Markets Live chat transcript for the chat ending at 12:18 on 24 Feb 2010. Participants in this chat were: Neil Hume, FT Bryce Elder
NH
hola
NH
and welcome to Markets Live
NH
FT Alphaville’s daily markets chat
NH
and have we got a show for you today
NH
another rip-roaring day in the markets
BE
Um …. is it?
NH
nope
NH
it’s like Xmas Eve out there
NH
I was being sarcastic
NH
there’s nothing going on
NH
in fact we might have to wind things up at 11.30am
NH
just nothing around this morning
NH
apart from some problems at Pompy
NH
there’s nothing
NH
in terms of results
NH
RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH
eco data
NH
big markets moves
NH
I have drawn a blank
BE
Yes, I see what you mean
BE
the fabulous FTSE
BE
Is ahead a mahoosive 11 points
BE
sterling has been a bit more volatile. Well, cable has at least.
BE
but it’s pretty much flat on the day now
NH
great
NH
another avenue closed off
NH
I do have an interesting small cap story
NH
But we can’t really start there can we?
BE
Nope, probably not.
NH
er, right
NH
where then?
NH
we could put up the BarCap notes
NH
on the Spanish banks
NH
have had a bit of market impact this morning
BE
Sure. That sounds interesting, at the margin.
NH
basically a valuation call
NH
and on Satander in particular
NH
one has to ask why they are so highly rated vs everyone else
NH
Premium ratings increasingly hard to justify: During the early 1990’s Spanish property
crisis Santander and BBVA traded at price to book discounts to the European bank sector of
up to 40%. Today they trade at premium ratings of 44% and 15%, respectively. Although
greater diversification means a return to previous lows is unlikely, we believe signs of
increasing stress in domestic property exposures and fears over Spain’s fiscal situation will
see current premiums significantly eroded. We downgrade both banks to 3-Underweight.
crisis Santander and BBVA traded at price to book discounts to the European bank sector of
up to 40%. Today they trade at premium ratings of 44% and 15%, respectively. Although
greater diversification means a return to previous lows is unlikely, we believe signs of
increasing stress in domestic property exposures and fears over Spain’s fiscal situation will
see current premiums significantly eroded. We downgrade both banks to 3-Underweight.
NH
Downgrading both banks to 3-Underweight: Santander is less exposed than BBVA to
deteriorating domestic credit quality but, as the fourth most highly rated bank in Europe,
remains vulnerable. We downgrade BBVA from 1-Overweight to 3-Underweight with a
target price of €9.00 (from €15.00) and Santander from 2-Equal weight to 3-Underweight
with a target price of €9.00 (from €12.00). This would value BBVA in line with the sector and
reduce Santander’s premium to 30%, in line with its 5-year average.
deteriorating domestic credit quality but, as the fourth most highly rated bank in Europe,
remains vulnerable. We downgrade BBVA from 1-Overweight to 3-Underweight with a
target price of €9.00 (from €15.00) and Santander from 2-Equal weight to 3-Underweight
with a target price of €9.00 (from €12.00). This would value BBVA in line with the sector and
reduce Santander’s premium to 30%, in line with its 5-year average.
NH
Domestic stress-test threatens earnings but capital adequate: In addition to analysing
credit trends for higher risk parts of the portfolio, we have performed a stress-test analysis
that increases cumulative impairments from 4-5% of domestic loans to 9-10%. Although
this scenario would result in a sharp reduction in earnings, we would expect both banks to
remain profitable with adequate capital ratios.
credit trends for higher risk parts of the portfolio, we have performed a stress-test analysis
that increases cumulative impairments from 4-5% of domestic loans to 9-10%. Although
this scenario would result in a sharp reduction in earnings, we would expect both banks to
remain profitable with adequate capital ratios.
NH
Earnings revisions and valuation: We have cut our 2010E and 2011E EPS estimates by 5%
and 12% for BBVA and by 4% and 9% for Santander, largely reflecting higher impairment
charges as generic reserves run out and specific impairments increase. Our new 12m price
targets imply a 2010E P/E of 7.2x and P/tNAV of 1.3x. for BBVA and a 2010E P/E of 10.2x
and P/tNAV of 1.7x for Santander.
and 12% for BBVA and by 4% and 9% for Santander, largely reflecting higher impairment
charges as generic reserves run out and specific impairments increase. Our new 12m price
targets imply a 2010E P/E of 7.2x and P/tNAV of 1.3x. for BBVA and a 2010E P/E of 10.2x
and P/tNAV of 1.7x for Santander.
NH
the full note in the usual place
NH
for those who are interesting
11:08AM
NH
Right
NH
I have found a bit of news
BE
BE
What? Where?
NH
bond market
BE
NH
auctions from the UK, Portugal
NH
and the Ukraine
NH
this morning
NH
and….
NH
they have all gone pretty well
NH
RTRS-UK DEBT MANAGEMENT OFFICE SAYS GETS 2.25 COVER RATIO AT SALE OF 3 BLN STG 3.75 PCT SEPT 2019 GILT
10:42 24Feb10 RTRS-UK DMO SAYS GETS 0.3 BASIS POINT YIELD TAIL AT SALE OF SEPT 2019 GILT
10:42 24Feb10 RTRS-UK DMO SAYS GETS 2 TICK PRICE TAIL AT SALE OF SEPT 2019 GILT
10:42 24Feb10 RTRS-UK DMO SAYS GETS 0.3 BASIS POINT YIELD TAIL AT SALE OF SEPT 2019 GILT
10:42 24Feb10 RTRS-UK DMO SAYS GETS 2 TICK PRICE TAIL AT SALE OF SEPT 2019 GILT
NH
that’s the UK
BE
2.25 covered?
BE
That’s quite impressive.
NH
RTRS-PORTUGAL SELLS 1 BLN EUROS 5-YR BOND IN AUCTION, AVG YIELD 3.498 PCT (2.759 PCT)
10:45 24Feb10 RTRS-PORTUGAL SELLS 1 BLN EUROS 5-YR BOND IN AUCTION, BID-TO-COVER 1.8 (3.4)
10:45 24Feb10 RTRS-PORTUGAL SELLS 1 BLN EUROS 5-YR BOND IN AUCTION, BID-TO-COVER 1.8 (3.4)
NH
that’s Portugal
BE
1.8!
