FT Alphaville » Markets Live transcript 10 Mar 2011

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Markets Live transcript 10 Mar 2011

Posted by Neil Hume on Mar 10 11:03.

Markets Live chat transcript for the chat ending at 12:31 on 10 Mar 2011. Participants in this chat were: Neil Hume, FT bryce.elder

Morning markets rabble

welcome to Markets Live

AV’s daily markets discussion

and can you just bear with us for a moment

Bryce

any idea where the Evening Standard is based now?

is it Kensington?

Yeah – the old Bakers building.

address?

For the moment – before they get shifted out to Luton

them too

(@DW if you do – you’re off)

Yup. Because of some difficulties with the owner’s … well … best not say any more about that.

thank you Edge

I need to send an invoice

Why?

well

i was looking through the paper on the way home last night

and on Page 7

there it was

middle of the page

Oh – it’s your photo.

yep

From Curzon St

MY PHOTO

no credit

no hat tip

nicked

I want payment for that

http://www.londonfreelance.org/feesguide/index.php?&section=Photography&subsect=National+newspapers

what’s our syndication rate

that could pay for a team lunch

Do we class the Standard as a national or a regional?

Think you’re on for about £150, by memory.

Gourmet Burger Kitchen all round

Multiplied by five for the inconvenience of no credit, obv.

we could upgrade then

to Sweetings

Nice. So thanks, Evening Standard.

It would’ve been nice if you’d told AV beforehand

But still, we look forward to the cheque.

send to

Number One Southwark Bridge

London

SE1 9HL

mark it for the Newsroom

and the Alphaville desk

shall we move on

(OPEC Money: the last mention of AV in the Standard was in April 2009. Not exactly plugging all the time, really.)

Yup – so let’s get down to matters market.

11:11AM

And so

FTSE 100 is off

down 50 points at 5,882

two years on from the start of the biggest Emoticon

bounce in recent memory

and it all feels a bit tired

mind you

there’s quite a bit of negative news around today

the situation in Libya looks horrible

blowing up the big oil refineries is not good

and then we have Moodys following up its Greek downgrade

with one for Spain

Tanks rolling towards Ras Lanuf, Reuters flashing.

Meanwhile, returning to Spain

What’s the detail on the downgrade?

before we look at that

the Spanish 10-year bond is actually up on the day now

yielding just under 5.5%

it’s Portugal that’s getting whacked again

7.7% now

The Moody’s rear view mirror in action once again.

there’s certainly an element of that

not much new news in the downgrade

more of a catch-up really

Stable door bolted. Horse already in the next county.

in fact about the only new thing I can see

is that Moodys have upped the bill

for bailing out the Spanish banks

not that they need bailing out you understand

Here’s Nomura on that very theme

In essence, the main news seems to have been Moody’s upward revision of its forecast of the cost of recapitalising the banks. Since its December report, Moody’s has almost doubled its projections from €17bn to €40-50bn and to €110-120bn in a stressed scenario. Although significant, the upward revisions are not really news to us (we have been saying that since November 2010 Spanish banks may need additional capital of €40-80bn (between 4% and 8% of GDP) – for more, see Spanish Steps), nor to the consensus.

Concerns over the government’s ability to impose fiscal discipline on the regional governments and the poor macroeconomic outlook clearly remain an issue. However, since the beginning of the year the government has taken determined action to address some of its key weaknesses. It has approved the pension reform and it has accelerated the banks’ recapitalisation process, and it is now working on a reform of the collective bargaining system – for more see Spain’s New Year’s resolution. We view positively the bold action taken by the Spanish government. Furthermore, while continuing to expect growth to remain relatively muted amid the fiscal consolidation process and weak domestic demand (we forecast GDP growth of 0.6% in 2011 and 1.1% in 2012), data are gradually showing some signs of exports picking up, which should cushion some of the weakness in domestic demand, as well as help the rebalancing process.

Finally, the timing of the Moody’s downgrade was a bit surprising, as this afternoon the Bank of Spain will release its estimates of the banks’ capital needs to comply with the government’s new targets.

prolly explains the muted response

as for Portugal

they are well and truly stuffed

Spanish downgrade or not

So the Ibex is lower by 1.2%

it is

11:18AM

Right

on to some stocks

what shall we start with

risers

fallers

Um – let’s start with the fallers shall we?

good choice

ARM Holdings PLC (ARM:LSE): Last: 538.50, down 35.5 (-6.18%), High: 561.14, Low: 526.00, Volume: 6.59m

taken a real whack

Why?

well

on the face of it

a JP Morgan downgrade

which claims that tablet demand is stalling

and the Asian semi firms

are sitting on an increasing backlog of chips

however

that all looks and excuse

if the market is heading down

and the front page of the FT

is carrying pictures of blazing oil terminals

what better sector to short

than the semis

Hm. Interesting.

