Markets Live chat transcript for the chat ending at 12:14 on 8 Mar 2010. Participants in this chat were: Neil Hume, FT Bryce Elder
NH
Good morning
NH
and welcome to Markets Live
NH
FT Alphaville’s daily markets discussion
NH
Bryce is here
BE
Hello everyone. Well, TaoPooh anyway.
BE
Not sure where everyone else is.
NH
and before we start
NH
a big thanks to everyone who made leaving drinks for Taxloss on Friday
NH
no outrageous behaviour but you did miss some good horse racing tips and Taxloss in a very fetching England baseball cap
NH
hopefully
NH
someone can put that up in the LR
NH
and Taxloss does not wear it
NH
on entering customs down under
NH
Right
NH
let’s get straight to the markets
11:05AM
NH
and after Friday’s surge, which took the FTSE 100 to a 18-month high…
BE
So we’re down 19 at 5580
BE
Miners slipping a bit on profit taking
BE
And AstraZeneca’s weak after one of its cancer drugs failed at late-stage
AstraZeneca PLC (AZN:LSE): Last: 2,956, down 39.53 (-1.32%), High: 2,990, Low: 2,940, Volume: 2.42m
NH
hmmm
NH
a year tomorrow
NH
is the anniversary of the S&P’s plunge to 666
NH
intra-day of course
NH
and look at it now
BE
Has it been a year already? My word.
NH
1,138
NH
actually
NH
I did a quick post on this earlier
NH
because Deutsche’s Jim Reid
NH
was trying to put iti into perspective
NH
and here is a bit of his note
NH
Anyway it’s a big anniversary week as tomorrow marks the 12-month point of the
dramatic decade-plus lows in equity markets. Since then the S&P 500 and Euro DJ
Stoxx 600 have returned 71.4% and 69.6% respectively (including dividends). US
and European HY are 53% and 78.8% higher and BBBs have returned 31.2% and
28.6% respectively in the two regions. So a stunning period for returns across
equities and credit.
dramatic decade-plus lows in equity markets. Since then the S&P 500 and Euro DJ
Stoxx 600 have returned 71.4% and 69.6% respectively (including dividends). US
and European HY are 53% and 78.8% higher and BBBs have returned 31.2% and
28.6% respectively in the two regions. So a stunning period for returns across
equities and credit.
NH
If we look back at historic 12-month price moves in the S&P
500 this period will likely rank in the top 130 of the 20,263 rolling 12-month periods
we have data for back to 1928. So this has been an extreme move. In looking at
what normally happens after such an extreme move we hit complications. At face
value when we’ve seen 1-yr moves of 50% plus, the average 3m, 6m, 12 month
and 2-yr subsequent performance has been -3.9%, -4.3%, -4.3% and -1.2%
respectively.
500 this period will likely rank in the top 130 of the 20,263 rolling 12-month periods
we have data for back to 1928. So this has been an extreme move. In looking at
what normally happens after such an extreme move we hit complications. At face
value when we’ve seen 1-yr moves of 50% plus, the average 3m, 6m, 12 month
and 2-yr subsequent performance has been -3.9%, -4.3%, -4.3% and -1.2%
respectively.
NH
So this doesn’t look promising for the rest of 2010 and indeed 2011.
However virtually all these 308 periods occurred in the early-mid 1930s. Back then
the market nearly tripled from its July 1932 low to July 1933 before retreating by
around 33% to March 1935. So the vast majority of readings are skewing by the
reversal in this period.
However virtually all these 308 periods occurred in the early-mid 1930s. Back then
the market nearly tripled from its July 1932 low to July 1933 before retreating by
around 33% to March 1935. So the vast majority of readings are skewing by the
reversal in this period.
11:09AM
NH
Right
NH
some breaking news
NH
from AIG
NH
sold another business
NH
DJ MetLife To Acquire Amer Life Insurance Co From Amer Intl*METLIFE TO ACQUIRE AMERICAN LIFE INSURANCE CO. FROM AMERICAN*METLIFE TO BUY AMERICAN LIFE INSURANCE CO. FROM AMERICAN INTL G*METLIFE TO BUY AMERICAN LIFE INSURANCE COMPANY FROM AMERICAN
NH
deal value
NH
$15.5bn
NH
$6.8bn cash
NH
$8.7bn equity
BE
And the government’s going to end up holding about a fifth of Metlife, by the looks of it.
NH
indeed
NH
while we are talking about AIG
NH
loads of spin on the Pru deal over the weekend
NH
one line that seemed to be getting a lot of play
NH
doubtless down to Brunswick
NH
was the idea that shareholders should support the deal
NH
because we need more world beating companies in this country
BE
Hm. We really need to add a “puke” emoticon.
NH
yes
NH
especially
NH
as the Pru says today it wants a secondary listing in Hong King
BE
Which I’d thought would have triggered a more positive reaction than it has.
BE
If the argument is that UK long-onlys have been selling to no buyers, surely this is a reasonable fix.
BE
Yet …
Prudential Plc (PRU:LSE): Last: 521.50, up 1.5 (+0.29%), High: 533.50, Low: 517.50, Volume: 7.24m
NH
hmmm
NH
interesting note out from Blair Stewart and his team at Merrill today
NH
they reckon the deal is on a knife edge
NH
and the Pru might not get the 75% acceptances they need
BE
Why’s that?
NH
well, they have been polling investors and there is a lot they don’t like about the deal
NH
and they don’t even mention the rather boneheaded idea
NH
of not offering sub underwriting to shareholders
BE
Really?
NH
according to the Telegraph
NH
the rights issue gravy train
NH
is one of thinigs you can use in your favour
BE
No subunderwriting seems …. er …. I’m not sure what word to use. Brave? Foolhardy?
NH
well they have it
NH
just not with shareholders
NH
banks and SWFs
NH
Top institutional investors are threatening a revolt against Tidjane Thiam, chief executive of Prudential, after being excluded from sub-underwriting the insurer’s $20bn (£14bn) rights issue.
NH
Shareholders are furious that they have not been offered a role in sub-underwriting the record-breaking deal and that the job and the lucrative fees have been given to a group of 30 banks instead. Sub-underwriting fees are expected to run to hundreds of millions of dollars.
NH
(Lemmy – precisely)
BE
So have you got this Merrill note?
