Markets Live chat transcript for the chat ending at 11:17 on 2 Sep 2010. Participants in this chat were: Neil Hume, FT Bryce Elder
NH
Morning all
NH
on time today
NH
11.03am sharp
NH
Bryce is here
BE
I am. Though we’re not sharing a room.
BE
I want to make that absolutely clear.
NH
NH
so
NH
another day, another bid story
BE
right then, what have we got today?
NH
Autonomy bid rumours
BE
Oh.
BE
Yawn.
NH
Microsoft one rumoured predator
BE
Yawn.
NH
Oracle another
BE
Yawn.
NH
£22 a share
BE
Yawn. I seem to have come down with a nasty dose or rumour narcolepsy.
NH
but CEO Mike Lynch wants £30
NH
(pot and kettle Monkey)
BE
Do wake me up when you’re finished.
NH
I’m sensing you don’t really like this story
NH
shares up though
Autonomy Corp Plc (AU.:LSE): Last: 1,709, up 78 (+4.78%), High: 1,715, Low: 1,645, Volume: 963.64k
BE
You sense right.
NH
no volume though
BE
Nope.
BE
And this story comes around habitually, as we know.
NH
so you are bored of it
BE
Well, I dunno any more. It might be true.
BE
The fact that it’d be hugely disruptive for Microsoft or Oracle doesn’t necessarily make it untrue.
BE
The fact that they both have their own Autonomy-killers doesn’t necessarily make it untrue.
BE
The fact that Autonomy needs to buy to compete with those two and IBM doesn’t necessarily make it untrue.
NH
Oh yes
NH
we are still waiting for the big acquisition
NH
all that CB money must be burning hole in the Dr Lynch’s pockets
NH
anyway
NH
I have my own issues with the bid story
NH
one
NH
who would buy a company that took the decision to sponsor Spurs?
NH
I mean seriously, Spurs!
NH
WTF
NH
and then
NH
the other problem with this bid story
NH
from my perspective is the Good Doctor
NH
he has such a high opinion of his company
NH
that he’s not gonna sell for anything less than £30 a share
NH
and you have to ask would anyone pay that?
BE
It’d be quite a move for The Good Doctor, certainly. He and Gaunt spun this thing off to Eastaq in 1990s at 30p, if I remember right.
NH
(lorcan – Spurs or the Scum as I like to know them are backed by a billionaire, like Chelsea)
BE
Actually, on the Autonomy acquisition, there was a Deutsche note from last month that I’ve been meaning to flag up for absolutely ages.
NH
before you do
NH
here’s some valuation stuff
NH
I was sent through today from abroker
NH
Bottom line is that it is a hugely unique asset, the product is genuinely good but not sure Lynch is a seller for anything other than top top dollar. Trades on c20x PE at the moment, and although there aren’t any real comps, the best is something like Informatica (INFA US) which trades on c30x – so you’d have to pay £25-30 to persuade him to sell we think…
NH
I reckon it would be nearer £30
NH
at least
NH
that said
NH
there are rumours in the market this morning
NH
that someone was looking at Autonomy earlier this year
NH
but discussions did not get anyway
BE
So it’s cheaper than Arm. That’s something.
BE
Anyway, on the issue of acquisitions
BE
The chaps at Deutsche, who are very good in this space, wrote the following
BE
We believe Autonomy needs to acquire in the Web Analytics space. The
ability to understand consumers’ interaction with the web-site and derive
behavioural understanding is critical if web-optimisation is going to be anything
more than a guess-work approach. However, the main vendors have
now been snapped up by IBM or Adobe. The remaining asset of scale is
Webtrends but this business has a checkered past and does not provide the
strength in analytics that Autonomy would need. It looks as if competition
is hotting up, and for once Autonomy has been slow to adapt. It can still
differentiate its product through its “meaning based” tag-line but its look and
feel and analytical prowess could soon fall behind the market.
ability to understand consumers’ interaction with the web-site and derive
behavioural understanding is critical if web-optimisation is going to be anything
more than a guess-work approach. However, the main vendors have
now been snapped up by IBM or Adobe. The remaining asset of scale is
Webtrends but this business has a checkered past and does not provide the
strength in analytics that Autonomy would need. It looks as if competition
is hotting up, and for once Autonomy has been slow to adapt. It can still
differentiate its product through its “meaning based” tag-line but its look and
feel and analytical prowess could soon fall behind the market.
BE
Just thought I’d note that.
NH
So in conclusion
NH
never say never with Autonomy
NH
but the Good Dr more likely to buy than sell
NH
unless someone takes leaves of their senses at MS or Orcale
BE
(Though he’s not above slotting his own stock quite regularly.)
NH
(lorcan – nonsense. corporate boxes)
BE
Right. That’s Autonomy done.
NH
(and lorcan that explains why we can’t spend like Harry)
BE
Should we move on to last week’s statospherically valued tech takeover story?
NH
I think we should
11:14AM
NH
we are of course talking about ARM
NH
which is down this morning
ARM Holdings PLC (ARM:LSE): Last: 360.00, down 14.1 (-3.77%), High: 366.20, Low: 358.10, Volume: 4.82m
NH
biggest faller in the FTSE 100
NH
followed by yesterday’s takeover highlight
BE
Hm.
Cable & Wireless Worldwide PLC (CW.:LSE): Last: 70.00, down 1.95 (-2.71%), High: 71.60, Low: 69.85, Volume: 2.85m
BE
Hm.
BE
And Arm’s decline has been triggered by a downgrade from Panmure
NH
(zap for Cityboy)
Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.
