Markets Live chat transcript for the chat ending at 11:26 on 26 May 2010. Participants in this chat were: Neil Hume, FT Bryce Elder
NH
Good morning
NH
and welcome to Markets Live
NH
FT Alphaville’s daily markets chat
NH
Bryce is here
BE
Morning all.
NH
Sorry
NH
a bit behind this morning
NH
having to deal with a bit of hangover from yesterday’s session
NH
lots of GKP’ers very unhappy with the Sector Watcher and his bearish comments
NH
emails and letters sent to the editor
NH
and yet none of these people seem to pick up on the fact
NH
that we also quoted two positive notes yesterday
NH
it’s like nothing critical is allowed to be said about GKP
BE
Yup. Thought police. 
NH
nothing at all
NH
anyway
NH
we are not going to be cowed
NH
by these emails
NH
in fact
NH
we have said the company
NH
if they want to challenge the OIP figure
NH
we are very happy to run a story
NH
very happy
NH
anyway
NH
we will come back and look at the contentious claim a bit later
BE
Yes, we can. Give the Liberation Front time to log on and lurk.
BE
In the meantime, should be turn to the wider market trend?
NH
yes good idea
NH
and
NH
well, the market has bounced
NH
but it’s all pretty dead cat
BE
I’ve heard that phrase about a dozen times this morning.
BE
BE
certainly no need to break out the Rally Monkey
NH
(Wibble I will check on that and see what we can do)
NH
FTSE 100 was up 100 points at best
NH
but now up just 80 points at 5,019
NH
we have had a couple of bad bond auctions in Europe
NH
that seem to have knocked sentiment
BE
So here’s the German one
BE
GERMANY SELLS €5.445B IN APR 2015 BOBL; AVG YIELD 1.47%; BID-TO-COVER: 1.1X v 1.5X PRIOR
BE
That comes after Germany sold €4.547B in July 2020 Bund last week. Avg
yield at 2.75%; bid-to-cover 1.4x
yield at 2.75%; bid-to-cover 1.4x
BE
Quick bit of comment.
BE
The yield to cover this morning was again relatively low and considering that
the Bundesbank may have held back some for market purposes, which means total bids may not have exceeded the €5.445B on offer.
the Bundesbank may have held back some for market purposes, which means total bids may not have exceeded the €5.445B on offer.
NH
and there was also a disappointing auction
NH
in Portugal
NH
10:40 26May10 RTRS-PORTUGAL SELLS 1 BLN EUROS IN 3.35 PCT 2015 BONDS, AVG YIELD 3.701 PCT (3.498 PCT)
10:40 26May10 RTRS-PORTUGAL 2015 BOND BID-TO-COVER RATIO 1.8 (1.8), INDICATIVE OFFER WAS 500 MLN TO 1 BLN EUROS
10:40 26May10 RTRS-PORTUGAL 2015 BOND BID-TO-COVER RATIO 1.8 (1.8), INDICATIVE OFFER WAS 500 MLN TO 1 BLN EUROS
NH
(emptyend – we don’t give up sources. period. no debate. all you need to know is that he is City professional)
NH
that said
NH
just got a goldman note
NH
on today’s ECB dollar auction
NH
and in spite of this supposed
NH
dollar shortage
NH
not much was taken up
NH
US$5.4 bn of take-up, at 1.23%
NH
Take-up at ECB’s US dollar facility US$5.4 bn
The latest US dollar auction by the ECB resulted in US$5.4 bn of demand
which was fully allocated. The rate stood at 1.23% (so, OIS+100 bp) and
this was a seven-day auction. Interestingly, only three institutions
submitted bids in this auction.
The latest US dollar auction by the ECB resulted in US$5.4 bn of demand
which was fully allocated. The rate stood at 1.23% (so, OIS+100 bp) and
this was a seven-day auction. Interestingly, only three institutions
submitted bids in this auction.
NH
Usage at a fraction of previous peak; ECB and market rates closer
The usage of the ECB’s facility now stands at US$6.4 bn, split US$5.4 bn
for seven days and US$1 bn for 84 days (previous crisis peak: US$430 bn).
Current market rates allow for US dollar funding at 1.24% (€ funding: €
Libor) and 1.54% (€ funding: ECB repo rate). The ECB facility is at 1.23%,
but a 12% initial margin is required for a seven-day facility and 20% for an
84 day facility.
The usage of the ECB’s facility now stands at US$6.4 bn, split US$5.4 bn
for seven days and US$1 bn for 84 days (previous crisis peak: US$430 bn).
Current market rates allow for US dollar funding at 1.24% (€ funding: €
Libor) and 1.54% (€ funding: ECB repo rate). The ECB facility is at 1.23%,
but a 12% initial margin is required for a seven-day facility and 20% for an
84 day facility.
NH
US dollar funding back-stop effective, as was to be expected
The ECB’s current facilities offer a size and spread cap on US dollar (as well
as euro) funding. As such, they have pre-empted this leg of the crisis -
levels of previous crisis peaks will not be reached, in our view. In the
future, we do expect heavier usage of the ECB’s US dollar facility, however,
as the cost of the ECB’s facility and market rates continue to converge.
The ECB’s current facilities offer a size and spread cap on US dollar (as well
as euro) funding. As such, they have pre-empted this leg of the crisis -
levels of previous crisis peaks will not be reached, in our view. In the
future, we do expect heavier usage of the ECB’s US dollar facility, however,
as the cost of the ECB’s facility and market rates continue to converge.
BE
Well, I guess that backs up the theme that Libor’s not telling us we have a dollar shortage
BE
We have a confidence shortage.
NH
hmmm
NH
banks are certainy moaning about it
NH
but they don’t want to pay up
NH
anyway
BE
So the banks are seeing a bit of a rally this morning.
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 44.79, up 2.09 (+4.89%), High: 45.00, Low: 44.00, Volume: 88.44m
Lloyds Banking Group plc (LLOY:LSE): Last: 53.19, up 2.67 (+5.28%), High: 53.65, Low: 52.37, Volume: 151.25m
Barclays PLC (BARC:LSE): Last: 296.87, up 13.07 (+4.60%), High: 302.62, Low: 290.60, Volume: 26.38m
NH
ah
NH
obviously an element of dead cat in that
NH
NH
but Jonathan Pierce at Credit Suisse
NH
has upgraded
NH
I think
NH
let me grad the note
NH
(EE – don’t you get it. he doesn’t want his named used).
NH
We continue to believe that banks should be valued on book. Recent events highlight that “normalised” EPS is an illusory distraction when it relates to a structurally challenged balance sheet. But valuations have fallen 25% in four weeks. We upgrade LBG and RBS to Outperform from Neutral.
NH
Clear risks remain: Market dislocation is unhelpful for a sector with an NSFR of 85% (including SLS) and £300bn of wholesale redemptions in 2010-12. The banks (particularly LBG) need term markets to reopen soon.
NH
Wider LIBOR OIS spreads unhelpful: We believe LBG has more liabilities than assets priced off LIBOR and that this exposure is increasing. We think Barclays and RBS have a net asset exposure but this is likely to be marginal.
NH
Weaker sterling will lead to RWA inflation: This mainly affects Barclays where we think the 6% drop in £ versus US$ since March 2010 will boost RWA by around £10bn. However, euro weakness should partly offset this
NH
But there are positives. Recent dislocation has left the sector trading 15-20% below 2010E TNAV. More importantly, it has left base rate expectations much lower – money markets price in 1.2% at December 2011. This reduces tail risk in problem loan portfolios and reduces the risk of new NPL formation
NH
Low rates help mortgage revenue, deposits already taken the hit. We expect the spread on UK mortgage loans to increase 150bps over the next 2 years. Deposit revenue will struggle, but we believe a drag of £19bn has already been experienced, with income now negative.