NH
yes
NH
one moment
NH
We summarise our thinking on the Prudential/AIA deal having digested the detail
and engaged in many conversations with investors. It has become apparent, in
our view, that shareholder approval of the deal should not be seen as a given, we
think the prospects of gaining 75% approval are finely balanced. In terms of the
share price, we see three main scenarios from here and set out our thinking on
how investors should position for these:
and engaged in many conversations with investors. It has become apparent, in
our view, that shareholder approval of the deal should not be seen as a given, we
think the prospects of gaining 75% approval are finely balanced. In terms of the
share price, we see three main scenarios from here and set out our thinking on
how investors should position for these:
NH
The shares come under sustained pressure. The shares look vulnerable
down to the c450p level at which point the chances of the deal breaking and
a snap back to c600p pre-deal becomes high enough to discourage selling
down to the c450p level at which point the chances of the deal breaking and
a snap back to c600p pre-deal becomes high enough to discourage selling
NH
The shares become range bound until the rights issue period. This is
a more likely scenario, in our view. Our analysis of past rights issue patterns
suggests it is possible the shares come under most pressure in the early
days of the ex-rights period before recovering in the latter part of this period.
a more likely scenario, in our view. Our analysis of past rights issue patterns
suggests it is possible the shares come under most pressure in the early
days of the ex-rights period before recovering in the latter part of this period.
NH
The shares recoup initial losses and rally into the deal. In this case the
deal starts to look less dilutive and the chances of a successful vote increase.
deal starts to look less dilutive and the chances of a successful vote increase.
NH
Win / win from here; retain Buy
From current levels, we see something of a win/win situation over a 12 month
view. The shares either go up; or the shares go down giving a more attractive
entry point for the bounce that we believe will happen if a) the deal is abandoned
or voted down; or b) the deal goes ahead and a re-rating occurs over the
subsequent months. This is predicated on our view that the combined entity is
undervalued at less than 12x EPS; and that Prudential is even more attractive on
a stand alone basis at less than 10x EPS. Reiterate Buy rating; PO 750p.
From current levels, we see something of a win/win situation over a 12 month
view. The shares either go up; or the shares go down giving a more attractive
entry point for the bounce that we believe will happen if a) the deal is abandoned
or voted down; or b) the deal goes ahead and a re-rating occurs over the
subsequent months. This is predicated on our view that the combined entity is
undervalued at less than 12x EPS; and that Prudential is even more attractive on
a stand alone basis at less than 10x EPS. Reiterate Buy rating; PO 750p.
NH
and of course
NH
as LYO notes
NH
Lina’s column was very funny this morning
NH
Thiam’s guide to acquisitions
NH
But for those chief executives who have cut costs and repaired their balance sheets and are now itching to expand through acquisitions, here is Mr Thiam’s 12-point guide to express M&A in a downturn, written with the assistance of his lead adviser, Credit Suisse.
NH
1) Run a FTSE 100 company for a maximum of six months before launching the biggest deal of your life.
2) Choose a target which will double the size of your market capitalisation in one go.
3) Hire the same advisers that had been advising your target’s parent company on a potential flotation.
4) Give those advisers less than a week in which to put together any deal of significant size and complexity.
5) Choose one large market, such as Asia, then bet the entire company on that strategy.
NH
there’s 12 points in all
NH
but you get the idea
NH
full link above
BE
Very pithy.
BE
I doubt she’ll be on Credit Suisse’s Christmas card list this year.
NH
(11) Agree to pay the parent’s target company a multi-million dollar break-fee, but don’t insist on having one to protect yourself against a counter-bidder.
12) Find a reputable clairvoyant and consult them every day until the deal closes
NH
11:19AM
NH
Okay
NH
enough of that
NH
Lets turn to some M&A
NH
Forth Ports
Forth Ports PLC (FPT:LSE): Last: 1,390, up 273 (+24.44%), High: 1,402, Low: 1,353, Volume: 402.16k
NH
revealed late Friday
NH
it has rejected two offers from a consortium
BE
Peel Ports, RREEF and Arcus
NH
led by the bloke who owns most of the North West
BE
John Whittaker
BE
Peel Holdings chairman
NH
John Lennon Airport
NH
Trafford Centre
NH
etc
BE
And the reason they knocked back the two offers seems to be ….
BE
That they paid £20 a share a few years ago
NH
I know
NH
strange defence
NH
the bidders own 27%
NH
of course valuing Forth Ports
NH
is going to be something of an art
NH
not a science
NH
because no one really knows what the property in Leith is worth
NH
various price targets being thrown around this morning
NH
I have seen £14
NH
and over £15
BE
Indeed. It’s an odd see-saw play between Edinburgh real estate and the Baltic Dry index.
NH
indeed
NH
some comment I think
BE
Sure
BE
Kicking off with UBS, which is quite a manilla look at the deal.
BE
Bid proposal made and rejected
Post market close on Friday a consortium of Peel Ports, RREEF and Arcus (owners
of 27% of FPT) confirmed it had made a proposal to buy FPT for 1,340p per share
(increased from an initial 1,285p). Also on Friday FPT’s Board released a
statement that it had rejected the offer as falling “far short of the value of Forth
Ports”. Both sides have stated an intention to meet post the preliminary results
announced (on 22nd March) in the context of the consortium’s position as a major
shareholder.
Post market close on Friday a consortium of Peel Ports, RREEF and Arcus (owners
of 27% of FPT) confirmed it had made a proposal to buy FPT for 1,340p per share
(increased from an initial 1,285p). Also on Friday FPT’s Board released a
statement that it had rejected the offer as falling “far short of the value of Forth
Ports”. Both sides have stated an intention to meet post the preliminary results
announced (on 22nd March) in the context of the consortium’s position as a major
shareholder.
NH
(NJS – exactly, I have no idea)
BE
Publication of the offer appears to have been an attempt to force the issue
The publication of the proposal appears to be an attempt by the consortium to force
further discussions with the company and to alert other shareholders that an offer
has been made. We believe it is likely that further discussions will be held,
although clearly the parties appear some way off any agreement on price.
We believe a minimum of £15 is likely to be needed for a successful offer
Although there are few true comparable companies and historical transactions are
somewhat redundant given they were done in a much easier debt environment, we
believe that an offer of at least £15 would be needed to make a deal succeed
The publication of the proposal appears to be an attempt by the consortium to force
further discussions with the company and to alert other shareholders that an offer
has been made. We believe it is likely that further discussions will be held,
although clearly the parties appear some way off any agreement on price.
We believe a minimum of £15 is likely to be needed for a successful offer
Although there are few true comparable companies and historical transactions are
somewhat redundant given they were done in a much easier debt environment, we
believe that an offer of at least £15 would be needed to make a deal succeed
BE
Valuation: Our PT remains 1,150p
Given the inherent uncertainties surrounding any potential deal, we retain our
Neutral rating, PT 1,150p. Our valuation is based on a sum-of-the-parts. However,
we would expect the shares to open in Monday at a premium to the proposed offer
price (1,340p).
Given the inherent uncertainties surrounding any potential deal, we retain our
Neutral rating, PT 1,150p. Our valuation is based on a sum-of-the-parts. However,
we would expect the shares to open in Monday at a premium to the proposed offer
price (1,340p).
NH
So at least £15 at UBS
BE
Yup. And here’s Arbuthnot with a bit more colour.
BE
After the close on Friday, Northstream, a consortium consisting of Arcus, Peel Holdings and RREEF, revealed an
approach regarding a possible takeover offer for Forth Ports. The consortium currently holds a 27.4% stake in the
group.
