Markets Live chat transcript for the chat ending at 11:21 on 27 Sep 2010. Participants in this chat were: Bryce Elder Tony Tassell
BE
Good morning
BE
And welcome to Markets Live
TT
good morning all
BE
FT Alphaville’s daily wander around all things stock
TT
Neil is away this week so i am back stepping into the breach
BE
Yes – Neil is off to the FSA for a week’s intensive re-education.
TT
i suspect he is hiding after the West Brom defeat of Arsenal over the weekend
BE
That’s a factor too, no doubt.
TT
anyway how are the markets doing this morning
TT
Neil was not in a happy mood sat night
BE
He’s never in a happy mood, to be honest.
BE
Unless he’s just seen someone fall in a canal.
BE
Anyway, we’re flat on the big board.
BE
FTSE’s barely changed at the moment.
BE
Down about a point.
BE
Came out of the traps pretty well, continuing last week’s pro-risk theme.
BE
But it’s all dissipated.
BE
Nothing left.
TT
a bit like Arsenal’s season
TT
well i think we should start this session by making a stand
TT
it is bad enough when those yanks swoop on Cadbury
TT
in our heart of hearts we know the chocolate is not very good
TT
but it is something else when the red menance is preparing to seize our hula hoops
TT
there are some things we should fight
BE
Er ….. ?
TT
Bright Food in talks to buy United Biscuits
By Martin Arnold and John O’Doherty in London
Published: September 26 2010 20:00 | Last updated: September 26 2010 21:23
Bright Food, the Chinese food group, is in exclusive talks to buy United Biscuits in a deal that would value the maker of Jaffa Cakes and Hula Hoops crisps at almost £2.5bn including debt
By Martin Arnold and John O’Doherty in London
Published: September 26 2010 20:00 | Last updated: September 26 2010 21:23
Bright Food, the Chinese food group, is in exclusive talks to buy United Biscuits in a deal that would value the maker of Jaffa Cakes and Hula Hoops crisps at almost £2.5bn including debt
TT
full story here http://www.ft.com/cms/s/0/fa6ac89c-c99e-11df-b3d6-00144feab49a.html
BE
Um ……
TT
it appears they have designs on hobnobs
TT
want to export them around the world
BE
Isn’t United Biscuits not terribly British in the first place?
TT
well..yes..we all love a nationalistic backlash
TT
and if you cannot get patriotic about jaffa cakes what can you
TT
interesting company Bright Food actually
BE
Go on.
TT
check out their website…quite something
BE
(@macrus: you have a duty of care to feed your daughter every day.)
TT
their slogan is “Putting people first, harmonious co-existence between man and corporation, society and nature, developing together”
TT
and the mission: “To build the company into a leading enterprises group in the national food industry, with famous brands, advanced technology, strong competitive power and deep influence in the world by the end of 2015.”
TT
2015..so not in a hurry then
BE
As a large conglomerate in food industry, the company possesses a number of well-known trademark and name brand products. ¡°Guangming¡±(Bright)dairy product, ¡°Guansheyuan¡± foodstuff, ¡°Da Bai Tu¡± (Big White Rabbit)candy and ¡°Maling¡± can food have been honored of ¡°Famous Chinese Brand¡± and ¡°Famous Chinese Brand Product¡± . There are many products in the company have been awarded with ¡°Famous Shanghai Brand¡± and ¡°Famous Shanghai Brand Product¡± , including ¡°Bright¡± ice cream product, ¡°Aquarius¡± drinking water, ¡°Hejiu¡±¡¢¡°Jinfeng¡± ¡°Shikumen¡± rice wine, ¡°Yutang¡± sugar, ¡°Tip Top¡± pickled food, ¡°Haifeng¡± rice, ¡°Aiseng¡± pork, ¡°Daying¡± duck meat products, ¡°Fushou¡± monosodium glutamate, ¡°Shengfeng¡± chocolate, and ¡°Boshiwa¡± Children¡¯s Clothing , ¡°Solide¡± ¡°Taijie¡± stainless steel products, etc.. NGS Supermarket (Group) Co., Ltd. and NGS Real Estate (Group)company have received award of ¡°Shanghai Excellent Service Enterprise Brand¡±.
BE
“Guansheyuan foodstuff”
BE
Quite a brand.
TT
i love the name of one of the brands on the home page – love your wood…maybe there are some synergies with hobnobs
TT
but to fair…if you look at UB’s website that must appear just as mysterious to the chinese
TT
with all of the guff and jargon abouot sustainability and corporate responsibility
BE
“Fushou monosodium glutamate”
BE
I’m going to lose most of my day on that website, I know it.
BE
So anyway, there’s been no real reaction among the listed peers.
Premier Foods Plc (PFD:LSE): Last: 17.30, up 0.1 (+0.58%), High: 17.74, Low: 17.17, Volume: 1.87m
BE
Which is, of couse, a big pile of debt with a breadmaker attached
BE
So you wouldn’t expect that much reaction.
TT
i look froward to the day when you cna buy twiglets around the world
TT
anyway there is another deal in the consumer goods sector today
11:17AM
BE
So. Unilever.
TT
something a little more tangible to get stuck into
BE
$3.7bn for Alberto Culver
BE
Maker of VO5 skin gunk.
BE
Unilever is to buy Alberto Culver, the US-based consumer goods company, for $3.7bn (£2.3bn) in a deal that will bring brands such as TRESemmé and VO5 into the Anglo-Dutch conglomerate’s stable of haircare and skincare products.
“We are delighted to be acquiring Alberto Culver,” Paul Polman, Unilever chief executive, said on Monday.
TT
have you noticed that the diversity of shampoo on sale at stores seems to be declining…..almost the reverse of all other goods
BE
No. I hadn’t noticed that.
BE
I don’t spend that much time in Superdrug.
TT
it is important…they tend to lose their effect if you keep using the same brand
TT
anyway here is some reaction from Panmure
BE
Isn’t that a myth?
TT
Alberto Culver ticks the strategic boxes
The initial consideration for Alberto Culver of 14.8x EBITDA on the face of it
looks quite punchy, but we believe ‘significant’ but as yet undisclosed
synergies will make the price look more reasonable. It further skews Unilever
to high growth, high margin personal care categories, gives a more rounded
category presence in hair care and makes it global leader in hair
conditioning, number two in shampoo and number three in styling. We
reiterate our Buy recommendation and 2300p price target.
The initial consideration for Alberto Culver of 14.8x EBITDA on the face of it
looks quite punchy, but we believe ‘significant’ but as yet undisclosed
synergies will make the price look more reasonable. It further skews Unilever
to high growth, high margin personal care categories, gives a more rounded
category presence in hair care and makes it global leader in hair
conditioning, number two in shampoo and number three in styling. We
reiterate our Buy recommendation and 2300p price target.
TT
nearly 15 times ebitda..that is pretty extraordinary
BE
Yet it does seem the market reaction is universally positive.
BE
Which is very rare for a punchy acquisition.
TT
more from panmure justifying the price
TT
Alberto Culver acquisition: Unilever has agreed to buy Alberto Culver for US$3.7bn,
for sales for the year to June 2010A of US$1.6bn (2.3x sales looks reasonable), and
EBITDA of over US$250m. 14.8x EBITDA valuation looks on the high side, but should
be justified by ‘significant’ synergies. The business has operations in nine countries
employing 2700 people, and has six factories. Given the bolt on nature of the deal, we
expect the cost saving opportunities to be significant, but have not quantified it yet.
