FT Alphaville » Markets Live transcript 6 Jul 2010

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Markets Live transcript 6 Jul 2010

Posted by support on Jul 06 11:03.

Markets Live chat transcript for the chat ending at 11:32 on 6 Jul 2010. Participants in this chat were: Bryce Elder Neil Hume, FT

Good morning.

And welcome to Markets Live

Alphaville’s daily wander around the markets

I’m sorry to report that we have another internet outage at One Southwark Bridge

(“Sorry” was not my first choice of words)

Neil’s currently trying to get anyone from the IT department to answer the phone.

I’m at the wrong side of the office typing this on the Bloomberg machine

We’ll be with you as soon as we can

but in the meantime feel free to talk among yourselves.

Hang on

I’m in

(Neil now defaulting to Internet Explorer.)

(Having been assured by the IT department that nothing is wrong.)

(

)

Right

IE working

and I am in

having spent 5 mins

waiting for one of our analysts

The suggestion around here is that all our servers are stored in tin huts on the roof, which overheat if there’s a bit of sun.

Bryce

try IE

at your desk

Meanwhile, the IT department has a nice view of the river.

I think it will work

Sigh.

Neil? You here yet?

yes

cant’ you see me?

(taxloss – yes I reckon it eventually gets swallowed by someone else)

Aha. Right. You cover, I’ll return to the AV desk.

you in?

I’m in.

Right

let’s start this again

not that it is scripted or anything

11:13AM

G’day cobbers

and welcome to Markets Live

FT Alphaville’s daily markets walkabout

(@Bead: yes.)

What’s with the Aussie thing, Neil?

sorry mate

our fair dinkum cousins from the land down under

have given us a nice dead cat bounce this morning

Er.

Have you been at the Tooheys?

Nah mate

but look the Aussie central bank left rates on hold overnight

and said they would stay that way

And that’s positive?

in this market, yes.

because of all this double dip stuff there were fears that rates would have to be cut

or there would be some comment to that affect

and because the RBA didn’t say that and made some comforting noises about Chinese demand

we are up

risk back on

look

this explains it

Some tentative signs overnight that risk sentiment is on a slightly better footing after all the worries about the global economic recovery over the past week. Riskier currencies have rebounded, along with stocks and commodities. AUD has been a notable winner after the RBA left rates on hold and gave a slightly more upbeat statement than had been expected. There had been some worry ahead of the meeting about the prospect of rate cut or signs of a rate cut ahead. Instead the bank gave firmer guidance that policy rates are to stay on hold. This will tend to provide some further support for the AUD. Buy AUD/USD

Okay then

So let’s have a quick look at the wider market, shall we?

Where are we standing at the moment?

almost a triple digit gain – ton up

fabulous FTSE 100

up 99.49 points at 4,922

miners leading the way

now there’s a surprise

Kazakhmys PLC (KAZ:LSE): Last: 1,023, up 55.5 (+5.74%), High: 1,025, Low: 975.50, Volume: 711.06k

Xstrata Plc (XTA:LSE): Last: 895.00, up 44 (+5.17%), High: 898.00, Low: 861.00, Volume: 3.51m

Antofagasta PLC (ANTO:LSE): Last: 801.50, up 40.5 (+5.32%), High: 802.00, Low: 766.00, Volume: 904.47k

Rio Tinto PLC (RIO:LSE): Last: 3,020, up 139.5 (+4.84%), High: 3,034, Low: 2,900, Volume: 1.72m

Vedanta Resources PLC (VED:LSE): Last: 2,188, up 88 (+4.19%), High: 2,213, Low: 2,120, Volume: 376.53k

that’s added around 10 points

And how many points is that on the FTSE?

that’s added about 11

the falling knife another 10

and the banks the rest

sorry

we are experiencing huge delays here

massive

11:19AM

Right

I guess we had better look at the falling knife

which now needs a new name

any thoughts?

BP Plc (BP.:LSE): Last: 344.65, up 11.35 (+3.41%), High: 349.45, Low: 330.65, Volume: 20.54m

Um. Has to be something that bounces but still looks hopeless.

I favour its old name

Rubber chicken?

Anglo-Persian Oil company

anyway

I don’t see what the problem with the Libyans saying BP is a buy down here

I mean

they have a good track record

don’t they own 3% of Pearson

Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.

True. Value investors.

as for this supposed relief that BP won’t do a cash call

was anyone really expecting one?

I wouldn’t have thought so.

