FT Alphaville » Markets Live transcript 5 Mar 2010

Share Print

Markets Live transcript 5 Mar 2010

Posted by Bryce Elder on Mar 05 11:03.

Markets Live chat transcript for the chat ending at 12:14 on 5 Mar 2010. Participants in this chat were: Neil Hume, FT Bryce Elder

Good morning

Hola

Bonjour

welcome to Markets Live

FT Alphaville’s daily free for all

sorry for being late

just getting coffee

and having a chat with Miles

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.

Bryce is here

Hello

So its payroll Friday

Indeed it is.

and that means most people are, to drag out the obvious cliche, sitting on their hands

but

The fabulous Footsie is up again

Headed towards an 18-month closing high

crikey

hadn’t realised

must be time to bring this out

http://www.rallymonkey.com/oldvideo.php

Aha – the original and best Rally Monkey

A while since we’ve seen that.

(iceicebaby – request denied)

right

So the FTSE 100 is up 34 points at 5,561

so much for the post tightening correction

Mm. This is just chasing Wall Street’s rally isn’t it?

looks like it

still impressive

where do we start

some stock stuff

or a payrolls preview?

Oh, let’s get the jobs stuff over with

So we can move onto Nighthawk energy later.

(kidding)

11:09AM

Right jobs

earlier this week we put up the Goldman preview

and here’s what Marc Ostwald

at Monument Securities will be looking for

and be warned

this is going to be a messy report

Snow?

The anecdotal evidence on Payrolls is at best confusing, with the generally much higher than expected levels of Claims, clearly distorted by snow storm effects, while the improvement in the Consumer Confidence’s Labour Differential (Jobs Plentiful minus Hard to Get) deteriorated to an abject -44.1 from January’s -42.1. On the other hand Wednesday’s sharp rise in the services ISM Employment Index to a still weak 48.6 from 44.6, but still the best in nearly two years, implies that the key element of Payrolls, i.e. services Employment should improve, though it has to be stressed that the correlation at this time of the year, even directionally, has been very poor.

Ultimately Payrolls should underscore the description in Wednesday’s Beige Book: “Although some Districts reported an uptick in hiring or a slowdown in layoffs, labour markets generally remained soft throughout the nation, which resulted in minimal wage pressures”.

Equally sensitive will be the Unemployment Rate which is expected to edge back up to 9.8% from 9.7% in January, but as that reading was predicated on a veyr incredible 3.6% m/m fall in the Pool of Available Workers, which could easily see a very sharp reversal and/or revision, thus a print of 10.0% is not out of the question. If this is ‘jobless recovery’, then perhaps the most important metric will be Average Weekly Hours which rose to 33.3 from 33.2 in January, but again weather effects will probably be a key wild card, and as such the readings may well be misleading.

Finally spare a thought for Consumer Credit published at the close of play, and expected to show a deeper $4.2 Bln contraction than December’s better than expected $-1.7 Bln, but nevertheless still highlighting ongoing consumer deleveraging, which with wage growth set to remain subdued, and Unemployment high underscores the point that any recovery will not be driven consumer spending

Now

that doesn’t tell us where consensus lies

and Bryce has just nipped off

to get that

one moment pls

I think it’s -63,000

thanks

see you later Taxloss

And 9.8% unemployment

thanks

0.2% on the hourly earnings

4.5% on the average workweek

is there is a whisper number out there?

If there is I haven’t heard it

nor me

Is there a Goldman number, which usually functions in a simiar way?

well

we had the note earlier this week

but it was long

can’t be bothered to go through it

but I will

if people want

Well, good. In the meantime …..

Want to head into the market?

If a major snowstorm shut down half of United States businesses’ hiring and firing activity for half of the payroll period (i.e roughly two weeks), then the impact would presumably be ½ x ½ x 700-800k, or 175,000-200,000. If for any reason the hiring process was more susceptible to disruption or delays than firing, then the impact could be as much as three times as large. Of course, the assumption of a total shutdown in hiring for half the country seems too extreme, but these calculations give a sense of the potential upper bound of impact.

hang on

that was the snow deflator

Our forecast of a decline of 100,000 payroll jobs assumes the February snowstorms will delay at least this many net hires. Assuming a return to more normal weather, March payrolls should post a substantial rebound.

(Fowke: that picture’s shocking. Some preclick warning please.)

