FT Alphaville » Markets Live transcript 12 May 2011

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Markets Live transcript 12 May 2011

Posted by Neil Hume on May 12 11:03.

Markets Live chat transcript for the chat ending at 11:23 on 12 May 2011. Participants in this chat were: Neil Hume, FT bryce.elder

Hola Rabble

please bear with me for a moment

I just need to get something

and blow the cobwebs from it

yep

it’s time for the tin hat

it’s been a while

but I think protective headgear

is now needed

looking

quite ugly out there

FTSE 100 now off 90 points 5,885

silver off 5 per cent

copper at lowest level since December 1

oil heading back again

euro getting smashed

$1.414

Can I ask why?

you can ask

but I can’t answer

risk off

I don’t know

the fact that everyone has the same trades on

global growth is slowing

So the metals slump began late yesterday.

yep

And looked exactly like the one a week before, pretty much.

along with gasoline

and that sort of had a knock affect on everything else

in London that means the miners

getting hammered

Fresnillo PLC (FRES:LSE): Last: 1,336, down 75 (-5.32%), High: 1,380, Low: 1,327, Volume: 390.23k

Eurasian Natural Resources Corp PLC (ENRC:LSE): Last: 828.00, down 34 (-3.94%), High: 859.00, Low: 826.50, Volume: 1.52m

Lonmin PLC (LMI:LSE): Last: 1,497, down 54 (-3.48%), High: 1,534, Low: 1,494, Volume: 242.30k

Vedanta Resources PLC (VED:LSE): Last: 2,081, down 84 (-3.88%), High: 2,158, Low: 2,075, Volume: 549.10k

and also

Man Group PLC (EMG:LSE): Last: 243.10, down 9.6 (-3.80%), High: 250.60, Low: 243.00, Volume: 4.61m

it never trades well when we get a commodity puke out

Nope – big volatility, big losses.

Usually.

Right

before we move to a bit of RAW

RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.

a quick note from Nomura

on correlation

and the fact everyone has the same trades on

it’s by Jim McCormick

In recent months, correlation risk has been building again, with much of it centred on a single theme – EM growth and the commodity rally. The high linkage of commodity prices with both hedge fund returns and FX highlights two important points –first, at a time when growth has started to show signs of a slowdown, investors are heavily exposed to the long EM and commodities theme. Second, many investors look to us to be expressing the same view in different ways.

One of the key components of our view of market resilience has been the significant decline in cross-market correlations – a trend that began toward the end of last year (Thinking Macro). But in recent months, correlation risk has been building again with much of it centred on a single theme – the strength of emerging market growth and the related rise in commodity prices. Figure 1 looks at the correlation between a set of asset prices and aggregate hedge fund returns – both in Q4 of last year and today. A couple points stand out. First, hedge funds look to be heavily exposed to commodities and currencies, especially short US dollars against EM currencies. Indeed, the correlation between hedge fund returns and commodities, EM FX and the dollar have moved close to 1 in recent weeks

On the flip side, hedge funds look to have little exposure in global rates markets, where trends have been far less obvious. Figure 2 looks at our Regime Tracker model which tracks the rolling link between returns in two different sets of market prices – in this case FX return changes in Nomura’s terms-of-trade indices (see Tracking financial market regimes). As it indicates, the linkages between commodities and FX returns are near peak levels seen on several occasions over in recent years.

here’s the important bit

Taken together, these charts make two important points that help explain the stress in markets in recent days. First, investors are heavily exposed to the positive growth theme in emerging markets. This is a worry given most indicators suggest EM growth has turned down in recent months. And China looks to be leading the trend, a message made clear in both the latest PMI data (PMIs and markets) and this week’s comprehensive list of Chinese growth numbers. Second, whether investors know it or not, many in our opinion are expressing the same view in many different ways. While selling the US dollar may well be a view on Fed policy and US fiscal risks, at the moment it is behaving like a long commodity view.

And while the euro’s recent weakness may be partly driven by concerns about Greece restructuring, it is no coincidence, in our view, that the bulk of this week’s decline came on the back of weak Chinese industrial production, rather than any news from Athens.
Looking ahead, we continue to think that markets will prove more resilient to shocks than many think. Still, the vulnerabilities are higher than they have been in some time. Correlation risk is on the rise again and the gap between actual global growth and growth implied in asset prices is the lowest we have seen since last summer. Overall, it seems to be getting harder to run an outright pro-growth view, especially with most indicators suggesting global growth has peaked.

there you go

Hm. That makes a little more sense to me than this note I was reading from SocGen’s forex team.

Taking out weak hands is a favourite trade in a range trading environment. We pointed it
out and merrily ignored it yesterday- more fool us!. With CFTC positioning data as of last
Tuesday, traders rely on the divergence of spot from its moving average to proxy the
accumulation of position. Positions build up behind the dam until it breaks – with the first
rupture given by a move below the 50 day moving average (cf. Tapiero in NYU). Silver which
likely built up the most positions relative to the liquidity in this market has now undershot.
More liquid assets though are already slowly rebounding with AUDJPY as the leader and this
even after poor Australian jobs data (pouring on poor Matilda’s parade).