NH
can’t find the other one
NH
but those two results
NH
not bad all things considered
BE
Indeed.
11:11AM
NH
OKay
NH
some discussion about Earthport in the right
NH
unsurprisingly they did not get the payment from that Panamanian company
NH
but our reading of this was
NH
that’s was precisely the reason they raised £4m the other week
NH
via loan notes and an equity issue
NH
this deal was a legacy of the previous CEO
Earthport (EPO:LSE): Last: 11.00, down 0.5 (-4.35%), High: 11.00, Low: 11.00, Volume: 20.33k
BE
A bit surprised they managed to raise £4m.
NH
me too
BE
Given the … er… chequered history.
NH
but then they have sugar daddy
NH
in the shape of Andy Brough at Schroders
NH
he is a big shareholder
NH
and he also has a show on Jazz FM
BE
With Paul Kavanagh of Killik & Co.
BE
Nice.
NH
Smashie and Nicey then?
BE
Every Sunday at 7pm, if you want to tune in.
BE
“mellow jazz”
NH
nice
BE
according to this advert that’s been knocking around my desk for weeks.
NH
Might tune in
NH
imagine the banter
NH
a bit of jazz
NH
then a bit of earhtport
NH
another track
NH
and the Kav asks Broughie
NH
whether he’ll back the Babcock bid for VT Group
BE
It’s an esoteric proposition, but it might work I guess.
NH
how many listeners do you reckon they get?
BE
Dunno. We should probably move on.
BE
It’s quiet, but not THAT quiet.
NH
true
11:16AM
NH
So what’s moving out there?
NH
HSBC up
NH
some news just hitting the tape about the company selling its train unit
NH
for a couple of billions
BE
Ok
BE
That was expected though, wasn’t it?
NH
I think so
NH
talking of things that were expected
NH
the results from Barratt Developments
NH
a huge yawn
NH
all in line with forecasts
NH
and the shares
NH
arent doing much as a result
Barratt Developments (BDEV:LSE): Last: 119.00, down 2.8 (-2.30%), High: 125.50, Low: 117.70, Volume: 8.19m
BE
Panmure likes it enough to upgrade though.
BE
We have upgraded our recommendation on Barratt from Hold to Buy
following its interim results. While markets remain fragile, the group has
clearly benefited from improving market conditions over the past few months
and an ongoing focus on cost and efficiencies. Our target price has moved from
172p to 180p and reflects a 15% discount to our FY 2010E NAV of 210p.
following its interim results. While markets remain fragile, the group has
clearly benefited from improving market conditions over the past few months
and an ongoing focus on cost and efficiencies. Our target price has moved from
172p to 180p and reflects a 15% discount to our FY 2010E NAV of 210p.
BE
Interim results. The interim results were broadly in line with our expectations. Barratt
completed 5,053 homes (-27% YOY) during the first half at an average selling price of
£166,000 (+3.5% YOY) and achieved a net margin of 2.4% (+110bp YOY) on those sales.
This resulted in an adjusted pre-tax loss of £48.5m, broadly in line with our forecast.
After accounting for exceptional items of £129.9m (primarily related to its amended
financing arrangements), the reported pre-tax loss was £178.4m.
Tangible NAV for the period was 210p.
H2 outlook. Management amended guidance on volumes this morning from 12,000 to
11,500 and commented that it believed full-year prices would be c8–10% ahead. While the
increase in pricing achieved at the business will largely be a function of mix (more houses,
fewer flats), this should positively affect the operating margin for the rest of the year.
Forward sales as at 21 February totalled £847.4m (+27% YOY), of which 64% are
contracted, suggesting the group has a solid platform on which to build
completed 5,053 homes (-27% YOY) during the first half at an average selling price of
£166,000 (+3.5% YOY) and achieved a net margin of 2.4% (+110bp YOY) on those sales.
This resulted in an adjusted pre-tax loss of £48.5m, broadly in line with our forecast.
After accounting for exceptional items of £129.9m (primarily related to its amended
financing arrangements), the reported pre-tax loss was £178.4m.
Tangible NAV for the period was 210p.
H2 outlook. Management amended guidance on volumes this morning from 12,000 to
11,500 and commented that it believed full-year prices would be c8–10% ahead. While the
increase in pricing achieved at the business will largely be a function of mix (more houses,
fewer flats), this should positively affect the operating margin for the rest of the year.
Forward sales as at 21 February totalled £847.4m (+27% YOY), of which 64% are
contracted, suggesting the group has a solid platform on which to build
BE
Cash. Following a rights issue earlier in the year and a focus on working capital
management, debt fell significantly in the period. The group ended H1 with net debt of
£605.3m, or 30% gearing on a net tangible basis. While Barratt will continue to look for
new land purchases, we expect this debt position to have fallen further by year-end and
forecast YE 2010E net debt of £546.8m, or 26.8% gearing on a net tangible basis.
management, debt fell significantly in the period. The group ended H1 with net debt of
£605.3m, or 30% gearing on a net tangible basis. While Barratt will continue to look for
new land purchases, we expect this debt position to have fallen further by year-end and
forecast YE 2010E net debt of £546.8m, or 26.8% gearing on a net tangible basis.
BE
Recommendation and target price. Barratt is trading on 0.58x 2010E NAV, which
makes it the cheapest stock in the housebuilding sector. While we believe the group
should trade at some sort of discount (it carries a much higher plot cost than peers, has a
shorter landbank, and does not have the balance sheet capacity available that some do),
the current discount looks too wide. We therefore set our target price at a 15% discount
to NAV (which equates to 180p) and have moved our recommendation from Hold to Buy.
Our sector preferences remain Persimmon and Bovis, which we believe will generate
above-average NAV growth in the short-medium term.
makes it the cheapest stock in the housebuilding sector. While we believe the group
should trade at some sort of discount (it carries a much higher plot cost than peers, has a
shorter landbank, and does not have the balance sheet capacity available that some do),
the current discount looks too wide. We therefore set our target price at a 15% discount
to NAV (which equates to 180p) and have moved our recommendation from Hold to Buy.
Our sector preferences remain Persimmon and Bovis, which we believe will generate
above-average NAV growth in the short-medium term.
BE
Anything else to keep The Itch happy, Neil?
