FT Alphaville » Markets Live transcript 14 Jan 2011

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Markets Live transcript 14 Jan 2011

Posted by Neil Hume on Jan 14 11:04.

Markets Live chat transcript for the chat ending at 12:14 on 14 Jan 2011. Participants in this chat were: Neil Hume, FT bryce.elder

Hola

and welcome to Markets Live

our daily markets chat

and as I suspected

no one has turned up

they are all watching the cricket

perhaps we should live blog that

MCG

Eng batting 76-3

need 72 to win from 51 balls

77-3 now

single out to cover

return over the stumps from Lee

Morgan pushes another up to long off

I’m good at this

I could replace that guy on the BBC Sport website

Clarification: we’re not ALL watching the cricket.

69 needed

Some of us have our heads in our hands at the prospect of more bloody cricket.

Watson into the attack

dotball

I don’t know what any of these words mean.

another dot ball

not good

come one Morgan work the ball around

right

ENOUGH

let’s get to the markets

11:07AM

Right. So we’re down.

we are

off 40 points at 5,983

China has hiked its reserve rate

that has pulled down the miners

and so we are down

I think that’s the reason

Xstrata Plc (XTA:LSE): Last: 1,470, down 44 (-2.91%), High: 1,516, Low: 1,464, Volume: 3.98m

Anglo American PLC (AAL:LSE): Last: 3,331, down 79.5 (-2.33%), High: 3,403, Low: 3,312, Volume: 1.25m

Antofagasta PLC (ANTO:LSE): Last: 1,513, down 26 (-1.69%), High: 1,537, Low: 1,504, Volume: 687.25k

Bhp Billiton PLC (BLT:LSE): Last: 2,481, down 41.5 (-1.65%), High: 2,537, Low: 2,469, Volume: 1.85m

Eurasian Natural Resources Corp PLC (ENRC:LSE): Last: 1,094, down 16 (-1.44%), High: 1,111, Low: 1,086, Volume: 299.29k

(Whose chairman’s just slotted a load, incidentally.)

so the reserve ratio has gone up by 50 basis points

and the fear is now

we get a rate hike to follow

to cool the Chinese economy

11:10AM

Breaking news.

Smith & Nephew plc (‘Smith & Nephew’ or ‘the Company’) notes the continued press speculation in relation to a possible merger or takeover involving the Company.Smith & Nephew has a long-standing policy of not commenting on press speculation, unless there is a regulatory obligation to do so. However, exceptionally, Smith & Nephew wishes to clarify that it is not engaged in any discussions which could lead to a merger or a takeover involving the Company

that have finally said something

the trapist monks of the replacement hip world

have finally broker their silence

at long last

price

what’s the price

Smith And Nephew Plc (SN.:LSE): Last: 709.00, up 24.5 (+3.58%), High: 716.00, Low: 695.00, Volume: 6.33m

that’s the old one

right

not been suspended

down 10p at 674p

So the straw that broke the camel’s …. er …. hip … was this in the Telegraph

US orthopaedics giant Biomet is set to begin informal talks with Smith & Nephew (S&N) about a potential £15bn merger.

yes

the Biomet reverse takeover story

reborn

A merger of the private equity-backed company and S&N, which advisers have been working on, would scupper the ambitions of Johnson & Johnson (J&J) which has been stalking the UK group with a possible cash offer.

The Biomet deal would see the combined group relist on the London market, with S&N shareholders taking the lion’s share of the equity.

http://www.telegraph.co.uk/finance/newsbysector/pharmaceuticalsandchemicals/8258505/Biomet-and-Smith-and-Nephew-set-for-talks-over-15bn-merger.html

This is a theory that’s been knocking about for some considerable time now.

Smith & Nephew: will the ultimate single lady find love with Biomet?
Will she, won’t she? Will she, won’t she? Smith & Nephew has been named in more hot romances and seedy trysts than romantic loser Jennifer Aniston.

In the first half of the last decade all S&N’s lustful liaisons failed to put a ring on her finger.

Meanwhile, her biggest rival Zimmer spun off from Bristol Myer Sqibb, then quickly started picking out wives. In Centre, in Germany, went in 2003 for $695m. Next the £1.5bn deal for Switzerland’s Centerpulse. And every time S&N missed out.

The UK company was herself courted by a fair few admirers – most of which were private equity – but no one ever popped the question.

So, determinedly single, she plodded on. But orthopaedics is a maturing industry where scale is critical to happiness.

Er ……

(Lemmy – yep they don’t know they are about to enter discussions but someone else does. puzzled by that)

price rallying now

up on the day

1p higher at 685p

i reckon

this company will be involved in a transaction this year

the Biomet thing doesn’t really work

but J&J

never say never

I reckon they will return

As the Telegraph writes …..

It’s the marriage/merger/takeover roundabout, and everyone is frisky again.

