FT Alphaville » Markets Live transcript 15 Mar 2010

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Markets Live transcript 15 Mar 2010

Posted by Neil Hume on Mar 15 11:03.

Markets Live chat transcript for the chat ending at 12:14 on 15 Mar 2010. Participants in this chat were: Neil Hume, FT Bryce Elder

Good morning

and welcome to Markets Live

FT Alphaville’s daily markets round up

Bryce is here

but hasn’t logged on

sorry for being late

we have been distracted

Here now. Good morning.

by the latest release from the FSA

on the great insider clamp down

this time

they have issued their first extradition warrant

from somewhere called the Comoros Islands

a French overseas territory, apparently

http://en.wikipedia.org/wiki/Comoros

Investment banker and wife charged with insider dealing – third suspect arrested in Mayotte

Christian Littlewood, a senior investment banker, and his wife Angie Littlewood (also known as Siew Yoon Lew and Angie Lew) have been charged with 13 counts of insider dealing contrary to section 52 of the Criminal Justice Act 1993 and one count of conspiracy to commit insider dealing contrary to Section 1 of the Criminal Law Act 1977. They have been bailed to attend City of Westminster Magistrates’ Court on 6 April 2010.

The offences relate to trading in a number of different London Stock Exchange and AIM listed shares between 2000 and 2009.
In addition a third suspect has been arrested in Mayotte, a French overseas territory in the Comoros Islands. The suspect – a 33 year old Singaporean national – was arrested by the French authorities in Mayotte pursuant to a European Arrest Warrant issued by City of Westminster Magistrates’ Court at the request of the Financial Services Authority (FSA). He is due to appear before a local court later this week in relation to a request for extradition to the UK to face charges of insider dealing.
This is the first time that the FSA has sought the extradition of a suspect from abroad to face criminal charges in the UK.

Right. This is the Dresdner bloke.

Most latterly of Shore Capital.

oh yes, I remember this

I remember chasing it

Hm. He spent a while at Dawnay, Day as well I think.

That’s right

none on the companies involved have been mentioned yet

or at least I can’t remember if they have

And the aliases are … odd.

hmmm

“Siew-Yoon Lew” has only one hit on Google, to an address in touristland Bayswayer.

right, I see

but the FSA’s policy of terror

will make a few people sit up and take note

especially the extradition warrant

do those things work in Monacco?

Um … Pass.

anyway

shall we move on

Hang on – should also just note for completeness the Hector interview in the Telegraph

Financial Services Authority to be transformed into an intrusive, interventionist regulator, says Hector Sants, the chief executive.

Mr Sants also reveals that the FSA is to expand by more than 10pc and hire another 460 staff to perform its new investigatory role.

The expansion will be funded by a £41m increase in the regulator’s budget to £455m.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7436104/Market-abuse-is-unacceptably-high-says-FSA-boss.html

that’s all very well

and it certainly sends another message

but…

is the FSA going to be around post election?

is this why there is a such a rush to bring these things to court?

Hm. That’d be a cynical interpretation.

yes

probably is

but the question is reasonable

what happens to the FSA post election?

Dunno.

It’s certainly in their interests to show some teeth at the moment, I guess.

Having been rather gummy for a couple of decades.

Anyway, should we push on to the market?

yes

11:12AM

Right

after Friday’s Raw related fun

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.

it is much calmer this morning

and not nearly as speculative

in fact things it is very quiet out there

like a mill pond

FTSE 100 off 14 points at 5,611

sterling have been a bit more volatile

post the latest opinion poll

cable currently at $1.5036

have been at $1.52

Which poll?

YouGov

lead down to 4 points

no overall majority etc

you know the drill by now

Indeed.

right

I think we should have a look at a few stocks

and BT

as noted on the right

is moving on the back of Citigroup upgrade

11:15AM

right

the BT ticker doesn’t work

but it is up 1.6p at 124.9p

I flicked through the upgrade to buy earlier

and by the looks of it

Citi reckon the pension fears have been overplayed

BT Group (BT.A:LSE): Last: 124.90, up 1.6 (+1.30%), High: 127.00, Low: 124.40, Volume: 16.00m

You got details to hand? My Lotus Notes has just crashed.

one moment

post results fall was overdone

the earnings recovery should come through on the back of cost savings

improving revenue mix

rather controversially

they reckon whoever wins the election

they will get a broadband boost

here’s the note

Upgrade BT to Buy, price target 150p

Government’s broadband objectives boost BT, whoever wins election — BT’s UK
capex is more than six times larger than its next broadband competitor and it
remains the default platform for improving broadband in rural areas. It could also
benefit from pending Ofcom decisions on premium TV (March) and pension deficit
recovery (late 2010). We believe its wholesale prices are low enough to discourage
any but selective competitive fibre overbuild.

Fibre Economics don’t favour smaller players, no rush — On our analysis
competitors will need to connect around 16% of households for own-build to pay
back vs buying wholesale from BT (even with duct sharing). Neither TalkTalk nor
Sky reach this level today although they would in many exchanges if combined.
Competitive build economics work best in already well served parts of the country.