NH
Oh yes
NH
something from Citi
NH
Interims Offer Few Surprises, Shares Still Offer Value
NH
Interim results show few surprises — having already had a fairly detailed trading
statement in January there were only minor differences in these figures. H1
turnover was down 31%, operating profits came in at £21m (est. £20m) with a
margin of 2.4%.
statement in January there were only minor differences in these figures. H1
turnover was down 31%, operating profits came in at £21m (est. £20m) with a
margin of 2.4%.
NH
Volume demand looks okay — so far, but the start of the year has obviously been
affected by poor weather. How the key spring selling season proceeds will be far
more crucial for this business. We continue to expect a decent improvement on a
weak 2009 period albeit the impending election won’t help.
affected by poor weather. How the key spring selling season proceeds will be far
more crucial for this business. We continue to expect a decent improvement on a
weak 2009 period albeit the impending election won’t help.
NH
Exceptionals feature again — with a c. £130m charge for the first half as already
flagged due to the early repayment of debts and also a one-off land write-down on
one site. The group has also added a further £44m of deferred tax losses to its
NAV figure, taking the tax loss total to £171m or c. 21p per share.
flagged due to the early repayment of debts and also a one-off land write-down on
one site. The group has also added a further £44m of deferred tax losses to its
NAV figure, taking the tax loss total to £171m or c. 21p per share.
NH
Balance sheet okay for now — net debt has dropped to £605m from £1.423bn last
year on the back of the placing/rights issue and reductions in working capital. The
group has started to invest a bit more in land but it will not be able to match the
cash spending levels of others within the sector.
year on the back of the placing/rights issue and reductions in working capital. The
group has started to invest a bit more in land but it will not be able to match the
cash spending levels of others within the sector.
NH
Consensus forecasts — recent activity has dipped but the cause is unclear due to
the very poor weather in January. Prices remain firm and this is arguably more
important for asset value and consequently share prices in the short term.
We continue to see good value in the housebuilders — and Barratt is likely to be at
the forefront of any rally due to its higher operational and financial leverage.
Sector P/NAV is currently 0.78x for 2010E (calendarised) and BDEV is on 0.49x.
the very poor weather in January. Prices remain firm and this is arguably more
important for asset value and consequently share prices in the short term.
We continue to see good value in the housebuilders — and Barratt is likely to be at
the forefront of any rally due to its higher operational and financial leverage.
Sector P/NAV is currently 0.78x for 2010E (calendarised) and BDEV is on 0.49x.
NH
Right
NH
bored with housebuilders
NH
and as Barratt says in its statement
NH
a sustained recovery depends
NH
on an improvement in loan to value on mortgages
NH
and there is not much sigh of that is there?
BE
Nope
BE
Although this might help a bit
BE
Banking giant Santander has announced a slashing the deposits it demands from first-time buyers purchasing new-build properties.
The UK’s second biggest mortgage lender is increasing the maximum amount it will lend to first-time buyers purchasing a new apartment from 70% to 80%.
Those buying a new build house can now borrow up to 90% of their property’s value, up from 80% previously – halving the size of the deposit they need.
11:21AM
NH
(brett we checked out the story with some people familar with Hawk yesterday and they said cash was not a prob. we didn’t bother running the cash call rumour in the paper)
NH
OK
NH
we do have a bit of RAWish stuff
BE
Go on.
NH
concerns Tesco
Tesco (TSCO:LSE): Last: 422.45, up 1.2 (+0.28%), High: 423.85, Low: 421.75, Volume: 5.83m
BE
Aha.
NH
and management changes
NH
Right
NH
so basically Terry Leahy does everything
NH
CEO of the group
NH
and CEO of the company
NH
now, a couple of analysts are saying this is too much
NH
and something has to give
NH
particularly given the recent sluggish performance of Tesco’s UK business
BE
So ….?
NH
Well
NH
the idea is
NH
Tesco will appoint a UK CEO
NH
and that person will be groomed at Leahy’s successor
NH
when he goes in around 3 years
NH
and Leahy might move up to chairman
NH
which will have the box tickers squealing
BE
Hm.
BE
So who are the runners and riders for the job?
NH
So the favourite is
NH
Phil Clarke – International & IT Director (aged 49)
NH
He is ambitious and no doubt wants a rest from all the travel involved, apparently
NH
Second Favourite – Andrew Higginson – Chief Executive of Retailing Services & Group Strategy Director (aged 52)
BE
Didn’t he slot a load of shares?
NH
yes
NH
so perhaps that rules him out
NH
and there are a couple of outsiders
NH
Outsider Richard Brasher–Commercial & Marketing Director (aged 48)
NH
Further Outside: Tim Mason – CEO US – (aged 52)
NH
Rank Outsider David Potts – Retail & Logistics Director – (aged 52)
NH
anyway
NH
this sort of stuff is being talked about round the City today
BE
And was mentioned in the People column this morning
NH
shall we move on?
BE
Sure
11:28AM
NH
Right
NH
let’s have another look at the risers and fallers
NH
Reckitt Benckiser weak
Reckitt Benckiser Group (RB:LSE): Last: 3,421, down 59 (-1.70%), High: 3,430, Low: 3,401, Volume: 489.78k
NH
but I think that’s down to being ex-div
NH
any comment on the Gaviscon scandal?
BE
Nothing fresh there I’m afraid.
NH
(sablenambia – no)
BE
There is an interesting post-results comment on Wolseley out of HSBC though.
NH
go on
BE
Which might explain why they’ve run into some profit taking.
Wolseley (WOS:LSE): Last: 1,593, down 37 (-2.27%), High: 1,620, Low: 1,582, Volume: 1.58m
NH
(Frog even the flavoured aniseed version??)
BE
UW (V): Costs cut, but bad news on price looming?
BE
Wolseley’s IMS guiding consensus to higher trading profit. A
third of upgrade is due to treatment of restructuring charges as
exceptional. No upgrade to revenues.
Pricing pressure in plumbing supplies due to high industry
inventory to sales multiples is a risk to geared recovery.
We increase our target price (from 1000p) to 1030p,
reflecting cost cutting, but reiterate Underweight (V) rating.
third of upgrade is due to treatment of restructuring charges as
exceptional. No upgrade to revenues.
Pricing pressure in plumbing supplies due to high industry
inventory to sales multiples is a risk to geared recovery.
We increase our target price (from 1000p) to 1030p,
reflecting cost cutting, but reiterate Underweight (V) rating.