BE
George O’Connor. Who is, with no offence whatsoever intended, extremely *into* his sector.
NH
he is
NH
so what’s the reason for the downgrade
BE
weakening macro picture
BE
ARM is still exposed in spite of its big place in Apple’s heart
BE
Therefore, sell. Price reduce to 265p from 275p
BE
And, of course, the recent bearish guidance from Intel
BE
That everyone seemed to overlook at the time.
NH
oh yes that came out on Ben Bernanke Friday
NH
warned Q3 sales were likely to be 5% below the midpoint
NH
but no one seemed to worry
NH
everyone still obsessed by the takeover chatter
NH
right, have you got the note?
BE
Of course. It’s a familiar argument, but worth repeating.
BE
Stock vulnerable to downgrades from weaker macro
While ARM is well exposed to multiple structural growth drivers, it is still
also exposed to a weakening macro picture. Consequently we downgrade our
revenue estimates, driving cuts to EPS of 6% in FY11E and 8% in FY12E.
With consensus looking aggressive and the valuation extended, we believe
the stock looks vulnerable to downgrades to consensus. We cut our price
target to 265p from 275p and re-iterate our Sell recommendation.
While ARM is well exposed to multiple structural growth drivers, it is still
also exposed to a weakening macro picture. Consequently we downgrade our
revenue estimates, driving cuts to EPS of 6% in FY11E and 8% in FY12E.
With consensus looking aggressive and the valuation extended, we believe
the stock looks vulnerable to downgrades to consensus. We cut our price
target to 265p from 275p and re-iterate our Sell recommendation.
BE
Last Friday, Intel warned that Q3 revenue was likely to be around 5% below the midpoint of the guidance it gave with its Q2 results on July 13th. It blamed weak demand for consumer PCs in mature markets, but said supply chain inventories looked in-line with this weaker outlook. Our recent conversations with semiconductor industry participants suggest that a weakening macro economy and increased nervousness has caused softness in demand for chips for consumer electronics in recent weeks.
BE
While ARM has significant exposure to key structural growth trends like smartphones
and tablets and is gaining share in other segments, a good portion of its business is
exposed to the general semiconductor market which is likely to be impacted by a
weakening macro picture. Consequently we are downgrading our revenue estimates to
reflect this.
and tablets and is gaining share in other segments, a good portion of its business is
exposed to the general semiconductor market which is likely to be impacted by a
weakening macro picture. Consequently we are downgrading our revenue estimates to
reflect this.
BE
Given royalties are reported one quarter in arrears, there is likely to be minimal impact on FY10E, which we leave unchanged. We downgrade revenue by 3% in FY11E and 4% in FY12E, with the new forecasts representing 7% and 13% growth respectively. The reduced revenue drives EPS downgrades of 6% in FY11E and 8% in FY12E to 9.1p and 10.9p respectively. Our new FY11E estimate is 10% below consensus, so we would expect downgrades to consensus as it reflects the weakening macro.
BE
Based on our revised DCF, we reduce our price target to 265p from 275p. We continue to believe ARM is well positioned for multiple structural growth drivers and has strong prospects. However the stock looks over-extended and vulnerable to downgrades to consensus estimates which have got increasingly aggressive. We believe the potential for a bid for ARM are extremely low given both strategic and valuation considerations. We re-iterate our Sell recommendation.
NH
thanks for that
NH
that might help the soothe the burnt fingers of the bears
NH
(Monkey – you bitch. Are you Gok Wan)
11:20AM
BE
Any more raw?
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
(Aeroplace – could it have something to do with the FY results out today)
NH
yes
BE
(Slightly above forecasts. Dull outlook. Thrilling stuff.)
NH
we have more RAW
NH
and the RORT guessed it
NH
Yell
Yell Group PLC (YELL:LSE): Last: 17.63, up 1.92 (+12.22%), High: 17.63, Low: 15.71, Volume: 12.87m
BE
Oh, you’re kidding.
NH
afraid not
BE
reasonable volume
NH
and you won’t like it
BE
But surely no one will bid for Yell
NH
well I have heard that today – for 30p a share
NH
from a couple of traders
NH
for 30p a share!!!!!
BE
30p, huh. A nice round number
NH
but I can’t think who would buy it
NH
all its rivals are in as bad a shape as they are
NH
someone did suggest Google though
BE
Hm.
BE
Why would Google want it?
NH
pass
NH
they bought something similar in the US once, didn’t they?
NH
and Yell has a, ahem, internet offering
NH
I’m clutching at straws here
BE
They bought Yelp.
NH
Yelp!
NH
was that it’s name
BE
Which, in spite of the name similarity, was a review site not a publisher of doorstops.
NH
perhaps Yell should consider changing its name by deed poll
BE
Worth a go. They’ve tried everything else.
NH
anyway
NH
there is an alternative tale doing the rounds
BE
(Actually, correction: they bid for Yelp but were rejected.)
BE
So what’s this alternative tale?
NH
disposal, apparently
NH
to get the £3bn debt pile down
BE
I suppose they could sell Spain
BE
Or the US.
BE
but again we are faced with the same question: to whom?
NH
not sure
NH
bits of Yell do generate cash
BE
Guess so. But how much would PE pay? And what sort of a dent in debt would it make?
NH
we can’t please you today, can we?
BE
and there’s a big short position in this one too
BE
around 350m shares
NH
(SCO – it’s half price at Waterstones. Sam Jones bought a copy)
NH
I see
NH
there’s a pattern here
NH
time for the wider market I think
11:28AM
BE
So.
BE
We’re down.
BE
FTSE please?