Nothing like being frisky on a roundabout.

must try it one day

Moving swiftly on ……

Let’s take a look at the figures on this Biomet merger idea shall we?

good idea

They look seriously stretched.

although

I reckon this was looked at

or at least pitched to S&N and Biomet as a deal

by an ambitious banker

this from RBS

Biomet’s relatively large debt pile would need to be refinanced. On our calculation, the
combined leverage of the merged company would be around 3x net debt/ EBITDA.

The combined company would become the world number two in the global orthopaedics
market, with 14% market share (after Stryker, with 15% and before J&J, with 13%). It would
become the world number two in hip and knee reconstruction (c23% market share, after
Zimmer with 24%) and number three in Trauma, with a 13% market share (after Synthes with
50% and Stryker, with 20%). Anti-trust issues are likely in some jurisdictions, in our view.

We believe a merger between the two companies would make strategic sense and create
significant cost synergies in purchasing, manufacturing, SG&A, etc.

BNP Paribas has some interesting calculations ….

The value for S&N shareholders depends on multiples applied to Biomet
Biomet’s peers (Zimmer, Stryker, Medtronic, J&J, and Synthes) currently trade on
8.0x EV/EBITDA 2011e, while usual transaction multiples point to 14-15x (for
instance, Biomet was acquired at 15x in December 2006, but the fundamentals of
Orthopaedics have deteriorated). A USD23bn deal would value Biomet at USD13bn
(current S&N EV is USD10bn), or a multiple of 12.5x, which we retain in our scenario.

Our scenario is based on 2013e synergies of 5% of the NewCo’s sales
We have assumed the NewCo would reach an EBITDA margin of 37.5% by 2013e,
which would be close to the current margin of Zimmer (37% in 2010e). The NewCo
net debt (2.8x at end 2011e) could be rapidly paid down thanks to a yearly cash
generation of USD700-800m to reach approximately USD5bn by 2013e (from
USD6.5bn in 2011e).

NewCo shares worth 620p in our scenario
The implied multiple we use is 6.7x EV/EBITDA 2013e, in line with sector peers. Our
sensitivity analysis (Excel file available on demand) shows the impact on valuation of
both the multiple used to value Biomet, and the NewCo margin in 2013e. Overall, we
remain sceptical about an acquisition of S&N by a US peer (antitrust issues), but see
strong strategic sense in a merger with Biomet (although valuing Biomet in the
NewCo might prove a contentious point), which could be seen as a defensive move to
prevent a bid from a US peer.

Ptolemy excellent Emoticon

thanks for that

so it’s possible

but difficult

and why would S&N shareholders want to back it

(Mrs martin – yellow for that pun)

That’s the big question.

Make the company 5x geared and bid proof.

It’s a tough sell.

I would not help PE exit an acquisition unless i got it for next to nothing

why should I?

Right. I think we’re done on Smith & Nephew for the moment.

it will return though

of that I am sure

Smith And Nephew Plc (SN.:LSE): Last: 707.00, up 22.5 (+3.29%), High: 716.00, Low: 695.00, Volume: 6.77m

Upshot is: the Telegraph report didn’t say a huge amount, and the RNS said even less.

Done.

11:22AM

Eng – 98-4. Need 50 off 28 balls

11:23AM

Right

let’s move on and look at ARM

now i really need help with this

why oh why is it up

Arm Holdings Public Limited Company (ARM:LSE): Last: 533.50, up 29.5 (+5.85%), High: 565.00, Low: 530.00, Volume: 8.55m

Er……..

Intel have just announced plans to build a $9bn deathstar to kills the rebels

and how does the market respond?

it pushes the price of ARM to the highest level in decade

what am i miss here

help me please

I am desperate

Um ……………..

Well, let’s start by stating the obvious

That the Arm ADRs went on a streak last night and that seems to be the main catalyst for the UK move today.

So it’s Wall Street demand.

yes but why?

Intel are going to build a $9bn plant

to get in on the smartphone/tablet game

why is that good news

someone tell me

and get this

Well, it’s not.

it’s a high volume 22nm factory

now I didn’t know what that meant either

but someone at the FT does

This will pay for an extra factory and the move to the next level of miniaturisation – chips with circuit widths of only 22 billionths of a metre, down from 32 nanometre widths.

Yeah – that’s the gist of it.

so this is an admission from Intel that they have missed the tablet revolution

and that’s obviously means Arm is smart

but they are fighting back

they are building a massive deathstar

to destroy the rebel alliance

Well, Arm was in the right place at the right time. The market scaled up rather than scaled down, which favoured them over Intel.

