Markets Live chat transcript for the chat ending at 11:21 on 13 Apr 2011. Participants in this chat were: Neil Hume, FT bryce.elder
NH
Hola Rabble
NH
sorry we are late
NH
was just searching for a diary piece
NH
on our favourite retail analysts
NH
I thought it was quite offensive
NH
but turns out to have been very jokey
NH
anyway
NH
Bryce
NH
are you in?
BE
Yeah – the system is lumbering into life as always.
BE
Slower every day.
BE
So what’s this diary piece?
NH
not worth bothering with
BE
Fair enough.
BE
And what is? FTSE?
11:07AM
NH
So after Tuesday’s wobble
NH
we have recovered our poise
NH
the FTSE 100 is up 50 points at 6,014
NH
with ARM leading the way
ARM Holdings PLC (ARM:LSE): Last: 581.50, up 21.5 (+3.84%), High: 586.24, Low: 577.50, Volume: 1.77m
BE
Hm.
BE
Which, like yesterday, is probably just a bit of a high beta trade.
BE
Market’s up, so buy Arm.
NH
well, you say that
NH
but you could pin it on this
NH
Microsoft showcased a version of Internet Explorer
10 (IE 10) at a developer conference in Las Vegas
last night, highlighting speed improvement, HTML5
compatibility and graphics capabilities. This version of
IE10 (and Windows) was running on a 1GHz ARM
based processor, according to an Engadget article.
ARMH shares trading after the UK market close reacted
positively to this news.
10 (IE 10) at a developer conference in Las Vegas
last night, highlighting speed improvement, HTML5
compatibility and graphics capabilities. This version of
IE10 (and Windows) was running on a 1GHz ARM
based processor, according to an Engadget article.
ARMH shares trading after the UK market close reacted
positively to this news.
NH
that’s from Morgan Stanley
NH
and a lot of brokers
NH
have jumped on it
BE
Yes ….. obviously ………
BE
That’s good news.
BE
Microsoft has, it appears, got a bit of software to work.
BE
Which in itself is a rarity.
BE
And it seems to run on nothing special in terms of hardware.
BE
So, yes, it’s plausible that we’re talking about Windows on Arm quite soon.
BE
As in, within a year or two.
NH
doesn’t mean it will sell any better
BE
Well, exactly.
NH
anyway
NH
here’s some more nerdy stuff
NH
Whilst Microsoft (covered by Adam Holt) has only
recently announced that it would port Windows next
generation to ARM, we are positively surprised that
software development is already well advanced.
Bears on ARM argue that Windows on ARM could be
late and/or unstable, which appears not to be the case.
We are also positively surprised by the relatively
low specifications required to run Windows and
IE10, i.e. only a 1GHz processor codenamed “Family 7
Model C09″and only 1GB of DRAM, whilst any PC would
struggle to run Windows 7 effectively with only 1GB.
According to the NVIDIA blog (http://blogs.nvidia.com/),
the chip could be an NVIDIA Tegra processor.
recently announced that it would port Windows next
generation to ARM, we are positively surprised that
software development is already well advanced.
Bears on ARM argue that Windows on ARM could be
late and/or unstable, which appears not to be the case.
We are also positively surprised by the relatively
low specifications required to run Windows and
IE10, i.e. only a 1GHz processor codenamed “Family 7
Model C09″and only 1GB of DRAM, whilst any PC would
struggle to run Windows 7 effectively with only 1GB.
According to the NVIDIA blog (http://blogs.nvidia.com/),
the chip could be an NVIDIA Tegra processor.
NH
Meanwhile, Intel has officially announced Oak Trail
with relatively slow momentum on the design win
front and that it would design smartphones for ZTE.
The aforementioned data points tend to show that
ARM continues to make faster inroads in the PC
market than Intel in tablets and smartphones. We
remain Overweight ARM.
with relatively slow momentum on the design win
front and that it would design smartphones for ZTE.
The aforementioned data points tend to show that
ARM continues to make faster inroads in the PC
market than Intel in tablets and smartphones. We
remain Overweight ARM.
NH
if you can translate what all means
NH
I’d appreciate it
NH
I get the Intel stuff
BE
Right. Well ………
NH
but only a 1GHz processor codenamed “Family 7
Model C09″and only 1GB of DRAM
Model C09″and only 1GB of DRAM
NH
wtf?
BE
As Morgan Stanley says, that’s likely an NVidia chip
BE
Which make the fastest processor around at the moment, built around a (relatively low spec) Arm design.
NH
right
BE
But the point I’d make here
BE
Is that it’s for the low power market.
BE
Handsets, tablets, etc.
BE
Where Arm already has 100%-ish market share.
BE
So Microsoft addressing this market means Arm may have ………. 100% market share.
BE
It’s more likely that Microsoft’s shooting downwards to address Arm’s market, not shooting upwards so Arm can address Intel’s market.
BE
The need to stick an Arm chip in a desktop, or even a laptop PC remains very limited.
NH
from small Acorn(s) Bryce
BE
In short, I’m cautious.
BE
Yes – and a deserved yellow to you, NH.
NH
I am not having that
NH
I will appeal
NH
to er
NH
me
11:14AM
NH
Moving on then
NH
I guess
NH
we need to address this Scheinder story
NH
which is very, very odd
NH
so overnight
NH
the Telegraph published a really detailed markets story on the bid
NH
do we have that to hand?
BE
Yup
BE
Shares in Tyco, the US industrial conglomerate, are in demand again – they are up about 3.5pc on the day – amid chatter Schneider, the French engineering giant, has already sent a letter to US’s company’s board outlining its interest in buying the business.
BE
An acquisition of Tyco would make the French company the world’s biggest manufacturer of security systems.
The Tyco board is minded to accept Schneider’s offer and has allowed to begin due diligence, claimed some sources. However, Tyco is thought to be unwilling to accept an offer at less than $65 a share from Schneider.
The Tyco board is minded to accept Schneider’s offer and has allowed to begin due diligence, claimed some sources. However, Tyco is thought to be unwilling to accept an offer at less than $65 a share from Schneider.
BE
Schneider is believed to have hired US banks JP Morgan and Bank of America Merill Lynch to advise it on its bid for Tyco. The banks are said to have been working with Schneider Electric since September on the takeover deal.
Goldman Sachs, meanwhile, is rumoured to be working for Tyco’s board on dealing with Schneider’s approach.
Goldman Sachs, meanwhile, is rumoured to be working for Tyco’s board on dealing with Schneider’s approach.
NH
lots of fact and figures in that.
BE
And it goes on. Very detailed.
NH
that was followed up by the Wall Street Journal
NH
after US market hours
NH
the DT story was in market hours
NH
around 8.15pm I think
BE
Yup. Datestamped just before 8pm.
NH
France’s Schneider Electric SA has made a preliminary bid for approximately $30 billion for Tyco International Ltd., according to people familiar with the matter, hoping to draw the Swiss-based conglomerate to the negotiating table.
“The board is studying the proposal,” said one person familiar with the matter. The tentative bid “was a surprise,” this person added.