BE
Wolseley released an unexpected IMS yesterday indicating that trading profit for
FY2010 is likely to exceed the “consensus” estimate of GBP326m if current trends continue.
We understand that these trends include limited price pressure in the US. We believe that apart
from the reclassification of restructuring charges, and cost savings, many consensus estimates
still included the loss making Irish business, now disposed of.
FY2010 is likely to exceed the “consensus” estimate of GBP326m if current trends continue.
We understand that these trends include limited price pressure in the US. We believe that apart
from the reclassification of restructuring charges, and cost savings, many consensus estimates
still included the loss making Irish business, now disposed of.
BE
Impact: We have included additional cost savings of cGBP20m for 2010-11 as a result of
accelerated restructuring efforts. This lifts our 2010e and 2011e PBTA by 15% and 5%
respectively. However, we have highlighted in our past notes the risk of price pressure,
especially in Ferguson, as a result of price competition and a deteriorating mix of sales towards
lower margin products during recovery. This is a serious downside risk to current expectations
of operationally geared recovery, and not factored into consensus estimates or multiples, we
believe. Given our analysis, we worry about the possible reasons for acceleration of cost
reduction measures, especially as the IMS did not point to an upgrade to revenue estimates.
Some may worry that the operational leverage may be damaged by reduced capacity going
into the recovery.
accelerated restructuring efforts. This lifts our 2010e and 2011e PBTA by 15% and 5%
respectively. However, we have highlighted in our past notes the risk of price pressure,
especially in Ferguson, as a result of price competition and a deteriorating mix of sales towards
lower margin products during recovery. This is a serious downside risk to current expectations
of operationally geared recovery, and not factored into consensus estimates or multiples, we
believe. Given our analysis, we worry about the possible reasons for acceleration of cost
reduction measures, especially as the IMS did not point to an upgrade to revenue estimates.
Some may worry that the operational leverage may be damaged by reduced capacity going
into the recovery.
BE
Valuation: In the last recovery (where there was limited pricing pressure, Wolseley had spare
capacity, and was acquisitive) the PE (fwd 2 yr calendarised) peaked at 13.2x (averaging 9.6x
2000-2002). It is currently 15.0x on consensus, and 18x on HSBC 2011e calendarised. Our TP
PE multiple is 11.4x 2011e calendarised. We have increased our estimates and target price, but
reiterate our UW (V) rating. Catalyst: H1 2010 results on 22 March 2010.
capacity, and was acquisitive) the PE (fwd 2 yr calendarised) peaked at 13.2x (averaging 9.6x
2000-2002). It is currently 15.0x on consensus, and 18x on HSBC 2011e calendarised. Our TP
PE multiple is 11.4x 2011e calendarised. We have increased our estimates and target price, but
reiterate our UW (V) rating. Catalyst: H1 2010 results on 22 March 2010.
NH
talking of builders’ merchants, results out from Travis Perkins this morning. And they don’t seem to have go down to well
Travis Perkins (TPK:LSE): Last: 721.00, down 29.5 (-3.93%), High: 734.50, Low: 692.50, Volume: 2.47m
BE
Indeed
NH
outlook statement looks pretty pessimistic
NH
doesn’t expect markets to start growing again until the end of 2010
NH
perhaps that’s why the housebuilders are starting to wobble now
Barratt Developments (BDEV:LSE): Last: 118.40, down 3.4 (-2.79%), High: 125.50, Low: 117.70, Volume: 8.57m
Persimmon (PSN:LSE): Last: 395.00, down 14.5 (-3.54%), High: 415.60, Low: 392.40, Volume: 2.72m
Bovis Homes Group (BVS:LSE): Last: 367.60, down 12.1 (-3.19%), High: 390.50, Low: 367.00, Volume: 486.03k
BE
Markets have stabilised, but the UK economy’s still in a state of disrepair. That’s the general theme.
NH
hmmm
NH
as we saw from yesterday’s truly awful consumer confidence figures in the US
NH
consumers are not spending
NH
and this recovery is all been led by massive stimulus
BE
Yup. Jaw-droppingly bad reading.
NH
which they can’t turn off
BE
Like a collective sobering up.
NH
because a double-dips looms
BE
Any comment on Travis, since we’re here?
NH
just looking
NH
everyone seems to be a fan of this stock
NH
loads of buy ratings
NH
apart from Oriel Securities
NH
right, here’s their note
NH
Travis has hit 2009 numbers on the nose (75p of earnings) but a horrible start to the year
means we’ll be downgrading our 2010 numbers by 6%.
means we’ll be downgrading our 2010 numbers by 6%.
NH
We are downgrading our EPS of 69p in 2010 to the consensus figure of 65p.
Outlook statement reflects this. It really is very dark, highlighting tough LfLs and a gloomy
view on the consumer.
Outlook statement reflects this. It really is very dark, highlighting tough LfLs and a gloomy
view on the consumer.
NH
Merchanting – we seem to have reached the trough in Q3 and trading is hovering at low
levels. 2010 has started slightly better than we expected (-2.8% in Feb).
Retail – Astonishing 2009 (+3.2% LfL) has given way to a more difficult environment now
(-2.4% in Feb). We’re pulling our +4.4% LfL assumption back.
This is a fantastic business that is growing market share in swathes of its markets. But
today highlights how fickle demand in the end markets is.
Post downgrades the shares are trading on 11.6x 2010E PE. Downgrades come as a bit
of a shock today but at least we have the reassurance of exceptional operational
performers at the helm. HOLD
levels. 2010 has started slightly better than we expected (-2.8% in Feb).
Retail – Astonishing 2009 (+3.2% LfL) has given way to a more difficult environment now
(-2.4% in Feb). We’re pulling our +4.4% LfL assumption back.
This is a fantastic business that is growing market share in swathes of its markets. But
today highlights how fickle demand in the end markets is.
Post downgrades the shares are trading on 11.6x 2010E PE. Downgrades come as a bit
of a shock today but at least we have the reassurance of exceptional operational
performers at the helm. HOLD
BE
Ok – bored with lumber now.
BE
Let’s find something else.
NH
I was just looking to see if there was anything through from MF Global on Travis
NH
they seem to follow the sector closely
NH
but nothing
NH
so far
BE
Hm.
11:36AM
NH
Thanks for the comments Monty
NH
interesting that the best management team in the sector
NH
is also the most pessimistic
BE
Quite.