JP Morgan’s been a bear on Arm for a long time. They only upgraded a week or so ago.

he did

I have the note

wouldn’t mind getting your take

Well, give us a look at the note first.

ARM (UW) most at risk from recent –ve tablet/foundry datapoints; if foundry
weakness spreads ASML, ASMI (both OW) will be impacted; Infineon (OW)
should be more defensive (Sandeep Deshpande)

apols

for the jargon

JPM research

is increasingly unreadbale

Few recent –ve datapoints: a) JPM Asia Tech analyst cut foundry ind ests for 2Q11 on worries
re inventory build at some semi cos and pot’l order cuts from non-Apple tablets chip suppliers;
TSMC 2Q11E now +8% qoq vs +15% prev, UMC +2% vs +12%; b) JPM US IT Hardware
analyst sees risk of 2H11 tablet bubble burst, ’11 tablet supply outpacing demand by 17.2m
units, or 35.9%, cd result in 2H11 inv correction in tablet supply chain.

ARM: UW; TP 220p => 63% downside. Most at risk from poor non-Apple tablet sales,
pot’l inventory correction in tablet mkt. Though tablets 2-3% of ’11E revs, rally past 6-8m
driven by bullish sentiment on tablets, –ve datapoints wd dent. Trades at 48x ’11E P/E vs
sector 13.5x. JPMC ’11/12E EPS 15%/11% > cons. –ve datapoints from non-Apple tablets
OEMs over coming mths cd impact stock.

Pot’l risk to OW semi-equip names ASML, ASMI if foundry inv correction affects not just
non-Apple tablet mkt but broader end mkts as wd impact equip spending’12; ‘11 cd then be
ST peak in semi capex. At this time we see data tablet ltd, not enough to make us cautious
on ’12 capex, tho post strong perf from both stocks some profit taking not unwarranted.

220p!

Infineon: OW; TP €9.25 => 19% upside could be relatively defensive as no substantial
exposure to PC, TV, or tablet end mkts; beneficiary of robust auto/industrial demand
trends, eg BMW Feb yoy auto shipments +21.7%. On ’11E P/E trades at 13.5x in line with
sector. JPMC ’11/12E EPS –5%/+1% vs consensus. Next catalyst Mar Q results.

there you go

if you can understand it

do clients

really like to receive their research in that format?

what about using english?

Hm. It’s like a work creation programme for the specialist sales guys.

Take the jargon from the scribblers and turn it into something comprehensible.

Though, from the top, there’s not a huge amount that’s new here.

Semi is a cyclical industry. It’s the very definition of a cyclical industry, in fact.

And everything’s pointing to a slowdown at the moment.

But you don’t buy Arm on this year’s sales.

indeed

If you’re a believer, you’re a believer on the market share opportunity in 2015.

And I guess that, yes, there may be scope for Arm’s revenue to be a bit weaker this year

good excuse to short the stock though.

all the above

Yeah. It’s a good excuse. Well put.

“I’m selling Arm because there are indications in the supply chain that tablet demand may not follow through from the early adopters ….”

I mean, really ……….

I’m selling them

because they are a high beta stock

with a massive rating

and the market is falling

Agree. Great company, but too expensive.

I’ll take 40 points out of this

and then buy them back

Just like management have done, you mean?

Fair call.

11:28AM

Right

a couple of flashes

before we move on

RTRS-EU FORMALLY ADDS LIBYAN INVESTMENT AUTHORITY, FOUR OTHER ENTITIES TO EU SANCTIONS LIST — DIPLOMATS

obviously has read across

for Pearson

Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.

and this

RTRS-SPANISH COURT GIVES SANTANDER CEO SAENZ 3-MONTH BANKING BAN – SPANISH MEDIA

(@FB3: lordy, is Indigovision still going? Met the CEO once at a trade fair. He had a beard.)

(Sell companies run by bearded men)

Saenz is the old chap, yes?

yeah

figure head

on his way out

this all relates to some merger from years ago

we all really knows who runs Santander

Still rather embarrassing.

I guess so

11:31AM

back to stocks

let’s go shopping

Morrison

results out

and they seem to have gone down quite well

A record year as Morrisons prepares to go multi-channel

Wm Morrison Supermarkets P L C (MRW:LSE): Last: 285.20, up 4.7 (+1.68%), High: 290.10, Low: 277.10, Volume: 7.70m

Hang on … what?

“Prepares to go multi-channel”?

yep

they are going pixel

Approximately ten years behind everyone else. Ace.

yep

and they are moving into convenience

again a decade after everyone else

There’s some commercial merit to being a late adopter, of course.

that’s what the CEO was saying this morning

Go on.

we have had time to see how the market develops etc

although one could argue

that the previous CEO

Marc Bolland

now at M&S

addressed none of the strategic issues at Morrison

just did a great job at marketing

and left while the going was good

poor old Dalton Philips

has to pick up the pieces and come up with a new strategy

To be fair, Bolland had a lot of other heavy lifting to do.