The consortium first approached Forth Ports on 28 January 2010 with a possible all cash offer of 1285p per share.
Following discussions between respective advisers and “limited guidance on value” the consortium improved its
terms to 1340p per share, conditional upon a recommendation by the board and completion of due diligence. Forth
Ports agreed to meet with the consortium, but not until after the publication of the group’s 2009 results on 22 March
2010. Following the consortium’s statement, Forth Ports has rejected the approaches.
approach regarding a possible takeover offer for Forth Ports. The consortium currently holds a 27.4% stake in the
group.
The consortium first approached Forth Ports on 28 January 2010 with a possible all cash offer of 1285p per share.
Following discussions between respective advisers and “limited guidance on value” the consortium improved its
terms to 1340p per share, conditional upon a recommendation by the board and completion of due diligence. Forth
Ports agreed to meet with the consortium, but not until after the publication of the group’s 2009 results on 22 March
2010. Following the consortium’s statement, Forth Ports has rejected the approaches.
BE
Valuing Forth Ports is particularly challenging due to the presence of numerous assets that have potentially
significant value that bears little or no relation to the cash flows currently being generated from them. The group has
a substantial property development land bank whose value is difficult to discern given the very long-term nature of
some of the potential development projects (in particular the land in and around the port of Leith) and the current
depressed state of the housing and property markets. It has also recently launched a JV with Scottish and Southern
Energy to exploit renewable energy opportunities with the ports estates, but no projects have commenced
construction or operations yet.
The group’s core port operations benefit from long-term contracts that give stability and visibility of revenues, but
the business has not been immune from the recession. Tilbury Container Services, the container terminal business
in which the group has a 33% shareholding, has been particularly hard hit, for example. As such, the group’s port
earnings are somewhat cyclically depressed at present.
significant value that bears little or no relation to the cash flows currently being generated from them. The group has
a substantial property development land bank whose value is difficult to discern given the very long-term nature of
some of the potential development projects (in particular the land in and around the port of Leith) and the current
depressed state of the housing and property markets. It has also recently launched a JV with Scottish and Southern
Energy to exploit renewable energy opportunities with the ports estates, but no projects have commenced
construction or operations yet.
The group’s core port operations benefit from long-term contracts that give stability and visibility of revenues, but
the business has not been immune from the recession. Tilbury Container Services, the container terminal business
in which the group has a 33% shareholding, has been particularly hard hit, for example. As such, the group’s port
earnings are somewhat cyclically depressed at present.
BE
A sum-of-the-parts approach using the AB Ports exit EV/EBIT multiple to value the ports business and adjusting the
2008 DTZ valuation of the group’s development land bank for tax, the double counting of ports cash flows and the
full ownership of the Ocean Terminal shopping centre gives a valuation in the region of 1400p.
However, we believe it is reasonable to consider the 2008 land bank valuation (£60m/131p per share) to be
depressed by the poor state of the housing and property markets. Equally, the 2007 valuation of £282m (617p per
share) reflected the bullish prevailing market outlook. A medium-term approach to valuation would probably yield a
figure in between the two values. It remains to be seen to what extent shareholders are willing to trade a premium
for the ports business for the long term upside potential in the land bank.
2008 DTZ valuation of the group’s development land bank for tax, the double counting of ports cash flows and the
full ownership of the Ocean Terminal shopping centre gives a valuation in the region of 1400p.
However, we believe it is reasonable to consider the 2008 land bank valuation (£60m/131p per share) to be
depressed by the poor state of the housing and property markets. Equally, the 2007 valuation of £282m (617p per
share) reflected the bullish prevailing market outlook. A medium-term approach to valuation would probably yield a
figure in between the two values. It remains to be seen to what extent shareholders are willing to trade a premium
for the ports business for the long term upside potential in the land bank.
NH
Hmmm. So its stick a finger in the air and come up with a valuation time
BE
(NJS: there’s a fair few benchmarks north of the border for unfinished flats built in wind tunnels. You’ve just described 90% of Dumfermline, for example.)
BE
Right – should we push on?
NH
interesting though that a consortium is looking to do
NH
this sort of deal
NH
ports and property
NH
a bullish sign I guess
NH
for other deals
NH
or am I just clutching at straws?
BE
Well, we’re in a mini property bull market, for reasons we’ve discussed endlessly.
NH
(Monkey )
)NH
I must admit
NH
I have neither been Leith
NH
have you Bryce?
BE
Of course
NH
and…
BE
Lived in Edinburgh for nearly a decade.
BE
And it’s jolly nice. In parts.
NH
so what’s the idea
NH
this could be another Docklands?
BE
Yeah – kind of. They’ve rejigged around the port, which has all the usual middle class trappings
BE
Malmaisons etc.
BE
And they’ve cleared out the hookers
NH
Malmaison – what was it, the dear departed Taxloss had to say about that?
BE
I forget, sadly. Will have to Google.
NH
Let’s move before I am forced to use the zapper. trying really hard not to
NH
but some seriously annoying comments from the ROTR today
BE
Ok – light touch regulation can only last so long.
NH
and I really don’t want to ban someone on Monday
11:30AM
NH
Right
NH
shall we have a look at AstraZeneca
BE
Yup, mentioned earlier
AstraZeneca PLC (AZN:LSE): Last: 2,951, down 44.5 (-1.49%), High: 2,990, Low: 2,940, Volume: 2.47m
NH
what’s happened
NH
a drug failed?
BE
Yeah – Recentin
BE
In late stage tests
BE
Failed to equal Roche’s Avastin
NH
cancer drug then
BE
Yeah. Trial was for initial treatment of colon cancer.
BE
And it seems this failure was widely expected, if you can say such a thing
BE
Not least because of AZ’s mediocre record of bringing anything through to commerciality
NH
yes, the drug company without a pipeline
NH
novel approach
NH
they will have to make another acquisition soon
BE
Or sack all their lab staff
NH
yes outsource
NH
the white coats
BE
Which, come to think of it, they’re already doing.
NH
any comment?
BE
Sure
BE
Merrill to start
BE
Limited impact on forecasts but removes a future catalyst
AZN has published headline data for Recentin (VEGF inhibitor, cancer) stating
that it has missed its non-inferiority primary endpoint in the HORIZON III Phase III
study, head to head vs Avastin. Although a further Phase III study is still expected
(HORIZON II vs placebo+chemotherapy), we see regulatory filing and approval in
1st line metastatic colon cancer as highly unlikely now. Although the impact on
forecasts and valuation is limited since our forecasts, and consensus, had been
cautious (risk-adjusted sales of only $350m in 2015, c1.5% to group sales), the
news removes a potential positive catalyst for the stock. Despite its relatively
cheap valuation at only 8x 2011E, based on our analysis AZN still has the worst
mid-term growth outlook in the EU pharma sector and Crestor litigation remains
asymmetric negative risk-reward, hence our Neutral rating.