NH
off 7 points at 5,359
NH
not a bad performance given yesterday’s advance
NH
Now
NH
some of the BOTR
NH
were asking for some further analysis of the ISM data
NH
and we can oblige
NH
here’s something from Deutsche
NH
they reckon a US ISM number in the mid 50′s
NH
is consistent with a market 10-15% higher than here
NH
Over the last month the market had started to price in an ISM in the low 50s, not one in the mid to high 50s as yesterday’s 56.3 print (consensus 52.8). There was little warning of this strength given several weak recent regional surveys (New York, Philadelphia, Dallas, Milwaukee and Chicago). Historically, an ISM at this kind of level is broadly (and very approximately) consistent with a YoY increase in equities of 10-15%. Given that we started September 2009 with an S&P 500 at 1020 then the report on a headline basis is crudely consistent with an S&P 500 print mid-way through the 1100s (closed at 1080 last night). However, although the market was always likely to concentrate on the headline, the new orders balance is also important. This sub component stayed relatively soft (53.1 vs 53.5 last month). There’s an equally decent correlation between this series and the YoY % change in S&P 500 and this indicates a YoY change of less than 10%. This might still give the market room to run higher but by less than that implied by the headline print.
NH
and I also have something frmo Evo Securities on this topic
NH
The direction of the ISM New Orders series is very important as a gauge of macro-momentum, and of market-momentum. The chart below shows how European equities track its direction very closely. The momentum for the ISM is still downward but has the equity market more than discounted it?
NH
The valuation of equities vs. bonds is such that it is clear that equities have taken on board the recent message from the bond market (see bond-earnings yield ratio chart below). The battle has been between low valuation and short-term momentum, and valuation was losing. Today’s ISM may arrest that process (at least until Friday).
NH
Next month is another country in today’s markets, and the ISM may re-start its descent towards 50. However, important though the 50 mark is for economists and sentiment, the ISM headline and New Orders series going below 50 does not necessitate recession. As the chart below shows, they have ‘predicted’ recession incorrectly 5 times in the past 30-years!
NH
I am sure the bears will be back, but slowdown is a normal part of a recessionary W-shape (not just a gauarantee of another recession).
NH
and some more macro comment
NH
again from Evo
NH
which comes from their economist
NH
Ian Harwood
NH
the above was from the equity strategy guys
NH
As you know, yesterday’s PMI news boosted investors’ risk appetite – and rightly so. China’s two PMI surveys both showed a modest recovery last month, while the US ISM actually rose to reach a 3-month high. Understandably, this latter piece of news wholly scotched the notion – being pushed aggressively by the bears, aided and abetted by much of the media – that a double-dip is just around the corner, let alone imminent.
This said, the US economy is clearly slowing somewhat. This slowdown, moreover, probably has further to run. Certainly, as I pointed out in a post-ISM note yesterday, the US new orders/ inventory ratio fell last month, signalling slower growth ahead.
NH
I’m often asked what I look at most closely to determine how the US economy will behave in future months. My answer is simple: corporate profits. If profits are rising, the investment and employment are likely to rise. Given that US profits give every impression of continuing to forge ahead, I see no reason at present to predict anything other than sustained expansion.
As for the global PMI aggregate, a GDP-weighted average of all the monthly PMI surveys world-wide, the overall index weakened in August, falling from 54.3 to 53.. New orders also fell – slipping to 52.5 from 54 – and the forward-looking new order/ inventory ratio fell to a 17-month low, thereby suggesting that a further slackening of global growth momentum lies ahead. This is demonstrated by the following chart.
NH
Having in recent weeks rushed to cut their Q3 GDP forecasts, Wall Street economists are now likely to be thinking of tweaking the forecasts up again in the wake of yesterday’s stronger-than-expected ISM news. It’s likely, though, that they will hold fire until the non-farm payrolls report is released to tomorrow lunchtime. As far as a pecking-order of importance of US data releases is concerned, the ISM is probably still subsidiary to the jobs report which has ruled the roost for many years.
The consensus expectation is that overall payrolls fell last month by 100k, reflecting the continued exit of temporary Census workers, with private sector jobs – the key focus in these circumstances – expected to have risen by 40K.
Importantly, though, recent labour market news-flow has been conflicting. Only yesterday, for instance, the closely-watched ADP report suggested that private sector jobs fell last month, while the Challenger report showed lay-offs at a multi-year low and the ISM survey employment reading was the strongest for over sixteen years! My own guess is that private sector job creation will be positive but my main focus, as always, will be on the behaviour of temporary jobs, a good indicator of which way the cyclical winds are blowing.
BE
(@Sco77harris: Tony Blair’s is the fastest selling *autobiography* ever. He’ll have to go some to beat Harry Potter (which, as far as I recall, was not an autobiography)).
BE
(And, @Bicycle, please don’t post under multiple names. We don’t like that. You’re limited for the duration of the session.)
11:33AM
BE
Where now?
NH
I have a bit more Autonomy comment
NH
Olivetree Securities have been looking at the takeover speculation
NH
Autonomy is now up 9% in two sessions, thanks to continuing talk of a takeout, potentially from names such as SAP, Oracle, IBM or Microsoft.
Our conclusions are that it would make perfect sense for one of the big database players to want to own Autonomy – the software is indeed unique and growing in importance. However, a takeout price would have to be large, potentially 2500-3000p to take the stock close to valuations US “peers” trade at. We don’t think Mike Lynch would recommend a sale below top dollar valuations, although once one move were made it would be very possible that counterbidders would be talked of.