NH
UK bank balance sheets also in better shape. In 2008, balance sheet structures were weak, opaque and poorly marked. Today, the equity tier 1 ratio is 10%, we estimate that 12% of loans have been written down since 2007, and liquid assets cover 90% of 3-month funding (20% in 2008). This should help on the credit side.
NH
More upbeat: In the long-term, our structural concerns are as strong as ever. But we think the UK banks are investable and at current levels offer value. We are conservative in our target price methodology, yet we value Barclays at 365p offering 29% upside potential, RBS at 54p offering 26% upside potential, and LBG at 60p offering 20% upside potential.
NH
(EE we quote him because we think his work is good and he’s independent).
NH
sorry a bit long that
NH
but basically
NH
he’s saying
NH
they are cheap fter the recent fall
NH
but in the long term
NH
he doesn’t really fancy them
BE
Cheers.
11:18AM
NH
Where now?
BE
I guess we can do Burberry.
NH
yes
NH
stock is motoring
Burberry Group PLC (BRBY:LSE): Last: 646.00, up 33.5 (+5.47%), High: 650.00, Low: 630.00, Volume: 1.90m
NH
obviously selling a lot of gear to the Chavs
NH
ahead of the World Cup
BE
Chav scarves and flasher raincoats.
BE
So the figures are better than expected?
NH
yeah
NH
about 4% ahead of expectations
NH
divi up 17%
NH
and the net cash position looks OK
NH
guidance looks to be OK
NH
although
NH
the company seems to have upped cap ex forecats
NH
£130m this year
NH
up from £75-£80m
NH
which means more stores opening
NH
so I guess that’s bullish
BE
(Emptyend: you’re familiar with the bandit rating system? You’re comfortable with it? Right. Apply that to analysis as well. End of conversation. Thanks.)
BE
Hang on though.
BE
There’s a whole bunch of restructuring charges in there that distort the figures.
BE
£44.6m charge in the second half
BE
It’s still a beat, but none of this had been flagged up.
BE
Slightly surprised investors aren’t more concerned about that.
BE
Anyway, should we cut to comment?
NH
(Captain Mannering: recall there were two positive GKP notes yesterday, to one negative. Is that not balanced? or perhaps you want a 10-1 ratio)
NH
good idea
NH
here’s Citi
NH
who aren’t that positive
NH
Guidance confirmed, step up in investments, consensus estimates to nudge up
slightly — Management reiterated previous guidance of Retail space up 10% in
FY11 (2H weighted), Wholesale up in the high teens underlying in 1H (based on
A/W orders received to date and excluding Spain), and Licensing down 5-10%
underlying in FY11. It indicated capex will be c.£130m in FY11 (previous
guidance £75-80m) reflecting the acceleration of store openings and
refurbishments, and digital media investments, which could result in greater cost
inflation this year to be compensated by higher gross margin prospects. With
£10m expected trading losses in Spain (restructuring) and planned start-up losses
in new countries, consensus FY11 EPS is likely to rise only modestly today.
slightly — Management reiterated previous guidance of Retail space up 10% in
FY11 (2H weighted), Wholesale up in the high teens underlying in 1H (based on
A/W orders received to date and excluding Spain), and Licensing down 5-10%
underlying in FY11. It indicated capex will be c.£130m in FY11 (previous
guidance £75-80m) reflecting the acceleration of store openings and
refurbishments, and digital media investments, which could result in greater cost
inflation this year to be compensated by higher gross margin prospects. With
£10m expected trading losses in Spain (restructuring) and planned start-up losses
in new countries, consensus FY11 EPS is likely to rise only modestly today.
NH
Hold rating — While we see upside risks from a long-term, transformational
growth story, we do not see significant multiple expansion potential near-term
given increased macroeconomic uncertainty in Western Europe. Post recent
market sell-off, shares trade on 15.0x calendar 2011e P/E, a modest discount to
the peer group excluding Hermes. Hold (2M) rating maintained, target price 670p.
growth story, we do not see significant multiple expansion potential near-term
given increased macroeconomic uncertainty in Western Europe. Post recent
market sell-off, shares trade on 15.0x calendar 2011e P/E, a modest discount to
the peer group excluding Hermes. Hold (2M) rating maintained, target price 670p.
BE
Investec is sticking to a hold as well
BE
Summary: Burberry reported adj. pre-exceptional PBT of £215m, and EPS up
14.8% to 35.1p, vs our forecast of £208m (EPS 34.4p) and consensus at
£202m. The currency benefit is identified as £16.2m. There is a larger increase
in the final dividend (+27%) than forecast, giving a full year dividend of 14p
(consensus 13p) due to very strong cashflow, with Y/E net cash at £262m.
Forecast guidance now includes explicit comments on Spanish losses and
brand clean-ups to cost c£20-25m in FY11E, which may limit upgrades
(consensus for FY11E is £242m, compared to Investec at £248m, EPS 40.7p).
14.8% to 35.1p, vs our forecast of £208m (EPS 34.4p) and consensus at
£202m. The currency benefit is identified as £16.2m. There is a larger increase
in the final dividend (+27%) than forecast, giving a full year dividend of 14p
(consensus 13p) due to very strong cashflow, with Y/E net cash at £262m.
Forecast guidance now includes explicit comments on Spanish losses and
brand clean-ups to cost c£20-25m in FY11E, which may limit upgrades
(consensus for FY11E is £242m, compared to Investec at £248m, EPS 40.7p).
BE
Divisional highlights: Retail increased significantly in the mix, as expected, to
58% of sales (52% in FY09). On the back of LFL growth of 7% (double digit in
H2), this is the key driver behind the big beat on Retail/Wholesale gross
margins, up 760bp (+1390bp in H2!), leaving these at historic peaks. The impact
has been tempered somewhat by the opex/sales ratio, which has continued at
higher levels than forecast. We expect strong growth in Emerging Markets to
take up the running this year. Licensing reflects broadly flat growth in global
product licenses, as the industry de-stocking trend continued to weigh on
numbers. However, this division over-delivered thanks in part to the currency
benefit as well as a new fragrance launch.
58% of sales (52% in FY09). On the back of LFL growth of 7% (double digit in
H2), this is the key driver behind the big beat on Retail/Wholesale gross
margins, up 760bp (+1390bp in H2!), leaving these at historic peaks. The impact
has been tempered somewhat by the opex/sales ratio, which has continued at
higher levels than forecast. We expect strong growth in Emerging Markets to
take up the running this year. Licensing reflects broadly flat growth in global
product licenses, as the industry de-stocking trend continued to weigh on
numbers. However, this division over-delivered thanks in part to the currency
benefit as well as a new fragrance launch.
NH
(EE – his name is used in the emails. we just don’t use it).
BE
Guidance indicating £20-25m of additional costs: Explicit guidance on
Spanish losses at £10m in FY11 is slightly more than we had forecast.
Additionally, more brand clean-up activity and start-up costs account for a
further drag of £10-15m. Otherwise guidance is broadly unchanged at 10%
space growth in Retail; H1 Wholesale growth in high teens ex Spain (we
assume 10% including Spain); Licensing to decline by 5-10% given clean-up
activities and hedging deferring the benefit of sterling depreciation against the
yen. Gross margins are likely to continue to edge up notwithstanding current
record levels, but opex/sales is projected to reach 50% given heavy revenue
investment.
Forecasts and Cashflows: Our high-end forecast of £248m is likely to rise by
c4-5% given the beat and underlying positive growth and margin trends. Very
strong cashflows boosted by a working capital inflow of c£180m suggest a buyback
is more than likely in the relatively near future, although there is no
reference to this possibility in the statement, merely comments on the heavy and
increasing investment programme. We remain very positive on the attractions of
the investment story and are looking for an attractive entry point. Hold.
