided to a mid single digit revenue decline and has stated that operating margins (pre R&D) are under pressure.
NH
On the positive side – the company is now in a net cash position from net debt of US$7.1bn at the end of 2008
We still have the Stock at 2806 TP with a SELL recommendation. My feeling is a lot of people will be hiding in this stock for yield and with the recent competitor upgrades we could see some adjustment down of estimates from the street down to closer to our levels.
NH
We are expecting sales of US$31.6bn – current guidance on revenues suggests FY 2010 revenues of US$30.9bn – this is below our numbers… consensus is expecting FY revenues in 2010 of 32.3b
NH
(Taxloss – it’s more the mental image I now have. horrible)
BE
So this is just a disaster all round?
NH
looks that way
NH
not good
NH
and has dragged the FTSE 100 back
NH
up just 12 points at 5,229
NH
11:35AM
NH
and no Nokia
NH
here’s a quick run down of the beat
NH
Estimates Actual
→Sales: €11.5B 12.0 B [+]
→EBIT: €1.07B 1.47B [+]
→NET: €459M 948M [+]
→EPS(Adj): €0.195 0.25 [+]
→EPS(GAAP): €0.161 0.26 [+]
→Sales: €11.5B 12.0 B [+]
→EBIT: €1.07B 1.47B [+]
→NET: €459M 948M [+]
→EPS(Adj): €0.195 0.25 [+]
→EPS(GAAP): €0.161 0.26 [+]
→ASP: €62.4 €63 [+]
→Handset GM: 33.5% 34.3 [+]
NH
Handset Sales:
→Total Industry: 358.3M units 329M
→NOKIA: 124.0M (34.6%) 126.9M [+]
- Reiterates mobile device volume market share to be flat 2010 v 2009
- NOKIA MARKET SHARE WAS 38% IN 3Q 2009, 37% IN 4Q 2008
→Total Industry: 358.3M units 329M
→NOKIA: 124.0M (34.6%) 126.9M [+]
- Reiterates mobile device volume market share to be flat 2010 v 2009
- NOKIA MARKET SHARE WAS 38% IN 3Q 2009, 37% IN 4Q 2008
BE
Nokia’s up 10.2% on that. 9.94
NH
wow
NH
big move
NH
from a big stock
BE
Huge.
11:36AM
NH
Where now
NH
some of the ROTR were asking about BSkyB
NH
and today’s results
NH
which appeared to be decent
BE
As usual.
NH
yes
NH
big beat in HD adds
NH
net adds of 482k
NH
which is way, way ahead of the market
NH
they were looking for 350k
NH
admitedly that has hit margins
NH
because I guess of the subsidy
BE
Churn’s down though.
NH
and going forward
NH
all of its boxes will be HD ready
NH
any comment on this?
BE
Will start with Merrill
BE
Churn and ARPU beat expectations
Q2 net adds of 172k were in line with the consensus range (150-186k). Churn of
just 9.6% (cons 10.2-10.6%) was the lowest level since Q2 2005. ARPU of £492
(+11%) was also well ahead of expectations (cons £472-484), driven by voice and
broadband, HD, ESPN and the September price rise.
Q2 net adds of 172k were in line with the consensus range (150-186k). Churn of
just 9.6% (cons 10.2-10.6%) was the lowest level since Q2 2005. ARPU of £492
(+11%) was also well ahead of expectations (cons £472-484), driven by voice and
broadband, HD, ESPN and the September price rise.
BE
HD box as standard
Sky has announced it will no longer offer Sky+ or digiboxes to new and upgrading
customers with immediate effect. The HD box will become the standard and will
be free to all new and upgrading customers if they take Sky’s £10/month HD
package. This initiative will be fully funded by supply chain efficiencies and futureproofs
the base for the roll out of 3D in the Spring and VOD later this year, and
provides an easy upgrade path to the HD package. This will also allow Sky to
avoid double migration costs (customers taking Sky + and then upgrading to HD).
Sky has announced it will no longer offer Sky+ or digiboxes to new and upgrading
customers with immediate effect. The HD box will become the standard and will
be free to all new and upgrading customers if they take Sky’s £10/month HD
package. This initiative will be fully funded by supply chain efficiencies and futureproofs
the base for the roll out of 3D in the Spring and VOD later this year, and
provides an easy upgrade path to the HD package. This will also allow Sky to
avoid double migration costs (customers taking Sky + and then upgrading to HD).
BE
Medium term forecasts and PO upgraded by 5-6%
We have upgraded our FY HD additions from 1m to 1.25m, and while additional
upgrade costs are partially offset by efficiencies, FY EBIT and EPS fall by c.2% to
£855mn and 30.2p respectively. However, medium-term forecasts are upgraded
by 5-6% to reflect increased high margin HD revenues and the removal of double
migration costs. As a result, our PO increases from 750p to 790p. BUY.