As a result, Tyco officials believe “it’s going to take awhile to sort it out,” this person said. It seems highly unlikely that Tyco will accept a $30 billion offer, and directors “would undoubtedly want it to go higher,” this person said.
There are antitrust risks to putting together Schneider and Tyco, two of the largest players in security systems. Analysts and shareholders have also begun to question the logic of what would be one of the largest cross-border transactions in years.
NH
that was the WSJ story
NH
and then the response
NH
at 7.00am today
NH
this hit the tape
NH
En réponse aux rumeurs de marché, Schneider Electric annonce ne pas être actuellement en discussion avec Tyco International sur une éventuelle opération stratégique entre les deux Groupes. Schneider Electric ne fera pas d’autre commentaire sur ce sujet.
NH
and for those of you who don’t speak French
NH
In response to market rumors, Schneider Electric announced today that it is not currently in discussion with Tyco International regarding a potential strategic transaction between the two companies. Schneider Electric stated that it would make no further comment regarding this matter.
NH
as usual with these things
NH
ever punter, hedgies and trader in western europe
NH
has been pouring over the words
NH
“what does not currently mean?”
NH
that’s a popular one
NH
does it mean they will come back in a couple of days?
BE
Of course.
BE
And ……… surely, it doesn’t.
BE
We’ve seen Scheider sell off by about 7% on the rumour of the bid.
NH
I don’t think so
BE
If they deny, then go hostile, shareholders would quite rightly lay an egg.
NH
they would lose all credibility if they made that statement and launched a cash offer in a couple of days
NH
that said
NH
the Scheinder price hasn’t discovered
NH
so the market clearly suspects there was something in this
NH
and the management
NH
are keen to do a deal
NH
and the CEO I hear
NH
has a massive Napoleon type ego
NH
anyway
NH
the spin we are getting from
NH
runs as follows
NH
no bid, no talks, this was banker chit-chat that got out of hand
NH
they won’t deny making a bid
NH
and then launch one
NH
but it’s easy to blame a 
NH
when your talks get leaked
BE
(@Swedes actuellement = currently, n’est-ce pas?)
NH
still
NH
the punters haven’t give up
NH
even though they are likely to nursing some burnt fingers
NH
certainly anyone who piled in yesterday evening
NH
NH
From Reuters
NH
PARIS, April 13 (Reuters) – Schneider Electric tried in vain on Tuesday to quash rumours that it planned to buy Tyco International with a statement that it was “not currently” in talks with the U.S. conglomerate.
“In response to market rumours, Schneider Electric announced today that it is not currently in discussion with Tyco International regarding a potential strategic transaction between the two companies,” Schneider said in a statement.
A person with knowledge of the matter said on Tuesday that the French engineering group had held early talks with Tyco, and Morgan Stanley analysts said any deal was likely to be at a premium of as much as 35 percent, implying a price of about $31 billion.
“In response to market rumours, Schneider Electric announced today that it is not currently in discussion with Tyco International regarding a potential strategic transaction between the two companies,” Schneider said in a statement.
A person with knowledge of the matter said on Tuesday that the French engineering group had held early talks with Tyco, and Morgan Stanley analysts said any deal was likely to be at a premium of as much as 35 percent, implying a price of about $31 billion.
BE
All a bit of an echo of Smith & Nephew, this.
NH
“There was initially euphoria that Tyco wasn’t going to happen, but it sounds like they got fairly serious about looking at Tyco, given the rumours,” Jefferies analyst Alex Barnett said. “Even if it’s not Tyco, it looks like management is in the mood for being aggressive. Something’s coming.”
Schneider stock had dropped as much as 8.1 percent earlier this week on concern over the financing of a potential bid for Tyco.
Analysts expressed concern about shareholder dilution from a possible Schneider capital increase to fund a deal for Tyco, which has a market capitalisation of roughly $23 billion.
Schneider stock had dropped as much as 8.1 percent earlier this week on concern over the financing of a potential bid for Tyco.
Analysts expressed concern about shareholder dilution from a possible Schneider capital increase to fund a deal for Tyco, which has a market capitalisation of roughly $23 billion.
NH
precisely it does
NH
S&N is a very good comparison
NH
bankers put together elaborate plan
NH
try to get the companies talking
NH
it leaks
NH
and the whole thing is holed below the waterline
NH
anyone none of this is a massive surprise
NH
most RAW now days is off
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
and very bad for your wealth
BE
True – though the sellside just won’t let go once they have the smell of blood.
BE
Here’s a bit more comment, from CM-CIC
BE
The facts: Schneider denied this morning that it is currently in talks with Tyco
International. But does this mean that Schneider cannot launch a hostile bid?
International. But does this mean that Schneider cannot launch a hostile bid?
NH
oh please
NH
they won’t
BE
They have maths too.
BE
To obtain a benchmark price for the capital increase, we have calculated the average 6-
month share price before the rumours started (around EUR112.5 between 08/10/2010
and 08/04/2011) to which we have applied a 20% discount. This gives a benchmark price
of EUR90.
month share price before the rumours started (around EUR112.5 between 08/10/2010
and 08/04/2011) to which we have applied a 20% discount. This gives a benchmark price
of EUR90.
BE
Taking prudent assumptions for synergies (3%s of Tyco’s sales), restructuring costs (1%
of Tyco’s sales) and bank fees (1% of the transaction amount), the deal as outlined by
the Telegraph would dilute Schneider’s EPS by over 7% for 2011 and around 2% for
2012 and 2013. To have a negligible impact on the 2011 EPS (-0.3%) and an accretive
impact on 2012 and 2013, the synergy amounts need to be raised to around 5.5% of
Tyco’s sales!
of Tyco’s sales) and bank fees (1% of the transaction amount), the deal as outlined by
the Telegraph would dilute Schneider’s EPS by over 7% for 2011 and around 2% for
2012 and 2013. To have a negligible impact on the 2011 EPS (-0.3%) and an accretive
impact on 2012 and 2013, the synergy amounts need to be raised to around 5.5% of
Tyco’s sales!
BE
Conclusion & Action: While Schneider does not seem to be interested in Tyco
International, we cannot rule out the possibility that it is considering a deal given the
information available on the market. Even if Tyco does not match Schneider’s growth
objectives in terms of exposure to emerging markets, product type (energy efficiency)
and the size of the target companies (see recent acquisitions of Summit Energy and
APW), buying the security solutions activity would enable Schneider to become global
number one (market share of ~13%) on a market estimated at almost EUR50bn. The
deal would also round out Schneider’s automated product offering for the construction
sector. But is the financial risk worth it (Schneider is currently rated A- at S&P and
apparently wants to stay at investment grade level) and does Schneider really want to
undertake the task of integrating such a large target?
International, we cannot rule out the possibility that it is considering a deal given the
information available on the market. Even if Tyco does not match Schneider’s growth
objectives in terms of exposure to emerging markets, product type (energy efficiency)
and the size of the target companies (see recent acquisitions of Summit Energy and
APW), buying the security solutions activity would enable Schneider to become global
number one (market share of ~13%) on a market estimated at almost EUR50bn. The
deal would also round out Schneider’s automated product offering for the construction
sector. But is the financial risk worth it (Schneider is currently rated A- at S&P and
apparently wants to stay at investment grade level) and does Schneider really want to
undertake the task of integrating such a large target?