Content differentiation still favours Sky, remains Buy — Even if Ofcom mandates
wholesale-must-offer on Sky’s premium TV channels, we believe Sky will still have
the best overall content package with high capacity satellite TV delivery, strong HD
and VOD libraries and probably the best set top box in the market. Nonetheless BT
Vision, Virgin with the BBC’s iPlayer on the EPG and Canvas are bringing internet
based TV to screens over the next few years.

Ian Livingston, BT CEO, will present at our conference — Meet BT’s CEO at the Citi
Telecoms conference, 23-24 March. Ask any member of the team for details

Bryce

are you back in yet

I am.

And, just reading that BT note ….

It seems to be based on the broadband tax becoming law.

I though the Tories were

are opposed

Indeed. As is much of the electorate.

If you believe Twitter represent much of the electorate anyway.

Anyway, should we stay with communications?

before you move on

this note had some stuff to say on Sky

and it feeds into Friday’s bid rumours

British Sky Broadcasting Group PLC (BSY:LSE): Last: 590.50, down 7.5 (-1.25%), High: 596.00, Low: 581.00, Volume: 4.34m

Oh good. Saw a puff in that City freesheet that BT “might” give away the Premiership to bolster its TV thing.

The key word, of course, is “might.”

but Citi’s on Sky is this

the company is about to enter a phase of big cash generation

a mature phase

and as Newscorp seems to have a policy of tidying up its portfolio

now could be a good time to strike

especially as the cash flow

could be used to drive investment in Italy

and Germany

and on top of all that

there is the benefit of weak sterling

Indeed.

here’s is a bit of the note

We see this as an interesting time to be looking at BSkyB which we rate Buy. There are three
perceived negatives set to materialize over the next year: Ofcom’s Pay TV review, fibre investment
risk and competitive platform evolution including Canvas. None of them, in our view, is likely to be
particularly negative.

The FT reported on 12 March that News Corp may be interested in buying in
the outstanding free float of BSkyB. News Corp currently holds 39% of the
shares. While at this stage this represents press speculation, if true it would
confirm our thesis that BSkyB is indeed entering a period of harvesting returns.
Our working theory has always been that the public quote at BSkyB was in part
conceived to facilitate the growth stage of BSkyB’s development and that once
Sky moved into a harvesting phase (and subsequently maturity) News Corp
would take action to fully consolidate earnings and, all important, BSkyB’s
prodigious cash flow.

There is additional circumstantial evidence to support this view

First, News Corp appears to have launched a strategy of tidying up
minorities. A buying in of the BSkyB free float would represent a
continuation of this strategy.

Second, while News Corp is not short of cash, the cash flows from BSkyB
would presumably help consolidate/drive the investment in payTV in both
Italy and Germany, both of which are at an earlier stage of development

Third, from a tactical perspective, we are a point of maximum regulatory
uncertainty. The conclusions of the pay TV review is due to be published at
the end of March and even if the outcome is similar to the tentative
conclusions proposed in the 3rd consultation document (published
4Q2009), there is still uncertainty over how this may impact BSkyB’s
business model. We have a benign view of the move to mandated wholesale
and there is even a chance that OFCOM’s conclusions are overturned on
appeal to the CAT. If News Corp shares our view, it would make sense to bid
now while the investment community is not so sure

Fourth, the recent weakness in Sterling may provide additional impetus to tie
up a deal near-term.

In terms of News Corp’s ability to do a deal: taking the price reported in the
press of 735p would imply a market cap of $11.8bn. Adding in BSkyB’s net
debt would take the total deal value to $14bn. Even if News Corp paid all
cash/debt, this would still only imply a move from 1.4x net debt/EBITDA to
3.0x. Given News Corp’s long debt maturities (no major repayments till 2023),
our US analyst doesn’t see this as a stretch.

In summary, M&A is not the cornerstone of our positive view on BSkyB, but
speculation confirms our view that BSkyB is entering a harvesting period in
terms of returns. We rate BSkyB Buy/Medium Risk.

Hm. So they’re believers, in principle. Interesting.

yes

in theory

11:24AM

Right. While on telecoms/media bid/non bid stories …..

Inmarsat

Inmarsat plc (ISAT:LSE): Last: 779.00, down 12.5 (-1.58%), High: 791.50, Low: 779.00, Volume: 358.70k

what’s happening there?

on the back of a Merrill Lynch downgrade.

Valuation in the headline, but they’ve done a lot of work on the spectrum stuff

And, I warn you, this is not easy reading.

L-Bank spectrum

I love it

give me some

Yup – as well as the European S band and the US ATC bandwidth.

excellent

Here’s the summary.

sorry meant S-band

Downgrade to Neutral
While the core business continues to motor, and the option value looks ever
closer, for us, the risk-reward means we would be unwilling to apply fresh money
at this point. Consequently, following a strong performance we are downgrading
Inmarsat from ‘Buy’ to ‘Neutral’. We also raise PO from 750p to 800p.
Valuation: ISAT must crystalise option value to go higher
From a valuation perspective, the stock appears fully valued, trading at 10.4x
2010 EV/EBITDA and 27x 2010 P/E. While we can see a ‘blue sky’ upside as far
as 975p (if we include 100% payout on both spectrum options), our price objective
is lower at 800p. In our view, for Inmarsat to go higher from here it must start to
crystalise its spectrum options. We believe that is possible, but it is not
guaranteed. We therefore downgrade to Neutral.