Strategically sound deal: In Q2 2010A, Personal Care became Unilever’s largest
category and this increases the skew to its highest sales growth, highest margin category
further. It also addresses another key theme for us in that after a decade of disposals,
Unilever is now becoming a net acquirer of businesses, which given the infill nature of
the deals expected, should offer significant cost savings and operational gearing
(compared with the degearing that has to be managed when businesses are constantly
being sold as was the case for much of the last decade).
Better category presence: The deal fills out Unilever’s
for sales for the year to June 2010A of US$1.6bn (2.3x sales looks reasonable), and
EBITDA of over US$250m. 14.8x EBITDA valuation looks on the high side, but should
be justified by ‘significant’ synergies. The business has operations in nine countries
employing 2700 people, and has six factories. Given the bolt on nature of the deal, we
expect the cost saving opportunities to be significant, but have not quantified it yet.
Strategically sound deal: In Q2 2010A, Personal Care became Unilever’s largest
category and this increases the skew to its highest sales growth, highest margin category
further. It also addresses another key theme for us in that after a decade of disposals,
Unilever is now becoming a net acquirer of businesses, which given the infill nature of
the deals expected, should offer significant cost savings and operational gearing
(compared with the degearing that has to be managed when businesses are constantly
being sold as was the case for much of the last decade).
Better category presence: The deal fills out Unilever’s
TT
in hair care, giving it
better offering across the price points (VO5 in Mass, TRESemme in premium for
instance), make its global leader in hair conditioning, global number two in shampoo and
number three in styling.
better offering across the price points (VO5 in Mass, TRESemme in premium for
instance), make its global leader in hair conditioning, global number two in shampoo and
number three in styling.
BE
Yes – it does seem to be a huge cost-saving story.
BE
Here’s Jefferies’ numbers.
BE
Unilever announced on 27.09.10 that it has entered a
definitive agreement to acquire all of the outstanding
shares of Alberto Culver for $37.50 per share in cash,
valuing the deal at approximately $3.7bn. Alberto Culver
reported a net cash position of $110m as of June 30 2010,
suggesting an EV of $3.6bn and exit multiples of 2.2x sales and
14.4x EBITDA. The transaction is subject to regulatory approval
and the approval of Alberto Culver shareholders.
definitive agreement to acquire all of the outstanding
shares of Alberto Culver for $37.50 per share in cash,
valuing the deal at approximately $3.7bn. Alberto Culver
reported a net cash position of $110m as of June 30 2010,
suggesting an EV of $3.6bn and exit multiples of 2.2x sales and
14.4x EBITDA. The transaction is subject to regulatory approval
and the approval of Alberto Culver shareholders.
TT
(good point NJS – silky skills)
BE
Management indicated that they expect the deal to deliver
significant synergies, and excluding restructuring costs,
management expect the deal will be accretive to EPS in the first
full year.
significant synergies, and excluding restructuring costs,
management expect the deal will be accretive to EPS in the first
full year.
BE
At $37.50 per share, the offer represents a 33% premium to
Alberto Culver’s 12-month volume weighted average share
price and an 18% premium to its all-time high closing share
price achieved earlier this year.
Alberto Culver’s 12-month volume weighted average share
price and an 18% premium to its all-time high closing share
price achieved earlier this year.
BE
The Alberto Culver Company generated sales approaching
US$1.6bn and EBITDA of over US$250m for the 12-month
period ending June 30 2010, with a net cash position of
US$110m.
US$1.6bn and EBITDA of over US$250m for the 12-month
period ending June 30 2010, with a net cash position of
US$110m.
BE
The Alberto Culver Company manufactures, distributes and
markets leading beauty care and other personal care
brands including TRESemme, Alberto VO5, Nexxus, St. Ives
and Simple. It is also the second largest producer in the US of
products for the ethnic hair care market (brands: Motions and
Soft & Beautiful). The Company has operations in nine
countries, including the US, Canada, Argentina, Mexico, the
UK, South Africa and Australasia. It has six manufacturing
facilities and employs around 2,700 people.
markets leading beauty care and other personal care
brands including TRESemme, Alberto VO5, Nexxus, St. Ives
and Simple. It is also the second largest producer in the US of
products for the ethnic hair care market (brands: Motions and
Soft & Beautiful). The Company has operations in nine
countries, including the US, Canada, Argentina, Mexico, the
UK, South Africa and Australasia. It has six manufacturing
facilities and employs around 2,700 people.
BE
Unilever’s pre-acquisition Hair Care business is
predominantly based in emerging markets. The acquisition
increases Unilever’s exposure to developed markets in the
category, thereby complementing the existing portfolio. The
acquisition makes Unilever the world’s leading company in hair
conditioning (but remain #3 in Hair Care overall behind P&G
and L’Oreal).
predominantly based in emerging markets. The acquisition
increases Unilever’s exposure to developed markets in the
category, thereby complementing the existing portfolio. The
acquisition makes Unilever the world’s leading company in hair
conditioning (but remain #3 in Hair Care overall behind P&G
and L’Oreal).
BE
Investment Summary
The acquisition of Alberto Culver adds a number of internationally
recognised Hair Care brands in developed markets to Unilever’s
existing Hair Care offer. Significant synergies should be reaped
from the transaction, but we are cautious that this type of deal
could reduce the likelihood of share buy-backs.
The acquisition of Alberto Culver adds a number of internationally
recognised Hair Care brands in developed markets to Unilever’s
existing Hair Care offer. Significant synergies should be reaped
from the transaction, but we are cautious that this type of deal
could reduce the likelihood of share buy-backs.
BE
Quite straightforward, that.
BE
And here’s Liberum.
BE
The deal would be accretive as per our math adding about 2-3% to EPS. Assuming cost savings of 7% of
ACV sales (RB assumed 12% of SSL sales), the EV/EBITDA would be 10.2x. Taking ACV’s FY10e EBIT of
$220M or €160M plus synergies €80M and minus finance costs equivalent to 4% of the EV paid, would imply
net accretion of €100M after tax. The latter would imply about 2.6% EPS accretion.
ACV sales (RB assumed 12% of SSL sales), the EV/EBITDA would be 10.2x. Taking ACV’s FY10e EBIT of
$220M or €160M plus synergies €80M and minus finance costs equivalent to 4% of the EV paid, would imply
net accretion of €100M after tax. The latter would imply about 2.6% EPS accretion.
BE
The impact on UNA’s position. The effect is mainly in NA and the UK. ACV is #4 in US shampoos with 8%
share (UNA has 15%) and #3 in conditioners with 12% share (UNA has 10%). The US market is 60% shampoo
and 40% conditioners. After the deal, UNA will have 23% US share in shampoo/conditioners (from 13% before
the deal), vs. 34% for P&G and 17% for L’Oreal. In our judgment, the deal will strengthen Unilever’s position in
the US market and will endow it with a more competitive scale to compete with P&G (and L’Oreal). Like with the
acquisition of Sara Lee’s Personal care business (which was more than 80% in WE), Unilever will almost double
its scale in a matured market where scale matters. As such, while we tend to prefer acquisitions in emerging
markets, we understand the logic of these matured market deals.
share (UNA has 15%) and #3 in conditioners with 12% share (UNA has 10%). The US market is 60% shampoo
and 40% conditioners. After the deal, UNA will have 23% US share in shampoo/conditioners (from 13% before
the deal), vs. 34% for P&G and 17% for L’Oreal. In our judgment, the deal will strengthen Unilever’s position in
the US market and will endow it with a more competitive scale to compete with P&G (and L’Oreal). Like with the
acquisition of Sara Lee’s Personal care business (which was more than 80% in WE), Unilever will almost double
its scale in a matured market where scale matters. As such, while we tend to prefer acquisitions in emerging
markets, we understand the logic of these matured market deals.