What sort of discount would that have needed?

and SWF’s have already been buying

SAFE has bought stock over the past month and a bit

and once those 212 notices come in

we should find how much more they have bought

I reckon it is a fair chunk

anyway

funny isn’t it

BP has a 10% bounce

and people think it is safe to catch the falling knife

I guess the absence of bad news, bid rumours

and Macondo being stopped early all help

but worth noting the volumes have been pretty poor in this dead cat

yesterday +3.5% 40% below 12m avg

Indeed. There’s a simple symmetry to this rally.

Falls, stops, rallies.

actually here’s another interesting litte fact

BP said today in the FT

that there would not isse any new shares

Right.

but what about its Treasury stock

all those shares it has bought back

I am told they own 1.8bn shares

around 10% of the group

couldn’t they be placed with a friendly SWF?

would raise some cash

One previous idea was to use the Treasury stock in the US cleanup escrow account.

good idea

I guess that didn’t fly with Obama though.

Meanwhile, here’s some sellside telling us it’s all in the price.

Just in case anyone hasn’t heard that argument for a day or two.

This is from RBS

Favourable risk/reward profile
We believe a pessimistic view on the probable costs of the Macondo spill is
currently discounted, with our base case implying upside potential to 455p.
Catalysts for share performance are apparent, in our view. Upgrade to Buy, price
target reset at 455p.

Pessimistic outcome of spill seems discounted
A decline in BPs value of US$60bn relative to closest peers since the Macondo blowout has
created a favourable risk/reward balance, in our view. We have reviewed six scenarios for
BPs share of direct costs connected with the incident, including negligent and non-negligent
outcomes. Our work suggests a direct impact on BPs value of US$6bn-57bn (21-200p/sh)
and an indirect impact of US$10bn (35p/sh), implying a total of US$16bn-67bn (56-235p/sh).
This suggests that a scenario at the pessimistic end of our very wide range is currently
discounted.

Shares have fallen c£1/share more than our base case scenario for costs
Our base case scenario assumes BP negligence and a negative impact on the companys
value of US$38bn (136p/share). This is US$22bn (78p/share) less than the relative decline in
the share price since the incident. This gives a sense for the scale of the share price
increase (24%) that it might be reasonable to expect as further progress in well control and
spill response is made.

Potential catalysts for share performance are apparent
We expect the first relief well to intersect the Macondo bore by mid-July, and we believe this
will be a turning point for BPs share. Stopping the flow of oil will cap the physical volume of
the spill, reduce the daily costs being incurred, cool the political temperature and, if BPs
share price remains excessively depressed, it could trigger credible merger speculation.

Price target reset at 455p, upgrade to Buy
We have reset our DCF-based valuation and price target at 455p (from 595p), assuming our
base case scenario for costs. Potential upside of 41% warrants a Buy and we have upgraded
our stance from Hold. Although we see comparable upsides elsewhere in the European oil
sector, catalysts for share performance are particularly evident in this case.

thanks for that

nothing really earth shattering in there

let’s hope the relief well works

if not

all bets are off

Yup. Exactly. Binary bet.

Bored with BP?

Yup. For today. We’ll revisit it tomorrow, inevitably.

11:30AM

Right

ahead of the football

something to think about

from Gary Jenkins at Eco Securities

For the sake of the equity market, lets just hope that the semi finals do not result in an Holland v Germany final. That last occurred in 1974, in which year the Dow was down 29% that year…23% after the final…and the Dow is down 7% this year so far…..its all rather worrying….

A fine piece of correlation = causation from Mr Jenkins there.

and while we are on the oddities bit of the show

we have

another fine from the FSA

this one trialed in the paper this morning

and well

this whole case just beggared belief

and incredible story

The Financial Services Authority (FSA) today fined Henry Cameron £350,000 for making misleading announcements to the market regarding payments from Sibir, a large energy company that was quoted on AIM, to its major shareholder Chalva Tchigirinski.

As Sibir’s chief executive officer, Cameron was directly responsible for this market abuse.

In two separate market announcements made by Sibir in December 2008 and February 2009, incorrect figures were given for the payments Sibir had made to Tchigirinski. Both of these stated that Sibir had paid a total of $115.4 million when in fact the true amount was more than $300 million. The announcements also stated that the payments were advances for real estate that Sibir was to purchase from Tchigirinski, but in fact they were not supported by a written agreement and amounted to unsecured loans.