Spectrum options: European ‘S Band’
Inmarsat is making progress with its S band JV with a mobile operator: Inmarsat’s
CEO stated it was “in early discussion with potential partners” and we also expect
further terrestrial (CGC) licence approvals soon. However, we are lowering the
‘blue sky’ value of the European spectrum to 84p reflecting lower than expected
spectrum auction prices in Italy and Scandinavia. A further unresolved issue is the
March 2011 ‘use-it-or-lose-it’ milestone that Inmarsat cannot meet in our view
(though we expect the EC to flex the terms of the licence due to legal issues).
US spectrum options: US ‘ATC’
The US spectrum option also looks like it is making progress with comments by
the Chairman of the FCC saying it could give ATC licencees the option of new
flexibility or allow them to transfer/auction the spectrum. While the sale of
Inmarsat’s spectrum is not possible because of international (ITU) rules, this is
still positive. One outcome could be for Harbinger to sells its SkyTerra unit to a
mobile operator. With a pre-determined financial ‘roadmap’ for ATC deployment,
we see Inmarsat’s upside from ATC limited to 109p per share, all in.

And, for the fans, it’s worth doing into the detail. Apologies to everyone else, however.

sounds like that

should be made available

in the usual place

Indeed.

Update
We believe the recent increase in the Inmarsat share price is directly attributable to the comments by Julius Genachowski, the Chairman of the US FCC (Federal
Communication Commission). In a speech on Feb 24th he outlined the idea of making around 500Mhz of spectrum available over the next decade.

“Our Plan for mobile broadband will also recommend applying a flexible approach to other frequency bands, where our rules-technical rules, service rules-may be
holding back the broadband potential of large swaths of spectrum. We need to bring our spectrum policies into the 21st century. The Plan proposes resolving longstanding debates about how to maximize the value of spectrum in bands such as the Mobile Satellite Service (MSS) or Wireless Communications Service (WCS) by giving licensees the option of new flexibility to put the spectrum toward mobile broadband use-or the option of voluntarily transferring the license to someone else, who will.” (Julius Genachowski, FCC Chairman).

Our view
On the face of it, this is good news as it increases the likelihood that the US could either:

1) Follow Europe’s lead, and drop the requirement for all handsets using the spectrum to have satellite capabilities. (This makes the spectrum ‘mainstream’ rather than niche); or
2) Allow the spectrum to be sold/transferred.

However, we do not believe Inmarsat/Sky Terra can sell or transfer the spectrum to another party as the spectrum is issued ultimately by the International Telecommunications Union (a UN body) for explicit use by mobile satellite operators. Selling the spectrum by itself would therefore be in contravention of the ITU rules. That said, it would be possible for the ATC licence to be set up in a similar way to the European ‘partnership’ we have outlined, alternatively Sky Terra could sell itself (including its satellite) to a mobile operator.

Ok – that’s more than enough of that.

Let’s move on to something less noodly.

yes

11:28AM

Interesting flash just come across the wire

RTRS-APAX PARTNERS REACHES DEFINITIVE AGREEMENT TO SELL TOMMY HILFIGER GROUP TO PHILLIPS-VAN HEUSEN FOR EURO 2.2 BILLION

Now how can Tommy be worth EUR2.2bn?

I haven’t seen the full figs

but that looks very high

Well, Superdry’s worth half a billion.

And it’s a tee shirt with the number 8 on it.

yes

but EUR2.2bn

for Tommy

11:29AM

Anyway

we must move on

Taxloss has things to do

but wants to discuss GKP

Oh …. all right then.

Has there been news?

the fund raising finallu came out

a bit bigger than rumoured

£16m at 76.5p

by Fox Davies

but, this is only an interim funding of course

because GKP needs to find another $100m

Still awaiting that prospectus then.

oh yes

Hold on – I’ve just pulled up the RNS …..

there’s not that much interesting in there

apart from a run down

on the wells

and when we can expect news

Hm.

For the avoidance of doubt the Placing does not trigger any payments due under the arrangements announced by the Company on 10 March 2010.

just as well

Well, quite.

Seismic surveys

Gulf Keystone plans to commence the acquisition of 3D seismic over the Shaikan structure during the first quarter of 2010. This work will be conducted by Terraseis.

The acquisition of 3D seismic over the Sheikh Adi structure is planned in the event of a successful Sheikh Adi exploration well and following on from the seismic programme on Shaikan.

Shaikan-1 well work-over

Gulf Keystone plans to deploy a work over rig on Shaikan-1 to conduct short term tests of several previously tested Jurassic targets, using an electric submersible pump. In addition, Gulf Keystone will perform a long term, extended well test (18 to 24 months) in order to deliver production from the initial, upper Jurassic discovery zone in Shaikan-1. Based on the current evaluated data, the Company believes that this extended well test will provide for the production and sale of approximately 8,000 to 10,000 bopd into the domestic Kurdistan oil market.