I don’t have a Scoob what any of that means.

odd

Anyway, London’s favourite rumour this morning is of Glencore

And the idea that, because of the turmoil, the float might get pulled.

Glencore rumoured pull…

Here in the heart of Mayfair(meeting!), just heard that demand has halved in the last week and is still falling! After Russian Helicopter, mkt’s got much worse…..

not sure I believe that

Well, the Evening Standard has run with the story.

have they

Simon English, possibly the City’s best writer.

go on

let’s have a look

Fabulous rumour of the day was this: the £36 billion float of commodities giant Glencore is off.

“No comment,” said a PR person desperately fumbling to justify their fees. “Utter bullshit” said someone else, off the record, for reasons passing understanding.

http://www.thisislondon.co.uk/markets/article-23949230-no-comment-as-glencore-float-rumours-fly-through-the-city.do

said a PR person desperately fumbling to justify their fees

As I say, Simon’s got a gift for this stuff.

So we’re pretty cynical on this rumour

yeah

it might prices at the bottom of the range

but I reckon it happens

although that Russian helicopter thingy

never got off the ground

But the Glencore book’s covered between twice and four times, depending on who you read and when.

And there’s “cornerstone” investors in there.

And there’s trackers and quasi trackers to prop the thing up.

(@Lemmy – mushrooms kept in the dark and have **** thrown on them)

Plus, quite frankly, they need to float this thing.

So let’s ignore that rumour and turn to something more interesting

Namely, how was the lunch yesterday?

Oh very good

Koffmans is fantastic

great service

Pierre was in the kitchen

He always is.

I went for the crab to start which came in a massive spiky shell

following by saddle of rabbit

on the recommendation of the chef

and then some seriously alcoholic dessert

and the auction winner

was a really interesting guy

hedge fund manager

but they only have one strategy

shorting stocks

nothing else

Ideal for you then.

I’m sure you shared some thoughts on some of our favourites.

Some of the more colourful CEOs.

indeed

he’s over in the UK for a year

to see if the idea would take off here

in the US

there’s loads of Chinese reverse takeover stocks

to short

and things like Gerova – the company that Seymour Pierce tried to merge with

any

I let my host have some names

and companies

to investigate in the UK

off the top of my head

I mentioned

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

Gulf Keystone Petroleum Ltd (GKP:LSE): Last: 159.50, down 0.5 (-0.31%), High: 166.75, Low: 156.75, Volume: 1.61m

Obv.

African Minerals Ltd (AMI:LSE): Last: 517.50, down 11 (-2.08%), High: 528.50, Low: 515.00, Volume: 405.00k

Of course.

Pace PLC (PIC:LSE): Last: 98.80, up 0.8 (+0.82%), High: 99.80, Low: 97.00, Volume: 1.59m

Ocado Group PLC (OCDO:LSE): Last: 210.80, down 0.2 (-0.09%), High: 218.00, Low: 207.20, Volume: 458.57k

Supergroup PLC (SGP:LSE): Last: 1,280, down 294 (-18.68%), High: 1,399, Low: 1,235, Volume: 834.94k

in fact

the list went on and on

As we’ve said often, it’s a very short list of companies you actually like.

yes

it would have been quicker to cross those off

“Ambivalent” is about as good as it gets for most.

any fascinating lunch

really interesting to hear

how they go about it

what they look for

anyway

enough of my lunch

to some stocks

and some breaking news DTZ bid approach

as suspected

it’s the biggest shareholder

BN 05/12 10:17 *SAINT GEORGE CONFIRMS TALKS OVER POSSIBLE OFFER FOR DTZ

TZ LN
BN 05/12 10:16 *SAINT GEORGE CONFIRMS PRELIMINARY TALKS WITH DTZ

TZ LN
BN 05/12 10:16 *SAINT GEORGE PRELIMINARY OFFER TALKS WITH DTZ HOLDINGS

TZ LN
BN 05/12 10:16 *SAINT GEORGE IT IS IN PRELIMINARY TALKS WITH DTZ
BN 05/12 10:16 *SAINT GEORGE PART. STATEMENT RE POSSIBLE OFFER

For immediate release
12 May 2011
Saint George Participations SAS (“SGP”) – preliminary offer discussions with
DTZ Holdings plc (“DTZ”, the “Company”)
Further to recent speculation in the press, SGP confirms that it is in
preliminary discussions with DTZ regarding the making of a possible offer for
the Company. Preliminary discussions are also currently taking place between
SGP and BNP Paribas in relation to this matter. At this stage there is no
certainty that an offer will be made by SGP for the Company or as to the terms
of any offer.
Further announcements will be made, as appropriate.
Enquiries
Hawkpoint Partners Limited (Financial Adviser to Tel: 0207 665 4500
Saint George Participations SAS)

Paul Baines

(@TK. not. lots of ladies who lunch but no celebs sadly)

No surprise.

