FT Alphaville » Markets Live transcript 6 Jul 2011

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Markets Live transcript 6 Jul 2011

Posted by Neil Hume on Jul 06 11:05.

Markets Live chat transcript for the chat ending at 11:26 on 6 Jul 2011. Participants in this chat were: Neil Hume, FT bryce.elder

Hola Rabble

welcome to ML

one moment

just downloading a few things

Bryce are you in yet?

Hang on – something’s wrong with my pricing screen.

It’s showing the FTSE down.

let me have a look

seems OK to me

Of 22 points on mine

Bouncing on the PSYCHOLOGICALLY WHATEVER 6000 level.

So – is this actual profit taking into the eight day rally?

Or is Reuters borked again?

that price is real

we are done

there is some profit taking

I guess Portugal being junked is the excuse

although

it’s pretty irrelevant

the idea that the ECB would stop taking junk as collateral

is frankly laughable

would never happen

The upshot of this Portugal downgrade is that it’s too Greece-y, right?

pretty much

the programme won’t work

austerity don’t work, it just makes things worse

what we need are haircuts

defaults to clean the mess up

but that won’t happen so

just going back to the index for a moment

FTSE 250

four year high at the moment

take that FTSE 100

which is supposedly the play on global growth

and those fast growing emerging markets

the humble domestically focused FTSE 250 has outpaced it

Hm. Also fewer financials in the mid-caps, I guess.

and miners

Only financials are gold-plated plays such as Paragon, IPF and F&C.

and you are more likely to get a bid

in the mid caps

than you will in the blue chips

That’s true. Last blue-chip bid was …. what, Cadbury?

Which feels like ancient history now.

the other things that favours the FTSE 250

is that everyone uses FTSE 100 futures to hedge risk

very liquid

that’s also helped the FTSE 250

Good point. Never considered it that way.

moving on then

11:15AM

Shall we start with the mid caps

or higher up the market

Since we’re on the subject, let’s start midcap should we?

right then

Supergroup PLC (SGP:LSE): Last: 975.00, up 60.5 (+6.62%), High: 983.00, Low: 904.53, Volume: 180.26k

been very strong over the past day or so

It has. And results next week, I think.

seems people are covering their shorts

in the expectation

that sales will have bounced back

Well, we had a trading statement on June 21.

And the legendary investor day.

So the actual results should be in line.

might we not get a line about trading in recent weeks?

Guess so – though it is really just a couple of weeks.

This’ll be its maiden prelims, I think, so it’s difficult to know what to expect.

(@Eoghan – i’d say that’s pretty good for an index that supposed to be focused on the slow growing UK economy)

oddly

not one of the Supergroup apologists

has said anything about the recent share price move

not one

(@Eoghan: seconded. If I were a fund manager outperforming the benchmark by 15 per cent I’d be driving a platinum plated Bugatti to work.)

That is curious. They’re usually keen to talk about it.

Just as we are.

Even when it’s rising.

strange

still it’s not the only retailer up

N Brown

which sells cloths via catalogues to fat people

there are up

N Brown Group PLC (BWNG:LSE): Last: 285.30, up 17.6 (+6.57%), High: 289.00, Low: 271.00, Volume: 401.76k

so too

JD Sports

JD Sports Fashion PLC (JD.:LSE): Last: 1,007, up 27 (+2.76%), High: 1,032, Low: 982.88, Volume: 310.39k

even though

Mike Ashley is taking Sports Direct up market

Sports Direct International PLC (SPD:LSE): Last: 248.70, up 6.2 (+2.56%), High: 250.00, Low: 243.46, Volume: 116.48k

Sports Direct International plc (“Sports Direct” or “the Group”), the UK’s leading sports retailer, today announces that it has acquired an 80% shareholding in West Coast Capital (USC) Ltd (“USC”), a top young branded fashion business, and in Cruise Clothing Ltd (“Cruise”), one of the UK’s leading independent luxury retailers, for a total cash consideration of £7.0m.