BE
Oh – hang on. Haven’t done a Unilever price.
Unilever PLC (ULVR:LSE): Last: 1,839, up 46 (+2.57%), High: 1,844, Low: 1,799, Volume: 1.53m
TT
and yet we have more from the consumer goods sector – the maker of imperial leather is going into fake tans
BE
Is it really?
TT
NDON, Sept 27 (Reuters) – British soap and shampoo maker
PZ Cussons said on Monday it had bought
tanning-products firm St Tropez from its private-equity owner
LDC for 62.5 million pounds ($97.9 million) in cash.
The maker of Imperial Leather soaps and Carex handwash said
St Tropez was a good fit with its portfolio of premium brands,
which includes The Sanctuary and Charles Worthington hair-care
products.
St Tropez sold 20.7 million pounds of its self-tanning
lotions and sprays in the year to end-July 2010, mainly in the
UK through retailers such as Boots, Superdrug, Sainsbury’s and
John Lewis.
PZ Cussons Chief Executive Alex Kanellis said: “We see good
growth opportunities, both in the UK and overseas, particularly
by linking the strategy to that of The Sanctuary spa brand.”
The company said the deal was expected to be earnings
enhancing in the current financial year.
PZ Cussons
tanning-products firm St Tropez from its private-equity owner
LDC
The maker of Imperial Leather soaps and Carex handwash said
St Tropez was a good fit with its portfolio of premium brands,
which includes The Sanctuary and Charles Worthington hair-care
products.
St Tropez sold 20.7 million pounds of its self-tanning
lotions and sprays in the year to end-July 2010, mainly in the
UK through retailers such as Boots, Superdrug, Sainsbury’s and
John Lewis.
PZ Cussons Chief Executive Alex Kanellis said: “We see good
growth opportunities, both in the UK and overseas, particularly
by linking the strategy to that of The Sanctuary spa brand.”
The company said the deal was expected to be earnings
enhancing in the current financial year.
TT
PZ Cussons is in danger of becoming a more serious company
BE
Hm.
BE
There was a bid rumour a week or so ago.
BE
P&G said to be looking.
TT
apparently it is about tapping the “masstige” market according to Panmure
BE
Though, of course, there’s a blocking family stake involved.
TT
St. Tropez acquisition strengthens PZC’s ‘masstige’ position
PZ Cussons has announced the acquisition of St Tropez Holdings Ltd for
£62.5m. St Tropez is the UK’s leading sunless tanning products range and, in
our view, strengthens PZC’s position in ‘masstige’ brands, which already
include The Sanctuary and Charles Worthington. The price represents 8.4x
EV/EBITDA for July 2010A, which is our view is excellent value for a
strongly growing and high margin business. We increase our EPS forecast by
3% this year and by 7% for 2012E, and increase our price target from 350p to
400p, equating to 20.0x P/E and 11x EV/EBITDA for May 2012E.
PZ Cussons has announced the acquisition of St Tropez Holdings Ltd for
£62.5m. St Tropez is the UK’s leading sunless tanning products range and, in
our view, strengthens PZC’s position in ‘masstige’ brands, which already
include The Sanctuary and Charles Worthington. The price represents 8.4x
EV/EBITDA for July 2010A, which is our view is excellent value for a
strongly growing and high margin business. We increase our EPS forecast by
3% this year and by 7% for 2012E, and increase our price target from 350p to
400p, equating to 20.0x P/E and 11x EV/EBITDA for May 2012E.
TT
Summary: We view this as an excellent acquisition done at an attractive price,
strengthening PZC’s portfolio of ‘masstige’ brands and offering good growth potential
with high margins, and helping to give an even balance of the business across developed
and developing markets. PZC still has substantial acquisition capability as an when
opportunities arise. We are increasing our price target from 350p to 400p, equating to
20x P/E and 11x EV/EBITDA for May 2012E
strengthening PZC’s portfolio of ‘masstige’ brands and offering good growth potential
with high margins, and helping to give an even balance of the business across developed
and developing markets. PZC still has substantial acquisition capability as an when
opportunities arise. We are increasing our price target from 350p to 400p, equating to
20x P/E and 11x EV/EBITDA for May 2012E
TT
mind you they St Tropez does seem a bit exposed to big customer risk…
TT
what would happen if Jordan fell under a bus
BE
A national holiday?
BE
I see your point, however.
TT
i cite the following evidence
BE
Also, I’d imagine more damage to the bus.
TT
there are things that might cushion the blow
BE
However, that’s quite enough of that.
BE
Should we move on to some 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.
11:28AM
TT
please do..from jordon to raw
BE
[Cough]
BE
Well, it’s Monday of course.
BE
So there isn’t much around.
BE
But Telecity’s getting a fair bit of attention again.
Telecity Group Plc (TCY:LSE): Last: 542.50, up 27.5 (+5.34%), High: 544.50, Low: 519.50, Volume: 302.75k
BE
The story here seems to be coming out of the trade press.
BE
Saying Equinix, its big US rival, could bid for Interxion
TT
(Rothbart – apologies…yes Cussons have long been a well-managed company – a staple in our UK companies coverge)
BE
Which is an Amsterdam-based data hotel.
BE
Owned by Baker Capital
BE
The New York fund who specialise in such things
BE
The story seems to be that Baker brought in Morgan Stanley to investigate a sale or IPO
BE
At some seriously eye-watering multiples
BE
And now, the idea is that Equinix may step in with a bid pre the IPO
BE
Which has got people talking about scarcity multiples again. Hence, Telecity rattles up another 5%.
TT
so any more Bryce on the raw front
BE
Well, this one’s a bit more tartare.
BE
Serious health warnings are in place.
BE
But there’s a story getting retreaded at the moment about bid interest in Halfords
TT
i wonder what an unserious health warning is…
BE
Yes. Fair point. One delivered in the style of that bloody awful Robin Williams movie I guess.
BE
So the gist of the rumour is that private equity could take a shot at Halfords
BE
A price of 575p mentioned, though that looks to have been generated out of thin air to be honest.
Halfords Group Plc (HFD:LSE): Last: 443.60, up 0.4 (+0.09%), High: 445.00, Low: 439.80, Volume: 760.02k
TT
well there seems to be a lot of private equity money sloshing around at the moment, looking for a home
TT
Global value of buy-outs doubles to $144bn
By Lina Saigol in London and Helen Thomas in New York
By Lina Saigol in London and Helen Thomas in New York
Published: September 26 2010 20:52 | Last updated: September 26 2010 20:52
The private equity industry’s rush to put its money to work has seen a near doubling of buy-out activity in the first nine months of the year.
Buy-outs jumped from $77.9bn in value to $144bn in the first nine months of the year. In the third quarter, buy-out activity was the highest since early 2008, rising to $62.9bn from $24.4bn in the same period last year.