60p per share’s the theory I think.

DTZ Hldgs PLC (DTZ:LSE): Last: 45.00, up 6 (+15.38%), High: 45.95, Low: 41.25, Volume: 196.24k

right

as much as that

Looks a wee bit toppy to me, given they already control 55%.

indeed

Why pay up?

Hm.

so the deal here is

BNP put up the cash

and SGP roll in the equity stake

and it’s done deal

(@Bluesky – good point)

moving on

11:26AM

elephant in the room

or some of today’s bid rumours

what do you fancy

Latter please. Let’s save the tee-shirt salesmen until the second half.

if you insist

What’s the raw?

Northumbrian Water Group PLC (NWG:LSE): Last: 361.10, up 4.1 (+1.15%), High: 363.00, Low: 354.40, Volume: 919.73k

rumour that the Ontario Teachers Pension fund

is set to come in with a 430p a share offer

bit of volume in the stock today

It’s been “rumour revival week,” for some reason.

it has

Pick an old story and it’s probably coming back around.

Misys continue to behave well. In a weak market they are up again

Strange software outfit, seemingly controlled by US investor ValueAct Capital.

Misys PLC (MSY:LSE): Last: 360.20, up 7.9 (+2.24%), High: 360.70, Low: 345.80, Volume: 539.97k

as for SSS

Scottish and Southern Energy PLC (SSE:LSE): Last: 1,371, up 20 (+1.48%), High: 1,732, Low: 1,353, Volume: 2.04m

and this Iberdrola rumour

I could see why the Spanish would want to do it

but I can’t Ofwat

ever letting it happen

Expansion reports on how Iberdrola is examining potential takeover candidates as a way to limit ACS’s influence over management. The newspaper cites unnamed people in the banking industry as saying it is considering a bid for SSE or a merger with RWE to dilute ACS’s stake of about 20% in the company.

Yeah, well.

Interesting story.

But it looks like “here are some of the options they’ve discussed”

Rather than “this has a fair chance of happening.”

ACS is the vehicle of Senor Perez

the Real Madrid president

and Iberdrola loathe him

anyway

breaking

11:29 12May11 RTRS-CHINA INCREASES BANK DEPOSIT RESERVE RATIO -C.BANK

nicely timed from the Chinese

Another twist on the lid.

0.5% hike.

How many times is that this year?

not sure

lost count

Fifth time this year.

wow

But, relatively speaking, not expected.

(@Taxloss. we don’t know what’s happened the rabble. Burnt out. Not sure)

11:33AM

Right

we can avoid it

no longer

Supergroup PLC (SGP:LSE): Last: 1,292, down 282 (-17.92%), High: 1,399, Low: 1,235, Volume: 854.89k

Bryce

over to you

Well, these Goldman floats really are spoiling us.

Ocado’s growth warning yesterday due to too many customers in Provence.

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

yes

they really did use that excuse

And, today, Soupkitchen says it couldn’t shift enough tee-shirts because it was sunny.

almost

And, for some reason, it hasn’t been able to open any stores.

yep

odd that

and then

they weren’t ready for the hot weather

they had jeans and jumpers

in the window

not shorts

net result

big slowdown in retail sales from the previous quarter

You don’t get have spring/summer range in by April?

I know I know

I’m not a retailer. I’m not big Phil Green. But that just sounds a bit odd to me.

and apparently

the entire summer range

is not in all of the shops

(@taxloss: surfwear designed in Cheltenham, sold to Bondai Beachers. Hm.)

right

here’s a good note

on Superdroop

from BES

SuperGroup’s Q4 IMS was in line overall, but Retail sales were weaker than expected and we think there are some deeper issues starting to emerge here regarding the UK growth profile.
Group sales for FY11 are £238m, vs. our estimate of £236m. However, within this the Q4 Retail performance looks weaker than expected, while Wholesale (international) is stronger. Q4 Retail sales were up 39%, vs. Q3 run-rate of 91.8%. A large part of this is due to the phasing of store openings (only one in Q4 this year vs. 6 last year), but management also states that it did not get its full range of summer stock out quickly enough to benefit from the warm early spring weather.

We understand that eight stores were planned for Q4, so to miss on seven is a significant miss, suggesting possibly that landlord negotiations are getting tougher. At this stage, we don’t think the Q4 shortfall will necessarily be caught up in FY12, so this is not just a phasing issue.