AZN has published headline data for Recentin (VEGF inhibitor, cancer) stating
that it has missed its non-inferiority primary endpoint in the HORIZON III Phase III
study, head to head vs Avastin. Although a further Phase III study is still expected
(HORIZON II vs placebo+chemotherapy), we see regulatory filing and approval in
1st line metastatic colon cancer as highly unlikely now. Although the impact on
forecasts and valuation is limited since our forecasts, and consensus, had been
cautious (risk-adjusted sales of only $350m in 2015, c1.5% to group sales), the
news removes a potential positive catalyst for the stock. Despite its relatively
cheap valuation at only 8x 2011E, based on our analysis AZN still has the worst
mid-term growth outlook in the EU pharma sector and Crestor litigation remains
asymmetric negative risk-reward, hence our Neutral rating.
BE
Sentiment positive for Roche
In our opinion, negative Recentin data is a marginal sentiment positive for Roche
as it removes a potential competitive overhang to Avastin forecasts. As a
reminder for investors, the only key competitive data outstanding for Avastin
short-term is now the Nexavar Phase III study in lung cancer (NeXus), from which
data is expected shortly.
In our opinion, negative Recentin data is a marginal sentiment positive for Roche
as it removes a potential competitive overhang to Avastin forecasts. As a
reminder for investors, the only key competitive data outstanding for Avastin
short-term is now the Nexavar Phase III study in lung cancer (NeXus), from which
data is expected shortly.
BE
Crestor patent trial outcome next key event
Significant downside risk to our forecasts exists from the outcome of Crestor US
patent litigation. The trial has recently completed and a decision is expected at
any time in the next 3-4 months. We see negative risk-reward to the AZN share
price from litigation outcome, (as early generic entry is not assumed by the
market) with >10% share price downside should AZN lose litigation but limited
upside (2-3%) should it win. However, we maintain our Neutral rating given
inequitable conduct trials have historically proven difficult for generics to win.
Significant downside risk to our forecasts exists from the outcome of Crestor US
patent litigation. The trial has recently completed and a decision is expected at
any time in the next 3-4 months. We see negative risk-reward to the AZN share
price from litigation outcome, (as early generic entry is not assumed by the
market) with >10% share price downside should AZN lose litigation but limited
upside (2-3%) should it win. However, we maintain our Neutral rating given
inequitable conduct trials have historically proven difficult for generics to win.
BE
That last point really is the sword of Damocles hanging over AstraZeneca
NH
thanks for that
11:35AM
BE
Where now?
NH
more breaking news, very quickly
NH
RTRS-EMAAR’S INDIA UNIT SAYS GETS MARKET REGULATOR APPROVAL FOR $770 MLN IPO
BE
(BB: you read it in the FT I suspect)
NH
hang on
NH
I don’t think that is the big Emaar float
NH
which should be coming to London
NH
to make the market even more international
11:36AM
NH
Right
NH
a couple of results statements out this morning
NH
Petrofac
NH
and Tullett Prebon
NH
leap out at us
NH
one good, one bad
BE
So do you want to start with the good news or the bad news?
NH
bad news I think
NH
Tullett
Tullett Prebon Plc (TLPR:LSE): Last: 306.30, down 18.4 (-5.67%), High: 325.00, Low: 306.00, Volume: 765.19k
NH
what’s caused that?
BE
No real surprises in the numbers it seems.
NH
revenues down 6% because of all the staff they lost
NH
and apparently it is cheap
NH
on 8 times forecast earnigs
BE
…. but with regulatory risk unlikely to go away
NH
true
NH
and still very much a voice broker
NH
as opposed to Icap
NH
Right
NH
just trying to get a bit of comment on this
NH
Here’s James Hamilton at Numis
NH
Profit in line at £157m with EPS a little better (49.2p) due to a lower tax charge and dividend also better at 15p for the full year. Revenue run rate down 5% in first two months and the group has lost 6% of revenue due to staff losses. We believe the profit impact of the staff losses is a fraction of the revenue and expect much of the revenue to be replaced as the year progresses. We do not expect to substantially change our forecasts and expect profits to fall 14% this year to £134.8m which translates to a PE of 7.8x and a 5% yield.
NH
Tullett continues to benefit from the weakness of the pound with 34% of group revenues being in US $ and with the average exchange rate last year being 1.55 there should be some further benefit through 2010. At constant exchange rates revenues fell 9% last year and the run rate is down 5% so far this year. Revenues through H2 2009 were however 17% lower than those in H1. We currently expect a 7% decline in revenues and a 14% decline in profitability this year delivering what we hope to be a bottom
NH
There seems to be no letup in the governmental pressure for bank risk taking and trading to be restricted with greater capital allocated against such trades. Our concern is IDB volumes could see a second leg down post the introduction of new regulation. While Tullett is exposed to this regulatory risk we believe IDB’s provide a valuable part of the global economy.
Valuation and growth: Tullett is being valued at 7.8x this years earnings. While there could be a further regulation driven decline in earnings we believe the shares offer a good risk reward profile given our belief in the medium term growth prospects.
Valuation and growth: Tullett is being valued at 7.8x this years earnings. While there could be a further regulation driven decline in earnings we believe the shares offer a good risk reward profile given our belief in the medium term growth prospects.
NH
and something very quick from KBC
NH
Tullett remains in a period of litigation with BGC and against this backdrop we considered that it was unlikely that the Group would paint an overtly positive picture in terms of current trading conditions.
NH
However, there are several encouraging points made within the statement; revenues in the first two months of this year are 5% lower than the same period last year but the revenue run rate is expected to improve as the year progresses; the net revenue loss relating to the BGC defections has been revised down from 7.5% to 6.0%; and Sterling weakness is likely to benefit the Group is current weakness is sustained. The results have pretty much met our expectations we see some scope to upgrade our 2010 forecasts and will review our numbers post the results meeting. Based on our current forecasts the stock is trading on just 8x 2010 earnings and 3.8x EV/EBITDA. This compares to a CY-10 EV/EBITDA multiple of 6.8x for ICAP suggesting a 44% discount for Tullett.
NH
While ICAP may have a lead in terms of pure eBroking and post trade services we do not consider that the extent of the discount is fully justified. Some consolidation may occur post these results, however this is likely to be short lived with the outcome of the UK court case due in the next couple of weeks, with the outcome likely to be favourable for Tullett and consequently we remain happy to maintain our Buy recommendation and 400p. Tullett remains our top pick in the General Financials sector.
11:40AM
NH
Now, turning to Petrofac
NH
which is up
NH
the biggest riser in the FTSE 100
Petrofac Ltd (PFC:LSE): Last: 1,114, up 42 (+3.92%), High: 1,120, Low: 1,052, Volume: 1.54m
NH
although it was a dog last week
NH
after the demerger, which was supposed to unlock value
NH
demerger of its north sea assets that is
BE
Well, quite.
BE
Management’s plan to reveal hidden value actually managed to destroy it.