Our conclusions are that it would make perfect sense for one of the big database players to want to own Autonomy – the software is indeed unique and growing in importance. However, a takeout price would have to be large, potentially 2500-3000p to take the stock close to valuations US “peers” trade at. We don’t think Mike Lynch would recommend a sale below top dollar valuations, although once one move were made it would be very possible that counterbidders would be talked of.
NH
In essence, all the rumoured buyers would love to own Autonomy, it is a genuinely unique asset which has database technology that all of these
superpowers have tried but failed to efficiently replicate. Autonomy’s
main product is basically software to search unstructured databases.
superpowers have tried but failed to efficiently replicate. Autonomy’s
main product is basically software to search unstructured databases.
NH
Our conclusions are that it would make perfect sense for one of the big database players to want to own Autonomy – the software is indeed unique and growing in importance. However, a takeout price would have to be large, potentially 2500-3000p to take the stock close to valuations US “peers” trade at. We don’t think Mike Lynch would recommend a sale below top dollar valuations, although once one move were made it would be very possible that counterbidders would be talked of.
NH
(thanks Branes for the, err, input)
BE
So they’re going with the “unique asset, premium valuation” theory.
NH
they are
BE
Rather than the other one. You know. Acquisition machine. Fuzzy numbers. Distinct smell of vapour about several products.
BE
Each to their own.
NH
takes two to make a market
BE
Quite.
11:36AM
NH
So Bryce
NH
anything caught your eye today
NH
and I don’t mean
NH
anyway
BE
Yes. Well, BAE’s having a good run.
BE
Two factors, I suspect.
BE
There was a contract win quite late yesterday for its land division
BAE Systems PLC (BA.:LSE): Last: 311.10, up 9.1 (+3.01%), High: 311.60, Low: 301.40, Volume: 7.95m
BE
Usually referred to as its “troubled land division”
NH
I see
NH
and the other factor
BE
HOUSTON, Sep 01, 2010 (BUSINESS WIRE) — BAE Systems has been awarded a $629 million contract from the U.S. Mine Resistant Ambush Protected (MRAP) Joint Program Office (JPO) to upgrade 1,700 Caiman MRAP vehicles. This award demonstrates how BAE Systems’ Readiness and Sustainment capabilities are supporting the customer’s current and future requirements by rapidly improving product performance to protect troops during combat missions.
BE
And the other is a push from Investec.
BE
Arguing that we’ve past the point of maximum bearishness.
BE
Upgraded to “buy”
BE
While we have shied away from defence stocks through 2010, BAE’s FY11E
P/E of 6.8x seems to be discounting an overly bearish outlook. Uncertainty,
exacerbated by the impending SDR, is weighing heavily, to the extent the
market appears to be overlooking BAE as a solid global business with secure
earnings and a 6% dividend yield.
P/E of 6.8x seems to be discounting an overly bearish outlook. Uncertainty,
exacerbated by the impending SDR, is weighing heavily, to the extent the
market appears to be overlooking BAE as a solid global business with secure
earnings and a 6% dividend yield.
BE
Surely, press speculation that the UK will
share its naval carriers with the French signals a time when expectations are
at their lowest! Buy for yield/depressed valuation.
share its naval carriers with the French signals a time when expectations are
at their lowest! Buy for yield/depressed valuation.
BE
I’d missed the speculation that our Navy was jumping into bed with the Frenchies.
BE
(Not that there’s anything wrong with that.)
NH
(nothing at all. and there is nothing wrong with sharing a hotel room with a colleague. I’d just like to clear that up)
NH
So if it’s in the press, it’s in the price
NH
Investec pedalling that old chestnut then
BE
yup. That’s the upshot, though they phrase it like this.
BE
Uncertainty and speculation is rife as we approach publication of the UK
Government’s Strategic Defence Review (SDR) in October. We accept that the
medium-term outlook for defence contractors is unlikely to improve as cuts take
hold, but we would point out that the group’s c20% sales exposure to the UK MoD
is characterised by long-term programmes and support contracts that are unlikely
to decline materially within our forecast horizon.
Government’s Strategic Defence Review (SDR) in October. We accept that the
medium-term outlook for defence contractors is unlikely to improve as cuts take
hold, but we would point out that the group’s c20% sales exposure to the UK MoD
is characterised by long-term programmes and support contracts that are unlikely
to decline materially within our forecast horizon.
BE
6.8x what earnings? Answer: our earnings. We are confident that the group will
at least achieve, if not exceed, our forecasts. Indeed, the recent $630m land
systems contract gives us further comfort on our FY11E numbers. As well as
relatively low direct sales exposure to UK MoD, we highlight the group’s
resilience: 1) 49% of sales are long-term support / services related, 2) 29% of
sales are in growth export markets such as Saudi Arabia and Australia, and 3)
51% of sales are in the US. (The non-land businesses here – 25% group sales
-are growing and land systems declines are already factored into our forecasts).
at least achieve, if not exceed, our forecasts. Indeed, the recent $630m land
systems contract gives us further comfort on our FY11E numbers. As well as
relatively low direct sales exposure to UK MoD, we highlight the group’s
resilience: 1) 49% of sales are long-term support / services related, 2) 29% of
sales are in growth export markets such as Saudi Arabia and Australia, and 3)
51% of sales are in the US. (The non-land businesses here – 25% group sales
-are growing and land systems declines are already factored into our forecasts).
BE
6% yield. We see dividends, currently yielding 6%, as sustainable, underpinned
by robust earnings and a strong balance sheet.
by robust earnings and a strong balance sheet.
NH
(very good Cardshark)
BE
Share price: Our switch to a Buy recommendation today is primarily based on a
depressed valuation and an assumption that clarity afforded by the SDR, even if
negative operationally for the group, will be reflected positively in the share price.