11:37AM
NH
Okay
NH
we have made it past 11.30am
BE
Yup – limped past the midway point
NH
what shall we look at now
BE
Smallcaps?
NH
ok then
NH
we can come back
NH
and look at some results in a bit
NH
and some interesting comments from MPC member Posen
11:37AM
NH
So, welcome everyone
NH
to some cap corner
BE
So what’s the story?
NH
okay
NH
a property company/housebuilder based in Chesire
NH
called Eatonfield
NH
the CEO is a guy called Rob Lloyd
NH
who seems to be big in racing
NH
owns some stables
BE
Uh-huh.
NH
and the executive chairman is a guy called Paul Williams
BE
Go on.
NH
now, yesterday the company is in something of a tight situation
NH
RBS pulled an overdraft facility last week, after the company warned of a
NH
expected deterioration in the future cash flows of the group
BE
what does that mean?
NH
pass
NH
anyway
NH
that means the company has to find some cash
NH
and fast
BE
How much?
NH
well the facility with RBS was just over £2.2m
BE
Okay.
NH
now, they have already raised £250,000 from one mystery party
NH
rumoured to be Mr Lloyd
NH
and that gives them around 8-10 weeks working capital
NH
but they need more
NH
and are asking leading shareholders if they can stump up £1.25m
BE
and will they get it?
NH
well that’s the question
NH
and this is where things get very odd even for an AIM listed company
NH
so, the company raised £6m back in November through Matrix
BE
and all that cash has gone, has it?
NH
Well
NH
have a look at this
NH
from the end of October
NH
Eatonfield Group plc, the Cheshire based commercial property developer and housebuilder, is pleased to announce that, subject to shareholder approval, it has raised £7.4 million (approximately £6.9 million net of expenses) through the placing of 147,220,000 New Ordinary Shares of 1 pence each for cash subscription at a price of 5 pence per New Ordinary Share with existing and new investors. The investors include Rob Lloyd, the Chief Executive Officer of the Group, who has agreed to make an investment in the Company by way of cash subscription in an amount of £800,000, to be funded by way of redemption of part of his loan account with EDL.
NH
Rob Lloyd and his related party RLRL have also agreed to make a further investment in the Company and will be allotted 58,000,000 New Ordinary Shares at the Placing Price by way of the assignment to the Company by Rob Lloyd and RLRL of £2,900,000 in aggregate due to them from EDL and the subsequent capitalisation of that amount. Arrangements have also been made for Paul Williams (the Group’s Executive Chairman), other senior employees of the Group and certain members of Rob Lloyd’s family to participate in the Placing by way of the allotment to them of 2,600,000 New Ordinary Shares at the Placing Price in an aggregate amount of £130,000
BE
Um…….
BE
So the CEO was issued shares in return for writing off a loan?
NH
looks like it
NH
but that’s not all
NH
On 15 September 2009, warrants to subscribe for up to 800,000 ordinary shares were issued to West Register (Investments) Limited, a sister company of RBS, at a price of 5p per share. These warrants are valid until 16 September 2014.
NH
On 28 September 2009 Haycroft Farm, a property owned by Rob Lloyd, the Company’s Chief Executive Officer, was sold to Eatonfield Developments Ltd for £3.3m (based on a valuation by Mason Owen, Chartered Surveyors, on 26 March 2009). The proceeds of sale (after mortgage redemption) were credited to Mr Lloyd’s Director’s loan account. Subsequently Eatonfield Developments Limited took out a loan of £2.2m with RBS using Haycroft Farm as security.
BE
EH!?
BE
The CEO sold the company a FARM?
NH
yep
BE
and then used the farm as collateral against a loan?
NH
yep
BE
not sure I have ever seen anything like that before
NH
nor me
NH
and we have seen a few things on AIM
NH
clearly Lloyds has been helping to bankroll the company
NH
which he founded for some time
NH
and they have don’t have any non-execs
BE
No noddies?
NH
Now, the question is
NH
will shareholders back the latest fund raising given the above
BE
What’s the numbers on this thing?
BE
share price, market cap
NH
penny dreadful
BE
Well, deservedly so by the sounds of it.
NH
market cap is £3.5m
NH
so the fund raising
NH
looks heroic to say the least
NH
shares down 0.1p at 1.4p at the moment
NH
I haven’t gone back through the full history of this thing
NH
but they claim the company needs £1.5m to unlock its true potential
NH
Eatonfield has been notified that due to an expected deterioration in the future cash flows of the group, a previously agreed overdraft facility will not now be made available to it. Following this notification, Eatonfield has secured an offer of loan finance, which, together with its existing resources, will provide the group with sufficient working capital for the next 8 to 10 weeks.
BE
Yeah. Whatever.
NH
The directors of Eatonfield are actively seeking opportunities to bring income producing assets into the group. They also continue to believe that the group still has significant potential value in its key assets and are vigorously pursuing planning permissions and undertaking other value-enhancing activities in order to achieve asset realisations and thereby reduce the group’s overall indebtedness. Although there have been some recent planning successes and good progress is being made towards achieving some realisations, further short-term funding, in the order of £1.5 million, will be necessary to afford Eatonfield the opportunity to unlock this potential. The Board is currently exploring a number of options to secure such additional working capital and a further update will be provided in due course.
BE
AIM never fails to surprise with the depth of nonsense that goes on, does it?
BE
One for the watch list.
11:45AM
NH
Right
NH
staying with the small caps
NH
DD beat us to it
NH
Tower Resources
NH
some serious burnt fingers in this one today
NH
BE
This one went gung-ho this week on talk of a decent drilling report
NH
yes
NH
got up to 4p
NH
drilling in Uganda
NH
so doubtless touted as the next Tullow
NH
anyway
NH
they haven’t found oil
NH
just another duster
BE
So – not the next Tullow.
NH
Uganda – Avivi-1 Exploration Well Drilling Update
Tower Resources plc (AIM: TRP) wishes to advise that Avivi-1 has reached its total depth at 764 metres without experiencing oil shows – basement was penetrated at 742 metres. Electric logging operations are underway and a full statement will be released once these have been completed.
NH
Nope
NH
not the next Tullow at all
NH
and this goes to show
NH
that not every small cap explorer
NH
drills and finds oil in Uganda
BE
And it really is a duster. “no oil shows”
BE
That’s bad
BE
So what’s the damage?