Sir Tom Hunter has been involved with USC since 2004 and he purchased Cruise in December 2010. Sir Tom will continue as a significant investor in both USC and Cruise, retaining a 20% shareholding, and will remain as Chairman of both companies. Sir Tom will also provide strategic guidance to the newly-established Premium and Luxury Lifestyle division of Sports Direct International.

The return of Tom Hunter

isn’t that nice

a big client of the fat bloke finance department at HBOS

I know Cruise. I know Cruise very well.

Used to shop there in my teens.

Stone Island, Diesel and Fred Perry. That kind of kit.

Ideal for standing about council estates and smoking.

[/snob]

so it’s not really in competition with JD Sports

which is more retro adidas trainers and shell suits

Well, it’s one grade higher — at least by price — than JD.

It’s for people earning their first wage, rather than for people who are spending their pocket money.

[/snob]

where as Top Man

is the shop of choice

for that first court appearance

Yeah – they’ve pushed Burtons out of its leadership position in the “you, the accused …” market.

(@Bored of – Yellow card. and use your real name please)

right a bit of comment on this

and we shall move on

Here’s the house broker to Sports Direct

Charles Stanley

Our View: Sports Direct has made an investment in a young fashion retailer (USC) and a luxury fashion retailer (Cruise) for £7m. The acquisitions offer low-risk potential for good long-term profit growth after further investment in the store portfolio sand the application of Sports Direct’s powerful operational capabilities. We view Sports Direct’s move as a timely investment in a new opportunity ready to go when the economy improves.

SPD has paid £7 million in cash and will make available a further £20 million in return for a 80% stake in Cruise (£20m of sales) and USC (£70m of sales), the former owned by Sir Tom Hunter and the latter owned by Sir Tom’s investment vehicle West Coast Capital. No details are given on the two acquired retailers’ profitability, so the deal for the 80% stake has been struck at a historic sales multiple of just under 0.1x.

USC is a multi-branded young fashion retailer with 38 stores in high-footfall locations, and a portfolio of established brands such as G-Star, UGG, Diesel, and adidas Originals. It competes with the likes of Republic and Bank Fashion (part of JD Sports Fashion). We have always viewed USC as a good retailer but whose financial performance, similar to its peers, has recently suffered due to anaemic consumer appetite and the challenging and highly competitive retail backdrop. We think that Sports Direct’s involvement will give USC the necessary critical mass and operational expertise to drive a real sales and profit opportunity.

Cruise is a luxury clothing/accessories retailer and gives access to brands such as Paul Smith, Hugo Boss and Ralph Lauren. Cruise and USC will make up a new independently-run Premium and Luxury Lifestyle Division at Sports Direct.

§ SPD’s FY2011 prelims are to be reported on July 14, mindful that the April pre-close reconfirmed that SPD will “achieve full year FY2011 targeted underlying EBITDA of at least £205m”. We also note that SPD is very rare amongst the retail sector, given the difficult economic backdrop, in having articulated specific financial targets, namely underlying EBITDA (pre-staff bonus share scheme costs) targets of £215m for FY2012 and £250m for FY2103.

Valuation: The stock has been a very strong performer, having re-rated over the past 6-12 months. It now trades on a 14x P/E FY 2012. We issued a Buy recommendation in April 2010, since which time the share price has gained 115% and has gone through our PT of 220p. We will use next week’s FY2011 results to reassess our PT but reiterate our comment from our last Breakfast Bite comment on April 21 that a price target rise is looking increasingly probable in 2011.

acutally

it won’t be long before Sports Direct

is back at the float price

and Huge Boss

will be having nightmares

at the prospect of Ashley selling their clobber

11:27AM

Right then

moving on

anything on yesterday’s bid stories?

IMI for example?

IMI PLC (IMI:LSE): Last: 1,110, down 9 (-0.80%), High: 1,142, Low: 1,101, Volume: 956.85k

Reckitt Benckiser Group PLC (RB.:LSE): Last: 3,537, down 41 (-1.15%), High: 3,580, Low: 3,527, Volume: 409.65k

No.

