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Markets Live transcript 6 Jun 2011

Posted by Neil Hume on Jun 06 11:03.

Markets Live chat transcript for the chat ending at 11:28 on 6 Jun 2011. Participants in this chat were: Neil Hume, FT bryce.elder

Hola rabble

welcome to Markets Live

FT AV’s daily markets chat

and Bryce is back

looking tanned and refreshed from his break

(@Milky – we will get to Lloyds later on. No need to mention now)

Morning all.

Delightful to be back

so it’s official then

social media is a bubble

dot.com style bubble

Obviously it is. But what prompts the confirmation?

this

Jellybook Limited announces its
Intention to Float and to seek admission to AIM

Jellybook Limited, (“Jellybook” or the “Company”) a newly incorporated investment company focussing on the social media sector, today announces its intention to float and to seek admission to trading of its shares on AIM, a market of the London Stock Exchange plc (“Admission”).
Highlights
· Jellybook will focus on acquiring businesses in the social media sector, particularly those companies with both digital media and social networking capabilities.
· Jellybook will seek to become a leading European social media company. The Company intends to capitalise on the increased penetration and usage of social media by both businesses and individual users.

Oh. Dear. Lord.

The board of directors of Jellybook, led by Jonathan Rowland as Chairman and including Michael Wright, Julie Meyer and Walter de Brouwer, who have particular expertise in Europe, believe that the Company will be well positioned to consolidate opportunities in the European social media marketplace.

What? Is the date wrong on that?

It’s from a decade ago, right?

nope

dates June 6, 2011

there’s nothing like find a bandwagon

and jumping straight on it

even if it’s late

Mr Rowland was of course behind Jellyworks

Of course.

a dot.comdey shell company

Well, it was the archetypal dot-comedy shell.

It was a shambles.

It triggered endness soul-searching about Aim disclosure rules.

well you say that

but look at this

Jonathan Rowland also founded Jellyworks plc in 1999 which floated on AIM at 5p per share and was sold to Shore Capital Group plc in 2000 at 29.5p per share.
· The current intention of Jellybook’s directors (the “Directors”) is to make one main acquisition or investment within the first 18 months from Admission.

Er …………

Well, that’s one interpretation.

And, undoubtedly, Mr Rowland made money from its brief time in public life.

perhaps there are going to buy Groupon

but did shareholders?

Well, I guess they could’ve sold when this thing was worth £300m.

Which would’ve been fortunate

Though it’s not the guaranteed money of giving yourself a tonne of share options and forgetting to declare them.

(TK – yellow card for that)

anyway

he wants £3m for this

not sure what that buys

in the social media world at the moment

not a great deal from what I have seen

Well, we can measure his savvy from Jellyworks’ investments I guess.

Such as Orchestream (RIP 2002)

oh dear

Antfactory (RIP 2001)

I remember that

and that

ouch

Talkcast, Countdown, Purchase Point and Transmedia (MIA, presumed dead)

why did Shore Cap even buy it?

jeez

that’s a whole load of dot.com garbage

And it was never entirely clear how much they owned.

Numbers changed. Everything was fuzzy. Directors came and went.

Money came and went.

Anyone interested in investing in Jellybook really should have a read of this first

http://www.guardian.co.uk/business/2000/aug/20/theobserver.observerbusiness8

A very good tombstone for the previous enterprise.

one final points Rowland’s father owns this bank

Banque Havilland SA is based in Luxembourg and has a full European banking licence issued by the CSSF. Banque Havilland is wholly owned by the Rowland Family and is focused on private and merchant banking.
· The nominated adviser, broker and joint bookrunner is Allenby Capital Limited, with Banque Havilland SA as partial underwriter and joint bookrunner.

Aha

The Icelandic connection.

yes

the old Kaupthing Luxemborg

There was some confusion about how much Rowland’s family bank put into Jellyworks, if I remember right.

Not that past performance is any guide to future etc.

right before we move on from the wonderful world of social media

curious note out from Numis today

which says if you like Groupon

why not consider buying some

Moneysupermarket Com Group PLC (MONY:LSE): Last: 101.00, up 2.05 (+2.07%), High: 103.40, Low: 100.70, Volume: 130.58k

What?

I’ve been away a week and the world’s lost its freaking mind.

What has MoneySupermarket got to do with Groupon?

One’s a price comparison site, the other’s local advertising

its on line

Ah. Right.

does that count

we are in a bubble remember

AV can be counted as social media

we should IPO on 40 times forecasts sales

as co-founder

I’d obviously issue myself loads of pre-ipo stock

at 0.005p

and then sell half into the float

lock up for 6 months

and break it after three

to help with liquidity

A fine plan.

We can cut Rowland in for £500k.

cornerstone investory Jellybook

like an SWF in the Glencore float

anyway here’s this note

we really need to move on

to the main market

Numis: moneysupermarket.com (Buy, TP: 124p) Forget Groupon, this money saving website offers a better deal for investors

We know that compared to Groupon, this consumer money saving website is boring. It makes money (£41m EBITDA last year). It has a proven business model (online business started in 1999, profitable since at least 2004, EBITDA margin average 30% in the range 26%-34%). It generates positive free cash flow (£30m last year) and since IPO has returned much of this significant cash generated to shareholders in dividends (£100m since 2007, 20% of market cap). It trades on 10x FY11 EV/EBITDA and pays a respectable 3.9% dividend yield (4.0% forecast). Yawn!