The increase, helped by a thawing of financing markets, came amid modest recovery in global M&A activity. While the rate of growth in deals is strong, absolute levels of activity remain subdued.
TT
the private equity have to start investing their funds or lose them
BE
Indeed. Though Halfords would be about the biggest PE deal we’ve seen in the UK for ages. Since Boots, I suspect.
BE
So, since we’re mentioning retailers …..
BE
Anything new on Webvan 2.0, Tony?
TT
(taxloss – only really in the eastern states – bogan is not a feature of south australian slang)
TT
more exciting developments at Ocado
An internet food retailer that many believe is the second coming of Webvan. Loss making yet valued at close to £1bn on flotation.
TT
another fresh Sell note from Shore Capital’s Clive Black
TT
citing research from Verdict suggesting the online retail market has peaked and is set to slow
TT
Has online retailing growth rates peaked?
We note the financial press reports on the 24th September 2010 attributed to the retail industry research house Verdict, which expects a material deceleration in the rate of growth of online sales.
We note the financial press reports on the 24th September 2010 attributed to the retail industry research house Verdict, which expects a material deceleration in the rate of growth of online sales.
If so, the implications for stock multiples could be considerable
Aside from the impact that any slowdown in general economic activity in the UK may bring for the retail and consumer goods sectors, and the very challenging comparatives that the online retail segment has for that matter, Verdict makes the interesting point that the most likely web shoppers are possibly already online; i.e. relatively affluent 35-44 year olds.
Put another way, if Verdict is correct in effectively calling the top of the rate of growth of the online market, because the web has reached most of the probable shoppers, then this could have significant meaning for the ongoing underlying growth rates for grocery e-commerce and, more importantly, the accompanying stock ratings for those active in the sub-sector.
BE
(@The Real Limey: true on Halfords. Though I draw your attention to EMI. Private equity moves in mysterious, hilariously value destructive ways.)
TT
Verdict is reported as stating a slow down from 35% to 12%
Verdict suggests an annual growth rate of web based retail sales in the next few years of c12% versus c35% in recent times; grocery online sales have been rising at c15% over the last year or so. By any stretch of the imagination such a deceleration in growth rates would be meaningful in general and also to the grocery market in particular.
Verdict is reported as stating a slow down from 35% to 12%
Verdict suggests an annual growth rate of web based retail sales in the next few years of c12% versus c35% in recent times; grocery online sales have been rising at c15% over the last year or so. By any stretch of the imagination such a deceleration in growth rates would be meaningful in general and also to the grocery market in particular.
Waitrose reveals concern about its customers exposure to austerity and copies Ocado
We deem such views from Verdict to be mellow news for Ocado, which is wholly online and higher category for that matter. Verdict’s concerns may be multiplied as government cuts of quangos’ in particular impact white collar households, a proportion of which may be Ocado shoppers.
BE
Blimey.
BE
Slowing market already.
TT
Such market or economic concerns are, to our minds, behind Waitrose’s (John Lewis Partnership) decision to mimic Ocado’s trading policy through a price match of a proportion of proprietary brand prices sold by Tesco (TSCO#, Buy at 438p) (note: not all brands, not Tesco own label and not Tesco promotions). That move seeks to reassure its shoppers that they are not disadvantaged on everyday lines, albeit the overall price file remains materially above Tesco and other superstore retailers
TT
and the summary..i think it is worth digesting this note
BE
So Ocado’s top slicing from a slowing market.
TT
We retain our Sell stance
Shore Capital continues to believe that Ocado is a business for which its equity stock is still materially overvalued; Ocado does not yet have positive earnings and a prospective 2010/11F EV/EBITDA multiple of 16.5 times. Hence, we have a SELL stance on Ocado shares.
We retain our Sell stance
Shore Capital continues to believe that Ocado is a business for which its equity stock is still materially overvalued; Ocado does not yet have positive earnings and a prospective 2010/11F EV/EBITDA multiple of 16.5 times. Hence, we have a SELL stance on Ocado shares.
TT
so remind me Bryce..what are the shares trading at now
Ocado Group PLC (OCDO:LSE): Last: 137.50, down 0.5 (-0.36%), High: 139.00, Low: 137.50, Volume: 176.50k
TT
and remind what did they float at
BE
180p, wasn’t it?
BE
Cut from an initial range of 200p-275p.
BE
275p!
TT
so investors are down 23 per cent from the official pricing
BE
275p! That still amuses me.
BE
You have to admire the brass neck involved.
TT
the waitrose link was a reference to this story i think from us last week
TT
Waitrose set to muscle in on Ocado
By Andrea Felsted
Published: September 16 2010 18:17 | Last updated: September 16 2010 18:17
Waitrose is poised to expand its online business in direct competition with Ocado, the newly listed internet grocer with whom it has a working relationship.
Charlie Mayfield, chairman of the John Lewis Partnership, the employee- owned business, said online sales at both its Waitrose supermarkets and John Lewis department stores had helped lift interim sales and profits.
By Andrea Felsted
Published: September 16 2010 18:17 | Last updated: September 16 2010 18:17
Waitrose is poised to expand its online business in direct competition with Ocado, the newly listed internet grocer with whom it has a working relationship.
Charlie Mayfield, chairman of the John Lewis Partnership, the employee- owned business, said online sales at both its Waitrose supermarkets and John Lewis department stores had helped lift interim sales and profits.
TT
He added that Waitrose Deliver, the supermarket chain’s online business, was earmarked for further development, particularly in the London area.
“We are expecting to expand Deliver,” said Mr Mayfield. “It’s a growth opportunity for us.”
Waitrose is already preparing for January, when it will begin competing with Ocado within the M25.
“I would not describe it as a massive gear-up. It’s getting ready for us to develop a business that we hope to grow over the long term in London,” said Mr Mayfield.
“We are expecting to expand Deliver,” said Mr Mayfield. “It’s a growth opportunity for us.”
Waitrose is already preparing for January, when it will begin competing with Ocado within the M25.
“I would not describe it as a massive gear-up. It’s getting ready for us to develop a business that we hope to grow over the long term in London,” said Mr Mayfield.
TT
so enough of shooting fish in a barrel
TT
what shall we turn to
11:42AM
BE
Want to turn macro for a bit?
BE
Interesting story just went live on FT.com
BE
Portugal told to consider tax rises
BE
Portugal should be prepared to increase taxes as the increasing cost of financing its public debt threatens to undermine economic recovery, according to a new report by the OECD, the association of developed nations.
The advice goes to the heart of a political row in which the minority Socialist government has threatened to resign if the opposition Social Democrats (PSD) refuse to support its 2011 budget proposals, which are expected to include tax increases.
TT
do you have a view on that
BE
Not really. Overspend was the elephant in the room for anyone who’s ever visited Lisbon.
BE
Anyway, it’s shaping up to be a big week for the European banks.
TT
Eurozone banks face test as loans expire
By Ralph Atkins in Frankfurt and David Oakley in London
Published: September 26 2010 17:04 | Last updated: September 26 2010 17:04
The health of eurozone banks faces a fresh test this week when they are due to roll over the largest amount of loans at the European Central Bank since early July, when €442bn of one-year loans matured.
The return of €225bn ($303bn) in three-month to 12-month liquidity to the ECB could put upward pressure on market interest rates, while the volumes that are converted into new loans will be an important guide to levels of financial market confidence within Europe’s monetary union.
