Markets Live chat transcript for the chat ending at 12:29 on 6 Apr 2010. Participants in this chat were: Bryce Elder Izabella Kaminska, FT
BE
Good morning
BE
It’s 11.30am, so it’s time for Markets Live
BE
Only 27 minutes late today, which ain’t too bad.
BE
The delayed start is because nearly everyone’s on holiday
BE
Including Neil
BE
But me and Iz are here.
IK
(And Joseph) – Hello
BE
Meanwhile, I only made it in to the office about half an hour ago
BE
And my Reuters machine’s completely stuffed,
BE
Probably because the ‘one month’s free trial’ the FT keeps giving me has expired again
BE
As a consequence I don’t have a scoob what’s going on.
BE
(No change there, some might argue.)
BE
So, Izy, what’s happening out there this morning?
IK
Nothing.
BE
Really? Nothing?
IK
Nothing.
BE
Fair enough.
BE
So that concludes another Markets Live
BE
Thanks for tuning in today
BE
and thanks for all your comments
IK
Hang on
IK
It’s not that bad.
IK
We can probably scrape together enough to get to midday.
BE
Okay. If you insist.
BE
But let’s keep it mercifully brief.
IK
Sure. Kicking off with wider market
11:33AM
BE
And …………………………
BE
We’re up.
IK
FTSE is up 32 pts, at 5777
BE
Triple 7
IK
Sounds like bingo
IK
or is that darts?
BE
I was thinking the jackpot on a one-armed bandit.
BE
Anyway, that’s after the US jobs data on Friday
BE
While we were on hols
BE
And probably doesn’t relate to the entirely predictable and predicted news that we’re having an election on May 6.
IK
What’s good old GBK doing?
BE
Down a tad, by the looks of it.
BE
But was probably vulnerable to a bit of profit taking post the recent run
BE
1.51 at the moment, according to FT.com (as, need I remind you, I don’t have a reuters)
BE
And 1.34 versus the euro
IK
Any comments on the election news?
BE
Um …..
BE
Well, David Buik’s currently sharing his thoughts live on CNBC
BE
But the volume’s down.
BE
Op – Gordo’s started speaking.
IK
We can’t hear what he’s saying though, as CNBC insists on keeping Buik in shot
IK
And i don’t know how to turn the channel over to the BBC
BE
Um.
BE
Anyway, here’s Investec’s David Page instead
BE
Rail strike off, Election on. Last week’s announcement postponing the
proposed rail strike not only alleviated the prospective misery for millions of
commuters this week, but also eased a problem for Labour Party strategists
struggling to determine when to announce the dissolution of Parliament, to
instigate the countdown to a General Election. With the strike now averted,
Prime Minister Brown is expected to hold a Cabinet meeting this morning and
then head to the Palace to request dissolution next Monday. This is the formal
process to set the date for a General Election on 6 May.
proposed rail strike not only alleviated the prospective misery for millions of
commuters this week, but also eased a problem for Labour Party strategists
struggling to determine when to announce the dissolution of Parliament, to
instigate the countdown to a General Election. With the strike now averted,
Prime Minister Brown is expected to hold a Cabinet meeting this morning and
then head to the Palace to request dissolution next Monday. This is the formal
process to set the date for a General Election on 6 May.
BE
Catching up with the US? While Europe has enjoyed an Easter holiday, the
US has posted some important numbers. Friday’s payrolls fell short of the
expected 184k gain, but still rose by 162k (including 48k government workers
hired for the 2010 census). This is the biggest rise in payrolls in 3 years.
Moreover, Monday saw pending home sales leap by 8.2% on the month, more
than undoing the previous month’s decline, against expectations for no change
on the month; the non-manufacturing ISM index rose to 55.4, also beating
expectations for a pick-up to 54.0 from 53.0. This helped the S&P 500 index
post a 0.8% gain on the day, taking stocks to their highest close since
September 2008, a rise that can be expected to influence European trading
today. However, the growing optimism has weighed on bond markets and the
10-year US benchmark yield currently trades at 3.97% – its highest reading in 18
months.
US has posted some important numbers. Friday’s payrolls fell short of the
expected 184k gain, but still rose by 162k (including 48k government workers
hired for the 2010 census). This is the biggest rise in payrolls in 3 years.
Moreover, Monday saw pending home sales leap by 8.2% on the month, more
than undoing the previous month’s decline, against expectations for no change
on the month; the non-manufacturing ISM index rose to 55.4, also beating
expectations for a pick-up to 54.0 from 53.0. This helped the S&P 500 index
post a 0.8% gain on the day, taking stocks to their highest close since
September 2008, a rise that can be expected to influence European trading
today. However, the growing optimism has weighed on bond markets and the
10-year US benchmark yield currently trades at 3.97% – its highest reading in 18
months.
BE
April’s MPC meeting to pass with little comment. In the UK, the
announcement of the General Election will allow the Bank of England to formally
change its next meeting date in May, which is also due to be held on 6 May.
Instead, this is expected to be rescheduled to Monday 10 May. Meanwhile,
Thursday sees April’s decision. In truth, this should pass with little comment.
The outlook for policy is extremely uncertain, but to our minds the shape of fiscal
policy and the level of sterling and markets in general will be key to determining
future MPC decisions and these factors are very much dependent on the
outcome of the General Election.
announcement of the General Election will allow the Bank of England to formally
change its next meeting date in May, which is also due to be held on 6 May.
Instead, this is expected to be rescheduled to Monday 10 May. Meanwhile,
Thursday sees April’s decision. In truth, this should pass with little comment.