But Intel, as we always say, are not going to roll over and die quietly.

quite

Here’s JP Morgan to put the 22nano node shift into some kind of context.

and I have something from Morgan Stanley which is good

Intel’s 2-pronged strategy with big rise in capex: With a big rise in ‘11
capex directed mainly at shrink (22nm), Intel appears to be working on a 2-
pronged strategy: one, to ensure that it maintains technology lead over
TSMC and Globalfoundries (GF) thus AMD as GF has much more financial
muscle now with a deep-pocketed investor compared to AMD of the past;
and, two, given a growing threat from ARM, we assume Intel will be much
more aggressive on shrink in future to lower production cost to be more
competitive with ARM licensees.

In other words, we assume Intel will use
its manufacturing tech leadership to compete more aggressively with ARMbased
vendors as none of them have their own process and depend on
foundries for process technology. We assume Intel will get its system-onchip
design act together before MSFT releases Windows for ARM and then
use its manufacturing muscle to maintain its market share.

And what do Morgan Stanley think? They’re shop, unless I’m mistaken.

here we go

We remain buyers of Intel after its 4Q10
earnings report. INTC beat estimates handily, raised
expectations, and we think left room to beat again,
particularly on the gross margin front. Additionally, the
company discussed its Tablet and Smartphone
commitment, including its plans to invest $9 billion in a
4th high volume 22nm factory that would be used for
both PC and Tablet/Smartphone MPUs. Sentiment is
negative, at the same time that INTC is laying the
groundwork to be a formidable competitor in the growing
Tablet and Smartphone markets, and while INTC’s
largest PC competitor is shifting strategy and searching
for a new CEO. Our price target of $27 assumes 12x our
2011 EPS, which is a 25% discount to the current
median multiple in our coverage universe.

Playing its Long Suit: Intel does two things particularly
well: it knows how to: 1) apply its vast resources to
defend its markets, and 2) design and manufacture
chips on the most advanced manufacturing process in
the world. By increasing its CapEx by 80% in ’11 to $9
billion, INTC is sending a strong signal that it plans to be
aggressive in the Smartphone and Tablet markets.
Coming into the earnings call, our sense was that most
investors believed that Intel would not be competitive in
those markets; we think the $9 billion CapEx
commitment will start to shift that view.

and that’s a good point

Tablets and Smartphones in ’11. Intel noted that its
ATOM MPU would ship into a wide array of Tablets
running 3 different operating systems (Android,
Windows and MeeGo) in ’11, 7 of which have already
been announced. We also expect its ATOM MPU to
ship into Smartphones at competitive power levels by
mid-11. In 2011, we expect Intel Tablet MPUs (Oak Trail,
Cedar Trail, Moorestown) and Smartphone MPUs
(Medfield) to ship on 45nm and 32nm. In 2012, we
expect INTC MPUs in these markets to ship on 32nm
and 22nm. We think that Intel is the only company
shipping MPUs on 32nm today (for over a year) and we
expect it to maintain its manufacturing leadership.

I don’t know

perhaps people think Intel will strike a cross licensing deal with ARM

now it is serious about tablets

Er …. Like Strongarm?

Which failed and was abandoned quietly nearly a decade ago?

that said, I didn’t get the impression from the conference call

that Intel are going to abandon Atom

Over the next five years, a billion more people will join the global online community with 15 billion new
connected devices including PCs, tablets, embedded devices and smart TVs

“… our success with Atom in the embedded business segment are very applicable to the smartphone, tablet and
consumer electronic market segments.”
“In 2011 you will also see Atom processors appear in smartphones, operating at very competitive power levels
with performance that will lead the industry, demonstrating Intel’s advantages in this most important category.”
“Our 22-nanometer process will be the foundation for growing PC and server segments as well as a broad family
of Atom-based SOCs serving smartphones, tablets, smart TVs and other embedded devices.”

still

we should say

the results from Intel beat

and that was in a rounabout way down to smartphones

which is obviously good for ARM

from the FT

Intel shrugged off concerns that its core PC market is under pressure from tablets and smartphones, reporting strong fourth-quarter earnings and giving an upbeat forecast for this year.

The world’s biggest chipmaker reported fourth-quarter earnings ahead of Wall Street expectations, with profits of 59 cents a share on revenues of $11.46bn. Analysts expected 53 cents a share on sales of $11.36bn, according to a Bloomberg survey.

Paul Otellini, chief executive, said that the growing number of PCs and internet-connected devices such as smartphones and tablets meant there was more demand for its chips in servers in data centres as users accessed services in the “cloud”.

Sure sure sure. But it feels nearly irrelevant to be talking about actual sales and demand and suchlike when you have a stock sitting at 50 or 60 times.

Oh, and just one final thing to note on Arm …..

While the Wall Street Journal has stated the obvious this morning about how Arm would be difficult for any chipmaker to buy …

A few brokers are once again pushing the idea that it could be a target for a software company.

go on

Autonomy?

Ha! No. Sadly. Not Autonomy.

