Markets Live chat transcript for the chat ending at 11:14 on 15 Jun 2011. Participants in this chat were: Neil Hume, FT bryce.elder
NH
Hola Rabble
NH
sorry for being late
NH
couldn’t get the system to work
NH
and I was looking at this
NH
RTRS-EFSF 10-YEAR ATTRACTS 8BN EUROS OF DEMAND AT MID-SWAPS PLUS 17BP, BOOK CLOSING AT 1030 GMT -LEAD
NH
the latest bailout bond
NH
Right then
NH
let’s move on
NH
and hello to Mr Barnett
NH
we have been discussing that story in the newsroom
NH
guy gamed an algo
NH
at a spread betting company
NH
that didn’t realise he’d been doing it for over a year
NH
and then he gets the book thrown at him
NH
by the FSA
BE
Is this market abuse?
BE
I’m not entirely sure.
NH
quite clever
NH
certainly
BE
Exploiting a weakness in the system.
NH
if you missed the story
NH
A UK day trader has been fined £700,000 ($1.1m) for market abuse – the fourth-largest such fine for an individual – for manipulating the price of spread bets linked to shares on the London Stock Exchange.
As part of his settlement with the Financial Services Authority, Barnett Alexander was also forced to give up the £629,000 in profits he netted during the 16-month scheme. A former private client stockbroker, Mr Alexander discovered he could influence the price of contracts for difference (CFD) and spread bets in his favour by placing small equities orders in the same FTSE 250 stocks. Mr Alexander in effect narrowed the spread with the small equities orders, placed large CFD orders and then closed out the position at a profit, according to the FSA final notice.
NH
Mr Alexander, who received a 30 per cent discount for settling early, told the Financial Times he did the bulk of his trading in the early morning, when spreads were widest. He said he had not intended to break the rules.
“If I had any dispute, it should have been with the spread betting firms. The FSA have bailed the spread betting firms out of trouble,” he said. “How does a private investor know when a trade is legitimate and when it is not? Everyone knows, don’t do insider trading and don’t ramp shares.”
BE
Neat.
BE
And I’m still not entirely sure of which rules he’s broken.
NH
Most of the trading occurred at City Index. The company said Mr Alexander was “abusing the City Index trading system, which gives our clients the benefit of extra liquidity when trading certain equity markets … [and] which the majority of our clients use appropriately and within the law”.
BE
You can’t “abuse” City Index’s trading system.
BE
You can just exploit where it’s not been built properly.
BE
I’m still not sure about throwing around phrases like “within the law” either.
BE
He’s not faced a jury.
BE
He’s not been criminally convicted of anything.
NH
well
NH
if he’s been done
NH
then surely the same rules must be applied to the robots
NH
shut down the trading robots
BE
Well, quite.
BE
An identical form of “abuse”, surely.
NH
but hang on a moment
NH
they provide liquidity
NH
they are a force for good
BE
They’re a force, undoubtedly.
NH
(@Barney – yes that was the main point of the FSA’s case. And they have a point(
BE
Removing the bots would remove, what, 50% of daily volume? 70%?
BE
Anyway, I see he’s going down the Nick Leeson path to reclaim some of his losses.
NH
oh yes
NH
after dinner speaker
NH
trading guru
BE
A trader who has been banned from working in the City for five years – and has had to pay £1.3m in fines and other penalties imposed by the Financial Services Authority – wants to train would-be traders and talk about his “exploits”.
NH
like Anton Kriel!
BE
Well, not too much like Anton Kreil hopefully.
BE
The man who saved Goldman Sachs by shorting BA on September 11.
BE
He says.
BE
So should we move on to the markets portion of today’s show?
NH
I guess we should
11:15AM
NH
In spite of Wall Street’s overnight gains
NH
and a good display in Asia
NH
we are down
NH
FTSE 100 off 16 points at 5,787
NH
with Glencore the biggest faller
Glencore International PLC (GLEN:LSE): Last: 484.95, down 15.05 (-3.01%), High: 495.00, Low: 482.80, Volume: 7.81m
NH
has the curse of the UK IPO struck again
BE
Ouch. 485p.
BE
There must be a lot of embarrased bookrunners out there.
BE
Or perhaps there isn’t, and that’s part of the problem.
NH
I guess said bookrunners
NH
are putting through big downgrades
NH
on the back of yesterday’s results
NH
but as they are all under a research blackout
NH
we don’t get to see them
NH
and once again
NH
we get back to this issue of pricing
NH
everything seems to be overprices on flotation
NH
and then go one way
BE
Yup – the idea of leaving a bit on the table seems to have disappeared.
BE
Perhaps that reflects the kind of floats we’re getting right now.
