Markets Live chat transcript for the chat ending at 11:17 on 22 Oct 2010. Participants in this chat were: Neil Hume, FT bryce.elder
NH
Good morning
NH
or hola
NH
for our Spanish readers
NH
It’s 11.03am
NH
and time for Markets Live
NH
FT Alphaville’s daily market chit chat
NH
Bryce is here
BE
HELLO
NH
as it’s Friday
NH
I thought we would start today’s show with a competition
BE
OK
NH
no prizes on offer
NH
this is all about the glory of being right
BE
that’s prudent, given we never remember to actually send out the prizes.
BE
So what’s the competition?
NH
it’s guess the Betfair closing price
BE
Ah.
BE
So where are they trading now?
NH
hang on
NH
that have shot out of the stalls
NH
hit the ground runninig
NH
and are currently
NH
£15.38
BE
Wow, that’s what — 18% on day one?
NH
(BETF.L on reuters)
NH
thereabouts
BE
and £13 was towards the top end of the range
NH
it was
NH
but this is what happens when a company big enough to get into the FTSE 250
NH
and attract shed loads of index buying
NH
somehow many manages to float with a free float of just 15%
BE
Hm. A recipe for a massive squeeze
NH
yep
NH
I know the company argue there are lots of small investors who could sell
NH
so the free float is actually much larger
NH
but still 15%
NH
for a £1.4bn company
NH
some brokers reckon this could be £20 by Christmas
BE
really?
NH
yep
NH
particularly if punters get sucked into shorting it
BE
that could certainly happen
BE
what would it be worth at £20 a share?
NH
hang on
NH
let me get the float details from this morning
NH
that would be over £2bn
NH
eat your heart out Ocada
Ocado Group PLC (OCDO:LSE): Last: 137.90, up 1.2 (+0.88%), High: 138.70, Low: 137.20, Volume: 32.85k
BE
(@Seniormuppet: with a 15% free float, rather you than me.)
NH
The Offer comprises the sale of 16,227,462 existing Shares (prior to the exercise of the over-allotment option) by shareholders of the Company, representing approximately 15.2 per cent. of the total of 106,935,448 shares which will be in issue at Admission
BE
is there an over-allotment?
NH
yep
NH
Morgan Stanley Securities Limited, as stabilisation manager, has been granted an over-allotment option by certain of the Company’s larger shareholders over up to 1,750,322 Shares, representing 10.8 per cent. of the Shares comprising the Offer (assuming no exercise of the over-allotment Option). The over-allotment option is exercisable for a period of 30 calendar days from today
BE
And lock-ups?
NH
One moment
NH
Following Admission, a total of 71,286,811 shares held by certain of the Company’s larger shareholders and each of its directors and senior managers, representing in aggregate 66.7 per cent. of the shares in issue at Admission, will be subject to lock-up arrangements. Under the lock-up arrangements and subject to certain exceptions, the group of larger shareholders and each of the Company’s directors and senior managers have agreed not to offer or sell shares for a period of 180 days after Admission (or 365 days in the cases of the directors and senior managers)
NH
If the over-allotment option is exercised in full, the number of Shares subject to lock-up arrangements will be 69,536,489 Shares, representing 65.0 per cent. of the shares in issue at Admission. The Company has entered into a similar lock-up arrangement for a period of 180 days.
NH
however
NH
Betfair claims 45% of the company is in public hands post float
BE
Er ………… How does that work then?
NH
hang on
NH
like this
NH
Immediately following Admission, it is expected that approximately 45.0 per cent. of the Company’s issued ordinary share capital will be held in public hands (within the meaning of paragraph 6.1.19 of the Listing Rules) assuming that no Over-allotment Shares are acquired pursuant to the Over-allotment Option (increasing to approximately 46.1 per cent. if the maximum number of Over-allotment Shares are acquired pursuant to the Over-allotment Option).
NH
(cowboy – yellow. one more and you can go and join the muppets on ADVFN)
NH
if that’s true
NH
they could sell into the rise
NH
and cap the advance
NH
although
NH
that’s gonna give the company a big weighting
BE
Obvious stag for a bit of fourth-quarter padding.
NH
zap
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
(Cowboy: goodbye. It’s been a pleasure.)
NH
excellent
NH
I do love a good zapping before lunch
NH
gets the juices flowing
NH
anyone else want some?
BE
Calm down. We should move on to higher matters.
NH
wider market?
BE
Sure. And we can leave the muppets to self-regulate.
11:13AM
NH
Right
NH
down this morning
NH
off almost 30 points
NH
at 5,728.5
BE
Why?
NH
I don’t actually know
NH
feels a bit tired to me
NH
no real corporate or economic news out there
BE
Oct. 22 (Bloomberg) — European stocks fell, dragging the
Stoxx Europe 600 Index from a six-month high, as investors
speculated that additional stimulus measures by central banks
will fail to sustain the pace of the economic recovery.
Stoxx Europe 600 Index from a six-month high, as investors
speculated that additional stimulus measures by central banks
will fail to sustain the pace of the economic recovery.
BE
There you go. That’ll do.
NH
that’s made up
BE
Of course it is. But it’s convenient.
BE
So anyway, what’s leading us down?
NH
Investec
NH
not a stock we look at much
NH
and even less so
NH
since they decided to follow the lead of Autonomy
NH
and sponsor Spurs
Investec Plc (INVP:LSE): Last: 498.20, down 11.8 (-2.31%), High: 507.50, Low: 498.00, Volume: 380.73k
NH
dunno why they are down either
NH
but while we are looking at the banks
NH
been having some interesting conversations on Barclays this morning
Barclays PLC (BARC:LSE): Last: 282.00, down 3.95 (-1.38%), High: 286.45, Low: 280.80, Volume: 13.98m
BE
Why?
NH
this story ob Bloomberg
NH
The trustee of Lehman’s assets is in the process of trying to recover assets sold to Barclays. The trustee presented its claims in late May 2010. Barclays is scheduled to present its defence in late August 2010, but appeals by either side could see the litigation reaching a conclusion in late 2010/early2011. The rationale for the trustee launching its claim is on the basis that the Lehman assets were sold at an inappropriately cheap price and that certain aspects of the legal process by which the sale was undertaken have not been approved.