The Safeway portfolio was a mess.

Branding was all over the place.

Building a website was possibly quite far down the priorities.

anyway, we’ve had Kiddicare from Dalton

next up is this

The second is a £32m investment in FreshDirect, a profitable, fast growing and highly successful internet grocer serving the New York market. We will be taking a c10% stake in the company, with a seat on the Board and the opportunity to embed a team of Morrisons people in the business to learn how it operates. They have been building their business for 12 years, are profitable and growing like-for-like sales at over 20%. We believe our investment will, itself, be highly successful, but that the learning we will get from it will be invaluable. This investment is the first step in developing the offer that we will ultimately launch in the UK.

which would seem to rule out a bid for Ocado

An internet food retailer that many believe is the second coming of Webvan. Loss making yet valued at close to £1bn on flotation.

in fact

FreshDirect

is that just a mobile greengrocers?

a cart dragged by a horse

one of my great, great uncles

used to have

he dragged it round North London

it might work

now that there are no greengrocers

Ocado Group PLC (OCDO:LSE): Last: 203.50, down 4.5 (-2.16%), High: 207.60, Low: 199.60, Volume: 148.35k

here’s the local convenience plan

Like those chaps who show up at your door selling “fish”

Convenience
The convenience sector is the second fastest growing part of the grocery market and as such is an area that we are evaluating carefully. Our success in operating smaller stores in recent years has given us the confidence that we can offer customers something different, with great fresh food. We will explore the opportunity of extending our customer reach with a three store trial during 2011 under the name “M local”. We are pleased to have identified the trial locations, the first of which will open in July .

M local

catchy

And the’ll be recruiting M People, I assume.

yellow for that

Accepted.

and the final part of the strategy

is a massive expansion plan

going to opening loads of new stores

Morrisons is the fourth largest grocery retailer in the UK. We remain under-represented in many parts of the country and we estimate that there are some 6.8m households in the UK who are not located within a convenient 15 minutes drive time from a Morrisons store. This is a higher target customer base than any of our three larger competitors. A key part of our strategy, therefore, is to increase the number of Morrisons stores. In 2010 we set an objective to add 1.5 m square feet of selling space in the three years to January 2013. Our first year target was 400,000 square feet and we are pleased to have met this. With our new property team now in place we have an opportunity to capture space more quickly and accordingly are now targeting to deliver 2.5m square feet of new space in the 3 years to January 2014, in addition to the space to be created through the Liberate project.

2.5m

square feet

more supermarkets

more planning rows

more Nibbyism

Does seem rather aggressive, given what others are planning.

Sainsbury particularly.

it is

6% growth a year

have they got a landbank that big?

Don’t really understand supermarket dynamics. Surely the total demand for groceries is relatively static.

Why’s all this new space needed?

pass

Don’t get it.

because everyone else has it?

Citi has a good take on the store expansion plan

Certainly the highlight of Morrison’s FY10/11 announcement is space growth. The
company’s previous objective was to add 1.5m sq ft of space in the three years to
January 2013. They have now set a new target of a 2.5m sq ft increase in the
three years to January 2014. On a base of 12.3m sq ft that translates into 6%
growth per annum. On top of this however they are guiding to a further 0.75m sq ft
of sales area to be realized from the existing estate via Project Liberate, which will
begin to take effect in 2012.

Add this to their new space target and it seems that
Morrison is guiding to 27% space growth over the next three years or over 8% per
year. While we imagine this will be back end loaded, it would take Morrison from
the being the slowest space-grower of the big three listed players to being the
fastest. The downside of growing faster is increased capex: they now guide to
£3bn over three years (we currently assume £2.4bn). We think space acceleration
is the highlight of today’s announcement and hope to hear more at the analyst
meeting (9.30am).

The numbers
Underlying PBT £869m vs £861m consensus representing a small beat. 1.1% LFL
implies around 0.4% in 4Q, which we see as disappointing given they achieved
1.0% over Xmas. It means that January trading was flat, at best perhaps. Overall
full year sales were in line at £16.5bn. EBIT £904m vs Citi est £899m.
There is to be a £1bn buyback over 2 years complemented by double-digit
dividend growth. The dividend growth on top of the buyback puts this at the high
end of expectations

I guess

the increased capex

and buyback

is what people like with the results

although sales growth

does seem to be costing them

according to Merrill

In-line result, buy-back, acquisition and positive tone
The macro-backdrop may be tough and Morrison’s FY result ‘solidly in-line’, but
management is sounding confident, and is upping the ante: a €1bn two-year buyback
has been announced and double digit DPS growth promised in each of the
next three years. That largely was expected; the 2.5m sq-ft three year new space,
‘first for fresh’ and ‘6% space ‘liberation’ ambitions, together with the acquisition of
a 10% stake in FreshDirect – a profitable New York on-line grocer – were not. We’ll
need to see more evidence of delivery but Morrison is rebutting assertions that it
is strategically constrained. Expect support for a cheap share. Buy, 330p PO.