NH
amazingly there’s an outfit called STJ Partners
NH
going round the City telling people
NH
that banks are actually under pricing IPO’s
NH
and they have a presentation to prove it
NH
which strikes me as totally bonkers
NH
can you think of one UK IPO that’s been even close
NH
to reasonably valued?
Ocado Group PLC (OCDO:LSE): Last: 223.00, up 3.3 (+1.50%), High: 223.90, Low: 219.70, Volume: 57.34k
Betfair Group PLC (BET:LSE): Last: 846.00, down 9.5 (-1.11%), High: 860.50, Low: 836.50, Volume: 65.43k
NH
GLEn:LSE
BE
Well, Webvan’s trading above.
BE
After some time trading well below.
NH
yeah
NH
that can only be explained by the fact there’s a dotcom bubble
NH
dot.com bubble 2.0
NH
there can’t be many rational people who think it was good value on IPO
BE
And £5 for Supergroup looked a less insane price than £16, or whatever it got up to.
Supergroup PLC (SGP:LSE): Last: 826.00, down 49 (-5.60%), High: 880.50, Low: 826.00, Volume: 82.13k
NH
crikey
NH
it will be back at 500p before long
BE
FCUK 2.0.
NH
perhaps SuperGroup was the exception that proved the rule
NH
right
NH
back to Glencore for a moment
NH
I’m slightly surprised
Xstrata PLC (XTA:LSE): Last: 1,290, down 3.5 (-0.27%), High: 1,311, Low: 1,283, Volume: 4.43m
NH
aren’t down more
NH
to read across from yesterday’s results from Glencore aren’t good
BE
Well, there’s considerable confusion
NH
downgrades of 20% apparently
NH
The bottom line is we (and consensus) are definitely too high at c.$3.9bn net for 1H, primarily driven by coal pricing ($103/t vs. spot at c.$119/t), weak production (Q2 production ‘disappointing so far’), ZAR and AUD strength, and cost pressures in SA (Alloys earnings ‘way below’ what people are forecasting and costs ‘through the roof’). In short our own numbers are quite a bit too high, and the number you saw in Glencore’s results this morning is, without a doubt, bad. Now speaking to Glencore there is at least a small positive for XTA in that some losses offset the overall reported associate income figure (e.g. Mutanda), but when I said to XTA the figure implies downgrades of up to 20% (from the top end of consensus), they did not push back on that at all. In the last 28 days BBerg consensus has come down to c.$3.8bn for H1 (from c.$4.1bn), but I think consensus goes lower, more like $3.5bn.
NH
and this
NH
So aside from the correction yesterday, & luckily most of you covered/hedged at £13, the ‘big elephant in the room’ question remains; yet curiously neither the regulator or the mkt wants to acknowledge its presence… 1) Should not the companies have to publish results on the same day. Otherwise we get an unofficial disclosure from Glencore on Xstrata’s performance. 2) As GLEN is a ‘trader’ on all assets (including stocks), is their very prescence a contradiction to the ‘priveledged’ information rule. That poor guy that got fined yesterday just figured out an Algo. Here, GLEN pretty much owns XTA’s distribution lines & visa versa. 3) Just as an aside GLEN saw this China slowdown in commods coming 6 mths out, gets itself listed, & then on its maiden results announces they are seeing a slowdown in the biggest buyer of resources in the history of the world!Fishy. 4) So where’s the trade? GLEN will finally have to buy XTA. David wants £20. Ivan’s having too much fun buying small fry for the moment; but the 2 are umbilically linked. Meanwhile the Regulator instead of chasing minnows must address this massive issue of the pair of them & the imnplicit advantage both have on each other’s figs.
BE
Interesting, if true.
BE
Though a downgrade of 20% would really require some company guidance, surely.
BE
And there’s been none.
NH
one would imagine so
NH
perhaps there’s an explanation
NH
to do with seasonality
NH
whatever
NH
it needs clearing up
BE
Yeah – and it certainly needs clearing up before Q3, when Glencore will once more contradict a month-old trading statement from Xstrata.
BE
At best, it’s just not very tidy.
11:27AM
NH
Right then
NH
to the banks
NH
Mansion House speech tonight
NH
who is the sector doing?
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 41.09, down 0.46 (-1.11%), High: 41.67, Low: 40.78, Volume: 15.58m
Lloyds Banking Group plc (LLOY:LSE): Last: 48.28, down 0.275 (-0.57%), High: 48.44, Low: 47.86, Volume: 37.99m
Barclays PLC (BARC:LSE): Last: 260.95, down 3.6 (-1.36%), High: 263.40, Low: 258.55, Volume: 8.53m
HSBC Holdings PLC (HSBA:LSE): Last: 609.70, down 6.3 (-1.02%), High: 616.17, Low: 608.20, Volume: 11.16m
BE
So – following the market towards a small-down.