(Fowke – that was from a post Webby’s party in NY)

(Simply Darling – none. Bryce and I aren’t in the SAYE scheme)

11:15AM

Right

on the market

some stock stuff

what about Xstrata?

Lorcan owes you a pint

yes he does

and to be fair

he mailed this morning

to admit he called this one completely wrong

(And, come to think of it, Mungers may or may not owe me a fiver – can’t remember if that bet was ever dealt.)

(Simply darling – can’t afford to save anything)

In case you missed the news Glencore have bought back the coal mine it lent to Xstrata last year as collateral in the rights issue

and

There’s no real surprise here

we all knew the price that would be paid

and we all thought Glencore would buy it

well, Lorcan didn’t

but they do need to a find a partner to help fund development of the mine, if they want to keep it.

of course the interesting question is what Xstrata does with the cash

and

surprise, surprise

brokers are already pitching the idea

that it could be used to take a tilt at Lonmin

I suspect it won’t be

because Xstrata are focused on organic growth at the moment

That old rote was given another run in some South African magazine this week as well.

but why let they get in the way of a good sell side story

Well, indeed.

Anyway, Lonmin’s up.

Lonmin PLC (LMI:LSE): Last: 1,961, up 39 (+2.03%), High: 1,964, Low: 1,923, Volume: 116.80k

so to Xstrata

Xstrata Plc (XTA:LSE): Last: 1,163, up 38 (+3.38%), High: 1,169, Low: 1,132, Volume: 5.24m

right we have a bit of comment on this

and

then

the real reason why Xstrata is up

all to do with coal

and not Colombian coal

Well, first – Merrill has a bit of a mull about Glencore flipping the asset

Glencore exercises Prodeco option: Expected
Xstrata has announced that it received formal notification from Glencore (who
own 35% of Xstrata) of Glencore’s exercise of its option to acquire the Prodeco
coal operations. Recall that these assets were vended into Xstrata in lieu of cash
during an emergency rights issue in early 2009. Under the option agreement,
Glencore will pay Xstrata $2.25 billion in cash upon completion of the sale to
Glencore pursuant to the exercise of the option, plus any profits accrued but not
distributed to Xstrata during the period 1 January 2009 to the completion date and
the net balance of any cash invested by Xstrata

Is 20% a big enough return on emergency equity?
The company suggests that this transaction will have resulted in an approx. 20%
return on this “loan” (which to us feels more like equity) over this time period. Is
this a good return on “debt”? We believe yes. Is this a good return on distressed
rights issue equity? Not really in our opinion. We do acknowledge that Xstrata
management were faced with a difficult decision and took the decision that
allowed them to expeditiously “fix” their balance sheet problem.

Proceeds approx US$2.4-2.5 bn
We estimate that the total payment associated with the option exercise will be
about US$2.4-2.5 bn which, for the moment we would expect Xstrata to apply to
pay down debt. Xstrata has many uses for the cash including its organic growth
programme and, eventually we think, more M&A.

Will Glencore keep the assets? Probably not
We (and we believe Xstrata management) would have preferred that the assets
stayed with Xstrata i.e. they were good assets acquired at a good price but, of
course, that was the reason for the call option issued to Glencore. Xstrata could
have agreed to “top up” Glencore to keep the assets but we believe that this
would have been unpalatable to shareholders (and perhaps management). We
would not be surprised if Glencore have agreed to a “back-to-back” sale of the
assets. Watch this space.

And, on the Lonmin angle, this is from “anonymous broker”

Although we recognise that Xstrata is loosing a coal asset that it had rather kept, a conservative equity market would favour cash today versus coal earnings tomorrow. Overall the reaction should be a positive one.
From a trading standpoint, we can’t help thinking that this announcement could help the trading in Lonmin’s shares today, on the assumption that Xstrata could revisit the case (Xstrata owns 24.9% in Lonmin). We do not believe this is likely in the short term.

thanks for that

now

coal

Yup?

there has been some good news today

on coking coal

a pretty stonking settlement

BN) *JFE, BHP AGREE ON $200 PER METRIC TON FOR COKING COAL, JFE SAYS

now why that’s important is because

JFE being the Japanese steel maker.