We acknowledge the biggest difference between the two companies is expected sales growth, where Groupon has much better short term potential. However, based on press reports of a c.$20bn IPO valuation, this would value Groupon at 7.8x annualised Q111 sales of $645m, vs. MONY c.2.6x. Moreover, whilst it has grown sales significantly in the past (+1357% Q111 vs. Q110), it remains unprofitable despite making a not inconsiderable $2.6bn in annualised revenues, leading many to question if it will ever achieve profitability. Whilst some will argue that at some point operational gearing will kick in and convert sales to profit, this is far from certain and we would therefore question just how much of this hope value must already be priced in? Why take the risk when you can have MONY which already has a proven profitable model and is much cheaper?

11:20AM

Right then

wider market time

and we are

wait for it

it’s very exciting

down 0.47 points at 5,854

Right – so we’re a hundred points below where it was when I was last here.

yeah

some really weak eco data last week

confirmed by the US jobs figures on Friday

although oddly

we managed to rally on that

not sure why

anyway

it’s the 4th time the FTSE 100 has bounced off its 200 day moving average

apparently

and now Greece is sorted

we can bounce

[Chartism klaxon.]

hang on

some more technical stuff

MARKET – OVER HEDGED ON INDEX, ALMOST AT DOUBLE BOTTOM…
- See attached & note the double bottom formation forming & the
short term RSI saying oversold. All the Euro Indexes are the
same as this FTSE chart…
- BUT MORE CONVINCING is consider the following. On the FTSE,
only resources, BARC & PRU underperformed the index over the
last 5 days, ditto in Germany where EOAN, RWE & LHA
underperformed whereas all the other index names outperformed.
The same in the Eurostoxx50. Hence, displaying a robust
appetite for single stock names & an over reliance on Index
hedging. Therefore, this is not sustainable, ask your Index
‘cash and carry’ desks, the spread is now inverted.
Therefore, we have 0.5% downside, but at least 2.5% upside.

there you go

2.5% upside

Because the quiggly line’s formed an over-hedged double bottom.

Can’t argue with that. Or against it. Or at all, really.

Anyway, what’s Lloyds doing at the top of the loserboard?

Lloyds Banking Group plc (LLOY:LSE): Last: 47.65, down 1.09 (-2.24%), High: 48.90, Low: 47.44, Volume: 52.95m

Lloyds

what can we say

the boss was interviewed in the paper on Saturday

and again

he was painting a pretty gloomy picture

whether this is all part of a ploy

or he’s really found that Lloyds is in a much worse state than we all thought

I don’t know

I suspect Mr Daniels

left it in quite a state

and walked off into the sunset with his bonus

http://www.ft.com/cms/s/0/bbff2cba-8e0b-11e0-bee5-00144feab49a.html?ftcamp=rss

ah that’s the link

thanks

basically he said

this is a 3-5 year turnaround

and he’s just at the start of

‘what needs to be done’

(@NuBlood: an idea often discussed, that. But the two spanners in the ointment are who, and why?)

one could argue that a lot of this is in the price

shares down by nearly a quarter since Antonio took the helm

a real baptism of fire

but there are reasons to be positive

UBS is pushing the stock as a buy todayu

In the six months since the new Lloyds CEO was announced, Lloyds has seen its premium
rating versus peers shrink markedly and its shares have significantly underperformed the sector.
This reflects the one-off charges the group has taken (Ireland, PPI) as well as EPS downgrades
f.rom balance sheet/margin recalibration. Looking ahead, positive peer differentiation

With Lloyds having termed out a large element of its wholesale funding, and, thus, significantly
repriced its liabilities, built up its capital ratios to well capitalised levels and reduced its
dependence on central bank funding, we think the group is now in a position where its focus can
be reoriented towards shareholders. We would expect the strategy day to provide an indication
of targeted returns, capital return and the longer-term shape of the group. We expect the RoE
a.nd potential dividend payouts by Lloyds to be structurally better than those of its peers. Balance sheet normalisation well on track

The run-down of the residual non-core will allow Lloyds to demonstrate better balance sheet
metrics (LDR, NSFR, etc) than its closest domestic peer, Santander UK, suggesting limited
n.eed for additional balance sheet repositioning. Valuation
Lloyds offers a powerful combination of rising book value and rising RoTE, which should provide
a significant valuation catalyst for the shares. A Gordon growth model, based on a 15% RoTE in
2013E, implies an 86p 12-month price target

A lot seems to be resting on this strategy day

I hope it’s not a damp squib

elsewhere in the banking world

Royal Bank of Scotland Group PLC (RBS:LSE): Last: 41.47, down 0.07 (-0.17%), High: 41.58, Low: 41.09, Volume: 21.88m

(Milky you are the new Zoomyboy)

Hester

is looking to slot a load of Treasury stock

to some innocent SWF

: In the Sunday Times: Stephen Hester, the chief executive, has opened talks with the richest sovereign wealth funds in the middle east to drum up interest in the bank ahead of privatisation. He told them RBS is now ‘ready to stand on its own two feet’ and that he wants the government to begin selling down its 83% shareholding.