NH
hmm
NH
I suppose
NH
confirmation from the chancellor that we are heading for ringfencing
NH
of retail assets
NH
with a 10% capital need on RWA’s
NH
is not a massive surprise
NH
and it’s not a forced break up of the banks
NH
still
NH
Osborne is trying to spin things
NH
to be seen as being tough on the banks
NH
and this is really anything buy
BE
Yeah – I guess we’ll get more heat than light tonight.
NH
indeed
NH
right I have some interesting comment from Bruce Packard at Seymour Pierce on this
NH
George Osborne is to use his Mansion House speech to say that he will accept the ICB recommendation of ringfencing, according to all the newspaper headlines. Not really the big news it is touted to be. We believe the ICB recommended ringfencing rather than full structural change to the industry (favoured by the Governor of the Bank of England), because ringfencing had a much greater chance of being an acceptable “half way house” between doing nothing and full break ups.
NH
The implications for shareholders remain unclear. Much depends on whether capital markets believe that when (not if) the next crisis hits BarCap, RBS or HSBC GBM, will be allowed to fail. If they do believe these divisions will be allowed to fail, then in return for providing funding to investment banking divisions, they should impose much greater discipline on these divisions. If the idea works, it would make the whole sector more resilient in a crisis, and a more investable proposition for equity investors.
BE
Ta.
NH
oh and here’s Deutsche Bank
NH
With the ICB focussed on deposit subordination, we note reports that
Chancellor Osborne will endorse UK retail ring fencing in his Mansion House
speech tonight (FT: ‘Osborne backs high street bank firewalls’; 15 Jun 11).
No new information is provided on the parts of the ICB plan which are unclear
and matter most: (1) What is inside the fence; (2) Whether funding can
still be raised at group level and assigned to the retail/non‐retail subsidiary
groups, which would prove less expensive for the sector. We expect a
satisfactory resolution on both issues in time, and believe that share prices
of the UK domestic banks (Barc, LBG, RBS) discount the likely costs of ring
fencing. But, unavoidably, some residual uncertainty will remain until at least
when the ICB reports on 12 Sep. A required 10% core tier 1 ratio for retail
banking is consensus, and therefore moot in our view.
Chancellor Osborne will endorse UK retail ring fencing in his Mansion House
speech tonight (FT: ‘Osborne backs high street bank firewalls’; 15 Jun 11).
No new information is provided on the parts of the ICB plan which are unclear
and matter most: (1) What is inside the fence; (2) Whether funding can
still be raised at group level and assigned to the retail/non‐retail subsidiary
groups, which would prove less expensive for the sector. We expect a
satisfactory resolution on both issues in time, and believe that share prices
of the UK domestic banks (Barc, LBG, RBS) discount the likely costs of ring
fencing. But, unavoidably, some residual uncertainty will remain until at least
when the ICB reports on 12 Sep. A required 10% core tier 1 ratio for retail
banking is consensus, and therefore moot in our view.
BE
Oh, was just reading that.
BE
Relating to this story
NH
I like Packard’s point
NH
there’s no point ring fencing
NH
if you don’t make the risky banks
NH
have a big finish on their capital weightings
NH
at least 10%
NH
(Leonidas – that sort of misses the point. It was saving RBS and HBOS that cost this country a lot of money. not the other two)
BE
Ok – speech kicks off at 8.30pm
BE
A terrible time for newspapers
NH
yes
NH
not good
BE
And, to reiterate, the devil’s always in the detail so it’ll probably be a non event anyway.
BE
Back to movers, I feel.
11:35AM
NH
Time for a bit of retail woe then?
NH
and an upgrade
NH
NH
said last week
NH
the statement from Game Group would be poor
NH
and he was right
The Game Group PLC (GMG:LSE): Last: 40.00, down 5.25 (-11.60%), High: 43.00, Low: 39.00, Volume: 3.56m
NH
it is poor
NH
and once again the reason is that the low income demographic
NH
can’t afford those computer games
BE
(@reviedon: H1 consensus according to Bloomberg is $4.2bn.)
BE
Well, partly.
BE
We’re also at the back end of the upgrade cycle.
NH
true
BE
No new hardware until Nintendo launches its Wee Tea Tray.
BE
Which is the excuse the company’s dragging out.
NH
Game was yielding 14% before today’s fall
BE
Though, frankly, that should’ve been in the forecasts already.
BE
And – yes – either the price is wrong or the dividend forecast’s wrong.
NH
so is this another business in terminal decline because of the internet?
NH
another HMV?
BE
Um – possibly.
NH
I have to say
NH
the strategy annoucement
NH
alongside today’s results has not impressed anyone
NH
Nick Bubb at Arden called it guff
BE
Nice.
NH
and he has a point
NH
Multichannel: Our aim is to grow our market share significantly by joining up our ecommerce and high street operations. Our UK online market share is now 19%, up from 13% last year. We will move our game.co.uk website onto a new platform this summer.