While the summer stock issue could be seen as a ‘blip’ it highlights the learning curve of a young fashion business growing rapidly (contrast with Next, which estimated a 2.5% benefit from the weather etc). We understand that SuperGroup still hasn’t got all of its summer ranges into stores.

and here

is the Supergroup apologist

Nick Bubb

SuperGroup (Buy): we said yesterday that the bears wanted SGP to disappoint, as evidence that the Superdry brand is over-exposed and past its best…but we didn’t think that today’s pre-close Q4 update would give them what they wanted! The market was expecting some slowdown in Q4 for Retail from the super 92% sales growth in Q3, but “only” 39% is a big slowdown…

SGP is blaming a blip in store openings and a delay in responding to the fine weather last month with summer ranges, but we don’t think they should beat themselves up too much, as we estimate that there would still have been good, 10-15% LFL growth within that overall Retail sales figure (and most retailers would die for that). And Wholesale sales were surprisingly strong at +89% in Q4, as Overseas takes off, so SGP are still saying that full year PBT will be within the range and having spoken to the company we can just about hold our £50.5m PBT for the year just finished (and £76m in the year just begun).

When you are on a P/E of 35x, blips in trading will be punished and the shares have inevitably been knocked hard today, to below 1300p as we write, but this weakness will be a very good buying opportunity, given the fantastic long term growth outlook and we maintain our Buy (target 2075p).

Ok – so I get that the mistake with Spring is management dropping the ball.

Trying to squeeze another month out of their winter stuff.

That, I can see, is more likely than not to be a blip.

The store openings, though, confuses me.

me too

as does the rating

20 times 2012 earnings

even after today’s fall

but don’t worry Dunnkerton

the CEO

has plans

08:12 12May11 RTRS-SUPERGROUP CEO SAYS EYEING “SPECTACULAR DEAL” IN CHINA

Interesting.

I wonder how their eratz hiragana will go down in Beijing?

I was wondering exactly that

given past sensitivities

Or maybe they’ll focus on the (1% of revenue) Cult Clothing brand.

Because the Chinese always like cults.

That’s sure to go down well too.

However, I guess we have to wait and see what he means by spectacular.

Given the company currently makes Japanese-looking clothes in Cheltenham.

Perhaps the plan is to make Cheltenham-looking clothes in China.

the mind boggles

and forget about China

what about all those northern dole scroungers

the ones who haven’t got SuperDry yet

why doesn’t he start with them

and worry about China later

he’s not Burberry

anyhow

still the retail sector

shock horror

Dixons Retail PLC (DXNS:LSE): Last: 15.64, down 0.36 (-2.25%), High: 16.49, Low: 15.56, Volume: 5.65m

has meet its (lowered) profit forecasts

I thought we might be on for a profits warning here

after the shocking Kesa numbers

Kesa Electricals Plc (KESA:LSE): Last: 137.80, down 0.2 (-0.14%), High: 138.10, Low: 135.90, Volume: 332.67k

It fits the “as bad as expected” category I guess.

but no worse

And, as the UK already has negative value to Dixons, there was only so bad it could be.

Give us the details then.

(@ashleythomas. That was at about the same time as they were talking to RWE. Not sure I believe everything I hear from Iberdrola)

hang on

Pre-close trading update – steady as she goes
Having warned and guided to FY11E PBT of around £85m at the end of March,
the remaining stub period has resulted in no change to this guidance. Group
LFL declined 4% in H2 and was down 2% for the full year. The group has
performed very strongly on gross margin, which was flat in H2 and up 10bps
over the year, despite the challenging market conditions. A wide market PBT
spread of £55m – £95m for FY12E shows the effect of high operational gearing.

this is from Investec

Summary: With only a handful of weeks in the stub period since Dixons issued
lower FY11E PBT guidance of £85m at the end of March, largely on the back of a
sharp downturn in UK LFL sales, there should not have been any major surprise
or change in this, the originally planned pre-close IMS – and this has indeed been
the case. PBT guidance for FY11E is unchanged at £85m. The only change
relates to the year end net debt guidance, which has improved to £220m from
£250m, benefiting from timing of supplier payments and liquidation of Spanish
stock. The exit rates for LFL has not worsened since last seen, and the gross
margin performance has been very strong in our view given the economic
backdrop.

So it’s no worse than the profit warning a few weeks ago.

Great.

indeed

doesn’t tell us anything

Dixons have a very good management team

in a very bad industry

and we all know

which one wins in the end

11:49AM

Commod Puke Out Part III

continues

RTRS-U.S. CRUDE OIL EXTENDS DECLINE, FALLS $2 A BARREL TO $96.21

RTRS-SPOT SILVER EXTENDS LOSSES FURTHER, SLIDES 7 PCT TO $32.58/OZ

FTSE holding its nerve though

down 77 points at 5,898

Perhaps that reflects that, while the complex was overbought largely on liquidity reasons, the miners weren’t to the same extent?

Possibly. Other thoughts welcome, ROTR.