No plan to create a Great British Tech Champion.

pity

Oracle is the name being mentioned, once again.

go on

Oh, it’s not even at the point of rumourtrage. Just a bit of theorising by some of the propellerhead types.

“Oracle makes software and is interested in chip IP. Arm has chip IP. 2+2=?”

That kind of thing.

enough

let’s move on

to something else that makes my head spin

11:37AM

satellites

specifically

Inmarsat plc (ISAT:LSE): Last: 640.00, down 14 (-2.14%), High: 657.50, Low: 640.00, Volume: 553.47k

Right. So we had another turgid announcement overnight about Lightsquared.

yep

The National Telecommunications and
Information Administration (NTIA) said that
LightSquared’s revised rollout plans raise “significant
interference concerns” that should be resolved before
the service is approved. This is a negative for Inmarsat,
in our view, as it makes triggering of Phase 2 in
LightSquared’s cooperation agreement with Inmarsat
less likely in the near term. However, the final decision
lies with the FCC.

that’s from Morgan Stanley

so does this mean

that the Inmarsat/Harbinger coast to coast mobile network

is in danger of not getting lift off?

: NTIA filed a letter to the FCC on Jan 12
recommending that it defer approval of LightSquared’s
revised ATC spectrum plans (submitted on November
18). The letter states that the proposals for allowing
wholesale customers to offer a terrestrial only service to
end-users, will result in a substantial increase in
terrestrial usage, which “creates a new and more
challenging interference environment that must be
addressed satisfactorily”. It then continues to say that
these concerns should be resolved before the service is
approved. This adds to the uncertainties already in place
given that LightSquared has yet to find a co-investor/
renter for its capacity and faces restrictions on
wholesaling to the big 2 US operators.

http://licensing.fcc.gov/cgi-bin/ws.exe/prod/ib/forms/rep

orts/related_filing.hts?f_key=-216679&f_number=SAT
MOD2010111800239

Basically, yes.

Move to Phase 2 of the cooperation agreement now
less likely? Although LightSquared said in October that
it would trigger Phase 2 in Q4’10, we believe this now
looks unlikely for the foreseeable future. Moving to
Phase 2 would have resulted in annual revenues of
$115mn for Inmarsat growing at 3% pa. Whilst
consensus is split on the inclusion of Phase 2 proceeds
within forecasts, our estimate of a full $115mn in
revenue contribution from LightSquared in 2011 now
appears too optimistic

The feedback is that the regulatory concerns “may not be terminal”

For the plan.

Meaning, I guess, that they MAY be terminal.

JP Morgan has a very, very detailed and barely readable note on the impact.

hmmm

you’re not selling it to me

I’ll try and pull out some of the easier paragraphs.

Eng need 18 runs of 6 balls

Watson bowling last over

2 runs off first ball

going to be tight

Bresnan batting well

16 from 5

They (NTIA) are concerned that this would result in a large increase in terrestrial
usage of a spectrum band that is shared with GPS and GNSS (Global
Navigation Satellite Systems) in additional to emergency communication
systems and Inmarsat. They stress that this “creates a new and more
challenging interference environment that must be addressed
satisfactorily”. They believe the FCC should defer action until these
issues are addressed.

The NTIA understood the original ATC business model would operate as
a “satellite first/terrestrial second” system. The waiver could potentially
result in 100% of the capacity being used for a terrestrial-only service.

These concerns, whilst clearly serious, may still not be terminal for
LightSquared. Importantly, the FCC’s key objective remains to free up as
much spectrum as possible as part of its National Broadband Plan. In
addition, Inmarsat’s key role in the Co-Operation agreement is to
manage these interference issues alongside providing some of the
spectrum. As a result, we would expect the issues to be resolved
eventually.

However, they may result in modifications of the business plan and
potentially delays in implementation. This will increase the pressures
facing Harbinger and will lead to renewed overhang concerns.
Harbinger’s 14% stake remains subject to a lock-up until 4 April
following its initial placing of 4 October of 14%.

are we done

I am watching the cricket now

13 from 3

not looking good

need a boundary

So who’s winning? Brit Insurance or KFC?

and there it is

a massive six

massive

slower ball from Lee belted into the stands

7 off 2 now

bare with us Bryce

almost done

one off that

six to win off last ball

any takers?

here we go

lost

let’s move on

11:45AM

right

market wise

anything to look at

someone just pointed out the gold company with the name we can’t pronounce

Petropavlovsk PLC (POG:LSE): Last: 1,101, up 28 (+2.61%), High: 1,110, Low: 1,062, Volume: 430.35k

apparently that iron ore spin off thing

has gone nuts in the past week

IRC listed in Hong Kong

Please note IRC’s recent price bounce – currently at HK$1.85 – up 17% today, the highest since trading started in October. This follows a successful Bank of China road show in major Asian financial centres: Singapore, Hong Kong, Beijing, Shanghai and Tokyo. UBS today initiated coverage with a “buy” and a bullish HK$4.66 price target, noting the Company’s volume growth from its three projects Kuranakh, K&S and Garinskoye, solid financing and the freight advantage due to close proximity to the Chinese border (see note attached).

