Markets Live chat transcript for the chat ending at 11:29 on 20 Jul 2010. Participants in this chat were: Neil Hume, FT Bryce Elder
NH
hola
NH
its 11.03am
NH
and time for…
NH
MARKETS LIVE
NH
FT Alpha’s daily trawl through the markets
NH
Bryce is here
BE
Hello!
NH
and welcome everyone
NH
Baz if you are having problems with the Cut
NH
there is a helpdesk email
NH
which I will find
NH
and Soundbuy
NH
RAW in short supply at the moment
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.
NH
I am afraid
BE
It is. Low activity + low churn = low rumourtrage.
BE
Also, the FT email remains broken.
BE
Week three.
BE
Which isn’t helpful.
BE
So anyway ….
BE
Should we take a quick whip around the main scoreboards?
NH
OK
11:07AM
NH
Right
NH
we have suddenly turned weaker
NH
not really sure why
NH
but the FTSE 100 is currently down 31 points at 5,116
NH
results from the mighty Goldman Sachs coming up next
BE
There are lots of reasons being offered for the retreat, none overly convincing.
BE
Greek auction was a bit of a squib.
BE
GBK’s taking a kicking on the UK public finance data
BE
So anyway, back to today’s main event
BE
Goldman
BE
What are we expecting?
NH
well, post the results from JPM, Citi, BofA
NH
forecasts have come rattling back
NH
which probably means the Squid with smash them
NH
KBW reckons the Squid will post eps of £2.10 a share
NH
while Morgan Stanley
NH
which also reports today
NH
they are looking for 45 cents of earnings
NH
I think this all kicks off in a couple of hours
NH
so we probably won’t be on air
BE
The whisper number fpr Squid being mailed around at the moment is $2.04
BE
Versus consensus of $1.99
NH
I see
NH
consensus has come right back then
NH
a couple of weeks ago
NH
the street was looking for around $3.20
BE
Hm. Mind meld.
NH
it could be
NH
although the results so far from all the IB’s have not been good
BE
Terrible, in fact. Barclays profit warning, for instance.
BE
However
BE
Let’s cut to another profit warning shall we?
BE
The terminal underperformer that is C&W.
NH
why not
11:13AM
NH
(Huertasm – we have mouths to feed)
NH
OK
NH
profit warning
NH
from the misleadingly named Cable & Wireless Worldwide
NH
stock has tanked
Cable & Wireless Worldwide PLC (CW.:LSE): Last: 69.00, down 14.55 (-17.41%), High: 75.05, Low: 67.70, Volume: 29.61m
NH
and the company are blaming the chancellor
NH
and his emergency budget
BE
Right.
BE
Public sector austerity wasn’t anticipated when they spun this thing out earlier in the year I guess.
NH
well
NH
not on quite this scale
NH
around 12 per cent of group revenue
NH
comes from the public sector
NH
and its 20% that is not on contracts
NH
that has been cut post the Budget
NH
and it really hurting
NH
but what’s bad here is that CWW
NH
will now have to rebuild the trust of investors
NH
just as they looked like getting their game together post demerger
NH
it’s back to the same error prone C&W
BE
Indeed.
BE
And let’s remind ourselves how much management is paying itself to fall into all these beartraps
NH
crikey
BE
John Pluthero, for instance
NH
I have lost count over the years
NH
management have taken huge lumps of cash
NH
in spite of the fact that the business always issues profits warnings
NH
and never generatates cash
NH
furthermore, what has the demerger actually achieved?
BE
Pluthero’s took £8m under the senior management’s “golden handcuffs” agreement
NH
nice
BE
And is in line for another £3m if he can get the share price up
BE
So, at least that’s not going to be paid.
NH
actually
NH
what is the point of CWW
BE
Er …………
BE
The Global bit is handy if you live in Manilla.
BE
As for Worldwide …….. pass.
NH
(Huertasm – we have to pay our way. simple as that. It is a good way in but the rest of the site remains free. We face commerical pressure too).
NH
well
NH
they supply our internet connection
NH
and data warehousing
BE
Hm. The one where hoodies steal the servers to sell down JD Wetherspoons every monday?
NH
that’s the one
BE
I can’t imagine why that business model might be struggling.
NH
BE
So anyway, there’s a bit of sellside reaction
BE
All of it quite ugly
NH
before we come to that
NH
worth noting
NH
that the CWW warning has sparked a selloff
NH
of anything that does public sector work
NH
so that means the obvious outsourcers
NH
like
Serco Group PLC (SRP:LSE): Last: 546.00, down 24 (-4.21%), High: 573.50, Low: 546.00, Volume: 925.87k
NH
and
Capita Group PLC (CPI:LSE): Last: 728.50, down 12 (-1.62%), High: 744.00, Low: 726.50, Volume: 1.48m
NH
but less onvious names
NH
such as
NH
bloody BT auto ticker does not work
NH
so will go manual
NH
shares down 5.6p at 133.4p
NH
also
Logica Plc (LOG:LSE): Last: 102.20, down 6.5 (-5.98%), High: 109.20, Low: 101.50, Volume: 5.62m
NH
they are getting batterered
Babcock International Group PLC (BAB:LSE): Last: 595.00, down 21 (-3.41%), High: 620.50, Low: 593.50, Volume: 1.17m
BE
IBM’s results overnight are not exactly helpful to Logica, but we’ll come to that later I’m sure
NH
we will
NH
because it has a read across to Autonomy too
NH
and they report this week
NH
right
NH
let’s see some of this ugly sell side reaction pls
BE
Certainly. Here’s Deutsche
BE
Who are sticking with a “buy.” But ………..
BE
Pick up shares post weakness on UK Govt spending delays
CWW investors will have received a knock to confidence on news of exposure to
UK Govt discretionary spending but it appears that the remainder of the business
is performing. Public sector remains an opportunity for CWW but clearly is further
out. Share price weakness will provide an attractive entry point to believers in a
wider economic/corporate IT spend recovery. We thus maintain our Buy rating.