NH
enough
NH
let’s leave this mess
NH
for someone else to clear up
BE
Merrill’s a bit less exciteable.
BE
Speculation about Schneider studying a takeover of Tyco
Following a Bloomberg article on April 11th, asserting that Schneider is examining
a potential takeover of fire, security and flow control company Tyco, press
speculation has intensified. However, the company has denied it is in talks. If this
were to happen, it would be one of the largest industrial deals ever, likely to be
well over $30bn, and could change the M&A landscape materially. Our view is
that this issue is likely to weigh on Schneider’s shares until there is some clarity
one way or another.
Following a Bloomberg article on April 11th, asserting that Schneider is examining
a potential takeover of fire, security and flow control company Tyco, press
speculation has intensified. However, the company has denied it is in talks. If this
were to happen, it would be one of the largest industrial deals ever, likely to be
well over $30bn, and could change the M&A landscape materially. Our view is
that this issue is likely to weigh on Schneider’s shares until there is some clarity
one way or another.
BE
What would the attractions be?
In our view, the main ones would be to (i) consolidate leadership in global
electronic security, (ii) extend Schneider’s presence in the US (Tyco has 50% of
sales) while potentially boosting Tyco’s ability to sell in emerging markets and (iii)
picking up a business with 45% of sales as service/recurring sales and (iv)
potentially using Tyco’s tax efficient structure given it is incorporated in
Switzerland. The other common element is much of Tyco’s business is dependent
on installer activity, a business model that Schneider is used to.
In our view, the main ones would be to (i) consolidate leadership in global
electronic security, (ii) extend Schneider’s presence in the US (Tyco has 50% of
sales) while potentially boosting Tyco’s ability to sell in emerging markets and (iii)
picking up a business with 45% of sales as service/recurring sales and (iv)
potentially using Tyco’s tax efficient structure given it is incorporated in
Switzerland. The other common element is much of Tyco’s business is dependent
on installer activity, a business model that Schneider is used to.
BE
Sheer size of deal seems biggest challenge
We believe this would be an exceptionally bold move for Schneider and away
from its normal practice of buying focused ‘bolt-on’ assets to fill gaps in its
essentially low voltage power and control portfolio. Hypothetically, we’re not sure
that all of Tyco’s business have strategic fit with Schneider – ADT security
systems would but other parts like flow control and parts of fire services less so.
This may suggest that Schneider would look to sell these assets, which leads to
some additional risks.
We believe this would be an exceptionally bold move for Schneider and away
from its normal practice of buying focused ‘bolt-on’ assets to fill gaps in its
essentially low voltage power and control portfolio. Hypothetically, we’re not sure
that all of Tyco’s business have strategic fit with Schneider – ADT security
systems would but other parts like flow control and parts of fire services less so.
This may suggest that Schneider would look to sell these assets, which leads to
some additional risks.
BE
Assume $68 per share, 40% equity; 7% EPS dilutive
Our hypothetical calculations of assuming (i) paying a 30% share price premium
on Monday’s close, ie c.$68 per share for Tyco or $32.5bn, (ii) financing 40% with
equity, 60% debt at c.4% and (iii) synergies at 2.5% of sales, yield a deal with
2011E PE of c.20x,and c.7% EPS dilution from a Schneider perspective in year 1.
Our hypothetical calculations of assuming (i) paying a 30% share price premium
on Monday’s close, ie c.$68 per share for Tyco or $32.5bn, (ii) financing 40% with
equity, 60% debt at c.4% and (iii) synergies at 2.5% of sales, yield a deal with
2011E PE of c.20x,and c.7% EPS dilution from a Schneider perspective in year 1.
BE
Anyway, this one looks to be dead in the water for the moment at least.
NH
(Shaun – we will ignore it)
NH
RIP
BE
So let’s move on.
11:29AM
NH
Swedes is asking about your favourite retailer
Supergroup PLC (SGP:LSE): Last: 1,406, up 44 (+3.23%), High: 1,432, Low: 1,370, Volume: 111.67k
BE
Read-across from Asos, I’d guess.
BE
Results from one hugely overvalued retailer
Asos PLC (ASC:LSE): Last: 1,873, up 166 (+9.72%), High: 1,884, Low: 1,779, Volume: 360.82k
BE
So you may as well buy up another hugely overvalued retailer on the back of them.
NH
ouch there must be some seriously burnt fingers in ASOS
NH
BE
In spite of them having negligible overlap in terms of markets, etc.
NH
there are loads of people short like Evil Knevil
NH
yeah
NH
it’s an odd read across this one
NH
still of the two
NH
I’d prefer to own ASOS
NH
internet shopping is growing
NH
it sells lots of brands
NH
not just one
NH
and as you noted earlier
NH
there’s a big shareholder
NH
who just might
NH
bid for it
NH
in contrast
NH
no one is going to bid for Supergroup
NH
I do have a confession
NH
I was in that new shopping centre by St Pauls yesterday
NH
looking for some running stuff
BE
Oh yeah?
NH
and I popped in the SuperDry store
NH
I didn’t buy anything obviously
BE
Obviously.
NH
it wasn’t that busy
NH
a few banker blokes in there
NH
relatively slim ones if has to be said
BE
No – I’ve been keeping an eye on the Supderdry in Westfield, which is in my manor.
BE
And it’s always quite quiet
BE
They all line up in their hundreds to get into Hollister, but Superdry remains unpopulated.
NH
hm
BE
Odd. Anecdotal, of course, but odd.
NH
and meanwhile I am seriously considering by some trainers from ASOS
NH
(TK – not yet)
BE
(@tk: I have, and no.)
NH
right
NH
let’s have a look at some comment
NH
on the ASOS results
NH
here’s Citi
NH
What does it all mean? — Continued investment in the delivery offer has seen the
ASOS top-line accelerate further. Leverage of the cost base continues to fund this
investment, with 2H costs looking to have risen c.44%, against a top-line growing at
59%. In 3 years International sales have grown from under 10% of sales to over 50%,
despite domestic sales growing +38% CAGR over that period. Accelerating trends
across all markets mean that management’s ‘1-5-5’ aspirations (£1bn sales from 5
main markets by 2015) looks increasingly achievable. Current momentum looks likely
to drive upside risk to FY12 forecasts from here. Given the size of the opportunity and
optionality from a likely Chinese entry, we remain enthusiasts.
ASOS top-line accelerate further. Leverage of the cost base continues to fund this
investment, with 2H costs looking to have risen c.44%, against a top-line growing at
59%. In 3 years International sales have grown from under 10% of sales to over 50%,
despite domestic sales growing +38% CAGR over that period. Accelerating trends
across all markets mean that management’s ‘1-5-5’ aspirations (£1bn sales from 5
main markets by 2015) looks increasingly achievable. Current momentum looks likely
to drive upside risk to FY12 forecasts from here. Given the size of the opportunity and
optionality from a likely Chinese entry, we remain enthusiasts.