We have upgraded our FY HD additions from 1m to 1.25m, and while additional
upgrade costs are partially offset by efficiencies, FY EBIT and EPS fall by c.2% to
£855mn and 30.2p respectively. However, medium-term forecasts are upgraded
by 5-6% to reflect increased high margin HD revenues and the removal of double
migration costs. As a result, our PO increases from 750p to 790p. BUY.
BE
And here’s UBS
BE
Profitability maintained
The strong HD take up helped boost ARPU to £492 (cons £482m), while churn
was lower at 9.6% (cons 10.2%). Pay-TV net adds +172k (cons +163k). Despite
the strong uptake of new services, EBITA was delivered broadly in-line at £401m
(cons £408m).
The strong HD take up helped boost ARPU to £492 (cons £482m), while churn
was lower at 9.6% (cons 10.2%). Pay-TV net adds +172k (cons +163k). Despite
the strong uptake of new services, EBITA was delivered broadly in-line at £401m
(cons £408m).
BE
HD cost absorbed in efficiencies
The stronger uptake of new services means FY EBITA may be shaved slightly
(cons EBITA currently £880-890m). Sky is now giving away HD boxes to all new
subscribers, though management states that profitability will not be impacted, as
extra costs will be absorbed with supply chain efficiencies. The dividend has been
increased 5% (we were hoping for +10%), which is in line with consensus.
The stronger uptake of new services means FY EBITA may be shaved slightly
(cons EBITA currently £880-890m). Sky is now giving away HD boxes to all new
subscribers, though management states that profitability will not be impacted, as
extra costs will be absorbed with supply chain efficiencies. The dividend has been
increased 5% (we were hoping for +10%), which is in line with consensus.
BE
PT based on DCF
Overall the results may be tempered by some concerns about increased investment,
with Sky giving away free HD boxes. BSY trades on c15x 2010E annualised EPS
and offers 20% pa forecast EPS growth.
Overall the results may be tempered by some concerns about increased investment,
with Sky giving away free HD boxes. BSY trades on c15x 2010E annualised EPS
and offers 20% pa forecast EPS growth.
NH
ta for that
NH
I have something from Citi
NH
who are very enthusiastic
NH
Our View: We are Buyers
1. Operationally HD very strong – upgrade potential? 2Q HD performance leaves
Sky on a run rate maybe of 2.7m year-end HD subs vs. CIRA 2.4m and consensus
c. 2.2m. If all else were unchanged, this would add around £30m to 2011E PBT,
on a base of £1bn for us, so around a 3% upgrade for CIRA and a 10% upgrade
for consensus. We model 40p of EPS in 2011E. Now this is holding everything else
at current assumptions, and perhaps HD volumes next year will be high again.
1. Operationally HD very strong – upgrade potential? 2Q HD performance leaves
Sky on a run rate maybe of 2.7m year-end HD subs vs. CIRA 2.4m and consensus
c. 2.2m. If all else were unchanged, this would add around £30m to 2011E PBT,
on a base of £1bn for us, so around a 3% upgrade for CIRA and a 10% upgrade
for consensus. We model 40p of EPS in 2011E. Now this is holding everything else
at current assumptions, and perhaps HD volumes next year will be high again.
NH
2. Financially underlying progress and benefits of scale. Supply chain efficiencies
mean HD box costs now in line pretty much with standard. Note that the group
delivered £401m EBIT against our £412m, so underlying beat us by around 2-3%
(volumes much higher). Bears will take the view that numbers are held back again
by volumes (mostly HD and also FULL progress) but we argue that the low churn
(9.6% 2Qand c. 10% 1H), HD volumes and progress in FULL should be the focus
and drive upgrades.
mean HD box costs now in line pretty much with standard. Note that the group
delivered £401m EBIT against our £412m, so underlying beat us by around 2-3%
(volumes much higher). Bears will take the view that numbers are held back again
by volumes (mostly HD and also FULL progress) but we argue that the low churn
(9.6% 2Qand c. 10% 1H), HD volumes and progress in FULL should be the focus
and drive upgrades.
NH
3. Strategy looks smart. Sky’s product developments come at low incremental cost
and should drive both volumes and yield, confirming our view that EPS
momentum will be strong.
and should drive both volumes and yield, confirming our view that EPS
momentum will be strong.
NH
it does seem amazing
NH
throughout this recession
NH
people have been happy to pay their £80 a month
NH
for Sky Multi Room HD with sports and movies
NH
they can’t give it up
BE
They don’t make it easy to leave though. It’s like changing your bank.