The outlook for policy is extremely uncertain, but to our minds the shape of fiscal
policy and the level of sterling and markets in general will be key to determining
future MPC decisions and these factors are very much dependent on the
outcome of the General Election.
BE
Measures of UK service sector activity. Of greater interest will be the UK
services PMI, one of the key indicators for the UK economy. This has exhibited
phenomenal strength in recent months, rising to a 3-year high in February. We
expect some retracement to 57.4 on Wednesday, but this would still suggest
robust expansion. Wednesday also sees the British Chambers of Commerce
Quarterly Survey, which provides an alternative assessment of the services
sector. We shall see how the two sources compare, but suspect that the BCC
survey will record a marked improvement in both its manufacturing and survey
indices.
services PMI, one of the key indicators for the UK economy. This has exhibited
phenomenal strength in recent months, rising to a 3-year high in February. We
expect some retracement to 57.4 on Wednesday, but this would still suggest
robust expansion. Wednesday also sees the British Chambers of Commerce
Quarterly Survey, which provides an alternative assessment of the services
sector. We shall see how the two sources compare, but suspect that the BCC
survey will record a marked improvement in both its manufacturing and survey
indices.
BE
ECB unmoved by developments in the peripheral Eurozone. The ECB’s
Governing Council also meets on Thursday to announce its latest monetary
policy decision. ECB policy changes have focused on the last month of the
quarter and March saw a number of measures introduced. Therefore, despite a
number of developments in Greece, Ireland and Portugal, we think that the
Council will leave its economic outlook unchanged (an uneven recovery at a
moderate pace) and hence leave its present monetary stance unaltered.
Governing Council also meets on Thursday to announce its latest monetary
policy decision. ECB policy changes have focused on the last month of the
quarter and March saw a number of measures introduced. Therefore, despite a
number of developments in Greece, Ireland and Portugal, we think that the
Council will leave its economic outlook unchanged (an uneven recovery at a
moderate pace) and hence leave its present monetary stance unaltered.
BE
Right – that’s comprehensive.
IK
Can we please move on now?
BE
Absolutely.
11:41AM
BE
Right – quick look at what’s driving us.
BE
And it looks like the miners are the main support, yet again.
BHP Billiton PLC (BLT:LSE): Last: 2,333, up 32 (+1.39%), High: 2,346, Low: 2,305, Volume: 1.84m
Anglo American PLC (AAL:LSE): Last: 2,980, up 33 (+1.12%), High: 3,016, Low: 2,938, Volume: 1.59m
Vedanta Resources PLC (VED:LSE): Last: 2,924, up 61 (+2.13%), High: 2,934, Low: 2,868, Volume: 442.50k
BE
Which is despite the Aussie rate hike
IK
The RBA raised the cash rate by 25bps to 4.25% on Tuesday…
IK
…following a 25bps hike in March, with more probably to come.
BE
Do we have a statement?
IK
Yep – as RBA governor Glenn Stevens explains (shorter/longer as appropriate)
IK
The global economy is growing, and world GDP is expected to rise at close to trend pace in 2010 and 2011. The expansion is still hesitant in the major countries, due to the continuing legacy of the financial crisis, resulting in ongoing excess capacity. In Asia, where financial sectors are not impaired, growth has continued to be quite strong, contributing to pressure on prices for raw materials…
IK
…Inflation has, as expected, declined in underlying terms from its peak in 2008, helped by a noticeable slowing in private-sector labour costs during 2009, the rise in the exchange rate and the earlier period of slower growth in demand. CPI inflation has risen somewhat recently as temporary factors that had been holding it to quite low rates are now abating. Inflation is expected to be consistent with the target in 2010.
With the risk of serious economic contraction in Australia having passed some time ago, the Board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. Lenders have generally raised rates a little more than the cash rate.
Interest rates to most borrowers nonetheless have been somewhat lower than average. The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process.
With the risk of serious economic contraction in Australia having passed some time ago, the Board has been lessening the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker. Lenders have generally raised rates a little more than the cash rate.
Interest rates to most borrowers nonetheless have been somewhat lower than average. The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process.
BE
Duly noted.
IK
A little bit of a bounce in the Australian dollar after that, too.
BE
Ah. The emu.
BE
Any analyst comment on either event?
IK
Hmm. How about this bit of paragraph parsing, from BarCap’s FX chaps
IK
The RBA increased its policy rate by 25bp to 4.25% following its April Board meeting. The market was divided on the decision; 14 out of 25 surveyed economists looked for a hike and the bills market was pricing in about a 70% chance of a 25bp rate hike. BarCap was looking for the RBA to remain on hold. The RBA’s accompanying statement was modestly more hawkish than its statement after its March rate hike. While the majority of the statement was left unchanged, the RBA added commentary on the increase in terms of trade signalled by the recent increase in iron ore contract prices as well as the “buoyancy” in the market for established dwellings. It is these additions that modestly raise the RBA’s hawkishness.
IK
However, the RBA continues to indicate that the rate normalisation process will be gradual. The RBA left its final paragraph broadly unchanged and still indicates that “…it is appropriate for interest rates to be closer to average,” and that “today’s decision is a further step in that process.” So, we do not think that the RBA’s statement signals acceleration in its rate normalisation process or that its end point for this process has shifted higher. We continue to forecast the cash rate to be at 4.50% by end Q2 and 5.00% by end-2010. We think that the current market pricing for a cash rate of between 5.25-5.50% by year end is too aggressive and so the risk to the AUD from local rates is to the downside. We also continue to think US rates will head higher following the end of the Fed’s asset purchases programme and stronger US economic data. This, combined with the PBoC potentially surprising the market with policy tightening, should eventually erode the strength in the AUD.
