FT Alphaville » Markets Live transcript 15 Jun 2010

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Markets Live transcript 15 Jun 2010

Posted by Neil Hume on Jun 15 11:03.

Markets Live chat transcript for the chat ending at 11:19 on 15 Jun 2010. Participants in this chat were: Neil Hume, FT Paul Murphy Bryce Elder

Good morning

hola

and welcome to Markets Live

a three-way affair today

Bryce

and Murph

morning

Morning all.

Bryce

you’re in green today

oh, i wanted to be green

suits you

So,

we’re sitting here fuming this morning

Yup. Fuming.

Neil Bryce and myself

Actually we’ve gone one step beyond fuming.

Now we’re plotting

Is plotting the right word/

It’s a straightforward request actually.

Bound to be met.

Yep, sure it will.

FT Alphaville are formally calling for an FSA investigation into whether a false market has existed in the shares of BSkyB.

Actually, we don’t need an investigation. Course its been false – for three months.

We should do the backstory here

Okay

11:06AM

So, three months ago a Certain Reliable Source came on with a rather chunky tale.

Indeed

The CRS told us that New Corporation, Rupert Murdoch’s semi-public company was planning to table an offer for the 61% of BSkyB that it did not already own.

That was back in March.

CRS? Are we re-branding the bandits

Well, suspect on this occasion the “bandits” were on the other side.

Anyway back to the backstory

So, it’s a big deal to go and write for a media organisation that news corp is going to take out the powerless majority of BskyB.

We had to check it.

Even though we knew it was true

Cos it had come from the CRS.

We we push the story out to our media team – who get knocked back. Basically told it was untrue.

So then we get the M&A team involved.

Same result, knocked back

(Chopping bear — neil fume — v good)

Actually, I do know that Helen Thomas in NY called a lot of very senior people.

And then she got hold of someone very senior indeed – at a certain investment bank.

Which bank/or shall I just guess?

Well hang on, we’d better ask HT for the guy’s name.

Give her a call.

11:09AM

oh dear

What did she say?

She told me to k off.

(m43cap – explain pls)

Said it ws 6.30 in the morning and she can barely see.

Oh yeah, forgot she was in new york.

hehe

So generally, the story was denied by all sorts of “people familiar with matters” at both companies

Ah, but is it a case that after we rang em up they thought – hey, that’s one hell of an idea – let’s take out the powerless majority in BSkyB.

Look the point is here that all those lying to us three months ago were then hiding behind the claim that news corp does not somehow control everything that happens at BSkyB

Laughable notion.

Anyone who thinks that BSkyb is an independent entity wants their head examining.

But yes, we do guess that back then the actual formal offer letter had not formally been dispatched to the bskyb board

(No Dre – the other one)

Well, great opportunity for our newly proactive regulator to get on the case – interview everyone – and then take the necessary disciplinary action.

Could take down some very senior names here.

er, right

Tell me this…

If a deal leaks and people knowingly deal on that leaked information they are guilty of insider dealing, right

Can I pass on that one

And you can quite easily identify the victims – those people who sold their shares at the wrong price to the insiders.

Okay

Now, if a deal leaks, but as an adviser to a company you then lie about the nature of the leak – ie you say it is untrue, you are creating a false market, no?

You are indeed – and the victims are very easy to identify

Everyone is dealing at the wrong price.

Open and shut case in my view.

Rulebook – if you want to follow it – is very clear.

If you as a company or an adviser become aware that price sensitive information is leaking into the market place, then the onus is on you to distribute that information in a formal way to all market participants.

Yep. Very straightforward.

So, we look forward to the FSA investigation.

11:13AM

In the meantime, we’ve got a campaign to mount.

What’s that?

Save BSkyB, of course.

Whatever that rubbish coming out of the Sky independents this morning – some guff about 800p being recommendable – the facts are very clear here.

(indeed Taxloss)

Murdoch has used the London market to fund Sky for however many years.

Now that the investment has gone in – infrastructure, building market share etc.

Now he’s done that and the business is about to becomes genuinely productive in terms of cash, he’s ready to take full control of the cashflow.

If you are a sky shareholder and don’t realise you are being shaken down here by the Murdoch family then you probably should not be managing money.

Just look at the facts here.

For a start there is no such thing as an “independent” director at a Murdoch-related corporate entity.

indeed

Very concept is a joke.

Second, the Murdoch family are the ultimate insiders here.

If you are a Sky shareholder you are now in the process of being shaken down.

So resist.

Vote NO

Tell the Sky board that you are a shareholder insist they rejected this opportunistic move by the Murdoch clan.

Say NO to Murdoch

Murdoch has no respect for financial markets.

Can you pull up the Sky price chart.

can do

How far exactly has it gone in the last decade or so?

Pretty much nowhere.

Useful funding mechanism for Murdoch tho.

11:17AM

Have we heard from Leighton yet?