Spanish losses at £10m in FY11 is slightly more than we had forecast.
Additionally, more brand clean-up activity and start-up costs account for a
further drag of £10-15m. Otherwise guidance is broadly unchanged at 10%
space growth in Retail; H1 Wholesale growth in high teens ex Spain (we
assume 10% including Spain); Licensing to decline by 5-10% given clean-up
activities and hedging deferring the benefit of sterling depreciation against the
yen. Gross margins are likely to continue to edge up notwithstanding current
record levels, but opex/sales is projected to reach 50% given heavy revenue
investment.
Forecasts and Cashflows: Our high-end forecast of £248m is likely to rise by
c4-5% given the beat and underlying positive growth and margin trends. Very
strong cashflows boosted by a working capital inflow of c£180m suggest a buyback
is more than likely in the relatively near future, although there is no
reference to this possibility in the statement, merely comments on the heavy and
increasing investment programme. We remain very positive on the attractions of
the investment story and are looking for an attractive entry point. Hold.
BE
And that’s plenty on Burberry I think.
NH
are we done with raincoats
BE
And chav scarves, no matter how 2004 they might be.
11:27AM
NH
seeing
NH
as he’s a popluar fellow this morning
NH
let’s see what the sector watcher has been looking at
NH
and
NH
it’s not GKP
NH
I am afraid
NH
here it is
NH
Dana
Dana Petroleum PLC (DNX:LSE): Last: 1,034, up 41.5 (+4.18%), High: 1,038, Low: 1,005, Volume: 247.66k
NH
but don’t panic BOTR
NH
he’s not tipping as a takeover target
NH
Dana Petroleum – DNX LN
We see DNX between 1000 – 1300p as a great trading stock, and yesterday it spent most of the day just below this lower level. With its lack of oil price hedging the group is seen as one of the most geared plays in the sector, with the fall in Brent from $86/bbl to sub-$70/bbl in the past four weeks probably being the biggest driver for the decline in DNX. However with a fairly busy exploration campaign throughout the next few months there are potential catalysts for a rerating. The group has a 50% stake in the 600 bcf Bamboo gas prospect in Egypt, which could be worth around 90p/share, whilst its 25% share in the giant Anne-Marie oil prospect offshore the Faroe Islands could add 140-420p/share depending on the success within the multiple zones it is targeting.
We see DNX between 1000 – 1300p as a great trading stock, and yesterday it spent most of the day just below this lower level. With its lack of oil price hedging the group is seen as one of the most geared plays in the sector, with the fall in Brent from $86/bbl to sub-$70/bbl in the past four weeks probably being the biggest driver for the decline in DNX. However with a fairly busy exploration campaign throughout the next few months there are potential catalysts for a rerating. The group has a 50% stake in the 600 bcf Bamboo gas prospect in Egypt, which could be worth around 90p/share, whilst its 25% share in the giant Anne-Marie oil prospect offshore the Faroe Islands could add 140-420p/share depending on the success within the multiple zones it is targeting.
NH
and also
Tullow Oil PLC (TLW:LSE): Last: 1,038, up 30 (+2.98%), High: 1,047, Low: 1,010, Volume: 1.09m
NH
Like DNX, the group looks particularly cheap below the 1000p level, which it briefly breached yesterday. The group is in the process of rationalising its Ugandan asset base, with the completion of the Heritage pre-emption and subsequent on-selling to Total/CNOOC expected by end-June – this could prove to be a major catalyst for the shares as it may involve the injection of fresh capital from the new partners. In Ghana, TLW’s biggest single country in valuation terms, appraisal of the Tweneboa gas/condensate discovery commences this quarter, and again we identify potentially material upside from any success – currently we carry 131p/share on a risked basis and 338p/share unrisked. TLW remains the most active explorer in the sector, and despite its considerable size (£8.8bn market cap), success in Sierra Leone/Liberia potentially opens up a huge Equatorial Atlantic geological play extending the Jubilee field in Ghana some 1000 kilometres to the west.
BE
Sounds high risk to me.
NH
(DLC i was there too!)
BE
You can never bet against another duster from Dana.
NH
right
NH
while we are on oil
NH
let’s get it over with
Gulf Keystone Petroleum Ltd (GKP:LSE): Last: 78.00, up 2 (+2.63%), High: 78.50, Low: 76.00, Volume: 2.49m
NH
thoughts?
BE
Right. The elephant in the room.
BE
So, long story short, it seems we kicked things off with the liberators yet again yesterday.
NH
indeed
BE
After the sector watcher mentioned in passing that he was cautious on the recovery factor than the consensus
BE
And was not wildly keen on GKP’s testimonial from its independent reservoir consultant
BE
Now, that seems to have lit the blue touchpaper
BE
We’ve had quite a lot of fan mail this morning.
BE
People screaming about legal action.
BE
Penning letters of complaint to the editor.
BE
Claiming we’re in league with the shorters
BE
Or that the FT’s getting advertising from shorters
BE
Or something.
NH
and posting stuff like this
NH
I shouldn’t be wasting time reading this, but I thought this from the
GKP III forum was rather amusing.
GKP III forum was rather amusing.
11:36
Topic: FT muppits eating humble pie
Stokie2: At least they are starting to see the bigger picture at last.
They are now predicting that GKP will be the new BP.
11:43
Re: FT muppits eating humble pie
chopper89: its called sarcassim stokie
11:48
Re: FT muppits eating humble pie
Stokie2: chopp,
They work for the FT and so have no comprehension of the meaning of
wit and sarcasm. I would rather believe that they have at last seen
the light.
regards, Stokie.
NH
and this
NH
which did make me laugh
NH
TradingBaron: i’m hoping GKP can fill up a load of H2S and shove it up
neil prune and bryce elderpansy’s rear ends.
neil prune and bryce elderpansy’s rear ends.
BE
Yes. As ever, you can get the general thrust of the argument here
BE
http://www.iii.co.uk/investment/detail?code=cotn:GKP.L&display=discussion&it=le
BE
Where someone said we should be sued for “deformation.”
NH
NH
I’ll admit
NH
we’re not that photengenic
NH
but even so
NH
calling for plastic surgery
NH
is a bit harsh
BE
Anyone who’s seen the back page may disagree.
BE
But I guess the upshot is, we can’t talk about Gulf Keystone
NH
BE
Unless it’s a prediction that the stock is going to the moon, we cannot print it.
NH
but as luck would have it
NH
we have some of that work
BE
Excellent. Set it up.
NH
here’s Fox Davies who have a 200p price target
NH
Comment: The Company is now fully financed to proceed with the
appraisal of the Shaikan discovery and the exploration of two
additional assets, Akri Bijeel and Sheikh Adi. A well is currently
being drilled in Akri Bijeel by the operator Mol and has already been
announced as a discovery; the well is very close to TD. A well will
soon be spudded in Sheikh Adi on a continuation of the Shaikan
structure and as such with a very high Probability Plc (LON:PBTY) of
success. Financing and political risks were at the forefront of
investors mind with respect to Gulf Keystone. The financing risk is
now mostly behind us and we have seen in the last week or two some
very important steps being taken towards a solution of the political
standoff. We remain convinced that the political is around the corner
and that thereafter assets prices in Kurdistan will rise sharply. We
remain buyers of Gulf Keystone with an unchanged price target of 200p.
appraisal of the Shaikan discovery and the exploration of two
additional assets, Akri Bijeel and Sheikh Adi. A well is currently
being drilled in Akri Bijeel by the operator Mol and has already been
announced as a discovery; the well is very close to TD. A well will
soon be spudded in Sheikh Adi on a continuation of the Shaikan
structure and as such with a very high Probability Plc (LON:PBTY) of
success. Financing and political risks were at the forefront of
investors mind with respect to Gulf Keystone. The financing risk is
now mostly behind us and we have seen in the last week or two some
very important steps being taken towards a solution of the political
standoff. We remain convinced that the political is around the corner
and that thereafter assets prices in Kurdistan will rise sharply. We
remain buyers of Gulf Keystone with an unchanged price target of 200p.