BE
Suspect people just stick with them out of inertia.
NH
oh gawd
NH
and there is always a reason to stay
NH
the Ashes this winter for example
NH
although I bet I watch around 30mins of the series live
NH
(Murray wins)
NH
(in the final)
BE
And I guess you’re never more than three channels away from a Top Gear rerun.
NH
indeed
NH
thank god for Dave
BE
(Fatdaz: it was top of the pile last I checked, so yes, it does seem that when Cadbury goes, Arm will turn bluechip at long last.)
11:43AM
NH
Right
NH
the Toxic Pub Company is up this morning
Punch Taverns (PUB:LSE): Last: 85.70, up 3.15 (+3.82%), High: 88.80, Low: 83.35, Volume: 1.51m
NH
now, they did sell some more pubs above book value on Wednesday
NH
which is remarkable
NH
but today’s move
NH
is down to Merrill Lynch
NH
for some reason they love the Toxic Pub Co
NH
they reckon it is worth over 200p
NH
and are out banging the drum again this morning
BE
Let’s have a look then.
NH
one moment
NH
yep 200p
NH
target price on Punch
NH
We remain positive on the pub sector
Having risen by 90% in the first eight months of 2009, the pub stocks gave most
of their performance back between September and December. This resulted in
only 7% of outperformance versus the market in the 2009. Valuations again look
attractive and the outlook for the industry is more favourable. We maintain our
Buys on Punch, Enterprise, Marston’s and Greene King.
Having risen by 90% in the first eight months of 2009, the pub stocks gave most
of their performance back between September and December. This resulted in
only 7% of outperformance versus the market in the 2009. Valuations again look
attractive and the outlook for the industry is more favourable. We maintain our
Buys on Punch, Enterprise, Marston’s and Greene King.
BE
The outlook’s “more favourable”? Really?
BE
Why’s that then?
NH
Top picks are Punch & Enterprise
We remain buyers of Punch and Enterprise. The stocks trade on a 4-5x 2011e
P/E, 15-18% FCF yield and more than a 60% discount to NAV. We think the
catalyst for performance will be upside surprises in trading from the -11% ebitda
per pub levels of last year. Enterprise recently posted an improvement to -4% net
income per pub and we expect Punch to follow suit in early March.
We remain buyers of Punch and Enterprise. The stocks trade on a 4-5x 2011e
P/E, 15-18% FCF yield and more than a 60% discount to NAV. We think the
catalyst for performance will be upside surprises in trading from the -11% ebitda
per pub levels of last year. Enterprise recently posted an improvement to -4% net
income per pub and we expect Punch to follow suit in early March.
NH
Good news is not priced in
We do not think the market is pricing in the leveraged recovery as trading
improves with a brighter cost outlook. Also, there is likely to be a boost in trading
from the World Cup and recovery in property prices. There’s even an outside
chance of minimum pricing helping offset price competition from supermarkets.
We do not think the market is pricing in the leveraged recovery as trading
improves with a brighter cost outlook. Also, there is likely to be a boost in trading
from the World Cup and recovery in property prices. There’s even an outside
chance of minimum pricing helping offset price competition from supermarkets.
NH
Trading improves???
NH
has it??
NH
possibly at Mitchells
NH
and Whetherspoon
NH
but not at the Toxic end of the market
BE
Dunno. Haven’t been into a PUB pub for years. Perhaps they’re booming
BE
However, I’d imagine the best you can say is they’re not getting any worse.
NH
indeed
NH
right here is the buy case on Punch from the note
NH
Taking the risk-reward profile into account, we maintain our Buy rating on Punch.
We feel the company has headroom to covenants to trade through this recession.
Punch currently trades at a 70% discount to its NAV per share of 275p. This
suggests one of two things to us: either the market believes that Punch will not
survive, or its property portfolio is severely overvalued. Our analysis suggests
neither of these is the case.
We feel the company has headroom to covenants to trade through this recession.
Punch currently trades at a 70% discount to its NAV per share of 275p. This
suggests one of two things to us: either the market believes that Punch will not
survive, or its property portfolio is severely overvalued. Our analysis suggests
neither of these is the case.
BE
NAV of 275p!
BE
Brilliant!
NH
Price objective
Our fair value of 200p for Punch Taverns is derived using a discount to NAV per
share. The discount of c27% to 2010e NAV of 275p reflects what investors should
be paying given the return on capital compared to the company’s WACC. At our
price objective Punch would trade at 10-11x mid-cycle P/E which we consider to
be a fair multiple (discount to historic levels and the integrated operators to reflect
the perceived risk).