No.

We should add that Alan Leighton is one guy who didn’t lie to us back in March.

He managed to avoid that by not returning our calls.

(evolving??)

What’s happened to Leighton. He just like disappeared.

One day he was everywhere – plural – royal mail

(Fitch cuts BP to BBB from AA, watch “evolving”)

Lastminute.com

Running round, arm twisting everyone so james Murdoch could be Sky chief executive.

Remember that one? He was very efficient.

But then suddenly – there he was, — gone.

Just disappeared

Did he go off to Canada – spending all his time working for the Weston family or something ?

Dunno, but he disappeared.

Anyway, best move on

(Chopper was that not in the Sunday Times)

FT Alphaville endorses the Save Sky campaign.

And the FSA can get in there and bsut a few heads

11:20AM

isn’t it good to have Murph back

shall we switch to BP or do you want to get some Sky notes out the way?

let’s switch to BP for a moment

what the hell

is an evolving rating?

Dunno. But the CDS is 15bips wider on the news.

sounds fun

Hang on

Joseph

has just sent the note through

Fitch Ratings-London/Barcelona-15 June 2010: Fitch Ratings has downgraded BP plc’s (BP) Long-term Issuer Default Rating (IDR) and senior unsecured rating to ‘BBB’ from ‘AA’, respectively, and downgraded the Short-term IDR to ‘F3′ from ‘F1+’. The Rating Watch on all ratings has been changed to Evolving (RWE) from Negative (RWN). BP Capital Markets plc’s senior unsecured issues, which are fully and unconditionally guaranteed by BP, have been downgraded to ‘BBB’ RWE from ‘AA’ RWN. BP Capital Markets is BP’s wholly-owned indirect subsidiary.

The scale of today’s rating action has been partly driven by the increased risk that the balance between long-term and near-term cost payments may now be skewed much more heavily towards the near-term than previously anticipated by Fitch (for further details, see ‘Fitch Downgrades BP Plc to ‘AA’ from ‘AA+’; placed on Watch Negative’, dated 3 June 2010). In particular, the recent claims by U.S. state and federal authorities that BP escrow significant sums pre-emptively, ahead of any agreed claims process, represent a material change in approach, should it ultimately prove a legally supportable move against the company.

there’s lots more

if you want it

So basioally evovlign means — were not sure

- Significance of Capital Market Access
The increased skewing of potential costs to the near-term is compounded by the limitations the severely adverse market reaction towards BP in recent weeks will pose to the company in accessing the full range of capital markets.

could go up or down

Right. So it’s the escrow account story that’s triggered it.

“balance between long-term and near-term cost payments may now be skewed much more heavily towards the near-term than previously anticipated”

yes

that would be Harry Reid

the Democratic leader of the Senate

who said this last night

‘If you drill, and you spill, we’re going to make you pay the bill’

Oh dear. Do they have to talk like that?

Nevada Senator Harry Reid, along with his Democratic colleagues, sent a letter today to BP CEO Tony Hayward asking the company to put away $20 billion in a special account to be used to pay for economic damages and clean-up costs of the Gulf Coast’s oil spill. In light of the urgency of this matter, Reid and his co-signers have requested a response to this letter no later than Friday, June 18. “Our message to BP is as simple as this: If you drill, and you spill, we’re going to make you pay the bill,” said Reid.

It makes both the electorate and the politicians appear simple.

So anyway, he wants $20bn shifted immediately into a ringfenced fund.

yep

hehe

that’s about the size of it

and Fitch

therefore concludes

no divi

..Fitch would be surprised if BP did not suspend quarterly cash dividend payments until the operational and financial impact of the incident is clearer. The agency expects BP’s syndicated bank group to permit drawings under the group’s liquidity facilities (to the extent that they are contractually committed to provide funds) should BP choose to do so. Both of these actions would be supportive of the group’s liquidity position.

Actually, there’s some work from Lucy Haskins at BarCap on the escrow this morning if you’re interested.

BP CDS out by 15bp@ 460 post fitch

BP share price?

We’re up 0.1p at 355p.

(some nice lines from Monty over on the right… We’ve got to get on chase carey watch…)

So, flat following yesterday’ dive.

(taxloss stop it)

Anyway, here’s that BarCap comment.

(Arnold I don’t like the oils that much)

BarCap, you may note, is one of the few that’s not on a buy.

Estimating implied cost

The volatility in the price of BP’s equity and debt tells us that there is as yet no
consensus on the ultimate liabilities the group may face. This week may see a first
quantification. BP’s Chairman and CEO are meeting with President Obama on
Wednesday. Press reports (Sunday Times, June 13) suggest that BP may not only
surrender its dividend but may also be required to set up a multi-billion dollar escrow
account to cover potential liabilities. Whilst it is unlikely that we will have a precise
estimate for ultimate liabilities, the meeting might provide an indication of what the
US administration may think is needed. We consider the impact on BP of different
levels of costs. If we assume a sector average discount to sum of the parts is the
right place for BP to trade, then at a price of 392p/share in a $75/bl world, we
estimate the stock is currently discounting some $35bn of costs.