NH
there’s a bit more of that from Bloomie
NH
but I won’t bore you with it
NH
the point is
NH
that Barclays could lose this case
NH
they are suing over the $11bn windfall Barclays is said to have made from Lehman
NH
(FATDAZ – a team called arsenal once scored 4 in the San Siro)
NH
of course they won’t be lible for $11bn
NH
but it could still be a hit if they lose
BE
How much?
NH
hang on
NH
Andrew Lim at Matrix
NH
has been looking at that
NH
and its sort of nasty hit
NH
Barclays (rated HOLD, target price 290p) is today being reported (see Bloomberg article below) as being more likely to lose its lawsuit against Lehman, whereby the latter is suing Barclays for making an $11bn windfall profit from purchasing assets from Lehman when it went bankrupt. Lehman asserts that the judge which originally signed off on the sale has a right to overturn his own decision. The worrying turn of events for Barclays is that the same judge seems to be siding with Lehman.
NH
CONCLUSION: The worst case impact is that Barclays needs to write off the total value of the $10-11bn of assets that it has already booked, minus the minor $0.5bn that it has has not yet booked as a receivable. If we assume Barclays is impacted by a round $10bn (i.e. ?6.4bn), then this would represent 88% of FY2011E pre-tax profit and 12% of 2011E shareholders’ equity, so rather substantial. We expect at this time that perhaps Barclays could be forced to make a write off of $3-5bn (i.e. returning some assets to Lehman, and being forced to reverse the write-ups on some assets that it previously bought), which would impact 2011E shareholders’ equity by 4-6%. This is not anticipated by the market so today’s news would be an incremental negative.
NH
(Tuna you are right -it WAS five)
NH
(money we take no lectures on football finance from Poppy fans)
BE
Right. Ta for that. Interesting.
BE
And, just before we leave Bank of Bob, it’s worth noting that Merrill has stepped back its forecasts for BarCap again.
BE
Here are the details.
BE
We are taking a more cautious stance on BarCap revenues for this year, but more
importantly for 2011 and 2012. We cut our EPS forecasts by 12%, 18% and 12%
respectively to 27.5p, 35.0p and 50.6p. Our PO falls to 370p from 420p.
importantly for 2011 and 2012. We cut our EPS forecasts by 12%, 18% and 12%
respectively to 27.5p, 35.0p and 50.6p. Our PO falls to 370p from 420p.
BE
2009 was a vintage year for IB’s. Strong issuance, wide credit spreads and
volatility made for cyclically high revenues in FICC. 2010 has been a different
story and whilst issuance has picked up somewhat, narrow spreads and falling
volatility make credit trading more challenging. QE2 makes the rates business
more difficult as the curve flattens and volatility falls. This all potentially points to a
continuation of the tough trading environment in 2011.
volatility made for cyclically high revenues in FICC. 2010 has been a different
story and whilst issuance has picked up somewhat, narrow spreads and falling
volatility make credit trading more challenging. QE2 makes the rates business
more difficult as the curve flattens and volatility falls. This all potentially points to a
continuation of the tough trading environment in 2011.
BE
Now factor in £13.3bn of BarCap revenues for 2011
We have stepped away from Barclays base revenue guidance of £3.8bn per/q.
We now forecast FY10 revenues of £13.1bn (was £13.6bn), rising only modestly
to £13.3bn in 2011 (was £15.6bn). FICC revenues remain the biggest contributor
at £8.2bn and we now forecast them to be down 15% in 2011 versus the 1H10
annualised run-rate (more in line with our DBK estimates). We model a return to a
more “normal” £3.8bn quarterly run rate in 2012 when we pencil in £15.1bn of
revenues – we flex costs and factor in a 65% cost net-income ratio.
We have stepped away from Barclays base revenue guidance of £3.8bn per/q.
We now forecast FY10 revenues of £13.1bn (was £13.6bn), rising only modestly
to £13.3bn in 2011 (was £15.6bn). FICC revenues remain the biggest contributor
at £8.2bn and we now forecast them to be down 15% in 2011 versus the 1H10
annualised run-rate (more in line with our DBK estimates). We model a return to a
more “normal” £3.8bn quarterly run rate in 2012 when we pencil in £15.1bn of
revenues – we flex costs and factor in a 65% cost net-income ratio.
NH
oh dear
NH
not sure where consensus for BarCap now
NH
been loads of downgrades in recent weeks
NH
not sure if Merrill are more or less bearish
BE
I’ve a feeling it’ll tighten further going towards the Q3s.
BE
And by “tighten” I mean “fall”
NH
actually
NH
the banks team at Merrill have been busy today
NH
put out a note
NH
following a recent intense round of marketing
NH
and they think we are part way through a structural bull market in bank shares
NH
Following an intense round of marketing we thought it would be useful to give an
update on our current thoughts on the UK banks.
We continue to believe that we are only part way through a structural bull market
for bank share prices that will ultimately pave the way for significant upside in the
stocks. On a two year view we still think that Lloyds and RBS can double and that
there is significant upside potential in Barclays and HSBC; whilst clearly not as
attractive as it was we still like StanChart as it provides growth at a reasonable
price
update on our current thoughts on the UK banks.
We continue to believe that we are only part way through a structural bull market
for bank share prices that will ultimately pave the way for significant upside in the
stocks. On a two year view we still think that Lloyds and RBS can double and that
there is significant upside potential in Barclays and HSBC; whilst clearly not as
attractive as it was we still like StanChart as it provides growth at a reasonable
price
NH
RBS and Lloyds to double
NH
the government will love that
NH
upside in Barclays too
NH
buy HSBC
NH
and Stan Chart
NH
NH
NH
1) The early part of this year has been about breaking into profit and
funding. Whilst consensus still forecasts a loss for RBS, the investment case is
now almost entirely built on the road to banks making a 15% ROE – in our view
the market doesn’t believe it. We continue to think that this is doable as margins
continue to increase and bad debts fall quicker than expected. We remain well
above consensus for Lloyds and RBS and have strong conviction in those calls.
funding. Whilst consensus still forecasts a loss for RBS, the investment case is
now almost entirely built on the road to banks making a 15% ROE – in our view
the market doesn’t believe it. We continue to think that this is doable as margins
continue to increase and bad debts fall quicker than expected. We remain well
above consensus for Lloyds and RBS and have strong conviction in those calls.