Morrison stated pre-tax profit of £869m, above a £861m consensus. However, net
of c£10m provision release, profit was in-line. Still, that is encouraging, pointing to
underlying H2 margin expansion with 6% EBIT growth, (ex-Coop costs) on 2.7%
in-store sales growth. The £76m working capital outflow is a small negative but
capex of c£590m, £100m less than forecast, left net debt as expected at £817m.
As to FY12, Morrison flags consumption pressures but states its confidence in
‘delivering further profitable growth’. We stay c2.5% below EBIT consensus,
modelling 6% growth, but are encouraged by H2 margin progress.

Now for the ‘Philips and Pennycook’ show
The real driver of the share reaction will be whether the CEO and CFO double-act
can convince that there is marked retail and profit improvement ahead. With the
‘space liberate’ trial one week old, and convenience store trials coming in July,
there will be limited empirical evidence. Yet, management is confident and we
expect it to set out efficiencies to come. On-line, Morrison’s approach has been
novel and a 10% stake in FreshDirect for £32m with operational access looks
sensible. It is premature, however, to see scalable solutions beyond big cities.

I wonder

this FreshDirect thing

do you reckon

it was a case of chinese whispers

someone said they were going to take a stake in an internet grocer

and everyone jumped to the wrong conclusion

after all they have an ex Ocado man on the board

Plausible.

Hadn’t heard of FreshDirect before today.

Nigel Robertson (aged 51) joined the Group as a Non-Executive Director in July 2005. With effect from 10 March 2011, Nigel will be appointed as Senior Independent Director. He is a member of the Nomination, Remuneration and Corporate Compliance and Responsibility Committees and was Chair of the Corporate Compliance and Responsibility Committee from September 2009 to 9 March 2011. Working in the private equity sector, he is the Group Chief Executive of Health and Surgical Holdings Ltd. Until the business was sold in 2007 he was the Chief Executive Officer of Chelsea Stores Holdings Ltd and he was previously the Managing Director of Ocado, the online grocery shopping business set up in partnership with Waitrose. Prior to this he held senior positions in Marks and Spencer Group PLC both in the UK and USA.

I wonder if Murphy has used

FreshDirect?

not sure he eats veg though

we should get him to trial it for us

Sure. If they do liquor deliveries I’m sure he’ll volunteer.

Meanwhile, in contrast to MRW

Argos is even more of a bust than everyone expected.

Home Retail Group plc (HOME:LSE): Last: 196.20, down 14.7 (-6.97%), High: 197.50, Low: 133.60, Volume: 13.71m

yes

looks awful

Homebase surprisingly OK

Which makes me wonder where all the non-food growth to fill the cavernous newbuild supermarkets will come from …

Argos is, after all, basically sells supermarket non-food kit without the supermarket.

there’s also a big warning in the guidance about rising costs

which is surprising

because Home Retail

have always been hot on costs

Looks as if they’re having to put a lot more stuff into clearance sales.

Hence the margin hit.

Not good at all.

Analysts talking about 20% off 2012 earnings

yes they

are

here’s Investec

Home Retail has guided down FY11E PBT expectations to £250m – £255m,
primarily on weaker than expected Argos sales and gross margin in Q4. More
importantly, the cost element of FY12E guidance, rather than sales and gross
margin, has very negative implications for FY12E forecasts, we believe. Each
1% cost base increase has a £20m impact. We therefore believe FY12E
consensus could fall by up to 20%, ie nearer to £200m from the current
consensus of £250m. This could also threaten the dividend in our view

dividend could go

more likely

the buyback programme will have to go

how much cash have they wasted on that?

The company is guiding to low to
mid single digit LFL decline at Argos with small GM reduction, and flat LFL and a
small GM increase at Homebase. These should not surprise, but the guidance to
a small operating cost increase will, given the company’s successful track record
of productivity savings of £100m over the last two years. The latter point is likely
to drive lowered consensus PBT for FY12E from the current £250m (Fidessa)
– possibly down as low as £200m PBT, but with a big spreadalso likely, we
suspect . On pro forma FY12E EPS of around 17.5p, this would also clearly
threaten the current dividend level in our view.