Clearly uncertainties remain, but with limited downside to forecasts and an
attractive yield, we think the valuation potential is weighted to the upside. Our
lower 340p sum-of-the-parts derived price target (from 350p) reflects the broader
de-rating of the sector.
depressed valuation and an assumption that clarity afforded by the SDR, even if
negative operationally for the group, will be reflected positively in the share price.
Clearly uncertainties remain, but with limited downside to forecasts and an
attractive yield, we think the valuation potential is weighted to the upside. Our
lower 340p sum-of-the-parts derived price target (from 350p) reflects the broader
de-rating of the sector.
NH
thanks for that
BE
(LE: the armoured car thingmy was, I think, cancelled last week. Distinctly remember writing it.)
11:42AM
NH
Yell starting to run on this 30p a share bid story
NH
up 15% now
Yell Group PLC (YELL:LSE): Last: 17.67, up 1.96 (+12.48%), High: 17.94, Low: 15.71, Volume: 14.76m
11:42AM
NH
Moving on
NH
something for the ForEx fans
NH
an interesting note out of RBS
NH
talking about yen intervention
NH
and why that could leave something people nursing burnt fingers
BE
Paste away then.
NH
Judging by the rhetoric in Japan, FX intervention may occur at any time. The market thinks it may not work to halt the JPY rise. However, serious intervention is likely to succeed in stabilising the USD/JPY, lift it back into an 85/90 range, and potentially set the scene for a weaker JPY over the longer term.
NH
Japanese policymakers have increasingly expressed their concern over the rising JPY. PM Kan and FM Noda said they are ready to take “bold action” if necessary, and MoF vice minister Ikeda has said intervention would need to be unsterilized to be successful. DPJ party power broker Ozawa and candidate for party president has also made intervention a specific part of his platform for election.
NH
On Monday, the BoJ extended its QE by adding a further JPY 10 tn in 6mth term funding. It said this reflected unstable FX and stock markets and they needed to pay more attention to downside risks to the economy and prices. The statement suggested that they are prepared to do more. However, the enhanced liquidity has had only a minor impact on already low front end yields in Japan and the JPY (chart below).
The rhetoric and BoJ action has failed to provide much relief from the rising JPY. The market has an appearance of being short JPY. Japanese margin traders are significantly short, and retail investors have probably bought their fill of foreign currency bonds for the time being. Institutions and corporations may also be lining up to unload foreign currency and return to JPY. All eyes are on the authorities and intervention will be needed to turn the JPY around. When they do intervene they are likely to have their work cut out turning sentiment around.
NH
I thought that was interesting
NH
and we don’t normally cover a lot of FX stuff
NH
anyway
NH
back to equities
11:44AM
BE
Right.
BE
Housebuilders.
BE
Why are they up then?
Taylor Wimpey Plc (TW.:LSE): Last: 28.50, up 1.45 (+5.36%), High: 28.78, Low: 27.00, Volume: 15.05m
Redrow PLC (RDW:LSE): Last: 123.70, up 5.6 (+4.74%), High: 124.20, Low: 118.50, Volume: 473.64k
Barratt Developments PLC (BDEV:LSE): Last: 102.80, up 2 (+1.98%), High: 104.40, Low: 99.90, Volume: 2.36m
NH
pass
NH
no idea
BE
The Nationwide survey looked pretty awful.
BE
prices down in August, July
BE
and flat in June
NH
yep
NH
perhaps it’s all in the price
NH
and soon to be in the press
NH
housebuilders have been dogs of late
NH
Redrow excepted
NH
but that has been on bid rumours
Redrow PLC (RDW:LSE): Last: 123.70, up 5.6 (+4.74%), High: 124.20, Low: 118.50, Volume: 473.64k
NH
anyway, the ever reliable Howard Archer reckons house prices could drop 5% over the second half of the year
NH
The Nationwide reported that house prices fell at an increased rate of 0.9% month-on-month in August. This followed a drop of 0.5% in July and flat prices in June. Consequently, the year-on-year rise in house prices moderated sharply to just 3.9% in August from 6.6% in July, 8.7% in June and a peak of 10.5% in April.
NH
The 0.9% house price drop in August reported by the Nationwide follows on from the Bank of England reporting earlier this week that mortgage activity remained muted in July. Indeed, the recent overall tone of housing market data and surveys has been consistently downbeat. We currently expect house prices to fall by 3% over the second half of the year, but there is a now a very real likelihood that the drop will be nearer 5%.
NH
good to have dinner party live back
BE
Though the ROTR seem less interested these days.
NH
that’s true
BE
Price stagnation’s just not as interesting as up or down, I guess.
NH
stagnation
NH
they are heading lower
NH
perhaps the day of reckoning draws near
NH
then again
BE
How long have we been saying that? Personally, at least a decade.
NH
(Taxloss – he was orignally the driver and then promoted)
11:49AM
NH
one of the ROTR asking about Charter
NH
and the recent bid rumours
Cohort Plc (CHRT:LSE): Last: 73.00, up 1.5 (+2.10%), High: 72.00, Low: 72.00, Volume: 5.00k
NH
not heard anymore
NH
the obvious name was trotted out
NH
Lincoln Electric
NH
because they are a rival
NH
and most UK engineers look tasty prey for US people at the moment
BE
Wrong code above. Correction: CHTR:LSE
Charter International Plc (CHTR:LSE): Last: 648.50, up 7.5 (+1.17%), High: 656.00, Low: 639.00, Volume: 396.82k
NH
so it has to be possible
NH
in fact a number of other engineers are looking dirt cheap
NH
potential takeover targets
BE
Such as?