Most analysts have $185 in their models

not $200

and that’s good for Xstrata

Rio Tinto PLC (RIO:LSE): Last: 3,671, up 66.5 (+1.84%), High: 3,689, Low: 3,595, Volume: 1.67m

and BLT:LSE

BHP Billiton PLC (BLT:LSE): Last: 2,151, up 24.5 (+1.15%), High: 2,169, Low: 2,140, Volume: 2.20m

and

for small cap fans

Western Canadian Coal

and Caledon Resources

actually

I have a bit of comment on this

Oh good. Go on then.

In breaking news reported by Bloomberg, BHP has agreed a very positive 55% increase in the contract price for coking coal with the major Japanese steel customer, JFE Holdings. The price agreement of $200/t covers only the June 2010 Quarter, but with no stated tonnage.

8% above our expectations
We had conservatively expected a price for hard coking coal of $185/t to be agreed in 2010 negotiations, therefore this agreement is an 8% improvement on our expectations. Further, the move to a quarterly price vs. a full year term is a major development in the market as suppliers endeavour to move average sales closer to spot prices, and is a positive sign for further price increases from the supply-side

Annualised this increases earnings by over 100%
In a traditionally low-margin, high tonnage business, such increases make a huge impact on earnings. In the junior sector in London, the two companies with direct exposure to the pacific (or Asian) seaborne market for hard coking coal are Western Coal Corp and Caledon Resources. If this agreed prices becomes the benchmark, we expect both Western and Caledon will see an annualised earnings boost of c. 140% on EBITDA and 170% on EPS. If higher contract prices are established over the long term, a 100% increase in the NPV valuations.

BUY WTN and CDN
On this news we re-iterate our Buy recommendations for these two coking coal producers, expecting them to perform well as further positive news-flow on prices is announced. On Western Coal Corp (WTN) we have a buy recommendation, and upgrade our target price to 300p. For Caledon Resources (CDN), we re-iterate our Strong Buy recommendation and 80p target price.

that was from Arbuthnot

Caledon Resources PLC (CDN:LSE): Last: 38.00, up 0.25 (+0.66%), High: 38.00, Low: 37.25, Volume: 114.29k

Western Coal Corp (WTN:LSE): Last: 246.50, down 2 (-0.80%), High: 248.50, Low: 248.50, Volume: 15.53k

Right – cheers for that.

Are we all done on the miners now?

I think so

although

this fund raising from Kenmare Resources

is worth closer inspection

and that’s not because

this is a Murphy favourite

has a huge mine

in Mozambique

The Moma mine.

anyway the news today is that there are raising £180m via a cash call

at a very big discount

46%

The Issue Price of 12 pence per New Ordinary Share represents a 41.8% discount to the closing mid-market price of 20.625 pence per Ordinary Share on the London Stock Exchange on 4 March 2010 and a 45.7% discount to the closing mid-market price of 24.3 cents per Ordinary Share on the Irish Stock Exchange on 4 March 2010.

So what’s the big interest in this?

notes

2 and 8

which explain why the company needed the cash

so quickly

and

as you can imagine

they are pretty worrying

If the Capital Raising is not completed, the Deposit is not made and the Group is unable to meet its obligations under the Financing Agreements (whether in relation to scheduled payments of Senior Loan principal and interest repayments or Technical Completion or otherwise), and if in addition the Group is unable to agree requisite amendments to the Financing Agreements prior to the agreed schedule in the Financing Agreements, there would be an event of default under the Financing Agreements. In the case of an event of default under the Financing Agreements, the Lenders may in certain circumstances be permitted to apply post-default interest margins, accelerate the payment of all sums outstanding under the facilities (including any accrued interest), enforce the security interests in the assets of the Project Companies, the CRA and the shares of the Project Companies and guarantees granted by Kenmare and Congolone, place the Project Companies into administration and initiate insolvency or other similar proceedings against the Project Companies.

Oof.

The Capital Raising is conditional, inter alia, on the passing of the Resolutions at the EGM. If the Resolutions are not passed, the Capital Raising will not complete, the proposed Expansion will not proceed at this time (thereby preventing the Group from significantly increasing its production in order to take advantage of the projected improvement in market conditions for titanium mineral products) and the Agreed Financing Amendments to the Financing Agreements will not become effective. In this situation, the existing provisions of the Financing Agreements would, absent further renegotiation, continue. These include, inter alia, requirements that Technical Completion and Completion occur by 31 December 2010 and 31 December 2012 respectively. In addition, a number of scheduled Senior Loan principal and interest repayments fall due under the Financing Agreements over the forthcoming period including the August Payment.