How long a dividend suspension? After its call to investors on 4 June, BP signalled that
it wanted to keep its gearing at the lower end of its 20-30% target and we argued that
there were risks to the dividend if costs were to exceed $6bn this year (BP: Retaining
financial flexibility, 7 June). Senate Democrats are calling for a $20bn commitment to
the escrow account – if BP were to meet this objective it would take company gearing
to 27% post completion of the Devon deal and would suggest the suspension of the
dividend until at least the end of the year.

The cost at the top: If BP is to sacrifice its dividend, the board may prefer not to make
changes to its senior management team given the destabilising impact such changes
could have. However, much of the criticism of BP has been directed at its CEO who has
been in the front line of public and political comment, and there may come a point
where BP has to consider public opinion of management as well as shareholder returns.

thanks for that

11:27AM

moving on from BP for a mo

back to Sky

yes

good comment from Monty

Point there about institutions having log memories

long memories also

Some will go balistic

we hope

where are the shares trading now?

BSky’s up 111p at 712p.

Traded as high as 732p earlier.

hmmm

everyone I have talked to this morning

says they should be below 700p

this deal is going to take 18 months to clear

the regulatory hurdles

and News Corp

has already upset the regulators

by saying it will start the process in Europe

even though Sky has no European interests

18 months wait

in which time

Rupert can walk

all at the cost of £38m break fee

got any snap research out this morning?

Well, i know you hvave…

yes

I do

this note

from Olivetree makes the point

that Vince Cable

could in theory block the deal

and we all know the Lib Dems

aren’t crazy about Rup

or News Corp

It seems to us that it is only now that the market is starting to work out how long the timeline on this deal is potentially. The stock will continue to drift (slowly) from current levels. Of course BSY stock will remain underpinned now a potential 700p bid is on the table, but working through the maths we just think they are still a touch rich.

- Given BSY management have already put an 800p max ceiling on the shares, we can reference back from this to provide a best-case value for the shares.

- Low-risk arb trades currently annualise c5%, so if we build in a best-case 800p, we end up at c750p instantly. Then modeling our timetable concerns and regulatory risks outlined below, we think the right price for BSY shares is closer to 700p (or maybe even in the 690s). This has been very much echoed by our (heavy) trading flows this morning.

- We still think this deal will take in excess of 12 months to close, indeed there is scope for it taking as long as 18 months. Even on a best-case scenario we can only model 9-10 months. It is important to note that it is only at this point that we will know the clearing price for the transaction, until then the 700-800 spread will remain.

Media deals are covered by the Enterprise Act 2002, which effects special rules. Indeed the Ofcom Medial Ownership Rules 2006 also outline key considerations. Whereas there is no language in either of these docs specifically covering NewsCorp-BSY, there are many many “Cross Media” catch all clauses, regarding the ownership of both print and broadcast media. There is a lot of protection re newspaper owners buying ITV licenses, clearly not applicable here but an insight as to how the regulator thinks. Although it is highly possible the deal ultimately gets approved, the process between now and then is lengthy. Importantly the Secretary of State (Vince Cable) can block a deal by himself. So although overlaps minimal, this is not a regulatory process without risk, and buyers of BSY shares need to be compensated for that

I have something from Goldman

A bid at 700p/800p would value BSkyB at 10.3x/11.7x CY2010E EV/EBTIDA
and 20.4x/23.3x CY2010E P/E. We estimate that News Corp could to finance
any deal through existing cash resources and debt. At 700p/800p, the
valuation would imply $1,920-2,170 EV/DTH Subscriber. We estimate that
at 700p News Corp would need £7.5 bn including debt, at 800p £8.6 bn.
NWS currently has c.US$8 bn of cash and investor concern have weighed
around uses of cash. We estimate that a bid of 700-800p would move News
Corp’s FY2010 gearing from under 1x to under 3x net debt/EBITDA.
There are 14 BSkyB board members of which 8 are non-News Corp related.

and this bit is good

what have Goldman been smoking

We would not expect any significant regulatory hurdles on a News Corp
acquisition of BSkyB as there is no significant business overlap. Thus, we
believe the key issue for shareholders will be whether a price can be
agreed between BSkyB and News Corp.

Really? No significant regulatory hurdles?

What are they considering insignificant?

18 months stuck in locked rooms?

strange comment

Bizarre.

We believe this morning’s share price move to 716p reflects market belief
that a deal is likely.
News Corp will hold an analyst call at 13:30BST: +1 612 332 0530, which
will provide further details on News Corp’s offer.