NH
2) Whilst the StanChart rights issue raised questions about capital, we
think the FSA is very happy with where the UK banks are and by 2012 we think
the domestic banks will be in a strong position to pay dividends and that this will
begin to be discounted more as we move into next year. On a 50% payout ratio
the yields on the domestic banks are approaching 7-10%.
think the FSA is very happy with where the UK banks are and by 2012 we think
the domestic banks will be in a strong position to pay dividends and that this will
begin to be discounted more as we move into next year. On a 50% payout ratio
the yields on the domestic banks are approaching 7-10%.
NH
3) We continue to think that forecasts at HSBC are too low. Whilst it has an
investment bank it is benefiting from a strong Asian backdrop and as bad debts
normalise we continue to think that dividends can go up strongly – we are 20-30%
above consensus in 2011/12. News in the last week that it has stepped away
from Nedbank and that BBVA is in talks regarding Garanti only give more
comfort on this.
investment bank it is benefiting from a strong Asian backdrop and as bad debts
normalise we continue to think that dividends can go up strongly – we are 20-30%
above consensus in 2011/12. News in the last week that it has stepped away
from Nedbank and that BBVA is in talks regarding Garanti only give more
comfort on this.
NH
4) StanChart is all about growth and with the P/E currently toward the
bottom end of the long term range we are happy keeping hold of the BUY rating,
looking for 20% more upside.
To sum up, whilst we will clearly still have volatility as investors question capital,
double-dip and funding we stick to the strategy that we should be buying the pullbacks
not selling them. Long term view; the top picks remain Lloyds and RBS.
Short term we think the most leverage is in RBS as it has the capacity to move
above tangible book value (53p) in short order when the market works out that it
is profitable this year.
bottom end of the long term range we are happy keeping hold of the BUY rating,
looking for 20% more upside.
To sum up, whilst we will clearly still have volatility as investors question capital,
double-dip and funding we stick to the strategy that we should be buying the pullbacks
not selling them. Long term view; the top picks remain Lloyds and RBS.
Short term we think the most leverage is in RBS as it has the capacity to move
above tangible book value (53p) in short order when the market works out that it
is profitable this year.
BE
Ok. Banks are brilliant, says Bank of America ML.
BE
Fair enough. Who could argue with that.
NH
(Tuna -135m I thought, not £700m like some club in the North West)
11:24AM
NH
Moving on
NH
where now?
BE
Legal & Generalised Compliance Failings?
NH
oh yes
Legal and General Group PLC (LGEN:LSE): Last: 102.80, down 1.5 (-1.44%), High: 104.80, Low: 102.40, Volume: 3.21m
NH
the L&G fat finger
NH
the compayn has been forced to bring foward new sales figures
NH
because someone at the company
NH
sent them out last night to a selected group of analysts
NH
which got me thinking
NH
don’t analysts routinely get sent results the night before
NH
so they can have a really big note out in the morning?
BE
Er ……. I believe it may have happened.
BE
Did you note the email went out at 4pm as well?
NH
did it
NH
ouch
BE
During market open.
NH
that’s not good
BE
Half an hour of false market in L&G.
NH
FSA fine on the way?
BE
Ok – and they’ve got ADRs as well.
BE
So, yes, it is on paper a rather serious fail.
NH
(FATDAZ – Spurs propped up and financed in the transfer market by billionaire currency dealer. need to build new stadium. fail)
NH
and what about the figures
NH
any good?
BE
They are.
BE
Which is lucky. You can imagine how this would have played out if they were not.
NH
for us quite well
NH
lots of good copy
NH
for L&G less so
BE
Go on then – give us the names on the RNS.
BE
For the sake of full disclosure.
NH
Matt Hotson Director, Investor Relations and Strategy 020 3124 2150
Adrian Liew Investor Relations Manager 020 3124 2044
Adrian Liew Investor Relations Manager 020 3124 2044
Ching-Yee Chan Investor Relations 020 3124 2345
Media:
John Godfrey Group Communications Director 020 3124 2090
Richard King Head of Media Relations 020 3124 2095
NH
(Fatdaz what about the year’s of largesse in the transfer market financed by Joe Lewis. only reason the scum are in the champions league)
NH
any comment on the numbers?
BE
Yup. Detusche says it’s nice but not that significant.
BE
L&G has inadvertently sent out its 3Q sales figures to analysts, and has
therefore had to make a formal statement. We comment on the numbers
below, but in aggregate expect little impact on bottom-line forecasts. However,
we are taking the opportunity to update our target price for recent
equity market moves, lifting this by 7% to 109p. With only modest upside
to this level, our recommendation nonetheless remains Hold.
therefore had to make a formal statement. We comment on the numbers
below, but in aggregate expect little impact on bottom-line forecasts. However,
we are taking the opportunity to update our target price for recent
equity market moves, lifting this by 7% to 109p. With only modest upside
to this level, our recommendation nonetheless remains Hold.
BE
The data released relates to gross sales, rather than net inflows. As such it
only has limited read-through to valuation. That said, life sales are better
than expected at £466m versus £381m per quarter implied by our FY estimate,
with the main beat coming in the form of UK individual pensions
(£174m of sales versus our expectation of £91m). In other product areas the
sales numbers look broadly in line, while gross inflows into LGIM showed
an apparent slowdown (£5.6bn in the 3Q vs a heady £11bn in the two previous
quarters) ).
only has limited read-through to valuation. That said, life sales are better
than expected at £466m versus £381m per quarter implied by our FY estimate,
with the main beat coming in the form of UK individual pensions
(£174m of sales versus our expectation of £91m). In other product areas the
sales numbers look broadly in line, while gross inflows into LGIM showed
an apparent slowdown (£5.6bn in the 3Q vs a heady £11bn in the two previous
quarters) ).