Just remembered I had lunch with Michael Carvill, the MD and son of the founder, a few months back. He seemed an avuncular chap.

anyway

lots of other warnings in there

basically

give us the money

or we are screwed

seems to be the message

Yeah. That’s all quite nasty stuff.

shares down 33% at 13.75p

at the moment

and a bit of comment

The Mozambique mineral sands producer announced a $270m fundraising to fund the expansion of its Moma project. The issue is fully underwritten and priced at 12p a 41% discount to the current price. The company anticipates that the mineral sands markets will be tight over the next five years as economies recover and consumers start to restock. Kenmare believes that it can expand its production of ilmenite, rutile and zircon by 50% for capital expenditure of $200m.

Last year was a tough year for Kenmare with plant problems at the start-up project, which held production levels below target. Negotiations with the contractor Bateman saw the contractor forced to do an improvement program at its expense. However Kenmare says that production improvements fell short of expectation in 2009 but reached design capacity at the end of the year. The company produced 494,400t of finished product with sales of 418,000t. The company made a loss of after tax of $30.4m, revenue of $26.7m with costs of sales of $35.2m. These are well short of expectation; consensus expected $48m in sales with a pre tax loss of $17,9m.

In our view Titanium Resources offer a far better way to play the sector, Its Rutile product trades at a five time premium to ilmenite and this market is likely to be the tightest of the mineral sands markets (with the exception of zircon) due to closures of operations and increased demand. TXR currently trades at an 80% discount in terms of 2010 EV/sales and EV/Reserves, and a 60% discount on a P/NPV basis.

Right bored with miners

and so by the looks of things

are the ROTR

Hang on – who’s that comment from?

sorry

Arbuthnot again

Right – let’s push onwards.

where now?

11:32AM

Is there anything raw around worth mentioning?

nope

not even in regurgitated stuff

nearest I have come

is Allied Irish Banks

there were a good market yesterday

and again today

Allied Irish Banks PLC (ALBK:LSE): Last: 1.40, up 0.15 (+12.00%), High: 1.50, Low: 1.24, Volume: 2.66m

Ah yes – management has been in London this week

indeed

and the meetings have been going well

basically

they want to sell their English branch network

and a load of other stuff

Interesting. Looks like it’s got a decent number of UK branches.

http://www.aibgroup.com/servlet/ContentServer?pagename=Great_Britain/GHPGreatBritain

it does

although they don’t make much money

the real benefit

would be in reducing RWAs

Who’d buy them?

Sandy Chen?

I don’t know

Santander

Hm. Santander’s the stock answer at times like this.

indeed

It’s the new SWF for the banking sector.

So I have a bit of comment on this

from JP Morgan Caz

who look to have turned up at one of the meetings

Picture still unclear, but more proactive approach
towards asset disposals is welcome

Weaker post NAMA capital – we have raised our NAMA haircut from 30%
to 35% (over a €23bn loan base, from €24bn), now calculate a short term
capital shortfall of €3.6bn (old €2.5bn), and cumulative €7.1bn (€6.0bn), and
reiterate our view about a virtual nationalization in the absence of asset sales.

Four main capital management options, €2.5bn capital gains at hand – we
analyze AIB’s options to generate capital and retain some degree of
independence. A successful implementation of this “self-help” plan would
help AIB recover some of the ground lost in the short term.

A planned exchange of lower Tier 2 bonds yields a €384mn gain in our
calculations (c.40bps of core capital), assuming similar terms as those of BOI
recent deal (50% acceptance, 30% discount to par).

M&T’s sale would boost core capital by c.95bps at current prices
(c.€950mn impact). We see this move as likely, and would value it positively

Poland disposal is key to avoid a majority government stake in our view, if
done in conjunction with the above points. At current prices, this would boost
core equity ratios by 185bps (€1.2bn capital impact, €8-9bn RWA reduction),
though at the expense of future profitability, and hence does not appear
management’s favored option. We note there are chances of the EU forcing
AIB to dispose of BZ WBK’s stake, as a part of the bank’s restructuring plan.