BE
‘Kay. Ta.
11:46AM
BE
On the miners
BE
Meany to mention Bernstein giving a push this morning
IK
Oh right, what are they saying?
BE
Well, you’ve heard the arguments before.
BE
Here’s the gist.
BE
When we re-initiated on the Mining sector in late 2009 we provided three possible commodity price and
earnings scenarios – base case plus an optimistic and pessimistic scenario. We said that 2010 was likely to
be volatile and focused our attention on a structurally tight 2011/2012 in key commodities (bulks, platinum
and copper). In the event most commodity prices have exceeded our optimistic scenario, most notably iron
ore. If we had known then what we know now we would have expected higher operationally and financially
leveraged stocks to significantly outperform lower risk, higher quality ones – as it happens this has not
taken place. And now that commodity prices are elevated and the market appears to be overlooking
downside risks, our preference for quality over leverage is even stronger than before.
earnings scenarios – base case plus an optimistic and pessimistic scenario. We said that 2010 was likely to
be volatile and focused our attention on a structurally tight 2011/2012 in key commodities (bulks, platinum
and copper). In the event most commodity prices have exceeded our optimistic scenario, most notably iron
ore. If we had known then what we know now we would have expected higher operationally and financially
leveraged stocks to significantly outperform lower risk, higher quality ones – as it happens this has not
taken place. And now that commodity prices are elevated and the market appears to be overlooking
downside risks, our preference for quality over leverage is even stronger than before.
BE
No change to our stock preferences – buy the best without the premium. We continue to rate the
following stocks as outperform (new target prices are given in brackets) – BHP Billiton (£25.40),
Antofagasta (£11.10) and Anglo American (£34.10); we have market-perform ratings on Rio Tinto
(£38.50), Xstrata (£12.00) and Kazakhmys (£15.40). We continue to rate Lonmin underperform (£15.80)
preferring to gain our platinum exposure either through the physical metal or via Anglo American.
following stocks as outperform (new target prices are given in brackets) – BHP Billiton (£25.40),
Antofagasta (£11.10) and Anglo American (£34.10); we have market-perform ratings on Rio Tinto
(£38.50), Xstrata (£12.00) and Kazakhmys (£15.40). We continue to rate Lonmin underperform (£15.80)
preferring to gain our platinum exposure either through the physical metal or via Anglo American.
BE
24% upgrade to sector EBITDA in 2010E and 6% in 2011E. Following the release of all CY year
end financial results and upgrades to our base metal, iron ore and PGM price forecasts in 2010 and 2011
we have significantly upgraded sector earning estimates. As a result we have also raised most of our
target prices – however we continue to base this off the less volatile 2011E EBITDA and we have
lowered the target multiples – for the Big 4 diversified miners the target multiple is now 5.7x (previously
6.0x) – 5.7 was the average EV/EBITDA multiple for the Big 4 in 2006, a time when we started to
approach peak-like cycle earnings. With iron ore spot prices of US$140/t plus and copper prices trading
at US$7,800/t (350/clb) we believe that earnings forecast are becoming more peak-like, although not yet
peak. We therefore maintain our overweight stance on the sector (earnings could remain elevated for
longer than expected), but want to buy the higher quality stocks as we are mindful of some not
insignificant price risks now also appearing to the downside.
end financial results and upgrades to our base metal, iron ore and PGM price forecasts in 2010 and 2011
we have significantly upgraded sector earning estimates. As a result we have also raised most of our
target prices – however we continue to base this off the less volatile 2011E EBITDA and we have
lowered the target multiples – for the Big 4 diversified miners the target multiple is now 5.7x (previously
6.0x) – 5.7 was the average EV/EBITDA multiple for the Big 4 in 2006, a time when we started to
approach peak-like cycle earnings. With iron ore spot prices of US$140/t plus and copper prices trading
at US$7,800/t (350/clb) we believe that earnings forecast are becoming more peak-like, although not yet
peak. We therefore maintain our overweight stance on the sector (earnings could remain elevated for
longer than expected), but want to buy the higher quality stocks as we are mindful of some not
insignificant price risks now also appearing to the downside.
IK
“If we had known then what we know now”
IK
Are analysts allowed to stay stuff like that?
BE
It appears they are.
BE
Now, this is epic stuff, but here’s the bit about iron ore which seems to be the main focus of attention.
BE
Iron ore and coking coal prices also upgraded, no change to thermal at this point. It is now apparent
that iron ore pricing is moving to quarterly settlements and reflect this in our forecasts. For CY’Q2 we
expect an 80% increase to US$108/t. We expect this price level to be maintained into Q3’10 before
falling to US$93/t in Q4’10/Q1’11. Average annual increase is now 68% to US$100/t. We have also
increased our coking coal forecast higher by US$10/t to US$210/t in 2010 to reflect worsening near-term
availability from Australia. Our thermal coal forecast is unchanged at US$85/t for 2010 and US$90/t for
2011 – however following the recent announcement from Xstrata, it looks increasingly likely that the
2010 contract price could be US$98/t – US$13/t higher than our current estimate. Using price
sensitivities this would raise Xstrata’s 2010 EPS by 6% and 2% in 2011. There would be a smaller uplift
for Anglo, Rio and BHP.
that iron ore pricing is moving to quarterly settlements and reflect this in our forecasts. For CY’Q2 we
expect an 80% increase to US$108/t. We expect this price level to be maintained into Q3’10 before
falling to US$93/t in Q4’10/Q1’11. Average annual increase is now 68% to US$100/t. We have also
increased our coking coal forecast higher by US$10/t to US$210/t in 2010 to reflect worsening near-term
availability from Australia. Our thermal coal forecast is unchanged at US$85/t for 2010 and US$90/t for
2011 – however following the recent announcement from Xstrata, it looks increasingly likely that the
2010 contract price could be US$98/t – US$13/t higher than our current estimate. Using price
sensitivities this would raise Xstrata’s 2010 EPS by 6% and 2% in 2011. There would be a smaller uplift
for Anglo, Rio and BHP.