BE
NH
and
NH
Macquarie
NH
Gulf Keystone Petroleum (GKP LN; 84p) fully Subscribed US$165m Capital
Raising (O; 155p TP), Brendan Warn
§ GKP has completed a fully subscribed placing of 152.3m shares at
75p/sh, raising gross proceeds of ~US$165m (£114.2m), which will be
used for GKP’s drilling operations over 2010 and early 2011. Source:
Company press release.
Raising (O; 155p TP), Brendan Warn
§ GKP has completed a fully subscribed placing of 152.3m shares at
75p/sh, raising gross proceeds of ~US$165m (£114.2m), which will be
used for GKP’s drilling operations over 2010 and early 2011. Source:
Company press release.
§ The primary use of proceeds is to progress the 3 Shaikan appraisal
wells (81p/sh risked – 245p/sh unrisked), the Shaikan-1 extended well
test and production facilities, Sheikh Adi exploration well (22p/sh
risked – 86p/sh unrisked), and the acquisition of further 3D seismic
data over Shaikan and Sheikh Adi licences. The funds raised will also
be used for any future increase in GKP’s interests in Kurdistan
assets.
NH
§ GKP is close to TD on its Akri Bijeel well (4p/sh risked – 16p/sh
unrisked) after which the rig will move to drill an appraisal well on
Shaikan. Separately GKP has contracted a work-over rig, which is
expected to arrive in early June to enable short term production
testing of several previously tested Jurassic targets (DST zones 2 and
3) in the Shaikan discovery well, using a submersible pump.
unrisked) after which the rig will move to drill an appraisal well on
Shaikan. Separately GKP has contracted a work-over rig, which is
expected to arrive in early June to enable short term production
testing of several previously tested Jurassic targets (DST zones 2 and
3) in the Shaikan discovery well, using a submersible pump.
§ We believe GKP is in a strong position as it is fully funded, has
four blocks in this highly prospective region and has continuous news
flow during 2H10 from its active drilling program. We had previously
estimated a US$150m raise at 80p/sh in our numbers leading to our
75p/sh Core NAV.
BE
BE
Wonderful. And are the shares rallying? I hope they’re rallying.
NH
OK EE you are now officially on ZAPWATCH with a negative outlook.
BE
(EE: your argument about people commenting anonymously is undermined slightly by your choice to comment anonymously. Just an observation.)
BE
Anyway ….
Gulf Keystone Petroleum Ltd (GKP:LSE): Last: 78.00, up 2 (+2.63%), High: 78.50, Low: 76.00, Volume: 2.49m
NH
let’s leave this
NH
i am throughly bored of GKP
11:37AM
NH
Oh
NH
market is struggling
NH
now up just 80 points
NH
at 5,022
NH
apparently 5,020
NH
is a key technical level for the index
NH
is that right FatDaz?
NH
just looking around
NH
the miners have enjoyed a good bounce this morning
Lonmin PLC (LMI:LSE): Last: 1,656, up 95 (+6.09%), High: 1,667, Low: 1,591, Volume: 529.35k
Kazakhmys PLC (KAZ:LSE): Last: 1,133, up 61 (+5.69%), High: 1,147, Low: 1,109, Volume: 1.48m
Rio Tinto PLC (RIO:LSE): Last: 3,017, up 161 (+5.64%), High: 3,033, Low: 2,957, Volume: 3.81m
Eurasian Natural Resources Corporation PLC (ENRC:LSE): Last: 954.50, up 49 (+5.41%), High: 966.00, Low: 930.50, Volume: 1.27m
Antofagasta PLC (ANTO:LSE): Last: 861.50, up 42 (+5.13%), High: 869.00, Low: 833.00, Volume: 1.50m
BE
Ah yes. Noticed Lonmin’s CEO slotted a pile of stock yesterday to buy a house in Jo’burg.
BE
Anyway, the sector’s following the market needless to say.
NH
(but EE we would never reveal your identity. never.)
NH
and
NH
isn’t there
NH
a big bullish note out of ING
BE
Yup. It’s another of those “it’s in the price” ones.
BE
Metals and mining shares have been hit by
macroeconomic concerns and the threat of Australia’s
“super tax”. After a substantial pull-back in share prices,
we believe that there is excellent value in the sector
macroeconomic concerns and the threat of Australia’s
“super tax”. After a substantial pull-back in share prices,
we believe that there is excellent value in the sector
BE
A long, hot, summer. Financial markets have been buffeted by
macroeconomic concerns, principally relating to debt levels in Europe and a
potential slowdown in China. Investors have taken profits in riskier, cyclical,
investments, particularly those that have performed well over the past year,
such as commodities and mining shares. The mining sector has also been hit
by the prospect of a mining “super tax” in Australia.
macroeconomic concerns, principally relating to debt levels in Europe and a
potential slowdown in China. Investors have taken profits in riskier, cyclical,
investments, particularly those that have performed well over the past year,
such as commodities and mining shares. The mining sector has also been hit
by the prospect of a mining “super tax” in Australia.
BE
Overdone. In our view, the correction has been overdone. Short-term
concerns have provided the market with an entry point to benefit from
ongoing long-term growth in China and other leading developing markets.
The metals and mining sector provides investors with access to these
growing markets without being as exposed as other sectors to Europe’s
troubles. This is particularly true for mining shares, which we prefer over
steel stocks, and within mining our preference remains for companies with
strong bulk commodity exposure.
concerns have provided the market with an entry point to benefit from
ongoing long-term growth in China and other leading developing markets.
The metals and mining sector provides investors with access to these
growing markets without being as exposed as other sectors to Europe’s
troubles. This is particularly true for mining shares, which we prefer over
steel stocks, and within mining our preference remains for companies with
strong bulk commodity exposure.
BE
More conservative metrics. We expect the sector to remain volatile as
markets remain concerned about the global economy and resource
nationalism. The catalyst for investment is the good value in the sector. We are
taking a more conservative approach to our target prices, but even so, after the
share price collapse that we have seen, there is significant upside for most
mining shares. Notwithstanding its exposure to Australia’s proposed “super
tax”, Rio Tinto remains our Top Pick thanks to its bulk commodity exposure,
cheap valuations, and 62% upside to target price. In steel, ArcelorMittal is
our preference, with over 50% upside to target price, while we upgrade
Salzgitter, after its recent share price weakness, from Sell to HOLD
markets remain concerned about the global economy and resource
nationalism. The catalyst for investment is the good value in the sector. We are
taking a more conservative approach to our target prices, but even so, after the
share price collapse that we have seen, there is significant upside for most
mining shares. Notwithstanding its exposure to Australia’s proposed “super
tax”, Rio Tinto remains our Top Pick thanks to its bulk commodity exposure,
cheap valuations, and 62% upside to target price. In steel, ArcelorMittal is
our preference, with over 50% upside to target price, while we upgrade
Salzgitter, after its recent share price weakness, from Sell to HOLD
NH
thanks for that
NH
just making a quick call on Afren
NH
and no
NH
it’s not the sector watcher
NH
but a trader
NH
to see what’s going on
NH
shares up 7.1p at 86.25p
BE
Think it started the drilling campaign earlier this month, didn’t it.