The shares are likely to weaken today, notwithstanding some risk
already being discounted into the share price. Investor sentiment will continue to
be driven by the prospects for Argos. Having downgraded Argos divisional
operating profit in the wake of the Q3 IMS, risk to our Argos FY12E LFL
assumption of a 3% decline remains weighted to the downside in our view.
With prospective FY12E dividend cover standing at 1.5x, further PBT
downgrades would increase pressure and threaten the dividend, one of the
share’s key supports in our view. We place our forecasts, target price and
recommendation under review

pretty bearish that

Quick line from Bubb as well

After the downgrades today Home is trading on over 11x the new-year at last night’s close and that looks too high relative to the rest of the sector. As bid hopes fade further, with share buyback support now finished, we think the shares will soon re-test new lows. We target 175p and reiterate our Sell on Home, despite the cash mountain and the 14.7p dividend (covered only 1.25x). The yield is 7.0% at 211p, but we think that needs to be 8.5% to compensate for the risks in the earnings outlook.

(T3 – yellow card)

As in: Nick Bubb at Arden.

Nick Bubb

in his daily note

which is a very good read

he continues the Supergroup debate

although he doesn’t mention that incredibly patronising note

from Oriel

SuperGroup (Buy): We noted yesterday the banter on the FT Alphaville Markets Live webcast about how awful it is that all the chavs at Gatwick Airport are wearing Superdry clothes…and we were amused to see some more spirited banter there on the back of our ironic comment that the fact that SuperGroup will almost certainly be named “Company of the Year” at tonight’s PLC Awards could be the “kiss of death”! More to the point, SGP’s pulling power with landlords was demonstrated a couple of days ago when they announced that they had signed up to anchor a revamp/redevelopment of the rather downmarket Broadmarsh shopping centre in Nottingham with a big Cult Clothing store. The point here is that the other, more upmarket, centre in Nottingham, the Victoria, owned by CSC, is also being extended and they must have been keen to sign up SGP as well, so we can be sure that a lot of money changed hands from the Broadmasrh landlord, Westfield, to “incentivise” SGP to take the new store

Supergroup PLC (SGP:LSE): Last: 1,377, down 44 (-3.10%), High: 1,422, Low: 1,360, Volume: 419.08k

Yeah, yeah. Landlords like a SuperStore.

We know.

why wouldn’t they?

retailer wants to take new space

shock horror

I’m sure they’d also like Boxfresh, Levis, Full Circle, Hackett, Firetrap, Timberland and all the other brands that apparently don’t compete at all with SuperGroup.

SUPERGROUP HAS NO DIRECT RIVAL ON THE HIGH STREET

Obv.

AND THE BRAND IS NOT KNOW OUTSIDE OF THE M25

SALES POTENTIAL IS HUGE

ONCE CHAVS UP NORTH START BUYING IT

Obv.

11:57AM

Right

we are moment away from the BoE rate decision

usually a massive anti-climax

FTSE 100 is down 60 points at 5,876

(Cabin Fever – I think Mike Ashley and Sports Direct own it)

(He does, along with Dunlop and Slazenger.)

before the BoE announcement

do we have time to squeeze anything in?

Dignity?

perhaps

Dignity PLC (DTY:LSE): Last: 742.50, up 25.5 (+3.56%), High: 745.30, Low: 720.00, Volume: 284.61k

or shall we wait

Let’s hold, much like the BOE will.

Countdown ………

Unchanged.

12:00 10Mar11 RTRS-BANK OF ENGLAND HOLDS KEY UK INTEREST RATE AT 0.5 PCT
12:00 10Mar11 RTRS-BANK OF ENGLAND KEEPS TOTAL QUANTITATIVE EASING PURCHASES UNCHANGED AT 200 BLN STG
12:00 10Mar11 RTRS-BANK OF ENGLAND MAKES NO STATEMENT ALONGSIDE MONETARY POLICY DECISION

(Tony Tassell: not only have we lost Dignity, we lowered Standards earlier.)

So. No statement.

move on

nothing to see here

12:01PM

Do we have anything on Dignity

for the rabble?

Probably – hang on.

Investec likes them.

Dignity has delivered another strong set of results, exceeding expectations
and demonstrating again the resilience of the business model. The average
spend on both funerals and cremations has held up well as has market share.
We expect to up our forecasts by c.3%. Whilst there may not be obvious
catalysts, the valuation looks too attractive to ignore, with the shares trading
on a discount to growth and only just off the all time low forward PER. We
reiterate our Buy recommendation and up our price target to 805p.

As does Panmure.

Final results from Dignity are 6% ahead of our forecasts at the adjusted PBT
level, reflecting a strong operating performance, particularly in Crematoria
and Pre-need, with interest costs also lower than we forecast. Underlying
earnings growth was very respectable at 15% on the back of these drivers,
which is more akin to the 16% CAGR delivered since IPO in 2004A. With the
new year also starting well across the board, we are upgrading our 2011E and
2012E EPS forecasts by 6% and 4% respectively on the back of this, and
reiterate our Buy recommendation and 872p target price accordingly.