BE
And the conclusion
BE
We have raised sector EBITDA by 24% in 2010 and 6% in 2011 – this is due to a combination of higher
price forecasts and changes following the release of recent financial results. We have also changed target
prices – this takes account of the earnings changes, the current strength in the sterling:dollar exchange rate
and our adoption of a lower target multiple as we get closer to ‘peak-like’ earnings. Our preference remains
for quality over leverage, primarily because lower quality earnings etc are not being priced at a discount in
our opinion. We maintain market outperform ratings on BHP Billiton (new target price £25.40, up 6%),
Antofagasta (new target price £11.10, down 1%) and Anglo American (new target price £34.10, up 10%).
We also maintain our market-perform ratings on Rio Tinto (new target price £38.50, up 14%), Xstrata (new
target £12.0 up 3%) and Kazakhmys (new target £15.40, up 23%). Finally, we maintain our underperform
rating on Lonmin (even though we are lifting our target price by 23% to £15.80) – we continue to struggle
with justifying Lonmin’s premium valuations and prefer to gain our exposure to platinum either via physical
metal (a platinum ETF) or Anglo American (where platinum is forecast to contribute 21% to 2011E
EBITDA) but which trades on half the 2011 EV/EBITDA multiple that Lonmin does. Overall, we remain
buyers of the sector but would not be buying higher leverage, especially after the recent strong sector
performance.
price forecasts and changes following the release of recent financial results. We have also changed target
prices – this takes account of the earnings changes, the current strength in the sterling:dollar exchange rate
and our adoption of a lower target multiple as we get closer to ‘peak-like’ earnings. Our preference remains
for quality over leverage, primarily because lower quality earnings etc are not being priced at a discount in
our opinion. We maintain market outperform ratings on BHP Billiton (new target price £25.40, up 6%),
Antofagasta (new target price £11.10, down 1%) and Anglo American (new target price £34.10, up 10%).
We also maintain our market-perform ratings on Rio Tinto (new target price £38.50, up 14%), Xstrata (new
target £12.0 up 3%) and Kazakhmys (new target £15.40, up 23%). Finally, we maintain our underperform
rating on Lonmin (even though we are lifting our target price by 23% to £15.80) – we continue to struggle
with justifying Lonmin’s premium valuations and prefer to gain our exposure to platinum either via physical
metal (a platinum ETF) or Anglo American (where platinum is forecast to contribute 21% to 2011E
EBITDA) but which trades on half the 2011 EV/EBITDA multiple that Lonmin does. Overall, we remain
buyers of the sector but would not be buying higher leverage, especially after the recent strong sector
performance.
BE
Right – that’s more than enough of that.
11:50AM
BE
Right – where now?
IK
Connaught?
BE
Ah yes – good market today.
Connaught Plc (CNT:LSE): Last: 267.00, up 13.5 (+5.33%), High: 267.00, Low: 255.00, Volume: 1.43m
BE
After being a very very bad market last week.
BE
Sold off by something like 20%
IK
So what’s triggered the rally?
BE
Well, it’s the ever-thrilling county council contract news
BE
On 15 December, Connaught announced that it had won a £125m five year integrated services contract with Norwich County Council. The award of the permanent contract was delayed as a result of an injunction brought by the incumbent provider. However, we have been informed that a settlement has been reached. We began work as planned on 1 April under a short-term contract and the permanent contract is due to start on 8 April. The Company can confirm that it continues to trade in line with expectations and management remain confident of the future prospects of the Group. The Company has a robust order book, strong balance sheet and operationally continues to make excellent progress. The Company will give a further more detailed update on the announcement of its interim results on 27 April 2010.
On 15 December, Connaught announced that it had won a £125m five year integrated services contract with Norwich County Council. The award of the permanent contract was delayed as a result of an injunction brought by the incumbent provider. However, we have been informed that a settlement has been reached. We began work as planned on 1 April under a short-term contract and the permanent contract is due to start on 8 April. The Company can confirm that it continues to trade in line with expectations and management remain confident of the future prospects of the Group. The Company has a robust order book, strong balance sheet and operationally continues to make excellent progress. The Company will give a further more detailed update on the announcement of its interim results on 27 April 2010.
BE
Now, the backstory here is that this deal has been one of the major overhangs for Connaught shares.
BE
And now it’s been settled, some folk were expecting a correction in the stock.
BE
And those folk were wrong.
BE
So it looks like the concerns raised over its accounting are proving rather problematic.
BE
Anyway, here’s Brewin Dolphin with its thoughts on the settlement.
BE
Connaught has confirmed that a settlement has been reached which has allowed
it to begin work on a 5 year, £125m integrated services contract with Norwich
County Council. Work has begun under a short term contract with the permanent
contract due to begin on 8th April.
it to begin work on a 5 year, £125m integrated services contract with Norwich
County Council. Work has begun under a short term contract with the permanent
contract due to begin on 8th April.