CWW investors will have received a knock to confidence on news of exposure to
UK Govt discretionary spending but it appears that the remainder of the business
is performing. Public sector remains an opportunity for CWW but clearly is further
out. Share price weakness will provide an attractive entry point to believers in a
wider economic/corporate IT spend recovery. We thus maintain our Buy rating.
BE
Q1 IMS disappointment
CWWs Q1 IMS reveals that following the new UK Government’s emergency
budget in late June, non-contracted UK public sector spending has slowed
significantly. Whilst other lines of business performed broadly in line with plan in
Q1 and despite an acceleration in cost initiatives, the company now expects FY
EBITDA at the lower end of the range of consensus expectations (c£450-455m).
CWWs Q1 IMS reveals that following the new UK Government’s emergency
budget in late June, non-contracted UK public sector spending has slowed
significantly. Whilst other lines of business performed broadly in line with plan in
Q1 and despite an acceleration in cost initiatives, the company now expects FY
EBITDA at the lower end of the range of consensus expectations (c£450-455m).
BE
Public sector discretionary spending cut
CWW derived £285m or 12.5% of revenues from UK public sector clients in
2009/10, which in turn contributed £168m or 15.6% to group gross margin. Whilst
much of the business is contracted a significant c.20% portion is shorter-term,
non-contracted project work which since the budget, has effectively dried up.
Under a discretionary spending moratorium of at least 6 months we assume £50m
lower public sector revenues, leading to £32m lower gross margins in 2010/11.
CWW derived £285m or 12.5% of revenues from UK public sector clients in
2009/10, which in turn contributed £168m or 15.6% to group gross margin. Whilst
much of the business is contracted a significant c.20% portion is shorter-term,
non-contracted project work which since the budget, has effectively dried up.
Under a discretionary spending moratorium of at least 6 months we assume £50m
lower public sector revenues, leading to £32m lower gross margins in 2010/11.
BE
Other business lines performed in line, public sector remains an opportunity
Other CWW businesses performed broadly in line with plan in Q1, with Global
slightly ahead, Enterprise and UK carrier in line and Mid-Market slightly behind,
with procurement taking a little longer than expected. The current Govt. spending
moratorium relates to the existing estate of UK public sector business not to new
contracts. CWW should be in a good position to gain a greater share of such
business contracts (achieving efficiency gains for govt.) when they are awarded.
Other CWW businesses performed broadly in line with plan in Q1, with Global
slightly ahead, Enterprise and UK carrier in line and Mid-Market slightly behind,
with procurement taking a little longer than expected. The current Govt. spending
moratorium relates to the existing estate of UK public sector business not to new
contracts. CWW should be in a good position to gain a greater share of such
business contracts (achieving efficiency gains for govt.) when they are awarded.
BE
Estimates and TP scaled back
We cut our expects for FY and forward EBITDA by 6.5% (£32m) and 3.3% (£18m)
respectively which translates into a 19.1% and 7.2% reduction in OpFCF. We cut
our TP by 13p to 120p (DCF-based SOTP methodology), and maintain our Buy
recommendation. CWW’s share price will likely rapidly reflect the lower near-term
prospects, but the company should continue to benefit from broader economic
recovery and expansion overseas. The opportunity to grow public sector profits is
delayed not cancelled
We cut our expects for FY and forward EBITDA by 6.5% (£32m) and 3.3% (£18m)
respectively which translates into a 19.1% and 7.2% reduction in OpFCF. We cut
our TP by 13p to 120p (DCF-based SOTP methodology), and maintain our Buy
recommendation. CWW’s share price will likely rapidly reflect the lower near-term
prospects, but the company should continue to benefit from broader economic
recovery and expansion overseas. The opportunity to grow public sector profits is
delayed not cancelled
BE
And here’s Credit Suisse
BE
CWW has issued its IMS one day early effectively cutting its EBITDA guidance and FCF guidance to reflect
non-contracted spending which has “slowed very significantly.” As a result of this the company is
accelerating its cost cutting efforts and now expects operating expenditure to reduce year on year (previous
guidance to be up modestly).
Nonetheless, the company now expects EBITDA for the full year to be towards the bottom end of the
consensus range which is currently £452-484m. The company had previously said that it was comfortable
with consensus EBITDA average of £473m. At the low end, this would imply a 4% downgrade to average
consensus EBITDA.
The company expects op FCF to reduce by a similar amount. This could see average consensus numbers
move from £152m to c£130m a 14% downgrade to expectations.
non-contracted spending which has “slowed very significantly.” As a result of this the company is
accelerating its cost cutting efforts and now expects operating expenditure to reduce year on year (previous
guidance to be up modestly).
Nonetheless, the company now expects EBITDA for the full year to be towards the bottom end of the
consensus range which is currently £452-484m. The company had previously said that it was comfortable
with consensus EBITDA average of £473m. At the low end, this would imply a 4% downgrade to average
consensus EBITDA.
The company expects op FCF to reduce by a similar amount. This could see average consensus numbers
move from £152m to c£130m a 14% downgrade to expectations.
BE
UK public sector accounts for 12% of revenue and 16% of gross profit.
CS Europe comment. We had attempted to capture cuts to government spending within our own forecasts
but have obviously under-estimated the impact. Whilst CWW should be well positioned to increase its
market share of UK government spending, this becomes a lot harder when the government has put new
spending on hold. The loss in EBITDA would represent around 12% of our forecast gross profit from UK
government for the current year. The risk now is that this could still be worse if government cuts continue
and cannot be offset sufficiently by cost cutting.
Read-across: Negative for BT which generates some 8% of group revenues and c4% of group EBITDA
from the UK government on our estimates.
CS Europe comment. We had attempted to capture cuts to government spending within our own forecasts
but have obviously under-estimated the impact. Whilst CWW should be well positioned to increase its
market share of UK government spending, this becomes a lot harder when the government has put new
spending on hold. The loss in EBITDA would represent around 12% of our forecast gross profit from UK
government for the current year. The risk now is that this could still be worse if government cuts continue
and cannot be offset sufficiently by cost cutting.
Read-across: Negative for BT which generates some 8% of group revenues and c4% of group EBITDA
from the UK government on our estimates.
