FT Alphaville » Markets Live transcript 3 Feb 2010

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Markets Live transcript 3 Feb 2010

Posted by Neil Hume on Feb 03 11:03.

Markets Live chat transcript for the chat ending at 12:14 on 3 Feb 2010. Participants in this chat were: Neil Hume, FT Bryce Elder

one

two

three

four

five

… er, Mr Fume?

what are you going on about?

We’ve started

the readers will think you have lost it

Sorry

just counting the positive notes Autonomy’s Flak has sent through this morning

post the figs

up to five now

we might make double digits by the end of the day

This a real PR offensive

and the offensive PR seems to be working

Down 2% at the open.

Usual concerns … Cashflow, deferred revenues, blah blah blah.

and now they are 2%

So it must be working

but in the interests of balance

Objectivity

it would be remiss of us not to mention those who are slightly less enthusiastic

but we can come back to that a little later on

although

I am hearing the conference call is not going too well

apparently Mike Lynch, the CEO, has said they did not sign a big contract at the end of the fourth quarter because of snow

and

and this

conference call – looks like they are still issues with how they are converting cash – a lot of questions from the bears were shout goodwill associated with the Interwoven deal – also poor reasoning behind why no big deals in Q4. Note the bulls and house broker see no upgrades to FY10 numbers – very expensive stock 17.9x 2011 with question marks over growth and accounts.

Yeah – snow can be a real problem for software companies.

yes

it kills deals

11:07AM

So, wider market then?

before we do, the EU verdict on Greece came out around 15 mins ago

and here are the snaps

RTRS-EU COMMISSION SAYS ENDORSES GREEK FISCAL CONSOLIDATION PROGRAM
10:43 03Feb10 RTRS-EU COMMISSION GIVES GREECE UNTIL END-2012 TO CUT BUDGET GAP BELOW 3 PCT/GDP, IN LINE WITH GOVT PLAN
10:43 03Feb10 RTRS-EU COMMISSION SAYS TAKES GREECE TO COURT OVER FAULTY STATISTICS
10:44 03Feb10 RTRS-EU COMMISSION: GREECE REQUIRED TO SUBMIT FIRST REPORT IN MID MARCH 2010
10:44 03Feb10 RTRS-EU COMMISSION: GREECE MUST BE READY FOR EXTRA FISCAL STEPS
10:45 03Feb10 RTRS-EU COMMISSION TELLS GREECE TO CUT OVERALL PUBLIC SECTOR WAGE BILL
10:46 03Feb10 RTRS-EU COMMISSION TELLS GREECE TO SET UP CONTINGENCY RESERVE OF 10 PCT OF CURRENT EXPENDITURE

and the market reaction to that

RTRS-GREEK/GERMAN 10-YEAR GOVT BOND YIELD SPREAD NARROWS TO SESSION LOW AT 332 BPS AFTER EU APPROVES GREECE’S FISCAL PLAN
10:47 03Feb10 RTRS-IRISH/GERMAN 10-YEAR GOVT BOND YIELD SPREAD NARROWS TO 147 BPS – TIGHTEST SINCE JAN. 28
10:49 03Feb10 RTRS-EURO LITTLE CHANGED VS DOLLAR AT $1.4002 AFTER EU ENDORSES GREEK FISCAL PROGRAMME
10:50 03Feb10 RTRS-PORTUGUESE/GERMAN 10-YEAR GOVT BOND YIELD SPREAD LAGS, STAYS WIDER ON DAY AROUND 135 BPS

(decoyed: yesterday’s story.)

and

some of the ROTR

noting the latest FSA fine

on a fund manager at BlueBay

this is quite funny

cut and pasting stuff

oh dear

yeah. You wouldn’t find us cutting and pasting stuff.

Anyway, here’s the details.

never

never ever

Simon Treacher was an FSA approved person employed by BlueBay Asset Management plc (BlueBay) as a senior fund manager in the firm’s Emerging Markets team. During the period August to October 2008 he carefully cut out and pasted different figures onto seven original broker quotes used in the valuation process of assets in the funds he managed. The deliberately altered quotes led to an uplift in the independent valuation of the funds of approximately $27 million over three months. This resulted in investors being financially disadvantaged by approximately $650,000 for which BlueBay has fully compensated them. Treacher then provided misleading information to the FSA about his conduct during its investigation.

oh dear

the usual ring of amateurism

and what has the FSA’s Elliot Ness had to say about this?

Margaret Cole, FSA director of enforcement and financial crime, said:

“Our actions in banning Simon Treacher and imposing a significant fine will send a powerful message of deterrence to others who might be tempted to behave in this way. His conduct, both in mis-marking the funds and his dealings with us as the regulator, lacked integrity. Treacher’s actions undermined BlueBay’s independent valuation process and disadvantaged investors in the affected funds. By making effective use of our powers to prohibit and fine individuals who are not fit and proper to carry out regulated activities, we help achieve our regulatory objectives of maintaining market confidence and protecting consumers.”