Comment: RBS seem to be ahead of LLOY at present in the sell down stakes now. The Gulf SWF story gathering momentum. Nothing is expected in terms of stake sell down until Q4 post the final draft of the ICB report, however increased confidence that sovereign wealth will waiting to take up some of the stock can only be a positive. The market currently anticipates that the government would not sell below their ‘in price’ of c50p, the shares are currently trading at 41.5p.

I hate to say it

but Bryce

you appear to be winning our bet on the state owned UK banks

As I say: back the horse, not the jocky.

Particularly when one jocky’s carrying a kitchen sink.

But doesn’t this SWF story come around every few months?

it does

Not sure it tells us much that’s new, beyond RBS remains in rehabilitation and/or denial.

finally on the banks

did you see the story in the Daily Tel

about Barclays

Barclays PLC (BARC:LSE): Last: 263.60, down 1.9 (-0.72%), High: 265.25, Low: 261.25, Volume: 6.63m

further confirmation

that Barclays has to set up Protium

because the staff were threatening to leave

and only they knew

how to value the toxic rubbish Barclays had bought

Classy.

yes

nothing like running a public business

for the employees

anyway that’s investment banking for your

here’s some comment

from Seymour Pierce

Telegraph reports that the SEC was about to close down the Barclays Protium vehicle, before the bank itself pulled the plug. The article also confirms the reason for constructing the Cayman Island vehicle was not as originally claimed to reduce volatility in short term market values. Instead the Finance Director wrote to the SEC that Barclays could not offer “an attractive long-term career path. There was, therefore, a very significant risk the team would leave, with the result that Barclays would no longer have the expertise necessary to manage these assets effectively.” Instead the 80 bankers made $140m for 19 months work according to the Telegraph.

According to Nicholas Shaxson (author of the book Treasure Islands), Barclays had over 300 subsidiaries in offshore tax havens as of April 2009. Through the cycle we believe this opaque activity does not generate value for shareholders. We wonder whether “offshore” is Barclay’s equivalent of Payment Protection Insurance: apparently clever and profitable at the time, eventually though, regulators catch up and the bank’s brand is damaged.

Meanwhile Lloyds new Chief Exec has trailed the upcoming strategy day on the 30th June. He has suggested that the review would not be as radical as some (including us) had hoped. He has damped expectations of a sale of Scottish Widows or shake up of the Wholesale division. Instead there will be a focus on costs and a more customer focused strategy.

that was from

Bruce Packard

and this is a great line

We wonder whether “offshore” is Barclay’s equivalent of Payment Protection Insurance: apparently clever and profitable at the time, eventually though, regulators catch up and the bank’s brand is damaged.

Hm. Indeed.

Ok – are we all done with banks?

I think so

11:35AM

where now

fancy a bit of mining

Certainly.

(FTSE 100 now up on the day — just)

OK then

Xstrata PLC (XTA:LSE): Last: 1,355, down 9 (-0.66%), High: 1,360, Low: 1,340, Volume: 4.50m

(By 0.01%)

Hochschild Mining Plc (HOC:LSE): Last: 506.50, down 40 (-7.32%), High: 546.73, Low: 505.00, Volume: 259.50k

so both companies

have assets in Peru

and there was an election over the weekend

and the result

isn’t that good for the miners

So Humala’s a lefty

Ollanta Humala

exceeded 52% of the vote

that could make him President

now the market wasn’t completely expected that

and according to RBC

Peruvian assets could now come under pressure

Initial results for Peru’s presidential elections suggest that Ollanta Humala has exceeded 52% of the vote, making him Peru’s likely next president. We don’t believe the market was fully positioned for an Humala victory, and we would expect Peruvian assets to come under pressure. In addition, we expect uncertainty to remain in place as the market assesses how “real” Humala’s moderation is.
Key policy topics to monitor include:

1) Who Humala backs in the ongoing conflict between foreign mining companies and the indigenous population.
2) Whether Humala plans to go ahead with the pension fund nationalization (it was initially in his government plan, but he backtracked in the second round).
3) Mining royalties.
4) Humala’s stance regarding the ongoing integration of the Chilean, Colombia, Peruvian, Panamanian, and Mexican economies and stock markets.

and in a little more detail

here’s Liberum on the election results

In Sunday night’s Peruvian presidential election results, left leaning candidate Ollanta Humala claimed victory with 51.5%, though the result is yet to be confirmed. Humala’s campaign has included a pledge to increase Peru’s income from its natural resources sector, with windfall taxes on mining profits and reduced exportation of natural gas. The most exposed of the miners to Peru are Xstrata and Hochschild and we expect a period of underperformance until the fiscal implications are clearer; Peru accounted for 4.5% of Xstrata’s EBITDA in 2010 increasing to 14% in 2015. Peru is the vast majority of Hochschild’s EBITDA and growth. Whilst we consider outright nationalisation or an empowerment scheme to be highly unlikely, Peru accounts for most of Xstrata’s copper growth in the next 5 years; we estimate Xstrata’s production growth to 2015 falls from +45% to 26% ex-Peru.