I have something much more sensible from Citi

There are 14 BSkyB board members of which 8 are non-News Corp related.

really?

Consideration #1: Does a Deal Make Sense?
We think so. Our view has consistently been that BSkyB is entering a period of
harvesting previous investments (HD, Broadband). At this stage, most of the new
initiatives being planned by the group – the roll-out of 3D, the launch of the
group’s Anytime Plus, IP-based VoD system – can be facilitated with existing
technology and at marginal cost. It stands to reason that News Corp would
consider buying in the freefloat to consolidate the cashflows now that investment
is largely complete. We should also note that there are some circumstantial
factors that potentially make a bid more attractive at this stage: weak sterling,
uncertainty over the payTV, a potentially more accommodative UK government.

Consideration #2: Can BSkyB/News Corp Agree on Price?
This will undoubtedly be more difficult. The indicative price of 700p would be
pretty much bang-on 10x current year, i.e. 2010E, EV/EBITDA. Given the growth
profile BSkyB, on our forecasts, would be on just 8.3x 2011E. This looks
conservative, but how conservative is difficult to say. Our DCF-based fair value is
700p, which assumes an 8.8% discount rate and 1% LT growth. Simply moving
the LT growth assumption to 2.5% would increase our FV estimate to >900p.
A metric a lot of investors will want to use is EV/Subscriber, and 700p would value
each of BSkyB’s subs at around £1,300. This is broadly in line with recent
transaction levels in North/South America (e.g. DirecTV/Sky Brazil). At the same
time, it is worth noting that BSkyB’s metrics, especially churn (c.10% vs. 15%+ in
the Americas) potentially drive better pricing and returns, and therefore may
justify a substantially higher EV/Sub

Our View: Bid Points to Underlying Value; We are Buyers
At this stage BSkyB has become something of a binary investment; nevertheless
we would expect the shares up on the back of this. If nothing else, the fact that
this approach appears to have taken place should give comfort to investors that
BSkyB is indeed entering a period of harvesting returns and that its main
shareholders believe that BSkyB’s shares represent decent value. We rate BSkyB
Buy/Medium Risk with a 700p price target. British Sky Broadcasting Group PLC

How about the actual shareholders — the people with a vote…

rememebr Murodch is supposed to be the minority holder here

We have Blackrock on 4.7%

Franklin with 4%

Brandes with 3.2%

Legal & General and Capital both with 3%

All look like natural supporters of our campaign

Save Sky

I’m guessing they need 75% backing, right?

Ah – no – 70%.

that’s what the statement says

so I guess it is

70%

of the 60%

they don’t own

hang on

just bringing up the statement

until the earlier of five months after grant of the merger clearances, payment of the Break
Fee described below, and 31 December 2011 (the “Standstill Period”), make an offer for all
or any part of the share capital of BSkyB (other than an offer that is conditional upon News
Corp and its associates acquiring shares carrying 70% or more of the voting rights of
BSkyB) or take action that would require it to make any takeover or similar transaction
involving the securities of BSkyB

Taxloss asks an interesting question (and I’m surprised as anyone to be saying that) about News Corp/BSkyB ownership overlaps.

and the answer is

Capital’s got 6.3% of News Corp

Blackrock’s got 3.5%

Franklin’s got just under 3%

hmmm

So, in conclusion, there’s a fair bit of overlap in the shareholder ven diagram.

This is a great opportunity for an activist hedgie

to move in in size

generally stir up the whole murdoch pot

what

take a stake

there’s bound to be value to release if you could prise the family fingers off certain assets

yeah.

Right

11:39AM

I am sensing that the readers are bored with Sky

so a big vuvuzlea to that

let’s have a look at the wider market

and…

FTSE’s ahead 22 at 5224 now.

Fifth day in a row now.

where’s the rally monkey

Which is the longest winning streak since ages.

(March I think.)

hmmm

(Taxloss: touche.)

and at least this time

the market has ignored a ratings downgrade of a PIIG

Ah – yesterday’s after-hours downgrade of Greece to junk.

that said, the EU appear to be hopping mad

RTRS-MOODY’S TIMING FOR DOWNGRADE OF GREEK DEBT WAS “ASTONISHING AND UNFORTUNATE” – EU’S REHN
11:21 15Jun10 RTRS-MOODY’S DECISION “REVIVES DEBATE ON RATINGS AGENCIES” – EU’S REHN

why so angry?

Greek junk shot.

beats me?

why does it revive the debate

because they were months behind the curve?

aren’t agencies allowed to downgrade PIIGS?

Hm.

I have a bit of comment on this

from a sidekick of Bob the Bear

at RBS

Andy Chaytor

The downgrading of Greece to junk status by Moody’s has perhaps not caused the amount of widening this morning that was feared when the move was announced last night. The point is we all know that European Central Banks have a buying mandate and so to the extent that there are forced sellers of Greece from its index exits (which seem to be at month-end rather than imminently) and voluntary sellers of other periphery on contagion fears, we have a marginal buyer. This is a distorted and precarious market, but it will probably need something a tad more dramatic than this long-expected event (even if the timing was unclear) to start really testing the new system.