BE
The pension beat reflects a couple of big (regular premium) workplace pensions
contracts. The group needs to build volume in this area, so this is
positive. We believe too that no commission was paid, thus this business
should be profitable in its own right – unlike the traditional individual pensions
business the group has written.
contracts. The group needs to build volume in this area, so this is
positive. We believe too that no commission was paid, thus this business
should be profitable in its own right – unlike the traditional individual pensions
business the group has written.
BE
The only number not revealed ahead of the formal statement on 9th November
is cash flow. Our forecast for this in the 3Q is £179m (1Q £145m + £34m
of US dividend, 2Q £179m).
is cash flow. Our forecast for this in the 3Q is £179m (1Q £145m + £34m
of US dividend, 2Q £179m).
NH
ta for that
NH
and just staying with the financials for a bit longer
NH
I do have some comment on the Anglo Irish
NH
liability management exercise
NH
which looks a bit more coercive than that
NH
here we go
NH
it’s from Merrill
NH
Liability management offered, Underweight-70%
Anglo Irish announced a liability management exercise yesterday on their Lower
Tier 2s, in the form of a subordinated to senior debt swap. The bank has offered
to exchange Lower Tier 2 debt into government guaranteed Senior securities at
an exchange ratio of 20% and with a December 2011 maturity. This exchange
looks pretty coercive to us. There are two sticks to tempt bondholders to take part
in the exchange. First for the exchange to take place it appears that bondholders
have to agree to have the terms of their bonds amended, so that the bank has the
option to redeem any outstanding bonds at €0.01 per €1000 principal. Second,
bondholders run the risk of having the burden-sharing legislation that has been
proposed by the Irish government imposed upon them, which in our view would
render their holdings virtually worthless.
Anglo Irish announced a liability management exercise yesterday on their Lower
Tier 2s, in the form of a subordinated to senior debt swap. The bank has offered
to exchange Lower Tier 2 debt into government guaranteed Senior securities at
an exchange ratio of 20% and with a December 2011 maturity. This exchange
looks pretty coercive to us. There are two sticks to tempt bondholders to take part
in the exchange. First for the exchange to take place it appears that bondholders
have to agree to have the terms of their bonds amended, so that the bank has the
option to redeem any outstanding bonds at €0.01 per €1000 principal. Second,
bondholders run the risk of having the burden-sharing legislation that has been
proposed by the Irish government imposed upon them, which in our view would
render their holdings virtually worthless.
NH
We are happy to remain Underweight-70% on ANGIRI Lower Tier 2. The offer is
below market prices for the Lower Tier 2s, the bonds were quoted in the mid 20s
before the deal.
below market prices for the Lower Tier 2s, the bonds were quoted in the mid 20s
before the deal.
NH
Bullish for Anglo Senior, Overweight-70%
The news today provides clarity for Anglo bondholders following months of
speculation about potential outcomes for subordinated bondholders. Although
there are a number of questions remaining, the resolution of this matter helps
remove some of the unknowns surrounding the bank. This clarity is bullish for
Anglo senior paper, in our view, and potentially triggers CDS. The triggering of
CDS is very legalistic and depends on a number of factors. We are awaiting
further details on this front but remain of the view that ANGIRI Senior and
Subordinated CDS will trigger eventually. We view the potential bid for
deliverables as bullish for Anglo senior paper. We reiterate our Overweight-70%
on Anglo Senior bonds.
The news today provides clarity for Anglo bondholders following months of
speculation about potential outcomes for subordinated bondholders. Although
there are a number of questions remaining, the resolution of this matter helps
remove some of the unknowns surrounding the bank. This clarity is bullish for
Anglo senior paper, in our view, and potentially triggers CDS. The triggering of
CDS is very legalistic and depends on a number of factors. We are awaiting
further details on this front but remain of the view that ANGIRI Senior and
Subordinated CDS will trigger eventually. We view the potential bid for
deliverables as bullish for Anglo senior paper. We reiterate our Overweight-70%
on Anglo Senior bonds.
NH
Coercive form of exchange
Anglo Irish Lower Tier 2 bond holders have the option to exchange their bonds for
new Anglo Senior paper. The new Senior securities will be fully guaranteed by the
Irish government and mature in 2011. For the exchange to take place however
bondholders have to pass a resolution amending the terms and conditions of the
notes, giving the bank the option to redeem any outstanding securities at €0.01
per €1000, at any time after the settlement of the exchange. Looking at the
individual bond documents a majority vote from two-thirds of bondholders would
be enough to allow the amendment to take place, in our view
Anglo Irish Lower Tier 2 bond holders have the option to exchange their bonds for
new Anglo Senior paper. The new Senior securities will be fully guaranteed by the
Irish government and mature in 2011. For the exchange to take place however
bondholders have to pass a resolution amending the terms and conditions of the
notes, giving the bank the option to redeem any outstanding securities at €0.01
per €1000, at any time after the settlement of the exchange. Looking at the
individual bond documents a majority vote from two-thirds of bondholders would
be enough to allow the amendment to take place, in our view
NH
there you go
NH
Tracy is also working on a post
NH
about this
NH
we have some more angles to explore
NH
hope that helps
11:35AM
NH
Right
NH
if you are wondering about this sub story
NH
go here
NH
The world’s most advanced nuclear submarine, HMS Astute, has run aground on rocks off Scotland causing considerable embarrassment for Navy chiefs.
BE
What was it doing in Skye in the first place?
NH
The grounding of the £1.2 billion Astute hunter-killer comes at the end of a dire week for the Royal Navy which has seen its carrier force halved, Harrier jump jets axed and warship force reduced by almost a quarter.
It is understood that the boat, which is first in its class, ran aground by its stern in a manoeuvre that “went slightly wrong” after it had dropped some sailors ashore in tidal waters off the Isle of Skye.
BE
Attacking Balamory?
NH
(FATDAZ – and you are only two players away from challenging for the Premier Leageue, right? )
BE
(@Phil: that Reg piece is very good. Polemic, but very good.)