Fresnillo PLC (FRES:LSE): Last: 1,319, down 92 (-6.52%), High: 1,380, Low: 1,318, Volume: 489.57k

Kazakhmys PLC (KAZ:LSE): Last: 1,202, down 63 (-4.98%), High: 1,246, Low: 1,201, Volume: 1.53m

Antofagasta Plc (ANTO:LSE): Last: 1,134, down 55 (-4.63%), High: 1,168, Low: 1,133, Volume: 1.46m

Vedanta Resources PLC (VED:LSE): Last: 2,081, down 84 (-3.88%), High: 2,158, Low: 2,075, Volume: 694.28k

Eurasian Natural Resources Corp PLC (ENRC:LSE): Last: 829.50, down 32.5 (-3.77%), High: 859.00, Low: 826.50, Volume: 1.63m

You get the idea.

And, since we’re talking about miners, the rabble seem excited about the Kalahari story.

Kalahari Minerals Plc (KAH:LSE): Last: 224.75, up 1.75 (+0.78%), High: 228.00, Low: 221.65, Volume: 168.25k

Any thoughts there, Neil?

one moment

there was this bit of comment

from RBS

this week

Uranium – Rio Tinto to deal?

We believe Rio Tinto could make a bolt-on acquisition in uranium to secure its position as one of
the world’s largest uranium producers. Its most likely option, in our view, could be to acquire the
Husab mine by buying out Extract Resources and/or Kalahari Minerals. Rio Tinto currently owns
14.2% of Extract and 11.5% of Kalahari, which in turn owns 42.8% of Extract.

The deposit, the world’s fifth-largest, abuts Rio Tinto’s 68.6%-owned Rössing uranium mine in
Namibia. Apart from its equity positions in Extract and Kalahari, former Rio Tinto Director
Jonathan Leslie is Extract’s chief executive. Extract is at a similar development/production
transition point as Riversdale, Rio’s latest coking coal acquisition

In February Extract Resources confirmed it was holding discussions with Rio Tinto regarding “a
potential combination of the Husab Uranium Project with the neighbouring Rössing Uranium Mine
with a view to capturing the significant potential synergies that could be generated from a joint
development of the two projects.” Extract also mentioned that it was in discussions with its largest
shareholder, Kalahari Minerals, “that might simplify the Extract/Kalahari shareholding structure

In April, Extract released its definitive feasibility study on the Husab project. The key parameters
are as follows:
Open-pit mine and conventional acid leach plant. Production of 15mlbpa U3O8.
Maiden reserves for Zones 1 and 2 of 225mlb contained uranium; resources of 367mlb, fifthlargest
primary uranium deposit in the world. Updated resource expected to be released in
2Q.
Capital costs estimated at US$1,480m and cash costs of US$28.5/lb.
‘Hot’ commissioning 33 months after project approval.
In early March, CGNPC Uranium Resources (CGNPC-URC), a Chinese state-owned business
and subsidiary of China Guangdong Nuclear Power Group, announced a possible recommended
cash offer for Kalahari at 290p/share, valuing the company at £756m (US$1.2bn).

We note, though, that Rio Tinto may not need to buy the Husab resources at all. Rio Tinto’s
recently released annual report notes that, following a model update and subsequent pitshell
redesign, it has increased its mineral resources at Rössing from 104Mt at 0.023% U3O8 to
245.8Mt at 0.025%, up 136%.

there you go

Hm.

And Singer reckons China’s just played a headfake anyway.

Although this headline sounds like the end of the Chinese acquisition, we believe it makes little or
no difference to the likelihood of a Chinese deal happening. After all, since the Chinese cannot
reduce the price of the 7th March Possible Offer, there is no point in maintaining it.

Since we believe the Chinese still want to buy Kalahari, we think they’ll wait three months and
announce a lower bid. It may well be at the 270p level but we maintain our 262p target price
based on a 25% premium to the average closing price of 209.7p for the 6 months prior to the bid
being announced.

In his statement, KAH Chairman Mark Hohnen discusses the disappointment of the Take Over
Panel’s decision, the importance of maintaining a strong relationship with CGNPC, and highlights
the board’s strong support for Extract Resources in taking Husab towards production. In the
penultimate paragraph, Mr Hohnen reflects on Rio Tinto’s refusal to allow Kalahari to increase
the headroom to allot additional shares.

However, the most important sentence in the statement reads “We may, going forwards, review
alternatives for co-operation in the absence of an offer by CGNPC-URC for Kalahari”. In our view,
this leaves the door open for the Chinese to return to the table in 3 months time, and only if they
don’t will Kalahari look at the alternatives more seriously.

Kalahari Minerals Plc (KAH:LSE): Last: 224.75, up 1.75 (+0.78%), High: 228.00, Low: 221.65, Volume: 168.25k

right

shall we stay in small cap corner for a bit

Sure.

I reckon this is headline of the day

Increase of 1.5 billion barrels to a new total of 15.46 billion barrels of gross mean unrisked prospective resources

who do you reckon it is?

Oh, let’s see.

Which ADVFN bulletin board was most active this morning?

Oh – of course.