UK sale – if allowed to retain it by the EU, a potential way of not having to
sell BZ WBK might be related to AIB disposing of its UK mainland business
instead. Other than a £71mn profit in 09, no specific information has been
disclosed on this unit, though we suspect capital benefits would mainly be
related to RWA reduction (€21bn for the whole UK division in 09).

Stay UW (Dec-10 SOP PT €1.0 (was €1.6)), though a solution might be
closer – we see unresolved uncertainty about several key factors: (i) NAMA’s
timing and haircut, (ii) adequate capital required by the regulator, (iii) EU’s
conditions, and (iv) pace/prices for asset disposals. However, we welcome the
new CEO’s more proactive stance towards asset disposals, and believe we are
closer to being able to build a more fundamental investment case in AIB

Ah – of course. We forgot Sir Beardie Pullover.

Proactive approach

are reading that Mr Branson

they are being proactive

roll up

11:37AM

Right

an invite has just arrived

Neil

PaddyPowertrader.com, a financial spread betting company, would like to invite you to an event on High Performance Trading next week. There will be some high profile and well regarded speakers in attendance.

Not Stanzone, surely.

He’d want £4k.

nope

Lex van Dam – the successful fund manager widely known for his appearance on the BBC2 television series Million Dollar Traders, who will take a look at lessons to be learned from the experiences of contestants in the series

Wow! Million Dollar Van Dam!

http://www.bbc.co.uk/programmes/b00gsr4p

I am honoured

Tom Hougaard – a frequent guest on CNBC and Bloomberg, who has a strong following amongst the trading community for his ‘WhichWayToday’ trader chatroom. Tom will discuss effective techniques to achieve greater trading success

Oh.

actually

the topic is interesting

strategies that traders can employ to improve performance by harnessing emotional responses.

I will have to take emo-bowl along with me

if I can find the damn thing

Wonder if Lex will bring his sidekick? Anton Kreil, wasn’t it?

http://www.antonkreil.com/

http://ftalphaville.ft.com/blog/2009/10/14/77776/presenting-emo/

The emo bowl – forgot all about that.

actually there was another guest speaker

but he had to pull out

BrokerManDan

Oh come on now.

something to do with Tower Resources

Stop. Enough.

Tom Hougaard, Brokenmandan, and trade divination by glowing fruit. … I think we’ve probably done this one to death.

yes lets move on

and see what Martin Sorrell has had to say about the global economy

in today’s results from WPP

11:43AM

Yeah, the Sage of Soho has been speaking.

The Mahatma of Meard Street.

and

what we got

a three speed global economy?

Yes, that’s the upshot of it.

The good news is he is no longer staring into the abyss.

But, sadly, doesn’t throw any new shapes for the recovery.

not throwing any shapes

how disappointment

And the outlook statement does run for 1400 words

really

1,400 words

jeez

Yeah

While reading ths, you have to imagine him saying that it sitting cross-legged on the bar at the Groucho

The more interesting question, probably, is how the West, in particular, will emerge from the current crisis and reduce the colossal government deficit needed to fund the early stage of the recovery. There seem to be two possible routes. First, the more prudent and painful – reduce government spending, increase taxes and unemployment and learn to save again, with the risk of a double-dip. Secondly, inflate our way out of the problem and continue to spend and lend, with significant resultant increases in inflation and long-term interest rates.

Given the politically unpleasant implications of the first route and the proximity of elections, the second course is more likely. As a result, those countries that are capital rich and have saved – like Brazil, China, India, Japan and eventually, with strong oil prices, Russia – will benefit even more. And the Group’s strategic focus on the BRICs and Next 11, on the new media and on consumer insight will benefit accordingly.

Next 11?

Ok, seriously, that’s merely the tip of a flannel iceberg

hmmm

he does like a think piece

Here’s some more, if you’ve got the stomach for it.

But Maybe There’s an Even Better Way…?
2009 was a year when no sensible company took anything – or anyone – for granted. Just because it had worked before, it didn’t mean it would work again. Just because a consumer had been a brand loyalist for 9 consecutive years, it didn’t mean you should count on his or her custom for a 10th. Everything needed re-examination: not for the sake of making aimless change; much more for the sake of making certain.