A quick word on today’s data; UK inflation data was pretty close to consensus, with the key headline CPI measure a touch below. The trend of CPI coming in stronger then expected in recent years has been immensely strong, so I still think that there is cause for concern – I’d like to see the trend of lower inflation prints develop a little further before sounding the all clear. Nevertheless, I hold onto the more constructive view on gilts that I flipped into a few weeks ago and I think that the bund/gilt spread can push down from ~90bp to ~50bp assuming that the more aggressive language that UK politicians are using translates into credible plans to cut the deficit. For the ZEW, this was my first key test on my call of data/market feedback loops developing which I have discussed over the past few weeks. The much weaker expectations number seen today does not prove the theory, and this is a super-volatile series that surveys people actually in markets; but this is still an important signpost that these feedback loops may be developing. The real big one will be the IFO release a week today, so mark that in your calendar right now.

Overall I am comfortable with my medium-term calls at the moment and see no need to chop and change; S&P down to 1020, 10y US yields through 3.10% and buying dips in vol across different markets are the right trades, but the football World Cup has brought Summer markets to us early and we have to accept a choppy trading pattern for the near-term. For the S&P, which remains the near-term driver of other markets, 1110-1120 sees a concentration of technical levels and a failure to break through these levels is a signpost that we are in a world of bear market rallies not bull market sell-offs. This is a good near-term shorting area.

11:43AM

Right

what’s moving out there today?

I think someone on the right was talking about Inmarsat earlier.

One of our favourite busted takeover stories.

Inmarsat plc (ISAT:LSE): Last: 785.50, down 35.5 (-4.32%), High: 809.00, Low: 777.00, Volume: 787.70k

you say that

but the Harbinger offer for Isat

is much like Sky/News Corp

they bid

put the deal on ice

to get regulatory approval

and we are still waiting

anyway

why are they down?

The parallels are intriguing, now you mention it. And not, I argue, a good omen for BSkyBers.

indeed

Anyway, the reason shares are down so sharply is a Merrill downgrade.

yep

On operations, rather than the bid story.

no cash back from Isat

they are going to spend the wonga

on something else

Yeah. Specifically, they’re going to have to load all their capex into spacerockets and blast it into orbit.

Here’s the gist of it.

Downgrade to Underperform with a 725p Price Objective

We are concerned by a number of operational issues, though our primary concern
is that Inmarsat could announce a large fleet expansion in order drive top line
revenue and fight off competition from the Fixed Satellite Service (FSS) operators.
Instead of the long awaited “cashflow harvest” investors had been expecting,
shareholders could be hit for up to $1bn to fund new Ka-band satellites. We
believe management could use the new long-term revenue guidance due at Q2
(Aug 6th), to unveil the unpleasant capex news

Big capex surprise looks likely
Based on data in its IPO prospectus, we believe Inmarsat now needs to announce
a large fleet renewal as the age of its older generation satellites mean it will need
further back-up capacity soon. Of Inmarsat’s 11 satellites, four are beyond their
original estimated useful lives, three others are due to end in the next two years
and one in 2014. We believe Inmarsat is likely to announce a replacement fleet,
probably using 3 or 4 new Ka-band satellites at a price of at least c.$250m each.

Move to higher frequency a cause for concern in our view
According to press reports (eg FT, 11 May), Inmarsat is considering switching
from ‘L-band’ to higher frequency ‘Ka-band’. This is a major strategic decision
which we believe is being driven by competition from Intelsat/SES/Eutelsat in
Inmarsat’s core maritime market. Inmarsat’s problem is that its L-band frequency
cannot compete on speed and Inmarsat can’t afford to build hybrid ‘L + Ka’
satellites. While new Ka-band satellites will likely boost company guidance for
long term revenues, it exposes Inmarsat to ‘new technology risk’. We rate the
management team as ‘excellent’, however with the CEO and CFO totalling 13
years at Inmarsat we’re concerned that the 3-4 year construction period could
mean management change before these satellites enter commercial service.

ta for that

although those bands

leaves me confused

anyway

moving on

11:48AM

Some breaking news on Posh Bloke Asset Management

pricing for the IPO

hehehe

10:12 15Jun10 RTRS-JUPITER IPO COVERED WITHIN 160 TO 170 PENCE PER SHARE PRICE RANGE – SOURCE
10:12 15Jun10 RTRS-JUPITER IPO ORIGINAL PRICE RANGE WAS 150 PENCE TO 210 PENCE PER SHARE

PBAM

Punchy.

Strong demand around the Eton and Winsor area, I hear.