NH
(Sirius you are not behaving. yellow card)
NH
thanks for that
NH
just going back to BT and Logica
NH
it appears that the public sector
NH
accounts for around 12% of revenue at each company
NH
which goes some way to explaining today’s fall
BE
Indeed it does.
11:27AM
BE
Right – you mentioned Autonomy
NH
yes
NH
shares weaker
Autonomy Corp Plc (AU.:LSE): Last: 1,820, down 46 (-2.47%), High: 1,874, Low: 1,819, Volume: 260.65k
NH
due to the IBM numbers overnight
NH
which missed forecasts I believe
BE
And Autonomy reports on 22 July
BE
Without the traditional pre-results “we’re going to beat!” trading statement
NH
hmmm
NH
analysts are slightly worried
NH
that Autonomy is going to follow IBM
NH
and its share price will take a battering
NH
have a look at this
NH
from Panmure Gordon
NH
I’ve Been Moved – to Hold
We move from Buy to Hold ahead of Q2 results. We are conscious that IBM
shares took a pummelling in the wake of its Q2 results last night falling by
c4% (IBM’s revenue was a bit light/profit a bit ahead/guided up for FY), and
we can see a similar reaction to Autonomy’s results. Autonomy is set to report
an ‘in line’ quarter, and while it will talk through its (many) drivers for
earnings upgrades shares, following the usual pattern, shares are likely to be
hit on the day. This should give investors an opportunity to buy on weakness.
Certainly, Autonomy shares are expensive on earnings (P/E of 22.9x) and
undervalued on growth (PEG <0.6x) but continue to deliver on their promise
– they outperformed the FTSE All Share by 16.9% in the last quarter. There is
no change to our long term view, we believe this is a good company and a
good share. Hold.
We move from Buy to Hold ahead of Q2 results. We are conscious that IBM
shares took a pummelling in the wake of its Q2 results last night falling by
c4% (IBM’s revenue was a bit light/profit a bit ahead/guided up for FY), and
we can see a similar reaction to Autonomy’s results. Autonomy is set to report
an ‘in line’ quarter, and while it will talk through its (many) drivers for
earnings upgrades shares, following the usual pattern, shares are likely to be
hit on the day. This should give investors an opportunity to buy on weakness.
Certainly, Autonomy shares are expensive on earnings (P/E of 22.9x) and
undervalued on growth (PEG <0.6x) but continue to deliver on their promise
– they outperformed the FTSE All Share by 16.9% in the last quarter. There is
no change to our long term view, we believe this is a good company and a
good share. Hold.
NH
IBM Q2 results– a quick look. IBM reported profit of US$3.39bn, US$2.61/share, up
from US$3.1bn,US$2.32/share, yoy. Revenue up 2% to US$23.72bn. The results
compared to consensus (Reuters) of profit of US$2.58/share on revenue of US$24.17bn.
from US$3.1bn,US$2.32/share, yoy. Revenue up 2% to US$23.72bn. The results
compared to consensus (Reuters) of profit of US$2.58/share on revenue of US$24.17bn.
Revenue in the Americas, IBM’s biggest market, increased 3%, fell in the Europe, Middle East and Africa region by 6%, rose by 9% in Asia. Europe, which was described as “wrestling with economic challenges” in Q1 had a “pretty good performance” in Q2 and should be “on an improving trend” as we go into Q3. Interesting to note is that UK sales were up 11%. In the wake of the results IBM’s share price was down 4% to $124.55 in afterhours trading as revenue growth wasn’t as strong as expected.
NH
and here’s some from Canaccord
NH
which brings up the usual accounting concerns
NH
We believe expectations for cash generation, revenue growth and earnings upgrades have already been built in, leaving limited room for share price upside.
We believe expectations for cash generation, revenue growth and earnings upgrades have already been built in, leaving limited room for share price upside.
NH
Cash conversion: Based on discussions at the Q1 results, cash conversion should rebound to 98% in Q2. In Q1, Autonomy explained that cash conversion was low (87%) but that it would improve in Q2. Autonomy explained that government debtors temporarily pushed up days receivable to 93 days in Q1, but expected this to fall to 85-90 days in Q2.
NH
Capex: Another Q2 cash flow figure we plan to watch closely is capex, which has remained stubbornly high (Q1: US$17.6 million) since Q3/09, despite management indicating at the time that the figure should normalise. Note that the market may tolerate the higher figure as Autonomy has tempered expectations on investment by stating it may invest significantly if it sees an opportunity for further market share gains.
NH
Sustainable sales growth: Autonomy indicated at the Q1 results that it had purchased US$10 million of inventory for sales to be recognised in Q2. This sale is unusual and we expect it to support 13% sales growth in Q2, but we question how often such atypical sales are likely to recur.
NH
Expected earnings upgrades: It appears the market is already anticipating a significant earnings upgrade following an imminent acquisition. While we believe it will be straightforward for Autonomy to achieve a significantly earnings-accretive acquisition with US$911 million of cash on its balance sheet, we believe the market is anticipating this, which will limit the potential share price upside.
NH
Valuation
Autonomy is trading at a 2011E P/E of 22 times, has risen 24% year to date and is trading within 4% of its nine-year high. Our Q2 revenue (US$220.0 million), adjusted operating profit (US$105.6 million) and adjusted EPS (US$0.286) forecasts are slightly below consensus estimates. We reiterate our SELL rating and DCF-based target price of 1,300p.
Autonomy is trading at a 2011E P/E of 22 times, has risen 24% year to date and is trading within 4% of its nine-year high. Our Q2 revenue (US$220.0 million), adjusted operating profit (US$105.6 million) and adjusted EPS (US$0.286) forecasts are slightly below consensus estimates. We reiterate our SELL rating and DCF-based target price of 1,300p.
BE
Hm. Hadn’t realised Autonomy’s PE had compressed to the low 20s.
NH
(that’s better Sirius)
BE
Suggests either estimates are too high or people are getting cynical about the growth story.
NH
heaven forbid
BE
We’ll see at the results I guess.
NH
let’s hope the new tottenham hotspur shirt sponsor
NH
doesn’t unleash a profits warning ahead of the new season
NH
actually
NH
has anyone got an image of the new shirt
NH
has Lynch tried one on?