BE
There was a Morgan Stanley note around yesterday
NH
off the phone
BE
Morgan Stanley being the shop
NH
yep
NH
there was a MOST note around yesterday
NH
which touched on M&A
NH
this stock is in the FTSE 250 now
NH
and apparently
NH
there was a rather large margin call around yesterday
NH
that’s gone
BE
Here’s the upshot of it.
BE
Upbeat salesforce presentation; top pick in UK
E&Ps: Our meeting with Osman Shahenshah (CEO)
and Galib Virani (Head of Acquisitions and IR) yesterday
was reassuring and highlighted:
E&Ps: Our meeting with Osman Shahenshah (CEO)
and Galib Virani (Head of Acquisitions and IR) yesterday
was reassuring and highlighted:
BE
1) First oil from Ebok
remains on track for October with good operational
progress so far; 2) The acquisition strategy is intact and
an asset deal in Nigeria using the First Hydrocarbon
Nigeria vehicle is expected over the coming months; 3)
A recent meeting with Afren and the new Nigerian
president was encouraging and should allay concerns
around recent political uncertainty, and 4) Results on the
Ebok Deep prospect should come in the next few weeks
(unrisked 18p/sh). Afren continues to offer one of the
best risk-rewards in the sector with c.65% upside to our
base case NAV of 141p/sh whilst the 10% sell off in the
last week leaves the shares trading at core value – an
excellent entry point in our view. Maintain OW.
remains on track for October with good operational
progress so far; 2) The acquisition strategy is intact and
an asset deal in Nigeria using the First Hydrocarbon
Nigeria vehicle is expected over the coming months; 3)
A recent meeting with Afren and the new Nigerian
president was encouraging and should allay concerns
around recent political uncertainty, and 4) Results on the
Ebok Deep prospect should come in the next few weeks
(unrisked 18p/sh). Afren continues to offer one of the
best risk-rewards in the sector with c.65% upside to our
base case NAV of 141p/sh whilst the 10% sell off in the
last week leaves the shares trading at core value – an
excellent entry point in our view. Maintain OW.
BE
We bit more.
BE
Ebok on schedule: Management indicated most long
lead items have now arrived and development drilling
continues to progress well. The 35kb/d exit rate this year
from phases 1 and 2 is underpinned by only 67mb of the
gross 2P Ebok reserve base of 108mb.
lead items have now arrived and development drilling
continues to progress well. The 35kb/d exit rate this year
from phases 1 and 2 is underpinned by only 67mb of the
gross 2P Ebok reserve base of 108mb.
BE
Acquisitions remain a focus: Management
highlighted a more material asset transaction in Nigeria
remains a possibility in the coming months. With an
acquisition target hurdle rate of 40% IRR at $60/bbl and
strong cashflow generation potential from Ebok, Afren is
well placed to make further value-accretive asset
acquisitions in Nigeria and the rest of Africa, in our view.
highlighted a more material asset transaction in Nigeria
remains a possibility in the coming months. With an
acquisition target hurdle rate of 40% IRR at $60/bbl and
strong cashflow generation potential from Ebok, Afren is
well placed to make further value-accretive asset
acquisitions in Nigeria and the rest of Africa, in our view.
NH
thanks for that
NH
the BOTR
NH
are also asking for an update
NH
on BP
BP Plc (BP.:LSE): Last: 481.20, down 4 (-0.82%), High: 490.95, Low: 477.65, Volume: 21.48m
NH
because today is
NH
top kill day
NH
when they pour
NH
a load of concrete
NH
and mud down the well
NH
annd hope
NH
it works
BE
And if that doesn’t work, it’ll be followed by board-kill day.
BE
Shares bouncing by a tad.
BP Plc (BP.:LSE): Last: 481.06, down 4.14 (-0.85%), High: 490.95, Low: 477.65, Volume: 21.51m
BE
Oh – they’re now down.
BE
Oh dear.
NH
hmmm
NH
I see the Guardian
NH
went big with the $60bn loss claim
NH
which they attributed to a confidential email
BE
“Confidential”?
NH
doing the rounds in the City
NH
yep
NH
confidential
NH
Government fines could send oil firm’s bill soaring in wake of Deepwater Horizon disaster
The oil disaster unfolding in the Gulf of Mexico could present BP with much higher costs than previously thought as a result of US government penalties of up to $60bn (£40bn), according to City analysts.
The penalties are in addition to BP’s already huge bill for the clean-up mission, which stood at $760m yesterday, and potentially unlimited damages payable by the company to fishermen and other affected local communities. BP also faces billions of dollars of lost earnings as a result of its damaged reputation in the US, which could result in it being barred from bidding for future contracts.
The Guardian has obtained a confidential briefing, from a top-level US environmental lawyer who specialises in oil industry litigation, to stockbroker Canaccord, assessing the financial impact of impending legal action on BP.
BE
I thought it was a sales desk note.
NH
er it was
NH
and we used it in a post
NH
and it was a scenario
NH
that the broker Canaccord
NH
didn’t think would come to pass
NH
anyhow
NH
any comment around today
NH
(grant barker – who is that?)
BE
Actually, in another CONFIDENTIAL EMAIL
BE
Canaccord’s sales desk were arguing later yesterday that it’s now in the price.
NH
I see
NH
do we have that note?
BE
moving feast
Excluding market related falls, BP’s share price is now broadly implying a $31bn financial liability penalty (its market cap fall ex MSCI oils/general market fall). Below we have outlined the basic legal framework – there are many permutations and so the situation is impossible to accurately quantify right now from a legal standpoint. To put it into perspective, looking at one of four categories of liability, the share price fall is for example assuming the flow rate is 50,000 barrels per day (not 5,000), it flows for 120 days and that BP is found grossly negligent. These are all suppositions presently. On this basis, it appears that the market is now starting to also price in the risk of licence problems for BP in the Gulf of Mexico.
Excluding market related falls, BP’s share price is now broadly implying a $31bn financial liability penalty (its market cap fall ex MSCI oils/general market fall). Below we have outlined the basic legal framework – there are many permutations and so the situation is impossible to accurately quantify right now from a legal standpoint. To put it into perspective, looking at one of four categories of liability, the share price fall is for example assuming the flow rate is 50,000 barrels per day (not 5,000), it flows for 120 days and that BP is found grossly negligent. These are all suppositions presently. On this basis, it appears that the market is now starting to also price in the risk of licence problems for BP in the Gulf of Mexico.
BE
Note – this isn’t research. Just commentary.
NH
I see
NH
anything more
BE
Not much. Looks to be hold your breath time.
BE
Still lots of talk about what happens if BP’s dividend goes though.
NH
hmmm
NH
that would not be good
BE
The BP payout accounting for 12 per cent of the FTSE total payout.
NH
excellent
NH
we finally have a firm figure
NH
now we just have to model what it would do to the dividend yield
NH
of the FTSE ALL Share index
BE
Er, I’ll leave that to you.
BE
Or any of the rabble, who can post their findings here
BE
Anyway, enough of oil.
NH
yes
11:55AM
BE
So
BE
Some of our commenters are asking if the FT has a “house line” on the Pru.