BE
Anyway, the 2009 figures are about 5% better than the pre-close trading statement
NH
I see
BE
Driven by the engineering and construction fivision, which looks to have been jacking up prices quite effectively
BE
Excuse the pun.
NH
boom, boom
BE
Before I disgrace myself further, here’s some comment
BE
Credit Suisse says: “nice figures, but where’s the outlook?”
BE
FY09 net profit of $354m came in ahead of consensus of $329m and
guidance of $330m. The beat came from a solid set of results across all
divisions. A key highlight is the strong margin posted by the Engineering and
Construction division (E&C).
■
This is a solid set of results but we are disappointed by the lack of explicit
earnings guidance for 2010. We were hoping for this following news of the
EnQuest spin off. Perhaps more detail will emerge in the results presentation.
guidance of $330m. The beat came from a solid set of results across all
divisions. A key highlight is the strong margin posted by the Engineering and
Construction division (E&C).
■
This is a solid set of results but we are disappointed by the lack of explicit
earnings guidance for 2010. We were hoping for this following news of the
EnQuest spin off. Perhaps more detail will emerge in the results presentation.
BE
The key E&C division (70% of EBITDA) came in slightly ahead, posting Net
Income of $265m vs consensus of $259m. Crucially, a strong net profit
margin of 10.6% suggests sound project execution in the context of a tax
rate that was slightly higher than anticipated (18.2% vs 12.7%). Revenues of
$2.5bn FY09 vs $1.0bn in 1H09 indicate good progress on the large
contracts awarded last year (Asab, El Merk and Karan). The low profit
contribution from these early phase projects looks to have been more than
offset by projects nearing completion (Harweel, In Salah, Jihar, Ebla).
Income of $265m vs consensus of $259m. Crucially, a strong net profit
margin of 10.6% suggests sound project execution in the context of a tax
rate that was slightly higher than anticipated (18.2% vs 12.7%). Revenues of
$2.5bn FY09 vs $1.0bn in 1H09 indicate good progress on the large
contracts awarded last year (Asab, El Merk and Karan). The low profit
contribution from these early phase projects looks to have been more than
offset by projects nearing completion (Harweel, In Salah, Jihar, Ebla).
BE
Energy Developments net profit of $46m came in 17% ahead of consensus
of $39m. This is positive given that management guided to a $0.29m loss for
the UK assets in FY09 in the recent EnQuest conference call. Current
production guidance for 15-30kbpd production from the Don fields in 2010
and we remain in the middle of this range at 23 kbpd.
of $39m. This is positive given that management guided to a $0.29m loss for
the UK assets in FY09 in the recent EnQuest conference call. Current
production guidance for 15-30kbpd production from the Don fields in 2010
and we remain in the middle of this range at 23 kbpd.
BE
Valuation: Petrofac trades on an ex-Energy Developments PE of
14.6/12.8/11.3x on 2010/11/12E, 13-20% discount to Saipem and Technip.
Shares +10% 1M best performer vs sector +3%.
14.6/12.8/11.3x on 2010/11/12E, 13-20% discount to Saipem and Technip.
Shares +10% 1M best performer vs sector +3%.
BE
And JPMorgan as well
BE
Another very impressive result from Petrofac and, as expected, one of
the most positive outlook statements in the sector with respect to 2010.
2009 EPS growth guidance was upped from “at least 20%” (IMS on 22
October) to “around 25%” (trading statement on 16 December) – actual
growth of 34% is well ahead of our 28% forecast (Bloomberg
consensus at 28%). We do not expect to make any material changes to
our earnings forecasts, but consensus lags by 8% for 2010E and 3% for
2011E – these results and the guidance provided should trigger a
closure of this gap. We reiterate our OVERWEIGHT recommendation
on Petrofac.
the most positive outlook statements in the sector with respect to 2010.
2009 EPS growth guidance was upped from “at least 20%” (IMS on 22
October) to “around 25%” (trading statement on 16 December) – actual
growth of 34% is well ahead of our 28% forecast (Bloomberg
consensus at 28%). We do not expect to make any material changes to
our earnings forecasts, but consensus lags by 8% for 2010E and 3% for
2011E – these results and the guidance provided should trigger a
closure of this gap. We reiterate our OVERWEIGHT recommendation
on Petrofac.
BE
We expect the potential de-merger of Petrofac’s North Sea assets to
highlight the compelling underlying value in this stock – the hybrid
nature of Petrofac has created some concerns over valid fair value
assumptions. This has increased as the relative significance of earnings
from Petrofac Energy Developments (PED) has grown. However
following very material earnings upgrades in Petrofac’s service
segments, combined with operational difficulties in the Don area
development, the share of consensus 2010 earnings from PED has
fallen from 52% (mid-2008) to 27% (end-2009). If the demerger of the
North Sea assets is successful, we envisage this falling to less than
10%.
highlight the compelling underlying value in this stock – the hybrid
nature of Petrofac has created some concerns over valid fair value
assumptions. This has increased as the relative significance of earnings
from Petrofac Energy Developments (PED) has grown. However
following very material earnings upgrades in Petrofac’s service
segments, combined with operational difficulties in the Don area
development, the share of consensus 2010 earnings from PED has
fallen from 52% (mid-2008) to 27% (end-2009). If the demerger of the
North Sea assets is successful, we envisage this falling to less than
10%.
BE
In 2006, the last time PED earnings were equally immaterial, financial
markets were willing to ignore Petrofac’s marginal hybrid status, and
effectively apply a simple fair value multiple across the group’s
earnings. If our prognosis is correct, and this trend returns, we could
see a very material positive share price trend over the next few weeks
as valuation expands, and brings Petrofac’s multiples more in-line with
its sector peers. We expect this valuation expansion, alongside the
distribution to shareholders via the potential demerger, to more than
offset earnings downgrades (which admittedly we expect to be
material) as the contribution from the Don area is excluded.
markets were willing to ignore Petrofac’s marginal hybrid status, and
effectively apply a simple fair value multiple across the group’s
earnings. If our prognosis is correct, and this trend returns, we could
see a very material positive share price trend over the next few weeks
as valuation expands, and brings Petrofac’s multiples more in-line with
its sector peers. We expect this valuation expansion, alongside the
distribution to shareholders via the potential demerger, to more than
offset earnings downgrades (which admittedly we expect to be
material) as the contribution from the Don area is excluded.
NH
thanks for that
11:44AM
NH
Okay
NH
let’s cut to the miners for a sector
NH
lots of rumours around this morning
NH
following Friday’s coking coal settlement between BHP and the Japanese steel mills
NH
the feeling seems to be
NH
that we could be getting some equally impressive news
NH
from the iron ore talks
BE
Spot price on iron ore has been rocketing hasn’t it?