NH
will he wear it to the results presentation
BE
The last time Autonomy had a profit warning, Lynch sold it as a lead indicator for the technology sector.
BE
Brazen.
NH
he’s good
NH
you have to give him that
11:32AM
BE
So. Where now?
NH
Can we just go Cable & Wireless for a moment
BE
Certainly.
NH
because this made me laugh
NH
Hoare Govett wins landmark blue-chip client
NH
that’s from today’s FT
NH
and guess who the client is?
NH
oh damn
NH
I have given it away
BE
Cables, then.
NH
Hoare Govett, the corporate broking arm of Royal Bank of Scotland, has won a blue-chip corporate broking mandate for the first time since it was bought by RBS from ABN Amro three years ago.
According to people close to the process, Hoare Govett has won a co-broker mandate at Cable & Wireless Worldwide, the new non-UK business spun out from Cable & Wireless Communications. The other co-broker is Deutsche Bank.
“This is a significant event for RBS, being the first FTSE 100 new client win since RBS acquired ABN Amro/Hoare Govett. It demonstrates the major investment made in the bank’s equities franchise and the growing momentum of the business,” an internal memo seen by the Financial Times said.
NH
Oh dear
NH
day 1 in the job
NH
annd your first task is
NH
to explain a profits warning
NH
hmmm
NH
and by the looks of it
NH
they started coverage of CWW
NH
with a buy yesterday
NH
bad timing!
NH
have a look at this
NH
We believe the post-demerger CWW should benefit from a renewed sense of
focus, and we expect an upbeat IMS on 21 July. For us, the equity story is clear:
significant cash flow growth driven by strong operational performance from a
management team with a proven track record of delivering on targets.
focus, and we expect an upbeat IMS on 21 July. For us, the equity story is clear:
significant cash flow growth driven by strong operational performance from a
management team with a proven track record of delivering on targets.
NH
IMS likely to be brief, but should be upbeat
NH
Historically, CWW has provided a paragraph or two of commentary on the progress of
trading overall and an indication of demand for its strategic product set. Post demerger, the
company provided a further split of the business by market segment, and we wonder whether
there will be commentary regarding this split. We would be surprised if the IMS were not
upbeat, given the indication at the FY10 results (end of May) that there was some initial
evidence of companies beginning to make investment decisions that had previously been
delayed and that voice volumes had begun to bottom out. Clearly, the change in government
could increase uncertainty about CWWs public sector business, but this remains a segment
where the company has considerable scope to expand its market share.
trading overall and an indication of demand for its strategic product set. Post demerger, the
company provided a further split of the business by market segment, and we wonder whether
there will be commentary regarding this split. We would be surprised if the IMS were not
upbeat, given the indication at the FY10 results (end of May) that there was some initial
evidence of companies beginning to make investment decisions that had previously been
delayed and that voice volumes had begun to bottom out. Clearly, the change in government
could increase uncertainty about CWWs public sector business, but this remains a segment
where the company has considerable scope to expand its market share.
NH
so presumably
NH
there are some very suprised people at RBS today
BE
“IMS likely to be brief, but should be upbeat”
BE
Oh dear.
BE
That is unfortunate.
NH
we should stop this
NH
it is cruel
NH
if amusing
BE
Can happen to the best of them.
NH
actually this story reminds me of another Hoarre Govett classic
BE
What’s that?
NH
in the last 1980′s Blue Circle bid for something called
NH
Bermid Qualcast
NH
it was a tight takeover
NH
but Blue Circle and HG thought they were over the liine
NH
with 50.5% acceptances
NH
so they put a tombstone in the paper
NH
and the next day
NH
they found out that the votes had been miscounted
NH
and they hadn’t actually done the deal
BE
Oops.
BE
(BNY Mellon beat. 60c versus 55c consensus.)
NH
right
NH
let’s move on
NH
this is all cruel
NH
and let’s face it
NH
could happen to anyone
NH
including us
NH
although I do think we need to add a little CWW to Muppett Alpha 1
NH
it has everything we are looking for
BE
Absolutely.
NH
overpaid management
NH
lack of cash
NH
not sure what it does
NH
patchy track record
BE
It certainly matches our investment criteria. Dealt at 68.75p.
NH
excellent
NH
another quality addition
11:41AM
NH
Where now?
NH
shall we have a look at the GBK?
BE
Yes. I was trying to work out why the rabble was talking about HD telly, but can’t see anything.
BE
So let’s do the UK Kroner.
NH
bit weaker following the public finance data
NH
cable is $1.5177
NH
while a euro thingy buys 0.8492
NH
and the public sector cash requirement does look pretty alarming
NH
almost £21bn in June
NH
economists thought it was going to fall to £15bn
BE
That is grim.
BE
Headline budget shortfall of £14.5bn, against a consensus of £13bn.
NH
sorry the first figure quoted was the public sector figures
NH
anyway
NH
here is Howard Archer to explain what it all means
NH
The public finances were worse than expected in June, providing a blunt reminder to Chancellor George Osborne of the major task that he faces in returning the public finances to health. Indeed, the Public Sector Net Borrowing Requirement was an eye wateringly high £14.5 billion in June, although at least this was marginally down on the £14.7 billion shortfall a year earlier.
Indeed, this was the fourth successive month that the PSNBR was down year-on-year, although the improvement has been modest. Consequently, the PSNBR edged down to £40.3 billion in the first three months of fiscal 2010/11 from £40.9 billion in the first three months of fiscal 2009/10.
NH
However, the PSNBR would have been higher year-on-year in June but for public investment moderating to £1.9 billion from £2.8 billion a year earlier. The deficit on the current budget actually widened to £12,6 billion from £11.9 billion a year earlier.
NH
Despite the disappointing June data, Chancellor George Osborne still looks able to meet his target PSNBR of £149 billion in 2010/11. However, much will depend on how well growth holds up over the second half of this year after likely improvement in the second quarter. Meanwhile, the disappointing June data is likely reinforce the government’s determination not to ease up on its austerity efforts – especially as Standard & Poor’s have maintained their negative outlook on the UK’s AAA rating.