NH
Cookson
NH
cheap chips according to Merrill
Cookson Group Plc (CKSN:LSE): Last: 459.10, up 16 (+3.61%), High: 467.60, Low: 439.30, Volume: 1.22m
NH
Stock mispriced, far too cheap
We believe Cookson remains attractive relative to the UK capital goods sector
due to, 1) recent underperformance, as a result of 2011 growth concerns (the
sector is 8% below previous 2010 share price peaks while Cookson is 29%
below), and 2) cheap valuation – Cookson is trading at a 30% discount to sector
avg multiples (5.3x 2011 EV/EBITA, versus the sector on 7.9x).
We believe Cookson remains attractive relative to the UK capital goods sector
due to, 1) recent underperformance, as a result of 2011 growth concerns (the
sector is 8% below previous 2010 share price peaks while Cookson is 29%
below), and 2) cheap valuation – Cookson is trading at a 30% discount to sector
avg multiples (5.3x 2011 EV/EBITA, versus the sector on 7.9x).
NH
Market pricing in a double dip for 2011
Our analysis indicates that Cookson is pricing in a double-dip recession scenario
based on 2011 sector multiples. Assuming a 5% fall in group revenues and 30%
operational leverage in 2011, indicates an EPS of 47p, which on 10.6x (the
current 2011 sector avg PE) indicates a FV above the current share price. While
we still get questions regarding Cookson’s financial gearing, under this scenario
net debt/EBITDA would only reach 1.0x.
BUY – Significant value, potential upside to 2010 EPS
While short term economic data is likely to remain volatile, we believe there is
significant value at Cookson. Given commentary from the sector, potential upside
to H2 guidance from better steel margins and Foundry volumes, and an
unjustified discount to the rest of the sector (2010 PE of 7.9x vs sector on 12.3x)
and on any normalised basis (2010 EV/Sales of 0.66x vs 2011 EBIT margins of
11.0%), we retain our BUY rating.
Our analysis indicates that Cookson is pricing in a double-dip recession scenario
based on 2011 sector multiples. Assuming a 5% fall in group revenues and 30%
operational leverage in 2011, indicates an EPS of 47p, which on 10.6x (the
current 2011 sector avg PE) indicates a FV above the current share price. While
we still get questions regarding Cookson’s financial gearing, under this scenario
net debt/EBITDA would only reach 1.0x.
BUY – Significant value, potential upside to 2010 EPS
While short term economic data is likely to remain volatile, we believe there is
significant value at Cookson. Given commentary from the sector, potential upside
to H2 guidance from better steel margins and Foundry volumes, and an
unjustified discount to the rest of the sector (2010 PE of 7.9x vs sector on 12.3x)
and on any normalised basis (2010 EV/Sales of 0.66x vs 2011 EBIT margins of
11.0%), we retain our BUY rating.
NH
there you go
NH
could well be a target at some point
BE
Has been before.
11:53AM
BE
Is there anything to say in smallcap corner?
NH
(taxloss )
)NH
a couple of things
NH
and in response to the earlier question
NH
we will look into GCM Resources
NH
right
NH
hat tip to VP for this
NH
a little company called Travelzest
BE
Oh. Travelzest. In and out of bid talks for yonks.
BE
: Travelzest is an emerging travel Group with cross continent retail brands
and integrated tour operations to some of the most attractive travel destinations in the world.
and integrated tour operations to some of the most attractive travel destinations in the world.
NH
thank you
NH
Now, according to an RNS statement that came out this morning the directors get a bonus if they flog the company
NH
which is unusal
BE
It is, rather.
NH
have a look at this
NH
The Board of Travelzest plc (AIM: TVZ), the travel group specialising in a broad base of travel products and specialist travel programmes to consumers in the United Kingdom and North America, announces that it has today entered into an agreement (the ‘Agreement’) with the Chairman and the Executive Directors of the Company (together the ‘Relevant Directors’) whereby an aggregate of £2.6 million will become payable to the Relevant Directors in the event of the sale of the entire issued share capital or all or substantially all of the business of the Company (the ‘Sale Bonus’).
NH
The Sale Bonus is payable in full should a cash or cash equivalent value of at least 18.5 pence per share be achieved on such sale and is also subject to certain conditions including good and bad leaver provisions
BE
Nice work.
NH
quite
NH
and this odd because there have been rumours in recent weeks that Tui Travel have been running the slide rule over the company
TUI Travel Plc (TT.:LSE): Last: 217.40, up 1 (+0.46%), High: 219.00, Low: 215.30, Volume: 1.17m
Travelzest Plc (TVZ:LSE): Last: 27.45, up 0.45 (+1.67%), High: 27.25, Low: 27.00, Volume: 126.05k
NH
anyway
NH
one to watch
BE
It’d be inviting some rather unsavoury headlines given TravelZest specialises in “naturist” holidays.
BE
Google “Peng Travel” if you don’t believe me.
NH
(not that there would be anything wrong with going on a naked holiday with a colleague you understand)
BE
(Obviously. If you have twin beds on your naturist holiday it’s all entirely above board.)
NH
(obviously)
11:57AM
NH
Right some breaking EuroRAW
NH
involving Deutsche Bank
NH
Rumours flying round that Deutschebank looking at doing a capital raise and they have cancelled a Dubliln Roadshow tomorrow & Nomura Banking day today….
Rumours flying round that Deutschebank looking at doing a capital raise and they have cancelled a Dubliln Roadshow tomorrow & Nomura Banking day today….