NH
I think so
NH
anyway
NH
picked this up from a broker earlier
NH
Steel Business Briefing reported a story that Brazil will increase domestic prices by 80% & ArcelorMittal’s CEO of Flat Carbon Products Europe has said he is hearing 70-80% iron ore price rises from Asia in 2010 (MB / Australian news). Cons ests have risen rapidly from 20-30% at the start of yr to 40-70% currently. We are iron ore bulls on a 1 yr view & remain Overweight RIO. Iron ore is c50% of RIO’s EBITDA in 2010 & 50%+ settlement is not yet in the price; 80% settlement would move RIO to a PER
BE
So Rio’s the big play on this theme?
NH
it would seem so
Rio Tinto PLC (RIO:LSE): Last: 3,700, down 1 (-0.03%), High: 3,774, Low: 3,684, Volume: 1.96m
NH
hang on
NH
to put that above into some more perspective
NH
here’s Credit Suisse
NH
We are iron ore bulls on a one year view and remain Overweight RIO. Iron ore is c.50% of RIO’s EBITDA in 2010 and a 50%+ settlement is not yet in the price; an 80% settlement would move RIO to a PER of 7.5x. XTA is our top pick from the large caps driven by gearing to an OECD recovery, valuation and growth potential. From the mid-caps our top pick is ENRC driven by the upside potential to ferrochrome and earnings in Q210.
NH
so anything above 50%
NH
is not in the price
NH
as for the coking coal news, lots of comment on that today
NH
and the fact that this is a quarterly deal
NH
here’s Liberum Securities
NH
On Friday Japanese steel mills (Nippon, JFE, Sumitomo and Kobe) agreed the first ever quarterly settlement for coking coal with BHP Billiton at $200/t. The fact that the Japanese (who have traditionally been the chief proponents of annual pricing) settled on a quarterly contract, marks a step-change in coking coal’s pricing mechanism that will now prove difficult to reverse. While the price ($200/t for premium hard coking coal) was not the “blow out” that some were anticipating, media reports have suggested BHP enticed mills to switch to quarterly pricing with less aggressive offers on 3 month contracts ($240/t was reportedly offered on an annual basis). While the seaborne coking coal market is smaller and arguably even tighter market than the iron ore market, this could be an omen for where iron ore contracts are heading which would have a much larger impact on the general earnings profiles of UK listed miners.
NH
What is clear from this outcome is that BHP (and probably Teck too) will now push hard for higher quarterly pricing in the second half of the year and $200/t now feels like a floor price. Spot tonnages are currently being reported as high as $260/t and all of a sudden the anomaly $300/t settlement of 2007 doesn’t seem out of the question, even without the severe storms that interrupted production in the Bowen Basin (the source of c.60% of seaborne supply) in 2008. Last year was the first time China entered the seaborne makret for coking coal in a meaningful way, importing 30mt of a 260mt market. Part of the fear in coking coal markets is that domestic Chinese demand will again outstrip supply in China in 2010, with all the excess demand spilling onto the Chinese market.
NH
We had forecast $185/t in our models so will be making positive revisions to $200/t on a mark to market basis. What does it mean for the companies? Anglo American has the best exposure to coking coal (partly due to it having the highest gearing) with a net earnings uplift of +2.1% for 2010 for the $15/t price increase, followed by BHP Billiton (+1.7%), Xstrata (+1.6%) and Rio Tinto (+0.8%).
We had forecast $185/t in our models so will be making positive revisions to $200/t on a mark to market basis. What does it mean for the companies? Anglo American has the best exposure to coking coal (partly due to it having the highest gearing) with a net earnings uplift of +2.1% for 2010 for the $15/t price increase, followed by BHP Billiton (+1.7%), Xstrata (+1.6%) and Rio Tinto (+0.8%).
For New World Resources, the only pure play in the London market, the link between seaborne prices and achieved prices in their land-locked environment is unclear. However, NWR has now switched to annual contracts based on the Japanese Financial Year, bringing it in line with the major suppliers, which it hopes will give it additional bargaining power in achieving closer to seaborne prices. We estimate that based on NWRs coal mix an average achieved price of 120/t would be equivalent to the HCC seaborne settlement of $200/t.
NH
and a couple of junior ways
NH
to play the coal price, in addition to Western Coal Corp and Caledon
NH
At the junior end of the market Anglo Pacific stands to be the key beneficiary. APF’s principal asset is its 50% owned royalty over Rio Tinto’s Kestrel coking coal mine in Queensland. Taking Friday’s settlement price for 2010 and 2011 and a long term price of US$180/t, we estimate Anglo Pacific’s NAV at £2.90/shr (a 14% premium to its share price). At these prices, the value of Anglo Pacific’s Kestrel coal royalty alone is worth 58% of its current market cap, or 65% once we add in cash. Our “all in” NAV which includes Anglo Pacific’s thermal coal exploration assets in Canada takes our NAV to £3.24/shr and we continue to think its shares look attractively priced for further upside.
11:48AM
NH
Right
NH
time for 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.
NH
banking RAW
NH
and a very strange tale at that
NH
Barclays
BE
?
NH
rumours about them raising some money with a Chinese fund/group
BE
???!?
NH
not sure why they would want £6bn
NH
but that’s the rumour
BE
That’s curious.
BE
And needs very careful handling.
NH
yes
NH
still mooing that one
NH
while we are on the banks
NH
some of the ROTR
NH
we asking about Lloyds and RBS earlier
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 40.20, up 0.21 (+0.53%), High: 41.15, Low: 39.85, Volume: 46.00m
Lloyds Banking Group PLC (LLOY:LSE): Last: 53.89, down 0.1131 (-0.21%), High: 54.50, Low: 53.60, Volume: 49.75m
NH
I think any share price strength
NH
would have been down to the RMBS deal Santander
NH
managed to pull off on Friday
NH
if you missed that news
NH
which looks unexcitinig but is actually quite importantn
NH
here’s a little round-up
NH
via Merrill Lynch
NH
Santander successfully placed £1.4bn of UK RMBS on Friday priced at 3m Libor
+120bp. The deal is significant as it is the first transaction since the Greek
concerns spiralled and the first deal since Lloyds transaction in January.
The structure of the deal was also important as it is the first RMBS since the
outset of the credit crunch to omit a put option, which allows investors to call the
principal of the deal after a certain period – industry participants have described
this omission as particularly significant, which we think bodes well for future
transactions.
+120bp. The deal is significant as it is the first transaction since the Greek
concerns spiralled and the first deal since Lloyds transaction in January.
The structure of the deal was also important as it is the first RMBS since the
outset of the credit crunch to omit a put option, which allows investors to call the
principal of the deal after a certain period – industry participants have described
this omission as particularly significant, which we think bodes well for future
transactions.
NH
We think this deal is a good read across to Lloyds. Lloyds has ~£12bn of term
funding to replace this year, with £20-25bn p.a. in 2011 and 2012. A functioning
RMBS market is a helpful supplement to the Covered Bond market and provides
a welcome alternative to senior debt. Funding is one of the key areas of concern
for the market so any improvement should provide a strong catalyst.