NH
As the tide rapidly ebbed it is thought the skipper of Astute, Commander Andy Coles, decided not to power it off the obstruction as it would risk damaging the hull that carries some of the most advanced acoustic tiles that make Astute virtually undetectable beneath the seas.
Navy insiders insisted that there was no likelihood of a nuclear reactor leak or any other environmental issue.
NH
I didn’t realise our most advanced sub
NH
was actually a taxi service for sailors
NH
dropped some sailors ashore in tidal waters off the Isle of Skye.
NH
unless of course
NH
they were spies
NH
or special forces
NH
(Shaun – we are eight or nine away)
BE
Yeah – I’m sure there’s plenty of covert operations requiring done in Portree.
BE
It’s a political hotbed.
11:39AM
NH
Right
NH
back to stocks
NH
we should have a look at Micro Focus
NH
and IT company
NH
that’s up on rumours of a bid from IBM
Micro Focus International Plc (MCRO:LSE): Last: 410.00, up 27.5 (+7.19%), High: 412.00, Low: 392.40, Volume: 2.70m
BE
Righty ho.
NH
Now correct me if I am wrong
NH
now this company
NH
what it does is that if you are running an mainframe computer
NH
they will give you software that allows it to run on a modern computer
NH
right?
BE
That’s the upshot, yes.
BE
“Legacy support,” they call it.
BE
Basically selling sticking plasters that’ll save you the cost of a complete systems upgrade.
NH
right
NH
sounds like the sort of thing IBM might buy then?
BE
It makes sense. On paper.
NH
600p a share
NH
does that make sense?
BE
It’s a lovely round number, isn’t it?
NH
yep
BE
So JP Morgan has broken it all down to handy bullet points
NH
good
NH
that will help luddites like me
NH
tell me all about mainframe computing
BE
Well, yes and no.
BE
Micro Focus’ core COBOL business could be complementary to IBM,
and also allow them to remove a competitor at the same time. Through
its migration and modernization solutions, Micro Focus has been
moving customers off IBM mainframes (>40 deals last year).
and also allow them to remove a competitor at the same time. Through
its migration and modernization solutions, Micro Focus has been
moving customers off IBM mainframes (>40 deals last year).
NH
COBOL???
BE
Like Latin for computers.
NH
I see
NH
Does Dr Lynch speak it?
BE
Nearly dead, but still quite useful.
BE
And I’m sure the good Dr is fluent.
BE
He certainly speaks English like Cobol’s his first language.
NH
BE
Back to JP Morgan.
BE
• MCRO’s Q1 miss was partly blamed (by management in Q1 conference
call) on two deals in which IBM stepped in at the last minute with price
reductions to the clients to keep them from leaving IBM and moving off
the mainframe with Micro Focus. So IBM has arguably “noticed” Micro
Focus as a threat/competitor in the market now (a small one, but
nonetheless, some 40 deals last year migrating customers off the
mainframe compared to 27 deals the year before).
call) on two deals in which IBM stepped in at the last minute with price
reductions to the clients to keep them from leaving IBM and moving off
the mainframe with Micro Focus. So IBM has arguably “noticed” Micro
Focus as a threat/competitor in the market now (a small one, but
nonetheless, some 40 deals last year migrating customers off the
mainframe compared to 27 deals the year before).
BE
• Micro Focus’ software testing business would complement IBM’s #2
position in the space (HP is 50-60%, IBM is c.30% and MCRO is
c.10%).
position in the space (HP is 50-60%, IBM is c.30% and MCRO is
c.10%).
BE
• As the Daily Mail article points out, MCRO shares “rallied sharply on
takeover hopes, and when Mike Phillips was appointed CFO”. Mike
Phillips was previously CEO of Morse and helped that company sell off
assets and eventually the firm.
takeover hopes, and when Mike Phillips was appointed CFO”. Mike
Phillips was previously CEO of Morse and helped that company sell off
assets and eventually the firm.
BE
• IBM CEO has recently said that overseas acquisitions are still very much
on the agenda.
on the agenda.
BE
• The Daily Mail’s suggested price of £6 would suggest a calendarised PE
of 16.2x 2010E and 14.9x 2011E on our estimates with average software multiples of 17.1x and 14.9x.
of 16.2x 2010E and 14.9x 2011E on our estimates with average software multiples of 17.1x and 14.9x.
BE
• Our current price target of 420p (Aug 2011) is based on a 30% discount
to the sector average PE multiples, due to the recently lowered outlook
and temporarily weaker expectations for this fiscal year. The company
has maintained its mid-term target for double digit revenue growth. At
full software sector multiples, MCRO would trade in a range of 600p -
630p.
to the sector average PE multiples, due to the recently lowered outlook
and temporarily weaker expectations for this fiscal year. The company
has maintained its mid-term target for double digit revenue growth. At
full software sector multiples, MCRO would trade in a range of 600p -
630p.
NH
hmm.
NH
so possible
NH
and 600p a share not outragous
BE
But there are caveats.
NH
go on
BE
Why IBM might not buy MCRO:
• The combination of the IBM and MCRO testing businesses could raise
anti-trust concerns, although the fact that HP already has >50% market
share might be more of an issue for them than IBM.
• The combination of the IBM and MCRO testing businesses could raise
anti-trust concerns, although the fact that HP already has >50% market
share might be more of an issue for them than IBM.
NH
ah
BE
• The new CEO Nigel Clifford pointed out at our conference in September
(when asked about being a takeover target) that Micro Focus is more
interested in Unix/Linux and moving away from IBM. In our view, that
might also make it more possible that IBM would like to remove Micro
Focus from the market, and alter that strategy.
(when asked about being a takeover target) that Micro Focus is more
interested in Unix/Linux and moving away from IBM. In our view, that
might also make it more possible that IBM would like to remove Micro
Focus from the market, and alter that strategy.
NH
I see
BE
There’s plenty more comment, but it’s all similar and equally geeky.
NH
fair enough
NH
Micro Focus (NR): rumour in Daily Mail that it is at the top of IBM’s shopping list and that the latter is willing to pay up to 600p a share (vs. closing price of 383p). Would make sense given offering of migrating legacy mainframe systems to web-based platform while saving clients lots of money. 600p may be a little rich but includes a strategic premium for what is a unique and world-class business.