NH
more cuts coming then
NH
not good news for UK PLC
BE
We also had the Bank of England’s “Trends in Lending” survey
NH
and big banks ripping the face off small businesses?
BE
Obviously. Here’s David Page of Investec with the details.
BE
Though he’s most interested in the Dinner Party element.
BE
We focus on the preliminary estimates of
mortgage approvals gained from the major UK lenders covered by the survey.
These provided further disappointment for the market with approvals falling to 48k
from 51k, against hopes for a modest rise to 52k. Mortgage activity has been
subdued ever since the turn of the year. However, this recent easing corroborates
a weakening suggested by the RICS housing survey, which pointed to a further
slowing in activity. This is likely to be further confirmed in more complete
estimates of initial mortgage activity released later in the month. We suspect that
this continues to reflect the decline in consumer confidence associated with the
fiscal tightening announced in the coalition government’s Emergency Budget and
this is likely to provide an ongoing hangover to the market.
mortgage approvals gained from the major UK lenders covered by the survey.
These provided further disappointment for the market with approvals falling to 48k
from 51k, against hopes for a modest rise to 52k. Mortgage activity has been
subdued ever since the turn of the year. However, this recent easing corroborates
a weakening suggested by the RICS housing survey, which pointed to a further
slowing in activity. This is likely to be further confirmed in more complete
estimates of initial mortgage activity released later in the month. We suspect that
this continues to reflect the decline in consumer confidence associated with the
fiscal tightening announced in the coalition government’s Emergency Budget and
this is likely to provide an ongoing hangover to the market.
NH
hmmm
NH
I was looking at the housebuilders with a colleague yesterday
NH
and have they been awful performers
NH
truly shocking
NH
and even Rightmove got hit yesterday
Rightmove Plc (RMV:LSE): Last: 608.00, up 6.5 (+1.08%), High: 611.00, Low: 599.00, Volume: 134.94k
NH
and that thing is usually bullet proof
BE
Something’s definitely going askew with that sector at the moment.
NH
I guess the awful performance of the US peers does not help
NH
nor do double dip fears
NH
and then we haeve the planning stuff
BE
(CFA boy: Correct me if I’m wrong, but that Virgin offer doesn’t look new to me, even if the campaign advertising it does.)
NH
that’s a falling knife I wouldn’t want to catch
BE
Speaking of …………..
11:50AM
BE
So where’s the knife trading this morning?
NH
er
NH
don’t think it is doing much
BP Plc (BP.:LSE): Last: 384.60, down 3.25 (-0.84%), High: 399.05, Low: 384.10, Volume: 15.73m
BE
Oh well.
BE
Does give an excuse to put up this.
NH
No doubt the PM will be putting BP’s case to Obama today
NH
hang on
NH
what’s that?
BE
Just the worst kind of tabloid lynching of Hayward. Old, and hugely unfair, but still quite funny.
NH
they seem to implying that
NH
actually we had better not go there
NH
cheap trick by the looks of things
BE
Very much so.
NH
any sell side thoughts on BP today?
BE
Digging through the morning notes.
BE
Nah – nothing interesting.
BE
Not half as interesting as Hayward ordering popcorn shrimp while standing behind a lady WHO’S NOT HIS WIFE.
NH
yes
NH
that’s quite enough of that thank you
11:54AM
NH
(Yes Lorcan that story with photos was broken EXCLUSIVELY ON ML)
NH
right
NH
what’s Inmarsat doing?
BE
Down, by a bit.
BE
There’s a cautious note from MOST knocking around, though it doesn’t add much to the scene.
NH
hmm
BE
Why do you ask?
NH
because the Harbinger takeover could be drawing closer
BE
Really? What makes you say that?
NH
Harbinger Capital Partners, the New York-based hedge fund founded by Philip Falcone, has awarded a $7bn contract to Nokia Siemens Networks to build a high-speed mobile phone network in the US.
The new network, to be called LightSquared, will launch in the second half of next year and is aiming to provide near-ubiquitous coverage.
The infrastructure will combine an orthodox mobile network with a satellite-based phone and data service.
NH
that makes me say it
NH
Falcone’s dream of a coast to coast US network
NH
is becoming a reality
NH
and who supplies the satellite bit?
NH
Inmarsat of course
BE
Well, yes.
BE
That’s one way to read it.
NH
Mr Falcone told the Financial Times that possible customers included pay-as-you-go mobile operators such as Leap Wireless and Metro PCS, as well as T-Mobile USA, Deutsche Telekom’s US subsidiary.
Mr Falcone said LightSquared would be well-positioned to capitalise on telecoms trends. “Demand for wireless broadband is growing at a rapid pace and there is an increasing need for additional network capacity and reach,” he added.
However, LightSquared is moving into a highly competitive market, with mobile operators rushing to build 4G networks that can support smartphones, led by Apple’s iPhone.
NH
Rajeev Suri, NSN chief executive, said the company was “proud to have been selected for the largest outsourced deployment of a wireless network in the US”.
LightSquared will be led by Sanjiv Ahuja, former head of France Telecom’s Orange mobile businesses. He said LightSquared would be a “disruptive force in the US wireless landscape”.
LightSquared will have access to large amounts of radio spectrum, including some leased from Inmarsat, the UK satellite operator.
Inmarsat revealed in 2008 that it had received a takeover approach from Harbinger, which has a 28 per cent stake in the UK company. Harbinger said at the time it could not make a formal offer until it had obtained regulatory clearance.
Mr Falcone said he could not comment on Harbinger’s interest in Inmarsat.
NH
You see
NH
he can’t comment
NH
this will happen
NH
that’s why Big Phil brought in the ex-Orange guy
NH
admitedly funding a bid might prove difficult but
NH
the pieces are falling into place
BE
Can I be the voice of caution here?
BE
Harbinger’s chucking a lot of money at the infrastructure
NH
it is
BE
And the agreements between SkyTerra and Inmarsat mean it may not feel the need to actually own the bandwidth
NH
maybe
BE
Its 28% (or whatever it is) stake may be sufficient for contol.
NH
anyway
NH
let’s move on
BE
Yes. Let’s.