Yule Catto and Co PLC (YULC:LSE): Last: 237.40, down 3.7 (-1.53%), High: 242.50, Low: 234.70, Volume: 297.18k

And no.

what nothing?

nothing at all

Well, starting from the top ….

IMI’s an awfully nice company

Whose balance sheet is very underutilised

Which, if a buyer were prepared to load it up, would cut the in price.

But shares have risen in a straight line over the past couple of years, so why now?

And I’d also note that management was out seeing the sell side on Friday.

And talking about buying nuclear engineers.

In spite of nuclear engineers being very very very expensive.

I see

I think Exane stuck a note out on that theme …. hang on.

The sell side met with IMI management on Friday for their traditional annual summer
get together. Overall the tone was positive; we expect that trading should be at least
in line with the guidance given at the time of the Group’s 1Q IMS (issued in May)

As time goes by the choices facing the Group are evolving. In the absence of any
significant acquisitions, the Group will move into a net cash position sometime in the
next 12 months. Given management’s stated aim of returning the Company’s financial
leverage to c. 2.5x Net debt/ EBITDA we believe that the key risk/ opportunity for
investors’ in IMI arises from management’s allocation of capital over the next few
years. In the past IMI has been cautious when executing on acquisitions; choosing to
acquire bolt-ons (up to GBP150mn) with a significant overlap to its existing
businesses. With firepower for deals now rising up towards c. GBP1bn we believe that
a more aggressive approach to deals will be needed if the stated aim for leverage is
to be achieved. Management’s own comments on Friday suggested there has been
little change in its level of caution over asset selection and price.

In terms of areas in which IMI is likely to buy, businesses selling into the Nuclear
industry remain on the menu. At last year’s CMD Group CEO, Martin Lamb, identified
the Nuclear space as being particularly attractive and cautioned that the street should
be ready to expect some high multiples for deals in that space. Despite recent events
in Japan management’s preference for assets in that space appears to remain intact.

In the event that the Group fails to spend enough of its war chest, we expect that it will
enact a share buy back programme.

None of which adds to the bid speculation, which is fine.

Because I’d rather not add to the bid speculation.

Meanwhile, on Reckitt ….

no one thinks it will happen

too many competition issues for P&G

and Unilever don’t want to do a deal like this

I got this from Citi today

Reckitt closed up 3% yesterday on speculation that Unilever or Procter are going to make a bid. The thesis is, without a strong CEO, Reckitt is now more vulnerable to a takeout. We think this is unlikely however given the lack of synergies for a potential acquirer and, speaking to clients yesterday, the feedback is that they definitely agree. We saw busy two way flow in the name yesterday but most of the buyers were really covering their short positions. It sounds like sellers on the other side are taking profits after a 20% run off the lows. We think Q2 numbers aren’t going to be great & that you could see some profit taking short term. However, on a longer term view, we remain buyers of Reckitt. Whilst we don’t believe in the takeout story, we think top line growth is underestimated – Claire is 3% ahead of consensus & this is one of the few names in Consumer Staples eps momentum this year => Short term profit taking in Reckitt, Long term this is a stock to own.

as for Yule Catto

I am no nearer to understanding what it makes

or who would bid for it

hang on

breaking news

06Jul11 RTRS-CHINA RAISES INTEREST RATES
11:32 06Jul11 RTRS-CHINA RAISES INTEREST RATES BY 25 BASIS POINTS

price update

FTSE 100 down 38 points at 5,985

That’s a gap down by 15 points or so.

this had been rumoured

in the Chinese press for a couple of days

so it’s not entirely surprising

Indeed.

But if you needed an excuse to sell into the 6% rally over the past couple of weeks, there it is.

Miners down 1-2% across the board at the moment.

indeed

there it is

(@Phil – yep. that’s spot on.)