that was from the PR

and here’s a broker take

on what it means for POG

IRC (the Iron Ore spin-out from POG) is up 30% in the last week or so.. IRC is 25% of POG, which is back below 1100 again and trading, still, on lowly multiples of something like 0.4x NAV.. Next update 27th when they will give us 2010 prod, and HOPEFULLY a new target for 2011.. could be worth a nibble, though of course the value of IRC is not realised unless they sell it or in ye accounts.. but thought it worth noting, it will generate a bit of interest.

Ok – ta.

And, in an attempt to draw the rabble out of chatter about chip architecture and tax codes …..

tax codes

why on earth are the rabble talking tax codes

Someone mentioned Ireland. And, obviously, the most interesting thing about Ireland is the corporate taxation code.

Anyway, what do we have to say this morning about M&S?

bid rumours

Marks and Spencer Group PLC (MKS:LSE): Last: 380.40, up 0.4 (+0.11%), High: 384.90, Low: 378.70, Volume: 6.71m

every man and his dog mentioned

Wellcome Trust

Apax

KKR

Philip Green

As exclusive to all the papers this morning.

Stuart Rose with a PE firm

Uncle Tom

he fancies it too

Qatar

SWF’s

they all want a bit

Fair enough. So everyone’s buying M&S.

CDS is trading a bit wider this morning, I’m told.

I haven’t looked at the buyout maths on this one for a while

although

didn’t M&A leverage up

after the bid approach from Green

I didn’t think the balance sheet was too healthy

that’s why we get these cash call rumours frmo time to time

(Rok: They’re locked in until April. After that, you’ll have to ask Falcone.)

Well, indeed.

But you can kind-of see the logic here.

Bolland’s unproven

And Swannell looks like the kind of appointment you’d make if you were expecting sharks in the pool.

hmm

not sure what to make of this

And did Stuart Rose ever want to leave anyway? Could he be tempted back to run M&S Limited?

that’s possible

fair to say it would appeal to Rose

running a private M&S

no pesky corporate governance people

slapping red top notices on him

and he could go to all the fancy cocktail parties he wanted to

Meanwhile

Moving to things rather less speculative

Matrix is shoving M&S this morning.

stick it up

They’re Bolland bulls.

Following Marc Bolland’s strategic review at the interims in November, the market was unimpressed by the lack of revolution
and the shares fell 10% to a recent low of 370p. However, we see much to admire in Bolland’s plans to build on the successes
of the Stuart Rose years, while tightening up the operational side of the business and pushing out into new markets. Capex is to
increase (an additional £850-900m over the next three years); online sales are to grow to £1bn within three years from £430m
in 2010 and incremental UK store revenue is to reach £1-1.5bn by 2013-14; LFL costs are to be cut by a further £50m on top of
existing cost-cutting initiatives. Fashion and food ranges are being tweaked rather than completely overhauled and, in our view,
that is all that is needed; wholesale change brings much greater operational risk. Bolland achieved a very effective repositioning
of the Morrison brand in his time as CEO there, with minimal operational risk. We can see him achieving similar results at M&S.

The Christmas trading statement was very healthy, with Q3 LFL sales in general merchandise (GM) up 3.8% versus
consensus of 2.5% and food sales also beating expectations, up 1.8% versus 1.5% consensus. Unlike Next, M&S saw no
problems with product availability and little impact from poor weather. M&S was also able to sell ahead of Christmas with no
discounting in general merchandise, although higher stock levels have led to more markdowns in the sale, meaning full-year
gross margins will remain flat (in line with our current forecast). M&S Food saw similar promotional levels to the prior year.
Q4 comps get much tougher in general merchandise. Q3 saw a 3.8% gain on 1.8% in 2009, so a two-year gain of 5.6%. The
Q4 comp is 9.0%. We are forecasting a Q4 decline of 3.0%, which still equates to a 6% gain on a two-year view. Despite
tougher Q4 comps, we expect full-year LFLs in GM of 4.0% vs consensus of 3.5%. With consensus narrowing towards year
end, our EPS forecast is for 33.8p versus consensus of 33.0p.

Inflation in clothing, for the first time in years, should provide a timely top-line boost. While there is likely to be some volume
decline, which should partially offset the increase in prices, moderate inflation should be positive for retailers, in our view. In
general, we work on a 1% increase in inflation resulting in a 0.5% decrease in volumes. Under such a scenario, we would
also expect an improvement in the cost-to-sales ratio, which should more than offset any gross-margin pressure from higher
input costs.