NH
Strong customer relationships: Our aim is to have a direct relationship with every customer. 300,000 new customers have joined our loyalty schemes in the last 7 weeks, taking the total to 17.3 million. We will launch personalised campaigns to increase the number of “super users” (our highest spending customers)
NH
and so on
BE
I have a Game loyalty card.
NH
and
BE
Though I don’t have a console.
NH
how strong is your relationship?
NH
oh, you’ve answered that
BE
I’m one of those 17.3m people, I guess.
BE
Rather emphasising what a pointless statistic it is.
BE
So – downgrades?
NH
yeah
NH
the company was talking about a rise in sales
NH
now its a fall
NH
Here’s Bubb
NH
Game Group (move from Add to Neutral): Less jam today, more jam tomorrow? The most amazing thing about Game is that the shares yield nearly 13% at 45p, but of course the market is afraid that this will go the same way as HMV’s dividend, given the structural challenges in the games market. And beneath all the guff in today’s AGM update about Game’s strategy delivery the fact is that Game has delivered yet another profit warning today…
NH
Full year guidance has been shifted down from a small rise in total sales to a small fall in sales, after a poor start to the new-year (LFL sales running down 9.4% after 19 weeks) and their judgement that this autumn’s software line-up revealed at last week’s E3 games show is rather feeble
NH
Despite some cost-cutting, this sales shortfall will cause some damage to the bottom-line and ahead of the 8.30am conference call we are cutting our full year PBT forecast from £35m to £27m/£28m, which will deliver EPS of only about 5.8p. That only just covers the 5.8p dividend, but we think the divi will be held, given a reasonable balance sheet and hopes of an upturn in the games cycle next year. That prospect should underpin the shares at this level, but Game always promises jam tomorrow and we think it is right to downgrade our view on Game, and move down from Add to Neutral
BE
There’s no way Game’s jam tomorrow.
BE
None.
NH
want anymore on this
BE
Um – just glancing at Numis
NH
Seymour Pierce say sell it
NH
We have a Sell recommendation for the following reasons. 1) the lack of a fourth hardware cycle, 2) the limited number of real software blockbusters, because of the high cost of developing new games, 3) the disintermediation of the gaming market away from the physical box market to on-line platforms, which, we suspect, will become an issue for the specialists and 4) further competition from the supermarkets. Against this backdrop, we believe management’s new ‘Dedicated to Gaming’ strategy will not be enough to stimulate sustainable growth for the foreseeable future. There remains downside risk to forecasts as we believe management should be more aggressive about closing stores down and taking cost out of the business.
NH
Dedicated to Gaming
NH
Oh dear
NH
that’s rather lame
NH
(@Indeed Swedes)
BE
And a quick word from Numis, if only for the forecasts.
BE
Jan-12 PBT cut nearly 50%: With guidance around cost saves (£5-8m) and gross
margin (-100bp) reiterated, the sales shortfall drops straight through to bottom line. We
lower our Jan-12 group revenue forecast to -1.7%, reducing our PBT forecast from
£35.5m to £19.1m.
margin (-100bp) reiterated, the sales shortfall drops straight through to bottom line. We
lower our Jan-12 group revenue forecast to -1.7%, reducing our PBT forecast from
£35.5m to £19.1m.
BE
Progress on strategy and new consoles are positives: Game is starting to see
results from the implementation of its strategy, including market share gains and
improved online growth, and there were encouraging tones around the new consoles to
be released in 2012 (PS Vita, Wii U). For our part, while we acknowledge that these are
clear positives, we expect Vita to have a limited impact, with mobiles and tablets
weighing on sales of handheld gaming consoles, and doubt that Wii U will have the
mass appeal that Wii managed to achieve.
results from the implementation of its strategy, including market share gains and
improved online growth, and there were encouraging tones around the new consoles to
be released in 2012 (PS Vita, Wii U). For our part, while we acknowledge that these are
clear positives, we expect Vita to have a limited impact, with mobiles and tablets
weighing on sales of handheld gaming consoles, and doubt that Wii U will have the
mass appeal that Wii managed to achieve.
BE
But we remain negative: Although its strategic initiatives seem to be having an
impact, we reiterate our negative recommendation, believing that our two key structural
concerns (erosion of pre-owned margin and share of mint titles) will continue to play
out; even ignoring the longer-term threat of disintermediation, Game operates in a
horribly competitive space, and we would continue to avoid.
impact, we reiterate our negative recommendation, believing that our two key structural
concerns (erosion of pre-owned margin and share of mint titles) will continue to play
out; even ignoring the longer-term threat of disintermediation, Game operates in a
horribly competitive space, and we would continue to avoid.
BE
So, sub scale in a declining market.