1 RTRS-AUSTRALIAN DOLLAR FALLS VS U.S. DOLLAR AFTER CHINA RAISES INTEREST RATES
11:34 06Jul11 RTRS-EUROPE’S FTSEUROFIRST 300 <.FTEU3> EXTENDS LOSSES AFTER CHINA RAISES RATES, DOWN 0.4 PCT AT 1,117.50 POINTS
11:35 06Jul11 RTRS-AUSTRALIAN DOLLAR FALLS TO SESSION LOW US$1.0667 FROM US$1.0690 BEFORE CHINA MOVE

profit taking

11:36AM

Back to stocks

3i Group PLC (III:LSE): Last: 288.00, down 4.1 (-1.40%), High: 295.00, Low: 287.44, Volume: 596.03k

usually too dull for words this company

private equity group

trading at a big discount to NAV

however, shareholders have been getting restless

they want a buyback to prop up the share price

and today we get this news

3i Group plc announces the appointment of Mr Simon Borrows as Chief Investment Officer. He will also be appointed to the Board when he joins the Company in the autumn.

Mr Borrows is currently Chairman of Greenhill & Co International LLP, having previously been Co-Chief Executive Officer of Greenhill & Co, Inc. Before founding the European operations of Greenhill & Co in 1998 he was the Managing Director of Baring Brothers International Limited. He is also a non-executive director of The British Land Company plc and of Inchcape plc.

Having successfully established the Chief Investment Officer role since his appointment to that post in 2009, Mr Ian Nolan will be moving to a new role in the autumn.

Big hire.

it is

Greenhill & Co’s been at the business end of proper M&A for two decades.

And now …. he’s at 3i.

Without being derogatory, it seems a sideways move.

yep

second tier job

at a second tier outfit

why?

he doesn’t need the money

or the aggro?

why do this?

it’s certainly very public spirited

but it just makes me wonder

if he won’t try and take the company private

or flog it

or do something

i’d be really interested to know

what sort of package they have offered him

So the AGM started when we did, at 11am.

No word on how noisy it’s been.

But Cazenove provides a very good breakdown of the issues this morning.

go on

It is unsurprising that shareholders are unhappy about the wide discount,
which is around 17.5%, based on our live NAV of 354p and last night’s
close of 292p. We don’t agree that the strategy – which was outlined at
the recent investor day – is wrong, but we believe the market will require
a sustained period of NAV success before giving the company the
benefit of the doubt. 3i has recently blotted its copybook given the recent
Enterprise debacle which took the gloss off otherwise strong FY results.
However, we think the company’s RoE target of 15% is achievable.

But
we also believe that the company should conduct a modest quantity of on
market share buybacks. This would not be with a view to eliminating or
controlling the discount, but would send a signal of confidence in the
current portfolio and would also be NAV accretive – unlike the previous
returns of capital and the rights issue. A buyback would probably be the
best investment the company could make with its resources, but would
increase gearing from current levels. Hence, it would need to keep an eye
on its total net debt – while manageable at the moment, it might
compromise the company’s ability to invest in new deals (which is the
lifeblood of any PE firm), and therein lies the conflict.

Is 3i vulnerable to a takeover bid? We think it unlikely – banks and
insurance companies are selling out of private equity due to regulatory
capital reasons. Firms like KKR and Blackstone operate in a different
tier of the market, so would be unlikely to be interested, while secondary
PE players might want the portfolio, but would be unlikely to pay much
of a premium to the current share price for it, nor would they be prepared
to pay any goodwill for the management company, in our view, which
we would imagine would be a minimum requirement for the Board.

Nonetheless, we believe the pressure is on 3i to deliver shareholder value
and we think it is likely that the company will have to make some share
repurchases. We believe this underscores our view that the shares are
inexpensive and we remain Overweight.

So – share buybacks to pacify the revolting shareholders.

hmm

right a bit more comment on this

from Oriel Securities

then we should have a look at Sky

The most interesting announcement today is that Ian Nolan, Chief Investment Officer,
who was involved in the written-down Enterprise investment will be moving to a new
role in the autumn. He is being replaced by Simon Borrows, who will also be
appointed to the Board.
 Mr Borrows was originally involved in the IPO of 3i, back in 1994, in an investment
banking capacity. He is currently Chairman of Greenhill & Co International LLP. We
view this as a significant appointment and a good move with some new senior
management being appointed to 3i from outside. We also think that given Simon’s
previous experience, he will be well suited to helping Michael Queen develop the
business and able to take on senior management roles going forward.