there we go

windfall taxes on mining

We believe the most likely worst case scenarios is increased taxation but do not expect the fiscal situation to become clear for weeks at least. We estimate that a doubling in Peru’s royalty rate and a 40% windfall tax (as threatened) would reduce Xstrata’s EPS by 10% and 13% in 2012 and 2013 respectively. The current fiscal regime is: 30% corporate tax, 3% royalty, 8% employee profit share and a 3.75% PBT voluntary. The other major with exposure to Peru is Anglo American, which has zero earnings currently coming from the country but has c.250kt of copper growth in-country post 2015.

We also expect Humala’s win to be bullish in the short term for copper prices; Peru currently accounts for c.8% of world copper mine production. Major new projects come on stream include Las Bambas (Xstrata), Toromocho (Chinalco), and El Galeno (Minmetals). Negative post election legislation may impact the country’s investability. We see non-Peruvian copper names outperforming and highlight Kazakhmys as our preferred name of the London listed pure-plays.

and talking of

Kazakhmys PLC (KAZ:LSE): Last: 1,276, up 13 (+1.03%), High: 1,276, Low: 1,257, Volume: 417.32k

i think there’s a bit of RAW around in them today

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.

Go on. There’s been a bit of chatter on Kaz and its estranged cousin ENRC for some months.

Believe it or not KAZ is the cheapest miner world wide. – Sure the naysayers point to this weekend’s Peruvian election & the possibility of doubled royalties & a 40% windfall tax, but then maybe Mr Humala will be reminded who’s the major employer in the Inca Copper belt & it is this area that is still growing. – For copper itself, inventories have stopped rising & we are hearing that the Q1 slack is now not present. – Then there is the deal possibility: 1) KAZ have long rumoured to want to sell their 26% in ENRC which would be mkt cap transforming 2) Both XTA & now latterly GLEN would also like to own these Peruvian assets. XTA & AAL HAVE copper, but not in this region & certainly not with this particular $ peg currency advantage.

still in the mining sector

I guess we should look at Glencore

Glencore International PLC (GLEN:LSE): Last: 517.80, up 12.8 (+2.53%), High: 518.50, Low: 504.00, Volume: 6.67m

not sure if this was discussed on Friday’s show

but the chairman Simom Murray

is on the board of Sino Forest

this Chinese company accused of a massive fraud

have you been following this

$4company

Not closely, no.

Brief recap?

(Outlaw – no because it’s not listed)

gawd there’s too much to go into

but safe to say

this could be the biggest Chinese reverse takeover scandal yet

actually Felix Salmon had a good wrap

have a look and get up to speed

f you want to move a stock with a research report, you can hardly hope to do better than Muddy Waters did with its 39-page report claiming that Sino-Forest Corp is a Ponzi. The report came out on Thursday afternoon; after falling to $14.46 and then being suspended on the Toronto Stock Exchange, it reopened Friday at just $5.

Muddy Waters, of course, reckons Sino-Forest is still a massive short at this levels, with the stock being worthless. But the market clearly thinks highly of the firm’s report, all the same.

I’ve spent a good chunk of this evening reading the report, or trying to — it’s not easy going. Muddy Waters has obviously done a great deal of research into Sino-Forest, and seems to have found some extremely suspicious activity. But there’s large chunks of the report I have a lot of difficulty understanding, and if I was a market participant trying to understand what was going on here, I’d certainly welcome some journalistic help in explaining what exactly Muddy Waters is saying and how credible they are.

I’d love to see a lot more detail here. If Kelertas thinks that the Muddy Waters allegations are false, he must have some kind of rebuttal to them — something which at the very least could help frame the debate or raise questions for Muddy Waters to answer. On the Toronto Stock Exchange today, volume in Sino-Forest exceeded $200 million, which means that there’s real money out there buying the stock at these levels.

What’s certain is that in the wake of all this, either Sino-Forest or Muddy Waters is going to lose all credibility: one of them is a multi-million-dollar fraud. Muddy Waters is short Sino-Forest, of course. If Sino-Forest turns out to be a slightly dodgy Chinese forestry company and not a Ponzi scheme, you can be sure that Muddy Waters has been covering its short all day and has banked a huge amount of money by putting out extremely misleading material. On the other hand, if Muddy Waters is right, then Sino-Forest is toast.

Now

Salmon is right to say the report is a difficult to read

bits of it are not in what I would recognise as english

still it’s fascinating

and if Muddy Waters are right

Glencore investors

are going to ask further questions about Murray

Interesting. Curious.

However, we’ve not explained the equally curious Glencore share price.

IE. it’s up.