The primary motive behind Cameron’s conduct was to retain Tchigirinski’s supportive shareholding in Sibir to prevent Tchigirinski, one of Sibir’s major shareholders, having to sell off shares as a result of his financial difficulties.

Cameron’s actions created a false market in that they gave a misleading impression as to the nature and value of Sibir’s assets and the risks the company faced. When the true position became clear, Sibir’s shares were suspended from trading on AIM and its quotation was subsequently cancelled.

Well, I guess they didn’t fine the company this time.

true

A la Regal Pet.

but a £350,000 fine

is that enough

let’s recall this case

Sibir lent money to its biggest shareholder

because he was facing a margin call

now that’s pretty odd

but worse was to follow

because they lent this Russian guy even more

and didn’t disclose it

and were poised to lend even more

before it was blocked

is £350,000 enought?

Sibir was a big company

It was one of Aim’s grade one scandals, this.

yep

shocking

truly shocking

Oil company announces out of the blue that it’s “bought” a hotel and a few plots of undeveloped land to save the skin of its biggest shareholder.

Tries to play it that protecting the register is in the interests of investors.

yep

this was the excuse

At the time Sibir justified the transactions with Mr Tchigirinski by arguing that a forced sale of his stake would have “devastated the share price and destroyed the existing shareholder structure, exposing the company to ruthless predatory activity”.

cobblers

Yup. Complete pile of steaming bullcobblers.

Without wishing to pre-empt anything, is there grounds for a criminal case here?

pass

I’m not a lawyer

but Lady Economist is saying she met Tchigirinski once

and he was one of Russian’s richest men right?

“Worth” £1.4bn, by common consensus.

incredible story

anyway

let’s finish off

with the usual FSA crowing

Margaret Cole, director of enforcement and financial crime at the FSA, said:

“As the most senior executive director at Sibir, Cameron should have known these announcements were misleading and the serious impact they were likely to have on the market.

“The consequences of his market abuse were so serious that it led to the suspension of trading in Sibir’s shares on AIM. Our fine reflects the gravity of his irresponsible actions and shows that we are serious about taking action against directors of publicly traded companies who commit market abuse. It is not acceptable for directors to take action which is in the interests of some shareholders while keeping others in the dark.”

Alexander Justham, director of markets at the FSA, said:
“The FSA is determined to ensure clean, efficient and orderly markets. Companies that are publicly traded need to ensure a rigorous approach to accuracy when disclosing information to the market and it is the directors of such companies who are critical in making sure such disclosure is correct and not misleading. This is essential to allow shareholders and investors the opportunity to make informed and accurate investment decisions as well as helping to maintain confidence in our markets.”

and

last but not least

Cameron was suspended from Sibir in February 2009 and dismissed in April 2009.

Cameron qualified for a Stage 1 (30%) discount under the FSA’s settlement discount scheme. The financial penalty of £350,000 reflects this discount. Without the discount, the financial penalty would otherwise have been £500,000.

No enforcement action was taken against Sibir.

It’s a pity, in retrospect, that no action is being taken against Sibir.

Given Sibir is now owned by Gazprom

And I’d rather like to see the FSA trying to stick them with a fine.

yes

now that would be fun

right

let’s move on

and look at Webvan 2.0

11:41AM

Not that we’re drawing any kind of parallel, obviously.

well

the more I think about

the more i see Ocado floating at silly valuation

issuing a string of profit warnings

falling 75%

after which

it gets taken out by Tesco

or Waitrose

and next to nothing

in the meantime

the directors have all are millionaires

Hm. Spoke to someone yesterday who was fresh out of a meeting with the directors.

Who suggested they have that missionary zeal in their eyes.

they well need the help of the Lord with this one

They’re all fully on board with dot-com, Scientology belief in the “project”.

they have to be

talking to fund managers

the pitch here is really 1999

the online grocery market is small

but growing fast

by 2020 it will be 20% of online spending in the UK

Ocado grabs 20% market share

and hey presto

the thing is worth £2bn

but in reality

will online food shopping ever be as big as books

clothes

electricals?

I’m sorry, but this is bobbins. Complete bobbins.

Saw it all a decade ago.

“It’s a huge pie and if we can just take this small slice you’ll all be zillionaires.”

Nonsense.

yep

nonsense before

and will be nonsense again

the only questions for me

is how buys Ocado

when

and for how mucgh

place your bets

in the meantime

we have some non-conflicted research

Oh good. Who from?