Oh, and they gave him a 30% discount for plea bargaining.

yes

Were it not for this discount, the FSA would have sought to impose on him a financial penalty of £200,000.

that’s standard now

do that in most cases

for those interested in the full details of this case

The Final Notice can be found here

http://www.fsa.gov.uk/pubs/final/simon_treacher.pdf

usually worth reading through

the one on Falcon Securities earlier this week

was a real treat

a excellent overview of the world of bucket shops

11:13AM

Right

could we just go back to Greece for a moment

Ok – why?

remember yesterday

there was a rumour that eur40bn of hidden debts

had been discovered

well it is all rubbish apparently

】GREECE: FX MARKET CHATTER RE. €40B HOLE IN THEIR #s
- There is UNCONFIRMED chatter going around the fx market of an additional €40b
hole in Greece’s numbers.
- http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_02/02/2010_321438
- Emoticon

In Greek…Google translation below

NB: The EU Commission expects to give opinion on Greece budget plan tomorrow.
They proposes plan to increase Eurostat powers over Greece. Almunia prefers
Eurostat to have the authority to audit Greek Data.

Credit default swaps narrowed slightly in earlier action, as Greek tensions
seemed to subside a bit. There had been some hope that the EU will be more
supportive of the budget plans when it issues its review tomorrow.

The CDS on sovereign Greek debt dipped 4 bps to 376 bps, and compares to a
record wide of 422 bps from late January. But, comments from Greek officials,
including Fin Min Papaconstantinou and PM Papandreou, which appeared to try
to limit responsibility and shift the blame have unnerved the markets again.
Spreads have widened back out.

11:14AM

Right

let’s get to the wider market then

And ………. we’re up again.

Day four of the rally.

10 points higher at 5293.

hmmm

interesting turnaround in sentiment over the last few days

end of last week the market felt awful

even the strong GDP numbers couldn’t put a spring in its step

and then

a decent durable goods number

no more horrors out of Greece

and no more Chinese tightening

and off we go again

indeed

until we get a nasty shock from one of the above

and it all comes back down

yep

11:16AM

right

what’s moving out there

Banks.

Up.

Barclays PLC (BARC:LSE): Last: 298.25, up 8.6 (+2.97%), High: 299.35, Low: 269.06, Volume: 25.92m

Lloyds Banking Group (LLOY:LSE): Last: 55.79, up 1.54 (+2.84%), High: 56.18, Low: 54.49, Volume: 88.05m

Royal Bank of Scotland Group (RBS:LSE): Last: 36.46, up 0.31 (+0.86%), High: 36.90, Low: 36.10, Volume: 28.73m

HSBC Hldgs (HSBA:LSE): Last: 689.50, up 6 (+0.88%), High: 694.60, Low: 683.30, Volume: 9.66m

presumably this is on the back of the Merrill note?

Yup.

By Michael Helsby

now, you might remember him from his days at Morgan Stanley

he was one of the few analysts who correctly forecast the big cash call at HSBC

although he got the yips just before its was launched

anyway, he’s at Merrill now

and has started coverage of the UK banks again

crikey, these guys do move around a bit don’t they?

Hm.

now, this note is pretty bullish

buys on HSBC, Stan Chart, Barc, Lloyds and RBS

he reckons the Basel III stuff will hit dividends

and won’t trigger another round of dilutive cash calls

and as confidence in book value recovers

(Mungers – the STRNS is malfuncting at the moment)

share prices will rerate

average upside of 40%

Crikey

that deserves a

in fact it deserves more than one

let’s have a look at this note then

here you go

Less than 12 months into a bull market
We reinstate coverage of the UK banks with three new Buys and reiterate our
Buys on HSBC and Standard Chartered. We think bad debts peaked in 2009 and
that the funding markets can continue to improve. This is not in consensus. While
BIS will add to volatility, in our view it is a dividend issue not a dilution issue. As
confidence about the book value and RoNAV grows in 2010 share prices should
re-rate materially – we have an average of over 40% upside to our 12-month POs,
but think the sector can more than double over the next few years.

Funding is the key to recovery
The biggest change over the past six months relates to the outlook for funding,
yet as funding costs continue to fall the market remains concerned. We are more
bullish, seeing the return of RMBS in 2010 and demand for c.€640bn of bank
issuance. A re-opening of the funding markets is key to the outlook for margins,
as it should considerably ease the pressure on banks to collect deposits and,
together with a modest pick-up in base rates, pave the way for a recovery in
deposit spreads. Combined with the normalisation of bad debts, RoNAVs should
start to recover, we think to c.15-20%.

BIS more about dividend growth than NAV dilution
Taken at face value, the sector’s capital ratios take a big step back under the BIS
proposals, but stay comfortably above 4%, which we see as the minimum. We think
the debate is more about when banks will be able to pay/grow dividends again, not
whether BIS will force them to raise capital. On our forecasts all the UK banks are
above 7% core Tier 1 by 2012, implying a step-up in payouts thereafter.

We reinstate coverage on Barclays, Lloyds, RBS at Buy
In our view, the market is currently using 2010E ROE as its basis for valuation. If
we are correct on margins and the likely pace of bad debt normalisation,
Barclays, Lloyds and RBS should re-rate strongly as we move through 2010 and
into 2011. Based on our analysis Lloyds is the biggest beneficiary of an improved
funding environment and is our top pick with c.51% upside; we are £3bn above
PBT consensus in 2010. We reiterate Buys on HSBC and Standard Chartered.
Both banks should rebalance towards higher valued earnings in 2010, and
provide stability and growth – our preferred pick of the pair is HSBC, where we
are c.30% above consensus in 2010.