BE
• The settlement comes following an injunction brought by the incumbent provider
and this news should draw a line under any ongoing uncertainty in this regard
(and the distraction it has caused).
and this news should draw a line under any ongoing uncertainty in this regard
(and the distraction it has caused).
BE
• The statement also comments that trading continues to be in line with
expectations. In this context, in our view, the recent share price weakness looks
overdone and we expect upbeat Interims from Connaught (27th April) which
should help rebuild confidence in the long term story.
expectations. In this context, in our view, the recent share price weakness looks
overdone and we expect upbeat Interims from Connaught (27th April) which
should help rebuild confidence in the long term story.
11:55AM
BE
Want to do some smallcap corner?
IK
Why not.
BE
Requests on the right for Regal Petroleum
BE
Which has confirmed recent goss of a positive drill update from Ukraine.
Regal Petroleum Plc (RPT:LSE): Last: 72.25, up 8 (+12.45%), High: 73.25, Low: 65.00, Volume: 2.67m
BE
Here’s Merrill on that one
BE
Regal Petroleum provided an operational update this morning with key
incremental newsflow centering on SV-58 flow rates. SV-58 stable flow rate is
800boe/d of gas and condensate (114mcm/d of gas and 140bbl/d of condensate)
from B-sands only. This represents a 100% increase over the rates reported in
January 2010, but is below our expectations for the well that cost more than
USD20mn and was the most promising near term target in Regal’s portfolio based
on the initial pressure indications, newly discovered B-24 horizon and the results
of the trial jet perforation (400boe/d flow rate has been achieved from less than
10% of the target reservoir).
incremental newsflow centering on SV-58 flow rates. SV-58 stable flow rate is
800boe/d of gas and condensate (114mcm/d of gas and 140bbl/d of condensate)
from B-sands only. This represents a 100% increase over the rates reported in
January 2010, but is below our expectations for the well that cost more than
USD20mn and was the most promising near term target in Regal’s portfolio based
on the initial pressure indications, newly discovered B-24 horizon and the results
of the trial jet perforation (400boe/d flow rate has been achieved from less than
10% of the target reservoir).
BE
*Recent sell-off overdone, strong newsflow ahead
Although SV-58 production rate is below our expectations, this is c.15% above
our assumption for an average Ukrainian well (B sands only). In our view, this
should reduce market concerns over the quality/commerciality of Regal’s core
assets. With the shares 17% down MoM (vs. +9% for the European E&Ps over
the same period) and trading at 65% discount to our 180p/sh NAV (vs. 15%
discount for the peers), we believe the recent sell-off is overdone. We expect
strong near term newsflow as Regal is expected to announce the results of three
Ukrainian wells in 2Q10.
Although SV-58 production rate is below our expectations, this is c.15% above
our assumption for an average Ukrainian well (B sands only). In our view, this
should reduce market concerns over the quality/commerciality of Regal’s core
assets. With the shares 17% down MoM (vs. +9% for the European E&Ps over
the same period) and trading at 65% discount to our 180p/sh NAV (vs. 15%
discount for the peers), we believe the recent sell-off is overdone. We expect
strong near term newsflow as Regal is expected to announce the results of three
Ukrainian wells in 2Q10.
BE
And, while on the smallcap oilers, did you catch the news from Europa Oil & Gas?
IK
No, sorry didn’t
IK
Am transfixed on the sky chopper
BE
Yes – it’s thrilling television.
IK
Circa OJ Simpson
BE
The roof of a Jag passing through central London.
BE
They seem to have been driving for hours.
BE
Perhaps the driver’s lost.
IK
scenic tour
IK
gordon’s never seen london before
BE
Things are more simple in Fife. There’s only one road.
BE
Anyway, Europa …..
IK
indeed..
BE
Quite an interesting drilling statement, all things considered.
BE
The Directors of Europa Oil & Gas (Holdings) plc wish to provide an update on
operations at the Hykeham-1 well. The well has been re-perforated and a pump
installed to lift the well. To date, the well has produced only small volumes
of liquid and some gas. This result is completely incompatible with both the
wireline log and geological data from the well.
operations at the Hykeham-1 well. The well has been re-perforated and a pump
installed to lift the well. To date, the well has produced only small volumes
of liquid and some gas. This result is completely incompatible with both the
wireline log and geological data from the well.
BE
The well will be shut-in until the analysis is complete and a decision is made
on the forward programme. If this analysis concludes that remedial action is
not appropriate, the well will be abandoned.
on the forward programme. If this analysis concludes that remedial action is
not appropriate, the well will be abandoned.
BE
Paul Barrett, Managing Director, said `I have experience of many wells over
several decades and never seen such a mismatch between the test data and the
geological data for the reservoir. We believe that this reservoir is
oil-bearing and will flow given the right completion conditions and will be
working to achieve this over the coming months.’
several decades and never seen such a mismatch between the test data and the
geological data for the reservoir. We believe that this reservoir is
oil-bearing and will flow given the right completion conditions and will be
working to achieve this over the coming months.’
BE
The technical opinions in this announcement have been reviewed and approved by
Dr. Erika Syba and Paul Barrett, both experienced geologists with over 50 years
combined oil and gas experience.
Dr. Erika Syba and Paul Barrett, both experienced geologists with over 50 years
combined oil and gas experience.
BE
So, in summary, the survey seems to have been totally wrong.
IK
Where is this well exactly?
BE
Linconshire.
IK
What?!!
IK
As in Linconshire GB?
BE
Yup. The East Midlands oil belt.
IK
Well I never.
BE
Shares down, understandably.