It is good to see that new investment activity has picked up over the quarter with
£233m invested and increasing activity in the growth capital segment (£63m invested)
is welcome after a particularly quiet period in the year to March 2011, when only £72m
was invested. Realisations at £337m have continued at relatively high levels.

11:43AM

British Sky Broadcasting Group PLC (BSY:LSE): Last: 839.00, down 6 (-0.71%), High: 845.00, Low: 835.56, Volume: 1.97m

now

there’s no way the phone hacking scandal can scupper the bid, is there?

Hunt has allowed the deal to proceed

and I don’t think there’s a fit and proper persons test

is there?

I think Ofcom

have a legal obligation

(@Corruption investigator: your investigations are likely to reveal that mobile voicemail hasn’t even existed for decades. Off you pop.)

to ensure they are fit and proper

ZAP

Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.

Are they genuinely going to conclude that Murdoch’s not a fit and proper person to run a UK company?

Let’s be realistic here …………

nope

but Peston says they will

http://www.bbc.co.uk/news/business-14045715

Pestowire

Top News from Top Sources. The BBC’s Business Editor, Robert Peston, has played in important role keeping the British public fully informed during these difficult times.

Which brings me to my third big point. I don’t see how News Corporation, owner of News International, can pursue its takeover of British Sky Broadcasting at this juncture.

On this last issue, and as I’ve pointed out before, Ofcom is under a legal obligation to ensure that the owners of broadcasters such as BSkyB are fit and proper.

But pending the results of the police enquiry into alleged illegal behaviour by the News of the World, and pending a public disclosure by News International of the way that it has changed its structures and practices to ensure such abuses never happen again, Ofcom is not in a position to adjudicate whether News Corporation is fit and proper.

That poses a dilemma for British Sky Broadcasting’s independent directors. They know there is an increased risk of regulatory intervention by Ofcom to frustrate the takeover.

Because of that execution risk, they would have to demand a much steeper price from News Corporation than would otherwise be the case. It is their fiduciary duty to do so – and News Corporation, run by Rupert Murdoch, will be well aware of that.

My conclusion from all this, which has been corroborated by talking to those close to the two companies, is that Rupert Murdoch and News Corporation will almost certainly have to delay their takeover of BSkyB – at least until it is apparent that the News of the World and News International have been cleaned up.

And, in a worst case for Mr Murdoch and News Corporation, where the reputational damage to his organisation continues to magnify, the delay could become semi-permanent – if, for example, the perceived value of BSkyB rises beyond what News Corp would or could pay.

there you go

a delay

Hm.

Kicking this particular can further down the road.

That’s plausible.

(And apologies for the increasingly tired metaphor.)

But Hunt can only block the deal if he considers it a threat to media diversity.

And he won’t. Let’s face it: he won’t.

he won’t

right, I have the Sky note referred to by the rabble

no mention of phone hacking

In that case, can I add a Credit Suisse comment that sums up the arguments excellently?

However serious these allegations, we would argue they are unlikely to play any part in
the outcome of the regulatory process in relation to News Corp’s offer to buy the 61% of
BSkyB it does not already own. As the Secretary of State at the DCMS, Jeremy Hunt, has
pointed out on a number of occasions, his role is quasi-judicial and his decision to allow or
block the deal can only be based on considerations of media plurality. We believe that in
the light of the public statements he has made, including most recently that he is “minded
to allow the merger to proceed”, it would be very hard for him to change that view. If he
were to do so, we presume a decision to block the deal for any reason other than media
plurality could be vulnerable to legal challenge.