The rest is in the Usual Place.

ta for that

bullish on banks

And, before we finish on Lloyds

Yesterday’s RMBS issuance went well, which is also supportive

here’s Deutsche with the detail

LBG completes significant securitisation
Lloyds Banking Group confirmed the issuance of c.£2bn in AAA-rated notes
from its Permanent Master Trust. Priced on 29 January, LBG raised three
to seven year funding at spreads of between 150bps and 130bps. Given the
scale of the issue, and the fact that this comes around 20-30bps tighter than
Nationwide’s 2H09 securitisation, we regard this as incrementally positive
for LBG and the UK domestic banking sector as a whole.

RMBS – Changing with the times
LBG’s issue is of course around 100bps wide of where the last Northern
Rock Granite securitisation priced pre-crisis, but much has changed since
then. Not least of which is that wider spreads on new mortgages more than
compensate for the higher spread on this issue: we estimate that the post
swap margin has risen from 0.58% to 0.95% on this issue. Also, these
bonds allow buyers to put the bond back to LBG at maturity, eliminating
extension and liquidity risk. Credit enhancement at 14.6% is substantially
higher than 8.3% beforehand.

Further rehabilitation of the RMBS market is crucial
In 1Q07 and 2Q07, UK banks issued a total of £70bn in net RMBS, a substantial
proportion of term funding raised by the banks at that time. We
expect Basel 3 recommendations around bank liquidity risk to drive efforts
to term out wholesale funding and refinance government- and central bankintermediated
borrowings. We expect a rehabilitated RMBS market to form
a crucial part of this process, and regard LBG’s transaction as a sign of early
success. We have a Buy recommendation and 70p target price on LBG,
derived as 7.5x our 2012 EPS estimate.

Ok – that’s enough banks.

inded it is

11:23AM

Okay

we have had a gilt auction this morning

the last, I think, before the BoE meeting

yes it was the last

and the last before the decision on QE

terminate

pause

or continue

you decide

and?

How’d it go?

it went OK

these were 2018 – 5% gilts

£3bn worth offered

and

here are the scores on the doors

RTRS-UK DEBT MANAGEMENT OFFICE SAYS GETS 1.99 COVER RATIO AT SALE OF 3.0 BLN STG 5.0 PCT 2018 GILT
10:36 03Feb10 RTRS-UK DMO SAYS GETS 0.3 BP YIELD TAIL AT SALE OF 2018 GILT

10:36 03Feb10 RTRS-UK DMO SAYS GETS 2 TICK PRICE TAIL AT SALE OF 2018 GILT

Yup – not bad.

pretty good really

although

it needs to be put in context

and here is something from Monument Securities which does just that

Today’s auction would normally be considered a run of the mill sale, particularly given the (relatively modest) concession that has been methodically worked into the current 5.0% 2018 yield level relative to its peers. But with the MPC’s QE decision looming tomorrow, it may be rather more tricky, and a substantial bid/cover ratio looks unlikely, and bidding may indeed be a little scrappy, though the fact that the BoE has drained so much of this stock in terms of what is in ‘free float’ may prompt a bit of an artificial scramble from any GEMMs that are short. For those that need to extend durations modestly, the attached switch out of 5.0% 2014 into 5.0% 2018 looks very attractive, though interestingly a more modest extension out of 4.0% 2016 is in the middle of its range, highlighting just how steep the 2s/10s curve has become, particularly in this 4-8 year area.

As for tomorrow’s QE decision: our fear is that the MPC may use a sleight of hand trick, i.e. they do actually pause, but still request a £25 bln increase in the QE ceiling, which could be used when and if needed. Otherwise,
if they do really pause without such a request, then I suspect that short-dated yields will only rise marginally, but for the curve beyond 5 years, yields will rise and the curve will steepen. This will probably be a saw tooth (zig zag) move, as there are some frustrated buyers out there, but over a period of 2-3 weeks (possibly much quicker), we would think that a minimum rise of 30 bps in 10 years and longer, with the risk of 45-50 bps is likely to materialize.

was that by Marc Otswald?

yes

he’s very good on this stuff

and the sleight of hand trick

is a very interesting theory

one I suspect

they may well use

to keep the gilt market nice and calm

will be interesting to see

how the MPC phrases things

11:27AM

Lots of chat about the big-cap miners on the right.

Which have rallied quite strongly over the past couple of days.

they have

Now, there’s a bit more sellside stuff around on them today.

Including a huge note from Redburn

go on

This is from Simon Toyne, who I think used to be at Numis

And here’s his little post-it note on the cover page.

The mining sector lends itself to long-term analysis. This report, six months
in the making, argues that sector equities are ‘myopic’, attributing little value to
company pipelines and the power of Chinese urbanisation. The combination of
these factors will produce upside to current share prices of 50-100%. Anglo
American is our top pick.

wow

100%

Everything’s a buy, basically.

and all because of China

as our man at Indaba said today

China is the word

the only thing anyone wants to talk about

but oddly

they aren’t many Chinese companies, producers etc there

Here’s a flavour of the (112 page) note.

The long-term story: the volatility of the mining sector often masks powerful
long-term attractions. Since March 2003, the sector has outperformed the
FTSE100 by 235%. This analysis, six months in the making, argues that there
remains very material upside and little downside. We address five key areas.
− Long-term commodity differentiation: structurally slowing Chinese
commodity demand growth will give rise to major differentiation in commodity
attraction during this decade. By overlaying detailed supply-side analysis, we
reach a long-term ranking of the key industrial commodities in terms of price
‘spike’ risk, volume growth, margins for existing producers, and probable
project returns. Copper and coking coal are clear favourites.