Ambrian

Philip Dorgan

We have today issued a report on Ocado, which we have attached. Ocado is to float because it needs fresh capital and there has not been a trade buyer. The economics of delivering groceries to people’s homes as a pure play operator, using a warehouse picking model, are difficult, as is shown by its record. This leaves it with a structural problem and £1bn looking an unreasonable valuation. Taking into account both our base and bull case scenarios and, in comparison with its peer group, we consider a fair market valuation to be no more than £500m.

Ocado is a unique concept
Ocado has state-of-the-art technology, good customer service and a strong sales growth record. Sales grew by 25% in 2009 and by 29% in the first half of 2010. It looks well-placed to benefit from the growing demand for ordering groceries online.

Economics are tricky
However, over ten years, Ocado has consumed cash and never made a pre-tax profit. We think that this is because the economics of a pure-play, sub-scale food retailer, with no brand equity, operating a warehouse-picking model, delivering groceries to customers’ homes, do not stack up. Tellingly, no multichannel operator uses this model.

Reasons for the flotation
Ocado clearly needs funds. It always needs funds, but this time it needs a lot. Capital expenditure over the next five years will be 5x that spent over the last five. Existing holders want to cash in as well, so this all adds up to a placing of around £400m, hence the racy valuation. The obvious question to ask is — why has there not been a trade buyer? One obvious answer is that the economics don’t stack up.

Multichannel versus pure-play
Tesco has existing assets that it can sweat online. It makes a virtue out of having a brand, scale and stores. Ocado is making a virtue out of having no brand, scale or stores, but the numbers don’t add up. At Ocado’s level of sales, tesco.com was making an operating profit of £12m, compared with Ocado’s loss of £14m.

The path to profit
In our base case forecasts, we assume that Ocado moves into the black in 2012, but we don’t expect it to ‘kick on’, due to extra costs and trading losses from the planned new warehouse. Our bull case forecasts assume that Ocado moves into the black in 2011 and generates a double-digit EBITDA margin by 2014.
£1bn valuation looks too high
There are many more variables than certainties. Taking into account both our base and bull case scenarios and in comparison with its peer group, we consider a fair market valuation to be no more than £500m.

full note in usual place

for those interested

(@Daz: the internet connected fridge is up there with personal jetpacks. See http://tinyurl.com/blahbllahblah for example.)

we done with brightly coloured vans?

We are. It’s another subject I feel we’ll return to habitually.

In the meantime, where now?

(lady – Philip Dorgan)

(Taxloss – spot on with the smart fridge)

(Taxloss – you could have saved General Electric and LG about two decades of R&D with that insight.)

11:51AM

Where now?

anything Connaught

another ex-falling knife

Connaught Plc (CNT:LSE): Last: 124.10, up 9.1 (+7.91%), High: 126.70, Low: 117.00, Volume: 1.19m

Ah yes

For anyone who missed it, Breeden said it had picked up another chunk after the close last night.

Up to 13% now.

hmmm

what’s the end game here?

Break up Connaught?

They were buying when they were 300p, so let’s not get carried away.

ouch

so just averaging then?

but

they are activist no?

Indeeed. With a very odd portfolio.

According to Bloomberg, this Breeden European fund has only four disclosed equity holdings.

Connaught, which is by far the largest.

Mears, Connaught’s arch rival.

Xchanging, which does backroom type outsourcing.

And Southern Cross Healthcare, which does care homes.

meh

another dog

It’s not too hard to join up the dots between those four though, is it?

but I reckon this break-up angle

could be worth exploring

I agree. Connaught’s management’s devalued, but its contracts are worth something.

thanks for that

11:55AM

Right

time for the pub

Midday already? Sure. Where to?

The Toxic Pub Company of course

IMS out

and the shares are up on it

Punch Taverns PLC (PUB:LSE): Last: 67.80, up 3.25 (+5.03%), High: 68.30, Low: 64.65, Volume: 1.17m

Er ………. yes, they’re up.

They’re also 67p.

fair point

well below the cash call price

33% hit for anyone brave enough to pick up that bill.

Nasty.

just looking at the statement

the good news

is that things are getting any worse

but then again

given the recent hot weather sales should be picking up

LFL sales in managed pubs are +2.7%

but

LFL Ebitda per pub in the tenanted leased estate is -5%

now that’s all in line with what was reported at the half year

annd presumably includes a world cup boost

which leads me to conclude

that there really isn’t underlying growth in this business

and that with a huge pile of debt to service

there’s nothing for shareholders really

Just noticed one of PUB’s few fans has chucked in the towel this morning.

who is that?