CHAR.

yep

Chariot Oil & Gas

billions and billions of barrels of oil

off Namibia

Chariot Oil and Gas Ltd (CHAR:LSE): Last: 215.00, up 6.5 (+3.12%), High: 225.00, Low: 212.25, Volume: 631.89k

of course

tipped by UBS early this week

1630% upside potential apparently

Let’s have a bit more from the statement

a 3% rise

after finding all that oil

seems slightly mean

Chariot Oil & Gas Limited (AIM: CHAR), the Africa focused oil and gas exploration company, is pleased to announce an increase of a further 1.5 billion barrels (‘Bbbls’) in its estimate of gross mean unrisked prospective resources from its Southern licence 2714A offshore Namibia. The total gross mean unrisked prospective resource estimate now stands at 15.46 Bbbls (11.2 Bbbls net to Chariot). Further technical work undertaken on the 3D seismic data acquired across this block, in which Chariot has a 50% interest, has identified additional resources within 4 new prospects and has increased the gross mean unrisked prospective resource volume in the Nimrod prospect by a further 833 million barrels, to a total of 4.6 Bbbls. Nimrod will be the first well to be drilled in the Southern licence – anticipated to commence in early 2012. The Tapir North prospect in the Northern licence is still scheduled to be drilled in Q4 of this year.

oil oil everywhere

However

the sector watcher does not like it

Chariot Oil & Gas – CHAR LN
Another day, another resources upgrade from CHAR, but still no farm-out. Group now says it is chasing 11.2.bn barrels net recoverable offshore Namibia. Remarkably though, despite having a data room open for 15 months now, no industry partner has farmed in. I’m slightly nervous that if and when a farmout is eventually annnounced, the terms aren’t terribly attractive. I’d be a seller.

more questions than answers

one for my new lunch chum I think

They seem to have neglected to mention that the prospect’s called Enigma.

really

Which is a great name, all considered.

http://www.chariotoilandgas.com/operations.aspx

someone has a sense of humour

12:02PM

what else?

Keller Group

there’s a company we never look at

and with good reason

We are the world’s largest independent ground engineering specialist, renowned for providing technically advanced and cost-effective foundation solutions. With a turnover in 2010 of £1,068.9m, we have over 6,000 staff world-wide with offices in around 40 countries on five continents.

however

today

we will look at them because

Keller Group PLC (KLR:LSE): Last: 527.50, down 133.5 (-20.20%), High: 549.00, Low: 500.00, Volume: 707.89k

a big horrible profits warning

Bank holidays? Sun?

Royal wedding?

none of those

the wedding didn’t stop people putting in foundations

What did, it appears, was industry over-capacity in the States.

yes

Among with a bunch of operational problems elsewhere.

their McKinney a $70m business has not dropped its prices quickly enough

and loss loads of business

and apparently

they lost a lot of work in the middle east

Here’s Liberum

In addition to our earlier comments, we now cut FY 2012 EPS by 35% from 69.7p to 46.0p. We also reduce our dividend to flat at 22.8p. We increase our FY 2011 net debt from £74m to £90m.
n McKinney in the US the key source of the downgrade – McKinney a $70m business has not dropped its prices quickly enough. Volumes have fallen sharply and it will swing sharply from profit to loss. This will lead to questions about Keller’s federated model and whether it can control its business well enough.

Australia weakness longer than expected – There is a £4m reduction to estimates. Whilst we have clearly known about the floods, management argue that the impact lasted longer than they had expected.
n Middle East and North Africa has ben more disruptive than feared – While Keller is not in Libya, there is virtually no activity in its businesses in Egypt, Morocco and Algeria. Saudi has already been very slow year to date.
n Continued order book growth – Demand for infrastructure is still strong. The cause of the weakness in trading in the US has been commercial.
n Conclusion – We are surprise that the share price has not fallen by more like the scale of the FY 2012 downgrade, ie 35%. Confidence in forecasts is likely to be seriously undermined by the 47% cut to H1 estimates in June.

Hm. Almost exactly a year since its last profit warning.

Never good news, that.

Quick line from Citigroup.

Unlike last year, it is not the residentially exposed Suncoast business which is
especially weak, but rather the small-end commercial segments. McKinney, Anderson
and Heyward Baker are the main subsidiaries suffering. McKinney in particular has
seen a sharp reversal after a solid 2010 and now looks likely to be loss making in
2011E versus profit of £3-4m last year.

In addition, management said it had underestimated the impact of Australian flooding,
which is now thought to have cost the company £4m (was £1-2m previously). CEMEA
still looks likely to deliver around 10% growth YoY although the UK may slip back to £1-
2m losses again; we were previously looking for breakeven.