Company pipelines transform relative attraction: we carry out a detailed
bottom-up analysis of each major’s project pipeline through to 2016 under six
scenarios. Our conclusion, in each scenario, is that we prefer Anglo American’s
pipeline on the basis of returns, implied EBIT growth, margin uplift and average
asset quality improvement.
− Sector lends itself to long-term analysis: we show that our long-term price
forecasts are conservative in terms of industry returns on capital, that project
delays/cancellations and cost blowouts would make little difference to our
positive view, and that the inter-relationships of the key inputs to mining valuation
make long-term conclusions more investable than commonly believed.

Near-term unusually supportive: recent fears that China is slowing highlight
the value of long-term research and do not undermine the thesis of this report.
We also argue that such fears are less detrimental to current commodity prices
than historically would have been the case. We suggest that a disconnect exists
between forward-looking commodity markets and myopic equities.
− Valuation: our conclusion is that sector equities are factoring in minimal
growth and a return to 90th percentile prices by 2016 and into perpetuity. That
constitutes a bear case – more realistic scenarios imply upside of 50-100%. As
such, we take the clear view that the combination of Chinese urbanisation and
unprecedented internal growth options is far from factored into sector equities,
and recommend investors move structurally overweight the sector.

Oh – actually, he’s sell on Lonmin. Buy everything else.

Stock selection: Anglo American (Buy) is our preferred exposure, followed by Rio
Tinto (Buy), Xstrata (Buy), BHP Billiton (Buy), Antofagasta (Buy) and Lonmin (Sell).

OK, time for some prices on the miners.

Rio Tinto (RIO:LSE): Last: 3,330, up 38.5 (+1.17%), High: 3,347, Low: 3,289, Volume: 3.17m

which an increasing number of people believe is on the look for a deal

and will make more large disposals

Eurasian Natural Resources Corporation PLC (ENRC:LSE): Last: 977.50, up 0.5 (+0.05%), High: 995.50, Low: 962.00, Volume: 823.23k

I think they are being pushed by someone today

UBS I think

Kazakhmys (KAZ:LSE): Last: 1,356, up 25 (+1.88%), High: 1,370, Low: 1,342, Volume: 831.00k

Xstrata (XTA:LSE): Last: 1,117, up 20.5 (+1.87%), High: 1,125, Low: 1,105, Volume: 7.73m

and one more thing on the miners

rumours doing the rounds

that Rio is seeking about a 40% rise in the 2010 long-term iron ore supply benchmark price

in negotiations with steelmakers in Japan and South Korea, the 21st Century Business Herald reported late yesterday, citing an unidentified person familiar with the situation.

here’s a bit of comment on that

From Olivetree

ANALYSIS – So much for client-customer relations in an oligopoly situation (+40% is at the top-end of +20%+25% expectations). Iron ore producers seek to get customers to pay for the investments required to feed China its ever growing iron fix. Western steel producers need to get serious price increases through (in a sluggish volume environment) if buoyant 2010 consensus estimates are to be met. But a look at Crown Cork transcript yesterday “We are hopeful that we are going to come out of our steel price negotiations at essentially no increase” provides a sobering take on such a prospect. So does Outokumpu view this morning (in stainless) that it doesn’t see any “major improvement” in demand. A wing and a prayer I’m telling you.

Now

will Rio

be that aggresive

given that they are currently trying to get

their iron ore JV with BHP

through the regulators

surely

that would be red rag to a bull

Dunno, frankly.

Perhaps one of the sector experts on the right could help us out on that.

11:35AM

Sorry

just been checking up on something

we have a new reader called Hub

Neil ………..

he’s one of the GKP liberation front

but I don’t think it is THE HUB

Leave it.

Walk away.

and titleist 3

if you post under another name

such as addington again

I will ban you for life

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.

Right – that’s enough crowd control.

Where now?

11:38AM

What about a bit of RAW?

RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.

Sure

Do we have any?

yes

still mooing mind you

but interesting

L’Oreal

… is this worth it?

thank you

been some very, how do I put this

educated buying over the past couple of days

Hm.

now I have been trying to figure out the angle here

if there is one

And?

well, looking at the shareholder register

Nothing can really happen without the blessing of Nestle

and the Bettencourt family

they both own around 30%

So … Nestle to buy the rest?

well that’s one theory doing the rounds

and they are cashed up after the Alcon sale

so they have the firepower

But Nestle have ruled out anything other than bolt on acquisitions

Like the Kraft frozen pizza one

(lorcan perhaps you could give us the benefit of your thoughts on the Pearson deal)

Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.

indeed

and some people don’t see any obvious reason to buy it

doesn’t really fit with L’oreal

this came out of BarCap this morning

Nestlé holds 30.6% of L’Oréal shares (€13.6bn, CHF20.0bn or 11.5% of Nestlé’s market cap). The company acquired the stake in 1974 from Mme Bettencourt, the daughter of L’Oréal founder Eugene Schueller as a result of diversification considerations and on L’Oréals’s side, the founding family’s concerns about nationalisation trends in France.

From 1974 to 2004, both stakes were held through a holding company named Gesparal (51% controlled by Mme Bettencourt, 49% by Nestlé). Since 2004, both parties hold direct stakes and the agreement includes the following provisions:

Both parties agreed not to increase their stakes (other than through buy-backs or a takeover bid) until end of April 2007 and not during the lifetime of Mme Bettencourt and six months after that. They also agreed not to sell them until end of April 2009 (unless there was a take-over bid). Also, both parties agreed to a pre-emption right over their respective shareholdings until end of April 2014.