NH
significant
NH
especially if you were sucked in at 4p
NH
down 64% at 1.6p
BE
NH
yes
NH
seriously painful
11:49AM
NH
Right
NH
some people asking about Blacks Leisure
NH
which have adjourned their AGM today
NH
on the cash call
NH
so they can have a chat with Mike Ashley
NH
who finally got hold of 29% stake in the company this week
NH
two schools of thought on this
NH
one, Ashley is doing want he did with JJB
NH
IE blocking a cash call from a rival
NH
that is looking to get back on its feet
NH
the other
NH
Ashley will use it as a platform to bid
NH
now I would have thought Blacks is way too up market for Mile
BE
Blacks? Upmarket?
NH
well it’s relative
BE
I guess so.
NH
when we are talking about Sports Direct
NH
anyway
NH
the market must think there is something in the Ashley bid story
NH
because the stock has been rock steady this week
NH
and it is again today
Blacks Leisure Group (BSLA:LSE): Last: 52.33, down 1.17 (-2.18%), High: 53.50, Low: 52.50, Volume: 14.85k
Sports Direct International (SPD:LSE): Last: 103.40, down 0.2 (-0.19%), High: 103.70, Low: 101.30, Volume: 105.05k
NH
as it happens the CEO of Blacks and Ashley
NH
don’t get on
NH
so this could get interesting
BE
Does Ashley get on with anyone?
BE
Phil Green I guess.
NH
and Paul Kemsley
BE
What did you call them the other day … Fat Bloke Finance, was it?
NH
something like that
11:54AM
NH
last thing on small cap corner
NH
just reading BrokerDanMan’s apology
NH
Yes completely read it wrong here and accept the vitriol.
The notes that were being passed around coupled with the analysis and the fervent way TRP refused to be drawn on the news embargo have lead the market down the wrong path. We here simpley got it wrong i shall be publishing some of the notes on the blog in due course.
Unfortunately thats the way the market works we get it wrong take it on the chin and move on.
I shall now remove two of the sources from my the oil sector red list and downgrade them to blue.
Apologises here go out to all and sundry.
Daniel
BE
Hm.
BE
I’ve no interest in giving this kind of stuff airtime.
BE
In the words of Homer Simpson, “it takes two to lie. One to lie and one to listen.”
NH
but at least
NH
he has put his hands up
NH
more than a lot of other bloggers/news services do
11:55AM
BE
Lorcan, very much earlier, mentions the IPO of Scotgold
NH
oh yes
NH
digging gold in Sterling
NH
novel idea
BE
Yup. Stirling pit. Middle of a tourist area.
BE
6.38p at the middle.
BE
Versus a 4.6p placing.
NH
what
NH
that’s a massive move
NH
is there any free float?
BE
Well, not sure, but this think’s been trading on the Oz ASX since Jan 2008.
BE
They only raised £700,000 in London.
BE
(Rowingboatman: go speak to your IFA. We are not your IFA.)
11:58AM
NH
Right, enough small cap stuff. let’s go back up the market cap ladder and look at lloyds ahead of Friday’s numbers.
NH
shares up today
Lloyds Banking Group (LLOY:LSE): Last: 52.62, up 0.8855 (+1.71%), High: 52.64, Low: 51.00, Volume: 81.48m
NH
well
NH
the things to watch on Friday are going to be
NH
funding
NH
credit quality
NH
consensus is for a loss of around £6.7bn
NH
and as with Barclays
NH
impairments are the key
NH
and on that note
NH
here’s a little preview note from UniCredit
NH
We forecast a pro-forma loss of GBP 6.2bn versus the LBG-supplied
consensus of GBP 6.7bn. We expect management to paint an upbeat
picture of credit quality, but believe that funding is a significant and
enduring headwind for the group.
consensus of GBP 6.7bn. We expect management to paint an upbeat
picture of credit quality, but believe that funding is a significant and
enduring headwind for the group.
NH
Credit quality likely the most watched item…: We forecast GBP 22bn
2009 impairments. Given this huge number, 2010 should be much lower
(we estimate GBP 10bn) and a statement on bad debts having peaked
would be much less powerful than at Barclays. LBG would also fare
badly relative to the sector in the event of a double dip, we believe.
2009 impairments. Given this huge number, 2010 should be much lower
(we estimate GBP 10bn) and a statement on bad debts having peaked
would be much less powerful than at Barclays. LBG would also fare
badly relative to the sector in the event of a double dip, we believe.
NH
…but funding still a question mark: LBG recently disclosed that its
government funding stood at GBP 165bn. We expect this number (if
disclosed) to be lower for year-end given rights issue cash and run-off
of some consumer credit. But we believe that funding is LBG’s largest
challenge, with this set of results unlikely to settle the debate.
government funding stood at GBP 165bn. We expect this number (if
disclosed) to be lower for year-end given rights issue cash and run-off
of some consumer credit. But we believe that funding is LBG’s largest
challenge, with this set of results unlikely to settle the debate.
NH
Forecasts, target price and recommendation remain unchanged:
We retain our GBp 50 price target, in line with our estimate of 2010E
tangible equity per share. That gives a price to tangible book multiple of
1.04x. While not expensive in absolute terms, we believe that better
value can be found at Barclays (Buy, 0.92x) and RBS (Hold, 0.78x)
We retain our GBp 50 price target, in line with our estimate of 2010E
tangible equity per share. That gives a price to tangible book multiple of
1.04x. While not expensive in absolute terms, we believe that better
value can be found at Barclays (Buy, 0.92x) and RBS (Hold, 0.78x)
NH
of course before that
NH
RBS files results
NH
which should give us a better idea of the trends at Lloyds
NH
their numbers are up first thing tomorrow
Royal Bank of Scotland Group (RBS:LSE): Last: 36.15, up 0.15 (+0.42%), High: 36.29, Low: 35.80, Volume: 36.42m
BE
The ranges for both Lloyds and RBS look to be as wide as a bus.
BE
Could take a while to make sense of it all tomorrow morning.
NH
yep
NH
lots of stuff to look at
NH
but on RBS
NH
it will be impairments
NH
and the performance of the Global markets business
NH
in as much as
NH
have all the people leaving hurt the business
12:02PM
BE
While on the banks, HSBC’s giving Barclays a push this morning
BE
To not much effect
Barclays PLC (BARC:LSE): Last: 311.75, no change, Volume: 0.00
BE
(Looks like our data’s borked again, but that price is not far wrong.)