NH
Full year consensus PBT expected to rise c4% to c£28-29m (EPS 25.1-26.0p) —
On the stronger-than-expected 4Q revenue performance, we expect consensus March
2011 PBT to rise c4% to £28-29m (EPS 25.1-26.0p). At this stage, we expect
consensus March 2012e PBT to remain broadly unchanged at £36.5m (EPS 33.2p).
On the stronger-than-expected 4Q revenue performance, we expect consensus March
2011 PBT to rise c4% to £28-29m (EPS 25.1-26.0p). At this stage, we expect
consensus March 2012e PBT to remain broadly unchanged at £36.5m (EPS 33.2p).
NH
hm
NH
makes a lot more money than Ocado
An internet food retailer that many believe is the second coming of Webvan. Loss making yet valued at close to £1bn on flotation.
NH
Buy rating — ASOS trades on a Mar-12E PE of 50x, which drops to 28x over two
years. We argue ASOS should be capable of holding a PEG ratio of 1x to Mar-14,
driving our 2,100p target price and Buy rating.
years. We argue ASOS should be capable of holding a PEG ratio of 1x to Mar-14,
driving our 2,100p target price and Buy rating.
NH
and here is Merrill
NH
GROWTH ACCELERATES IN Q4, PBT TO BE AT TOP END OF CONSENSUS
EXPECTATIONS
reported strong Q4 sales for the 3 months to end of March: retail sales are up
+70% (broadly in line BofAMLe +68%) with a reassuring performance in the UK
(+24%, BofAMLe +25%) after a weaker Q3 and a continued very good
performance internationally (+161%; BofAMLe +154%), which means
international now represents more than 50% of group’s sales. Retail gross margin
for the FY year is slightly up (+80bps) while statutory gross margin will be down
more than we expected due to investment in free shipping and returns (-250-
290bps vs our -120bps estimate). However positive operational leverage on opex
costs means management is guiding that FY11 PBT will be at the top end of
market expectations (i.e. £28mn-£29.3mn vs BofAMLe £28.3mn). We therefore
expect small upgrades to consensus.
EXPECTATIONS
reported strong Q4 sales for the 3 months to end of March: retail sales are up
+70% (broadly in line BofAMLe +68%) with a reassuring performance in the UK
(+24%, BofAMLe +25%) after a weaker Q3 and a continued very good
performance internationally (+161%; BofAMLe +154%), which means
international now represents more than 50% of group’s sales. Retail gross margin
for the FY year is slightly up (+80bps) while statutory gross margin will be down
more than we expected due to investment in free shipping and returns (-250-
290bps vs our -120bps estimate). However positive operational leverage on opex
costs means management is guiding that FY11 PBT will be at the top end of
market expectations (i.e. £28mn-£29.3mn vs BofAMLe £28.3mn). We therefore
expect small upgrades to consensus.
NH
LONG-TERM GROWTH STORY INTACT- BUY 2,000p PO
We continue to believe that ASOS has got structural advantages (strong and
profitable online model, differentiated offer, customer-centric approach) and that
its long-term international potential is underestimated. We still think ASOS is best
placed to win the online global fashion race and that its international strong focus
(44% of sales in Q3 from 28% in FY10) is likely to command a higher multiple
over time.
We continue to believe that ASOS has got structural advantages (strong and
profitable online model, differentiated offer, customer-centric approach) and that
its long-term international potential is underestimated. We still think ASOS is best
placed to win the online global fashion race and that its international strong focus
(44% of sales in Q3 from 28% in FY10) is likely to command a higher multiple
over time.
11:37AM
NH
Right we have some good news
NH
a bit of RAW that’s not stale
NH
one that’s actually come true
NH
I think we said the other day that Ball Corp
NH
were looking at Graham Packaging
NH
there not
NH
it’s someone called
NH
Silgan
NH
Graham Packaging Company Inc. (NYSE: GRM) today announced the signing of a definitive merger agreement under which Graham Packaging will be acquired by Silgan Holdings Inc. in a cash-and-stock transaction valued at $19.56 per share, or a total of approximately $4.1 billion including assumed indebtedness. The deal is expected to close in the second half of this year.
BE
Aha.
BE
Right.
BE
There is some readthrough
BE
For anyone seeking closures.
NH
is there
NH
this is all about bottle tops, no?
BE
It is. And tamper proof baby jar tops and suchlike.
NH
the world’s most uninspiring websote
BE
Now, Rexam’s been looking to sell its division doing the same thing, approximately.
Rexam PLC (REX:LSE): Last: 377.40, up 5 (+1.34%), High: 378.40, Low: 372.60, Volume: 626.62k
BE
Which it bought in 2007 as part of the Owens-Illinois buyout.
BE
And which has been a dog ever since.
NH
OK then
NH
read across
NH
what’s the exact phrase for this business
BE
Specialist closures, I think.
NH
that’s it
BE
Or perhaps just closures. I’m on the Plastics News website at the moment for confirmation.
NH
it’s gonna be a busy day for those guys
BE
The guidance late last year, I ghink was that Barclays was the banker on this divestment and it might occur some time early in 2011.
BE
Now, I don’t know if this deal makes the trade more or less likely. My suspicion is less, in that a potential buyer’s taken out of the tank.
BE
Still – that’s just me waffling. Will bring you some proper analyst feedback before the end of the show if we get it.
11:43AM
BE
Right – returning to retail I think.
NH
yes
NH
I have thought
NH
since the recent profits warning
NH
that Dixons Retail should rename itself
NH
to Elkjøp PLC
NH
that’s the name of its Scandi business
NH
and it could happen
NH
Morgan Stanley reckons either Dixons or Kesa
NH
should pull out of the UK
NH
close all their shops
NH
and focus on the bits of the business that actually make some money
BE
Logical argument, though I guess they’re in a bit of a Mexican standoff.
BE
Which one shoots first?
BE
Or, actually, correct that. It’s the prisoner’s dilemma, not a Mexican standoff.
BE
I got my metaphors wrong.
BE
Anyway, let’s take a look at this note shall we?
NH
It’s pretty good
NH
We continue to rate Dixons and Kesa UW, but think it would be high risk to be short either name.
In the absence of capacity withdrawal, we expect Dixons and Kesa to trade poorly and believe
newsflow and forecast revisions will continue to be very negative. However the share price of
either would likely increase sharply if the other were to exit the UK market. Our analysis shows
more than half of Comet’s stores trade within a mile of a Currys Superstore. We see CPW (EW)
as the lower risk way to gain exposure to this theme. While we think CPW through its 50% stake
in Best Buy Europe would also benefit from capacity withdrawal, it doesn’t leave its shareholders
exposed to the downside risk of any potential shake-out. See ‘Today’s Changes’ for our new PTs.
In the absence of capacity withdrawal, we expect Dixons and Kesa to trade poorly and believe
newsflow and forecast revisions will continue to be very negative. However the share price of
either would likely increase sharply if the other were to exit the UK market. Our analysis shows
more than half of Comet’s stores trade within a mile of a Currys Superstore. We see CPW (EW)
as the lower risk way to gain exposure to this theme. While we think CPW through its 50% stake
in Best Buy Europe would also benefit from capacity withdrawal, it doesn’t leave its shareholders
exposed to the downside risk of any potential shake-out. See ‘Today’s Changes’ for our new PTs.