Consequently, Nestlé could sell its stake, do nothing or buy a bigger stake once Mme Bettencourt has passed away. Alternatively, the agreement can be renegotiated at any time should the parties agree to do so.

We believe there are few synergies between the two companies: the two JV’s, Galderma and Inneov are small relative to the combined entities. In addition, we believe that the corporate DNA of Nestlé and L’Oréal are very different: Nestlé is a decentralised company (as the nature of its business suggests), while L’Oréal’s heart beats in Paris and more decisions are taken centrally. Rather than acquiring a majority stake or taking over L’Oréal (the financials of which do not look convincing to us), we think Nestlé might be more inclined to sell its stake at some stake.

Timing is difficult to predict for such a scenario: having just received
the Alcon proceeds and reducing debt significantly, it might not be the most efficient use of capital to add further proceeds from the disposal and turn cash-positive – unless there is a good opportunity to put the proceeds to work

Hm. A little suspicious of this. The pre-event boys and merger arbs have been all over the L’Oreal story for years.

Just as they have with Nestle ………

Ever since they sold Alcon there’s been constant speculation about what they’d buy next

Cadbury …. Mead Johnston …..

stop

that name can’t be mentioned here

ever

understand

Fair enough. That’s why I spelt it wrong. Assume the session would shut down automatically otherwise.

Mungers – the “old lady” poison pill (so to speak) was always the theory on L’Oreal

But not everyone’s totally convinced it’s the dealbreaker that it used to be.

11:45AM

let’s move on

a bit more RAW

International Power

(Zap.)

which has been a good market recently

sorry

banned to GKP’ers

for a long time

pls don’t come back

so IPR

International Power (IPR:LSE): Last: 324.30, down 1.2 (-0.37%), High: 325.50, Low: 323.30, Volume: 873.81k

this came out of DealReporter this morning

I didn’t quite understand this tale.

nor me

it seems to have jumped ahead

anyway

see what you think

Discussions between GDF Suez [GSZ FP] and International Power [IPR LN] are unlikely to resume before mid-February, two people following the situation claimed.

GDF Suez would not be able to come back with a second offer before mid-February because the structure and the financing of the deal are particularly complex, a person with knowledge of the situation said. If too many complications occur, the French group may not come before IP’s annual results on 9 March, the person added.

This was echoed by five senior Paris-based bankers. According to them, a second offer proposal would require time and creativity as IP’s shareholders expect a cash element to the offer whereas the French state is very cautious on its spending and is limited on the scrip component as it would not accept its shareholding to be diluted. Two bankers also speculated that GDF may not be interested in acquiring all of IP’s assets.

Although there is no legal delay preventing the French group to come back, as it has not made any offer so far, a three to four week break is necessary to cool down things and avoid further inquiry from the UK Takeover Panel, a second person familiar with IP’s board said.

Talking from Davos’ summit in Switzerland last week, GDF Suez’ deputy CEO Jean-Francois Cirelli also referred to “legal rules” preventing new discussions for “several weeks or months”. Asked about new talks and the likelihood of a deal, Cirelli replied: “We’ll see”.

The five senior Paris-based bankers not involved in the situation felt positive that the deal will come back in the near future.

GDF Suez and International Power had to publish a statement to comply with the UK legal authorities (UKLA) rules after their preliminary discussions were leaked in the press. Both parties were not urged to do so by the UK Takeover Panel as the discussions were regarding a non-cash offer and would not have impacted the share price as significantly as a cash offer, the second source clarified. The UKLA rules are voluntary, but companies can be fined if they do not oblige with them.

not sure about the last bit

I would love to know the rules on the UKLA

surely they can’t be voluntary

and surely the Panel would have wanted this thing cleared up

but I could well be wrong

(Lorcan – Murph and tracy are in Kurdistan working on a special assignment)

11:48AM

Right – we were going to look at Autonomy

yes

shares still up

around 2.5%

up 41p at £16.10

(Lorcan – he has just returned. seriously he has dug up some interesting stuff)

It goes without saying that the bulls remain bullish and the bears remain bearish

well, let’s skip the bullish stuff

and have the bearish stuff

that’s the Alpha style

That does tend to be the more interesting side of this argument, I concede.

Here’s Canaccord

Q4 profits were slightly below our expectations. Revenue was US$223 million (Canaccord: US$223 million), gross margin was 89.4% (Canaccord: 90.1%), operating profit was US$113 million (Canaccord: US$116 million) and adjusted EPS was US$0.331 (CA: US$0.336).
Q4 operating cash conversion was slightly ahead of expectations. CFFO/ EBITDA was 58% (Canaccord: 53%) CFFO/ EBITDA (-1) was 97% (Canaccord: 91%) and net working capital outflow was US$52 million (Canaccord: US$59 million). Deferred revenue was in line with our forecast at US$174 million (Canaccord: US$174 million). CFFO was US$72 million (Canaccord: US$68 million) and EBITDA was US$124 million (Canaccord: US$127 million).

Total capex (PPE and product development) well ahead of our expectations at US$17 million (Canaccord: US$8.0 million). We had expected purchase total to fall closer to historic levels. Total capex in H1 averaged only US$5.9 million.

As a result, net cash was below our expectations at US$45 million compared to our forecast of US$53 million.