Europa Oil & Gas (Holdings) Plc (EOG:LSE): Last: 13.00, down 3 (-18.75%), High: 13.50, Low: 13.00, Volume: 231.63k
BE
And finally, before we leave smallcap corner
BE
Findel’s parted company with its chairman
BE
Post the warning last week that its accounts might be snide.
BE
Um .. sorry .. I probably shouldn’t say snide. That can be misinterpreted.
BE
There were “irregularities”
BE
Anyway, bit of a rally on that.
Findel PLC (FDL:LSE): Last: 25.00, up 0.75 (+3.09%), High: 26.00, Low: 25.00, Volume: 67.95k
BE
Right – enough of that.
12:04PM
IK
Speaking of Linconshire oil
IK
Bit of a rally in the black stuff over the last few days
BE
To FT.com for a price ……….
BE
WTI crude at $86.42 on my screen
IK
That’s basically down to an EIA revision of demand
IK
Got a bit on that from JBC Energy
IK
Crude futures rose strongly to the highest level since October 2008 yesterday, with leaked IMF data showing an upwards revision in global GDP growth to 4.1% underpinning positive sentiment. On Nymex, WTI rose by 2.1% to $86.62 per barrel, while on ICE Brent gained 2.2% to reach $85.84 per barrel. Products also fared well yesterday, with RBOB rising by 1.1%, while Heating Oil gained 2.3%. The Institute for Supply Management reported that its US non-manufacturing activity index improved to 55.4 in March, up from 53 in February, exceeding expectations. The Institute also reported that in March the service sector grew at the healthiest pace in over three years. This comes on top of positive news from the US Labor Department, which reported last week that non-farm payrolls added an additional 162,000 jobs in March. The healthier reading was bulked up by temporary service sector positions, which expanded by 40,000 jobs last month.
IK
According to the EIA, the US retail gasoline ($2.88 per gallon) and diesel ($3 per gallon) prices hit the highest levels since October and November 2008 respectively. The recent spike can be largely put down to rising crude oil prices. Compared to other products, gasoline demand is quite price-sensitive, illustrated by the fact that it was the only major oil product to show growth on a global basis last year. Consumption was bolstered by low prices. This year it will be interesting to see whether the economic recovery or rising prices have a bigger influence on demand, especially in the US. Relatively speaking, demand growth for diesel is sensitive to economic developments and will barely suffer from the recent rise in prices. However, signs that the recovery is translating into higher diesel demand are slowly emerging, with latest US weekly data showing a contraction of 1% y-o-y (4-week average), which is the best reading in more than a year.
IK
Did i say EIA, i meant IMF btw
IK
Anyway, all eyes on the upcoming driving season now in the US
BE
Aha. Driving season. Of course.
IK
That would be the annual US passtime of driving a lot in the summer
BE
Good definition. Will add to FT Lexicon.
12:09PM
BE
Okay
BE
It has been a quiet session.
BE
(Why’s Gordo at St Pancras?!)
BE
(Is he catching a Eurostar?!)
IK
Running away?
BE
(This is the least direct route to Buck Pal I’ve ever seen …)
IK
Via Paris
BE
Yup – he’s going via Marais.
BE
And who can blame him?
BE
Anyway, as I was saying …
BE
Quiet session, so we’ll need emergency measures to get the hit rate up.
IK
What ?
BE
Here we go
BE
APPLE IPAD
BE
Although there is a justification.
ARM Holdings PLC (ARM:LSE): Last: 245.80, up 4.9 (+2.03%), High: 246.30, Low: 241.90, Volume: 1.97m
BE
Which is after teardowns of the IPhone Maxi showed presence of Arm
BE
Although not of CSR or Wolfson
CSR Plc (CSR:LSE): Last: 467.30, up 5.5 (+1.19%), High: 469.00, Low: 458.90, Volume: 178.23k
Wolfson Microelectronics Plc (WLF:LSE): Last: 153.50, up 2.75 (+1.82%), High: 153.50, Low: 153.00, Volume: 5.32k
BE
RBS says there are no fewer than 7 Arm cores in the Apple hypemachine.
BE
Here’s their morning comment
BE
Apple (AAPL US, NR) launched the WiFi version of the iPad over the week-end, selling 300k,
in line with expectations. iFixit published a teardown of the iPad, naming the component
suppliers in the iPad. In addition the FCC published the internal document showing the
components used in the 3G version of the iPad (which will go on sale by the end of the
month). Overall there is very little difference between the iPad and the iPhone 3G S in terms
of component suppliers. In line with our views, ARM and Infineon are the major suppliers in
the iPad.
Like in the iPhone, we were very impressed by the extreme level of integration achieved by
Apple engineers, with very few external components. This should help Apple generate
healthy gross margins, in our view. We name below the key suppliers in the 3G version of
the iPad:
in line with expectations. iFixit published a teardown of the iPad, naming the component
suppliers in the iPad. In addition the FCC published the internal document showing the
components used in the 3G version of the iPad (which will go on sale by the end of the
month). Overall there is very little difference between the iPad and the iPhone 3G S in terms
of component suppliers. In line with our views, ARM and Infineon are the major suppliers in
the iPad.
Like in the iPhone, we were very impressed by the extreme level of integration achieved by
Apple engineers, with very few external components. This should help Apple generate
healthy gross margins, in our view. We name below the key suppliers in the 3G version of
the iPad:
BE
Infineon supplies, like in the iPhone 3G and 3G S, the 3.5G chipset, including the
PMB8878 HSDPA 7.2Mbps digital baseband, power management unit and RF
transceiver. Note that we expect Apple to use Infineon.s HSUPA (ie next generation)
digital baseband in the upcoming iPhone. Apart from cost, it is unclear why Apple chose
a two-year old baseband chip in the iPad.