Lloyds trades at 0.9x 2009 TNAV for a 2012 RoNAV of ~15%. We think this is too
cheap and reiterate the 80p PO. Buy.
funding to replace this year, with £20-25bn p.a. in 2011 and 2012. A functioning
RMBS market is a helpful supplement to the Covered Bond market and provides
a welcome alternative to senior debt. Funding is one of the key areas of concern
for the market so any improvement should provide a strong catalyst.
Lloyds trades at 0.9x 2009 TNAV for a 2012 RoNAV of ~15%. We think this is too
cheap and reiterate the 80p PO. Buy.
NH
also
NH
apparently
NH
there is a Barclays reweight tonight
BE
Any detail?
NH
one moment
NH
here we go
NH
from SG
NH
Barclays confirmed increase FTSE 8 March, STOXX and MSCI later?
NH
Barclays (BARC LN) will increase to 12.040bn from 11.392bn shares (100% float unchanged) in FTSE100, All-Share and World at close 8 March and could increase in STOXX50/600 (from 11.410bn) at close 19 March and in MSCI (from 11.411bn) at close 26 May.
NH
This follows an update and PCP Gulf Invest 3′s exercise of 626.8m of 758.4m warrants held into the same number of shares for a price of £1.24bn.
Potential demand is 83.2m shares, 1.2 days overall with 46.8m, 0.7 days from FTSE, 6.7m, 0.1 from STOXX and 29.7m, 0.4 from MSCI..
Potential demand is 83.2m shares, 1.2 days overall with 46.8m, 0.7 days from FTSE, 6.7m, 0.1 from STOXX and 29.7m, 0.4 from MSCI..
NH
So not massive demand
NH
and I here the trackers have done a lot of it
BE
While on the subject, we should mention this week’s FTSE rejig
NH
oh yes
BE
Set on tomorrow’s closing prices
BE
Now, looking at the current rankings, Resolution’s toast
NH
hmm
NH
they are up this morning
Resolution Ltd (RSL:LSE): Last: 70.35, up 1.6 (+2.33%), High: 70.45, Low: 68.75, Volume: 4.55m
BE
Meanwhile, LSE looks on the cusp
BE
And so, interestingly, does Thomas Cook
BE
Which is taking a lurch lower this morning
NH
hmmm Thomas Cook is a surprise
Thomas Cook Group Plc (TCG:LSE): Last: 235.00, down 4.9 (-2.04%), High: 238.40, Low: 234.90, Volume: 902.27k
BE
Yeah, they’re hosting an investor conference on Wednesday
NH
they should pull that forward Tuesday
NH
looks like they are going to need it
BE
Hm.
BE
Heading up, potentially ….
BE
Investec, if FTSE allows it
BE
Rentokil’s a possible
BE
And below that, Informa’s an outside bet.
We don’t know what’s going on. The original source that detailed the Providence approach for Informa will not talk to us at present. If you own the shares and are worried that the bid will fail, sell the shares and stop worrying.
NH
crikey
BE
About the same cap as Mondi, which I very much doubt would get in under FTSE rules.
NH
all to play for then
BE
Yeah – it’s very tight at the top this quarter.
NH
how exciting
NH
I had a preview on This Thomas Cook day
BE
Go on then. I don’t think anyone’s expecting fireworks or nasties.
NH
right
NH
it’s from Liberum
NH
TCG has not released even an itinerary for its investor day. However, we feel that it will focus on two key issues – cost savings and margin enhancement. TCG is confident it can generate £10m of final synergies from the merger of My-Travel and the old Thomas Cook; £50m of other integration and cost savings (mainly Project Focus); and £25m from better airline coordination. TCG has reorganised itself in order to centralise certain functions (eg group purchasing under Pete Constanti). TCG has indicated that it can reduce its accommodation costs (£3,124m last year) by 5-7%, or £156m pa.
NH
Margin enhancement from business model changes. Coupled with this is the continued shift towards higher margin medium and long haul product (particularly all inclusive) and the reduction in lower margin short-haul product. TCG also continues to encourage a channel shift away from the more costly third party, retail and call centres towards the cheaper internet route. It has recently reduced third party commissions.
NH
TCG’s stretch margin target (6.5%) would imply September 2011E EPS of 44.0p, against our current forecast of 31.0p.
NH
TCG’s growth aspirations are likely to focus on independent travel, financial services and geographic expansion into Emerging Markets. We are more sceptical re growth in general and believe investors will re-rate the UK tour operators if TCG is successful in the independent market. TCG has recently appointed Simon Drakewell, a founder member of Expedia, to develop its independent travel portion.
NH
TCG is currently trading on a September 2011 EV/EBITDAR of 5.3x and a P/E of 7.8x. We have a DCF of 302p based on a 4.9% medium-term EBIT margin and a 2019 terminal value assuming 40% destruction of capital. A reverse DCF suggests that the shares are pricing in a decline in the EBIT margin to 3.3% and 60% value destruction post 2019.
11:58AM
NH
Right
NH
let’s visit small cap corned for a moment
NH
a bit of RAW on Sound Oil
Sound Oil plc (SOU:LSE): Last: 2.65, down 0.05 (-1.85%), High: 2.70, Low: 2.70, Volume: 341.57k
NH
so the story is
NH
they have sold their shares in a field called Bangkanai
NH
not sure of the price
NH
but the company were having issues with the permit here
NH
anyway, what’s more interesting
NH
is what happens next
NH
Sound Oil would be a cleanish shell company
NH
with some cash on the balance sheet
BE
Hm.
NH
and the rumour in the market is
NH
that the company have already found a reverse candidate
NH
something in the North Sea
NH
could be accompanied by a £150m fund raising
NH
now this is all very RAW
NH
and as it’s micro cap oil and gas
NH
comes with all the associated health/wealth warnings
BE
Yes – quite. Makes some sense though.
BE
Bangkanai already holds 35% of their two Indonesia licences.
BE
And North Sea would be the natural place to reinvest, with lots of potential deals on the table.
NH
apparenly the reverse deal could be quite big
NH
up to $1bn
NH
and we have just seen the Petrocfac and Lindnum deal
NH
anyway
NH
one to watch
NH
as is Pearson
Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.
NH
almost at £10
NH
yep £10
NH
and I don’t have a single SAYE share
NH
not one
Pearson (PSON:LSE): Last: 995.00, up 7 (+0.71%), High: 995.00, Low: 986.00, Volume: 590.81k
BE
Neither do I.
NH
mugs
BE
Yeah – complete muppets.
NH
£10
NH
must be that weak sterling
NH
and the impressive education results
BE
Decent numbers from Prisa as well I think.
NH
they own El Pais
NH
and I think
NH
Prisa have just announced a deal with a cash shell
NH
Liberty Acquisition Holdings
NH
which was launched with some fan fare a well back
NH
Indebted Spanish media company Prisa reached a deal with Liberty Acquisition Group on Friday worth around $900 million for the publisher of El Pais and finalising the debt-refinancing process with its creditors.