The bidding process for the work over rig on Shaikan-1 and the construction of oil production and truck loading facilities near the Shaikan-1 well site has been finalised and it is expected that these contracts will be awarded shortly.

And the biggie …..

Shaikan-2 appraisal well

As previously announced, the Shaikan-2 appraisal well is planned to evaluate the Cretaceous, Jurassic and all zones in the Triassic in which total oil in place volumes of 1.9 (P90) to 7.4 (P10) billion barrels with a mean value of 4.2 billion barrels were discovered. The casing and wellhead design has been modified to allow the evaluation of all these zones including the upper Permian which lies immediately below the Triassic and which contains the high pressure zone that forced a halt to Shaikan-1 drilling.

Construction of the well location has been completed at a site 9km to the east southeast of Shaikan-1. Current plans are to spud this well in the second quarter of 2010. This well is expected to be drilled by the same Weatherford 842 rig that drilled Shaikan-1 and that is currently drilling the Bijeel-1 well on the Akri Bijeel block.

anyway the Sector Watcher, who does seem to be getting more and more bearish, has commented on today’s news

and his conclusion…

sell it

actually

stay out

and sell it

GKP announced it raised £16m at 76.5p/share, which does not solve the funding gap for this year. The company needs north of $100m to balance its capex and payments following the ETAMIC deal which should bring further equity dilution for investors. I got my analyst to work out numbers on our KRG general model to re-evaluate the value of GKP’s barrels.

Looking at the ETAMIC deal, GKP are doubling their working interest but only increasing their share of the profit oil by 20% so the NPV of a working interest barrel falls quite sharply. Based on our generic 1 billion barrel model and using US$70 flat real, it goes from US$2.46 to US$1.44 at NPV15. Using the new number and accounting for a further $130m to be raised at 76.5p/share we get a Pmean NAV of 83p/share that highlights the impact of dilution for investors. In addition to this fund raising, GKP updated the market on its operations.

It will acquire 3D seismic over Shaikan and drill three appraisal wells over the structure with the two first spudding in Q2/10 and the last one spudding in Q4/10. On the Akri Bijeel block, the Bijeel-1 exploration well is currently being drilled; it should take four to five months to be completed. The first exploration well on the Sheik Adi block will spud in Q3/10

Bottom line: given the numbers above and the lack of visibility regarding a resolution between Bagdad and the KRG over the contracts awarded to IOCs by the latter, I would stay out of GKP. SELL

and the last point is a very important one

yes GKP has potential

but the govt might just decide

it wants that potential

especially as it is owned $40m

Hm. The concept of risk/reward does seem lost on some people.

as it happens

Evo Securities none too impressed either

Yeah – I saw Evo getting a hard time on some of the bulletin boards this morning.

Today’s interim financing of $16m (gross), together with the remaining funds available under the SEDA, gives GKP c$43m of available capital to deploy on its Kurdistan assets. Additional financing will be required later in the year, perhaps as much as a further $100-$125m based upon a total 2010 capex commitment of c$150m (including net payments relating to the recent re-organisation). In this regard, the placing discount of 12% is somewhat concerning.

GKP has placed 20.9m shares at 76.5p with existing and new institutional clients. The funds will be used to keep the Kurdistan exploration and appraisal campaign ticking over. The company is now planning up to three further appraisal wells on the Shaikan discovery during 2010. Contracts for the oil production and loading facilities at the Shaikan-1 EWT will be awarded soon and the Shaikan-2 appraisal well is expected to spud sometime in 2Q.

VALUATION AND RECOMMENDATION – No change to recommendation or target price.

Reduce – PRICE/TARGET : 87p/93p

actually

where is this trading

Gulf Keystone Petroleum Ltd (GKP:LSE): Last: 84.50, down 2.75 (-3.15%), High: 85.25, Low: 82.00, Volume: 9.42m

And we shouldn’t really move on without noting that they had to correct the RNS.

oh yes

Because they got the number of barrels wrong.

A mere 600m out.

The change to the announcement is in the first sentence of the first paragraph headed “Shaikan-2 appraisal well”. The mean oil in place volume is “4.2 billion barrels” and not “4.8 billion barrels” as previously stated. All other details remain unchanged.

what’s 600m barrels between friends when you that much oil

rounding error

like the $40m owed to the KRG

just details

Yeah. We shouldn’t get bogged down in details when the FUNDAMENTALS are SO STRONG.

yes

VERY, VERY STRONG

and one day there could be as many GKP shares in issue

as barrels of oil

(Chopper: prove that. Give us any evidence whatsoever that proves that.)