NH
those downgrades are savage
BE
And management’s holding for the next upturn to reinvent its market.
BE
Which, by the time it arrives, may no longer exist.
BE
NH
yes
NH
risky strategy
NH
I’d suggest buying something
NH
a live events business perhaps
NH
to build the relationship
NH
oh wait
NH
that’s been tried
Hmv Group PLC (HMV:LSE): Last: 7.56, down 0.18 (-2.33%), High: 8.00, Low: 7.32, Volume: 4.83m
NH
right
NH
still in the retail sector
J Sainsbury PLC (SBRY:LSE): Last: 327.60, up 0.8 (+0.24%), High: 330.80, Low: 325.80, Volume: 2.77m
NH
what’s the great PR man Justin King
NH
been banging on about today?
NH
the great customer offering
NH
how many miles of bunting they sold for the Royal Wedding
NH
Despite the tough economic conditions our customers celebrated Easter, the Royal Wedding and the glorious weather in April, playing to our strength of supporting family occasions. We sold nearly 300 miles of bunting, 159,000 flags and 49,000 mugs. Hot cross bun sales increased 29 per cent and we sold the most champagne we have ever sold outside of Christmas.
NH
there we go
NH
playing to our strength of supporting family occasions
NH
WFT?
NH
it’s not a party planning outfit is it?
NH
and why were Hot Cross Bun sales so strong?
BE
Um ……..
BE
Perhaps they’re taking business from Greggs.
BE
I don’t know.
BE
And I don’t really care that much.
NH
yeah
NH
PR guff
NH
at least he wasn’t on Radio 4 this morning
NH
going on about it
NH
puts me in a really bad mood
BE
Well, the headlines aren’t actually that good.
BE
Sales up 1.9% like for like
NH
ex-Vat
BE
Which, given the late Easter and TEH WEDDING isn’t great.
NH
they are flat
NH
not much better than Tesco in fact
TESCO Plc (TSCO:LSE): Last: 407.05, down 0.25 (-0.06%), High: 407.25, Low: 404.00, Volume: 4.05m
NH
and Tesco
NH
has more non food
NH
and that performed very badly
NH
all told
NH
a pretty unimpressive set of numbers
NH
in spite of the Justin King spin
BE
Sainsbury says its clothing/non food kept growing, but that’s off a relatively low base.
BE
And they added 209,000 feet of floorspace
BE
!!!!!!
NH
don’t get me started on the expansion plans
NH
of the big 4 supermarkets
NH
madness
BE
Right – some comment then, I guess.
BE
Here’s Credit Suisse.
BE
Headline LFL (inc-VAT/exc-fuel) was 1.9% compared to our estimate of 2.0%,
Stripping-out VAT, exc-VAT/fuel LFL was around 1.0% (our estimate 1.2%,
Reuters consensus 1.3%). So, the key KPI is broadly in-line with expectations,
which should be well-received given Tesco’s very slight miss at this level
yesterday. Although Sainsbury’s Q1 started later than Tesco and so should
have benefitted more by not including most of weak March, it also ended later
and so included end-May/start-June where tough weather/World Cup comps
weighed. And, like for Tesco yesterday, cash sales growth was strong – adding
high fuel inflation/volume growth, inc-VAT/fuel LFL was 4.8%, and further
adding new space sales growth, Total Sales were +7.3% (our estimate 6.5%).
Stripping-out VAT, exc-VAT/fuel LFL was around 1.0% (our estimate 1.2%,
Reuters consensus 1.3%). So, the key KPI is broadly in-line with expectations,
which should be well-received given Tesco’s very slight miss at this level
yesterday. Although Sainsbury’s Q1 started later than Tesco and so should
have benefitted more by not including most of weak March, it also ended later
and so included end-May/start-June where tough weather/World Cup comps
weighed. And, like for Tesco yesterday, cash sales growth was strong – adding
high fuel inflation/volume growth, inc-VAT/fuel LFL was 4.8%, and further
adding new space sales growth, Total Sales were +7.3% (our estimate 6.5%).
BE
Within the detail, most components look robust – convenience and online
continue to grow at >20%, and non-food again grew faster than food albeit
market conditions are very tough. The outlook is cautious but unchanged – the
market “remains very competitive” and Sainsbury expects “this to be the case
throughout the year”. As such, we do not expect consensus revisions today.
continue to grow at >20%, and non-food again grew faster than food albeit
market conditions are very tough. The outlook is cautious but unchanged – the
market “remains very competitive” and Sainsbury expects “this to be the case
throughout the year”. As such, we do not expect consensus revisions today.