Pre-need?

what’s that?

I don’t know. It’s not a business I’ve looked at in any detail.

Buying your funeral ahead of time?

could be

Looks that way. I’ve just found a whole pile of marketing bumf selling this kind of thing.

why would you buy it?

not exactly your problem is it?

after you’ve gone

there’s always the paupers grave

Dunno. There’s a family burden angle I guess.

well

it’s not as if you will know

that you’ve been dumped in a mass grave

Quite. The quality of own funeral seems an odd thing to worry about and invest in when there are other lots of other options.

Gin, for example.

12:06PM

Speaking of

Punch results don’t look that awful.

on the managed side of things

pretty good

they appear to be outperforming the market

and from my experience of the Anchor

I can’t see why

it’s a pub with a chip shop in it!

Weird pub that one. Could do so much more.

Details on the results then, please.

Within the managed estate, LFL sales in the quarter are up 8.6%

now that’s is against

a snow affected 2010 comparative

by even so

pretty good

says Merrill

This is versus
an easy comp due to adverse weather conditions in Jan 2010 but still impressive
compared to a previous trend of only +c2% and other operators at +c3%. Within
this, food LFL sales were up 11.7% and drink LFL sales up 7%. This growth
demonstrates the huge recovery potential for this estate in our view as even the
uninvested pubs were up by 5.2%. The company has already refurbished another
135 pubs this year and is clearly on track to complete 200 in the full year. The
focus has been on the Chef & Brewer, Fayre & Square and the Flaming Grill
brands.

of course

the tenanted side

is still a dog

although it is at least

not getting any worse

In the tenanted estate, LFL net income per pub has sequentially improved from
-7.8% in Q1 to -6.1% in Q2. This leaves the company on track to meet full year
consensus forecasts (-6%). Previously the company gave a LFL Ebitda number
rather than a LFL net income figure which is essentially gross profit. We estimate
the LFL net income decline of -7% in H1 is equal to around -7.8% LFL Ebitda. In
H1, average net income per pub is +0.3% showing the churn has been heavily
skewed towards non-core pubs.

which sets things up nicely

for the strategic review

on March 22

when we find out if

Punch does some jingle mail

and hands back the keys

to thousands of rubbish pubs

to the bondholders

Overall the tone of the statement is very positive. The scene has been set for the
forthcoming strategic review by the CEO on 22 March and we would buy into this
potential catalyst. Our worse-case scenario values Punch at 80p as Punch shares
are currently worth a minimum of the Plc assets (40p) and managed value (40p-
100p) with a free option on Punch A & B (0-100p).

Seems to me buying into the potential catalyst is quite dangerous.

yes

very

Given the fight with bondholders can only get more nasty from here.

and on that note

i picked this up

yesterday afternoon

Punch Taverns Finance plc (“Punch A”) and Punch Taverns Finance B Limited (“Punch B”)

On behalf of the Special ABI Committee of Noteholders (the “Committee”)

Notice of teleconference for Punch A and Punch B Noteholders

NOTICE IS HEREBY GIVEN THAT advisers to the Committee will be conducting a call for all Noteholders on Friday 11 March at 3pm GMT. The purpose of the call is to explain to Noteholders the role of the Committee and provide an update on the Committee’s work to date. Dial-in details will be as follows.

Given the volume of expected callers it is advisable for attendees to dial-in a few minutes before the call start time.

Andrew Merrett
Managing Director, Co-head European Restructuring

so the bondholders

have hired Rothschild

and are preparing their case

I just don’t believe

Punch can just give back the keys

and walk away

surely it can’t be that easy

Dunno. Which, I reiterate, is where the risk comes in.

(Outlaw – you’re very close to getting a life ban)

(@SFB: Cardiff is very much real. Join him for ML:NY tomorrow for proof.)

12:14PM

any RAW before we end?

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.

Not much that I’ve heard.

Interesting that Vinke has turned up on the shareholder list at Carrefour.

With 1%

actually

Eric Knight

sent an interesting letter to the paper today

on Xstrata

Xstrata PLC (XTA:LSE): Last: 1,331, down 47.51 (-3.45%), High: 1,360, Low: 1,329, Volume: 10.55m

Oh yeah. Go on.

rom Mr Eric Knight.

Sir, Investors recognise that Xstrata trades at a discount to its peers because of its current ownership structure and uncertainty about how this will be resolved. One proposal that has been mooted is a merger between Glencore and Xstrata (report, March 8).

When this was first proposed a year ago, the reaction of many investors, including Knight Vinke, was that this would be difficult given the lack of transparency surrounding Glencore as a private company. We now understand that to overcome this issue, the proposal is to list Glencore.