12:00PM
NH
I have been looking at IPR:LSE
International Power plc (IPR:LSE): Last: 355.50, up 5.5 (+1.57%), High: 358.60, Low: 347.00, Volume: 7.11m
NH
and I don’t know why it is up
NH
in fact I am worried this deal with GDF never happens
NH
sure they are back in talks
NH
but none of the obstacles that sank the previous talks have been addressed
NH
and reading the French press
NH
GDF’s two biggest shareholders
NH
just don’t want them to pay out any cash
NH
Albert Feres is very keen on keeping his dividend
NH
and the French govt are being tight
NH
So tell me how this gets done, without paying a premium for control?
NH
I find it bizzare that IPR have even entered into discussions
BE
Yes, it does seem a little peculiar.
BE
And there’s a definite disconnect between the UK and French reporting of this story this morning.
NH
there is
NH
the UK say the cash is coming
NH
the French take a slightly different view
NH
and if you think IPR is worth 400p
NH
there really is no reason they should trade above 350p
NH
until we get some clarity on this
BE
I think there are some people looking at GDF and saying “it has more than 10bn euros of cash – it can pay a special.”
BE
Even though the spin still points in the opposite direction.
NH
Right
NH
I have a quick note from Citigroup on this
NH
but a cash component is both possible and necessary — However it is notable
that GSZ have softened their previous stance where they ruled out a cash
component entirely. We believe the option of a substantial cash component near
our takeover valuation of £4.20/share is necessary as IPR shareholders would be
ceding majority control & have no knowledge or control over strategy post merger
that GSZ have softened their previous stance where they ruled out a cash
component entirely. We believe the option of a substantial cash component near
our takeover valuation of £4.20/share is necessary as IPR shareholders would be
ceding majority control & have no knowledge or control over strategy post merger
NH
What Brings IPR Back to the Table? — Given that the deal appears worse from IPR
shareholder’s perspective in that they would now cede majority control, we believe
that either (a) IPR management have assessed they have limited other growth
opportunities; or (b) they believe that GSZ would now be willing to offer substantial
concessions.
shareholder’s perspective in that they would now cede majority control, we believe
that either (a) IPR management have assessed they have limited other growth
opportunities; or (b) they believe that GSZ would now be willing to offer substantial
concessions.
NH
Special Dividend only of Value if Paid by GSZ — The media have speculated that a
cash special dividend may be paid by IPR to shareholders as part of a deal
sweetener prior to the merger, however this is of no value if it is not paid directly
by GSZ or does not lower the offered exchange ratio in our view.
cash special dividend may be paid by IPR to shareholders as part of a deal
sweetener prior to the merger, however this is of no value if it is not paid directly
by GSZ or does not lower the offered exchange ratio in our view.
12:05PM
NH
OK
NH
time for some small cap corner
NH
Chopper wants to know if the sector watcher
NH
has been looking at GKP
NH
and the answer is no
NH
he is bored with the ex-super major
BE
We all are.
BE
Including shareholders.
Gulf Keystone Petroleum Ltd (GKP:LSE): Last: 66.25, down 0.5 (-0.75%), High: 69.00, Low: 66.00, Volume: 1.15m
NH
but he has been looking at Salamander
NH
SOCO Int’l have announced this morning that, subject to shareholder approval, they plan to sell their wholly owned subsidiary SOCO Thailand to Salamander Energy PLC for US$105m plus a contingent cash consideration of a further US$1m. The principal asset within SOCO Thailand is the Bualuang Field of which they own 40%, the remaining 60% already being owned by Salamander. Proceeds from the sale are expected to be used to fund the groups ongoing exploration program with particular focus likely to be on Vietnam, and in order to take advantage of other opportunities as they arise. As far as strategy goes this looks to be in line with previous deals and another example of the business calling time on producing assets at what they think is the optimal point, seeking to generate cash for re-investment. As far as price in concerned this looks pretty fair and a reasonable deal for both parties. It is core to Salamander, less so to SOCO.
NH
and another old favourite
NH
Dragon Oil
Dragon Oil PLC (DGO:LSE): Last: 429.50, down 0.25 (-0.06%), High: 436.50, Low: 428.00, Volume: 79.26k
NH
Dragon Oil, the E&P operating in the Caspian Sea, offshore Turkmenistan, has released a drilling update this morning. We don’t cover the co so these remarks are mostly factual only. Dragon Oil plc (Ticker: DGO), an international oil and gas exploration and production company, announces the completion and initial testing of both the Dzheitune (Lam) 13/144 and 28/146 development wells together with the sidetrack of the Dzheitune (Lam) A/129 well. Dzheitune (Lam) 13/144 which was drilled to a depth of 3,434metres on a single completion basis by Rig 40,tested at an initial rate of 1,809 bopd. Rig 40 will now be cold-stacked on the Dzheitune (Lam) 13 platform and may be used for some additional workovers in future years. Dzheitune (Lam) 28/146 which was drilled to a depth of 3,200metres on a single completion basis by the NIS rig, tested at an initial rate of 2,311 bopd. This represents the first in a series of development wells to be drilled by the NIS rig from the Dzheitune (Lam) 28 platform.
NH
The NIS rig has now skidded to the next slot on the Dzheitune (Lam) 28 platform and has spudded the Dzheitune (Lam) 28/147 well. The Iran Khazar rig has completed a sidetrack of the Dzheitune (Lam) A/129 well which was drilled to a depth of 1,815 metres on a single completion basis and has yielded incremental production of 1,140 bopd. This completes the planned workover programme for 2010. The Iran Khazar rig has since moved to the Dzheitune (Lam) B platform where it is planned to spud the Dzheitune (Lam) B/148 well, after first undergoing routine maintenance. We do not have a gauge as to the targetted levels of incremental oil flow this drilling program was aiming for but the co have now completed a total of 6 new development wells in the year and remain on track to complete 11 wells in 2010, which, if nothing else, is a useful tick in the box and a useful indication of management’s ability.
NH
Elsewhere
NH
it is pretty quite in small cap corner
NH
apart from another profit warning from Findel
Findel PLC (FDL:LSE): Last: 11.50, down 5.25 (-31.34%), High: 15.75, Low: 11.50, Volume: 2.94m
BE
Catalogue retailer.