NH
now
NH
DB will need to do a cash call at some point
NH
in order to make an offer for DP at the current lowe price
NH
hang on
NH
here’s a bit from a sector watcher
NH
“They need to do a large capital increase soon to make an offer for Deutsche Postbank at the current low price. If they wait till February, then under German takeover laws, they will have to offer to minorities the higher price that they have agreed with Postbank of €45.”
BE
(Cityunslicker: apologies, I must’ve missed the Navy debate yesterday.)
12:00PM
NH
OK
NH
one more small cap
NH
to look at
NH
Waterman Group
NH
enginerring services company
NH
stake builder at work
BE
Who?
NH
that Swedish chap with the long name
BE
Oh. Him.
NH
Peter Gyellehammar
BE
Peter Gyllenhammar
NH
that’s the one
NH
he has amassed a 13 per cent stake
NH
and he might try and shake things up
Waterman Group PLC (WTM:LSE): Last: 47.00, up 0.5 (+1.08%), High: 46.50, Low: 46.00, Volume: 508
NH
that said
NH
I don’t know what Peter G’s record
NH
has been like recently
BE
Likewise. He throws a lot of darts.
NH
and a lot of small targets
BE
Interesting profile of him here
NH
thanks for that
12:03PM
NH
Right
NH
Lady E was asking about Gartmore
NH
and our views
NH
well I am with Taxloss
NH
very worrying that so many people are leaving
NH
the latest was small cap fund manager Gervais Williams
NH
and one would think that Hellman & Friedman might be keen to sell
NH
given the revolving door
NH
although 
told Citywire yesterday that it was all misguided rumours
told Citywire yesterday that it was all misguided rumoursNH
not sure you can have a misguided rumour
NH
surely a rumour is a rumour
NH
anyway
BE
Typical PR talk. “Misguided” as opposed to “guided.”
NH
as opposed to a rumour
NH
anyway
NH
are we done?
NH
I am out of stuff
NH
Yell keeps moving higher
NH
seems like things are tailing off ahead of the long holiday weekend
NH
in the US
BE
Do we have payrolls tomorrow?
NH
that’s true
NH
and that will be a big number
NH
just seems a lot of people don’t want to deal ahead of it
12:07PM
NH
Right
NH
some nonmarket related news
NH
RTRS-PAKISTAN CRICKET TRIO ASKED TO BE PULLED FROM ENGLAND TOUR AFTER FIXING ALLEGATIONS – PAKISTAN HIGH COMMISSIONER
NH
RTRS-PAKISTAN HIGH COMMISSIONER BELIEVES IN CRICKETERS’ INNOCENCE OVER FIXING CLAIMS, MAY TAKE LEGAL ACTION
NH
take legal action against who?
NH
The News of World
BE
I guess so. Offering a bribe is just as illegal as taking one, I assume
NH
talking of the NoW
NH
interesting piece in the NYT overnight
NH
very aggressive
NH
Murdoch won’t like that
BE
Yes – NYT’s been working on this for months.
BE
Had a big team on it.
BE
And seems to have uncovered some interesting allegations.
NH
regarding the head of press for the Tory Party
BE
Not sure why it falls under the New York Times’s remit, but that’s for another discussion on another day.
12:10PM
NH
and finally
NH
for all you train watchers out there
NH
some comment on Go-Ahead
Go-Ahead Group PLC (GOG:LSE): Last: 1,157, up 69 (+6.34%), High: 1,158, Low: 1,080, Volume: 67.79k
NH
from Panmure
NH
We have reduced our target price from Buy to Hold, reflecting our concerns
at the potential lack of earnings growth in the coming years. Our target price
has been cut to 1200p (from 1600p).
at the potential lack of earnings growth in the coming years. Our target price
has been cut to 1200p (from 1600p).
NH
We have cut our recommendation from Buy to Hold. The dividend yield of 7.4%, which
we believe is sustainable, in our opinion justify holding the shares. We are concerned,
however, at the lack of earnings growth in the coming years. Margins in London are
unlikely to recover to previous highs, particularly if new contracts continue to have more
challenging quality incentive targets and lower revenue per mile. Furthermore, the fuel
duty rebate may come down as the government looks to cut expenditure, which would
drive up fares and most likely result in some volume reductions, which could have a
negative impact on profits. Rail profitability may also struggle to improve, with London
Midland possible heading for future losses and Southern requiring punchy revenue
growth to maintain profit levels. We reduce our target price from 1600p to 1200p.
we believe is sustainable, in our opinion justify holding the shares. We are concerned,
however, at the lack of earnings growth in the coming years. Margins in London are
unlikely to recover to previous highs, particularly if new contracts continue to have more
challenging quality incentive targets and lower revenue per mile. Furthermore, the fuel
duty rebate may come down as the government looks to cut expenditure, which would
drive up fares and most likely result in some volume reductions, which could have a
negative impact on profits. Rail profitability may also struggle to improve, with London
Midland possible heading for future losses and Southern requiring punchy revenue
growth to maintain profit levels. We reduce our target price from 1600p to 1200p.
BE
7.4% covered yield. Not bad.
BE
And here’s Merrill.
BE
FY’10 results – strength in rail & aviation, outlook cautious
Go-Ahead has reported results for the 12 months ended June 2010. PBT declined
21% to £88.7mn (5.6% above our forecast of £84.1mn), primarily driven by
outperformance in rail (reduction in electricity costs) and aviation. EBITA fell 17%
to £102mn (BAMLe £97mn) and EPS fell 21% to 135.1p (BAMLe 121.1p). FY’11
management outlook is unchanged, commenting that there will likely be continued
pressure on public budgets in bus and premium headwinds in rail. For FY’11e, we
forecast group EBITA of £87.8mn (-14% YoY) and EPS of 106.9p (-21% YoY).