Our target price of 477p is not challenging, we believe, at 11.6x vs 11.4x for the sector. Stripping out the £3.5bn of freehold
property that is not in the pension fund leaves the company on 10.0x on a fully costed basis, a 12% discount to the sector.

And that’ll do for that.

11:55AM

Moving on

just trying to see what else is moving

I have some comment on Caledon

for those interested

Caledon Resources PLC (CDN:LSE): Last: 93.75, up 0.25 (+0.27%), High: 95.00, Low: 93.00, Volume: 459.04k

Someone was. I forget who.

from a sector watcher

I think ROK was interested

I had a slight panic attack yesterday morning when Caledon Resources went to the market to raise £48.6mn at 90p/share. I didn’t anticipate the move during a closed period with the Guandong Rising (GRAM) bid looming to go firm at 112p/share. The more I thought about it though, the more sense it made and the market clearly took it extremely well. The funds were utilized to repay the debt due to Polo Resources. The market had wanted this for quite some time, and Polo had never really felt comfortable with being a lending bank to Caledon. They have maintained their 29.9% shareholding thus swapping debt for equity, a clear vote of confidence in the share price. The rest of the money has been raised to fund obligations relating to the Wiggins Island port and to give the company a strong working capital position. This gives the company a strong and clean balance sheet giving them a firmer hand in its negotiations with potential suitors.

My conversation with Peter Seear recently indicated that while the mine at Cooke was unaffected by the flooding in Queensland, getting crews to-and-from the site was difficult, and getting the coal that has been produced out on the rail line was a non-starter. Caledon is producing, but they can’t move it and they can’t sell it.

All this activity has been with the consent of GRAM, so as far as everybody is concerned, the interest is still very much there, we just await a firm bid. The fact that the placing was over-subscribed and introduced a number of new institutional shareholders into Caledon means 90p is now a new floor in the share price. The potential return is 20%, the best risk-arb spread currently on offer in the market

Polo Resources have issued an investment update this morning with an updated NAV of 7.06pence. The shares closed last night at 4.88p a discount of 44.67%. You can see the full RNS on your screens, but the two main holding are Caledon and GCM Resources. If Caledon is taken out soon, then Polo will be sitting on another cash pile. They paid a special dividend out last year which proved very popular. It is unclear where the group would wish to invest moving forward, having focused so far on coal and uranium. It has to me point worth making, but every investment these guys undertaken has returned a profit. That discount has drifted out from around 30% a couple of months ago. That is a more typical discount for a holding company structure, this is too cheap.

there you go

while we are in small cap corner

interesting announcement

from something called Akers Bioscience

heard of them?

Akers Biosciences Inc (AKR:LSE): Last: 6.14, up 0.265 (+4.51%), High: 6.50, Low: 6.38, Volume: 549.17k

Yes I have. Dr Raymond Akers’ company.

they have developed a new breath test

Akers Biosciences developed a potential replacement for existing alcohol breathalyser procedures used in probable cause situations. It solves many of the reliability and hygiene issues with existing technology such as that used by our police forces in the UK – doesn’t require calibration and uses disposable breath tube component. The FDA cleared the device this week. Akers is targeting police forces but also other industries such as aviation – e.g. testing pilots etc. Announcement below:

I have given up

with the official statements

the PR blurb is a lot easier to follow

I thought that was interesting

also there’s been some news from the Falklands

its from Rockhopper

Rockhopper Exploration Plc (RKH:LSE): Last: 372.50, down 8.75 (-2.30%), High: 385.00, Low: 371.25, Volume: 705.36k

but seems to have excited Desire

which is having a prolonged dead cat bounce

Desire Petroleum Plc (DES:LSE): Last: 43.00, up 3.5 (+8.86%), High: 44.50, Low: 39.50, Volume: 7.01m

So what’s the news?

spudding

a new well

actually

doesn’t anyone know why it is called spudding

anyway

it’s close to the Sea Lion discovery

right

will bang up some comment from the sector watcher on this

and then on to results

from JP Morgan

which are just out

Rockhopper has spudded the next well on its PL032 licence in the North Falkland Basin, with the 14/10-3 well located 8 kilometres west of the Sea Lion discovery. The well, located outside the Sea Lion Discovery Area, will appraise the northern lobe of the Sea Lion structure, hence it should not be considered quite as high risk as a pure exploration well – I’d imagine the chance of success is around 1 in 2 to 1 in 3. Difficult to say what a successful well would do to reserves estimates on the overall Sea Lion structure – although with a current P10 case of over 600 million barrels of oil against a P50 case of around 170 million barrels there is clearly enormous upside.