Bryce calm down

deep breath

ignore Chopper

11:39AM

Right before we leave the weird and wounderful world of small cap oil

these Falkland explorers

are on the move today

Desire Petroleum Plc (DES:LSE): Last: 97.75, up 4.5 (+4.83%), High: 104.50, Low: 97.00, Volume: 6.66m

Rockhopper Exploration Plc (RKH:LSE): Last: 54.75, up 4.5 (+8.96%), High: 56.50, Low: 53.00, Volume: 4.05m

Falkland Oil and Gas Ltd (FOGL:LSE): Last: 138.00, up 4 (+2.99%), High: 137.50, Low: 134.00, Volume: 862.42k

anyway

that’s all down to a report in the Indy

which says Desire has struck oil;

Now I could be wrong here

but I though it was going to take six weeks to get any results out of the well

and they started drilling in the middle of Feb

anyway

here’s the Indy report

for those, like me, who missed it

It could all kick off in the Falkland Islands at the end of this week.
No, we’re not talking about another military scrap over the islands’ sovereignty, as in 1982, but according to sources, Thursday or Friday is the first time that the Aim-listed Desire Petroleum could announce that it has found oil in the territorial seas to the north of the Falklands.

The group’s exploratory drilling has caused one huge diplomatic spat between Argentina, which claims ownership of the islands, and the UK. Desire has been unusually quiet about the drilling programme, largely because it wants to keep its head below the parapet. However, if the drilling has gone as well as the company dared to believe, we should all learn about it soon. Analysts expect that, realistically, it could take another couple of weeks for the group to tell the market how it has got on.

So. Gusher then.

we shall see

11:42AM

Right

let’s get back up the market cap scale

quick

Ok then

How about British Airways?

oh yes

That should distract the ROTR from oil.

Gordo get involved now

saying the strike is WRONG

and Lord Adonis too

the City seems relaxed

a couple of buy notes around today

here’s Citi

We expect cash loss of c.£10-15m per day — BA expects to fly at least 50% of its
schedule, including all of its London City and most of its Gatwick operations,
where cabin crew have long ago accepted BA’s new working conditions. It has
wet-leased 23 aircraft for short haul flights ex-Heathrow and has 1,000 cabin crew
volunteers that could keep at least 10-20% of its Heathrow operation going. If all
flight were cancelled, loss per day would be c.£20m. On the basis of a 50%
schedule, we expect half the revenue loss offset by wet lease and disruption costs.

and Credit Suisse

put the losses of this strike at £15m per day

because of contingency plans

Contingency plans may limit cost to £15m per day: We estimate a full strike would ordinarily cost BA c. £25m per day before tax, however with c. 1,000 volunteers from elsewhere within the business and 23 aircraft to be wet leased, we see the potential for BA to operate a meaningful schedule with the emphasis on more profitable flights to limit the impact of strike action to near to £15m per day. We currently forecast an operating loss of £275m for FY10E to March (consensus £291m), and factoring in a seven day strike would increase our loss forecast to c. £380m. We expect an EBIT of £383m in FY11E (consensus £238m).

Credit Suisse

reckons Iberia deal gets cleared in the coming weeks

Retaining Outperform as underlying improvements complemented by strategically attractive deals : Clearly this is a short term negative for BA, despite the fact that industrial action of some sort had been partly expected. However, we retain our Outperform rating on the stock as revenue momentum continues to build led by the transatlantic to which BA is the most exposed carrier with an estimated 40% of revenues generated from the market. We expect (i) the Iberia merger to be signed in the coming weeks, with completion contingent on a pension deficit plan agreeable to Iberia (end-June deadline), and (ii) full anti-trust immunity (ATI) for a transatlantic joint business agreement with American Airlines and Iberia to be granted by US and European regulators in April/May, which should complement improving underlying profitability and underpin our retained expectation that the stock should move towards our TP of 285p.

Right – ta.

For the sake of argument, JPMorgan expect £30m per day

what double?

Yup.

In the past, cabin crew strikes have grounded substantially all of British
Airways’ flying activity. On this occasion we believe that some form of
service will be possible. In a letter to Executive Club members, Willie
Walsh, BA’s CEO states that the group has 6,000 volunteers, of which
1,000 have had basic training as cabin crew, to help maintain some of
the schedule. Management has also stated that striking cabin crew
members will forfeit their staff travel privileges, which may encourage
some to turn up to work on strike days. The group has also indicated
that it will use wet-leased aircraft (leasing a plane complete with crew)
to operate certain services. According to the BA website it seems as if
London City services and Gatwick services outside Europe will operate
normally, while other services out of Heathrow and Gatwick are
subject to disruption. Nevertheless, we expect the uncertainty about
which services will be maintained to affect forward bookings for the
group.

We believe that BA management has benefited from the delay in the
strikes being announced, the first strike ballot was ruled unlawful by
the high court, in giving it time to prepare and train temporary cabin
crew. We view this dispute as a watershed moment for British Airways
as management seeks to implement, in our view much needed,
structural changes to its working practices. The level of strike day
service is in our view likely to be a key determinant of the length of the
dispute; we expect cabin crew resolve will be eroded if a reasonable
level of service can be maintained.

Given the variables, it is difficult to quantify the financial impact of the
proposed strikes, but we estimate that aggregate daily revenue is £20m
and the consequential loss could take this up to the region of £30m per
day; £140m to £210m in total. This compares to our FY2010E EBIT
loss of -£271m.
• The stock currently trades on a price to peak EPS multiple of 4.1x
against a trough in October 2008 of 1.9x and a through the cycle
average of 6.0x. We view the granting of Anti Trust immunity for the
transatlantic jv and the proposed merger with Iberia as positive
catalysts for relative share price performance.