The only potential impact from the phone hacking scandal that we would flag is a potential
delay to the timetable. We note that the final 7 day consultation process on the revised
undertakings offered by News Corp on the spin-off of Sky News ends on Friday 8 July. It is
possible that those opposed to the deal going ahead may use this opportunity to flood the
consultation with responses, which could mean it takes the DCMS longer than previously
expected to reach a final conclusion. It may also be more politically expedient for the
government to wait until the public reaction to the scandal dies down. While it remains
most likely that final clearance for the deal is given before the Parliamentary summer
recess starts on 19 July, the phone hacking scandal may slightly increase the probability
that final clearance is delayed until Parliament returns on 5 September.

Ok – fire away with Citi.

just reading that

so we could get some can kicking

that would be typical of this govt

but then it would be down to Ofcom to block the deal

right

to the Citi note

they have upped their target price to 999p

What’s Changing in this Report? — We adjust our estimates to reflect better volume
growth in the 2011E fiscal year. This drives mild downgrades in the very short-term (c. -
3.5% in 2011E on higher SAC) but leaves LT forecasts largely unchanged (slightly up).
The key change in this report, however, is our view on valuation. Revisiting absolute
valuation methodologies (DCF) and examining the potential upside on an offer from
News Corp, we raise our target price to 999p. We stay Buyers

Approaching the Endgame — Full regulatory pre-approval for a deal, we believe, is
imminent. The focus now will be on whether News Corp/BSkyB will be able to agree a
price and, assuming they can, how long the process will take. We investigate this.

Focus #1: Will A Deal Get Done? — The bid/ask spread appears to be quite wide,
however we remain sanguine on the prospects of a deal getting done. On a base case,
i.e. assuming no savings/efficiencies, we think this deal could be 10%+ accretive to
cash EPS for News Corp even in the 900p-1000p range. We think the independent
directors will find it hard not to raise their bid floor to this level, if not higher

Focus #2: What is the Process From Here? — We look at the process from here, the
likely timeline and structure of a potential bid. This analysis suggests that on a best
case, a deal could be concluded by mid September. Worst case it may roll on until 1Q
April 2012. In either case, we still see 15%+ upside to the current price.

We Stay Buyers — BSkyB is undoubtedly a special situation – a factor that may put off
some investors. However, the investment case looks compelling. Strategically full
consolidation of BSkyB appears sensible for News Corp, and the financial return profile
is attractive. Valuation, even at 999p (10.5x 2012E EV/EBITDA) would not be
outrageous vs. recent News Corp deals (10x-17x). Reflecting both our confidence in a
deal, but also a sound standalone investment case, we upgrade our TP to 999p and
stay Buyers.

(@alanjhay: NOTW sells about 3.4m each week at a quid a pop, though the advertising/cover price split is heavily weighted towards the former for tabloids. So, it’s not insignificant to News International.)

11:53AM

To those who asked

I have calls in on

Kenmare

Kenmare Resources PLC (KMR:LSE): Last: 55.10, down 4.75 (-7.94%), High: 60.30, Low: 55.10, Volume: 3.71m

11:54AM

Time for some small caps?

or what about the banks

(@TK: not even close. Japanese and Indian papers sell tens of millions every day.)

Is there much to say about banks?

not really, all Portugal related

although just for Milky

I have a little something from Goldman

on Lloyds

Lloyds Banking Group plc (LLOY:LSE): Last: 47.86, down 0.92 (-1.89%), High: 48.58, Low: 47.76, Volume: 51.23m

Don’t think Milky’s joined us, sadly.

Downside risk reduced, near-term upside likely capped; Neutral

What’s changed
The strategic initiatives and updated financial targets released as part of incoming CEO António Horta-
Osório’s strategic review of Lloyds Banking Group were broadly in line with our expectations (our FY14 GS
ROE estimate was 13.6% going into the event, compared to the group’s updated target range of 12.5%-
14.5%) as well as market expectations (our FY14 EPS estimates were in line with Datastream consensus).
However, the release of credible longer-term financial targets and the reaffirmation of previous near-term
guidance served to reduce both uncertainty and downside risks. The stock’s strong performance on the day
(+9.7%) was further supported by market positioning and relative underperformance going into the event (-
17.3% relative to FTSE Banks during the three months prior to June 30), in our view.