Clearly this significant deferral of recovery is highly disappointing and we will review
our model post further discussions with management. Keller has again shown itself to
be later cycle than we had thought and patience is now required by investors. The fact
that the issues are price related and not volume, which would be much harder to
bounce back from, is scant consolation but is worth remembering once the dust settles.

ta for that

we just need to head back to small cap corner

we missed something

a company that has been hit by the weather and the wedding

Luminar Group Holding PLC (LMR:LSE): Last: 7.00, down 1.88 (-21.13%), High: 8.66, Low: 7.00, Volume: 1.09m

Britain’s leading nightclub operator

or perhaps it’s no longer the leading operator

Sales for the first 9 weeks of the current year are 13.9% below the prior year on a same outlet basis.
· Loss after discontinued operations, exceptional items and tax of £188.0m.
- Exceptional costs totalling £187.4m, primarily non-cash impairment of specific fixed assets and goodwill.
· The Banking Group continues to be supportive and has granted a prospective covenant waiver in respect of the financial covenants, which would fall to be tested at the end of May 2011. The Banking Group are continuing to provide flexibility to maintain the Group’s liquidity levels until 31 August 2011, whilst they work with Luminar to determine the appropriate basis for a longer term restructuring of the Group’s debt arrangements in light of continued challenging trading conditions.

look at that fall in the past 9 weeks

Of course. Because those long weekends were sober, staid affairs.

I’d say its not the wedding

but yoof unemployment

Could be. And pressure on student pocket money.

Two trends that won’t go away this decade.

anyway what’s odd here

is that only six months after securing a new 3-year loan

they want another covenant waiver

I’d say this company is on deaths door

So they’re Greece. They’re the Greece of nightclub operators.

Let them go.

Never should’ve been listed.

no bailout for Luminar

no emergency liquidity facillity

we must let it go

in the meantime

here’s what the analysts made of it

Luminar has, this morning, issued its preliminary results for the period ended
26 February 2011. FY 2011A EBITDA is reported at £22.9m, in line with our
and consensus expectations of £22.5m. Sales for the first nine weeks of the
current year are down 13.9% YOY on a same outlet basis, and we expect
consensus EBITDA expectations to move down from £22.7m to £19m-£20m.
The group is now in talks with its banking group to determine a longer term
restructuring of its debt arrangements. We retain our Sell recommendation
and 7p price target.

Sales for the first nine weeks of the current year are down 13.9% YOY on a
same outlet basis, reflecting disappointing trading over the Easter and Royal Wedding
weekends. Therefore, on an underlying basis current trading is slightly better than this
number suggests. The future for Luminar remains unclear, in our view. The number of
people in the UK turning 18 is falling year on year, which means the pool of new
customers is shrinking; combined with record unemployment levels within the 18-25
year age group. This makes for a disappointing demographic outlook for the company, in
our view. We believe this, coupled with concerns over dramatically increased university
fees, will result in a continued difficult trading environment for the group, with no sign
of improvement.

that was Panmure

Yup – let it go.

There’ll be plenty of folk willing to dump their redundancy money into buying the clubs from the liquidators.

that’s true

like running a pub

everyone thinks they can do it

and fancies a go

Which is why these businesses survive no more than a couple of years

Speaking of, we should mention the owner of Ministry of Sound

who’s that?

A club that’s somehow survived more than a couple of years.

That’ll be …

3i Group PLC (III:LSE): Last: 293.10, up 21.4 (+7.88%), High: 294.70, Low: 278.00, Volume: 5.29m

they own MOS?

Pretty sure they do, or did.

http://www.3i.com/portfolio/companies/ministry-of-sound.html

Ministry of Sound is a strongly branded media and leisure business.

The business is focused on providing high quality products, services and experiences to a specifically targeted audience – young adults (18-34) who identify with the Ministry of Sound brand and culture.

It’s also a big club in the Elephant.

Though they don’t mention that.

Anyway – relief rally?

pass. didn’t look at it

I have a note from Merrill somewhere

3i’s FY 11 results are usefully better than our estimates, although only marginally
ahead of our numbers before the company’s somewhat gloomy preclose update.
The key metric, book value per share, came in at 351p against our estimate of
335p. Looking at the details of the outperformance, the largest source was
unrealised gains, which came in at £325m, against our estimate of £231m. This
line is a composite of many different influences, but it was predominantly made
up of what we would regard as either very high quality (valuations based on
imminent sales) or high quality sources, such as earnings growth

That’ll do the trick.

Ta.

Assets which
were valued according to earnings saw earnings growth of 13% in the year.
Earnings multiples declined by 7% across the year, costing the company £76m of
what we regard as low quality book value growth.
Overall, total return, at £324m, was well ahead of our estimate of £191m, leading
to the improved book value. The dividend, at 3.6p, is 20% ahead of last year’s,
and ahead of our estimate of 3.3p

The overall good results included a very material impairment taken against
Enterprise, the UK asset which 3i referred to in its preclose. This has been totally
written off, costing the company £201m. Obviously, this is an extremely
disappointing outcome, but in spite of the Enterprise hit, the company returned
10.6% for the year, a reasonable outcome.

We continue to believe that a key goal for 3i over the next year will be moving
towards being a clear net investor, as without this, we think it will be difficult
overall for it to deliver the kinds of return needed to justify a valuation appreciably
above book. There are some positive signs in these results, as the rate of
investment has picked up after a dull January and February. The company’s tone
here is encouraging, but we think investors will also look for more delivery.