Our fair value of 200p for Punch Taverns is derived using a discount to NAV per
share. The discount of c27% to 2010e NAV of 275p reflects what investors should
be paying given the return on capital compared to the company’s WACC. At our
price objective Punch would trade at 10-11x mid-cycle P/E which we consider to
be a fair multiple (discount to historic levels and the integrated operators to reflect
the perceived risk).
NH
that has made me chuckle
NH
did we put a Punch price in?
BE
Don’t think so, but we can.
Punch Taverns (PUB:LSE): Last: 85.70, up 3.15 (+3.82%), High: 88.80, Low: 83.35, Volume: 1.52m
BE
Although that’s against a decent sector
Enterprise Inns (ETI:LSE): Last: 117.60, up 3.6 (+3.16%), High: 120.10, Low: 113.80, Volume: 2.67m
Greene King (GNK:LSE): Last: 457.20, up 14.6 (+3.30%), High: 466.30, Low: 446.50, Volume: 468.23k
NH
and staying in the pub
NH
one for the road if you like
NH
ahead of the M&B AGM
NH
the Elpida
NH
that’s the Irish racing tycoons
NH
Maginer and McManus
NH
have issued a statement
NH
I am representing Elpida, which owns nearly 18% of Mitchells & Butlers.
The company has excellent assets – in our view it has the premier pub estate in Britain – and we believe its future prospects should be very good.
However, we believe that the shareholders of this company have been let down by its leadership.
The company has excellent assets – in our view it has the premier pub estate in Britain – and we believe its future prospects should be very good.
However, we believe that the shareholders of this company have been let down by its leadership.
NH
and let us not forget
NH
that one of those leaders
NH
in the not too distand past
NH
was Roger Carr
NH
who has just flogged Cadbury to Kraft
NH
he was chairman at the time of the £500m hedging debacle
NH
I’m sure that everyone here is familiar with the losses caused by the Board’s decision to make what amounted to an uncovered bet on a series of financial derivatives. Once it went wrong, they didn’t close it out but left it open until it ran up over £500 million of losses of shareholders’ money. That’s over £1 for every single share.
This situation should never have been allowed to arise. We question whether adequate steps have been taken to establish whether the losses could be recouped from those involved.
This situation should never have been allowed to arise. We question whether adequate steps have been taken to establish whether the losses could be recouped from those involved.
NH
Most of the non-executive directors sitting on the podium today were on the Board throughout this episode and are still being paid by the company. We believe that the Board should be held to account. There should be no reward for failure.
We also believe that they are running a business where the cost base is too high. Revenue has increased every year for the last four years but operating profits have not. Notwithstanding the top line increase, operating profits and earnings per share – even ignoring all the exceptional losses – are both still below where they were in 2006. This is a business that has let costs get out of control.
We also believe that they are running a business where the cost base is too high. Revenue has increased every year for the last four years but operating profits have not. Notwithstanding the top line increase, operating profits and earnings per share – even ignoring all the exceptional losses – are both still below where they were in 2006. This is a business that has let costs get out of control.
NH
This Board has a poor track record with shareholders money. Following the swap debacle, they blew £12m on a strategic review that achieved nothing.
We think the corporate governance of this company has failed.
Elpida does not want to control this company. We just want to see it run better. All of us will benefit equally from that.
We think the corporate governance of this company has failed.
Elpida does not want to control this company. We just want to see it run better. All of us will benefit equally from that.
NH
This Board, however, doesn’t seem to like anyone who tries to hold them to account for their performance. In November, the Board took the frankly extraordinary step of sacking four directors, two of whom the Board themselves had previously concluded were wholly independent and – in their own words – “free from any business conflict that could affect their judgement”.
The press has widely reported that these two directors were representatives of Elpida. This is not true. In fact, one of them we had never even met or spoken to prior to his removal from the Board.
We have asked the Board to explain the legal basis on which the exclusions took place but they have not done so. In the absence of a detailed explanation, we do not accept the exclusions were legally valid. Certainly the justification the Board has given seem inadequate to us.
The press has widely reported that these two directors were representatives of Elpida. This is not true. In fact, one of them we had never even met or spoken to prior to his removal from the Board.
We have asked the Board to explain the legal basis on which the exclusions took place but they have not done so. In the absence of a detailed explanation, we do not accept the exclusions were legally valid. Certainly the justification the Board has given seem inadequate to us.
NH
The Board has also launched a very aggressive campaign alleging that we are working together with Joe Lewis to take control of the company. This is utter rubbish. The Board did not even bother to contact us in advance to check the facts or put their allegations to us. Instead they made what has now been shown to be a spurious complaint to the Takeover Panel and used it against us in the press.