Go-Ahead has reported results for the 12 months ended June 2010. PBT declined
21% to £88.7mn (5.6% above our forecast of £84.1mn), primarily driven by
outperformance in rail (reduction in electricity costs) and aviation. EBITA fell 17%
to £102mn (BAMLe £97mn) and EPS fell 21% to 135.1p (BAMLe 121.1p). FY’11
management outlook is unchanged, commenting that there will likely be continued
pressure on public budgets in bus and premium headwinds in rail. For FY’11e, we
forecast group EBITA of £87.8mn (-14% YoY) and EPS of 106.9p (-21% YoY).
BE
UK bus – results in line, budgetary pressures looming
In UK bus, EBITA in FY’10 was £63.7mn (-4% YoY; BAMLe £63mn), primarily as
a result of fuel headwinds and falling quality incentive contract (QIC) bonuses.
Longer term, in this sub-segment we are cautious given the exposure to London
bus (25% of group revenue) and the impending TfL budget cuts (QIC bonuses
and fee per mile reimbursement). Moreover, Go-Ahead’s exposure to fuel duty
subsidy is c. 41% of group EBITA, although they are working on measures to
offset the impact. We forecast bus EBITA of £64.2mn in FY’11e (+1% YoY).
In UK bus, EBITA in FY’10 was £63.7mn (-4% YoY; BAMLe £63mn), primarily as
a result of fuel headwinds and falling quality incentive contract (QIC) bonuses.
Longer term, in this sub-segment we are cautious given the exposure to London
bus (25% of group revenue) and the impending TfL budget cuts (QIC bonuses
and fee per mile reimbursement). Moreover, Go-Ahead’s exposure to fuel duty
subsidy is c. 41% of group EBITA, although they are working on measures to
offset the impact. We forecast bus EBITA of £64.2mn in FY’11e (+1% YoY).
NH
thanks for that
BE
UK rail – continued theme of strong volumes, lower costs
In UK rail, EBITA was £37.3mn (versus £61.5mn last year; BAMLe £34mn) with
outperformance coming from lower electricity costs and higher volumes. Southern
performed in line with the £20mn EBITA target bid (BAMLe of £21.8mn) as a
result of strong cost control. In Southeastern, having entered revenue support in
April 2010, the franchise profitability will be bolstered going forward, but costing
issues in FY’10 resulted in EBITA falling 70% to £6mn (BAMLe of £10.1mn).
Longer-term, in this franchise, we believe that, given the lack of incentivisation by
the DfT, High Speed rail (part of Southeastern) may not be the multi-year margin
expansion story that was originally anticipated, with most of its marketing spend
having already been cut. In London Midlands, the franchise had better than
expected costs resulting in EBITA of £11.4mn (BAMLe £2.1mn). We forecast rail
EBITA of £23.6mn (-37% YoY), primarily driven by weakness in lower subsidies
and higher premiums in Southeastern and Southern, respectively.
In UK rail, EBITA was £37.3mn (versus £61.5mn last year; BAMLe £34mn) with
outperformance coming from lower electricity costs and higher volumes. Southern
performed in line with the £20mn EBITA target bid (BAMLe of £21.8mn) as a
result of strong cost control. In Southeastern, having entered revenue support in
April 2010, the franchise profitability will be bolstered going forward, but costing
issues in FY’10 resulted in EBITA falling 70% to £6mn (BAMLe of £10.1mn).
Longer-term, in this franchise, we believe that, given the lack of incentivisation by
the DfT, High Speed rail (part of Southeastern) may not be the multi-year margin
expansion story that was originally anticipated, with most of its marketing spend
having already been cut. In London Midlands, the franchise had better than
expected costs resulting in EBITA of £11.4mn (BAMLe £2.1mn). We forecast rail
EBITA of £23.6mn (-37% YoY), primarily driven by weakness in lower subsidies
and higher premiums in Southeastern and Southern, respectively.
Is this the worst train operator in Britain? It’s got competition, sure, but the pitiful way it responded to recent weather makes it a scandal in our book.
NH
what’s that?
NH
where did that come from
BE
Wow – something from Murphy’s commuting past I guess.
NH
yes
NH
Southern Trains I think
NH
he came in from Greenwich
NH
so that would make it South Eastern I guess
NH
dunno much about life south of the river
NH
no been beyond Borough market
NH
frightening place
BE
Agree. Camberwell’s like one of those dystopian visions of the future.
BE
(@Firean: two people did go to jail.)
NH
BE
Anyway, should we wrap up now?
NH
yep
NH
quick market update before we leave
NH
FTSE 100 down 4 points at 5,362
NH
Yell
NH
moving higher all the while
Yell Group PLC (YELL:LSE): Last: 18.08, up 2.37 (+15.09%), High: 18.35, Low: 15.71, Volume: 19.24m
NH
and with that we are done
BE
Oh, I dunno. Perhaps there’ll be a bid. And for Autonomy. And for Blinkx, and Connaught, and Infobox, and bloody Boo.com. Who knows.
BE
Let’s wind this up.
NH
come, come
BE
So thanks for all your comments today.
NH
yes
NH
and let’s end this before we cause a diplomatic row
BE
Yes – we seem to have descended into cricket on the right.
BE
As good a time to end as any.
NH
cya
BE
See you tomorrow, everyone.
NH
(Not good enough to nick one)