BE
NH
hang on
NH
we have Libor
NH
RTRS-LIBOR THREE-MONTH DOLLAR RATES FIX AT 0.53781 PCT VS 0.53625 PCT ON TUESDAY -BBA
11:55 26May10 RTRS-LIBOR THREE-MONTH EURO RATES FIX AT 0.63500 PCT VS 0.63875 PCT ON TUESDAY -BBA
11:56 26May10 RTRS-LIBOR THREE-MONTH STERLING RATES FIX AT 0.70875 PCT VS 0.70813 PCT ON TUESDAY -BBA
11:56 26May10 RTRS-THREE-MONTH DOLLAR LIBOR/OIS SPREAD AT 30 BPS VS 27 BPS – REUTERS DATA
11:56 26May10 RTRS-THREE-MONTH EURO LIBOR/OIS SPREAD AT 25 BPS VS 22 BPS – REUTERS DATA
11:56 26May10 RTRS-THREE-MONTH STG LIBOR/OIS SPREAD AT 19 BPS VS 20 BPS – REUTERS DATA
11:55 26May10 RTRS-LIBOR THREE-MONTH EURO RATES FIX AT 0.63500 PCT VS 0.63875 PCT ON TUESDAY -BBA
11:56 26May10 RTRS-LIBOR THREE-MONTH STERLING RATES FIX AT 0.70875 PCT VS 0.70813 PCT ON TUESDAY -BBA
11:56 26May10 RTRS-THREE-MONTH DOLLAR LIBOR/OIS SPREAD AT 30 BPS VS 27 BPS – REUTERS DATA
11:56 26May10 RTRS-THREE-MONTH EURO LIBOR/OIS SPREAD AT 25 BPS VS 22 BPS – REUTERS DATA
11:56 26May10 RTRS-THREE-MONTH STG LIBOR/OIS SPREAD AT 19 BPS VS 20 BPS – REUTERS DATA
NH
dollar rate
NH
is the important one
NH
not moved that much
NH
OIS up though
BE
Market reaction to that?
NH
it likes that
NH
do I like that
NH
FTSE 100 up 95 points at 5,035
NH
the rally monkey
NH
may yet be freed from its cage
NH
back to Pru
NH
do we have a house line
NH
well I hear that advisers to the company
NH
think we have a vendatta
NH
and some such nonsense
NH
but
NH
really
NH
our opinions are being formed
NH
by the negative reaction to the deal
NH
like
NH
Risk Metrics
NH
big US proxy firm
NH
people listen to what they say about deals
NH
and they reckon shareholders vote this one down
NH
Based on our evaluation of the acquisition, we believe that this deal has a sensible strategic rationale and that Prudential is paying a full price for AIA.
NH
Prudential is paying USD 35.5 billion for a company with USD 1.6 billion in post-tax operating profits; for this to work, profits have to grow substantially beyond the expected cost synergies. Our analysis indicates that Prudential needs very high growth rates at AIA to only meet a reasonable return on invested capital, something that seems a stretch when managing a difficult integration process.
NH
A full price, integration risk and ambitious targets that barely meet the cost of capital do not make a compelling combination. For this reason, it is recommended that shareholders vote AGAINST the acquisition of AIA.
NH
and here’s some more
NH
In terms of cost synergies and scale advantages, Prudential’s target represents 17% of the combined expense base, or 31% of AIA’s base, something that most analysts see as achievable with the caveats of implementation risks.
NH
Judging by only one comparable deal (AAP), valuation seems high on relatively depressed new business volumes, but fair on other measures (which are not affected by those volumes in a short timeframe). Based on peer trading multiples we also believe that the price that Prudential is paying for AIA is fair: based on Price to Earnings (P/E) the deal implies a 27% premium, while based on Price to Book (P/B) and Price to Embedded Value (P/EEV), the deal implies a low to nil premium. Our conclusion on price is that while fair, it does not seem to reflect a discount for AIA’s situation. This does not imply a judgment on the intrinsic value of AIA.
NH
anyway
NH
you get the idea
NH
(thanks DLC)
NH
and I have loads of OTR comment
NH
from shareholders on the deal
NH
but
NH
I don’t think we will publish those
BE
No. Not in the current climate.
Prudential Plc (PRU:LSE): Last: 515.00, up 4 (+0.78%), High: 522.50, Low: 512.50, Volume: 4.90m
BE
It’s like Sachsgate.
NH
NH
it is
BE
Oh, there is a note from JP Morgan Cazenove doing the rounds though.
NH
what on Pru
NH
I thought they were advising
BE
There are. Perhaps we can start wit hthe disclaimer
NH
(Bluesky – not really. a writer is free to take any view they wish)>
BE
J.P. Morgan Cazenove is acting as Joint
Financial Adviser & Joint Global Coordinator
& Bookrunner on the proposed
acquisition of AIA from AIG and subsequent
rights issue. J.P.Morgan Cazenove currently
does not have a recommendation for
Prudential Plc. JPMorgan may receive fees
for its financial services.
Financial Adviser & Joint Global Coordinator
& Bookrunner on the proposed
acquisition of AIA from AIG and subsequent
rights issue. J.P.Morgan Cazenove currently
does not have a recommendation for
Prudential Plc. JPMorgan may receive fees
for its financial services.
NH
important that
BE
Wait . .. there’s more.
BE
The proposed
transaction is subject to shareholder vote and
certain regulatory and anti-trust approvals.
This research report and the information
herein is not intended to provide voting
advice, to serve as an endorsement of the
proposed transaction or result in
procurement, withholding or revocation of a
proxy or any other action by a security holder.
This report is based solely on publicly
available information. No representation is
made that it is accurate or complete. This
report is not a recommendation to buy or sell
the securities mentioned. Please refer to the
end of this report for further important
disclosures.
transaction is subject to shareholder vote and
certain regulatory and anti-trust approvals.
This research report and the information
herein is not intended to provide voting
advice, to serve as an endorsement of the
proposed transaction or result in
procurement, withholding or revocation of a
proxy or any other action by a security holder.
This report is based solely on publicly
available information. No representation is
made that it is accurate or complete. This
report is not a recommendation to buy or sell
the securities mentioned. Please refer to the
end of this report for further important
disclosures.
BE
So, got all that?
NH
yes
BE
Then here’s the note.
BE
The 1Q10 sales figures at Prudential were strong with Asian APE up
30% YoY and Asian new business profit up 35%.
• If Prudential is able to execute on the AIA deal then investors will be
left a leading franchise in nearly all Asian markets, delivering annual
double-digit top-line and bottom-line growth on management estimates.
30% YoY and Asian new business profit up 35%.
• If Prudential is able to execute on the AIA deal then investors will be
left a leading franchise in nearly all Asian markets, delivering annual
double-digit top-line and bottom-line growth on management estimates.
BE
The ability to re-focus the huge distribution of AIA is central to
Prudential management’s case. In effect, this means three things we
think: (a) some improvement in distribution productivity; (b) a
rebalancing of the product mix; and (c) operational leverage. We note
that for Prudential Asia, each 100 of new capital invested in 2009
generated 217 of new business profit, while at AIA that 100 generated
just 62 – bringing AIA’s return on marginal capital nearer to the
Prudential Asia level is presumably the opportunity that Prudential’s
management sees.
Prudential management’s case. In effect, this means three things we
think: (a) some improvement in distribution productivity; (b) a
rebalancing of the product mix; and (c) operational leverage. We note
that for Prudential Asia, each 100 of new capital invested in 2009
generated 217 of new business profit, while at AIA that 100 generated
just 62 – bringing AIA’s return on marginal capital nearer to the
Prudential Asia level is presumably the opportunity that Prudential’s
management sees.
BE
With respect to the $35.5bn price tag, one should consider: (a) the
relative P/EV for Pru Asia implied in the current share price versus that
for AIA, particularly once assumptions are made comparable; (b) that
AIA is expected by management to nearly treble its new business profit
by 2013, Prudential Asia only to double; (c) and that IFRS earnings are
typically depressed by growth – we note that AIA’s 2009 earnings had
$1.6bn of commission and acquisition expenses for example.
relative P/EV for Pru Asia implied in the current share price versus that
for AIA, particularly once assumptions are made comparable; (b) that
AIA is expected by management to nearly treble its new business profit
by 2013, Prudential Asia only to double; (c) and that IFRS earnings are
typically depressed by growth – we note that AIA’s 2009 earnings had
$1.6bn of commission and acquisition expenses for example.