The Board’s allegations have now been thrown out by the Takeover Panel after a very thorough investigation. Shareholders are entitled to know how much more of their money this Board has wasted by this futile exercise. We call on the Board today to tell us.
The Board’s allegations have now been thrown out by the Takeover Panel after a very thorough investigation. Shareholders are entitled to know how much more of their money this Board has wasted by this futile exercise. We call on the Board today to tell us.
NH
there’s loads more of that
BE
Blimey
BE
‘no confidence’ in Mr. Laffin
BE
‘unorthodox’ appointment
NH
a comprehensive smack down
NH
amazing though
NH
how Carr’s part in this
NH
has almost been airbrushed from history
BE
Hm.
NH
any comment on this
BE
Hang on – looking.
NH
don’t worry
NH
we should have a look at arriva
NH
where are they trading??
NH
following today’s merger news
NH
talks with a division of SNCF
NH
story was broker by La Tribune
11:54AM
NH
(lemmy not blaming – but pointing out that he seems to have escaped all blame)
NH
Right
NH
Arriva
NH
they are now 15.2p better at 483p
NH
and this all has echoes of the International Power deal that never was
BE
(Arg – my monitor’s just switched itself off and won’t turn on again. I should never have criticised the iPad …..)
NH
looks like
NH
they combine the assets and create a new company
NH
I have a bit of comment
NH
from OliveTree Securities
NH
who were the first people on the ball with this today
NH
Mark Kelly
NH
Arriva this morning confirmed it is in preliminary talks with SNCF about a merger with Keolis. Deutsche Bahn’s attempted IPO in 2008 really made SNCF think about its own international ambitions, and general belief has been that it has lagged its German peer on this front and needs to play catch-up, fast. Realistically the UK listed bus and rail stocks are the only materially sized businesses listed anywhere in the world, and with their own recent international expansions they provide SNCF with a tailor-made bolt on prospect.
NH
This isn’t a story about synergies, it’s about building SNCF’s international presence and Arriva brings that nicely. Arriva’s shareholder base is very open, free float is virtually 100% and the top 15 shareholders – all institutions – own close to 75% of the equity and its assets are very complimentary to that of Keolis, the vehicle used by SNCF.
NH
and here is a bit of background
NH
on Velois
NH
SNCF Ambitions
> Remembering that Deutsche Bahn nearly floated in late 2008 (an operation
> ultimately pulled thanks to broader market backdrop), SNCF are acutely
> aware that they have lagged their big German competitor when considering
> international expansion. Realistically, the listed UK bus and rail stocks
> are the only assets available to purchase/merge with that would bring SNCF
> the required international passenger exposure to start to play catch up
> with DB. Bearing in mind that all of these companies have themselves been
> expanding into ex-UK international markets in recent years, they are
> tailor-made bolt-ons to SNCF that would quickly help the French company
> achieve international ambitions. SNCF would dearly like to expand freight
> operations too, but none of these businesses are publically listed.
> Although this is allegedly a merger, it is worth noting that given the
> sheer size of SNCF (annual revenues of cEUR25bn, EBITDA of EUR2.5bn) it
> could easily afford to back any transaction with a company of the size of
> Arriva.
> Remembering that Deutsche Bahn nearly floated in late 2008 (an operation
> ultimately pulled thanks to broader market backdrop), SNCF are acutely
> aware that they have lagged their big German competitor when considering
> international expansion. Realistically, the listed UK bus and rail stocks
> are the only assets available to purchase/merge with that would bring SNCF
> the required international passenger exposure to start to play catch up
> with DB. Bearing in mind that all of these companies have themselves been
> expanding into ex-UK international markets in recent years, they are
> tailor-made bolt-ons to SNCF that would quickly help the French company
> achieve international ambitions. SNCF would dearly like to expand freight
> operations too, but none of these businesses are publically listed.
> Although this is allegedly a merger, it is worth noting that given the
> sheer size of SNCF (annual revenues of cEUR25bn, EBITDA of EUR2.5bn) it
> could easily afford to back any transaction with a company of the size of
> Arriva.
NH
Keolis
> Keolis is 45.5% owned by SNCF, with the remainder owned by AXA Private
> Equity and Caisse de depot et placement du Quebec. It operates in seven
> European companies, has the largest bus & coach fleet in France and
> operates trams and railways across the continent. It is currently is a
> minority partner (with Go-Ahead Group, GOG LN) in Govia, the UK rail
> operating group which operates the Southern, Southeastern and London
> Midland franchises. It operates two intercity bus companies in Canada,
> and runs Melbourne’s tram system. The company is still heavily exposed
> to France, c42% of revenue comes from urban French operations, and a
> further 20% from Intercity businesses. 38% of Keolis turnover comes from
> international operations, with 25% UK based. The company had 2008
> revenues of cEUR3bn, compared to Arriva’s EUR3.5bn.