James Dawson at Charles Stanley.

There are a few interesting observations in here.

Today’s Interim Management Statement demonstrates that improved trading
performance will take time to materialise. Specifically, any volume stabilisation
will be offset by the rebasing of the rental levels across the substantive estate,
an exercise which is likely to take a further 18/24mths. We reduce our PT to
70p and downgrade to HOLD (Buy).

Leased pubs – The proportion of the leased pub estate on substantive agreements
has increased mildly to 84%, it was last reported at c.82%. Licensee support is still
running at c.£2m per month , which seems unlikely to change for the remainder of
FY2010. Profit pressures remain due to the lower drink margin and rental income
declines and as a result LfL profits continued on a similar downward trend to H1
2010, which was reported at that stage at -11%.

Managed pubs – LfL sales growth for the 44wk period was -2.7% (H1 -3.4%, 16wk -
1.6%), demonstrating the degree of variability with sales trends. Operating margins
were slightly up from the H1 2010 level, to the extent that it is now in line with last
year. However, given the magnitude of the margin erosion experienced over the last
three years a more dramatic improvement may have been argued as possible
(although not factored into our forecasts).

Disposal proceeds on track – Having previously disclosed a target proceeds from
disposals of £300m for FY2010, management reiterated this level. However, given
the general sentiment of caution running through the IMS today, the £300m level
may prove a touch light in our opinion.

Price target and recommendation cut – Our primary reason behind cutting our price
target now centres on little signs of a meaningful turnaround in trading trends. The
consumer pressure remains evident from this statement and other sector operators
appear better able to enhance operational performance. On a 10.6x CY2011
EV/EBITDA multiple, ahead of the sector 9.5x this seems unjustified without evidence
of improved trading patterns. The operational volatility suggests that near term the
price will continue to struggle and hence we cut to PT 70p and HOLD.

10.6 times 2011 EV/EBITDA!

cool

right

and here’s something bearish from Seymour Pierce

The tone of the statement is more positive than has been the case for Punch over the last 2 years. The IMS starts with the headline “on track to meet expectations, encouraging recent trading”. Looking in more detail at the statement we do not believe that the underlying long term trend has moved into the growth momentum that the business needs to provide sustainable growth in value for equity holders. In the second half of the statement there is detail given on debt structures and the need to provide special support in order to remain within debt service cover ratio covenants. This remains a key concern.

Without a return to underlying growth or at very least year on year profit stability equity value will continue to be under pressure. The NAV / share is the key bull argument. We are sceptical of this considering the size and nature of the debt supported by the company. The trigger (for realizing equity value on this basis) would be a substantial sale of assets at book value, e.g. the sale of the whole of the managed division. So far punch has sold relatively small parcels of pubs.
We retain our cautious stance on Punch taverns.

and for those interested in the covenants

and cash traps

the following comes from today’s statement

The equity fund raising undertaken in July last year has provided us with additional resources held at Group level. As at 26 June 2010, we had £170 million of free cash and £137 million of bonds (at nominal value) held at the Group level. These resources have been, and will be used to underpin the net asset value of the Group for our shareholders by protecting the debt structures against default. We have three debt finance structures: Punch A, Punch B and Spirit, all of which have a key DSCR (Debt Service Cover Ratio) financial covenant. Headroom against these covenants has been maintained by our actions in prepaying certain tranches of debt and by utilising cash held outside the debt structures to support the profit performance within them. The annualised cost of this support is anticipated to be c.£45 million evenly spread across the Punch A and Punch B structures.

While current trading continues to be in line with our expectations, given the challenging market environment there could be circumstances where forecast revenues or cash flows are lower than expected. While the level of headroom in our DSCR covenants can be maintained through the support mechanism outlined above, this might increase the level of annual cost. However, we remain confident that the action we have taken and continue to take will provide sufficient headroom to allow us to meet our financial covenants going forwards.

In retrospect

trying to securitisise pub revenues 30 years into the future

was just a bonkers idea

Retrospect or otherwise, there were plenty of people saying exactly that at the time.

12:04PM

Right

we have left the pub

and are looking at oil

Heritage Oil

to be precise

Heritage Oil PLC (HOIL:LSE): Last: 400.10, up 22.1 (+5.85%), High: 401.00, Low: 376.70, Volume: 346.43k

So, what’s the story?

well

they might finally get paid for those Ugandian assets

they sold to Tullow

RTRS-TULLOW OIL CFO EXPECTS TO RECEIVE UGANDAN GOVT APPROVAL FOR PURCHASE OF HERITAGE UGANDAN ASSETS LATER TODAY

Okay. And do we have any clarity on how much tax Heritage is going to have to pay?

none

all we know is

the Ugandian govt want more

than they are prepared to pay

Wanting $360m, if I remember right.