BE
The risks we see are: (a) execution – this is a large transaction and
executing in what is a people business will be a challenge for a relatively
new management team; and (b) capital fungibility – i.e. the ability to
physically extract the targeted $1bn of cash per year from AIA is an
uncertainty in our view, particularly in times of economic stress; (c)
macro – the targets of Prudential’s management are based on normalized
economic assumptions.
executing in what is a people business will be a challenge for a relatively
new management team; and (b) capital fungibility – i.e. the ability to
physically extract the targeted $1bn of cash per year from AIA is an
uncertainty in our view, particularly in times of economic stress; (c)
macro – the targets of Prudential’s management are based on normalized
economic assumptions.
BE
28 pages of that, if anyone’s really interested.
NH
You see what we have done there?
NH
something positive
NH
something negative
NH
that said
NH
the JP note
NH
isn’t that
NH
positive is it?
BE
Er … no. Not really, in the broad view of things.
NH
(nick1212. FFS he is not a guise. He is a City broker).
BE
(We seriously, honestly, truthfully DON’T CARE if the liberators win or lose.)
BE
(Exactly as we don’t care if the Pru shareholders win or lose.)
BE
(We just write stuff down. That’s it.)
BE
So anyhow, is there anything we can round up with?
NH
back to Pru quickly
NH
no plans for a shareholder vote competition yet
NH
but it is a good idea
NH
and can I just say thanks
NH
to everyone who entered the caption competition yesterday
NH
on Eric Daniels
NH
its still open
NH
will close today
NH
and the prize is
NH
a copy of Fools Gold
NH
by Gillian Tett
NH
which we will get signed
NH
and this copy has a new preface and afterword
12:08PM
NH
Right
NH
time for a bit of small cap corner?
BE
Sure. We haven’t had enough of that today.
BE
What’s caught your attention?
NH
a couple of things
NH
one is Kenmare
NH
shares are up
NH
16% at 10.75p
NH
which is being pushed by a broker
NH
The market cap on Kenmare at these levels is around £215mn. The company recently raised £170mn to fund Phase 2 of the Moma titanium dioxide facility. Considering this cash is just sitting on the balance sheet, that means that the current operations are only valued at £45mn. Before the raise, they were valued at £190mn. Now, in the intervening period, titanium oxide prices have firmed up to around $112/lb matching highs of 2008 and 2006. Kenmare’s long term contracts signed at around $70/lb are beginning to be unwound, Chinese stockpiles have run down and are looking to be rebuilt and capacity at Moma has just hit 86% and will move to 100% once new scavenger circuits are on stream in June and July. This is a screaming buy
BE
This is the Irish/Mozambique mining thing, isn’t it.
NH
yes
NH
a favourite of Murph
NH
and the other small cap
NH
I wanted to look at
NH
is Monitise
NH
who have announced a big deal with Visa
Monitise Plc (MONI:LSE): Last: 24.35, up 1.6 (+7.03%), High: 24.75, Low: 24.00, Volume: 1.85m
NH
which I am told is very interesting
NH
but just don’t take my word for it
NH
as if you would
NH
listed to Evo
NH
and Piper Jaffray
NH
The establishment of a 50:50 JV with Visa to launch services into India represents
Monitise’s first reach into an underpenetrated emerging market (having seen
traction already in the UK and US). Our assumptions are low, with upside potential
over time on both volumes on pricing in India. We expect further positive newsflow
in the second half of 2010 around launches in Africa, in Hong Kong and with Visa,
as well as the group reaching profitability in the UK. Maintain Overweight and
conservatively-constructed 24p PT
Monitise’s first reach into an underpenetrated emerging market (having seen
traction already in the UK and US). Our assumptions are low, with upside potential
over time on both volumes on pricing in India. We expect further positive newsflow
in the second half of 2010 around launches in Africa, in Hong Kong and with Visa,
as well as the group reaching profitability in the UK. Maintain Overweight and
conservatively-constructed 24p PT
NH
Our model is conservative. Our model is based on just 6.7m people (0.6% of the
adult Indian population) using Monitise’s product by 2014. For context, Monitise
already has over 1.5m users (1.9% of population) in the UK having launched
under two years ago. We assume an ARPU in India of £0.80/user/year (vs the
£2.70 already being achieved by the group, and £8+ for the top-end applications).
Penetration and ARPU are the KPIs to watch, with upside against our low
expectations driving potential upside to our estimates and valuation.
adult Indian population) using Monitise’s product by 2014. For context, Monitise
already has over 1.5m users (1.9% of population) in the UK having launched
under two years ago. We assume an ARPU in India of £0.80/user/year (vs the
£2.70 already being achieved by the group, and £8+ for the top-end applications).
Penetration and ARPU are the KPIs to watch, with upside against our low
expectations driving potential upside to our estimates and valuation.
NH
and here is Evo
NH
EVO TAKE – Visa is a shareholder in Monitise and is paying Monitise to develop mobile technology, but this is the first announcement to reveal how the two companies will pursue revenue-generating opportunities together. The opportunities don’t get much bigger than India and we are lifting our target price to 27p.
DETAILS – Visa will act as Monitise’s infrastructure partner in India, connecting the users of Monitise’s mobile app to banks and retailers. Another way of looking at the deal is that Monitise will act as Visa’s mobile partner, broadening Visa’s product offering. The venture intends to provide banking, bill payments, ticketing services, mobile top-up and others”. India is an underdeveloped market with regards to banking and wireline telecoms infrastructure. Mobile technology will play a major role in enabling retailers to accept electronic payments.
VALUATION AND RECOMMENDATION – Monitise’s start-up and development costs mean that it will continue to be loss-making for a few years to come. However, it is obviously an important partner to Visa (mkt cap $36bn), and we believe it has the potential for further price appreciation as the mobile banking market develops.
DETAILS – Visa will act as Monitise’s infrastructure partner in India, connecting the users of Monitise’s mobile app to banks and retailers. Another way of looking at the deal is that Monitise will act as Visa’s mobile partner, broadening Visa’s product offering. The venture intends to provide banking, bill payments, ticketing services, mobile top-up and others”. India is an underdeveloped market with regards to banking and wireline telecoms infrastructure. Mobile technology will play a major role in enabling retailers to accept electronic payments.
VALUATION AND RECOMMENDATION – Monitise’s start-up and development costs mean that it will continue to be loss-making for a few years to come. However, it is obviously an important partner to Visa (mkt cap $36bn), and we believe it has the potential for further price appreciation as the mobile banking market develops.
NH
right
NH
I am done with the smallers
NH
Bryce
NH
you got anything to look at?
BE
Oh – sorry, I was distracted again.
BE
Well, we haven’t mentioned Fosters
NH
of course
NH
the wine spin off
NH
supermarket plonk spin off
NH
Wolf Blass
NH
Penfolds
BE
Some of your older Penfolds are rather quite decent, as I’m sure Felix Salmon would explain at length.
NH
hang on
NH
here’s the backstory
NH
Fosters is to spin off its prized brewing unit from its struggling wine operations in a structural overhaul that is expected to flush out takeover interest from international brewers.
The Australian beverages group, which has a market capitalisation of just over A$10.6bn (US$8.7bn), said on Wednesday it would list its wine unit separately, although a demerger was unlikely to take place until the first half of next year “at the earliest”.
Foster’s shares jumped 7 per cent to A$5.51 on news of the split, which was accompanied by a warning that the group’s wine assets would be written down by a further A$1.1bn-A$1.3bn in the year ended June.
International brewers have long coveted Foster’s beer operations that dominate the Australian market but they were never likely to act if a sale included the wine portfolio, built up at the top of the market at a cost of close to A$7bn. Investors and industry analysts had for years urged Foster’s to rid itself of the wine business, which has been producing poor returns and weighing on the group’s performance
The Australian beverages group, which has a market capitalisation of just over A$10.6bn (US$8.7bn), said on Wednesday it would list its wine unit separately, although a demerger was unlikely to take place until the first half of next year “at the earliest”.