Henley too

flooding in

actually

I have some pre-IPO work on PBAM

from Execution

it pre-dates today’s pricing

but still

they make some very tasty margins

from those retail investors

Jupiter has all the ingredients of a successful asset manager
Investment performance: Jupiter has a strong track record of investment performance with 19 out of its 20 largest funds in the top two quartiles since launch and 95.9% of its funds in top two quartiles over five years.

Brand and distribution: On the back of its strong brand, distribution and investment performance it currently accounts for c.10% of net retail sales in the UK market. It is worth noting that since 2001, it has never had negative net sales in any quarter. It has been successful in generating more than 50% of its sales from fund platforms compared to a third for the industry.

Negligible dependence on performance fees: Jupiter is a conventional asset manager with negligible dependence on performance fees. With one of the highest management fee margins and low fixed costs, it also claims one of the second highest EBITDA margins in the industry.

Some secondary level concerns worth considering
While Jupiter is a high quality franchise there are some issues to consider:

Short term performance: Percentage of funds in the top two quartiles (over a three year period) has fallen from 85%+ in 2007 and 2008 to 58% in 2009.

Downward pressure on management fees: Funds generated through fund platforms attract additional 15-25bps of distribution charges. As the proportion of assets raised from fund platforms is increasing, management fee margins are under some downward pressure.

Lack of other capabilities: Jupiter’s product offering in absolute returns products is in its infancy thereby limiting its participation in the strong flows in this sector.

The IPO helps improve the balance sheet
Proceeds from the IPO will be used to pay off £174m of preferred finance securities and repay £30m of bank debt. It will also repay £50m of bank debt from its cash resources. This restructuring will reduce the gross debt on the balance sheet to £282m compared to £627m at 31 December 2009. Balance sheet restructuring will result in a reduction of interest charges from £45m in FY09 to £13m in FY11. We expect net debt to reduce to £60m in FY10 and £8m in FY11 from £404m in FY09.

Valuation – attractively priced
At the mid point of the price range, Jupiter is likely to trade at a P/E of 10x FY11 on our estimates. This implies a c.20% discount to Henderson and Schroders its closest listed peers. Historically the sector has traded at 14-15x next year earnings and 12-13x Year + 2

Yes. Margins are rather good when your business is parting toffs from their inheritance.

11:51AM

Talking of asset management

who is Muppet Alpha 1

post Monday’s disaster in BP

BP’s only equalweight in the portfolio so we’re defended against such day-to-day volatility.

good

I though MA1 had a view to the long term

I didn’t realise we took risk management so seriously

I’m nothing if not serious.

Anyway, we’re up again this morning.

Ahead 1% on the day.

And 4.3% since inception (last week).

good

That’s tremendous

Float beckons

And that’s despite forgetting to add Luminar.

oh yes

we should have done that

the share price is sick

very sick

Luminar Group Holdings Plc (LMR:LSE): Last: 10.00, no change, High: 10.00, Low: 10.00, Volume: 723.57k

so sick

it looks terminal

I guess few kids will be clubbing

when they could stay at home

It’s been pricing in an “event” for some time.

and listen to the vuvuzela

So I see Goldman pulled coverage this morning.

yep

given up

Which is never a good sign.

We are terminating coverage of Luminar to better focus our resources

hmmm

Following the recent trading statement – and despite the easier comps through 2H – we have further reduced our FY11 estimates to reflect the ongoing deterioration in demand (LFL sales 19.4% through the first 10 weeks of the current financial year). Our final 6-month price target is 20p (previously 55.5p) and given thr materially divergent nature of the potential outcomes for equity holders our final rating on the stock is Neutral

materially divergent nature of the potential outcomes for equity holders

ouch

“better focus” their resources on a company that might still be there next week.

Based on our new estimates, Luminar appears in danger of breaching covenants on its current banking facilities (next due to be tested in August). Visibility on the timing (and, more importantly, the cost) of any
potential restructuring of debt remains very low, and the cost of debt assumptions in our estimates are unchanged. Given the sliver equity situation, the potential share price upside in the event that the company is able to either successfully renegotiate covenants, or effect a turn-around in sales (and profitability) could be
very material. However, the combination of the group’s level of leverage and the ongoing deterioration in LFL sales creates significant refinancing risk. Indeed, with a market cap that has shrunk to only around £11 mn (just under 8% of current net debt), we believe that Luminar’s current share price could be viewed as an
“option” on a successful outcome (either via renegotiation or improved trading).

now

that’s the UK’s biggest nightclub operator

we are talking about

and on the subject

of those plastic african horns made in China

some good news

World Cup 2010: BBC may offer vuvuzela-free matchesSouth Africa defends plastic horns which have sparked global debate over loud drone and are selling out in Britain

http://www.guardian.co.uk/media/2010/jun/14/bbc-vuvuzela-free-world-cup

The BBC was investigating the possibility of transmitting an alternative “vuvuzela free” version of its World Cup coverage tonight, as the fierce debate over the buzz of the horn looked set to be heading for football grounds all over Britain.