The results could help determine the pace at which the ECB pursues its “exit strategy” to unwind exceptional measures taken after Lehman Brothers investment bank collapsed in September 2008.
By Ralph Atkins in Frankfurt and David Oakley in London
Published: September 26 2010 17:04 | Last updated: September 26 2010 17:04
The health of eurozone banks faces a fresh test this week when they are due to roll over the largest amount of loans at the European Central Bank since early July, when €442bn of one-year loans matured.
The return of €225bn ($303bn) in three-month to 12-month liquidity to the ECB could put upward pressure on market interest rates, while the volumes that are converted into new loans will be an important guide to levels of financial market confidence within Europe’s monetary union.
The results could help determine the pace at which the ECB pursues its “exit strategy” to unwind exceptional measures taken after Lehman Brothers investment bank collapsed in September 2008.
TT
on the macro side of things, Peter Oppenheimer from Goldman has put out a European strategy note today
TT
A sound, decent guy is Peter..how he has managed to survive in the middle of Goldman for so long is something
TT
anyway is bullish on European equities
TT
Treading water before breaking the range
We expect strong returns in the medium term and have rolled on our 12-month
forecast to 320 for the SXXP (23% upside). This is driven by a gradual improvement
in US growth, loose monetary conditions, and strong European earnings. Near term,
however, our conviction is less strong and we see risks especially from a potential
fall in the ISM. We update our sector views, and upgrade Telecoms to Overweight.
We expect strong returns in the medium term and have rolled on our 12-month
forecast to 320 for the SXXP (23% upside). This is driven by a gradual improvement
in US growth, loose monetary conditions, and strong European earnings. Near term,
however, our conviction is less strong and we see risks especially from a potential
fall in the ISM. We update our sector views, and upgrade Telecoms to Overweight.
TT
Sxxp is the Stoxx Euro 600 index
TT
Growth and returns similar to 2005
We compare the outlook for 2011 with 2005 and
there are strong similarities. In 2005 the SXXP
rose 23% on good economic growth (almost
identical to our 2011 economics forecasts), strong
earnings and reasonable valuation. Also high cash
balances helped fuel a rise in capex and kick-start
the boom in M&A. Companies have similar cash
levels today and we expect a pick-up in capex and
M&A, but not to the same extent as in 2005.
But we expect the market to remain cheaper
The market is cheaper now than in 2005; but this
rightly reflects additional risks and we do not
expect a rerating. Our return forecast is driven by
earnings. We expect 23% earnings growth in 2011.
…and there are some near-term risks
In the next few months we have a flat forecast
(260 for 3 months) as we see headwinds from
weak US growth and a moderating ISM
We compare the outlook for 2011 with 2005 and
there are strong similarities. In 2005 the SXXP
rose 23% on good economic growth (almost
identical to our 2011 economics forecasts), strong
earnings and reasonable valuation. Also high cash
balances helped fuel a rise in capex and kick-start
the boom in M&A. Companies have similar cash
levels today and we expect a pick-up in capex and
M&A, but not to the same extent as in 2005.
But we expect the market to remain cheaper
The market is cheaper now than in 2005; but this
rightly reflects additional risks and we do not
expect a rerating. Our return forecast is driven by
earnings. We expect 23% earnings growth in 2011.
…and there are some near-term risks
In the next few months we have a flat forecast
(260 for 3 months) as we see headwinds from
weak US growth and a moderating ISM
TT
We update our sector views
We upgrade Telecoms to Overweight (from
Neutral). The sector has performed in line with the
market year to date, and we believe it offers a very
attractive yield and excellent cover for that yield.
We retain our preference for EM exposure with
Overweights in Basic Resources and Personal
Care & Household Goods. We continue with
Underweights in Utilities and Insurance.
We upgrade Telecoms to Overweight (from
Neutral). The sector has performed in line with the
market year to date, and we believe it offers a very
attractive yield and excellent cover for that yield.
We retain our preference for EM exposure with
Overweights in Basic Resources and Personal
Care & Household Goods. We continue with
Underweights in Utilities and Insurance.
BE
Ok – ta for that.
BE
Handy bull-feed.
BE
Anything else around that’s worth sharing?
TT
well i have more from Mike Lenhoff from Brewin Dolphin…an excellent strategist who i have always wondered has not been poached by a bigger bank
TT
maybe he likes the life in Brewin Dolphin
BE
Lenhoff is good, yes.
TT
basically his headline is arguing that Fed won’t need more QE – rebounding equity markets and a weakening dollar will do the job
TT
If equity markets continue to rebound, as we expect, central banks are likely to view this as a welcome
sign of reflation and indicative of a recovery that is progressing towards a sustained expansion.
And if the US dollar continues to depreciate, the Fed won’t have to worry about more QE. It’s not just
against the major currencies that the dollar is weakening; it is also against the minor ones where, for the
most part, forecasts for GDP growth are continuing to be revised up. This is particularly helpful for the
S&P 500 which, like the FTSE 100, has a sizable proportion of revenues generated from the developing
world – though not as sizable
sign of reflation and indicative of a recovery that is progressing towards a sustained expansion.
And if the US dollar continues to depreciate, the Fed won’t have to worry about more QE. It’s not just
against the major currencies that the dollar is weakening; it is also against the minor ones where, for the
most part, forecasts for GDP growth are continuing to be revised up. This is particularly helpful for the
S&P 500 which, like the FTSE 100, has a sizable proportion of revenues generated from the developing
world – though not as sizable
TT
A weakening dollar is also good for US companies with little or no direct exposure overseas. Apart from
the exporters and overseas earners, it will help domestic output of goods and services as US consumers
turn to import substitutes. A weakening dollar is good for profitability all round, which in turn is good for
investment and jobs and probably a surer way of creating both than having to rely on QE.
Also, the reflationary implications of a weakening dollar extend far and wide by helping to boost
commodity prices. Of course this is good and bad – good, that is, for producers and maybe not so good
for consumers.
Importantly though, a weakening dollar is likely to translate not just into harder commodity prices but
more generally into inflation expectations and this together with a weaker dollar and the stimulus the latter
provides for the US economy are likely to make the Fed feel happier. This is because the combination is
likely to alleviate the concern the FOMC has about underlying inflation being at levels somewhat below
those it judges ‘…consistent over the long run with its mandate to promote maximum employment and
price stability’.
the exporters and overseas earners, it will help domestic output of goods and services as US consumers
turn to import substitutes. A weakening dollar is good for profitability all round, which in turn is good for
investment and jobs and probably a surer way of creating both than having to rely on QE.
Also, the reflationary implications of a weakening dollar extend far and wide by helping to boost
commodity prices. Of course this is good and bad – good, that is, for producers and maybe not so good
for consumers.
Importantly though, a weakening dollar is likely to translate not just into harder commodity prices but
more generally into inflation expectations and this together with a weaker dollar and the stimulus the latter
provides for the US economy are likely to make the Fed feel happier. This is because the combination is
likely to alleviate the concern the FOMC has about underlying inflation being at levels somewhat below
those it judges ‘…consistent over the long run with its mandate to promote maximum employment and
price stability’.