BE
Our view and valuation. The UK’s biggest two food retailers have now both
reported Q1 Total Sales growth of 7%. Although new space, fuel inflation, food
inflation and VAT wholly make up that growth (i.e there is no/negative volume
growth), we think Sainsbury and Tesco continue to ‘win’ from other less efficient
and responsive retailers. This bodes well should the UK consumer environment
finally begin to improve slightly. Most important will be easing fuel inflation,
which would free-up non-discretionary food spend. Also, improving discretionary
spend markets would help, but more for Tesco than Sainsbury. Although, there
is no sign of any improvement yet, we are not assuming much in our near-term
estimates, so consensus earnings appear robust at least for now.
reported Q1 Total Sales growth of 7%. Although new space, fuel inflation, food
inflation and VAT wholly make up that growth (i.e there is no/negative volume
growth), we think Sainsbury and Tesco continue to ‘win’ from other less efficient
and responsive retailers. This bodes well should the UK consumer environment
finally begin to improve slightly. Most important will be easing fuel inflation,
which would free-up non-discretionary food spend. Also, improving discretionary
spend markets would help, but more for Tesco than Sainsbury. Although, there
is no sign of any improvement yet, we are not assuming much in our near-term
estimates, so consensus earnings appear robust at least for now.
BE
Sainsbury shares have underperformed substantially recently (–10.6% relative
to the FTSE All-Share over the last three months), while its two major UK peers
have outperformed. This 15%-plus valuation swing means Sainsbury now
trades in-line with its UK peers on P/E (all of the Big 3 trade in a tight range
around 10x 2012/13E with Sainsbury at 10.4x). Without estimate downgrades
we do not expect the shares to fall much further, but still think both Tesco and
Morrison deserve a premium rating and expect them to continue to outperform
Sainsbury. We retain our Underperform rating.
to the FTSE All-Share over the last three months), while its two major UK peers
have outperformed. This 15%-plus valuation swing means Sainsbury now
trades in-line with its UK peers on P/E (all of the Big 3 trade in a tight range
around 10x 2012/13E with Sainsbury at 10.4x). Without estimate downgrades
we do not expect the shares to fall much further, but still think both Tesco and
Morrison deserve a premium rating and expect them to continue to outperform
Sainsbury. We retain our Underperform rating.
11:54AM
NH
Right
NH
service announcement
NH
Bryce has a posh lunch today
NH
somewhere in W1
NH
so we made need to end the show early
BE
Actually, not W1, but it’s some tiny place that doesn’t take bookings.
BE
What kind of madness is that?
NH
sounds interesting
BE
No website either, so you can’t cross examine the wine list and grumble about out expenses budgets.
BE
So, in short, I’m off in a moment or two.
BE
Anything else before I disappear?
NH
Let’s have a look
11:56AM
NH
we have some more mining super-tax jitters
NH
in Tanzania
NH
which is bad for African Barrick
BE
Yeah – confusing, this.
BE
First there’s a super tax.
NH
it’s a bit back and forth this one
BE
Then there isn’t.
BE
Then there is again.
BE
Can you clarify?
NH
no
NH
and nor can Citigroup
NH
When is a Super Tax not a Super Tax? Tanzania’s parliament yesterday approved a 5-
year development plan backing the proposed introduction of a super-profit tax on
mining companies. On Sunday, the country’s mining minister clarified that Tanzania
would not impose the new tax (no details provided) on existing companies but would
negotiate with the companies to have them pay voluntarily.
Both Anglogold and African Barrick have recently argued that their tax agreements with
the state are watertight and should not be subject to the super tax
year development plan backing the proposed introduction of a super-profit tax on
mining companies. On Sunday, the country’s mining minister clarified that Tanzania
would not impose the new tax (no details provided) on existing companies but would
negotiate with the companies to have them pay voluntarily.
Both Anglogold and African Barrick have recently argued that their tax agreements with
the state are watertight and should not be subject to the super tax
NH
The government
seems to have acknowledged this and said it won’t ‘impose’ a super tax but will enter
into discussions with miners about a voluntary tax payment. The government statement
said, “We will not impose the proposed super profit tax on existing mining companies. If
implemented, we will have to negotiate it with the companies because they already
have agreements in place with the government.” There is much confusion.
seems to have acknowledged this and said it won’t ‘impose’ a super tax but will enter
into discussions with miners about a voluntary tax payment. The government statement
said, “We will not impose the proposed super profit tax on existing mining companies. If
implemented, we will have to negotiate it with the companies because they already
have agreements in place with the government.” There is much confusion.
NH
Our estimated NPV (10% WACC, gold declining to $950 over the next few years) for
ABG is £4.14 and ABG is currently trading at £3.99, well below its IPO price 14 months
ago of £5.75 (when gold was trading at $1350, not today’s $1520). This process of
consultation between the government and the miners is likely to drag on and until then
ABG will likely trade at a discount to the 1.5x P/NPV that we think it deserves.