Broadcom supplies, like in the iPhone 3G S and the latest iPod Touch, the BT+FM+WiFi
chip (BCM4329) as well as the GPS chip, which is a new design win for Broadcom (the
GPS chip came from Infineon in the iPhone). Broadcom also supplies the touchscreen
controller in the iPad.
Skyworks (EDGE) and Triquint (WCDMA) provide the power amplifiers and duplexers,
like in the iPhone.
The Apple A4 apps processor is also identified with an NXP chip (likely for power
management) next to it.
Two Toshiba NAND flash chips for data storage.
One un-identified Texas Instrument chip.
One Apple-branded chip, likely to be the audio codec chip from Cirrus Logic (like in the
iPhone 3G S and the iPod Touch).
PMB8878 HSDPA 7.2Mbps digital baseband, power management unit and RF
transceiver. Note that we expect Apple to use Infineon.s HSUPA (ie next generation)
digital baseband in the upcoming iPhone. Apart from cost, it is unclear why Apple chose
a two-year old baseband chip in the iPad.
Broadcom supplies, like in the iPhone 3G S and the latest iPod Touch, the BT+FM+WiFi
chip (BCM4329) as well as the GPS chip, which is a new design win for Broadcom (the
GPS chip came from Infineon in the iPhone). Broadcom also supplies the touchscreen
controller in the iPad.
Skyworks (EDGE) and Triquint (WCDMA) provide the power amplifiers and duplexers,
like in the iPhone.
The Apple A4 apps processor is also identified with an NXP chip (likely for power
management) next to it.
Two Toshiba NAND flash chips for data storage.
One un-identified Texas Instrument chip.
One Apple-branded chip, likely to be the audio codec chip from Cirrus Logic (like in the
iPhone 3G S and the iPod Touch).
BE
Implications for our coverage:
Infineon: Although we had suspected that Infineon had won the 3G socket in the iPad
due to the design similarity of the product with the iPhone, we are encouraged to see our
.best guess. confirmed. We currently assume that Infineon will ship 1m 3G chipsets to Apple
this year (c. EUR 10m revenues or 0.3% of group sales) related to the iPad and 3m next year.
As such the iPad is not a major driver financially for the stock. However given the recent
positive reviews received by the iPad, we believe our estimates could prove to be cautious.
Our estimate is based on the assumption that Apple will sell 5m iPads this year and that 20%
of iPad buyers will take the 3G version. In addition we believe this also greatly increases the
chances that Infineon retains its socket in the next generation iPhone expected late June
2010. Finally given recent speculations around the launch of a CDMA iPhone, which would
not use Infineon.s chipset, we see the iPad socket win as a mitigating factor. We re-iterate our
Buy rating and TP of EUR 6.00.
Infineon: Although we had suspected that Infineon had won the 3G socket in the iPad
due to the design similarity of the product with the iPhone, we are encouraged to see our
.best guess. confirmed. We currently assume that Infineon will ship 1m 3G chipsets to Apple
this year (c. EUR 10m revenues or 0.3% of group sales) related to the iPad and 3m next year.
As such the iPad is not a major driver financially for the stock. However given the recent
positive reviews received by the iPad, we believe our estimates could prove to be cautious.
Our estimate is based on the assumption that Apple will sell 5m iPads this year and that 20%
of iPad buyers will take the 3G version. In addition we believe this also greatly increases the
chances that Infineon retains its socket in the next generation iPhone expected late June
2010. Finally given recent speculations around the launch of a CDMA iPhone, which would
not use Infineon.s chipset, we see the iPad socket win as a mitigating factor. We re-iterate our
Buy rating and TP of EUR 6.00.
BE
ARM: We estimate that there are 7 ARM cores in the iPad: two ARM cores (ARM7 and
ARM9) in Infineon.s digital baseband, one ARM core in the apps processor (custom ARM
processor designed by Apple), two ARM cores in Broadcom.s BT+FM+WiFi chip, one ARM
core in Broadcom.s touchscreen controller and one ARM core in Broadcom.s GPS chip. In
total we estimate that ARM will collect c. $0.45 of royalties per 3G iPad and c. $0.35 of
royalties in the iPad. We currently assume that 16m ARM-based internet tablets/e-readers will
ship this year, growing to 23m next year in our model. As such, even though we see the iPad
launch as fundamentally positive for ARM, we believe it is already reflected in our model and
in the stock. We stick to our Hold rating and TP of 245p.
ARM9) in Infineon.s digital baseband, one ARM core in the apps processor (custom ARM
processor designed by Apple), two ARM cores in Broadcom.s BT+FM+WiFi chip, one ARM
core in Broadcom.s touchscreen controller and one ARM core in Broadcom.s GPS chip. In
total we estimate that ARM will collect c. $0.45 of royalties per 3G iPad and c. $0.35 of
royalties in the iPad. We currently assume that 16m ARM-based internet tablets/e-readers will
ship this year, growing to 23m next year in our model. As such, even though we see the iPad
launch as fundamentally positive for ARM, we believe it is already reflected in our model and
in the stock. We stick to our Hold rating and TP of 245p.
BE
CSR and Wolfson: Although we had no particular hope that CSR had won the BT+FM+WiFi
socket in the iPad, we are slightly disappointed that the company did not win the GPS socket.