TT
Also, the BoE aside, the other major central banks might not mind a bit of inflation. Rather than raising
interest rates or tightening monetary policy, as many of the central banks in the developing world are
doing, the major central banks may just choose to keep existing policies on hold for the time being and
forget about more QE.
interest rates or tightening monetary policy, as many of the central banks in the developing world are
doing, the major central banks may just choose to keep existing policies on hold for the time being and
forget about more QE.
BE
Ok – thanks for that.
BE
Let’s head back to stock specific for a moment.
11:50AM
TT
ok..so how are the housebuilders doing
TT
a sector that always offers a few surprises
BE
And, surprisingly, they’re doing nothing.
Taylor Wimpey Plc (TW.:LSE): Last: 29.07, up 0.11 (+0.38%), High: 29.76, Low: 28.72, Volume: 4.32m
Barratt Developments PLC (BDEV:LSE): Last: 103.60, down 0.5 (-0.48%), High: 105.90, Low: 103.20, Volume: 1.40m
TT
so why are we talking about stocks that are doing nothing
BE
Because UK house prices fell by the most in 18 months last month.
BE
At least according to Hometrack.
TT
(Lady Economist – but you get to play with excel spredsheets)
BE
Down 0.4 percent from the previous month to £157,600
BE
third consecutive monthly drop
BE
And biggest since March 2009
BE
September’s price declines are “part of an ongoing re-
pricing process which began six months ago in early spring, and
which is set to stretch well into 2011,” Richard Donnell,
Hometrack’s director of research, said in the statement.
“Growing concerns over the economic outlook and public-spending
cuts are weighing heavily on would-be purchasers.”
pricing process which began six months ago in early spring, and
which is set to stretch well into 2011,” Richard Donnell,
Hometrack’s director of research, said in the statement.
“Growing concerns over the economic outlook and public-spending
cuts are weighing heavily on would-be purchasers.”
BE
That’s all via Bloomberg.
BE
Now, I know there’s no liquidity in the mortgage market, and housebuilders are basically priced as house collecters.
BE
But still, it’s odd that the equity side keep shrugging off the warning signs here.
TT
(Lady E – i am told Excel is a wonderful thing)
BE
All trading at about 0.8x price to book.
BE
Anyway, not making a point, just curious.
TT
(my partner swears by her pivot tables)
BE
While on the sector, an interesting story caught my eye in Building Magazine this morning.
TT
some gravel?
BE
No – not some gravel. They don’t do covermount freebies.
BE
This
BE
Majority of Connaught deals will not transfer to Lovell
BE
Research by Building shows most councils will re-tender contracts with failed social housing firm
BE
Morgan Sindall’s attempt to pick up more than half of Connaught’s contracts is faltering as law firms said most of its social housing clients have terminated the deals.
BE
Just six out of the 52 housing associations and local authorities represented by law firms contacted by Building have switched their Connaught contracts to Lovell, Morgan Sindall’s social housing arm.
TT
yes that is the expectation in the market that the contracts will be put out to tender again..
BE
I wasn’t aware it was the expectation of Morgan Sindall shareholders.
BE
Who bought the stock up after it, in theory, picked up the Connaught business.
Connaught Plc (CNT:LSE): Last: 16.65, no change, Volume: 0.00
TT
(Lady E – apparently pivot tables are the crowning glory of excel)
TT
well i am not sure there is a legal basis for just assuming the contracts
BE
Here’s the link, though it might be subscriber only if you don’t come through Google.
TT
a pity about the lack of covermount freebies..they could sell each issue with a brick or something
BE
Oh – hang on. A tame broker has just dropped over some research from RBS playing the story down.
BE
There is an article in Building Magazine that the majority of Connaught deals will not transfer
to Lovell. We believe that the deal is still a good one for Morgan Sindall and that probably
more than 40 clients have agreed to date to sign up (rather than the inaccurate article.s stated
6 clients).
to Lovell. We believe that the deal is still a good one for Morgan Sindall and that probably
more than 40 clients have agreed to date to sign up (rather than the inaccurate article.s stated
6 clients).
BE
Building Magazine article
There is an article in Building Magazine that Morgan Sindall has so far only got 6 clients across the
line in signing up with them under the Connaught wreckage deal. We believe that this is not quite the
case with agreements to novate with 40 odd clients probably achieved to date (rather than 6 referred
to in the article), more the likely number so far. Such clients will be working on the basis of an
agreement of intention to novate. To hit the group’s original aim of c£200m p.a of revenue from the
deal, we believe they need an estimated c100 clients to come across in our view. There is still time
for more to come across, but at the current level, (if one were to simply stop it here) it looks more like
a £80-100m p.a. of additional revenue rather than c£200m p.a.
There is an article in Building Magazine that Morgan Sindall has so far only got 6 clients across the
line in signing up with them under the Connaught wreckage deal. We believe that this is not quite the
case with agreements to novate with 40 odd clients probably achieved to date (rather than 6 referred
to in the article), more the likely number so far. Such clients will be working on the basis of an
agreement of intention to novate. To hit the group’s original aim of c£200m p.a of revenue from the
deal, we believe they need an estimated c100 clients to come across in our view. There is still time
for more to come across, but at the current level, (if one were to simply stop it here) it looks more like
a £80-100m p.a. of additional revenue rather than c£200m p.a.
BE
The Connaught wreckage deal
If the number of clients signing up were to stop at today.s level (perhaps harsh), than it is still a good
deal in our view, as it may still prove to be 7-8% EPS enhancing in a full year, although this is less
than our original hopes of a 14-15% enhancement. The group should also recover more than their
£28m cash outlay via WIP recoveries on existing contracts under the terms of the deal with the
administrator too. We still believe that this deal is an overall net positive, with our estimates yet to
reflect the situation. However, it may not be quite as good as originally hoped. With a 2010F PER of
8.6x and a 6% yield, we stay buyers.
If the number of clients signing up were to stop at today.s level (perhaps harsh), than it is still a good
deal in our view, as it may still prove to be 7-8% EPS enhancing in a full year, although this is less
than our original hopes of a 14-15% enhancement. The group should also recover more than their
£28m cash outlay via WIP recoveries on existing contracts under the terms of the deal with the
administrator too. We still believe that this deal is an overall net positive, with our estimates yet to
reflect the situation. However, it may not be quite as good as originally hoped. With a 2010F PER of
8.6x and a 6% yield, we stay buyers.
Morgan Sindall PLC (MGNS:LSE): Last: 673.00, up 3.5 (+0.52%), High: 673.00, Low: 666.00, Volume: 13.50k
12:00PM
BE
Ok – we’re though midday.
BE
And the ROTR seem to be talking among themselves again.
BE
Anything you want to round up with, Tony?
TT
(Outlaw: it all comes out of the closet when you raise the subject of excel)
TT
well there is a note on the asset managers from Credit Suisse
TT
i immediately looked for the Gartmore bit obviously
BE
Obviously.
TT
Gurjit Kambo and Rupak Ghose are bulls on the sector, neutral on gartmore
TT
Rise of the platforms: In our view, the proliferation of fund platforms (currently 44% of UK retail sales) increases performance transparency but also asset churn, presenting opportunities for strong performing players.
Regulatory driven product shifts: In our view, regulatory changes such as the retail distribution review and introduction of personal accounts in 2012 will drive further growth in passive investments/ETFs. We expect a rise in the closure of poor performing active funds with market share gains on offer for best in class active fund managers.