Though always uncomfortable, years when all accepted practice is subjected to fierce scrutiny and challenge invariably turn out to be fruitful ones – and 2009 was no exception. The open-mindedness and good-humoured resilience of WPP companies has been exemplary and their response full-blooded. Inventiveness soared. Their clients are by far the best witnesses to this claim – but the results of creative awards, in all disciplines and in all parts of the world, confirm a remarkable advance, over both previous years and our principal competitors.

All too easily, such an admirable response to tough times tends to get de-humanised – it gets disguised in amalgamated figures and broad generalities. So we would like to close this report by reminding all our audiences of a permanent truth of our business. It is a business that is wholly dependent on the intelligence, the talent, the integrity and the determination of each individual member of each of our companies. Never has that been more apparent – or more welcome – than in 2009. We thank and salute them all.

OMG

get the bucket

Well, quite.

And, the irritating thing is, this flannel iceberg adds up to not much.

so what are the shares doing?

and what were the numbers like?

Shares down a tad.

WPP Plc (WPP:LSE): Last: 620.50, down 3.5 (-0.56%), High: 624.00, Low: 608.00, Volume: 11.78m

The upshot is as follows

Results in line, more or less.

Though organic growth – or contraction, or whatever – was a bit weak at -8.1% versus a 7.5% consensus

And guidance is for flat organic frowth in margin improvement in 2010, which is better than peers

Although WPP was worse than peers in 2009, so it’s all swings and roundabouts.

Oh, and staff bonuses are now going to be linked to revenue growth

Not sure what they were linked to before.

actually

i was told the margin guidance was disappointing

given all the staff he hacked out of the business

12% of headcount

people were expecting more of a geared bounce back

group targeting just 12.7% margins in 2010 and 13.2% in 2011

Yeah – it’s nice of him to salute the staff at the end

having sacked loads of them

more than one in ten

people business you see

advertising

they are its biggest assets

Hm.

Here’s some broker notes, which are our biggest asset.

Citigroup first.

The disappointment may come from the margin targets with the group targeting just 12.7% margins in 2010 and 13.2% in 2011. This appears to preclude strong operational gearing on revenue rebound (given headcount down on average 6.7% and 12.3% point to point).

Implications for Numbers – The group’s guidance of flat revenue at a 12.7% margin implies £1.1bn of PBIT for 2010E (pre FX), driving EPS of 47p-49p (dependent on inclusion of convertible in share count). Reuters consensus EPS for 2010E is 48.5p. There may be some upward pressure from FX, but it appears as though there will be limited changes to consensus forecasts.

Bottom Line – Bulls will say it is still cheap (12.5x – 13.2x 10E PE ) but we think underlying EPS momentum is all important. Havas and IPG performed on revenue beats while Publicis underperformed on a revenue miss. We put WPP in the latter
camp. We are SELLERS.

And shop broker RBS, who are buyers.

Revenue down 8.1% organic (consensus -7.9%), the H2 operating margin came in at the
15.4% management guided to (vs H1 8.0%) meaning FY margin of 11.7%, EPS was 44.4p
(vs consensus 43.6p). Net debt of £2.6bn vs £3.1bn consensus.

- guidance is also as expected, budgets are indicating flat revenue for 2010 (consensus
+0.5%, we are at +1%), but these .budgets. are notoriously bad (they said flat for 2009 at this
stage last year!). January was .almost. flat and they think Q2 will be a positive quarter (albeit
easiest comp from last year at -10.5%), so we feel a positive number is warranted for 2010.
Margin guidance for 2010 is 12.7% (100bp YOY improvement, in line with consensus), and
13.2% for 2011. We are at 150bp improvement in 2010, given company.s guidance is based
on what we see as conservative top line budgets, we see upside to margin guidance.
- overall: we are sticking with 51p of EPS n 2010 vs consensus of 47p, expect consensus to move to our level (helped by currency). Better net debt could see TPs rise.

(Wibble – the FT’s biggest asset is its readers. Obviously.)

(Or, to put it another way, “shoot me now”)

moving swiftly on

11:51AM

I wanted to have a look at GlaxoSmithKline

some scary numbers coming out of UBS today

about potentiall liabilities

$6bn I think

GlaxoSmithKline PLC (GSK:LSE): Last: 1,230, down 15.17 (-1.22%), High: 1,249, Low: 1,222, Volume: 3.66m

Liabilities for what?