> Keolis is 45.5% owned by SNCF, with the remainder owned by AXA Private
> Equity and Caisse de depot et placement du Quebec. It operates in seven
> European companies, has the largest bus & coach fleet in France and
> operates trams and railways across the continent. It is currently is a
> minority partner (with Go-Ahead Group, GOG LN) in Govia, the UK rail
> operating group which operates the Southern, Southeastern and London
> Midland franchises. It operates two intercity bus companies in Canada,
> and runs Melbourne’s tram system. The company is still heavily exposed
> to France, c42% of revenue comes from urban French operations, and a
> further 20% from Intercity businesses. 38% of Keolis turnover comes from
> international operations, with 25% UK based. The company had 2008
> revenues of cEUR3bn, compared to Arriva’s EUR3.5bn.
Is this the worst train operator in Britain? It’s got competition, sure, but the pitiful way it responded to recent weather makes it a scandal in our book.
NH
Valuations
> At 470p, Arriva currently trades on 5.2x 2010 EV/EBITDA and 9.8x 2010 P/E,
> towards the cheaper end of comps. It is one of the most highly levered
> stocks in the sector at 2.5x 2010 ND/EBITDA. However this is only
> in-line with NEX’s new structure post its capital raise, so not a
> problematic level.
> At 470p, Arriva currently trades on 5.2x 2010 EV/EBITDA and 9.8x 2010 P/E,
> towards the cheaper end of comps. It is one of the most highly levered
> stocks in the sector at 2.5x 2010 ND/EBITDA. However this is only
> in-line with NEX’s new structure post its capital raise, so not a
> problematic level.
BE
Ha! What triggered that autotext?
NH
I presume
NH
Murph must have used arriva
NH
when he used to live in London
NH
I am a First Crapital Connect man
NH
myself
NH
so it wasn’t me
NH
you got any comment Bryce
BE
None that I can see. I’m down to one monitor here.
NH
hang
NH
on
NH
breaking news for ITV
NH
Adam Crozier to become CEO
NH
Is he still at the royal mail?
NH
he was at the FA before
NH
and now ITV
NH
a good hire?
NH
any thoughts
BE
Don’t know much about him.
NH
RTRS-SKY NEWS SAYS ADAM CROZIER TO BECOME ITV CHIEF EXECUTIVE
ITV (ITV:LSE): Last: 57.00, up 0.45 (+0.80%), High: 57.55, Low: 56.75, Volume: 3.08m
12:01PM
NH
Bryce back to arriva for a moment
NH
got any comment
NH
or thoughts
BE
Ok
BE
I’m, I repeat, flying nearly blind here …
NH
yes
NH
down to one screen
NH
has the other one blown up?
BE
No idea. My pricing screen’s failed as well.
NH
OK
NH
so nothing on Arriva then
BE
What I need is some kind of touchscreen pad I could carry around for crises such as this.
BE
If only such a thing existed ………….
NH
that would be the iPhotoFrame
NH
and it does
NH
coming to a store near you soon
NH
only £500
NH
for a photo frame
NH
almost as bad as going to Venture
NH
I did that once
NH
and was relieved of a considerable amount of money
12:03PM
NH
Right
NH
it’s past midday
NH
and we need to start to wind things up
NH
a wee bit of strength in the Lloyds share price
NH
and that’s because a re-weighting is on the way
NH
all to do with these CoCo bonds
NH
Lloyds
Worth flagging the anticipated, but most likely overlooked, debt-to-equity conversion which will take place in three weeks time. The key details are as follows: 1) There is GBP1.5bn of debt converting into ordinary equity. 2) We expect this to result in the issuance of c.2.9bn additional shares. The actual conversion price will be the greater of the VWAP between 5-11th Feb or 90% of the closing price on 11th Feb. We currently estimate a price of 52.6p per share. 3) This roughly equates to 4% of the current outstanding share count and will cause some re-weighting for index funds.
Worth flagging the anticipated, but most likely overlooked, debt-to-equity conversion which will take place in three weeks time. The key details are as follows: 1) There is GBP1.5bn of debt converting into ordinary equity. 2) We expect this to result in the issuance of c.2.9bn additional shares. The actual conversion price will be the greater of the VWAP between 5-11th Feb or 90% of the closing price on 11th Feb. We currently estimate a price of 52.6p per share. 3) This roughly equates to 4% of the current outstanding share count and will cause some re-weighting for index funds.