In terms of outlook, management indicated that it began to see “initial improvement in the macro environment” and “are adjusting our business plan”.

and Paul Morland of Astaire

Q4 results in line and cash conversion as expected
Ø In its trading statement on 6 January Autonomy said that revenues for 2009 would be ‘approximately’ $740m and EPS in line with consensus of 97c. So it is no surprise that today Autonomy has reported revenues of $740m (Q4 $223m) and EPS of 97c (Q4 33c). No surprise either that margins hit 50% in Q4 and were a still impressive 44% for the year as a whole. However, what is a surprise to us is that all of the cash flow metrics were broadly in line with our forecasts (capex a little higher) and deferred income a little ahead.

of note on cash conversion ahead of the meeting are as follows:

1. Deferred income rose $4m, as would be expected for a growing business. This is a balance that in the past has not risen as fast as we would have expected leading us to suggest that it was perhaps being recognised earlier than it should be.
2. Collections $216m in Q4 were higher than looks credible to us. We are concerned that a portion of the debtor book may have been sold to a third party. This would be a sign of cash conversion problems but we cannot confirm whether or not it has happened at this stage.
3. Year end cash of $243m was a little below the $260m we had forecast largely due to higher capex.
4. DSOs fell from 97 to 88 days but are still well above where we would expect for a company which had DSOs of 84 days at the end of 2008 and bought a company with DSOs of 60 days in Q1 2009.

And here’s a bit from Numis

Autonomy’s Q4 results are in line with consensus, although a little light vs our
forecasts (the market had been ahead of us on the downgrade curve during H2-09).
Cash conversion (58%) was less bad than we expected (42%), with deferred revenue
showing small positive progression. However, the commentary attached leads us to
believe that whilst Autonomy may talk up FY10 prospects, these are likely to be
back-end weighted, with potential for Q1/Q2 downgrades. Given Autonomy’s
negative estimate momentum we struggle to see where near term performance
might come from, but In the face of an improving economic environment, with a
number of new product launches to support its activities, we feel it would be
dangerous to bet against Autonomy at this point. Hold.

(GCM – we have drawn a blank. 10% to the govt sounds too low)

right

thanks for all that

11:54AM

Right

moving on

just wanted to look at Evolution Group quickly

Evolution Group (EVG:LSE): Last: 123.40, up 0.9 (+0.73%), High: 123.70, Low: 121.20, Volume: 108.08k

Ah yes. Lost its head of securities yesterday.

that’s right

confirmed this morning

and that’s after losing the head of their new fixed income division

which is slightly careless

anyway

we have a bit of comment on this from Oriel

Evolution has announced the departure of Andrew Umbers as CEO of Evolution
Securities who will be replaced by Alex Snow, the group Chief
Executive. In itself we are
relaxed about the management change which is reputed to be linked to
the recent loss of
Guy Cornelius, head of fixed income.

Our concern is what is says about the issue of staff retention.
Umbers has been
instrumental in the extensive hirings that have taken place in fixed
income and equities
which have the potential to transform the business.

This expansion in the franchise along with an expected pick up in
capital market activity
over 2010/11 and the scope for higher earnings was the basis of our
recent Buy rating

We are maintaining the Buy rating but are reviewing it for possible
downgrade if there are
any signs that there is going to be an exodus of staff which changes
our assumptions.

Hm.

“Umbers has been instrumental in the extensive hirings that have taken place in fixed income and equities which have the potential to transform the business.”

enough I think

Yes. I was merely noting the paragraph, not questioning it.

So – smallcap corner?

11:57AM

Frodo

we have indeed been looking at PCI

Petroceltic International (PCI:LSE): Last: 13.50, up 0.5 (+3.85%), High: 13.50, Low: 12.75, Volume: 1.95m

now

it does seem the unwinding of their deal with Iberdrola

might not be the disaster it had been feared

we picked this up from Mirabaud yesterday

and it is quite interesting

if, of course,

Notes lets me

got it

Following the withdrawal of Iberdrola last month, we understand that Petroceltic has written to
Sonatrach to request permission to show data to third party operators, with the intention of
seeking a new partner for its Algerian licence. Given the successful results of the recent drilling
programme, we believe that there will be significant industry interest in the asset and fully expect
management to deliver a less dilutive transaction than the one tabled by Iberdrola. However, it
may take up to 9 months to complete and, until then, Petroceltic will have to fund 75% of all
licence expenditures. Petroceltic has written to the authorities to request a two year extension on
the Isarene PSC, moving the licence into the delineation phase. We expect the company to
announce the completion of this process during Q2, together with a work programme on the
licence, which will provide further clarity on future funding commitments.

Elsewhere, drilling activity is approaching on the Ksar Hadada licence in Tunisia,
which was farmed out to PetroAsian Energy in June last year. Under the terms of the
deal, Petroceltic is carried for all costs associated with a seismic survey and two wells
– the first of which is scheduled to spud in the summer. In Italy, meanwhile,
Petroceltic continues to push for a farm out deal on the Elsa prospect, after gaining
operational control of the licence from its partner late last year.

Petroceltic International has reported encouraging test results from the last well in its five well
drilling campaign on the Isarene Permit in eastern Algeria. The INW-2 appraisal well – located on
the low-impact Issaouane North West (INW) accumulation within the ISAS appraisal area – has
tested 16.7 mmscf/d of gas from the Devonian F2 zone before fracture stimulation. While the
result is a welcome de-risking event, the valuation impact is offset by the decision to revise our
recoverable resources estimates for the wider ISAS appraisal area, largely as a result of recent
data gathering by the company. With the current phase of drilling now complete, we also reflect
on the highs and lows of the Algerian campaign and take a brief look at what lies ahead.
Overall, we reiterate our BUY recommendation, with a revised target price of 29p/shr.

as for Coal of Africa

mentioned earlier

Bryce

have you got some stuff?