Foster’s shares jumped 7 per cent to A$5.51 on news of the split, which was accompanied by a warning that the group’s wine assets would be written down by a further A$1.1bn-A$1.3bn in the year ended June.
International brewers have long coveted Foster’s beer operations that dominate the Australian market but they were never likely to act if a sale included the wine portfolio, built up at the top of the market at a cost of close to A$7bn. Investors and industry analysts had for years urged Foster’s to rid itself of the wine business, which has been producing poor returns and weighing on the group’s performance
BE
The question is, of course, does this make Fosters a takeover target?
NH
for who
NH
Diageo?
NH
SAB?
NH
Inbev?
BE
Well, there are an ever-dwindling number of brewers in the world and an ever-dwindling number of deals to be done.
BE
So, all of the above you have to argue.
BE
Hang on. I have Merrill on this theme.
BE
Foster’s assets being readied to realise their full value…
We are very positive toward Foster’s move to de-merge itself. The underlying
performance of the company has been going backwards for some period of time,
and we believe the corporate structure was inhibitive toward Foster’s assets ever
reaching their full potential.
We are very positive toward Foster’s move to de-merge itself. The underlying
performance of the company has been going backwards for some period of time,
and we believe the corporate structure was inhibitive toward Foster’s assets ever
reaching their full potential.
BE
There are likely to be some one off costs and some corporate issues to work
through (debt restructuring, tax loss allocations, etc) – we have no problems with
this. There are a lot of very talented lawyers, accountants, bankers, etc, available
in Australia that will no doubt be working on this event – all being highly motivated
to see through a successful execution of this de-merger.
through (debt restructuring, tax loss allocations, etc) – we have no problems with
this. There are a lot of very talented lawyers, accountants, bankers, etc, available
in Australia that will no doubt be working on this event – all being highly motivated
to see through a successful execution of this de-merger.
BE
To us, the most relevant issue for investors to consider is what each business
(Beer and Wine) will be worth as a stand-alone…not what the one off transaction
costs will be or the administrative red tape needing to be cut through.
(Beer and Wine) will be worth as a stand-alone…not what the one off transaction
costs will be or the administrative red tape needing to be cut through.
BE
Beer worth 17-18x PER, Wine worth 15x PER…
In our most recent note (see attached), we argued that on current year earnings,
Beer should be valued on a 17-18x PER (a free cash flow yield of 5.9%-5.6%),
and Wine should be valued on a 15x PER (a free cash flow yield of 9.5%).
In our most recent note (see attached), we argued that on current year earnings,
Beer should be valued on a 17-18x PER (a free cash flow yield of 5.9%-5.6%),
and Wine should be valued on a 15x PER (a free cash flow yield of 9.5%).
BE
Investors need to consider that Foster’s assets have been operating sub-optimally
for many years…the turnover in management has been high, there has been misallocation
of capital, etc. And trading conditions in the wine industry are probably
at cyclical lows.
for many years…the turnover in management has been high, there has been misallocation
of capital, etc. And trading conditions in the wine industry are probably
at cyclical lows.
BE
Splitting the company up in our view could release $1.50/share. BUY
BE
The note’s titled “Now in play…” incidentally.
NH
nice
BE
And here’s a quick bit of valuation work from UBS
BE
While the stock is now trading
at our fair value, there remains too much evidence to rule out consolidation as a
medium term possibility and the proposed demerger potentially makes FGL an
easier candidate, in our view. Applying LNN’s takeover multiple would see FGL
trade up to c$6.70, all else being equal, a 21% premium to the current share price.
at our fair value, there remains too much evidence to rule out consolidation as a
medium term possibility and the proposed demerger potentially makes FGL an
easier candidate, in our view. Applying LNN’s takeover multiple would see FGL
trade up to c$6.70, all else being equal, a 21% premium to the current share price.
NH
hmmm
NH
this is about the last big brewer left now
NH
it will have to be taken out
NH
dead cert I reckon
NH
but I agree with TL
NH
15 times for an iffy wine business
NH
sounds a bit steep
BE
Hm. I’m not sure you can call it an “iffy” wine business.
BE
Unless you mean it’s a business that, in your opinion, sells iffy wine.
BE
(* Sachsgate disclaimers apply.)
NH
of course sorry
NH
right
NH
we have gone into extra time
NH
and a few things to end on
NH
IMI
NH
if you want to know why they are up
NH
here you go
IMI PLC (IMI:LSE): Last: 628.00, up 50 (+8.65%), High: 628.50, Low: 600.50, Volume: 1.16m
NH
it’s from UBS
NH
Upgrade to Buy IMI has fallen more than 20% since the sector peaked on 26 April and underperformed the sector by 5%. We think the current share
price represents an attractive entry point given favourable risk/reward.
price represents an attractive entry point given favourable risk/reward.
Management execution has been strong IMI have been ‘best-in-class’ in taking cost out of the business, through a mixture of short-term headcount
measures and longer term restructuring by better utilising low cost country manufacturing. While the rapid ascent to new peak margins may unnerve
some, the likelihood is that it is sustainable. In our view the only draw back to IMI’s investment case is that average group growth across a mixed
portfolio of businesses doesn’t look that exciting, but decent returns on capital appeal to us.
NH
Valuation – 720p price target based on 8x 2011E EV/EBIT IMI trades at a 20% discount to the sector on our base case (current estimates) but in the
event of double dip recession we see IMI having the cheapest multiple in the sector. Therefore, the valuation looks well underpinned in our view.
event of double dip recession we see IMI having the cheapest multiple in the sector. Therefore, the valuation looks well underpinned in our view.
NH
and the EC
NH
has published its bank levy report
NH
here are the opening remarks
NH
The European Commission is today proposing that the European Union
establishes an EU network of bank resolution funds to ensure that future
bank failures are not at the cost of the taxpayer or destabilise the financial
system. Following discussion at the forthcoming European Council, the
European Commission will present these ideas at the G-20 Summit in
Toronto on 26-27 June 2010. Such funds would form part of a broader
framework aimed at preventing a future financial crisis and strengthening the
financial system. The Commission believes that a way to achieve this is by
introducing requirement for Member States to establish funds according to
common rules into which banks are required to pay a levy. The funds would
not be used for bailing out or rescuing banks, but only to ensure that a
bank’s failure is managed in an orderly way and does not destabilise the
financial system
establishes an EU network of bank resolution funds to ensure that future
bank failures are not at the cost of the taxpayer or destabilise the financial
system. Following discussion at the forthcoming European Council, the
European Commission will present these ideas at the G-20 Summit in
Toronto on 26-27 June 2010. Such funds would form part of a broader
framework aimed at preventing a future financial crisis and strengthening the
financial system. The Commission believes that a way to achieve this is by
introducing requirement for Member States to establish funds according to
common rules into which banks are required to pay a levy. The funds would
not be used for bailing out or rescuing banks, but only to ensure that a
bank’s failure is managed in an orderly way and does not destabilise the
financial system
NH
Right
NH
I think we are done
NH
thanks v much for joining us today
BE
Yes. Another epic session.
BE
Which seems to be the trend now.
BE
Hope some of it was useful, folks.
BE
Thanks for all your comments. Well, most of your comments.
NH
yes
NH
see you all tomorrow
NH
for some more markets live
NH
FTSE 100
NH
now up a ton
NH
103 points at 5,043
NH
I reckon if we see 175 points
NH
the Monkey comes out of the cage
BE
Dead cat on a rocket.
BE
BE
So. Buy.
BE
Bye.
NH
a lovely image
NH
bye