Dead money. I see.

Dead

11:57AM

Before we move on to the small caps

a few things to look at

one is

Britvic PLC (BVIC:LSE): Last: 390.30, down 3.2 (-0.81%), High: 396.80, Low: 387.50, Volume: 222.07k

potential increase in VAT on French soft drinks from 5.5% to 19.6% (story from Le Figaro)….

broker sent that earlier today

seems pretty bearish

France a big market for Britvic?

it is

for some historical reason

I have also been looking at the fag makers

British American Tobacco PLC (BATS:LSE): Last: 2,798, down 15 (-0.53%), High: 2,810, Low: 2,793, Volume: 823.17k

Imperial Tobacco Group PLC (IMT:LSE): Last: 2,133, down 13 (-0.61%), High: 2,148, Low: 2,128, Volume: 408.92k

Why?

Australia

introduced a new bill

they want plain fag packets

worse than that

there are green

olive green

apparently that’s the colour smokers find most repulsive

Really? Smokers don’t like British racing green?

Disgraceful. They should be birched.

apparently not

that’s what their researchers found

and if the bill goes through

Taxloss

will be puffing away from an olive green packet of B&H come Jan 1, 2012

I have been looking at the read across to BATS

and IMPS

they control around 50% of the Aussie market

but they don’t make that much money

the real issue

is whether other countries follow

here’s some analyst reaction

first up Citi

• Story on Australian packaging -ve today Australia’s government has introduced into parliament new laws banning advertisements on cigarette packets. Under the new law Canberra wants to be the first government in the world to restrict logos, branding, colours and promotional text on tobaccos packets beginning in January 2012. No real surprise here as this was mooted last year and the sector has been strong since dodging a bullet in march when UK govt decided to delay any similar decision . Profits wise, Australia accounts for 8% for BATS and 4% for Imperial , and both should see a small hit today.

and now Collins Stewart

Tobacco – The Australian government tabled a bill yesterday (as expected) to ban any form of branding on cigarette packaging. All cigarette packs will be in the same olive green colour, with graphic pictures of blackened lungs etc taking up 75% of the space. There will be no logos, no individual fonts etc. The tobacco companies are challenging the proposals as infringing trademarks, but the government is clearly determined and the risk for the companies is not Australia per se, but the risk that the move encourages other countries to follow

BATS has a c40% share of the Australian market, Imps has c16%; for either company it’s relatively small in the context of the group. BATS has performed very well in recent weeks and months, up 12% relative this year alone, and is now trading on 13.5x 2012e PE. That makes it the most expensive cigarette stock, and 35% more expensive than Imps. Our BATS price target is 2900p and following our H1 round up call with the company, we don’t see that going up in the near term, so we have very little upside. By contrast, Imps we value at 2450p, so there remains something worthwhile to go for.

(PMQs has started. stand by for News Corp ?s)

Cheers for that.

(“Rumours that Cameron about to pause Sky deal and launch public inquiry into press standards and relationship between press and police” – James Robinson, Guardian media correspondent, via The Twitter.)

British Sky Broadcasting Group PLC (BSY:LSE): Last: 838.50, down 6.5 (-0.77%), High: 845.00, Low: 835.56, Volume: 2.06m

Citi have been very bearish on the ciggies sector for some time, we should note.

they have

and will making a fag packet olive green

really put people off smoking

or even make them trade down

I thought the point was people liked the taste of their favoured brand

More so than pictures of dissected patients and photoshops of dead babies?

I don’t know.

The authorities are chucking everything they can at smokers, and I’m not entirely sure why.

indeed

you would have thought the tax take is quite useful

although people dying and clogging up the hospitals

is pricey

Ok – Cameron’s talking. What’s he saying?

12:06 06Jul11 RTRS-UK’S CAMERON SAYS INQUIRY NEEDED INTO PHONE HACKING ALLEGATIONS, NEWSPAPER CONDUCT

an inquiry

classic can kicking move

Well, you can’t run an independent inquiry in parallel with a criminal one.