The well should take around 5 weeks to drill and will be followed by 14/10-4, designed to test the southerly extension of the field. Interestingly, if the southerly extension is successful, the structure could extend about 1 kilometre into Desire Petroleum’s acreage in the adjacent licence. Following the two wells, the Ocean Guardian rig will probably revert to Desire for its final well. Thereafter RKH has signed up the rig for three firm wells and five contingent, designed to appraise Sea Lion and test further exploration prospects, so it will be a busy year for the group. Our current NAV on RKH is 494p/share, although this could be deemed conservative as it assumes only the base case reserves estimate of 170 million barrels and a long-term oil price of $70/barrel. On the basis of a successful P10 case, this valuation would likely more than treble. RKH remains the best way to play the Falklands exploration province.

12:01PM

Ok – huge beat from JP Morgan

*JPMORGAN 4Q EPS $1.12, EST. $1.00

hmm

market still down

FTSE 100 off 51 points at 5,972

here’s some more

loads more

RTRS-JPMORGAN CHASE REPORTS FOURTH-QUARTER 2010 NET INCOME OF $4.8 BILLION, UP 47% OVER PRIOR YEAR, ON REVENUE1 OF $26.7 BILLION; $1.12 EARNINGS PER SHARE
11:59 14Jan11 RTRS-AUTO ALERT – JPMORGAN CHASE & CO Q4 SHR $1.12
11:59 14Jan11 RTRS-AUTO ALERT – JPMORGAN CHASE & CO Q4 SHR VIEW $1.00 — THOMSON REUTERS I/B/E/S
11:59 14Jan11 RTRS-JPMORGAN CHASE & CO TOTAL FIRMWIDE CREDIT RESERVES DECLINED TO $33.0 BILLION AT QTR END
11:59 14Jan11 RTRS-JPMORGAN CHASE & CO SAYS FIRM’S NONPERFORMING ASSETS TOTALED $16.6 BILLION AT DECEMBER 31, 2010,
11:59 14Jan11 RTRS-JPMORGAN CHASE & CO SAYS TIER 1 COMMON RATIO WAS 9.8% AT DECEMBER 31, 2010
11:59 14Jan11 RTRS-JPMORGAN CHASE & CO QTRLY PROVISION FOR CREDIT LOSSES WAS $3.0 BILLION
11:59 14Jan11 RTRS-JPMORGAN CHASE & CO Q4 REV VIEW $24.37 BLN — THOMSON REUTERS I/B/E/S
11:59 14Jan11 RTRS-JPMORGAN CHASE & CO Q4 INVESTMENT BANKING NET REVENUE WAS $6.2 BILLION
11:59 14Jan11 RTRS-JPMORGAN CHASE & CO ASSETS UNDER MANAGEMENT WERE $1.3 TRILLION, AN INCREASE OF $49 BILLION, OR 4% AT QTR END
11:59 14Jan11 RTRS-JPM’S DIMON SAYS “THERE ARE SIGNS OF STABILITY AND GROWTH RETURNING TO BOTH THE GLOBAL CAPITAL MARKETS AND THE U.S. ECONOMY”
11:59 14Jan11 RTRS-JPMORGAN CHASE & CO Q4 RETAIL FINANCIAL SERVICES NET REVENUE WAS $8.5 BILLION
12:00 14Jan11 RTRS-JPM’S DIMON SAYS “REMAIN COMMITTED TO HELPING HOMEOWNERS AND PREVENTING FORECLOSURES”

looks positive

hang on

FTSE 100 selling off

down 58 points now

must be something in there

12:04PM

JPM shares edging higher premarket.

Odd.

as part of our public service mandate

someone was asking about T Clarke

T Clarke PLC (CTO:LSE): Last: 101.00, down 25.5 (-20.16%), High: 105.00, Low: 87.75, Volume: 403.17k

and today’s alert

first the company does this

T.Clarke is one of the country’s best-respected and most capable building services contractors, with a family of distinctive regional business covering the UK.

In a history that spans three centuries, starting with the electrification of Royal Palaces, Country Houses and State Buildings, T.Clarke have been selected to work on many of the country’s great landmark construction projects.

In that time, the company’s ethos and principles have remained constant. Today, just as in 1889 when Tommy Clarke won his first contract.

They electrified the royal palaces?

Could’ve done with electrifying the thrones.

nice stuff

[/republican]

they have issued a profit warning today

and people are worried about the dividend

Cautious trading comments and a cut in the dividend will put pressure on the
share price. Our new target price is 106p (previously 160p), and we
downgrade from Buy to Hold.

Trading update. The company has indicated that, while markets were tough during
2010, they were “particularly challenging” in the final quarter. Its margins were under
“extreme pressure”, and the poor weather at the end of the year disrupted work at a large
number of sites, particularly north of England and Scotland. So, 2010 results will be
below expectations and it is likely that 2011 will be below that of 2010.