NH
nternal estimates for demand equate to 2-3 days of volume. In terms of timeline, we expect an announcement from LLOY on Feb 12th detailing the conversion price and the number of ordinary shares to be issued. We expect the re-weightng to the new shares to be complete by COB on Feb. 17th. The new shares should begin trading on 18th Feb. The GBP1.5bn conversion is built into our fully diluted share count of 66bn. We continue to believe that Lloyds is a high convinction BUY, driven by margin expansion, shrinking impairments, and cost sysnergies from the HBOS deal, and view current weakness as an opportunity to continue building a position.
Lloyds Banking Group (LLOY:LSE): Last: 51.76, up 0.92 (+1.81%), High: 52.80, Low: 51.37, Volume: 75.72m
NH
that was from another sector watcher
NH
but Deutsche Bank have been making similar observations this morning
NH
Last step of the capital reorganisation
In February, LBG intends to conduct the last stage of its November 2009
plan to raise equity and contingent debt to avoid using the Asset Protection
Scheme. The first two steps, a £13.5bn rights issue (the 2nd largest European
capital raise since 1990) and hybrid debt exchange for contingent
capital instruments have proceeded well, in our view.
In February, LBG intends to conduct the last stage of its November 2009
plan to raise equity and contingent debt to avoid using the Asset Protection
Scheme. The first two steps, a £13.5bn rights issue (the 2nd largest European
capital raise since 1990) and hybrid debt exchange for contingent
capital instruments have proceeded well, in our view.
NH
What is next
Next comes the exchange of £1.5bn in hybrid debt for new equity. Holders
of these bonds tendered their paper in 4Q09 but only learn the LBG exchange
price in February, receiving stock at the volume weighted average
price (VWAP) of 5-11 Feb. At the current 50.84p price, we calculate the bank
would issue 2950m shares. If the LBG share price falls, more shares will be
issued, up to a maximum of 3.4bn shares, at a price of 44.4p. If the VWAP
is lower, LBG will likely settle the hybrids with shares, contingent notes and
cash.
Next comes the exchange of £1.5bn in hybrid debt for new equity. Holders
of these bonds tendered their paper in 4Q09 but only learn the LBG exchange
price in February, receiving stock at the volume weighted average
price (VWAP) of 5-11 Feb. At the current 50.84p price, we calculate the bank
would issue 2950m shares. If the LBG share price falls, more shares will be
issued, up to a maximum of 3.4bn shares, at a price of 44.4p. If the VWAP
is lower, LBG will likely settle the hybrids with shares, contingent notes and
cash.
NH
Fundamentals improving, short term technicals hard to call
We have factored the issue of 3.3bn shares into our forecasts, and have a
Buy and 70p TP (7.5x DBe 2012 EPS of 9.3p). We believe current conditions
in asset markets (especially residential and commercial property) and low
risk free rates (which could stay low given slow GDP growth) favour LBG’s
restructuring, allowing it to term out wholesale funding at least cost. We
expect margins in 4Q09 to have improved again, and see potential for reduced
loan loss forecasts if current conditions are maintained. Near term
however it is difficult to call how much, if any, flowback there might be from
hybrid debtholders who wll receive 3bn-3.3bn in shares on 18 Feb, ~15 days
of trading volume.
We have factored the issue of 3.3bn shares into our forecasts, and have a
Buy and 70p TP (7.5x DBe 2012 EPS of 9.3p). We believe current conditions
in asset markets (especially residential and commercial property) and low
risk free rates (which could stay low given slow GDP growth) favour LBG’s
restructuring, allowing it to term out wholesale funding at least cost. We
expect margins in 4Q09 to have improved again, and see potential for reduced
loan loss forecasts if current conditions are maintained. Near term
however it is difficult to call how much, if any, flowback there might be from
hybrid debtholders who wll receive 3bn-3.3bn in shares on 18 Feb, ~15 days
of trading volume.
NH
actually most of the banks rallying today
Barclays PLC (BARC:LSE): Last: 276.20, up 9.35 (+3.50%), High: 279.30, Low: 273.05, Volume: 22.98m
Royal Bank of Scotland Group (RBS:LSE): Last: 33.70, up 0.71 (+2.15%), High: 34.26, Low: 33.49, Volume: 34.99m
12:06PM
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Okay
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I think Bryce has given up
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both screens down now
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pulling out a variety of wires
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and pushing buttons maincally
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so I will conclude today’s session
12:06PM
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some more on ARM
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they are deffo in the iPhotoFrame
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says Noumra
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Given the software compatibility with the Iphone and PA Semi’s (acquired by Apple in H1 2008) heritage in ARM design. we believe Apple’s Tablet marks the first instance of a mainstream large-screen computing device product which does not include an x86 (Intel or AMD) CPU but relies on a 1Ghz ARM based chip for processing (likely manufactured at Samsung). Our colleagues in Asia have written an interesting note on the dynamics, which provide a positive read through fro ARM.