However, a discount to NPV seems excessive to us, even in the light of the tax
ABG is £4.14 and ABG is currently trading at £3.99, well below its IPO price 14 months
ago of £5.75 (when gold was trading at $1350, not today’s $1520). This process of
consultation between the government and the miners is likely to drag on and until then
ABG will likely trade at a discount to the 1.5x P/NPV that we think it deserves.
However, a discount to NPV seems excessive to us, even in the light of the tax
BE
“a voluntary tax payment”
BE
Yikes.
NH
indeed
BE
How voluntary are taxes, generally?
NH
not very I’d say
African Barrick Gold PLC (ABG:LSE): Last: 401.90, up 3 (+0.75%), High: 406.70, Low: 400.00, Volume: 473.18k
11:58AM
NH
Other things to look at
NH
Mouchel
NH
management turned down loads of bids
NH
and one has to ask why
NH
the FD has just quit
NH
trading looks awful
NH
they have loads of debt
NH
and the share price is sinking
NH
well played Mouchel chairman
Mouchel Group PLC (MCHL:LSE): Last: 60.25, down 8.25 (-12.04%), High: 62.75, Low: 59.00, Volume: 774.22k
BE
(@Ptolemy: that’ll be Polpetto, above the French House. Excellent place. And no, not there.)
BE
Mr Bo Lerenius
BE
Bo joined the Mouchel Board in January 2009 as Non-Executive Director and became Chairman on 1 May 2009. He is currently Honorary Vice President of the Swedish Chamber of Commerce, Non-Executive Director of G4S plc. He is also a senior advisor to EQT, a major private equity group, Land Securities Group plc and Thomas Cook Group plc. Bo is the former Group Chief Executive of Stena Line and Associated British Ports, and was awarded an honorary CBE in 2005.
NH
ah yes
NH
AB Ports
NH
I remember that
NH
was eventually flogged to someone
BE
Selling teh family silver.
NH
anyway
NH
turning down those bids
NH
was a pretty dumb thing to do
NH
look at this
NH
from Peel Hunt
NH
Markets continue to be very challenging. With net debt rising
since the interims, Mouchel now needs to generate £42m to meet
the £30m voluntary debt reduction necessary to avoid the issue of
warrants and higher interest charges. It will take time before we
can assess with enough certainty whether Mouchel has been
successful in generating sufficient funds Therefore, despite the
potential medium-term outsourcing opportunities, we remain cautious. Hold
since the interims, Mouchel now needs to generate £42m to meet
the £30m voluntary debt reduction necessary to avoid the issue of
warrants and higher interest charges. It will take time before we
can assess with enough certainty whether Mouchel has been
successful in generating sufficient funds Therefore, despite the
potential medium-term outsourcing opportunities, we remain cautious. Hold
NH
and this from Arbuthnot
NH
We view this morning’s IMS as mainly negative. The numbers are said to be in line but are benefiting from a greater than expected gain from one major client. Both the disappointing win rate and the much reduced order book (£1.5bn from £1.9bn) reflect we believe the uncertainties which beset the business and its impacts on the client base.
On an operational level, Management Consulting and Highways remain under pressure and BPO is stable. We retain our lower end forecasts unchanged this morning. We also note the debt at £107m and that the repayment of the £30m remains work in progress conceptually.
We view the prospects for the company as remaining challenging while the outgoing Finance Director, David Tilston, has commanded respect. We reiterate our sell recommendation on MCHL with a reduced target price of 45p.
NH
shocking
BE
Agreed. Can’t imagine shareholders will be too calm after this.
BE
Anyway, I’m off.
BE
So you have a Neil monologue until he chooses to close.
BE
See you tomorrow, rabble.
NH
I will keep it brief
NH
promise
NH
I too have a lunch
NH
in Mayfair
12:03PM
NH
Right then
NH
what else is there to look at?
NH
I know
Pursuit Dynamics PLC (PDX:LSE): Last: 283.00, down 15.5 (-5.19%), High: 298.50, Low: 272.50, Volume: 827.36k
NH
not looking to clever
NH
we finally got to the bottom of what happened yesterday
NH
at the RAC meeting
NH
an analyst from a US hedge fund was there
NH
Barrington Associates by all accounts
NH
he asked the CEO about revenue forecasts
NH
Pieper said he did not think they were obtainable
NH
and then refused to give any forecasts
NH
cue lots of selling
NH
anyway
NH
we put this to the company
NH
which came up with this gem
NH
Pursuit’s fundamental expectations for the revenues our business can generate overall haven’t changed, in fact the company has today upgraded its guidance for FY 2012 in the results announcement. The CEO’s comment merely reflected that some revenues that were expected this year will now be in the following year instead.
NH
So
NH
there you have it
NH
they have missed forecasts this year
NH
but it’s an upgrade for next year
NH
because they have been moved?