We suspect that even as a listed company, Glencore will still be hard for the market to value due to the unpredictable nature of its trading income. There is no truly comparable company of this size and the long-term evidence from the trading activities of banks, for example, suggests that the volatile trading business ought to be valued at a discount to the mining activities.

Xstrata shareholders are rightly concerned about the issue of valuation and will expect the board to stand up for the interests of shareholders.

If the board concludes that some kind of combination with Glencore is unavoidable, perhaps a better way forward might be for Glencore to split its trading and mining businesses, leaving the trading business as a private company (which some insiders believe is an advantage) and the mining company as a public company free to merge with Xstrata. A merger of Xstrata with Glencore’s mining business (without its trading activities) would at least have the merit of being easier to value and would create a true competitor for the likes of BHP Billiton, Rio Tinto and Anglo American. It would also remove some of the issues concerning management and governance.

If a transaction on reasonable terms cannot be agreed with Glencore, the Xstrata board should not be afraid to say no.

Eric Knight,

Chief Executive,

Knight Vinke Asset Management,

New York, NY, US

hmm

would Glencore sell their mining assets to Xstrata?

Doesn’t seem entirely likely, does it?

Makes sense on paper.

Though I’d not be surprised to see Glencore make a few bolt-on buys rather than consider selling.

Glencore have pawned

mining assets to Xstrata before

but were always keen

to buy them back

Exactly. Made a rather good trade on that Prodeco coal mine flip.

although the company

was of course

created from Glencore

Meanwhile, as for Vinke’s retail interests …..

Some odd theory around this week about the potential for a Dixons/Kesa merger.

oh you mentioned that

yesterday

two drunks propping themselves up

at the bar

As was said famously of Compaq/HP, of course.

(spurs vs Barca – that’s a fixture I would love to see)

Now, speaking to people the feeling is that the Competition Commission would never, ever allow it.

why not?

Dixons/Curry’s would simply control too much of the UK high street.

they are both doomed

Well yes, that’s the counterpoint.

The competition’s online, or with Apple stores at the top and supermarkets at the bottom.

So it all depends on how you slice the market.

Anyway, just vague chatter at this stage. Could be nothing.

Kesa Electricals Plc (KESA:LSE): Last: 130.70, up 1.1 (+0.85%), High: 130.70, Low: 126.50, Volume: 916.81k

Dixons Retail PLC (DXNS:LSE): Last: 17.39, down 0.51 (-2.85%), High: 17.97, Low: 17.06, Volume: 8.11m

still with Raw

some people trying to peddle

the TalkTalk bid rumour

Talktalk Telecom Group Plc (TALK:LSE): Last: 143.80, up 9.3 (+6.91%), High: 147.70, Low: 137.10, Volume: 1.01m

reckon this one is cobblers

down to the a reweighting I believe

have a look at this

FTSE are also increasing the free float of Talktalk from 40% to 75% in its Indices, resulting in total passive demand of 14m shares, 13x ADV from FTSE 250, All Share and World trackers.

Right. Well that explains that.

case closed

I think

anything else?

Shire up on a MOST upgrade

Shire PLC (SHP:LSE): Last: 1,795, up 28 (+1.58%), High: 1,804, Low: 1,774, Volume: 759.02k

We upgrade Shire to OW and lift our PT to 2210p (25% implied upside) as we believe the market
still underestimates 1) the value of the Orphan Drug business HGT, 2) the global potential of
Shire’s ADHD franchise 3) cash flow and 4) scope for a lower tax rate. Shire aims to deliver
annual revenue growth of 15% until 2015, with operating leverage and strong cash generation.
We argue consensus is too low (sales/EPS CAGR +9/13%), and think Shire can deliver a
sales/EPS CAGR of +12/19%. Physician feedback on key revenue drivers gives us confidence in
our forecasts. On our estimates, the HGT and ADHD franchises represent 47% and 35% of NPV,
or £18.30 per share. This suggests investors are getting the HGT pipeline for free

Glaxo better on this

(via Citi)

As widely expected, the FDA last night approved Benlysta for Lupus. The good news is that the drug’s label (attached) does not contain a black box or REMS and both flare reduction/steroid sparing are on the label. Less helpful are the data showing the effect of the drug on these key metrics is equivocal. The price of the drug is broadly in-line at $40k for the first year and $35k annually thereafter. Citi forecast sales of Benlysta of £703m by 2015 (reflecting RoW sales & 50% of US gross profit) vs consensus of £836m or 2% of group sales. Citi’s HGSI analyst sees long-term downside risk to cons forecasts and whilst this is the first approved drug for Lupus in decades, other drugs are widely used off-label (Rituxan) and physicians will be watching the drug’s comparative benefits closely.

GlaxoSmithKline PLC (GSK:LSE): Last: 1,200, up 16 (+1.35%), High: 1,204, Low: 1,183, Volume: 5.91m

12:24PM

just having a look at the small caps

nothing really stands out

Not much. Tried to get my head around the Playtech statement buy had to give up.