NH
Renewed cyclical pressure compounds structural
decline in the UK electricals market. Our analysis
suggests that the UK electrical retailing industry as a
whole has now fallen into losses. There is still more than
25milllion sq ft of selling space devoted to offering
assisted service, but increasingly few consumers willing
to pay for it.
decline in the UK electricals market. Our analysis
suggests that the UK electrical retailing industry as a
whole has now fallen into losses. There is still more than
25milllion sq ft of selling space devoted to offering
assisted service, but increasingly few consumers willing
to pay for it.
NH
25m square feet!
NH
We think a material capacity withdrawal is
becoming a real possibility … We estimate that 15%
of the assisted channel capacity would need to come out
for the remaining players to generate a 10% return on
capital. If the recent step-down in UK consumer
spending behaviour persists, we believe this could
happen within the next 12-24 months.
becoming a real possibility … We estimate that 15%
of the assisted channel capacity would need to come out
for the remaining players to generate a 10% return on
capital. If the recent step-down in UK consumer
spending behaviour persists, we believe this could
happen within the next 12-24 months.
NH
but the remaining players would be well placed.
Our hypothetical scenarios explore the implications if
one of the major electricals chains (Comet or Dixons
UK) were to exit the UK market. We believe the impact
of competitor withdrawal would be transformational for
the near-term prospects of either business.
Our hypothetical scenarios explore the implications if
one of the major electricals chains (Comet or Dixons
UK) were to exit the UK market. We believe the impact
of competitor withdrawal would be transformational for
the near-term prospects of either business.
BE
And more than half of Comet stores are within a mile of a Curry’s store.
BE
Blimey.
NH
yeah
NH
it’s crazy
NH
especially give the comp from supermarkets
NH
and the internet
NH
and one read across few people make
NH
is on the property companies
NH
if all these stores close
NH
who fills them?
NH
you can’t have charity shops at Bluewater
NH
and Lakeside
Hammerson PLC (HMSO:LSE): Last: 443.80, up 1.6 (+0.36%), High: 446.60, Low: 440.60, Volume: 942.72k
Capital Shopping Centres Group PLC (CSCG:LSE): Last: 387.80, up 0.3 (+0.08%), High: 391.30, Low: 384.70, Volume: 362.51k
BE
Good question. Dunno.
BE
Is this realistic, though? Could Kesa or Dixons quit the UK?
BE
I guess one has an activist on the register ….
BE
…. and the other has a share price that’s trapped in a death spiral.
BE
Anything’s possible.
NH
not sure what the lease terms are like
NH
Dixons has loads of awful high street stores
BE
That was always the issue with Comet, I think. Lease liabilities too onerous.
NH
CVA
NH
that’s a growth market
NH
and as we have seen with JJB
NH
a pretty lucrative one
NH
you can charge millions
NH
for advising companies
NH
to hand back the keys to their stores
NH
OK
NH
let’s have a look at some positive news for the retailers
NH
today’s employment figures
11:51AM
NH
(@ PH – no. Never done a marathon)
NH
here’s Nomura’s take
NH
There were mixed surprises in this report. The small rise in the number of jobless claimants during March was the most disappointing aspect. However, we believe that the bad news is outweighed by the positivity on the employment front, which drove the fall in the LFS unemployment rate from 8.0% to 7.8%. Employment was 143k higher in the three months to February than in the previous three-month period. Furthermore, it is 390k higher than the previous year. Strong employment growth reduces the amount of excess capacity outside of firms and also indicates less excess capacity within them. As we explained in UK Monthly Macro, many people have mistaken the loss of productivity, which arose from the decline of high productivity industries, as labour hoarding. We are not surprised to see strong employment growth and expect it to continue, and recognise that less excess capacity means monetary policy should be relatively tighter.
NH
Tempering the hawkish implications of the employment performance is the still subdued earnings data. Weakness was acute in the headline measure including bonuses, which fell by 0.3pp to 2.0% y-o-y, 3mma in February. However, the weakness was due to bonuses and likely reflects the restraint in financial sector bonuses this year. The underlying measure excluding bonuses ticked down by 0.1pp to 2.1% y-o-y, 3mma in February. With headline earnings growth hovering around these levels, the MPC is unlikely to be concerned about current wage growth. The focus is likely to remain on wage settlements though, because these might entrench elevated inflation expectations that would be realised in earnings if pay drift were to recover.
NH
as ever
NH
a curates egg
NH
always is the employment report
NH
both political parties
NH
always manage to find something
BE
Bit more on that, from HSBC
BE
Since we’re rather macro focused on the right today.
BE
Today’s labour market release again provided a mixed bag of messages as employment recorded a stronger than
expected rise over the past quarter while the claimant count – often seen as a lead indicator – posted a small increase in
March. The more important message, however, may have come from the one area of the report which showed the least
change. The underlying level of average earnings growth fell to just 2.2% in February, compounding fears over the
squeeze on real household incomes and the implications for growth, as highlighted by Governor Mervyn King’s keynote
speech back in January.
expected rise over the past quarter while the claimant count – often seen as a lead indicator – posted a small increase in
March. The more important message, however, may have come from the one area of the report which showed the least
change. The underlying level of average earnings growth fell to just 2.2% in February, compounding fears over the
squeeze on real household incomes and the implications for growth, as highlighted by Governor Mervyn King’s keynote
speech back in January.
BE
While the current level of division on show across the Monetary Policy Committee is encouraging the market to view the
flow of UK data releases as either hawkish or more recently dovish in nature, today’s labour data will in truth have offered
something to each side of the debate. On a headline basis, the decline in the ILO measure of unemployment to 7.8% over the
three months to February was encouraging, given that it was driven by a stronger rise in employment (of 143k), and full-time
employment at that, rather than a decline in the size of the workforce.
flow of UK data releases as either hawkish or more recently dovish in nature, today’s labour data will in truth have offered
something to each side of the debate. On a headline basis, the decline in the ILO measure of unemployment to 7.8% over the
three months to February was encouraging, given that it was driven by a stronger rise in employment (of 143k), and full-time
employment at that, rather than a decline in the size of the workforce.
BE
Clearly, doubts will surround the sustainability of this increase, given that we believe underlying GDP growth to have been
effectively flat over the final quarter of last year and first quarter of this, and we still look for higher jobless numbers to emerge
over the coming months. The claimant count measure of unemployment – sometimes viewed as a lead indicator for broader
employment trends – has not been as positive in recent months and actually edged up very slightly in March to erase a fraction
of the revised 8.5k (previously 10.2k) decline seen in the previous month
effectively flat over the final quarter of last year and first quarter of this, and we still look for higher jobless numbers to emerge
over the coming months. The claimant count measure of unemployment – sometimes viewed as a lead indicator for broader
employment trends – has not been as positive in recent months and actually edged up very slightly in March to erase a fraction
of the revised 8.5k (previously 10.2k) decline seen in the previous month
NH
hm
NH
let’s have a quick look at sterling on the back of that
NH
a euro thingy buys 0.8914p
NH
while
NH
cable
NH
is $1.6274
NH
(VP – what time are you going for. Under 3.15hrs and you get automatic entry for next year)
NH
(VP -looking forward to it. You must be nuts. Sounds like hell)
BE
Interesting postscript on the labour report ….