NH
that’s my contribution
BE
The York Notes version. Ta. Let’s move on.
NH
right
11:47AM
NH
Tuna wants 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.
NH
not sure we have much really
NH
even though it is Friday
NH
Brit Insurance
NH
a rumours knocking around in that
NH
ahead of Monday’s bidding deadline
Brit Insurance Holdings Naamloze Vennootschap (BRE:LSE): Last: 1,017, down 1 (-0.10%), High: 1,020, Low: 1,015, Volume: 28.53k
NH
BRIT INSURANCE (BRE LN) – An update on the potential buyout of BRE by Apollo and CVC is expected early next week, writes Deal Reporter. Due diligence had been completed and the process now concerned regulatory issues. The approvals process has taken longer than originally expected, it is understood, though one of the sources said that an additional extension of the deal was unlikely.
A deal would be comprised mostly of equity, with some debt funding “around the edges” to account for interim working capital needs, it is understood.
A deal would be comprised mostly of equity, with some debt funding “around the edges” to account for interim working capital needs, it is understood.
BE
(“Brit Insurance Holdings Naamloze Vennootschap”?”)
NH
I think that’s from Merger Market
NH
as if this
NH
AFRICAN MINERALS (AMI LN) – AMI has not had any contact with its potential $1.5bn investor Shandong Iron & Steel Group Investment even though an extended exclusive due diligence period ended yesterday, a spokesperson told Deal Reporter. SISG still has until 20 November to sign a definitive agreement regarding its investment.
NH
Now
NH
I’m really starting to worry about Frank
NH
and this deal
NH
I just sort of think
NH
it won’t happen
NH
a month and no contract from the Chinse
African Minerals Ltd (AMI:LSE): Last: 448.75, down 5.75 (-1.27%), High: 461.00, Low: 448.75, Volume: 4.85k
BE
The omens are not positive for Vasile, I agree.
NH
and Regal
NH
his first creation
NH
looks to be on the brink as well
Regal Petroleum Plc (RPT:LSE): Last: 15.25, up 0.5 (+3.39%), High: 15.25, Low: 14.75, Volume: 1.61m
NH
trying to figure out how much cash the company has left
NH
and what’s libabilities are
NH
rig contracts and such like
NH
i didn’t think the company could be an attractive shell
NH
for a master businessman and charity worker
NH
but now I’m not so sure
11:51AM
NH
Someone was asking about Aceltion
NH
this Swiss biotech company
NH
with one decent drug and no pipeline whatsoever
NH
the bid rumours are still there
NH
people still saying Bristol Myers will make a move
NH
I don’t see why
NH
but there you are
NH
I have a bit of comment post Thursday’s awful figures
NH
this is form Evo
NH
Unsurprisingly ATLN would not be drawn on possible approaches it may or may not have had, though in both in the press release and on the conference call they were keen to promote their independence as the most effective means to extract value from their business and pipeline. While the CHF800m share buyback programme will have pleased some investors, the commentary around the outlook for the base business in 2011 was less welcome suggesting that consensus and our numbers are a bit too high. We publish our updated forecasts below and lower our price target slightly to CHF58 (was CHF60). In the near term, it seems likely that the share price will be supported both by the continued speculation about strategic options the company may be mulling over and the share repurchase programme. On the pipeline front we will have to wait for 2H11 for pivotal trial data on Trophos’s Olesoxime for ALS (Lou Gehrig’s disease) over which ATLN has an option or phase III data on the Tracleer follow-on, Macitentan, for a real needle-mover. That is, unless the update on the almorexant programme due in 1Q11 manages to resurrect that opportunity in investors’ minds.
NH
oh
NH
and here is something from Jefferies
NH
3Q10 Revenues and Cash EBIT are below JEFe and at the bottom of
consensus, largely from adverse FX headwinds. 2010 guidance is
reiterated and the newly provided broad 2011 outlook is in-line with
forecasts. We see the expected clazosentan termination and decision to
undertake a CHF800m share buyback as positives.
consensus, largely from adverse FX headwinds. 2010 guidance is
reiterated and the newly provided broad 2011 outlook is in-line with
forecasts. We see the expected clazosentan termination and decision to
undertake a CHF800m share buyback as positives.
We believe marketed products and cash largely underpin the current
share price, with potential 2011E positive pipeline news driving
upside. Under appreciated pipeline programmes include selexipag,
macitentan and the S1P1 agonist. Longer-term we believe risk-reward
remains skewed for positive return.
11:53AM
NH
Bryce anything you want to look at?
BE
In the reader request section, Seniormuppet was asking about Focus Solutions
BE
Which I know nothing whatsoever about.
NH
what
NH
nor me
Focus Solutions Group PLC (FSG:LSE): Last: 96.00, up 6 (+6.67%), High: 97.00, Low: 90.00, Volume: 46.77k
BE
But FinnCap does, being the house broker, and they’re giving them a push this morning.
BE
Focus Solutions Group has announced its largest contract to date in aggregate, for their personnel training product, focus:progress. We believe these contracts highlight the increasing demands on financial product vendors and brokers to adhere to the emerging business procedures and compliance requirements surrounding the pending RDR. FSG is clearly well-placed to benefit from this trend.
BE
Forecasts and Valuation. Whilst these contracts are already included in our forecasts, we believe going forward both the frequency and magnitude of software contracts is set to increase within the financial services sector as the pending RDR (Retail Distribution Review) moves closer. We therefore maintain the downside risk to our forecasts is reducing rapidly and reitereate our fair value estimate of 70p which represents 36% upside to the current share price.
BE
Right – that’s that done.
BE
Further up the market, I see Kesa’s on the rise again.
NH
oh yes
NH
someone pushing the LBO angle this moring
Kesa Electricals plc (KESA:LSE): Last: 161.10, up 1.6 (+1.00%), High: 162.60, Low: 158.20, Volume: 1.14m
BE
Yes – this is something of a two-way pull story.