As players, fans and coaches weighed in on whether the loud drone of the plastic horns was an annoying irritant or joyful expression of African culture, South African organisers hit back and encouraged visiting fans to export them back to their own countries.

At the same time, fans in Britain have been snapping up the horns at the rate of one every two seconds and suppliers claimed the UK had been gripped by “vuvuzela fever”.

Disclaimer: as stated yesterday, I’m in favour of the traditional African plastic horns made in China.

Not for the noise, but because they’re making sponsors angry.

Did you see the chap playing one on Newsnight last night? Rather impressive.

nope

missed that

He got four notes out of it. It sounded like four different sized wasps trapped in tobacco tins.

(Bohemia with you on the slow mo and ubiqitious Cordon)

Since we’re in smallcap corner, anything else to look at?

don’t think so

although there was a bid for Spice today

stupid name for a company

and I never quite figured out what it does

anyway

Cinven has bid

the offer was knocked back

here’s some comment

from Liberum

and before that

a share price

Spice Plc (SPI:LSE): Last: 53.00, up 3.25 (+6.53%), High: 56.00, Low: 51.25, Volume: 1.96m

56p offer from Cinven – Cinven announced that they ‘indicated a possible
offer price’ of 56p (CY 2010 P/E of 8.9x), a 14% premium to yesterday’s close,
but a 51% premium to the price before the approach. Spice have rejected the
offer as not offering reasonable value for shareholders. This may be seen as a
sign of confidence in trading

Bid predates disposal of gas business – The bid, which was received on 24th
May, predates the gas disposal which was announced on 1st June. Cinven were
not insiders on the transaction

Timing of statement – We believe Cinven were requested to put out a
statement by the takeover panel following the 7% increase in the shares
yesterday. It may also be an attempt to force Spice’s management to discuss the
bid with shareholders. Management are not currently in discussions with other
buyers although the announcement may force the hand of potential suitors.

Expect positive reaction – We would expect the shares to move up towards the
56p. However, we note that the shares are now trading at our target price of 50p

12:00PM

Fido

on JJB

I think T1PS

has done something negative

10p target price

don’t know if evil knievil is involved

they are apparently talking about the massive sale increase required to get to profitability

There was a bit of sellside saying exactly that last week I think.

I forget who from, but pretty sure I wrote it up either here or for the paper.

So, if you’re interested, take your chances with the archive.

12:03PM

So we’re beyond midday

(taxloss so thats half of the remaining 60% then)

And we’re exhaused from BSkyB venting.

Still, is there any other raw to pick up on before we go?

RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.

well

Sainsbury being touted as a target again

J Sainsbury PLC (SBRY:LSE): Last: 323.10, up 3.4 (+1.06%), High: 323.30, Low: 318.10, Volume: 1.81m

and also international power

International Power plc (IPR:LSE): Last: 316.70, up 5.1 (+1.64%), High: 318.20, Low: 308.50, Volume: 2.20m

for either GDF

or EDF

If there is something in IPR, the pressure to stick a statement out must be building.

They weren’t exactly quick to do so last time.

And the rumour of new talks has been all over the place this week.

true

also

I guess

we should have a look at the inflation figures

finally a bit of good news

came in below expectations

LONDON, June 15 (Reuters) – Sterling lost ground against the dollar and euro on Tuesday after data showed a smaller than expected increase in UK inflation last month.
Official data showed the annual rate of consumer price inflation fell to 3.4 percent in May from 3.7 percent in April, slightly lower than the 3.5 percent forecast by economists. [ID:nAHLEHE62S]
The bigger-than-expected fall may ease concerns about inflation voiced by some policymakers recently, but the rate of price increases remains well above the Bank of England’s target of 2 percent.

“There’s a little bit of comfort from today’s figures that the outturn is a little bit below expectations,” said Philip Shaw, chief economist at Investec.
“It doesn’t change the big picture, which is that inflation remains well above target and also that it has been disappointingly high over the past year or so, and will contribute towards a very interesting debate on monetary policy over the coming months.”

that was the Reuters take

and I have a bit of comment

first up

Howard Archer

May’s retreat in consumer price inflation will be of some relief to the Bank of England and boosts its case that inflation will head down significantly over the coming months and be back under the target level of 2.0% by early-2011 barring a VAT hike. As such, it reinforces our belief that the Bank of England is more likely than not to keep interest rates down at 0.50% into 2011 as recovery remains bumpy and gradual with major fiscal tightening and the Eurozone debt crisis posing serious threats to growth prospects. However, we do acknowledge that there is a very real chance of at least a token interest rate hike before the end of the year if inflation continues to provide upside surprises over the coming months

We believe that whenever interest rates do start to rise, the increases are likely to be both gradual and limited due to the need to offset the extended, substantial tightening of fiscal policy that the economy must endure. Meanwhile, we expect the Bank of England to keep the stock of Quantitative Easing unchanged at £200 billion for the rest of 2010 and at least the first half of 2011 before starting to gradually reverse the process.

and now

Unicredit

May inflation was slightly better than expected slowing down to 3.4% from the previous 3.7%.
The deceleration was driven by both non-core and core prices. Core inflation came in line with our expectation easing to 2.9% from the previous 3.1% and shaving around 2 pp off the headline. As far as non-core components are concerned the largest downward surprise came from food prices which fell 0.1% on the month, pushing the yearly rate of growth down to 1.8% from the previous 2.9%.