BE
the number of people working a second job showed the biggest quarterly increase for over a decade during the three months to February.
BE
More interestingly perhaps is
the split between male and females working second jobs, with the number of men working second jobs actually showing the
sharpest rise on record (records began in 1992). In our opinion, this is real, solid evidence of how the squeeze on real incomes
is affecting behaviour within the household sector, and something which suggests that the exceptionally cautious attitude
towards spending on display across the High Street is not about to change anytime soon.
the split between male and females working second jobs, with the number of men working second jobs actually showing the
sharpest rise on record (records began in 1992). In our opinion, this is real, solid evidence of how the squeeze on real incomes
is affecting behaviour within the household sector, and something which suggests that the exceptionally cautious attitude
towards spending on display across the High Street is not about to change anytime soon.
BE
So, we’re becoming a two-job nation.
BE
Clean floors in the morning, drive a taxi at night.
NH
that is interesting
NH
second jobs for men
NH
where I wonder?
NH
Tesco
NH
Costa?
BE
You could argue that second jobs for men were previously the preserve of the black economy.
NH
doing a bit of building work
NH
for your mate at the weekend
NH
that sort of thing
BE
Exactly. And mini-cab driving, man with van type employment.
NH
man with white van removes rubbish from your garden and then fly tips
NH
i get what you mean now
BE
I wonder what’s causing this trend? An overcrowded market for tax-invisible jobs?
BE
Driving people to look for actual, gainful employment?
BE
Anyway, interesting theme.
12:00PM
NH
Just a bit of comment on the FX market
NH
from Citi
NH
about the Eurio
NH
in the wake of those comments from Coene
NH
Fast money players chased yesterday’s EURUSD demand rumors again, but failed to take out 1.4520 resistance. The pair pulled back towards 1.4480 twice in London, but met good medium term demand.
NH
As we write, EURUSD finds further support on: ECB RATE HIKE SHOULD NOT BE SEEN AS ‘TOTALLY ISOLATED DECISION’-ECB’S COENE. The positive reaction is interesting however, as Coene says nothing new.
NH
Supportive EURUSD chatter also points to the cash component of the AT&T and Deutsche Telekon deal – Street talk suggests flow was executed in London. Negative news was ignored but included bets on Greek restructuring chances and another weak Eurozone IP report.
NH
Our London EUR trader suggests to not fight EURUSD’s resilient uptrend. We are buying dips for now, towards supports of 1.4435/1.4440 followed by 1.4375. Our orderbook shows offers 1.4520/1.4535 and further stops above 1.4550. The 2010 highs near 1.4580 marks the key topside pivot point.
BE
(@GLA: can’t see anything off-kilter on the order book.)
12:01PM
BE
Ok – JPM results.
NH
here we go
NH
RTRS-JPMORGAN CHASE REPORTS FIRST-QUARTER 2011 NET INCOME OF $5.6 BILLION, OR $1.28 PER SHARE, ON REVENUE1 OF $25.8 BILLION
11:59 13Apr11 RTRS-AUTO ALERT – JPMORGAN CHASE & CO Q1 SHR $1.28
11:59 13Apr11 RTRS-AUTO ALERT – JPMORGAN CHASE & CO Q1 REVENUE $25.8 BLN
11:59 13Apr11 RTRS-AUTO ALERT – JPMORGAN CHASE & CO Q1 SHR VIEW $1.16 — THOMSON REUTERS I/B/E/S
11:59 13Apr11 RTRS-JPMORGAN CHASE & CO Q1 REV VIEW $25.27 BLN — THOMSON REUTERS I/B/E/S
11:59 13Apr11 RTRS-AUTO ALERT – JPMORGAN CHASE & CO
11:59 13Apr11 RTRS-AUTO ALERT – JPMORGAN CHASE & CO
11:59 13Apr11 RTRS-AUTO ALERT – JPMORGAN CHASE & CO
11:59 13Apr11 RTRS-JPMORGAN CHASE & CO
NH
11:59 13Apr11 RTRS-JPMORGAN – AT QTR END ASSETS UNDER MANAGEMENT WERE $1.3 TRILLION, AN INCREASE OF $111 BILLION, OR 9%
11:59 13Apr11 RTRS-JPMORGAN CHASE & CO SAYS TIER 1 COMMON RATIO WAS 10.0% AT MARCH 31, 2011
11:59 13Apr11 RTRS-JPMORGAN CHASE & CO Q1 INVESTMENT BANK NET REVENUE WAS $8.2 BILLION, COMPARED WITH $8.3 BILLION IN THE PRIOR YEAR
11:59 13Apr11 RTRS-JPMORGAN CHASE & CO
11:59 13Apr11 RTRS-JPMORGAN CHASE & CO
NH
FIRM’S NONPERFORMING ASSETS TOTALED $15.0 BILLION AT MARCH 31, 2011, DOWN FROM THE PRIOR-YEAR LEVEL
11:59 13Apr11 RTRS-JPMORGAN QTRLY PROVISION FOR CREDIT LOSSES WAS $1.2 BILLION, DOWN BY $5.8 BILLION, OR 83%, FROM THE PRIOR YEAR
11:59 13Apr11 RTRS-JPMORGAN CHASE & CO SAYS TIER 1 CAPITAL RATIO 12.3 PCT AT MARCH 31, 2011
11:59 13Apr11 RTRS-JPMORGAN QTRLY PROVISION FOR CREDIT LOSSES WAS $1.2 BILLION, DOWN BY $5.8 BILLION, OR 83%, FROM THE PRIOR YEAR
11:59 13Apr11 RTRS-JPMORGAN CHASE & CO
NH
1:59 13Apr11 RTRS-JPMORGAN CHASE & CO SAYS TIER 1 CAPITAL RATIO 12.3 PCT AT MARCH 31, 2011
12:00 13Apr11 RTRS-JPMORGAN CHASE & CO Q1 RETAIL FINANCIAL SERVICES NET REVENUE WAS $6.3 BILLION, A DECREASE OF $1.5 BILLION, OR 19%
12:00 13Apr11 RTRS-JPMORGAN CHASE & CO SAYS CREDIT RESERVES AT $30.4 BILLION AT QTR END
12:00 13Apr11 RTRS-JPMORGAN CHASE & CO Q1 CARD SERVICES NET REVENUE WAS $4.0 BILLION, A DECREASE OF $465 MILLION, OR 10%
12:00 13Apr11 RTRS-JPMORGAN CHASE & CO
12:00 13Apr11 RTRS-JPMORGAN CHASE & CO
12:00 13Apr11 RTRS-JPMORGAN CHASE & CO
NH
there you go
BE
Headline looks a wide beat. $1.28 vs $1.15 consensus.