Avandia

Ah – diabetes

yes

anyway

in spite of scaring everyone with the number

UBS is still a buyer

Avandia litigation risk ($1bn-$6bn) exists due to 13,000+ U.S. lawsuits filed Last week, in the wake of a critical Senate report on Avandia
(diabetes), FDA is scrutinizing Avandia’s cardiovascular risk profile. As U.S. Avandia contributes 1% to sales, our concerns are solely on personal
injury lawsuits. Experts we polled suggest GSK’s liability is in the range of $1bn to $6bn. We expect liability below the midpoint of this range and note
GSK has underperformed by c$2.5bn already.

We expect further visibility after bellwether trials start on 1 June 2010 We believe the data on Avandia supports the recent AHA/ACC conclusion
that Avandia should continue to be used. That said, non-scientific political pressure from Congress will likely be as important as science at FDA in the
coming months; and, product withdrawal, if it occurs, could put GSK at the top end of our liability range. Bellwether trials start from 1 June and will help
narrow our liability range.

Reiterate Buy: Booming fundamentals override our shorter-term concerns To us, consensus GSK long-term estimates are implausibly low and
suggest upside of c25% on 2015 sales on a market under-appreciation of emerging markets & Japan. With GSK now emerging from its generics cliff
and having the greatest NME/BLA pipeline successes in global pharma from 2007-09, we see GSK’s growth outlook as exceptionally secure. We look
forward to 2011/12, where GSK has the most promising pipeline catalysts in all of E.U. large cap pharma.

Valuation: Buy; PT to 1,475p, after applying 5% discount on Avandia We value GSK on blended PE, EV/EBITDA, SOTP and DCF factors. We
conservatively apply a 5% discount on our factors to account for Avandia liability.

Hm. Interesting stuff.

Avandia, of course, sells very few bottles these days.

But the US senate last month accused GSK of fiddling safety data, which is the crux of this particular issue.

http://www.guardian.co.uk/business/2010/feb/22/glaxosmithkline-avandia-concerns-senate

indeed

11:55AM

Right a few things to recap on

the non farms

here’s a list of who is forecasting what

BBVA -30K, BARCLAYS -75K, BOA/ML -25K, COMMERZBANK -40K, CS -125K, DBK -75K, GS -100K, HSBC 25K, ING -90K, JPM -90K, MS -65K, NATIXIS 5K, NOMURA -50K, SOC GEN -50K, STANDARDS -75K,
UBS -90K

Handy. Quite a wide spread, I note.

and also

Thursday’s bond auction in Greece

who do you think the second biggest buyer was?

Dunno. You assume Greece would be first, so …. America?

nope

Zee Ghermans.

nien

by that I mean the UK

Really? REALLY?

probably only the Mayfair area of the UK

but still

Greece Watch…
- Which countries bought the new Greek 10 year?
- Greece (23%) UK (20%) Germany (14%) Asia (8%) Nordics (8%) France (7.5%) Benelux (4.5%) Italy (4%) Iberia (3%) Sw itzerland (2.5%) Other Europe (3%) Middle East (1.5%) Americas (1%)
- Official press release issued jointly by the 5 leads.

trying to track down the press release at the moment

Hm. That’s terrifying.

11:58AM

Right

it is almost midday

and we haven’t had a look at the GBK yet

And, it appears the Great British Seashell is still holding the $1.50 level.

it is

and against the euro

0.9035

actually there was a bit of action earlier this morning

hang on

let me explain

via a few broker emails

earing a HF buying large o/n downside GBP – low delta … hearing it’s
related to talk of some negative press due this weekend on the UK. The
chatter suggests that no matter who wins the economic landscape is in such
poor state that no amount of deficit cutting measures will help.

Cable moved back to the psychological 1.5000 area earlier on familiar reports
of UK clearer selling pressure. The interest is reportedly related to
outstanding 1.5000 expiries that were executed on Monday, which may cap
upward momentum ahead of non-farms.
- Hearing movement below 1.5000 will be influenced by Asian names, which have
been standout buyers in to the mid-1.49s this week.

“talk of some negative press due this weekend on the UK”?

Well, that’s a dart that’s fairly certain to hit the board.

Hang on – Neil’s on the phone.