30% capital gains tax on the $1.5billion sale

Heritage representatives have met with appointed officials from the Ministry of Energy and Mineral Development, Ministry of Finance Planning and Economic Development (collectively the “Ministry”) and the URA on many occasions over recent weeks to resolve this remaining issue but no agreement has been reached. Heritage’s position, based on comprehensive advice from leading tax experts in Uganda, the United Kingdom and North America, is that the disposal of the Assets is not taxable in Uganda. Historically, none of the corporate or asset transactions in the oil sector in Uganda which have involved the sale or transfer of a licence have been taxed. Government’s current position is that the Consideration is subject to a tax of approximately US$360 million.

Even though Heritage is under no legal obligation to do so, it has also offered to deposit US$108 million with the URA on its receipt of the Consideration, which would be refunded to Heritage if it is ultimately determined that no tax is payable. Although the dispute will be settled in accordance with the procedures set out in the PSAs, this amount of US$108 million has been determined based on subsection 103(2) of the Income Tax Act (Uganda), which requires a taxpayer to deposit 30% of the disputed amount of tax with the URA pending final resolution of the dispute.

that was from a recent statement

anyway

I am sure both sides will come to an agreement

$360m works out at 72p a share, apparently.

So, a significant cloud.

and while in the oil sector

a bit of comment on the Tullow IMS

from

the sector watcher

hang on

notes had gone down

tried to search for something

can you help Bryce

Yeah, sure.

Citi says it’s in line.

Summary – Little within this morning’s trading update to materially change our
positive view on this stock. The Uganda transactions are expected to be formalized
imminently while a 2nd rig is now active in Uganda. Phase 1 at Jubilee remains on
track for 1st oil by Nov/Dec this year ahead of a busy exploration campaign across
the Equatorial Atlantic Transform Margin.

Uganda – Government approval for the acquisition of Heritage’s 50% interests in
Blocks 1/3A is expected imminently by the company paving the way for Tullow to
formalize CNOOC and Total as joint operators across the region. Tullow has
maintained guidance for local oil production from the Kasamene oil field by end-
11 with commercial exports unlikely much before 2014/15. Drilling is currently
underway at the Nsoga-5 and Ngiri-2 (Warthog) appraisal wells (15p risked, 38p
unrisked) with results expected imminently. Over the near-term we expect Tullow
to be drilling 2 expl./appr. wells a month with a 3rd rig expected in country by yearend.

Ghana – Phase 1 of the Jubilee development remains on track to deliver 1st oil in
Nov/Dec this year. The Kwame Nkrumah FPSO is now moored on the Jubilee
oilfield and production is expected to ramp-up to 120kbpd plateau within 6
months of 1st oil. Phase 1 is expected to cost $3.35bn – 6% ahead of original
forecasts but 4% lower than the $3.5bn we include in our estimates. The resource
upside at SE Jubilee now stands at 100-500mmbbl (P90-P10) with Tullow still
analyzing development options before offering updated P50 estimates. The Owo-1
exploration well testing the 1.4bn boe upside case at the Tweneboa complex will
be sidetracked with results expected in early August (31p risked, 102p unrisked).

Atlantic Transform Margin – By year-end, Tullow intends to have drilled 2-3
wildcat exploration wells in the Liberian basin targeting over a billion barrels of
gross unrisked resources. The company has also guided to wildcat drilling in
South America offshore Guyana and French Guiana in Q410 (combined 29p
risked, 292p unrisked).

thanks for that

12:12PM

wow

that’s gone quick

almost 12.15pm

readers

asking about the move in ICAP

ICAP PLC (IAP:LSE): Last: 409.10, up 16.1 (+4.10%), High: 411.10, Low: 396.10, Volume: 638.82k

any thoughts?

Um …. not much.

There’s a big note from Exane pushing the conventional exchanges.

But nothing I can see in Icap.