Yeah – sure.

Coal of Africa (CZA:LSE): Last: 139.50, down 7.25 (-4.94%), High: 143.00, Low: 138.25, Volume: 2.07m

Here’s Morgan Stanley, which is house broker.

Quick comment – New Order Mining rights granted:
Coal of Africa has announced that it has been granted
an unconditional New Order Mining Right (NOMR) for
the Vele coking coal project near Musina in the Limpopo
Province and a conditional NOMR for the Holfontein coal
project near the middle of Sasol’s Secunda coal
production area by the South African Department of
Mineral Resources (DMR): Holfontein NOMR is
conditional on delivery of certain documents to the DMR.
CoAL expects to execute both rights with the DMR by
the end of February 2010.

Derisking of 56p/share: Vele has a resource base of
720mt and production is expected to take place in 2
phases – with Phase 1 of 1 Mtpa and phase 2 of 5 Mtpa.
The Phase 1 capex of ZAR350mn can be funded out of
current cash reserves, and we expect it to proceed
imminently. The company had signed a letter of intent
with ArcelorMittal to take 2.5 Mtpa of coal from Vale &
Makhado (with an option for ArcelorMittal to increase it
to 5 Mtpa), replacing imported coal to the Vanderbijlpark
steel plant. The company had also selected MCC
contracts to conduct the open cast mining operations.
CoAL already has 80% of Vele, with an option to buyout
the rest. The company has guided to a LOM cash cost of
ZAR 429/t at mine, and we have built in an export
logistics cost of ZAR 300/t for the volumes that would be
exported in our valuations. Vale on our base case
assumptions is worth 56p/share (the second most
important project in the portfolio after Makhado which is
worth 161p/share), and we note that the risk at Vele has
reduced with granting of the NOMR licenses

Valuations still exceptionally cheap – even for a
junior miner/explorer: Where there are clearly
ramp-up and project execution risks involved like any
other junior miner poised on the cusp of growth, the
stock at 4.3x ‘10/’11 p/e and 2.9x ‘10/11 EV/EBITDA is
still very attractive. Our price target of 171p is based on
a 50% risking of both Vele and Makhado projects and on
an unrisked basis, could double from here.

And Evolution

The transformation to expectations elicited by the award of the New
Order Mining Right (NOMR) for the Vele coking coal project in Limpopo
Province has encouraged us to lift our Coal of Africa target from 110p to
220p. The award was unconditional and clears the way for the group to
proceed with development and production. The company has also
recently completed the acquisition of Nucoal and we have now included
its earnings in our valuation model, also helping the increase in target
price. We therefore reiterate our Buy recommendation.

The NOMR for the Vele coking coal project is a transformational event for Coal of
Africa as the market was starting to become concerned that it would never come
through. The unconditional award will silence those sceptics and enable the group
to proceed with construction of the mine and the start of production.
The group has also recently completed the acquisition of Nucoal – a private South
African coal mining group. This acquisition neatly fills the production gap left by
the delays at Vele and, in our view, also helps the group’s overall earnings and
cash flow valuation. Importantly, cash generated and project debt should help
cover construction costs reducing the need to return to the equity market.

Coking coal prices have strengthened and we anticipate further strength in the
coming months given the need for restocking across the steel industry – providing
a solid backdrop for the start-up of the Vele operation. Conversely, thermal coal
prices have been weak, although there should be some improvement over 2010 –
not least because South Africa is becoming more dependent on the fuel.
In valuing Coal of Africa we have looked at both a peer group valuation and a
straightforward discounted cash flow valuation. The market comparator we have
chosen is Riversdale, which has a significant project in Mozambique. On a seethrough
basis Coal of Africa would be worth some US$2,000bn, against our DCF
valuation of about US$1.7bn. Our target price is based on the DCF valuation
offering scope for further upside potential. We reiterate our Buy recommendation.

thanks for that

12:01PM

Now

for those wanting mor footy jokes

go here

http://www.thesun.co.uk/sol/homepage/features/2836377/Fans-jokes-put-boot-into-love-rat-John-Terry.html

FANS have put the boot into love rat John Terry, with dozens of jokes at his expense appearing online. Some gags about the footie star cheating with Wayne Bridge’s ex-missus are far too blue for us, but here are the best of the rest…

12:01PM

Anything else to look at Bryce?

Um …. LSE worth noting I guess.

London Stock Exchange Group (LSE:LSE): Last: 668.00, up 19 (+2.93%), High: 668.00, Low: 650.50, Volume: 399.61k

And that’s on the back of a Citi note

Moving to hold from sell

We continue to believe that the LSE’s
business mix is too biased to cash equities execution and data sales, which
remain under threat. However, recent strong underperformance has caused the
market to factor in a more pessimistic outlook for earnings growth. At 10x cal.
2010E PE, we believe the multiple is now more reflective of strategic challenges
facing the LSE. We raise our recommendation to Hold from Sell, target price 675p.