Stock calls: We prefer those asset managers that have delivered positive fund flows through the cycle with strong recent momentum. Our core sector picks include Azimut, BlueBay and Jupiter-all Outperform rated. We are cautious on F&C-Underperform-despite a discount valuation we see weak flow momentum and further management distraction as unhelpful.
TT
on Gartmore
TT
Gartmore (Neutral, TP 118p): Gartmore’s share price has nearly halved since its IPO
in December 2009, which to a large extent was driven by the investigation into the
conduct of a key fund manager. While the resignation of Guillaume Rambourg in July
2010, has reduced uncertainty we believe investors and the market continue to have
concerns over flow momentum and fund manager concentration risk. The main risk is
within the European equities, with this investment strategy managed by two key fund
managers and accounting for 34% of AuM as at 30 June 10 and we estimate 45% of
net management fees (ex performance fees). European equities has also been a
recent laggard in terms of UK industry flows, which is unlikely to be helpful in
generating flow momentum combined with further redemptions of c$0.5bn expected in
Q3 within alternative assets. So whilst we continue to see headwinds to fund flows and
earnings we believe these are reflected in the share price, but we fail to see a near
term catalyst for a material upside to the current share. The shares trade on CY11 PE
of 9.4x , a 21% discount to the UK asset management sector. The next event is the
Q3 IMS on 1 November 10.
Gartmore (Neutral, TP 118p): Gartmore’s share price has nearly halved since its IPO
in December 2009, which to a large extent was driven by the investigation into the
conduct of a key fund manager. While the resignation of Guillaume Rambourg in July
2010, has reduced uncertainty we believe investors and the market continue to have
concerns over flow momentum and fund manager concentration risk. The main risk is
within the European equities, with this investment strategy managed by two key fund
managers and accounting for 34% of AuM as at 30 June 10 and we estimate 45% of
net management fees (ex performance fees). European equities has also been a
recent laggard in terms of UK industry flows, which is unlikely to be helpful in
generating flow momentum combined with further redemptions of c$0.5bn expected in
Q3 within alternative assets. So whilst we continue to see headwinds to fund flows and
earnings we believe these are reflected in the share price, but we fail to see a near
term catalyst for a material upside to the current share. The shares trade on CY11 PE
of 9.4x , a 21% discount to the UK asset management sector. The next event is the
Q3 IMS on 1 November 10.
TT
and the house is negative on F&C
TT
F&C (Underperform, TP 65p) Potential upside 3%: F&C continues to trade at a
discount to the UK asset management sector on most valuation metrics, but we
believe this reflects concerns around the potential withdrawal of long term
management contracts, particularly following the stake acquired by Sherboure, which
could potentially trigger a clause change in the long term contracts if Sherbourne’s
stake of voting shares exceeds 10%, currently 9.87%. We estimate the present value
of the EPS impact of the Friends Provident, Achemea and BCP contracts being
withdrawn at 1.4p, 1.3p and 0.8p respectively, hence we think the market is expecting
that more than one of these contracts will be withdrawn. Whilst this is not our core
assumption, the risk remains.
discount to the UK asset management sector on most valuation metrics, but we
believe this reflects concerns around the potential withdrawal of long term
management contracts, particularly following the stake acquired by Sherboure, which
could potentially trigger a clause change in the long term contracts if Sherbourne’s
stake of voting shares exceeds 10%, currently 9.87%. We estimate the present value
of the EPS impact of the Friends Provident, Achemea and BCP contracts being
withdrawn at 1.4p, 1.3p and 0.8p respectively, hence we think the market is expecting
that more than one of these contracts will be withdrawn. Whilst this is not our core
assumption, the risk remains.
TT
We are however, more concerned over the weak flow
momentum that F&C has experienced over the past few years and slower momentum
in net sales vs. the sector going forward as it remains less geared to trends we
highlight. The shares trade on FY11 PE of 8.8x which compares to the sector on
11.9%, but given the +20% share price rise following the Sherbourne stake, we see
limited near term upside to the share price. The next event is an investor day on the
Thames River Capital acquisition on 5 October.
momentum that F&C has experienced over the past few years and slower momentum
in net sales vs. the sector going forward as it remains less geared to trends we
highlight. The shares trade on FY11 PE of 8.8x which compares to the sector on
11.9%, but given the +20% share price rise following the Sherbourne stake, we see
limited near term upside to the share price. The next event is an investor day on the
Thames River Capital acquisition on 5 October.
TT
how are the shares doing Bryce this morning
BE
Well, Aberdeen’s results were a bit meh after a big build-up
BE
Arg – what’s Aberdeen’s ticker?
TT
(Lady E – an accountant for a charity)
TT
Bryce is just banging his head against the computer, looking for the ticker
BE
Up 0.9% at 161.2p
TT
yeah
BE
My bloody Reuters Trader system forgot all its autocompletes overnight.
TT
at least he knows how to put the tickers up..unlike myself
BE
Reuters Trader is OFFICIALLY THE WORST SYSTEM IN THE WORLD.
Gartmore Group Ltd (GRT:LSE): Last: 113.60, down 1.6 (-1.39%), High: 116.90, Low: 113.60, Volume: 173.68k
F&C Asset Management PLC (FCAM:LSE): Last: 63.25, no change, High: 63.50, Low: 63.00, Volume: 72.21k
TT
posh bloke asset management?
Ashley House PLC (ASH:LSE): Last: 28.50, down 3.5 (-10.94%), High: 32.00, Low: 31.00, Volume: 14.92k
BE
Oh – that’s not right is it?
Ashmore Group plc (ASHM:LSE): Last: 336.50, up 6.4 (+1.94%), High: 337.90, Low: 332.90, Volume: 164.01k
BE
No.
BE
You want a go, Tony?
TT
jupiter i meant
BE
Reuters is giving me Jupiter Telecoms on the Jasdaq Exchange.
BE
I give up.
TT
anyway my mind is starting to wander to hula hoops..it is that time of day..crisps o’clock
12:09PM
TT
i have to return to the day job but i should leave you with something
TT
on the subject of crisps, i reminded of a competition held by the much-loved Wall Street blog dealbreaker
TT
the idea is to eat one of every item in an office vending machine over a set period
BE
Dealbreaker. Bess Levin’s a brilliant writer.
Dealbreaker. Bess Levin’s a brilliant writer.TT
the results are kind of predictable…
TT
not for reading by the weak of stomach
TT
some other recounts of challenges
http://dealbreaker.com/2009/07/jpmorgan-analyst-picks-up-food-eating-challenge/
http://dealbreaker.com/2009/08/help-me-help-you/
http://dealbreaker.com/2009/08/ubs-employeedawsons-creek-fan-pushing-himself-this-morning/
BE
I do like that theme.
TT
sadly the challenge has not been taken up in the uk…
BE
Rightards, feel free to step up with a plate.
TT
now i have to run…many thanks for having me..
TT
i will be back tomorrow
BE
Ok – ta Tony.
TT
ciao
BE
And for the sake of completeness, I’ll have a quick whip around the sellside that’s having an effect before shutting the session.
BE
First, Smiths Group.
Smiths Group PLC (SMIN:LSE): Last: 1,202, down 25 (-2.04%), High: 1,218, Low: 1,198, Volume: 439.51k
BE
Merrill downgrade, valuation, dull.