BE
School equipment. Novelties.
BE
Obviously hit by the collapse of the “Billy Boy Bass the Singing Fish” bubble.
NH
and also this
NH
Kleeneze is a leading international network marketing company. We offer innovative products to our customers as well as a fantastic opportunity to grow your own successful business as a distributor.
NH
so they are responsible for those catalogues
NH
which litter my doorstep
BE
Kleeneze. That’s Avon for swineflu.
BE
So what’s this latest warning blamed on?
NH
hang on
NH
let me check
NH
sorry
NH
had to go into the Lotus back end
BE
Ouch.
NH
massive debts
NH
£310m
NH
trading not getting any better
NH
brokers cutting forecats for this year
NH
Unsubstantiated accounting entries in the Education Supplies division
BE
Though that’s all been tidied up now, I thought.
NH
here’s the outlook statement
NH
Despite the many distractions and the uncertain economic backdrop, performance in the first quarter of the current year has shown resilience although the key peak trading periods for both our Home Shopping and Education Supplies businesses are still to come. Higher interest charges will also impact the current financial year. At the heart of the group there are a number of good, profitable and cash generative businesses. As the year progresses we will be vigorously implementing the performance improvement actions identified by the Full Potential Review and, whilst many of these will take some time to be fully introduced, we believe there are a number of opportunities to enhance business performance across the group.
NH
not sure what they do about all that debt
NH
in fact
NH
how the hell did a home shopping company end up with that much debt?
BE
Net bank debt five times EBITDA …..
BE
Wow.
BE
That’s from giving people credit which they end up not paying, I suppose.
BE
As the goods head to Cash Converters.
NH
right
NH
here’s a bit of comment from Seymour Pierce
NH
Final results were broadly in line with the revised figures following several downgrades over the last year. Underlying pre tax profit was £13.8m vs. SP forecast of £15m on sales from continuing operations down from 4% to £547m. It has been a very eventful year for the company. Current trade has reportedly remained challenging.
Following this update, we are provisionally reducing our 2010/11 pre-tax profits from £23m to £20m taking EPS down from 3.5p to 3.0p and making similar downward revisions to our 2011/12 forecasts. The stock is now looking more interesting after recent declines. We are, however, still concerned about the high level of debt, which was £310m at end of March 2010 and the valuation of the business on a sum of the parts basis in these difficult markets. On the basis of our revised forecasts, the stock is rated at 5.6x 2010/11 earnings declining to 3.6x in the following year but is more expensive on an EV/EBITDA basis. For the time being, we are retaining our Sell recommendation.
Following this update, we are provisionally reducing our 2010/11 pre-tax profits from £23m to £20m taking EPS down from 3.5p to 3.0p and making similar downward revisions to our 2011/12 forecasts. The stock is now looking more interesting after recent declines. We are, however, still concerned about the high level of debt, which was £310m at end of March 2010 and the valuation of the business on a sum of the parts basis in these difficult markets. On the basis of our revised forecasts, the stock is rated at 5.6x 2010/11 earnings declining to 3.6x in the following year but is more expensive on an EV/EBITDA basis. For the time being, we are retaining our Sell recommendation.
BE
And Cazenove still covers, though I guess you have to wonder for how long?
BE
Few pars from them
NH
for old times sake
BE
FY2010 PBT below expectations at £13.8m on a benchmark basis (our
est. £16.6m). This reflected a weaker than expected performance from the
healthcare division (FY sales -2%), which delivered a profit of only £2.6m
in the year (our est. £4.5m) as well as higher interest due to higher than
expected y/e net debt (£309.5m vs our estimate of £298.9m)
est. £16.6m). This reflected a weaker than expected performance from the
healthcare division (FY sales -2%), which delivered a profit of only £2.6m
in the year (our est. £4.5m) as well as higher interest due to higher than
expected y/e net debt (£309.5m vs our estimate of £298.9m)
BE
Focus on balance sheet. The focus, however, given Findel’s heavily
indebted position, must of necessity be on the balance sheet. NAV per share
has fallen to 6.9p. Net debt at the end of the year was higher than expected
by c. £10m and was only £67m below the prior year despite a £74m rights
issue earlier in the year. Post the discovery of the irregularities in the
education division and the failure of the group to receive its usual trade
credit funding, the group has been required to renegotiate its debt facilities.
These amount to £320m and now run to January 2012. The new margin on
the facilities is higher than that previously charged, but on a lower average
net debt number. There is also scope for an incremental finance charge of
£5m. Trailing net bank debt to EBITDA was over 5x in the period. Progress
with reducing debt has been slower than expected or indeed indicated at the
time of the fundraising and as a consequence the board, which mostly
consists of new appointees since the rights issue has flagged its concern over
what it considers to be a high level of debt especially “given what is now
known about the profitability and cash generation of the group”.
indebted position, must of necessity be on the balance sheet. NAV per share
has fallen to 6.9p. Net debt at the end of the year was higher than expected
by c. £10m and was only £67m below the prior year despite a £74m rights
issue earlier in the year. Post the discovery of the irregularities in the
education division and the failure of the group to receive its usual trade
credit funding, the group has been required to renegotiate its debt facilities.
These amount to £320m and now run to January 2012. The new margin on
the facilities is higher than that previously charged, but on a lower average
net debt number. There is also scope for an incremental finance charge of
£5m. Trailing net bank debt to EBITDA was over 5x in the period. Progress
with reducing debt has been slower than expected or indeed indicated at the
time of the fundraising and as a consequence the board, which mostly
consists of new appointees since the rights issue has flagged its concern over
what it considers to be a high level of debt especially “given what is now
known about the profitability and cash generation of the group”.
BE
We are cutting our estimates for FY2011E from £23.1m PBT, 3.4p EPS
to £17.6m PBT, 2.6p EPS. This puts the shares on 6.6x 2011E PER, which
looks superficially cheap, but on an EV/EBITDA basis the rating is 7.6x,
which more appropriately reflects the, in our view, significant risks the
company faces.
to £17.6m PBT, 2.6p EPS. This puts the shares on 6.6x 2011E PER, which
looks superficially cheap, but on an EV/EBITDA basis the rating is 7.6x,
which more appropriately reflects the, in our view, significant risks the
company faces.