Finally, the company has set out the objective to “deliver an average 15% return
on equity over a five-year period, with lower volatility and steady and consistent
progression in NAV”. To be fair, the past four halves have actually delivered
relatively steady book value growth. In our view, a solid 15% ROE would
underpin a useful premium to book. The 2011 results aren’t a bad step on the
way to this goal, especially in the light of Enterprise, and we would expect the
stock to be strong at the open. We would expect numbers to move up somewhat,
reflecting the FY 11 outperformance. Longer term, we think it will be key for the
company to convince the market that it can invest decent amounts of capital and
generate returns solidly in the ‘teens.

there you go

which ever person the right wanted that

12:15PM

Misys really moving now.

Misys PLC (MSY:LSE): Last: 360.80, up 8.5 (+2.41%), High: 361.10, Low: 345.80, Volume: 803.04k

hmm

anything fresh?

Sixth straight day on the up.

Haven’t heard any new angles, personally.

nor me

right

let’s bring things to a close

Tullett Prebon PLC (TLPR:LSE): Last: 394.60, down 22.9 (-5.49%), High: 405.00, Low: 391.50, Volume: 1.07m

trading update has not gone done well

they have a bad April

because

you guessed it

the wedding

and all those bank holidays

it even affected the world of inter-dealer brokers

(@emptyend: please don’t ruin my cheesy segways with facts and suchlike.)

Well, I guess this makes a small amount of sense.

Fewer days, less churn.

Though why the market hadn’t anticipated that, who knows?

good point

here’s some comment

can’t remember who from

Revenue growth in the first 4 months fell to 2% yoy versus the 3% growth as reported
with the prelims. The cause was a poor April in all markets worldwide. This is just one
month (affected by holidays etc). These growth rates are like-for-like adjusted for the
closure of the North American offices.
• The reported growth of revenues in Q1 is minus 3%. The FY11 consensus growth rate
in the market is currently 4% versus our current 7% growth which we will revise down.
FY11 EPS consensus is 46p vs our 48p which looks too high.

• The shares have been more or less tracking the market recently – the weak market
backdrop offset by the low valuation. This statement will likely hit the shares in the
short term but we would expect them to rally afterwards.
• The read-across for ICAP will be clearly negative but half of ICAP’s business is now
electronic / post trade services while the Tullett business is mainly voice based. ICAP
(Buy) reports FY11 March on 18 May. We expect less impact as the shares are
already at the bottom end of the range.
• Valuation: the forward PE is 8x which is below the 5 year average of 10x. Current price
target 500p

Icap PLC (IAP:LSE): Last: 489.50, down 20 (-3.93%), High: 504.50, Low: 482.90, Volume: 2.07m

anything else to look at

or are we done?

BT had results out

but I don’t think they were too interesting

AstraZeneca PLC (AZN:LSE): Last: 3,175, up 32 (+1.02%), High: 3,180, Low: 3,132, Volume: 1.61m

there’s a UBS buy note knocking about

There is. Wrote it up yesterday.

and Citi group have upgraded barclays

Just grab the highlights of that.

Barclays Capital had a bad quarter ‘at the office’ — Our assessment of quarterly market shares of IB revenue pools illustrates a high degree of volatility within the shares of the top 10-15 players, especially regarding FICC. Our estimates for 1Q11 market shares show that Barclays Capital (with an 8% market share in FICC and 5% in Equities) suffered a marked reverse from its more ‘normal’ 2009-10 run-rates (i.e. 10-11% in FICC, 6% in Equities). A similar thing occurred in 1Q10, when Barclays Capital accounted for just 8% of global FICC revenues and 4% of equities; but it reversed this in 2Q-4Q10. Past performance indicates to us that Barclays Capital’s market shares are more likely than not to ‘normalise’, meaning it would be wrong to ‘over-extrapolate’ from 1Q11.

Upgrade from Hold (2M) to Buy (1M) — While we continue to see long-term headwinds
for Barclays, the stock is trading towards the lower reaches of its range of the past 9
months or so, and so we upgrade our rating to Buy (1M) from Hold (2M), albeit with a
slightly lower TP (324p vs 338p). Downside risks appear limited by valuation, and the
share price appears to be pricing-in little ‘option value’ in relation to possible upside
surprises from the 15 June Strategy Day or potential corporate events.

Meanwhile, British Airways up on a potential strike break.

International Consolidated Airlines Group SA (IAG:LSE): Last: 249.40, up 3 (+1.22%), High: 251.90, Low: 244.50, Volume: 5.99m

Along with a meeting at RBS last night, talking demand rebound and such.

Other than that – not much more to say I think.

Are we all done for the day?

we are

thanks one and all

cya tomorrow

bye

This entry was posted by Neil Hume on Thursday, May 12th, 2011 at 11:03 and is filed under Uncategorized. Edit this entry.

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Markets Live transcript 12 May 2011

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