Why?

one of the bookrunners on the IPO has said buy

not sure that’s why they are really up

bit it’s good enough for me

Glencore {Ticker: GLEN.L, Closing Price: 505.00 GBp, Target Price: 650.00 GBp, Recommendation: Buy}
Under-valued and misunderstood

The combination of a growing producing base and a successful trading business means that Glencore is different to the diversified miners. The company is able to generate profits all along the commodity value chain, benefitting from rising prices, growing trade and increased volatility. The stock is currently being valued as a diversified miner, at a discount to BHP Billiton and its commodity trading peer group. We believe the stock will re-rate as the market gains more confidence in the sustainability of this business. BUY

Our price target is based on a post money sum-of-the-parts methodology to which we apply a 15% corporate holding discount. We allow for full conversion of the bonds, and the acquisition of 40.3% of Kazzinc. We apply a WACC of 11% for the Industrial assets cashflows and a WACC of 5.2% for the commodity marketing business. We value the listed assets (UC Rusal, Nyrstar and Xstrata) at the DB price targets. Three key downside risks are exposure to politically regions, such as the Democratic Republic of Congo (DRC), limited experience versus mining peers in building new capacity and transformational risk in moving to a more asset heavy business model.

(Yes GB and he made further comment on Salmon’s post)

11:47AM

Right then

time to go shopping

did you use the voucher at the weekend, Bryce?

Which voucher would that be then?

come on

don’t be shy

we all know you were there

claiming 20% off a new t-shirt and hoodie

the Westfield branch wasn’t it?

Ok – you’ve got me.

Supergroup PLC (SGP:LSE): Last: 992.50, down 44.5 (-4.29%), High: 1,048, Low: 976.50, Volume: 358.75k

It must be this new distressed cotton suit I’m wearing

they had their first ever sale at the weekend

With Japanese nonsense down the sleeves.

20% off for registered internet users

Against previous policy, right?

They don’t discount.

they do now

So – what does this mean?

Anything?

well I think it means

they either have too much stock

or not enough of the right stock

and are trying to shift it

alternatively

the brand has finally reached saturation point

and they are having to discosunt

but that’s just me

and what do i know

most of the analysts that follow the stock remain positive

have a look

Rewarding internet customers: The promotion is apparently being run as a ‘one-off’
event to reward internet customers and, presumably, encourage online shoppers into
store. It is worth noting that one of the reasons for the Q4 slowdown was cited as being
the non-repetition of several student promotions last year, suggesting that, at least in
part, the activity has been shifted between quarters

Stock risk mitigated by perennial product and new stores: After the soft Q4
performance, followed by some tougher trading across the High Street in recent weeks,
we would have expected stock levels to be running ahead of budget. However, we
understand that any overstock is not severe, and is mitigated considerably by the
perennial nature of the product; only around 25% of products are seasonal and, with
new stores continuing to open, the bulk of stock should be dealt with.

and here’s Seymour Pierce

who are not worried either

On Friday, SuperGroup announced a one off limited promotion for the benefit of registered internet users – 20% off all Superdry products if the user prints off a voucher and redeems it in the store. It aims to reward internet users – a similar strategy successfully adopted in the past to reward student union customers. This action, in our view, should not be seen as a change in strategy and not in anyway a change in policy re discounting.

I’m not sure why

it’s not a change in strategy

but there we go

We remain comfortable with our FY11 pre-tax profit forecast of £48.5m (EPS of 47.1p), +83% against the previous year, and our FY12 pre-tax profit forecast of £66.5m (EPS of 63.4p) even though the company is up against difficult comparatives in Q1. The stock based on our forecasts is now rated at 22.0x FY11 earnings declining to 16.4x in the following year and, in our view, is oversold having declined by 30% over the last month since final quarter trading update. It now, unjustifiably, has a similar rating to Ted Baker, which is valued at 17.2x 2011 annualised earnings. In addition, the fact that UK earnings are already about double those of Asos indicates to us the size of the overseas opportunity compared with Asos. International expansion and the internet, which we believe will be talked about in detail at the analysts meeting on June 20th, are both at early stages of development. We reiterate our Buy recommendation with a price target of 2,000p.

Hm. To my inexpert eye, the high street looks quite aggressive at the mo.

I will make one prediction – this stock is not going to £20

neck on the block time

Debs and House of Fraser have both pulled forward summer sales.

Seems to me Superdry’s one of those brands in the squeezed middle.

Not lux, not cheap.

and now on sale

And that’s even before it loses its cachet, which brands inevitably do.

right

final word on this topic

from Nick Bubb

at Arden

Poor old SuperGroup has been massively de-rated, to allow for the risk that the brand has lost its edge, so that it is now trading on under 15x the current year, even though it should still be growing EPS at least as fast as ASOS. But the bears got very excited on Friday about the news that Online customers of Superdry got a voucher for 20% off everything in-store at the weekend, despite the long-standing policy of not discounting. Needless to say, the stores weren’t offering 20% off to everybody, but the lines are getting a bit blurred and Superdry will need to make sure that its policy of growing Online sales with lots of customer promotions and deals doesn’t cannibalise the Retail business. We look forward to hearing more about this Online growth impact at the Analysts Day in Cheltenham on 20 June and still hope that SGP have some good news saved up for this event.

ah yes

the analyst day

three weeks ahead of results

which is slightly odd timing

Ok – anything else among the retailers I may have missed?

just this

ASOS staff toast their success with early finishes and a free bar
It used to be called ‘As Seen On Screen’, but perhaps ‘A Shot Of Sambucca’ would be more appropriate.