Exane also pushing RBS today

Ian Gordon’s a good analyst. Give us a look.

although Barclays is the main mover in the sector

Barclays PLC (BARC:LSE): Last: 274.10, up 14.9 (+5.75%), High: 276.65, Low: 261.25, Volume: 25.53m

oh the RBS note

one moment

Time to close short/underweight positions

On the day we published our report, Overcooked?, 26 April 2010, RBS shares
reached 58p after a strong run of outperformance, (1.2x tNAV on both historic and
forward), trading at a curious premium to both Barclays and Lloyds notwithstanding its
83.2% UK Government ownership and, in our view, a wider range of political,
regulatory, macro and structural challenges. The fact that RBS has suffered more
than most during the sector meltdown – down 33% in absolute terms – is
understandable, but not only has the share price “corrected”, we now see signs of
incremental stability and progress that make sustained underperformance less likely.
Upgrades to our earnings forecasts are blurred by timing issues, and we make no
change to our 50p target price, but we do upgrade our recommendation to Neutral.

(why am I banned? – pls email me. we are having some system errors. or refresh and try again)

As RBS candidly acknowledged in a presentation last week, a successful execution of
its complex non-core disposal programme is critical to the reshaping of the group from
a risk, funding and capital perspective. Visible progress has been made – notably a
series of country specific business disposals – Argentina, Pakistan, UAE, Kazakhstan
and India – but the heavy lifting, perhaps most significantly in the form of a
GBP49.5bn commercial real estate portfolio, still remains, and is hostage to macro
developments. An entry level of 0.8x 2009 tNAV helps compensate for the risk profile.

Glass ceiling” debate irrelevant at current entry level
With 30% upside to the UK Government’s average in-price of 50.53p, the debate as to
whether this ultimately creates a glass ceiling for the stock is (at least temporarily)
redundant. The UK Government is currently running a mark-to-market loss of
GBP10.5bn on its stake in RBS and has de facto ruled out any attempted sale before
Q4 2011. RBS should now be able to participate in any broader sector recovery.

12:16PM

So, are we done?

(neil.hume@ft.com)

hmmm

I think so

any small caps to look at?

What of Spice?

(DJP try again. It should work)

ah yes

another bid approach

Cinven

62-65p.

And the board haven’t dropped their trousers yet.

I get the impression

they won’t

(DJP – working again)

(O&G, Regal RNS was on Friday I think.)

Bit of comment from Liberum on this.

FY 10 results broadly in-line. Cash conversion strong. Facilities disposal expected shortly. Increased bid approach from Cinven (62-65p from 56p previously). 9.0x PE relatively attractive but no longer stand out cheap. BUY.

FY 10 results in-line – Continuing revenue came in at £310.7m (Liberum Capital £298.2m), EBIT £36.1m (£36.5m), and EPS 6.1p. All numbers are for continuing operations (which exclude Facilities [not yet disposed of] as well as Telecoms and Gas) and pre-exceptionals.
Good cash conversion – EBITA cash conversion was 91%, which drove net debt of £91m (post telecoms disposal). Management target net debt / EBITDA of less than 2.0x.

£9.8m exceptionals – This compares to our forecast of £9m. These relate to restructuring & redundancy costs (£3.7m), property & reorganisation costs (£3.6m) and ‘non-recurring costs connected to customer and supplier related matters’ of £2.5m. £2.1m of the exceptionals relate to Gas & Facilities, with the £7.7m balance relating to continuing operations. Of the £67m impairment, £50m relates to Gas and £17m relates to Facilities.

Yorkshire Water extension – Spice have extended their Yorkshire Water contract, worth c. £20m p.a., by one year. The scope has been increased but, in line with expectations, margins are slightly lower. There is no news on the EDF contract. However, we believe negotiations on this are progressing well.

Restructuring on track – Telecoms and Gas have both been sold. The focus has now moved to selling Facilities. We expect a disposal to be announced shortly with an expected valuation range of £5-10m.

62-65p bid approach – Cinven have improved their original 26th March offer of 56p to 62-65p. There are a number of conditions. Management have once again rejected this without putting it to shareholders.

Continuing operations trading in-line – Our continuing EBITA estimates should be conservative. EPS may fall c. 3% as Facilities is treated as discontinued.