BE
Valuation back to a premium, high US exposure
Following a re-rating versus the rest of the sector, outperformance relative to
peers and mixed US macro data, we downgrade Smiths Group to a Neutral. Our
2011 estimates remain 9% ahead of consensus driven by cost cutting but we are
concerned that Smiths will not be able to offset potentially weaker US growth with
higher growth in emerging markets in 2011.
Following a re-rating versus the rest of the sector, outperformance relative to
peers and mixed US macro data, we downgrade Smiths Group to a Neutral. Our
2011 estimates remain 9% ahead of consensus driven by cost cutting but we are
concerned that Smiths will not be able to offset potentially weaker US growth with
higher growth in emerging markets in 2011.
BE
High US but low emerging market sales
We see little earnings risk at FY numbers on 29th September, where our estimates
are inline with consensus. Cost cutting may surprise positively but we are
concerned that where most companies can offset set slower developed world
growth through emerging markets, Smiths may struggle due to high exposure to
the US (50% of sales) but low emerging market sales (10 -15% of sales).
We see little earnings risk at FY numbers on 29th September, where our estimates
are inline with consensus. Cost cutting may surprise positively but we are
concerned that where most companies can offset set slower developed world
growth through emerging markets, Smiths may struggle due to high exposure to
the US (50% of sales) but low emerging market sales (10 -15% of sales).
BE
Potential divestments offer support
Management focus on creating value and the potential divestment of assets could
unlock material upside. We think its unlikely that Smiths is a full break up story
and suspect that management would like to get margins in the middle of the
divisional target ranges to maximise value, but speculation and/or a deal could
push the shares higher.
Management focus on creating value and the potential divestment of assets could
unlock material upside. We think its unlikely that Smiths is a full break up story
and suspect that management would like to get margins in the middle of the
divisional target ranges to maximise value, but speculation and/or a deal could
push the shares higher.
BE
Neutral, 1350p PO unchanged
Smiths has re-rated relative to the sector and is now trading on 9.5x 2011
EV/EBITA (sector on 8.8x) and 2010 PE of 14.4x (sector on 13.9x) which looks
fully valued given the growth outlook. Smiths continues to have a strong mix of
structural and aftermarket driven markets, however, its geographical mix leaves
us concerned about relative growth in 2011.
Smiths has re-rated relative to the sector and is now trading on 9.5x 2011
EV/EBITA (sector on 8.8x) and 2010 PE of 14.4x (sector on 13.9x) which looks
fully valued given the growth outlook. Smiths continues to have a strong mix of
structural and aftermarket driven markets, however, its geographical mix leaves
us concerned about relative growth in 2011.
BE
And finally, Autonomy.
BE
Epic note on the software sector.
BE
Also quite dull.
Autonomy Corp Plc (AU.:LSE): Last: 1,792, up 21 (+1.19%), High: 1,798, Low: 1,762, Volume: 249.69k
BE
We initiate coverage on the European Software/IT services sector with a 1-Positive view.
There are 18 stocks in our coverage universe. We believe, as a late cyclical sector with
increasing corporate IT investments and easy comps, the sector has the potential for
relative outperformance vs the market in the coming months. However, from the middle
of 2011 the sector is also exposed to the low GDP growth environment that Barclays
Capital is expecting. In this context we prefer software and processing vendors over IT
services names due to their better earnings growth profile. Our top picks are SAP,
Autonomy and Wirecard.
There are 18 stocks in our coverage universe. We believe, as a late cyclical sector with
increasing corporate IT investments and easy comps, the sector has the potential for
relative outperformance vs the market in the coming months. However, from the middle
of 2011 the sector is also exposed to the low GDP growth environment that Barclays
Capital is expecting. In this context we prefer software and processing vendors over IT
services names due to their better earnings growth profile. Our top picks are SAP,
Autonomy and Wirecard.
BE
With the background of an expected low growth environment in 2011 we think stocks that
enjoy structural growth (even if they trade at higher multiples), stocks that potentially have
special situations and inexpensive stocks with a catalyst will outperform the market. In our
sector there are three structural growth companies that we rate 1-Overweight: Autonomy
(1-OW), Temenos (1-OW) and Wirecard (1-OW). Special situation investors should find an
attractive case in the next few months at Misys (1-OW) and possibly at Sopra (1-OW). For
large cap investors, the more stable SAP (1-OW), with its gearing into Q4 budget flush
combined with upside potential from synergies of the recent Sybase acquisition, and the still
under researched recent IPO Amadeus (1-OW) are our favourites. We see healthy upside
for longer term focused value investors in Micro Focus (1-OW). A catalyst here could be
the upcoming analyst day on the 29th September.
enjoy structural growth (even if they trade at higher multiples), stocks that potentially have
special situations and inexpensive stocks with a catalyst will outperform the market. In our
sector there are three structural growth companies that we rate 1-Overweight: Autonomy
(1-OW), Temenos (1-OW) and Wirecard (1-OW). Special situation investors should find an
attractive case in the next few months at Misys (1-OW) and possibly at Sopra (1-OW). For
large cap investors, the more stable SAP (1-OW), with its gearing into Q4 budget flush
combined with upside potential from synergies of the recent Sybase acquisition, and the still
under researched recent IPO Amadeus (1-OW) are our favourites. We see healthy upside
for longer term focused value investors in Micro Focus (1-OW). A catalyst here could be
the upcoming analyst day on the 29th September.
Strange software outfit, seemingly controlled by US investor ValueAct Capital.
BE
We think Dassault Systemes (3-UW), Indra Sistemas (3-UW) and Atos Origin (3-UW) will
be relative underperformers. Dassault’s valuation premium does not seem justified when
compared to the very similar growth vs the peer group. Indra is simply less geared into the
recovery than the rest of the peer group. Atos Origin is a much loved restructuring story,
but we are concerned that in a modest GDP growth environment the lower growth profile
of Atos vs its peers will outweigh the restructuring benefits, especially as most such benefits
have so far showed corresponding significant restructuring costs.
be relative underperformers. Dassault’s valuation premium does not seem justified when
compared to the very similar growth vs the peer group. Indra is simply less geared into the
recovery than the rest of the peer group. Atos Origin is a much loved restructuring story,
but we are concerned that in a modest GDP growth environment the lower growth profile
of Atos vs its peers will outweigh the restructuring benefits, especially as most such benefits
have so far showed corresponding significant restructuring costs.
BE
The software/IT services sector is currently trading at a 15-20% discount vs historical
valuation levels when looking at the standard valuation tool of the sector (PE). Arguably, the
whole market seems to be trading on a similar discount, however as late cyclical names the
risk to earnings in the software/IT services group is to the upside making the sector in
relative terms more attractive.
valuation levels when looking at the standard valuation tool of the sector (PE). Arguably, the
whole market seems to be trading on a similar discount, however as late cyclical names the
risk to earnings in the software/IT services group is to the upside making the sector in
relative terms more attractive.
BE
And with that, we will end it.
BE
Thanks for all your comments today.
BE
We’ll arrange an official poll for your favourite Excel command later in the week.
BE
(Disclaimer: no we won’t.)
BE
@WhenIWereYoung: The friendlier you chaps are, the more likely we can convince people to subject themselves to this bearpit.
BE
But we’ll certainly try to get some rotation going this week.
BE
So thanks again for joining us.
BE
Have a good afternoon everyone.
BE
(@WhenIWereYoung: a solid start. But would the occasional a bunch of flowers kill you?)