Hang on – bear with us.

Neil’s on the phone.

Still…..

sorry off now

just talking about RBS

shares strong today

and some people trying to figure out why

Royal Bank of Scotland Group PLC (RBS:LSE): Last: 43.87, up 1.3 (+3.05%), High: 43.89, Low: 42.00, Volume: 49.29m

Decent volume too, all considered.

I hadn’t realised just how underowned

this company is by institutions

after the govt

the second biggest shareholder is TD Waterhouse

after that

you have Legal & General at just 1.2%

and Capital at 0.88%

now

there is a feeling that with the govt indicating that it won’t sell anywhere near 50p

that there is no reason to wait

and so institutions should start to reweight now

this is just a theory

and already one can see some flaws

free float

the attitude of the next govt

etc

but

there is a view that Hester is doing a decent job

and we all have seen the recent price action in Citi

Hm. It’s an interesting theory nevertheless.

And the Citi spike has been remarkable.

that said, there is some positive newsflow out there today

Potential renewal of Credit Guarantee Scheme

story was in the Sunday Times I think

FSA/Treasury looking at extension of £250bn credit guarantee facility, allowing state to continue to underwrite bonds for financials.

and as we know

the BoE has said there will be no renewal of £185b Special Liquidity scheme

hang on

have some comment on this

from Olivetree

Go on.

1. LLOYDS – funding support + potential REIT – all +ve

Two positive pieces of newsflow supportive for our positive view on LLOY, both of which reinforce out belief that LLOY could rise to 75p+ in near term:

a. Potential renewal of Credit Guarantee Scheme -
– FSA/Treasury looking at extension of £250bn credit guarantee facility, allowing state to continue to underwrite bonds for financials.
– BOE already said there will be no renewal of £185b Special Liquidity scheme.
– FSA/Treasury also looking at a proposal for govt to offer gtees on the sale of RMBS.
– Treasury, BOE and FSA have held a series of meetings with debt-market investors recently, asking what it would take to persuade them to buy bank securities in large quantities — particularly mortgage securities

b. Commercial property spin-off -
– LLOY looking to hive off some of £75b property portfolio into REIT
– Any move would happen after the general election, and with the taxpayer owning 41.3 per cent of the bank, any deal would require the Government to retain a stake in the new property vehicle.
– Sources said that the plan to move some of Lloyds’ commercial property interests into a separate structure were at an early stage and other options to tackle the bank’s troubled commercial property portfolio remain on the table.
– Last September, Lloyds parachuted in Mark Collins, the former chief operating officer at Land Securities, to help restructure the bank’s commercial property book.

sorry

should have added that was on Lloyds

but point a

obviously affects RBS too

although to a less degree

Lloyds Banking Group PLC (LLOY:LSE): Last: 58.25, down 0.22 (-0.38%), High: 58.74, Low: 57.08, Volume: 78.00m

Hm. That’s enough banks I think.

11:54AM

Anything to round up on before we go?

yes a few things

some reaction to the weekend press report

that Vedanta is looking to spin off its aluminium division

Yeah – this has been around for yonks.

The great “Vedanta’s undervalued on SOTP” argument

Valuation looked a bit toppy though

very toppy

$20bn

would be worth as much as Rusal

which can’t be right

that said

there is no dount that Vendanta probably trades at a discount

because of its very complex company structure

it’s basically a holding company

here’s Liberum

According to The Independent, Vedanta could potentially spin off its aluminium assets within Vedanta Aluminium (VAL). The company is reported as believing that the potential value of VAL could be $20 billion. Currently, the division produces some 550kt of aluminium and will ramp-up to 1.75mt by 2013-14. We have an estimated value of $4.6bn for VAL based on DCF method. UC Rusal is currently trading at an EV of $23 billion or $5,750/t of aluminium production (4.0mt) which implies a market value of $1.7bn for current capacity and $8.5bn for VAL after incremental capacity additions. We think that securing Niyamgiri bauxite license could be the precursor for the IPO as this mine has the potential to reduce costs of the division significantly (as much as 25%).

This compliments the rumours last month (our email on 1st Feb 10) that the company is looking to spin off Konkola and VAL (as well as the Energy assets which have already been announced). We estimate that the spinning off these assets even on our conservative valuation will provide a minimum 25% upside to today’s share price.

Vedanta, which is already trading at a significant holding company discount given its complex structure, will stand to lose little (on discount) from spinning off its non-listed assets (VAL and Konkola). These assets are currently trading at an implied $2.0bn valuation, 2.2x FY11 EV/EBITDA and 1.3x FY12 EV/EBITDA well below the peer group range of 6-7x. Whatever the valuation (between $3.8-20bn range), we think the spin off could be a key re-rating catalyst. The rump valuation of the $2.0bn seems very light given aluminium is likely to be worth c.$4-5bn and Konkola Copper could be at least this much again.