New structure. Management believes that the “longer term prospects for the group are
encouraging”, and it remains resilient. It is implementing a new structure to ensure it can
offer clients a broader range of services. The sector focus going forward is: facilities
management, intelligent buildings, green technologies, rail, utilities & technologies,
manufacturing, residential and M&E contracting.
Valuation & recommendation. We target an 8% dividend yield for the shares, this
being the level that other sector stocks have hit when have had issues. This implies a
target price of 106p, so we downgrade our recommendation to Hold. With its specialist
offering, it may attract some speculative interest.

weird

market selling off more

and JP morgan heading higher again

now off 68 points

can someone explain

any thoughts?

Chinese rate hike?

over the weekend?

12:07PM

Right – just before we leave.

I did mean to mention the Original Muppetstock

Muppet stock. PartyGaming would be a penny dreadful, but for a share consolidation.

PartyGaming Plc (PRTY:LSE): Last: 211.40, down 3.3 (-1.54%), High: 216.40, Low: 211.00, Volume: 247.52k

Based on this in the Daily Mail

(John – Panmure)

Crackdown on foreign internet gambling operators amid addiction fears

A dramatic crackdown on online gambling firms could result in hundreds of foreign operators being forced out of Britain.

is that why 888 are weak?

Could be.

888:LSE

Culture Secretary Jeremy Hunt is planning to stop companies based overseas from advertising in this country amid mounting concern that millions are becoming addicted to gambling.

http://www.dailymail.co.uk/news/article-1347027/Crackdown-foreign-internet-gambling-operators-amid-addiction-fears.html#ixzz1B0jVoS3h

shares are down 9.6% at 56.5p

I have heard rumours the deal is off

wouldn’t surprise me

Ladbrokes having to pay a hell of a price

if the rumours are true

anyway

we should end this

before we do

some comment

on my new favourite small cap

Chariot Oil and Gas Ltd (CHAR:LSE): Last: 235.00, up 2 (+0.86%), High: 238.50, Low: 232.75, Volume: 582.23k

13bn barrels of oil off the coast of Nambia

better than GKP by miles

The next supermajor, potentially sitting on 60bn barrels of oil in Kurdistan. Loved by muppets across the globe.

Gulf Keystone Petroleum Ltd (GKP:LSE): Last: 172.50, up 0.5 (+0.29%), High: 174.50, Low: 169.00, Volume: 2.16m

these are the thoughts of Collins Stewart

Major upgrade to prospective resources – raising target price to 325p vs 275p
Major resource upgrade reinforces our positive stance
Chariot announced a 3.1billion boe increase to its estimate of unrisked prospective resources offshore Namibia, from 10.1bn boe to 13.2bn boe. This comes from what it describes as a “mega-structure” in block 2714A (where it has a 50/50 JV with Petrobras) following further technical work on its 3D-seismic. Where it had identified the “G” prospect with resource of 759mb, Chariot now sees a single structure of c.500km2 in extent and 3.7bn boe mean resource. The AVO anomalies and other data have also prompted an increase in the estimated chance of success at the prospect from 16% to 20%. On a fully risked basis, this takes Chariot’s net share of resources from 847mboe to 1175mboe (+39%).

Three catalysts for near-term share price performance
The investment risks in Chariot do not yet lie in drilling results, with the first wells only likely in late-2011. In the meantime, we see three catalysts which we think can lead to a continuation of the recent trend of outperformance in the shares: 1: further updates on resources. Chariot has still to complete its analysis of the seismic in its Northern lease area, and we expect an update on resource potential in these blocks in the coming months 2: results from the farm-down process. We now expect the closure of the farm-down process around end-month, and we would expect results to be announced towards the end of 1Q. If Chariot can bring high quality partners into its Northern and central blocks, we think this would add considerably to investors’ confidence in its potential. 3: newsflow on drilling. Chariot aims to commence drilling in the South in Q411. We think any firm details on exploration plans in the Northern or Southern licenses would be well received by the market.

Provisional NAV shows substantial upside
We have raised our provisional NAV estimate from 389p/sh to 475p/sh (+22%) as a result of the latest newsflow. Our NAV is based on drilling of two prospects in the Northern Area and two in the South, with the “mega-structure” accounting for c.70% of this NAV. Our 325p target price (up from 275p) is a c.30% discount to this figure. We would stress the high risks around these NAV estimates at such an early stage, but think they are offset by the scale of the upside potential.

that’s it from me for the week

don’t forget to enter the new caption competition

although you wont win

because the entry by Taxloss is too good

he’s wasted in Australia

wasted

Right – so we’re done.

Thanks for tuning in this morning.

Surprisingly lively over on the right, which is appreciated.

Hope you all have a pleasant weekend.

cya

This entry was posted by Neil Hume on Friday, January 14th, 2011 at 11:04 and is filed under Uncategorised. Edit this entry.

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Markets Live transcript 14 Jan 2011

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