Sounds quite raw.

right not repeating that

will be sued to high heaven if its wrong

and in any case

not a call I would want to put in

Aha. One of the livelier CEOs, I gather.

it is

about to go ex-dividend

so to speak

And, indeed, Emoticon

12:03PM

moving on

Right

tonight

it’s drinks at the Enterprise in Holburn

it’s a send off for Taxloss

we want to make sure he goes to Australia

and stays there

so come and raise a glass

to one of our original readers

and certaintly one of the most acerbic

That sounded nearly sincere, Neil.

I’m welling up.

me too

12:05PM

Right

I dried the tears

and I am ready to go on

Just wanted to mention Delta again

got bid for yesterday

but shareholders are furious about the price

and the fact that management pulled the divi four days before it was due to be announced

Are the shares still trading through the offer?

yes they are

Delta PLC (DLTA:LSE): Last: 190.25, down 1.25 (-0.65%), High: 193.00, Low: 188.50, Volume: 5.90m

and for those who are interested

I have a very good note from Guy Brown at Arden

he has done some good digging into the pension

which Delta says is one of the reason it has agreed the offer

Following the announcement of an agreed cash bid for Delta at 185p we review the value and the various cases for this deal.

Valmont have provided guidance for 2010 to be down 25%. In our view this means Valmont will be keen to secure a deal to help support earnings for 2010.

It is clear that Valmont intend to proceed with the sale of Delta EMD and if possible MMC. From our calculations this will give Delta a cash pile, after accounting for minorities, of over £160m by the year end (probably higher with cash generation).

Adjusting our 2010 forecasts for the sale of EMD, improved exchange rate and the removal of the central costs (an immediate cost saving for Valmont) we get £49.5m EBITDA, £35.7m PBT and 14.4EPS.

Average Valmont PE since 2000 is 14x and EV/EBITDA is 7.2x which provide a sensible guide as to the rating Valmont can afford to pay. On this basis, stripping out the cash but accounting for pension deficit at £70m, Valmont should be paying 260p and 289p respectively.

It is our understanding that Delta management have recommended this deal on a basis of a sum of the parts type evaluation which includes, cost of selling businesses, tax implications of extracting cash from various regions and the time value of money.

Delta management have also stated “even allowing for foreseeable organic investment plans plus some greater success in identifying and delivering add-on acquisitions in our core markets within the Asia Pacific region, it is unlikely that the Delta Group’s net cash can be substantially deployed.”

We strongly disagree with both of these assumptions. In our January research note we looked at the possibility of the group deploying its capital in infrastructure in the Asia Pacific region and valued the group between 199p and 226p just to reach a sector rating. Valmont also appear to agree with our view “We would think that some other businesses that they have developed in Southeast Asia, we maybe able to continue to grow outside the geographic area where they are currently active.

The final part of the managements view is that the pension deficit should be valued at the full cost of a buy out at c.£140m. We argue this the £70m deficit expected with 2009 results is more realistic given that the company have agreed with trustees c£7.3m annual top ups which has a present value of c.£56m.
u We noted that the Valmont share price closed up 10% yesterday, it seems clear Valmont is getting a lot of value out of this deal.

Couple of things in there

the buyer, Valmont,

up 10% yesterday

in spite of issuing a profit warning

quite clear where the value is going in this deal

12:08PM

Bryce

anything else you would like to look at?

Nah – that’s me done for the week I think.

me too

hope to see a few of you this evening

especially you MR FOWKE

will you be there?

That’d be a coup.

it would be

the world’s foremost financial shamen

A real tribute

http://www.the-enterprise.co.uk/

come on Michael

you know you want to

we need your guidance

at this confusing time

right

another wittering

thanks for logging on this week

Yeah – and thanks as ever for all your comments.

and Monkey

will you be there?

Monkey – that’s pathetic. Who’s more important, your missus or us?

Right

that’s it from me

and from him

see you all next week

Good Friday, y’all.

FTSE 100 up 30 points at 5,557

http://www.rallymonkey.com/oldvideo.php

and Swedes

all welcome Vince

GKP’ers

rival media

anyone

Except rival media.

except rival media

that’s it

goodbye

This entry was posted by Bryce Elder on Friday, March 5th, 2010 at 11:03 and is filed under Uncategorised. Edit this entry.

Share Print

Markets Live transcript 5 Mar 2010

Popular posts

Most commented

Tags

Blogroll

Site Navigation

Categories

The Cut by date

Jump to day