Right some mining share prices

Vedanta Resources PLC (VED:LSE): Last: 2,712, down 35 (-1.27%), High: 2,751, Low: 2,699, Volume: 401.76k

Xstrata Plc (XTA:LSE): Last: 1,161, down 32 (-2.68%), High: 1,186, Low: 1,156, Volume: 3.93m

Antofagasta PLC (ANTO:LSE): Last: 1,015, down 18 (-1.74%), High: 1,028, Low: 1,010, Volume: 711.29k

Kazakhmys PLC (KAZ:LSE): Last: 1,487, down 30 (-1.98%), High: 1,507, Low: 1,476, Volume: 409.41k

and while we are on the miners

some interesting news from Rio shareholder Chinalco

via Reuters

(@Oil&Gas: with every respect, I’m not sure you can draw a direct editorial parallel between Robert Fisk and Alistair Dawber’s smallcap column.)

Aluminum Corp of China (Chinalco), the top aluminium group in the country, will further expand into overseas resources, and its confidence remains undimmed by the failure to raise its stake in Rio Tinto , Chinalco President Xiong Weiping told Reuters.
“We will make some breakthroughs in overseas development this year,” Xiong said in an interview on Sunday in his Beijing office.
Chinalco, which plans to focus increasingly on copper, rare metals and coal, burst onto global investors’ radars by investing in Rio Tinto in February 2008, a deal that helped to derail a merger plan between Rio and its rival BHP Billiton and made Chinalco the global mining dealmaker to watch.

But a $19.5 billion bid to double its stake in Rio Tinto last year came unstuck when the Anglo-Australian company spurned its advances in favour of a tie-up with BHP.
“This will not affect Chinalco’s development and confidence in resolutely implementing its strategy of becoming an international mining company,” Xiong said.
Chinalco, the top shareholder in Rio with a 9.3 percent stake in the mining group, has no plans to sell its shares, he said.

Right. Ta for all that.

11:59AM

Anything else to look at?

Pru under pressure this morning

Prudential Plc (PRU:LSE): Last: 541.25, down 11.25 (-2.04%), High: 557.50, Low: 539.50, Volume: 9.18m

no idea why

Guess it’s had a bit of a rebound

There’s a Morgan Stanley note knocking around, which I didn’t have the fortitude to read.

I have

and it doesn’t say very much

the deal is about growth not cost savings

the AIA deal that is

12:00PM

Okay

time to go Dinner Party Live

house prices

and this morning

we have had the lowest ever reading for March

from the Rightmove House Price Index

growth of just 0.1% in March

the start of the great house selling season

(Fatdaz: agree with that observation. Part of the problem is that MSCI’s formula is insanely opaque so it’s difficult to pre-position.)

anyway, this is ore evidence for the view

that the house price recovery is running out of steam

I guess it is.

perhaps that’s because

mmore houses are coming on to the market

But that’s enough of what we think

As we know, economic data doesn’t exist unless Howard Archer’s commented on it.

and he has indeed commented

Go on then. Fire away.

hang on

The Rightmove housing market survey for March adds to the current mounting evidence that the revival in housing prices since early-2009 is running out of steam at least temporarily. This is evident not only in the survey showing asking prices only edging up in March but also in the increased supply of housing coming on to the market. This increase in supply is highly significant as a scarcity of property has been a major factor in pushing up house prices from their early-2009 lows.

Specifically, Rightmove reported that asking prices for houses rose just 0.1% month-on-month in March. This is the smallest March increase in the survey’s history as the data are not seasonally adjusted and house prices traditionally pick up in March after a winter lull. As a result, the year-on-year increase in asking prices retreated to 5.3% in March from 6.1% in February. Asking prices had spiked up by 3.2% month-on-month in February, so it is likely that March’s essential stabilization in asking prices was partly a correction to that unrealistic looking rise,

Rightmove reported that the increase in new properties coming onto the market rose by 17.5% month-on-month and 34% year-on-year to be at an 18-month high in March.

If the increase in the supply of properties for sales persists over the coming months, it will cause a recent major prop of house prices to crumble and increase significantly the likelihood that prices will suffer a significant correction. We believe that the rally in house prices from their early-2009 lows is very much at odds with ongoing largely very poor economic fundamentals for the housing market with the admiited very notable exception of very low mortgage rates. High and likely further to rise unemployment, as well as low earnings growth, is hardly conducive to marked house price rises. Consequently, we expect house prices to be no better than flat over 2010 as a whole and would not be surprised if they recorded an overall drop.

12:04PM

Hello Monty

nice to have your comments on Sky

and I think you are refering to these convertible instruments

that News Corp settled in cash

rather than Sky shares

and I have some comment on this

Sky – re the rumours on Friday that NewsCorp was going to buy in the free float. We spoke with NewsCorp – they are buying in the BUCS, and possibly the TOPrS… None the wiser? NewsCorp issued 2 convertible instruments which are potentially convertible into Sky shares held by News (although News had the option to pay cash instead).

If they were converted it would increase the free float – but buying these in doesn’t reduce the free float. So by doing this News Corp are implying theythink BSkyB stock is cheap and therfore wouldn’t want to be delivering Sky shares. Sky’s op momentum likely to be incredibly strong in the run up to the World Cup (huge HD driver).