Strong underperformance over the past 3 months — Since the end of October, the
LSE share has fallen 24% vs. the FTSE 100 up 4%. The DJ Global Exchanges Index
is only down 6%. This underperformance, in our opinion, reflects an appreciation
that there is no quick fix to the LSE’s relatively poor business mix. Recent growth
initiatives (in bonds, derivatives and clearing) are positive but their contribution is
small. Areas under threat (equities execution and data sales) are much larger.
 Cost saves to help preserve bottom line — Management has recently undertaken a
number of strategic acquisitions and cost rationalization initiatives. This has
resulted in a highly complex exceptional and underlying cost structure for
2010/11. We attempt in this note to break out the various elements of LSE’s cost
base development. We project underlying costs (Ex TradElect accelerated
depreciation) of £325m for FY10 and £339m for FY11.

Outlook remains challenging — We believe the competitive environment remains
challenging for cash equities execution and expect the LSE to continue to lose
market share to the MTFs (down to 59% in Jan 2010 but back up to 63% with the
Turquoise purchase). Terminals taking live data are also likely to be slow to
recover and suffer general pricing pressures due to lost market share. However,
on the positive side there is modest evidence of volumes troughing and recovering
slightly in Jan 2010. Fixed Income and Clearing also positive surprised at the Q3s.

ta for that

anything else to look at?

Well, I’m resisting the urge to put up all the John Terry jokes heard so far.

no Daz that was yesterday.

The rabble seem oddly out of the loop on these..

FatDaz – there’s been a lot of competition for that title.

However, I’m sure Neil can liven things up. Anything to finish off with, Mr Fume?

nope

nothing

very quiet again

I assume this silence means

bankers are working on lots of big deals

and then one day

when we are least expecting it

the floodgates will open

and there will be deals galore

in the meantime

it’s Greece

bond auctions

although as Lorcan says

there is the possibility of a fresh dust up

over the Falkland Islands

By Bill Faries
Feb. 2 (Bloomberg) — Argentina’s Foreign Ministry summoned the U.K. ambassador over plans by Falkland Oil & Gas Ltd. to start drilling a well near the islands in the Atlantic Ocean.
Argentina will issue its “most energetic protest against the imminent start of drilling” near the Falkland Islands archipelago, the ministry said in an e-mailed statement. The islands, known as the Islas Malvinas in Argentina, lie about 480 kilometers (298 miles) off the South American mainland and are claimed by Argentina as its territory.
Falkland Oil & Gas and partner BHP Billiton Ltd. expect to begin drilling in their Toroa offshore field in April, Chief Executive Officer Tim Bushell said in an interview last month.
Argentina, which fought a war with the U.K. over the Falklands in 1982, has repeatedly protested efforts to explore for energy deposits off the islands. In 2007, then President Nestor Kirchner voided a 1995 oil and gas exploration agreement with the U.K. that had been suspended for five years.

“The Foreign Ministry reiterates its sovereign rights over the Malvinas Islands, South Georgia and the South Sandwich Islands and the sea surrounding them, which form a part of its national territory,” the statement said.
A message left by Bloomberg News at the U.K.’s Embassy in Buenos Aires wasn’t immediately returned.
Argentine Claim
Argentina traces its ties to the Falklands to 1820 when Colonel David Jewett claimed possession in the name of the United Provinces of the Rio de la Plata. England assumed military control of the archipelago in 1833, evicting Argentine authorities the following year, Argentina’s Foreign Ministry said on its Web site.
Argentine military dictator Leopoldo Galtieri ordered the invasion of the Malvinas on April 2, 1982. Argentine troops were defeated by British forces on June 14, 1982. The two-month conflict took the lives of 255 British and 649 Argentine soldiers.
The British victory bolstered the government of then U.K. Prime Minister Margaret Thatcher, known as the “The Iron Lady,” and helped her win elections the following year.

that was from Bloomie

and doesn’t seem to have hit the Falkland co’s

Rockhopper Exploration (RKH:LSE): Last: 70.75, down 1.25 (-1.74%), High: 74.00, Low: 69.75, Volume: 1.69m

Desire Petroleum (DES:LSE): Last: 114.75, down 2.25 (-1.92%), High: 117.00, Low: 114.00, Volume: 1.05m

Falkland Oil and Gas (FOGL:LSE): Last: 165.50, up 2.5 (+1.53%), High: 166.50, Low: 159.50, Volume: 422.53k

Rain

Gordo

might send one before the election

Hmmmmmmmm.

Not sure getting involved in another scrap on another frontline would help his cause.

Different times.

perhaps not

right

I have to go to Smithfield for lunch

Club Gascon

Nice!

Exceptionally nice. Me and the Great Leader got rather drunk there on Friday.

Gascon
Club Gascon is a Michelin-starred French restaurant in the heart of London. Gastronomic cuisine from Gascony, mouth-watering dishes, award-winning wine list …

I am not in the posh bit

the Cellar

but still

right I must go

that’s for tuning in

and yes

Taxloss is correct

there needs to be a revisionist history of Clara’s work

at the LSE

the new guy might even chip in

And, if you’re really really wanting Terry jokes, and don’t care much if you have a run-in with the chaps from IT ….

Try: http://tinyurl.com/ABSOLUTELY-NSFW

It is, I emphasise, absolutely NSFW.

Right, should we wind this up now?

yep

Smithfield

tricky to get to

so I will be on foot

and better go now

15m on foot, 20 by taxi. It is rather tricky.

So yes, thanks for all your comments, and good afternoon all.

bye

This entry was posted by Neil Hume on Wednesday, February 3rd, 2010 at 11:03 and is filed under Uncategorized. Edit this entry.

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