BE
Basically, Exane’s been saying for some time that Kesa’s an obvious private equity target
BE
Then UBS, Kesa’s joint shop, published earlier this week saying “no it’s not”
NH
and I note Knight Vinke have increased their holding in recent weeks
NH
(Freebooter – scroll back up – there’s loads of Barclays stuff)
BE
True.
BE
A point Exane makes in its response to UBS this morning, which can be summarised as “yes it is”.
BE
Here’s the note.
BE
Speculation is not over
BE
Kesa still a tempting prey
The recent changes in the capital structure, with Knight Vinke becoming the
company’s fourth-largest shareholder with 6.6% of the capital, have lent credence to a
speculative scenario. Our updated SOP, which values each banner based on its
market share, yields a value of 312p, almost double the current stock price. As we
doubt that an activist investor is likely to influence the group’s strategy, we do not rule
out a hostile bid from a private equity fund. According to our LBO model updated with
recent financing conditions, a bid at 215p is likely to generate a 15% IRR. We also
believe that a good many shareholders would be ready to sell at over 200p.
►
The recent changes in the capital structure, with Knight Vinke becoming the
company’s fourth-largest shareholder with 6.6% of the capital, have lent credence to a
speculative scenario. Our updated SOP, which values each banner based on its
market share, yields a value of 312p, almost double the current stock price. As we
doubt that an activist investor is likely to influence the group’s strategy, we do not rule
out a hostile bid from a private equity fund. According to our LBO model updated with
recent financing conditions, a bid at 215p is likely to generate a 15% IRR. We also
believe that a good many shareholders would be ready to sell at over 200p.
►
BE
Forecasts raised in France and developing markets
Kesa’s reporting currency has switched from GBP to EUR, and we have converted
our model accordingly. Following very good Q1 sales, we have raised our estimates in
France and the developing markets. Conversely, we have edged down our
expectations in the UK. We believe the Continental markets are stabilising in terms of
consumption and competition, but it seems too early to make the same assumption in
the UK. We have increased our EPS estimates by 12% for 2010/11, 11% for 2011/12
and 9% for 2012/13, putting us above consensus by 8%, 6% and 1% respectively (we
were previously below consensus).
Kesa’s reporting currency has switched from GBP to EUR, and we have converted
our model accordingly. Following very good Q1 sales, we have raised our estimates in
France and the developing markets. Conversely, we have edged down our
expectations in the UK. We believe the Continental markets are stabilising in terms of
consumption and competition, but it seems too early to make the same assumption in
the UK. We have increased our EPS estimates by 12% for 2010/11, 11% for 2011/12
and 9% for 2012/13, putting us above consensus by 8%, 6% and 1% respectively (we
were previously below consensus).
BE
Outperform rating maintained and target price increased from 140p to 190p
Based on our new earning estimates and less conservative WCR assumptions, we
have raised our DCF-driven target price to 190p. This valuation is based only on
operations and does not factor in an additional speculative appeal, which could drive
the stock price beyond 200p. We maintain our Outperform rating.
Based on our new earning estimates and less conservative WCR assumptions, we
have raised our DCF-driven target price to 190p. This valuation is based only on
operations and does not factor in an additional speculative appeal, which could drive
the stock price beyond 200p. We maintain our Outperform rating.
NH
thanks for that
NH
a PE bid for a retailer
NH
not sure about that
NH
then again
NH
I don’t know why retailers are up
NH
post Thursday’s dreadful retail sales data
Marks and Spencer Group PLC (MKS:LSE): Last: 426.90, up 8.6 (+2.06%), High: 426.90, Low: 417.00, Volume: 2.40m
Next Plc (NXT:LSE): Last: 2,316, up 42 (+1.85%), High: 2,319, Low: 2,274, Volume: 431.06k
Kingfisher PLC (KGF:LSE): Last: 249.80, up 3 (+1.22%), High: 249.90, Low: 246.10, Volume: 2.98m
BE
John Lewis figures were okay
BE
Which is more an excuse than a reason.
BE
Fashion sales rose 7.7% at John Lewis last week as the department store chain said it was “well placed” to take advantage of the colder weather.
NH
hang on
BE
John Lewis saw sales increase 7.2% to £58.5m while online sales rocketed by 40% last week. The company said its Peter Jones store in Sloane Square, London was the best performing store, up 9%.
NH
I have some comment on Seymour Pierece on this
NH
Freddie George
NH
John Lewis is now up against increasingly tougher comparatives as sales built pre Christmas last year and the trend rate over the last two weeks has been weaker. Anecdotal evidence point to High Street retail sales slowing pre this week’s Spending Review by the Government, in a similar fashion to the weeks running up to the Budget, so it will be interesting to see if that trend continues post the Spending Review and we see a pick up in sales again. As we stated yesterday, the Spending Review was never going to contain any positive news from a consumer perspective and we have to wait another month to get the detailed plans. What we do know is that consumer confidence is likely to remain fragile and retail spending subdued for the foreseeable future. However, retailers are planning for such an environment with tight stock and so mark down risk remains low. Recent trends such as regional disparities, subdued big ticket, increasing inflation etc are expected to continue and become more pronounced. Finally, the colder weather seems to have come in time for outerwear sales which will please the clothing retailers. We continue to favour the apparel retailers such as M&S, Debenhams and Next and recovery stories such as DSG which is backed up by an excellent product cycle.
12:02PM
NH
Time for small cap corner then?
NH
oh before we do
NH
still nothing from Bob the Bear
NH
still waiting
NH
as soon as we get it
NH
you will all get it
BE
I speculate that Nomura’s compliance department may not have been prepared for what arrived.
NH
yes
NH
you could speculate that
NH
as Bob gets stuck into central banks
NH
etc
BE
Anyway, what’s happening among the smallcappage?
NH
well that Parkmead thing was up again
BE
Of course it is. One way bet.
Parkmead Group (The) Plc (PMG:LSE): Last: 7.11, up 0.7375 (+11.57%), High: 9.50, Low: 6.38, Volume: 22.13m
NH
now capped at £54m
NH
assets of just £10m
NH
so that’s a £44m management premiun on
NH
Tom Cross
NH
is he worth it?