BE
Here’s the gist of it.
BE
BarCap – less of a headwind in 2010: The conventional wisdom is that BarCap’s stellar
performance in the first half of last year will not prove repeatable, leaving the unit’s
overall contribution for 2010 lower than for the period just ended. However, last year’s
results were struck after GBP6bn of credit market write-offs and impairments and almost
GBP2bn of losses on own debt. This year these items should be much lower, so even with
weaker underlying trading conditions, BarCap’s pre-tax contribution could reach
GBP6bn-7bn – or more than twice its 2009 level.
performance in the first half of last year will not prove repeatable, leaving the unit’s
overall contribution for 2010 lower than for the period just ended. However, last year’s
results were struck after GBP6bn of credit market write-offs and impairments and almost
GBP2bn of losses on own debt. This year these items should be much lower, so even with
weaker underlying trading conditions, BarCap’s pre-tax contribution could reach
GBP6bn-7bn – or more than twice its 2009 level.
BE
Looking like a normal recession: Barclays has navigated its way through the
impairments minefield more successfully than other UK banks by avoiding lending
concentrations in higher-risk sectors. Although management points to only a moderate
decline this year, simply doubling up H2 2009 after removing credit market impairments
indicates a potential GBP3bn improvement in 2010.
impairments minefield more successfully than other UK banks by avoiding lending
concentrations in higher-risk sectors. Although management points to only a moderate
decline this year, simply doubling up H2 2009 after removing credit market impairments
indicates a potential GBP3bn improvement in 2010.
BE
Earnings potential understated: the combination of declining impairments and the
likelihood of a positive surprise from BarCap leads us to conclude that consensus
estimates of around 30p of earnings for 2010 are too low. We look for 34p (fully diluted)
but – more importantly – with a normal level of impairments, Barclays should be capable
of 57p of earnings by 2012. Hence despite the recent rally, the shares are trading at just
5.6x the group’s underlying earning power on our estimates.
likelihood of a positive surprise from BarCap leads us to conclude that consensus
estimates of around 30p of earnings for 2010 are too low. We look for 34p (fully diluted)
but – more importantly – with a normal level of impairments, Barclays should be capable
of 57p of earnings by 2012. Hence despite the recent rally, the shares are trading at just
5.6x the group’s underlying earning power on our estimates.
BE
Core Tier 1 closed the year at 10%: this should help alleviate capital concerns, which
have become more pressing with Basel III proposals. We estimate that the proposed
changes could take 340bp off Barclays’ core Tier 1. However, by the time the new regime
comes into force the ratio may have strengthened to 12%.
We maintain our 450p target price and Overweight (V) rating. The main risk to our view is that
2012 earnings fall short of our expectations. This could arise if impairments prove more sticky
and BarCap’s dealing income fundamentally weaker than we currently foresee.
have become more pressing with Basel III proposals. We estimate that the proposed
changes could take 340bp off Barclays’ core Tier 1. However, by the time the new regime
comes into force the ratio may have strengthened to 12%.
We maintain our 450p target price and Overweight (V) rating. The main risk to our view is that
2012 earnings fall short of our expectations. This could arise if impairments prove more sticky
and BarCap’s dealing income fundamentally weaker than we currently foresee.
NH
ta for that
12:04PM
NH
Right I notice Inmarsat have rallied
Inmarsat (ISAT:LSE): Last: 721.00, up 7 (+0.98%), High: 721.00, Low: 712.50, Volume: 396.89k
NH
now I wonder whether harbinger
NH
have got the regulatory sign off to acquire Skyterra
NH
the first part in their masterplan
NH
to create a new coast to coast wireless network in the US
NH
providing they can convince the regulator to repurpose L-Bank spectrum
NH
actually the Skyterra news
NH
could come any idea
NH
rivals have been asked to comment
NH
and normally they have 40 days
BE
I do with something would happen with Inmarsat.
BE
The waiting is becoming rather wearing.
Inmarsat (ISAT:LSE): Last: 720.50, up 6.5 (+0.91%), High: 721.00, Low: 712.50, Volume: 400.70k
12:06PM
NH
Bryce
NH
anything you want to look at?
BE
Admiral, the world’s most boring insurer, is a decent market this morning
Admiral Group Plc (ADM:LSE): Last: 1,214, up 15 (+1.25%), High: 1,215, Low: 1,195, Volume: 137.06k
NH
right
BE
… which seems to be on the back of an initiation with “buy” from Redburn
BE
Here’s the exec summary
BE
Admiral is best in class. Its combined ratio performance is 20-25% ahead of the
industry, its core RoE is 30 percentage points ahead of its peers, and it uses
reinsurance to gear its RoE further. In addition, 90% of its earnings translate into
free cashflow and 100% is paid out as dividend. These returns stand testament to
a singular business model and unique culture. Admiral is a one-product company
with significant employee ownership and an obsessive focus on execution. This
much is known. Less understood are the sustainability of Admiral’s competitive
advantage and the prospects for earnings upgrades. This report addresses the
issue of ‘analyst fade’ head on. Through in-depth analysis of every facet of its
business, we establish that not only is Admiral’s competitive advantage and
earnings trajectory sustainable, but the risk, even to our already above-consensus
estimates (26% higher than consensus in 2012), is to the upside, the result of better
margins and higher growth. It is in this sense that Admiral remains, despite its
superlative share price performance, underestimated by the market, its premium
rating eloquently justified.
industry, its core RoE is 30 percentage points ahead of its peers, and it uses
reinsurance to gear its RoE further. In addition, 90% of its earnings translate into
free cashflow and 100% is paid out as dividend. These returns stand testament to
a singular business model and unique culture. Admiral is a one-product company
with significant employee ownership and an obsessive focus on execution. This
much is known. Less understood are the sustainability of Admiral’s competitive
advantage and the prospects for earnings upgrades. This report addresses the
issue of ‘analyst fade’ head on. Through in-depth analysis of every facet of its
business, we establish that not only is Admiral’s competitive advantage and
earnings trajectory sustainable, but the risk, even to our already above-consensus
estimates (26% higher than consensus in 2012), is to the upside, the result of better
margins and higher growth. It is in this sense that Admiral remains, despite its
superlative share price performance, underestimated by the market, its premium
rating eloquently justified.
NH
(chopper rally from recent lows)
BE
And that’s about all I can be bothered saying on that one.