This probably implies that CSR won.t be in the upcoming iPhone, in our view. Similarly,
although it remains unclear whether Cirrus kept the audio codec socket in the iPad, we did
not expect Wolfson to win this socket. Given the improved product portfolio of the company,
we believe that Wolfson has got real chances to win back this socket in 12 months time. We
maintain our Hold rating on CSR (TP 500p) and WLF (TP 140p).
socket in the iPad, we are slightly disappointed that the company did not win the GPS socket.
This probably implies that CSR won.t be in the upcoming iPhone, in our view. Similarly,
although it remains unclear whether Cirrus kept the audio codec socket in the iPad, we did
not expect Wolfson to win this socket. Given the improved product portfolio of the company,
we believe that Wolfson has got real chances to win back this socket in 12 months time. We
maintain our Hold rating on CSR (TP 500p) and WLF (TP 140p).
BE
There is, of course, a metric tonne of iPad / iPhone 4.0 comment this morning.
BE
But it’s all quite stultifyingly dull for everyone except the polo-necked fanbois.
BE
So I’ll choose to leave it there.
IK
yes please
IK
altho before we go
IK
can i ask, if anyone else received a personal letter from George Osborne over the weekend?
BE
I did!
IK
Personally I was very touched
IK
And read the whole thing
BE
I put it in the bin.
IK
Very effective stationary though I thought
BE
I seem to have been marked as a floating voter in a marginal (I’m not), so am getting 20 letters a day from various parts of the Tory party.
BE
But none from Labour, interestingly.
IK
Osborne’s my only one.
IK
I thought I was special, clearly not though
BE
You’re lucky. I’m having to visit the recycling bin three times a week at the moment.
BE
Anyway, ley’s wrap this up.
BE
I don’t think we’ve missed anything huge, unless the ROTR want to interject.
IK
Where’s ftse now?
BE
Unchanged from where we started, more or less.
BE
33 points up at 5778.
IK
Clearly not worried about Gordon’s escape to France
BE
Added a point on that.
BE
Ticker asks about RBS ….
BE
(I’m assuming it’s a question.)
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 45.78, up 1.08 (+2.42%), High: 45.83, Low: 44.85, Volume: 43.78m
BE
No particular story that I’ve seen.
BE
Beyond the “Virgin buying RBS branches” thing, which shouldn’t be that price sensitive
BE
April 6 (Bloomberg) — Billionaire investor Wilbur Ross
agreed to buy a stake in Sir Richard Branson’s Virgin Money
financial-services unit for 100 million pounds ($152 million),
backing the division’s acquisition strategy.
Ross will commit up to 500 million pounds to support Virgin
Money’s bid for Royal Bank of Scotland Group Plc’s U.K. branch
network, he said in an interview on April 4. Offers for the
RBS network of more than 300 branches are due today.
agreed to buy a stake in Sir Richard Branson’s Virgin Money
financial-services unit for 100 million pounds ($152 million),
backing the division’s acquisition strategy.
Ross will commit up to 500 million pounds to support Virgin
Money’s bid for Royal Bank of Scotland Group Plc’s U.K. branch
network, he said in an interview on April 4. Offers for the
RBS network of more than 300 branches are due today.
BE
And since we mention banks
BE
An interesting story from DJ Ed Mixmaster Conway at the Telegraph this morning.
BE
The International Monetary Fund is poised to recommend an unprecedented new “excess profits tax” on banks worldwide.
BE
The Fund is expected to suggest the tax – which is effectively on banks’ cashflow – as one of the best ways governments can raise significant amounts from banks without drastically distorting the financial system.
The tax will be announced alongside the Obama-style banking levy, which the IMF will also rubber-stamp in its report, to be published at its spring meetings this month.
BE
The IMF was commissioned by the Group of Twenty leading economies last year to investigate new taxes on banks.
Although most attention initially was on so-called Tobin taxes, which levy small charges on banks’ financial transactions (a model promoted by campaign groups as the Robin Hood Tax), the Fund is likely to rule them out as a serious prospect. The move is likely to frustrate Gordon Brown, who threw his weight behind the transactions tax in the early stages of the research.
BE
Had a bit of sales desk comment on this earlier….
BE
According to the article, it reads like this will effectively lead to charging a higher tax rate on banks than for other sectors. Although potentially bad for near term sentiment – depending on how big the tax increase is – such a move would not de-rail our reverse engineering philosophy for the sector. In other words, that the cost of increased regulation & tax will over time be passed through to customers as banks work into their target 15-20% RoTCE targets. This viewpoint would be undermined if the authorities try to move towards some sort of excess profitability cap– ie RoE determined. We do not detect any such proposals.
BE
And that’ll do on that.
BE
Iz – do you have anything to round up with?
IK
no,
IK
I guess it’s a wrap?
BE
Yup.
BE
Let’s close this thing and hope for more lively times tomorrow.
BE
Thanks for all your comments.
BE
Tuna: nothing on Wellstream since the Pirelli Cables story
Wellstream Holdings PLC (WSM:LSE): Last: 688.00, up 28 (+4.24%), High: 693.50, Low: 657.50, Volume: 341.44k
BE
Which remains around the traps, in spite of the Italians playing it down.
BE
And GCM – haven’t had time to ask today I’m afraid.
GCM Resources PLC (GCM:LSE): Last: 195.00, up 34 (+21.12%), High: 195.00, Low: 165.00, Volume: 346.01k
BE
So anyway, we’re done.
BE
Hope you have a good afternoon
BE
Or at least one that’s better than our morning.
IK
(Bryce can’t stop talking)
IK
I’m off,
BE
True. I’ll stop now. Goodbye all.