(daddy – will repost later)

ta for that

some of the ROTER

were asking about property stocks this morning

and I think

we have something from the very bearish Mike Prew at Noumra

from yesterday

In a nut shell:

NAVs and TPs cut by 5%.
The ‘crest’ of the property value wave appears to have occurred earlier than we first anticipated January.
We still think the overall fall in values will be circa 4%
REIT discount management via share buybacks needs to be debated.
16% current discounts appear to be largely a function of high and excessive balance sheet leveraging
Why are so few REIT board buying shares in their own companies with their own cash of their NAVs are reliable and sustainable?
SEGRO is expected to make interim little progress in filling up its empties
Liberty reignites the specialisation debate but we calculate destroys £400m of value in its own demerger due to technical factors
Hammerson extracts £165m of equity from the portfolio in four savvy transactions

The c. 4% ‘relapse’ in commercial real estate values that we factored into our
forecasts six months ago (Credit cold turkey;13 January) appears increasingly
likely, in our view. This, we think, should normally be absorbed by the sector’s
16% average discount to NAV were it not for excessive leveraging and low cash
flow yields. Otherwise REITs should be buying back stock, but they are
demonstrably not, and nor are the boards investing their own cash in their own
businesses (with the recent exceptions of Francis Salway, CEO of Land Securities
and Stephen Smith, CIO of British Land) no matter how well positioned they
purport their businesses to be. If REITs are not prepared to lead, then why should
funds follow, leaving the sector ‘under-owned’

as REO

wow

big fall

So. Mike Prew being bearish. Well, there you are.

Real Estate Opportunities PLC (REO:LSE): Last: 3.00, down 4.5 (-60.00%), High: 6.50, Low: 3.00, Volume: 1.44m

This is the current owner of the Battersea White Elephant, right?

yep

they have to find an equity investor for the Power Station

and then list it

in return for new facilities

lending facilities

Right

asking market makers

for an explanation for the fall

perhaps Webvan

is sucking all the liquidity out of the IPO market

Not that we’re comparing Webvan to Battersea Derelict Shambles, or course.

never

right

I think we are done

on Bellzone

suggested to me that the elections in Guinea might be a factor

With Bellzone specifically, the Guinean Presidential election has provided a bit of wait and see opportunity for potential investors. We had the results of the first round on Sunday and it will be a straight run-off between former Prime Minister Cellou Dalein Diallo and veteran opposition leader Alpha Conde. Third placed Sidya Toure and fourth placed Lansana Kouyate claim election fraud. Unsurprising you may think in an African country undergoing its first democratic elections, however these candidates are not claiming any threats or bullying by armed forces or party activists, but rather the International Organisation of Francophonie and a computer error in calculating results. I love these Guineans, when in doubt blame the French. Whatever, this is more like a “hanging chad” complaint rather than anything more sinister. This complaint will be dealt with by the Supreme Court within the week, the second round will then be run and various coalitions will need to be formed. We are not expecting the new civilian government to be in office for several weeks.

that’s from a sector watcher

(Fitz: well remembered. Another shrewd piece of business from Bank of Ireland.)

right

I think we are done for today

apologies for the IT shambles at the start

market update

one only stock down

Pearson (PSON:LSE): Last: 885.00, down 2.5 (-0.28%), High: 895.50, Low: 884.50, Volume: 1.18m

FTSE 100 up 103 points at 4,927

the falling knife is

BP Plc (BP.:LSE): Last: 341.55, up 8.25 (+2.48%), High: 349.45, Low: 338.30, Volume: 24.37m

the euro trades at $1.257

and

cable is $1.5177

Muppet Alphafund I’s up 2.94% on the day.

Down 3.89% since inception.

Supergroup’s been our star performer.

I actually don’t dislike Supergroup that much

(Nick Bubb pushing that one this morning, incidentally.)

I think we should cut it

anyway

I do. Don’t like the cut of their jib.

I want the truck backed up to that fancy warehouse in Hatfield

Muppet 1 Alpha

is putting in for a huge allocationof Webvan 2.0

Well, it’ll require a fee bump. I’ll need to buy £300 of virtual groceries to subscribe.

do it

that will keep a family of four in food for a couple of days

Certainly. Consider it dealt at the IPO price. Assuming there is an IPO price. Which I’m not assuming.

let’s borrow some cash to buy

serious leverage required

this will fly

massive stag opportunity

YES! Buying dot-com floats with credit. What could possibly go wrong?

and on that note

we are done

oh hang on

REO

big line of stock being hawked round the market

11.5m shares

told KBC took it on

at a knock down price

fears that the equity is worthless

Ah. Distressed seller and no liquidity.

Grim.

So, same time tomorrow for another tech meltdown.

Until then, good afternoon all.

cya

This entry was posted by support on Tuesday, July 6th, 2010 at 11:03 and is filed under Uncategorized. Edit this entry.

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Markets Live transcript 6 Jul 2010

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