Staff at ASOS.com, the online retailer and a recent stock market darling, have been told that they can leave the office early on Fridays until the Autumn. They are also being given a free bar in the staff canteen on the last Friday of every month.
Shares in ASOS have risen by over 500pc over the last two years, although they wobbled last week on fears that the company is overvalued. However, the retailer’s management has introduced ‘summer hours’ as a sign of gratitude to the workforce.
Until September, employees at ASOS’s Mornington Crescent HQ will be able to leave work at 3pm on a Friday.

ASOS PLC (ASC:LSE): Last: 2,070, up 69 (+3.45%), High: 2,092, Low: 1,989, Volume: 371.50k

free bar

and they can leave early on Friday

that’s the power of this social media internet thing

Table football and beanbags in the lobby.

The social media equivalent of a fountain.

certainly beats our Thursday cake trolley

which er has two cakes

(TFT1: well played. You win this round.)

for around 40 people

and to make matters worse

it’s sourced from

Ocado Group PLC (OCDO:LSE): Last: 218.80, down 3.2 (-1.44%), High: 223.10, Low: 217.50, Volume: 374.90k

That makes us sound awfully ungrateful.

and is sourced from

People bring us cake, frcrissakes.

It’s hardly the workhouse.

it does

we are of course grateful

let’s move on

before this blows up in our face

12:02PM

Right then

on the FTSE stuff

here’s the latest I have

from my index man

nothing in the FTSE 100

Tate & Lyle is the largest 250 Index stock but not quite large enough to go into the 100 Index

Diploma is the largest Small Cap at present but not quite large enough to go a into the 250 Index

No change in the blues? How dull.

Name Ticker Inv Wgt % Shares M Mkt Cap£M Liquidity
Promotions to FTSE 100 from 250
NONE
Deletions to FTSE250 from 100
NONE
New Issues intoFTSE 250
New World Resources NWR 40 259.5494 2361.8999 ??
Perform Group

New World could be worth watching

Promotions from Small Cap to FTSE250
NONE
Deletions fromFTSE 250 to Small Cap
Anglo Pacific Group APF 100 107.9844 322.3335 PASS
Helical Bar

New Issues into Small cap
NB Global Floating Rate Income Fund (GBP) NBLS 100 225.6964 231.9031 PASS
NB Global Floating Rate Income Fund (USD) NBLU 100 137.3127 86.0677 FAIL
Ashmore Global Opportunities AGOL 100 21.25391 171.0940 PASS
Ashmore Global Opportunities (USD) AGOU 100 21.43313 107.0145 PASS
Ashmore Global Opportunities (EUR) AGOE 100 5.068889 35.9325 FAIL
Lonrho LONR 100 1298.614 214.2714 PASS
Blackrock Frontiers Investment Trust BRFI 100 94.76627 88.1326 PASS
Henderson Diversified Income

look like it could be one of the most boring

index reshuffles of recent years

Can’t remember a time when we had no changes in the top two indexes.

It’s interestingly dull.

New World Resources PLC (NWR:LSE): Last: 892.50, up 2.5 (+0.28%), High: 900.00, Low: 886.00, Volume: 35.53k

that could get a bit squeezy though

Yup. Underowned.

12:05PM

someone was asking about

Pursuit Dynamics PLC (PDX:LSE): Last: 403.50, up 13.5 (+3.46%), High: 420.00, Low: 385.00, Volume: 704.13k

apparently

some broker has started coverage today with a £18 target price

there’s also talk

and this is very very very very RAW

that someone wants to inject cash at 500p a share

and there’s also a big decontamination deal coming

(@Swedes: interesting thought. We could call it the puffcaps.)

and in other RAW

Tiffany

hearing bid rumours

Richemont

and PE being mentioned

Sounds familiar, that.

yes

I’m sure we have been here before

Swatch was mooted as a buyer of Tffany’s US business last year.

this rumour

is of a bid for the whole thing

anyway

might have some more on this later

12:09PM

Ok – question on the right about Aegis

Aegis Group PLC (AGS:LSE): Last: 150.40, up 9.2 (+6.52%), High: 152.33, Low: 149.89, Volume: 8.35m

On the news it’s looking to flog Synovate

The market research bit

Leaving it a tidier takeover target for Publicis

Or am I getting ahead of myself here?

that’s the read across

this business goes

and the rest gets gobbled up

Been on the cards, I guess.

Aegis’s CEO came from the other side of the business.

And it was always trickier to identify buyers for market research than ad sales.

As is, assuming this deal completes, it’d leave Aegis with a lot of cash and not much to do with it.

yes

Can’t really give it back to shareholders, as it’s a growth company.

So – a big acquisition, I suppose.