BE
You got anything to wrap up with, Neil?
NH
don’t think so
NH
although I do like Broker Man Dan
NH
just reading his last post on GKP
NH
The RNS ALERT is still on. The word here is that GKP may well have pulled the RNS that was alerted on Sunday/Monday. It is not unusual for an RNS to be withdrawn by a company. I spoke to a contact over at Reuters and she tells me that her news service had alerted on Sunday, i also spoke to a contact over at the Telegraph who seems to think that GKP are about to announce a funding deal now this may have a bearing on any news that was listed for this week. As i presume that funding news may well take precedent over the time line of news flow. My telephone calls to the offical news service at the Exchange have been met with a stoned response of neither denial or confirmation of an RNS lodged for this week.
Apology to the Blogship for my belated post on the alert however i have recently undergone a promotion which in reality means an extra workload i usually got home at 6pm but now i’m lucky if i get in before 8.30pm.
Keep the faith it is only a matter of time before GKP blows!
Daniel
Gulf Keystone Petroleum (GKP:LSE): Last: 77.25, down 3.25 (-4.04%), High: 80.75, Low: 77.25, Volume: 1.09m
NH
I probably agree with that last sentence
NH
although probably in a different way
BE
Address all complaints to GKP@muppetinvestor.com
NH
Right
NH
I think’s that it
NH
and we didn’t even get to discuss
BE
Oh well.
NH
biggest rise in the FTSE 250 though
Moneysupermarket.com Group (MONY:LSE): Last: 73.00, up 3.5 (+5.04%), High: 73.20, Low: 70.50, Volume: 764.41k
NH
what did this float at?
NH
200p
NH
wasn’t their a retail offering?
BE
Can’t remember
NH
(lorcan – he is a she and no)
NH
(Taxloss yes. You might care to take a look at Eatonfield.)
NH
Right
NH
here’s a quick bit of comment
NH
from Canaccord
NH
This is a reassuring statement from Moneysupermarket.com, suggesting that the stabilisation in its business and the ongoing strength of cash flow, is now sufficiently bedded in to support both a £25 million special dividend that will further optimise its balance sheet. Net cash as of 31-Dec-09 stood at £53.8 million.
· Current trading suggests there is unlikely to be meaningful upgrades to top-line forecasts for this year – the current consensus is for 6% sales growth. However, the stock continues to offer an attractive margin story for the current year on the back of substantial marketing efficiencies. In F09, non-travel visitors rose 9% despite a 22% decline in marketing expenditure. In the current year, efficiency improvements are likely to be further bolstered by the first meaningful impact from the Efficient Frontier search marketing technology, although the front-end loaded nature of the current TV campaign and technology investment suggests a second-half weighting to our £40.8 million F10 EBITDA forecast.
· Current trading suggests there is unlikely to be meaningful upgrades to top-line forecasts for this year – the current consensus is for 6% sales growth. However, the stock continues to offer an attractive margin story for the current year on the back of substantial marketing efficiencies. In F09, non-travel visitors rose 9% despite a 22% decline in marketing expenditure. In the current year, efficiency improvements are likely to be further bolstered by the first meaningful impact from the Efficient Frontier search marketing technology, although the front-end loaded nature of the current TV campaign and technology investment suggests a second-half weighting to our £40.8 million F10 EBITDA forecast.
NH
he shares have fallen 20% since November and now trade on a FY10 P/E rating of 12.9 times (or just 11.9 times, when adjusting for cash), and over 16% below our DCF-based target price of 81p per share.
· Announcement of a further 4.9p special dividend, payable in April (record date: 5 March) also reminds investors of the attractive 5.1% yield from an ongoing dividend supported by strong cash generation (100% EBITDA conversion in F09).
· Announcement of a further 4.9p special dividend, payable in April (record date: 5 March) also reminds investors of the attractive 5.1% yield from an ongoing dividend supported by strong cash generation (100% EBITDA conversion in F09).
NH
(Taxloss – there was some good stuff on Pompy. Going into administration, apparently(
BE
Ok. Great. But no comment on MONY swapping Omid Dhali for that bloke with the clown feet from Dragons Den
BE
It’s lunchtime, and I’m not sure I care to be honest.
NH
what
NH
which one has the singing tennor?
BE
GoCompare I think.
NH
(Monkey – enjoy the memories, it’s all you’ll have)
BE
A poor second to WeBuyAnyCar.com if you ask me.
NH
yes
NH
that’s a great ad
NH
a sort of rap
BE
Although their new one jumps the shark.
BE
Goes all ironic and self referential.
BE
Anyhoo, I think we’re probably done on that.
NH
Right
NH
that’s it for today
NH
tracy wants to send the lunch wrap
NH
and Sam has been looking into Blacks and Mr Ashley
NH
which means
NH
we can break out the Fat Bloke Finance pic
BE
Excellent.
NH
and yes
NH
Posen
NH
here are the flashes
NH
one and two
NH
appear to be contracdictory
NH
RTRS-BOE’S POSEN-ANYONE BETTING ON HIGH INFLATION IN MAJOR ECONOMIES INCLUDING UK WILL LOSE MONEY
10:09 24Feb10 RTRS-BOE’S POSEN-BIGGEST MISTAKE OF 1970S WAS THAT CENTRAL BANKERS REPEATEDLY OVERESTIMATED OUTPUT GAP
10:16 24Feb10 RTRS-BOE’S POSEN-COUNTRIES WITH INDEX-LINKED
BONDS HAVE THE BEST INFLATION RECORDS OVER THE LAST 20 YRS
10:50 24Feb10 RTRS-BOE’S POSEN-WE WILL KEEP THE DOOR OPEN FOR MORE QE, IF WE HAVE TO WE WILL
NH
but I guess the message is
NH
the printing presses are primed
NH
and reading to go
NH
(Fitz sending)
BE
Indeed. And we’ve got Bernanke testimony starting at 3pm don’t we?
NH
we do
BE
So more exit strategy stuff likely then.
BE
Ok – well, thanks for all your comments.
BE
And if you haven’t read this yet, please do
BE
Very important stuff from a web2.0 perspective.
NH
OK
NH
we are done
NH
thanks for logging on
NH
see you tomorrow
NH
which is something we can’t say about Portsmouth
NH
until then
NH
goodbye
BE
Bye.
NH
cya