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(bryce is now swearing)
12:08PM
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I also wanted to mention the figures from JJB Sports
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which are staggeringly bad
JJB Sports (JJB:LSE): Last: 21.50, no change, High: 21.75, Low: 20.25, Volume: 8.76m
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looks like H2 like for likes
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might have been down 27%
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margins collapsed too
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and to top it off
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Sir Dave Jones the chairman is leaving
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because he is ill
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this company is cursed
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although there is one bit of good news
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a new non exec
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Matthew Pinsent
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anyway
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Mike Ashley at Sports Direct
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will no doubt be rubbing his hands
Sports Direct International (SPD:LSE): Last: 99.10, up 0.2 (+0.20%), High: 100.00, Low: 97.10, Volume: 128.38k
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here’s some comment from Oriel
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JJB’s pre close statement is certainly eye catching: LFL remains in deep negative
territory but the gross margin has collapsed further and the Chairman has resigned.
• The implication is that H2 LFL has been around -28%, although the company states the
exit rate is better than this (-21%).
• However the gross margin has absolutely collapsed in the last 6 weeks: on our numbers
the current run rate is 800 bps down on the gross.
• David Jones has left the board, David Adams and Matthew Pinsent have arrived as nonexecs.
• We find it hard to imagine that Sports Direct is failing to take full advantage of the
problems here and would urge the risk hungry to get involved with the latter company’s
shares, fro, a valuation (5x PE) that discounts plenty of bad news.
territory but the gross margin has collapsed further and the Chairman has resigned.
• The implication is that H2 LFL has been around -28%, although the company states the
exit rate is better than this (-21%).
• However the gross margin has absolutely collapsed in the last 6 weeks: on our numbers
the current run rate is 800 bps down on the gross.
• David Jones has left the board, David Adams and Matthew Pinsent have arrived as nonexecs.
• We find it hard to imagine that Sports Direct is failing to take full advantage of the
problems here and would urge the risk hungry to get involved with the latter company’s
shares, fro, a valuation (5x PE) that discounts plenty of bad news.
12:09PM
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Okay
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FTSE update
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up 15 points at 5,233
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so the usual Alpha magic has failed
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although it was up just 1 point before the Ford numbers
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so well done everyone
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and just back to ITV
ITV (ITV:LSE): Last: 56.95, up 0.4 (+0.71%), High: 57.55, Low: 56.75, Volume: 3.18m
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this is all an Allan Leighton gene pool thing
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he was at the post office with Crozier
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and Leighton was at Asda with Archie Norman
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the new ITV chairman
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all very cosy
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Not sure I have anything else to add
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Bryce and I have a lunch
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at a posh private members club
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the Walbrook
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with another markets people from Fleet Street
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so we must dash
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see you all tomorrow
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and thanks for logging on
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cya
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hang on
12:12PM
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one last thing
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I got some grief last night
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for my post on the new boss of Morrison
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I was told as a hack I should know every retail executive in the world
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well sorry about that
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but I am happy to say
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that analysts are impressed
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here’s Nomura again
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With all due respect to those that don’t know him, the important thing is that Dalton Phillips has a strong pedigree in retailing; not just food retailing (although 7 years at Wal-Mart clearly helps), but non food retailing (CEO Brown Thomas department stores), sourcing, turnaround situations, and operational efficiency programmes (Loblaw food distributor and provider of general merchandise for 3 years, £18bn of revenues).
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Worth also noting that Mr Bolland was accredited with having very few of these direct retail skills when he was first appointed to the role and was greeted with a similar response from the market. The noises coming from across the pond (clearly important) are one of surprise and disappointment in that he was widely seen as succeeding the current Loblaw CEO. One particular note commented that the departure of “Mr Philips leaves a serious void”.
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Dalton Philips has a MBA from Harvard, experience from the back to the front end of the retailing supply chain and on this basis we believe that he is very well equipped to take Morrison forward to the next level as indeed it has to. Over the next 100 days, Mr Philips will assess the business and no doubt come back with his strategic thoughts. We would highlight the internet as potentially one of his key focuses, while also improving the integration and systems only recently implemented by Mr Bolland and team. The current CFO Richard Pennycook is a class operator as a Chief Financial officer.
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Right
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that really is it
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FTSE up 23 points now
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we are losing our magin
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see you all tomorrow
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bye