Or a sale.

Anyone done any breakup valuations this morning?

hang on

here’s something from Altium

Given that Synovate generates c. 36% of total revenue this would be a radical move for AGS, although it has long been recognised that there is little or no synergy between Synovate and the larger Aegis Media business. Synovate is also lower margin and although a high quality business with attractive medium term prospects is, in our view, the less well understood part of the group, a factor which we believe may have exerted a drag on its overall valuation. A price tag of £500m has been suggested in the press which we estimate would equate to c.0.9x / c.11x current year revenue / underlying operating profit respectively. Press comment suggests that other parties may also be interested with this morning’s announcement likely to force their hand.

Whilst there can be no certainty that an agreement will be reached, we believe this morning’s news will be taken well. Resultant cash would substantially enhance the group’s ability to pursue its strategic goal of internationalising (particularly expanding into emerging markets). However, perhaps more significantly we believe this news will effectively place the group in play as a take out and / or break-up candidate with Groupe Bollore’s c.26% stake a potential stepping stone in this process. We reiterate our Buy recommendation and believe the group’s stock offers attractive value with or without the presence of bid speculation.

and here’s Liberum

Aegis this morning confirmed it is in talks to sell its market research business,
Synovate, to global market research firm Ipsos (NR). We think other potential
bidders could emerge. The announcement of these talks, plus the questions it
raises over Aegis’ future, are likely to mean the stock outperforms its agency
peers over the short-term, especially given the recent uncertain economic
newsflow. Reiterate Buy and 165p fair value

Do we think Synovate will be sold (depending, of course, on price)? Yes: Aegis’
CEO, Jerry Buhlmann, is a media man (he was CEO of Aegis Media prebecoming
CEO of Aegis Media) and the two businesses have always sat
awkwardly together as there are few synergies. A sale of Synovate has been
mooted by analysts and, while Aegis has always said Synovate is a core
business, there has always been the feeling that it would make sense to sell.

Could other bidders emerge? Yes: both Ipsos and its German-listed peer GFK
(NR) need to build up scale. GFK previously bid for TNS before it was bought by
WPP and has said it would look at Synovate if it came up for sale. Both should
have the financial capability to do a deal, especially given the favourability of the
GBP-EUR exchange rate.

Is the speculated £500m a good price? Yes: it equates to 11x 2010 EBITA preallocation
of central costs, which is a good price for a business that makes c. 8%
margins. WPP bought TNS back in 2008 for c. 14x 07 EBITA (including TNS’
central costs) but TNS had higher margins at 10.5% (in 07).

Would WPP bid for Synovate? Unlikely: not only are there potential market share
issues but we just do not see Synovate, with its heavy weighting towards custom
research, as a business that WPP feels as though it needs to buy, especially
given it is keen to emphasise its move away from big acquisitions. Strategically, a
deal would not make sense: the integration of TNS has not happened as quickly
as they planned so adding another integration effort on top would be a burden.
And with Market Research already at c. 25% of group revenues and already
acting as a drag on organic revenue growth and margins, we do not see any
reason why WPP would want to increase its exposure to the area.

What would Aegis do with the cash? There are several options: pay down debt;
hand the cash back; or make a big acquisition. They could pay down debt but
they only had £331m of net debt at YE10 and cash interest rates are low so there
would be the risk of dilution. We do not think they will return the cash to
shareholders as, essentially, it sends a signal they cannot find any good
investments and are a sitting target (though see below). Our thoughts are they
look to make a big acquisition, with the focus on digital, where the other major
groups have made major deals and where Aegis is likely to want to strengthen its
offering.

Good note, that one.

apologies that’s long

but the best round up I have seen

That’s Ian Whittaker

Who’s also done a breakup price.

Assuming the £500m disposal price for Synovate is correct, we
estimate that a sale of the remaining part of Aegis (i.e. the media arm) at a mid-point multiple range would
equate to a share price range of 165p, in line with our DCF.

Putting a multiple valuation on the media business is somewhat tricky: there have been few (if any) sizeable
transactions in the space in recent years. However, given (a) media buying and planning is the one business
that benefits definitely from scale (b) it is also the highest margin part of an agency’s business overall (at Aegis,
research makes 8% margins, media 18.6%, both pre-central costs) and (c) Aegis has a well-established
position in Western Europe, we see a multiple of 12-14x 2010 EBITA pre-central costs as credible, especially if
the lower margin research business goes for c. 11x EBITA, as speculated.

At these multiples for media – and assuming a £500m valuation for the research business – a mid-point of 13x
EBITA for the media business would mean Aegis would be worth 165p (including an adjustment for deferred
consideration). However, at a 15x multiple for the media business, Aegis could be worth up to c. 190p.