NH
he did sell Dana to KNOC
NH
well sort of sold it
NH
if i were PMG and Cross
NH
I would now do a huge fund raising
NH
and feed the quacking ducks
BE
Have you had a look at the Parkmead shareholder list, incidentally?
NH
no
NH
I know
NH
the free float is very small
BE
Biggest shareholder is some guy called Tom Cross, with 14.15%
NH
BE
And the second-biggest is some lady called Linda Cross, with 13.97%
BE
They bought in at 1p then raised their stakes in a refi late last year.
NH
nice work
NH
nice work
BE
Very nice.
NH
prepare for nasty comments on the left
NH
from muppets
BE
I’m not suggesting there’s anything fishy here. I’m just suggesting that, with an 800% return, Mr Cross can build a LOT more houses on the Aberdeen ring road.
NH
he can
NH
thanks for that
NH
right
NH
noy much more from the small cap world
NH
in fact all pretty dull
NH
the sector watcher has found a new Kurdish play however
NH
sounds like it could be a dream stock for Michael Fowke
NH
Shamaran Petroleum – SNM CN
I wouldn’t normally comment on Canadian-listed stocks but ih this case I’ll make an exception as we cover SNM out of London. The group yesterday announced that Marathon Oil has acquired a 20% stake in the Atrush Block in Kurdistan where the first exploration well spudded a couple of weeks ago. SNM has a 27% stake in the block through its one-third holding in General Exploration Partners (GEP), a joint venture with Aspect Energy. The 120-day Atrush-1 well is targeting the same reservoir sections as those in Gulf Keystone’s Shaikan discovery, currently estimated to have oil in place of 1.9/4.2/7.4bn barrels on a P90/P50/P10 basis. Atrush has estimated P50 OIP of 1.9bn barrels, and a successful well could be worth in the region of C$0.90/share net to SNM assuming an NPV of $3/barrel. The group also has interests in three other licences, including Pulkhana which contains a proven discovery. SNM is a relatively low-risk way to gain exposure to Kurdistan – and although the share price has recently doubled in the past three months to reach our C$0.80 target I’d still be a buyer.
I wouldn’t normally comment on Canadian-listed stocks but ih this case I’ll make an exception as we cover SNM out of London. The group yesterday announced that Marathon Oil has acquired a 20% stake in the Atrush Block in Kurdistan where the first exploration well spudded a couple of weeks ago. SNM has a 27% stake in the block through its one-third holding in General Exploration Partners (GEP), a joint venture with Aspect Energy. The 120-day Atrush-1 well is targeting the same reservoir sections as those in Gulf Keystone’s Shaikan discovery, currently estimated to have oil in place of 1.9/4.2/7.4bn barrels on a P90/P50/P10 basis. Atrush has estimated P50 OIP of 1.9bn barrels, and a successful well could be worth in the region of C$0.90/share net to SNM assuming an NPV of $3/barrel. The group also has interests in three other licences, including Pulkhana which contains a proven discovery. SNM is a relatively low-risk way to gain exposure to Kurdistan – and although the share price has recently doubled in the past three months to reach our C$0.80 target I’d still be a buyer.
BE
Nice website.
NH
very cool
NH
mystic oil exploration
BE
Arty photos of locals.
BE
One to watch, I suggest.
NH
indeed
NH
right I think we are done
NH
hang on
NH
I just wanted to mention BG
NH
some good news from down under today
NH
BG (Buy, TP 1300p) – BG’s Queensland LNG project has been given approval by the Australian minister; this is good news, as the company should now be able to move forward with the final investment decision in the very near future – had been some worries earlier this week we could see a delay. This project is worth around £2/sh in our SoP for BG. Project is due for start-up in 2014 and will produce about 225kboe/d – just over 1/3rd of BG’s current output.
NH
and this from Evo
NH
BG’s Queensland Curtis LNG project has received its environmental approval from the Australian Environmental minister, overcoming 300 conditions to protect the environment and prevent water contamination and coming in the week that Origin Energy and ConocoPhillips found traces of banned chemicals in some of its coal seam gas exploration wells. The last hurdle for the $12-$15bn project is the Final Investment Decision to be taken by BG and which is expected by the end of the year. Our sum-of-the- parts valuation for BG of 1450p includes 170p for the company’s Australian upstream and LNG businesses and as the company moves closer to delivery of this project (and its Brazilian projects) the discount we believe the market seems to be applying should start to recede.
BE
Think this was all as expected, even after Origin found cancer-causing gunk in its wells.
BE
Oh – actually, I forget who was asking about Barclays
BE
But a rather agressive note has just dropped through from Autonomous
BE
Who really, really don’t like us quoting their stuff, in spite of it being very good.
BE
So here’s two pars. You’ll have to call them yourself for the rest.
BE
We think Barclays Corporate has a problem with costs (57% cost / income ratio) and WE Retail is struggling with revenue generation. We see potential for cost cutting to be announced at Corporate next year, but think the revenue environment will continue to be tough for WE Retail.
BE
To see a more dramatic rerating, however, Barclays’ new management needs to demonstrate: a) how Barclays can build its capital to a 10% core Tier 1 ratio under Basel 3 without shareholder dilution; and b) how the ROTBV problems addressed in this analysis are to be solved.
NH
thanks for that
NH
and we are done
NH
thanks for logging on today
BE
And thanks for all your comments.
BE
(Cowboy: I made the mistake of only banning you for an hour. I won’t make that mistake again.)
NH
BG has found some oil off Tanzania
NH
that will be good for some small caps
NH
Tanzania exploration well encounters hydrocarbons
BG Group (60%) today announced that the Pweza-1 exploration well, located in Block 4 approximately 85 kilometres offshore southern Tanzania and in a water depth of 1 400 metres, has demonstrated the presence of a working hydrocarbon system after encountering gas-bearing sands.
NH
and Taxloss is right
NH
coal seam gas, shale gas
NH
use all sorts of nasty chemicals in the fracing process
BE
Who’s in Tanzania? Solo Oil?
NH
i think so
NH
thanks for joining us today
BE
Aminex too I think.
BE
Sorry – getting distracted. Yes, thanks for tuning in.
BE
See you all next week.
NH
bye