According to the complex deal, the U.S. Special Purpose Acquisition Company could acquire up to half of the media company’s capital and will be fully absorbed by Prisa.
Prisa’s Polanco family, which currently holds a 70 percent stake, will continue to control the group but could see their stake diluted to 30 percent by the agreement.
According to the complex deal, the U.S. Special Purpose Acquisition Company could acquire up to half of the media company’s capital and will be fully absorbed by Prisa.
Prisa’s Polanco family, which currently holds a 70 percent stake, will continue to control the group but could see their stake diluted to 30 percent by the agreement.
NH
that’s from Reuters
BE
Oh, and there’s a big note out of ING asking what Pearson is going to do with all its cash
NH
gawd
NH
do we really want to see that?
NH
it doesn’t mention the B=word does it?
BE
It’s ok – they don’t reckon the FT needs sold.
BE
Company’s cashed up to the eyeballs anyway
BE
And lists a dozen potential targets, including New Oriental and Infinitas Learning
BE
Anyway, that’s enough about Pearson
NH
yes more than enough
12:08PM
NH
Right a few more things to look at before we go
NH
interesting note out of Merrill today
NH
on Man Group
NH
and specifically AHL
NH
looking at what went wrong last year
NH
and why
Man Group Plc (EMG:LSE): Last: 248.40, up 2.5 (+1.02%), High: 250.90, Low: 248.00, Volume: 3.57m
NH
and there’s some good stuff in there
NH
basically
NH
AHL got equities right
NH
but FX and FI wrong
NH
but the conclusion is intersting
NH
Merrill says there is no reason to assume AHL is broken
NH
We are of the view that there is no reason to assume AHL is “broken”, just as
there has been no reason to assume this during its previous existence. Of
course, nor can we prove that it will work in future. In the same way, we cannot
prove that mainstream equity will work in the future; here, though, it is much
easier to argue that it has not worked in the past. Indeed, we have heard this
turned into a positive: “the last decade has been so bad for equities that they
must have a good year or two now”.
there has been no reason to assume this during its previous existence. Of
course, nor can we prove that it will work in future. In the same way, we cannot
prove that mainstream equity will work in the future; here, though, it is much
easier to argue that it has not worked in the past. Indeed, we have heard this
turned into a positive: “the last decade has been so bad for equities that they
must have a good year or two now”.
NH
Our view is that the current behaviour of AHL is relatively typical of the strategy in
a trendless market. Like the fund itself (remember, “we don’t predict the future”),
we have no very good idea about when a trending market will appear. We would
rather it were sooner than later, but have no visibility here. We therefore have no
way of knowing when AHL has reached a nadir (except by hindsight). We show
in the margin weekly returns since the start of 2008. There have been a number
of false dawns here from the start of last year.
a trendless market. Like the fund itself (remember, “we don’t predict the future”),
we have no very good idea about when a trending market will appear. We would
rather it were sooner than later, but have no visibility here. We therefore have no
way of knowing when AHL has reached a nadir (except by hindsight). We show
in the margin weekly returns since the start of 2008. There have been a number
of false dawns here from the start of last year.
NH
The main message from this note, though, is a simpler one. It is just that whilst
there is nothing particularly enjoyable about AHL’s recent performance, nor is
there anything odd about it. The style has a level of volatility a bit above the
equity market, and we all know how miserable that can be on a one-year view.
The good, odd thing about AHL is that whereas the stock market has in the past
displayed negative skew, it has positive skew, which is a big part of why it has
delivered so much better returns than equities.
there is nothing particularly enjoyable about AHL’s recent performance, nor is
there anything odd about it. The style has a level of volatility a bit above the
equity market, and we all know how miserable that can be on a one-year view.
The good, odd thing about AHL is that whereas the stock market has in the past
displayed negative skew, it has positive skew, which is a big part of why it has
delivered so much better returns than equities.
NH
We suspect that our ability to persuade investors to buy Man on the basis of
AHL’s historical returns displaying positive skew is likely to be limited. This,
though, actually is a big part of the case for Man now.
We have not changed any estimates for Man, as this note is aimed instead at
providing background on AHL. Man will provide financial guidance towards the
end of this month.
AHL’s historical returns displaying positive skew is likely to be limited. This,
though, actually is a big part of the case for Man now.
We have not changed any estimates for Man, as this note is aimed instead at
providing background on AHL. Man will provide financial guidance towards the
end of this month.
BE
Just glancing through the note – some impressively detailed charts and tables in there.
BE
Merrill is, I guess, joint shop.
NH
available already in the usual place
BE
And well worth a read.
12:11PM
NH
anything else Bryce?
BE
Nah – think I’m all done.
BE
Unless you want to talk about the takeover talks at Rangers FC.
NH
I’ll pass on that
BE
You? Anything to round up on?
NH
One thing
NH
Legal & General
Legal and General Group PLC (LGEN:LSE): Last: 77.95, up 1.7 (+2.23%), High: 78.00, Low: 76.45, Volume: 13.27m
NH
getting a push from Noumra today
NH
three reasons to buy
NH
We reiterate our Buy recommendation on L&G ahead of its FY results on 23 March for three reasons: 1) we
expect strong H2 results and have upgraded our earnings and dividend forecasts; 2) we expect improved
disclosure about the linkage between cash generation and IFRS profits with the FY results which will enable
better modelling of earnings and 3) last week there was, in our view, another positive step towards the removal
of the Solvency 2 threat to L&G’s annuity book with the publication of the CEIOPS Task Force report on the
illiquidity premium for consideration by the EC, which recommended that a liquidity premium should be applied
where liabilities are 100% illiquid. We believe that UK annuities are very close to meeting this definition. L&G
trades on a 2010e IFRS P/E of 7x and offers investors good earnings momentum and value. We have raised
our target price to 130p
We reiterate our Buy recommendation on L&G ahead of its FY results on 23 March for three reasons: 1) we
expect strong H2 results and have upgraded our earnings and dividend forecasts; 2) we expect improved
disclosure about the linkage between cash generation and IFRS profits with the FY results which will enable
better modelling of earnings and 3) last week there was, in our view, another positive step towards the removal
of the Solvency 2 threat to L&G’s annuity book with the publication of the CEIOPS Task Force report on the
illiquidity premium for consideration by the EC, which recommended that a liquidity premium should be applied
where liabilities are 100% illiquid. We believe that UK annuities are very close to meeting this definition. L&G
trades on a 2010e IFRS P/E of 7x and offers investors good earnings momentum and value. We have raised
our target price to 130p
NH
130p target price
NH
wow
BE
Brave.
NH
indeed
NH
very
NH
Right
NH
the lunch wrap has to go
NH
thanks for logging on today
BE
And thanks for nearly all your comments.
NH
(Monkey – ask the Shrewdette. she will be able to help)
NH
yes
NH
see you tomorrow
NH
bye