Anyway – that’s enough of that.

yes

done that one to death

12:17PM

Right we have some breaking news on Sino Forest

the company have responded

and this looks like it could get ugly

and of course

fun for us

Chairman of Sino-Forest, Mr. Allen Chan, commented:

It is important people recognize the motivations of Muddy Waters, because it
is they who deliberately muddy the waters, not us. This is a company that has
taken out a major short position in our company and then issued a report
designed to make them money by the decline of our stock. By now they might be
out of their short position and in the money. It is the rest of us that lick
our wounds, while they lick their lips. I believe their report to be
defamatory and I am confident that the Independent Committee’s report will
demonstrate that.”

they are also thinking of taking legal action

Legal recourse Given the deeply damaging nature of Muddy Waters’
self-interested attack on the Company and its shareholders, the Company is
considering its legal remedies against Muddy Waters and its principals.
Further, the Company intends to ask the securities regulators in Canada and in
other jurisdictions to investigate the trading activities conducted by Muddy
Waters.

analysts are also being invited to see the trees

Analyst tour The Company will be inviting analysts to join management on a
tour of the Company’s plantations in July 2011, with details to follow. The
analysts will be invited to suggest specific locations for the tour, and for
each plantation visited, the Company will present GPS references and the
ownership documents.

but it won’t be buying back stock

Share buy-back The Company has heard from many investors encouraging it to buy
back shares given the current prices. The Company has been advised by counsel
that it and its directors and officers are precluded from purchasing stock in
the current circumstances.

He has a colourful turn of phrase, Mr Allen Chan.

yes

I’m not sure that addresses all, or indeed any, of the points in the research.

quite

and he’s say they have covered the short position

actually

a whole load of docs have been published

A signed copy of the master (framework) agreement (in Chinese) for Lincang
City and surrounding areas in the Yunnan Province (together with a version
translated to English for ease of reference) pursuant to which individual
purchase contracts are then entered into;

A summary schedule, as at December 31, 2010, showing the 186,700 hectares
of purchased plantations in cities of Yunnan province such as Lincang,
Lijiang and Pu’er;

Signed copies of contracts relating to the acquisition of plantations in
Gengma county of Lincang City and Ninglang county of Lijiang City,
together with examples of the applicable plantation rights certifications
or confirmations from the relevant government forestry bureau (as
described in the AIF extract below). English translations will be also
posted for ease of reference. Such contracts have been made available, at
individual contract level with accompanying government confirmations, to
the Company’s auditors as part of its annual audit process for numerous
years; and

An extract from the Company’s annual information form (AIF) for the year
ended December 31, 2010 describing the nature of the Company’s ownership
interests in purchased plantations.

they aren’t going down without a fight

12:21PM

Right a few things to finish on

International Consolidated Airlines Group SA (IAG:LSE): Last: 232.50, down 4.2 (-1.77%), High: 235.90, Low: 231.90, Volume: 2.02m

been whacked by this

Airline Industry 2011 Profit Outlook Slashed to $4 Billion
High Oil Prices, Natural Disasters, and Political Unrest Take Their Toll

Singapore -The International Air Transport Association (IATA) further downgraded its 2011 airline industry profit forecast to $4 billion. This would be a 54% fall compared with the $8.6 billion profit forecast in March and a 78% drop compared with the $18 billion net profit (revised from $16 billion) recorded in 2010. On expected revenues of $598 billion, a $4 billion profit equates to a 0.7% margin

Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations to $4 billion this year. That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance. The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel. But with a dismal 0.7% margin, there is little buffer left against further shocks,” said Giovanni Bisignani, IATA’s Director General and CEO.

(Mextor flashes pls)

Flew BA twice last week. Load factor ~60%.

wow

short or long haul?

Short haul.

So, possibly not a fair bit of anecdotal evidence.

But it was the first time in a long time I remember it being three people per six seats.

And Club Class empty.

Anyway, anything else before we round up?

couple of things

Citi are pushing IMI today

IMI PLC (IMI:LSE): Last: 1,039, up 18 (+1.76%), High: 1,048, Low: 1,017, Volume: 456.41k

and also

these flashes

for those eco watchers among us

RTRS-FED’S PLOSSER SAYS JOBS REPORT WAS DISAPPOINTING BUT MEDIUM-TERM FUNDAMENTAL VIEW UNCHANGED
10:31 06Jun11 RTRS-FED’S PLOSSER SAYS SEES GRADUAL RECOVERY IN U.S. ECONOMY
10:32 06Jun11 RTRS-FED’S PLOSSER SAYS SOMEWHAT TIGHTER POLICY POSSIBLE BY END OF YEAR
10:33 06Jun11 RTRS-FED’S PLOSSER SAYS HURDLE FOR A “QE3″ WOULD BE VERY HIGH

No QE3

in spite of the weak US economy

“Somewhat tighter policy” possible by end 2011? Really?

surprising comment that

but I guess

another round of QE

wouldn’t really give the junkie that much of a hit

Right

I think we are done

unless you have anything else bryce?

Nope – I’m not feeling ML match-fit after a mere week’s break.

Have a lot of reading in to do this lunchtime.

So let’s bid farewell.

let’s

Thanks, ROTR, for all your comments.

Hope to see you again tomorrow.

(Thanks TL)

This entry was posted by Neil Hume on Monday, June 6th, 2011 at 11:03 and is filed under Uncategorized. Edit this entry.

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Markets Live transcript 6 Jun 2011

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