NH
market seems to like the figure
NH
FTSE 100 up 57 points at 6,021
NH
up since we started
NH
(FJP – it’s a Lenigas stock)
NH
just on JPM
NH
here’s what RBS were looking out for in the figures
NH
JPM
JPM is kicking off the US peer group 1Q reporting season today 7am EST (conf call 9 EST). Consensus EPS is USD1.15 (range 0.93-1.33). Key item to watch for the read-across to Europe will be revenue trends in the IB YoY, in particular fixed income trading. Our forecasts for the Europeans center around a YoY drop of around 20%.
JPM is kicking off the US peer group 1Q reporting season today 7am EST (conf call 9 EST). Consensus EPS is USD1.15 (range 0.93-1.33). Key item to watch for the read-across to Europe will be revenue trends in the IB YoY, in particular fixed income trading. Our forecasts for the Europeans center around a YoY drop of around 20%.
NH
that will have read across
NH
to Barclays
Barclays PLC (BARC:LSE): Last: 306.55, up 2.4 (+0.79%), High: 307.05, Low: 303.35, Volume: 7.70m
NH
our very own investment bank
BE
It’s remarkable, really, that JPM’s buying back $15bn of stock.
BE
Who could’ve anticipated that a year ago?
NH
or even allowed to
BE
Yes. Quite.
12:05PM
NH
Right let’s get to small cap corner
NH
because I have to be at the Raymond Blanc place
NH
underneath the stock exchange for lunch
NH
at 12.30
NH
so
NH
a couple of interesting features todaty
NH
one is
Pursuit Dynamics PLC (PDX:LSE): Last: 253.75, up 19 (+8.09%), High: 259.75, Low: 244.50, Volume: 361.00k
NH
(FJP – sorry if we don’t research every sub penny share listed in London_
NH
another contract signed
NH
and once again
NH
not a single figure in the statement
NH
that will keep the bears happty
NH
and the bulls will be quite contect
NH
with the rest
NH
here’s Mirabaud
NH
JPM
JPM is kicking off the US peer group 1Q reporting season today 7am EST (conf call 9 EST). Consensus EPS is USD1.15 (range 0.93-1.33). Key item to watch for the read-across to Europe will be revenue trends in the IB YoY, in particular fixed income trading. Our forecasts for the Europeans center around a YoY drop of around 20%.
JPM is kicking off the US peer group 1Q reporting season today 7am EST (conf call 9 EST). Consensus EPS is USD1.15 (range 0.93-1.33). Key item to watch for the read-across to Europe will be revenue trends in the IB YoY, in particular fixed income trading. Our forecasts for the Europeans center around a YoY drop of around 20%.
NH
£22 price target
NH
now that’s a proper target
NH
PDX has formed a dedicated subsidiary, DDX Solutions AG, through which it will work with KFT to deliver a range of innovative
products to the civilian and military decontamination and disinfection markets.
The Group has signed development and distribution agreements that create clear lines of responsibility and accountability. The
structure allows PDX to retain ownership of the products as well as control over design and development. KFT will be
responsible for marketing and distribution (including costs). KFT will also manage manufacturing, inventory and spare parts.
products to the civilian and military decontamination and disinfection markets.
The Group has signed development and distribution agreements that create clear lines of responsibility and accountability. The
structure allows PDX to retain ownership of the products as well as control over design and development. KFT will be
responsible for marketing and distribution (including costs). KFT will also manage manufacturing, inventory and spare parts.
NH
The First Responder System is expected to be the launch product. Prototype testing is well underway for both backpack and
trolley models with mass manufacturer expected to begin in Q3 and first product shipments due in Q4 (calendar). This follows
positive premarketing in which the Group received encouraging feedback with a number of major organisations expressing high
levels of interest.
In addition to this a further three product lines are expected to be delivered starting end of this year through 2012. KFT and PDX
are developing a hospital mobile decontamination product, the development of which has been accelerated due to positive
market feedback. The Group will report on this in due course.
As part of the agreement, KFT will guarantee a minimum sales threshold to be agreed each year to maintain its right to
distribute the jointly developed products. PDX will be entitled to receive a margin on all sales of equipment, parts and chemical
products.
trolley models with mass manufacturer expected to begin in Q3 and first product shipments due in Q4 (calendar). This follows
positive premarketing in which the Group received encouraging feedback with a number of major organisations expressing high
levels of interest.
In addition to this a further three product lines are expected to be delivered starting end of this year through 2012. KFT and PDX
are developing a hospital mobile decontamination product, the development of which has been accelerated due to positive
market feedback. The Group will report on this in due course.
As part of the agreement, KFT will guarantee a minimum sales threshold to be agreed each year to maintain its right to
distribute the jointly developed products. PDX will be entitled to receive a margin on all sales of equipment, parts and chemical
products.
BE
Meanwhile, questions on the right about Alterian ……
BE
And its middle profit warning
BE
Following on from the one earlier this month
NH
yep
NH
one more to come
NH
to me
NH
this has all the makings another UK software sector scandal
NH
trendy area of the market
NH
web analytics
NH
CFO goes
NH
a couple of months later
NH
the CEO goes
NH
new man does a review
NH
and there’s red ink everywhere
NH
then the stuff on revenue recognition and costs
NH
come out of the woodwork
BE
Though, to be clear, there’s no specific evidence of any impropriety.
NH
no
NH
and the company say it’s all down to weak budgeting and control
BE
Right.
NH
there’s nothing wrong with the accounting
NH
even though
NH
here’s operating cash conversion has been running at about 50%
NH
for a few years
BE
Investec, Alterian’s house broker, says the company’s now for sale.
NH
yeah
NH
there seems to be an idea it might be a takeover target
NH
because it has some package that allows companies to mointor Twitter
NH
to see what people are saying about them
BE
And who on earth would buy this thing when there’s zero visibility on the books?
NH
precisely
NH
won’t happen
BE
Um ……….. there may plausibly be interest from a large search software company that doesn’t do search software and desperately needs an acquisition, maybe?
BE
Though even that’s a stretch.
BE
Anyway, here’s Investec’s argument.
BE
After the April 4th warning, ALN has warned again, and still not finalised the
numbers. It now believes that FY11 will be “materially lower” than implied on
April 4th. We interpret this as revenues c£2m lower (e.g. £37m) and costs
c£2m higher which will reduce earnings to virtually zero. With numbers not
finalised, questions will be raised about budget discipline and we expect this
uncertainty to impact the stock today. Given IP ownership, we remain at Buy;
our forecasts and TP remain under review.
numbers. It now believes that FY11 will be “materially lower” than implied on
April 4th. We interpret this as revenues c£2m lower (e.g. £37m) and costs
c£2m higher which will reduce earnings to virtually zero. With numbers not
finalised, questions will be raised about budget discipline and we expect this
uncertainty to impact the stock today. Given IP ownership, we remain at Buy;
our forecasts and TP remain under review.
BE
What’s next? – the deal-slippage announced on 4th April was at least
explainable, but today’s announcement adds a lot of uncertainty to the story and
investors will doubtless demand greater clarity on budget and operational
controls.
explainable, but today’s announcement adds a lot of uncertainty to the story and
investors will doubtless demand greater clarity on budget and operational
controls.