12:15PM
NH
Now time for our daily visit to Ocado
NH
all very exciting
NH
pricing tonight
NH
if the book gets covered
NH
and when issued trading tomorrow
NH
what fun
NH
let’s make a price on where they end the first day
NH
any thoughts?
BE
Pricing’s 200p-275p
BE
And will be closer to the former than the latter, one suspects.
NH
the book was 80% covered as of last night
NH
which is not ideal
NH
but not a disaster
NH
that could easily be filled over the course of the day
NH
if they can find more American’s that run funds that specialise in funny IPO indicies
NH
but anyway
NH
let’s hope it does get away
NH
because it will be hugely enjoyable to watch
BE
Seven teams trying to find buyers. They’ll push this thing over the line somehow.
NH
but then what
NH
where does the short selling drive it?
BE
Right. I say: price at 210p then a squeeze up to 225p on the day.
NH
what?
BE
That’s my official offer.
NH
hmmm
NH
have we got our allocation yet?
BE
Muppet Alpha does not do IPOs. Aftermarket only.
BE
The investment criteria needs a proven track record of muppetry to qualify.
NH
fingers crossed
NH
it doesn’t have a day 1 pop
NH
but then
NH
if no one can borrow
NH
perhaps it will go up
NH
and then it will be back to the old Ocado press puff pieces
NH
the founders will emerge from the warehouse, blinking into the sunlight
NH
to claim success
NH
Michael Grade will also appear
NH
and then
NH
the shares will drop
BE
Yes. That does seem to be the likely path.
NH
As usual we have run massive over time
NH
anything to finish with?
BE
Just a request for any kind person to add up the Ocado bets lodged on the right into some kind of readable form.
BE
We might even have a prize for the closest guess.
NH
yes Lorcan is good at that sort of thing
NH
not sure what we have to give away
NH
but we will find something
NH
Great spot Lorcan
NH
Just over a week after a fast start down the IPO highway, Webvan has seen its stock blow a flat.
Shares Tune in to CNET News.com TV’s IPO Forecastin the online grocer closed down 2.12 at 16.06–near their offering price of 15–despite a successful first day performance that reached as high as 34.
Many investors had eagerly anticipated the public offering, which followed a delay because of concerns by the Securities and Exchange Commission about publicity surrounding the offering.
NH
it could happen again
BE
Ok. We’re done.
NH
nothing to say on Aquarius
NH
big rally this morning
Aquarius Platinum Ltd (AQP:LSE): Last: 248.30, up 21.2 (+9.34%), High: 265.90, Low: 244.00, Volume: 5.94m
BE
Oh, forgot about it.
BE
Government’s had a U-turn, basically.
BE
They’ve decided it’s okay to kill people.
BE
Here’s Citigroup with the summary.
BE
Regional back down — The directive from the North West Province for all board
and pillar in mining to use a 6m width (versus the 10m AQP is currently using)
has been overturned by the higher authority of the Department of Mineral
Resources. As such, there is to be no reduction in mining width and thus no
major production impact to AQP. However, safety has come to the fore again and
we believe that this will continue to overhang on AQP’s performance. We see
upside in AQP (PGM prices, volume growth and value) and keep our Buy/High
Risk rating, but reduce our target price to £3.80 from £4.20 because of ongoing
safety-cost concerns.
and pillar in mining to use a 6m width (versus the 10m AQP is currently using)
has been overturned by the higher authority of the Department of Mineral
Resources. As such, there is to be no reduction in mining width and thus no
major production impact to AQP. However, safety has come to the fore again and
we believe that this will continue to overhang on AQP’s performance. We see
upside in AQP (PGM prices, volume growth and value) and keep our Buy/High
Risk rating, but reduce our target price to £3.80 from £4.20 because of ongoing
safety-cost concerns.
BE
Safety options — AQP’s safety performance had been improving from 2006 until
the recent spate of fatalities. The company will need to take greater focus on
prevention. Rather than the reduction in board width, AQP are likely to use more
and longer rock bolts (2m vs 1.5m now used), ground penetrating radar to help
spot cracks and increase education of the work force.
the recent spate of fatalities. The company will need to take greater focus on
prevention. Rather than the reduction in board width, AQP are likely to use more
and longer rock bolts (2m vs 1.5m now used), ground penetrating radar to help
spot cracks and increase education of the work force.
BE
What price the safety — We do not see the increased safety procedure as having a
major impact on production, but there will be some associated cost (capital and
unit) with the new safety procedures. We estimate a maximum increase in costs
of 10% (more likely sub 5%) and as such we have reduced our earnings forecasts
and target price to reflect these higher costs.
major impact on production, but there will be some associated cost (capital and
unit) with the new safety procedures. We estimate a maximum increase in costs
of 10% (more likely sub 5%) and as such we have reduced our earnings forecasts
and target price to reflect these higher costs.
BE
Keep the BUY — While we continue to see some reputation risk discount
remaining in AQP’s share price, we continue to believe in the structural outlook for
PGM prices and also highlight AQP’s volume growth from the re-start of Everest
and the ramp-up of Blue Ridge. Both catalysts should be positive for AQP over
time. We maintain our Buy/High Risk rating but reduce our target price to £3.80
(from £4.20) based primarily on a 1.5x P/NPV rating on our £2.53 NPV.
remaining in AQP’s share price, we continue to believe in the structural outlook for
PGM prices and also highlight AQP’s volume growth from the re-start of Everest
and the ramp-up of Blue Ridge. Both catalysts should be positive for AQP over
time. We maintain our Buy/High Risk rating but reduce our target price to £3.80
(from £4.20) based primarily on a 1.5x P/NPV rating on our £2.53 NPV.
NH
thanks for that. sums things up very well
Aquarius Platinum Ltd (AQP:LSE): Last: 248.70, up 21.6 (+9.51%), High: 265.90, Low: 244.00, Volume: 5.94m
NH
ok we are done
NH
I have a meeting
NH
until tomorrow
NH
Ocado Day
NH
NH
cya
BE
Bye.