NH
how to turn a negative in to a positive
NH
may be not
NH
doesn’t seem to have impressed too many people
NH
and all this volatility in the share price
NH
just puts people off
12:08PM
NH
RIght a couple more things to look at
NH
Experian
Experian PLC (EXPN:LSE): Last: 778.50, down 22 (-2.75%), High: 801.50, Low: 760.00, Volume: 5.47m
NH
credit checking business
NH
taking something of a knock today
NH
and the reason seems to be worries
NH
of
NH
increased regulation in the US
NH
this just in from Shore Capital
NH
Reports suggesting that regulation in the USA is set to be extended to credit bureaus operating in the country are likely to be correct, in our view. We believe that from 2012, Experian and its peers are likely to come under a similar regulatory umbrella to their clients in banking and financial services; this has yet to be implemented in law, however. The issue is whether this is a significant threat to the credit bureaus.
NH
however
NH
they says it’s nothing to worry about
NH
Our view, based on past regulatory history and present involvement in regulation, is that an extension of banking regulation to these companies is not something to be feared for investors; any impact on our forecasts is likely to be limited and manageable in nature.
NH
Soundbuy
ITE Group PLC (ITE:LSE): Last: 218.30, down 20 (-8.39%), High: 235.60, Low: 218.00, Volume: 751.72k
NH
Investec doing the damage
NH
on the company
NH
which does exhibitions in emerging markets
NH
We move to Hold near term given incremental uncertainty on new Mosbuild competition. This is not entirely unexpected given Crocus’ now surplus space and previous history, and competition stands a very good chance of being beaten given Mosbuild’s strong market position. However, this may not be known for a while for a stock on a premium rating – we reduce our PT to 240p (from 265p) given added near-term uncertainty. Any material weakness would be a buying opportunity, in our view.
NH
(@Leonidas It has always been the case with Pursuit. good technology, iffy management)
NH
OK
NH
and to finish today
NH
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.
NH
we are back on the Carrefour story
NH
I think we are getting to the bottom of it
NH
it seems to be a rehash of the sell Brazil story
NH
and here it is
NH
A report in the Chilean press has suggested that local retailer Cencosud has held talks with Carrefour
with a view to acquiring the French firm’s Brazilian assets. The reports come shortly after rumours
that Brazil’s largest retailer CBD had held discussions with Carrefour over a possible merger, and
taken together indicate that Carrefour may well be contemplating an exit of the Brazilian market.
Rapid consumer growth makes Brazil a highly attractive retail market; however, the country is very
competitive and low margins may have persuaded Carrefour that the market is not currently delivering
the required return on its investment.
with a view to acquiring the French firm’s Brazilian assets. The reports come shortly after rumours
that Brazil’s largest retailer CBD had held discussions with Carrefour over a possible merger, and
taken together indicate that Carrefour may well be contemplating an exit of the Brazilian market.
Rapid consumer growth makes Brazil a highly attractive retail market; however, the country is very
competitive and low margins may have persuaded Carrefour that the market is not currently delivering
the required return on its investment.
NH
An examination of the operating results of CBD suggests that the country is currently not a very
profitable region in which to operate. This can be attributed to the significant level of competition in
the Brazilian sector, with CBD (part owned by France’s Casino), Walmart and Carrefour all of a
similar size and battling ferociously for market share. The results of all three suggest that they have
been prepared to sacrifice margins to fund expansion and the massive potential of the high growth
Brazilian market suggests that this is likely to be a sensible strategy for firm’s that can afford to
prioritise longer-term returns.
However, for Carrefour the prospect of a good return at some point in the distant future may no longer
be seen as a viable option. The management is under pressure from activist investors – the Colony
Capital investment fund and Bernauld Arnaut, France’s richest man – to deliver a swift improvement
in the firm’s share price and if Brazil is currently offering up only meagre returns on equity, a
divestment could be positive for the firm’s valuation (at least in the short term).
profitable region in which to operate. This can be attributed to the significant level of competition in
the Brazilian sector, with CBD (part owned by France’s Casino), Walmart and Carrefour all of a
similar size and battling ferociously for market share. The results of all three suggest that they have
been prepared to sacrifice margins to fund expansion and the massive potential of the high growth
Brazilian market suggests that this is likely to be a sensible strategy for firm’s that can afford to
prioritise longer-term returns.
However, for Carrefour the prospect of a good return at some point in the distant future may no longer
be seen as a viable option. The management is under pressure from activist investors – the Colony
Capital investment fund and Bernauld Arnaut, France’s richest man – to deliver a swift improvement
in the firm’s share price and if Brazil is currently offering up only meagre returns on equity, a
divestment could be positive for the firm’s valuation (at least in the short term).
NH
there you go
NH
that’s it
NH
I am off to Mayfair
NH
to see evil hedge fund people
NH
good afternoon to you all
NH
and see you tomorrow
NH
bye