Our recent note illustrated how the pace of HD growth is so strong now that it cannot actually lead to meaningful misses to fiscal 2011 and 2012. Doesn’t tick our advertising box, doesn’t gain on weak sterling (actually suffers a little), but does tick the box for quality franchise emerging stronger from the downturn. Everyone’s excuse for not buying now is the reg. review – answer due by the end of the month, but possibly made moot by an Election.

Very interesting the way the stock moved on high volume on friday on a rumour that doubtful whether anyone believed – shows where the mkt is positioned on this one?? When some of Friday’s froth falls away, look to BUY.

Handy. Cheers.

(And Lemmy : Archer is a prolific yet valued commentator. There are many rentaquotes and walking billboards at work in the square mile; he is not one of them. That’s why we moaned.)

Do you have some more details on the bond?

yes

one moment

During fiscal 2003, News Corporation Finance Trust II (the “Trust”) issued an aggregate of $1.655 billion 0.75% BUCS representing
interests in debentures issued by NAI and guaranteed on a senior basis by the Company and certain of its subsidiaries. The net proceeds from
the BUCS issuance were used to purchase approximately 85% of the Company’s outstanding TOPrS. The BUCS are exchangeable at the
holders’ option into BSkyB ordinary shares based on an exchange ratio of 77.09 BSkyB ordinary shares per $1,000 original liquidation
amount of BUCS. The Trust may pay the exchange market value of each BUCS by delivering ordinary shares of BSkyB or a combination of cash
and ordinary shares of BSkyB.

The holders also have the right to tender the BUCS for redemption on March 15, 2010, March 15, 2013 or March 15, 2018 for
payment of the adjusted liquidation preference plus accrued and unpaid distributions and any final period distribution in, at the Company’s
election, cash, BSkyB ordinary shares, the Company’s Class A Common Stock or any combination thereof.

as I said

it was settled in cash

12:07PM

Right

another newflash out of the FSA

which is acting more like the FBI at the moment

FSA and Police contact 1,000 share fraud targets after seizing another boiler room ‘master list’

The Financial Services Authority (FSA) and City of London Police (CoLP) have contacted 1,000 people across the UK to warn them that their personal details are on a ‘master list’ being used by fraudsters to target and sell them worthless shares.
This list, the second share fraud master list obtained by the FSA and CoLP in 2010, contains the names and phone numbers of about 750 people, and the names and addresses of 250. The list was discovered by the FSA and CoLP as part of Operation WARN, which was launched in February.

If any of the ROTR

get the call

we would love to know

“Operation WARN”?

What does that stand for?

Answers in a comment please, ROTR.

12:08PM

Okay

it is past midday

and we must wind things up

before we do

This Rob Lloyd guy

http://www.roblloydracing.co.uk/

The secret millionaire.

Indeed

we have been charting his progress

Although it’s not much of a secret any more …. and he’s not …. well, you can guess the rest.

in trying to refinance his property company Eatonfield

and he got a £1m on Friday from an equity PIPE

now, you might think that

he would now settle down

and try and exploit the value of the company’s property portfolio

but no

he want’s to buy Portsmouth

Hm.

Does he really.

Portsmouth’s administrator is keen to speak with Rob Lloyd and establish whether he is a suitable buyer.

The millionaire property developer has expressed an interest in the ailing South Coast club, but is yet to contact Andrew Andronikou.

He is the man charged with the task of finding a purchaser and preserving the existence of the club.

http://www.skysports.com/story/0,19528,11661_6028190,00.html

Backed by ……..

“I have been told, for example, that Rob Lloyd has connections to another Premier League club. I have no idea if that is the case or what those connections are, but I would need to find out.”

Lloyd is reported to be fronting a consortium which includes a New York hedge fund and a South African investment company, and would be prepared to cover Pompey’s costs until the end of the season before completing a takeover.

So – this is fronted by a “New York hedge fund” (unnamed)

And “a South African investment company”

Which is Old Mutual, according to the Sunday Tel.

Lloyd, 44 will never be described as shy. A property and racing entrepreneur, he has published an autobiography (Raising the Bar — The Story of One Man’s Vision and Dedication) and earlier this year appeared on Channel 4’s Secret Millionaire. The contrast with Ali Al Faraj, the last-but-one owner who was never seen at Fratton Park or the Premier League’s offices and earned the soubriquet ‘Al Mirage’ from supporters who still doubt he exists, could not be more marked.

http://www.telegraph.co.uk/sport/football/leagues/premierleague/portsmouth/7437654/Portsmouth-fans-set-to-eye-new-owner-Rob-Lloyd-with-caution.html

I don’t get this

not as if Pompy are a property play

And, as today’s Times notes …..

He hasn’t actually approached the administrator yet.

Just gone to the fans.

strange

anyway

that is it for today

No RAW I am afraid

market is calm

flatlining

FTSE down 4.8 points at 5,620

(And, Oilcan, I’m a tad busy right now, but will post the note in a second in the Wall of Worry.)

Right – are we all done then?

yes

I think we are

thanks for logging in

Same time tomorrow. Bye.

This entry was posted by Neil Hume on Monday, March 15th, 2010 at 11:03 and is filed under Uncategorized. Edit this entry.

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Markets Live transcript 15 Mar 2010

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