BE
What about FY12? Given the questions raised by today’s announcement and the
absence of guidance, FY12 estimates are difficult to establish at this point, but
assuming this is the final ‘surprise’, we model overleaf a scenario which would
see c£40m revenue, operating profit of c. £4.5m and EPS (on a normalised tax
basis) of 5.8p. This assumes 60% recurring revenues, closure of the slipped deal
and a 10% reduction in new deals, combined with stable gross margin, £2.5m
OPEX reduction and normalised tax of 25%. We would stress that this is a
scenario and our published numbers (shown in the table above and pre April 4th)
remain under review until we have greater clarity on the full FY11E numbers on
Monday.
absence of guidance, FY12 estimates are difficult to establish at this point, but
assuming this is the final ‘surprise’, we model overleaf a scenario which would
see c£40m revenue, operating profit of c. £4.5m and EPS (on a normalised tax
basis) of 5.8p. This assumes 60% recurring revenues, closure of the slipped deal
and a 10% reduction in new deals, combined with stable gross margin, £2.5m
OPEX reduction and normalised tax of 25%. We would stress that this is a
scenario and our published numbers (shown in the table above and pre April 4th)
remain under review until we have greater clarity on the full FY11E numbers on
Monday.
BE
What about the stock? – basing a view on distressed earnings is of limited use,
we believe. On a EV/Sales basis, the company is trading at c.2.3x, which remains
attractive, and we continue to expect the company to report a positive year end
cash position. While we expect the stock will take a substantial hit this morning,
we do not believe it is the time to give up, given IP ownership and the high level
of M&A activity in the sector in recent months.
we believe. On a EV/Sales basis, the company is trading at c.2.3x, which remains
attractive, and we continue to expect the company to report a positive year end
cash position. While we expect the stock will take a substantial hit this morning,
we do not believe it is the time to give up, given IP ownership and the high level
of M&A activity in the sector in recent months.
NH
thanks for that
NH
what about the Panumre apologisst
NH
I guess he’s still pushing the bid story
BE
O’Connor. He’s turned seller.
BE
Alterian has issued another profit warning. The latest follows an internal
review which occurred following the 4 April warning – the reasons for the
latest cut are not disclosed. Whilst there is no guidance from the company we
have elected to reduce forecasts with 2011E EPS slashed from 7.3p to 3.0p.
There are no encouraging signs in this, but the latest warning will only raise
calls for the company to be sold from a murmur to a cresendo – yet with the
business looking like it is stuck in a hole, buyers are more likely to be cheeky
bids from financial buyers. This is very disappointing; we move to Sell. Our
target price is 125p.
review which occurred following the 4 April warning – the reasons for the
latest cut are not disclosed. Whilst there is no guidance from the company we
have elected to reduce forecasts with 2011E EPS slashed from 7.3p to 3.0p.
There are no encouraging signs in this, but the latest warning will only raise
calls for the company to be sold from a murmur to a cresendo – yet with the
business looking like it is stuck in a hole, buyers are more likely to be cheeky
bids from financial buyers. This is very disappointing; we move to Sell. Our
target price is 125p.
BE
Alterian sum of the parts. Our sum of the parts valuation (see below) is reduced from 163p
to 138p – we applied the cuts equally across the divisions – although we left our ‘social’
estimate unchanged at £0.8m revenue.
to 138p – we applied the cuts equally across the divisions – although we left our ‘social’
estimate unchanged at £0.8m revenue.
NH
thanks for that
NH
one more small cap to look at
NH
a blast from the past this
Torotrak PLC (TRK:LSE): Last: 47.50, up 7.25 (+18.01%), High: 49.25, Low: 47.50, Volume: 515.97k
BE
A surviver.
NH
yup
BE
Despite not really delivering in its decade long history.
BE
What’s the news?
NH
it is now
NH
someone what’s its transmission system
NH
which as far as I can make out
NH
is an automatic gearbox
NH
that’s fuel efficient
NH
here’s Charles Stanley
NH
one of the few brokers to follow it
NH
Our View: Allison Transmission has committed to invest a further £6.8m to secure its rights to a non exclusive licence in 2013. This will bring Allison’s total investment in licensing and engineering fees with Torotrak to £17.6m over the 3 years to April 2012. This is a major milestone for Torotrak and there is great benefit also from the visibility of a committed level of engineering fees as the two companies work through the production intent design phase.
NH
Torotrak will receive £3.5m immediately and £3.3m in a year’s time. Allison has the option to secure its rights on a perpetual basis for a further payment of £10.6m in two year’s time. Should Allison not make this payment Torotrak will be free to licence other commercial vehicle customers on a non-exclusive basis. Allison is a 9% shareholder.
§ Torotrak is to receive £1.2m in engineering support fees over the next year as part of a multi-stage programme. The current licence extension provides for per unit royalties upon start of production, based on the value of each transmission produced.
§ Management have a high level of confidence in the introduction of Torotrak’s transmission technology to the commercial vehicle sector. This is enhanced by its strong and deepening relationship with the ETBM who recently accepted a test vehicle handover following achievement of key test and performance milestones.
NH
Our more immediate forecasts remain unchanged as we had anticipated this hoped for announcement and we continue to expect a breakeven result in 2013. Beyond this, commercial vehicle licence income could easily exceed £10m, with the potential to be materially above this level, providing very strong cash generation. Uniquely, Torotrak’s transmission technology delivers improved fuel economy, reduced emissions and unmatched refinement.
§ We believe that success in the commercial vehicle sector alone could more than support the current share price. This leaves the opportunity from small passenger cars, such as the Tata Pixel concept car, superchargers, kinetic energy recovery systems and other variable speed drive applications in the share price for free. For this reason we raise our price target to 55p. We continue to expect positive newsflow.
NH
Tata Pixel
NH
that’s the big commercial hope
BE
Yeah – everyone was waiting for this. Mentioned in the paper last week I think.
NH
right
NH
I must go
NH
off to lunch
NH
thanks Rabble
NH
a few more comments today
BE
Yeah – cheers for joining us
NH
one thing before I go
NH
some sad news
NH
one of the best technical guys out there
NH
one we followed has sadly passed away
NH
It is with great sadness that Merchant Securities reports the death of Richard Crossley, our much-valued Technical Strategist who has been with the Group since 2008. Those of you who receive our daily Mercantalyst research will be familiar with Richard’s work and expertise as a technical analyst. Richard was a highly regarded colleague and friend and will be missed by us all. Our sincerest condolences are with Richard’s family and friends at this difficult time.
Patrick Claridge
Chief Executive Officer
NH
It was a very good note
NH
and Richard was excellent company
BE
Formerly of Teather and NCB.
NH
he forecast the Irish blow up years ago
NH
and had some great stories to tell about the people he had to deal with at NCB
NH
all the property punters
NH
he will be missed
BE
And universally liked, which made him unique among the technical strategists.
BE
Sad news.
BE
See you tomorrow, everyone.
NH
bye