While today’s outcome definitely brought some relief to the BoE, the level of inflation remains still too high and, more importantly, the dynamics of core prices uncomfortably uneven. Against this backdrop, the BoE will have hard time facing a sticky inflation environment, on the one hand, and downside risks to growth stemming from the needed fiscal tightening, on the other hand. Whether the extra-loose monetary policy could and need be extended to support growth is far from certain at this stage. The emergency budget on June 22 will at least help us to better asses the impact on growth of the fiscal tightening which will be implemented by the new government. However, it will take a few more months to better understand whether inflation, the core in particular, has definitely entered a steep downward trend, as in the BoE’s central scenario.

Ta.

12:09PM

Anything to finish on

Just to round up loose ends

We should note and congratulate the winner of yesterday’s Cuomo caption contest

http://ftalphaville.ft.com/blog/2010/06/14/259436/caption-contest-wink-and-youll-miss-him-cuomo-that-is/

oh yes

and the winner is

drum roll

sir incompetent mcbonus

with

“I’lll be campaigning on a platform of justice for all…Americans that is, we have special plans for British Petroleum… ” (wink)

And now

we just have to find a prize

a copy of the new updated version of Gillian Tett’s book?

will that do

very good Sir incomp

there’s a box of them on the floor behind me

Surely we can’t just keep sending out copies of Tett’s book.

But she’s in the air — wont be able to sign

It’s going to reach critical mass at some point. Everyone’s going to have one.

I think we are all out of mouse mats

She’s on route from LA to NY as we speak

How about a copy of Tett’s book signed by Paul Murphy? That’d be a true collector’s item.

Stil, nie prize

good idea

and

hang on

an email from the Shrewdette has just landed

the first day of Ascot

Royal Ascot sorry

to which most of my contacts seem to have gone

ive got Shrewdette’s quick picks

for the first day

I’m nfi ascot wise

this year

me too

and no Wimbledon tickets yet

2:30 Sticking with one of my old favs – PACO BOY 7/2
3:05 The Oz horse NICCONI looks very impressive j/fav @ 3/1 but I quite like EQUIANO EW 10/1
3:50 going French on this one – MAKFI 5/2 over the english CANFORD CLIFFS 9/4
4:25 and after all those short priced ones here’s an ‘off the wall-ish’ flutter – GALTYMORE LAD 25/1 but favourite Strong Suit @ 5/2 going to take some beating and Johnny Murtagh has picked ZOFFANY 4/1 so must be in with a chance.
5:00 GHIMAAR 9/2 on good Irish form and recent hurdles win, over WOOLFALL TREASURE 11/1 – Ryan Moore riding in this very open race – money been coming in for Rajik as well (now 10s).
5:35 METROPOLITAN MAN 2/1 on his USA form looks hard to beat but CHILWORTH LAD might just at 15/2 some value.
Happy punting!
Shrewdette

and that starts next week

arghhh

flat racing

rather dull, no?

and Ascot gets quite chav, no?

Ah, Ascot is a hoot

well it is

yes, chav, but funny all the same

if you fly in by helicopter

taking the train

not so good

All men are equal, above the turf and below it

I did helicopter last year

perfect way to get there

and back

I’d heard

anyway

got to go

have lunch

shall we bring this to a close

internal

RTRS-OBAMA TO OUTLINE PLAN TO DEAL WITH LEAKING BP OIL WELL, PAYMENTS FOR DAMAGES IN SPEECH TO NATION -WHITE HOUSE SPOKESMAN ON CBS

and we are all looking foward to that

(@Lorcan: that’s remarkable. Is it a Fox News effect? Is there a Glen Beck boost, similar to the Oprah bump?)

(@Stonehands: bid premia analysis for £1bn plus cross border deals suggests Murdoch can do whatever he fancies and bid premia analysis for £1bn plus cross border deals is irrelevant.)

Right

we are done

yep

thanks for logging on

cya you all tomorrow

We are. I’ve started arguing with the rabble, which is never a good sign.

seeya

cheers

Some good gags on the right#

bye

See you all tomorrow. And thanks for your comments.

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

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Markets Live transcript 15 Jun 2010

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