Playtech Ltd (PTEC:LSE): Last: 344.25, down 23.75 (-6.45%), High: 366.50, Low: 343.00, Volume: 340.64k

sector watcher has been looking at Petroneft

post their statement

Portugal Fund Ltd (PRT:LSE): Last: 0.00, no change, Volume: 0.00

what is that?

Petroneft Resources PLC (PTR:LSE): Last: 56.81, down 1.19 (-2.05%), High: 61.00, Low: 56.00, Volume: 566.85k

Mixed news from PTR, with a positive reserves update being somewhat offset by delays in the fraccing programme and hence production. However I’d say on balance the news is positive overall, especially after recent weakness in the share price. Ryder Scott have completed a year-end audit of PTR’s reserves base on blocks 61 and 67 in Western Siberia, and have increased estimates for 2P reserves by 37% to 97m barrels

This includes an additional 13m barrels for last year’s Arbuzovskoye discovery in licence 61, and 14m barrels for the Ledovoye field in licence 67. These reserves upgrades had been largely flagged already, hence they are not hugely surprising, nevertheless it is encouraging to have them in the bag. Hydraulic fracturing of the producing Lineynoye oilfield was completed in February, although mechanical issues with the rig and extremely cold weather have delayed the process for bringing the wells back onstream.

Nevertheless the group is confident that when all eleven wells are producing by end-April, flow-rates should reach 3,500-4,000 b/d. This was originally the group’s end-2010 target, hence there has been some slippage, and a resultant fall in the share price in recent weeks. I’d say that these fears have been overdone, and I’d suggest that the current share price presents a buying opportunity. Given these delays, it seems likely that the group will miss its end-2011 target of 8,000 b/d, although not by much would be my guess. Bottom line – the reserves will get produced regardless, and our NAV for the group of 93p/share represents 63% upside from the current level. Moreover it assumes zero value for the 2P reserves on block 67, or for the exploration upside from either block.

12:26PM

Is that it?

Do we need to cover Aggreko?

or shall we pass

Aggreko PLC (AGK:LSE): Last: 1,388, down 101 (-6.78%), High: 1,471, Low: 1,385, Volume: 1.53m

May as well mark the fall with some comment.

why not

lack of news orders in 2011?

no big sporting events?

is that the reason?

Yeah, more or less.

No upgrades and cautious outlook.

Plus the cash return was a bit lighter than some were hoping for.

Oh, and the company mentions that WWIII in the Middle East may not be entirely conducive to its business.

very disappointing

Here’s some JP Morgan on the conference call.

Outlook statement’s reference to instability in Africa and Middle
East – while the outlook remains for similar trading profit y/y in 2011,
the outlook statement did contain a reference to how current instability
was making forecasting “more than normally difficult”. The group’s only
exposure to current “hotspots” is in Yemen and the Ivory Coast.
However, both of these are relatively small – together they represent
c140MW on rent compared with the group total worldwide of 6,500MW.
As for the rest of North Africa, the CEO reiterated that this is an
Aggreko-free area, although obviously the group has a substantial
Middle East business.

Capital return & balance sheet – the group’s primary focus remains on
growing the business, but given the absence of any obvious large
acquisition targets and the fact that the management is prepared to spend
on capex only to the extent that it can rent out the new equipment, the
55p/share return today is likely only to be the first stage of taking
balance sheet gearing up to 1x net debt/EBITDA over 2-3 years. This is a
level the management feels comfortable with given the substantial
operational gearing in the business, and in terms of not posing any
constraints on its ability to invest in growth. The 55p/share return was
portrayed as a “first step” – this would take net debt/EBITDA from 0.3x
to 0.6x on a pro forma basis, and so a further amount is likely to be
returned, depending on the circumstances, over the next 2-3 years. The
aim of reducing dividend cover (4.2x FY10) should also see the dividend
grow ahead of EPS.

Current pipeline in IPP – said to be flat to up a bit y/y/ The
management does not expect to close the same number of MW in orders
this year as was the case in 2010 (a record 1,300MW with the closing order book up 60% y/y). While there are no orders to announce at the
moment, the management feels that the pipeline is very healthy, with
more going on than may meet the eye – it is currently working on a
couple of deals which are not yet at a stage where they can be
announced.

thanks for that

are we are done

I’m off to finish my letter for the Evening Standard

Tassel reckons the pic could be worth £2,000

that would buy a serious lunch

Murphy style

and with that we leave you

thanks

Yup. Ta for all your comments.

Have a good afternoon.

This entry was posted by Neil Hume on Thursday, March 10th, 2011 at 11:03 and is filed under Uncategorized. Edit this entry.

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Markets Live transcript 10 Mar 2011

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