So I’m not sure how that’s going to work.

In fact, it won’t. He’s just said it won’t.

So it’s not really an inquiry at all.

So: it’s nothing.

Hooray.

12:07PM

Before we move to the small caps

this just flashed up

RTRS-SINO-FOREST SAYS IT IS POSTPONING THE ANALYST TRIP THAT WAS PREVIOUSLY PROPOSED FOR MID-JULY

and I think we have an answer for Kenmare

Kenmare Resources PLC (KMR:LSE): Last: 54.25, down 5.6 (-9.36%), High: 60.30, Low: 53.50, Volume: 4.39m

Go on.

apparently there’s a story doing the rounds is of a change to the mining law

A number of large projects were signed off in the late 1990’s early 2000’s when the country was recovering from the Civil War and desperate for investment

and Kenmare’s Moma and Riversdale’s coal deposits were two of the four “mega projects

my man tells me a motion was tabled by an opposition party in parliament a few weeks ago to revise some of these deals which the government was sympathetic to as they probably do need revising now that the country is up and running

Sorry – this is Mozambique, right?

it is

and apparently this won’t be a change

it’s more about bringing everyone into line

Details of this can be found on http://allafrica.com/stories/201105111043.html

and here

By Antony Sguazzin

July 6 (Bloomberg) — Kenmare Resources Plc shares extended

their decline in London trading after Mozambique’s mines

minister told a conference in Maputo that the country plans to

revise its mining law to give the government a bigger stake in

projects.

Kenmare, which owns a titanium project in Mozambique, fell

4.75 pence, or 7.9 percent, to 55.1 pence as of 11:39 a.m.

London time. At that level the stock is heading for its biggest

decline since Oct. 8.

Ok – so it looks like we’re still in the meetings stage.

yep

hang on

But this is definite resource nationalism.

I have a bit of comment

from a friendly broker

“We were aware that the Gov’t has been under pressure from the IMF and opposition bodies to renegotiate the concessions on mega projects. However we were of the understanding that the Gov’t had decided to resist this pressure on the basis that it was very premature to start changing the rules when they were still waiting for the majority of the investment to be made.”

It is also a theme that is current across Africa right now and should be seen positively rather than negatively as it will create a more transparent environment for companies to operate in.

I have a guy at the Mozambique coal conference right now and he says the minister made a speech but that it was a general talk only and there was no discussion of any change to policy.

I am trying to get more details and I’ll let you know any more once I have it.

So the government wants a bigger slice of “strategic sectors” such as coal.

Is pigment strategic?

I guess it may be.

12:12PM

OK to the small caps

Kenmare is a mid cap

Coal of Africa Ltd (CZA:LSE): Last: 88.25, up 15.75 (+21.72%), High: 90.99, Low: 82.79, Volume: 3.89m

they have finally got approval for a project that threatened a world nature site

this from Collins Stewart

Construction to restart: This is a very positive development, with the shares trading up 15% in Australia on the day. The construction at Vele was halted in August 2010, as the government previously said that Coal of Africa contravened certain environmental laws. Vele is located near Kruger National Park in an environmentally sensitive area. The construction phase at Vele is expected to be completed within six to nine months from the restart date and will ultimately ramp up to an initial production profile of 1 million tonnes per annum. The government approval contains specific conditions the Company will be required to fulfil.

A turnaround story: Following a difficult 18 months, we see Coal of Africa as having turned the corner. The jewel in the crown of the company’s assets is the coking coal Makhado project, to be put into production in 2013, ramping up to 2.5Mtpa by 2013. With the resumption of construction at Vele, we see the more potentially positive new flow driving Coal of Africa for the remainder of 2011.

and this from Ren Cap

Coal of Africa (CZA LN) is flying in Australia overnight after they reported that the Vele colliery environmental authorization has been granted by the DEA. Construction will be completed in six to nine months and will ramp up to an initial production profile of 1mntpa. Vele is in the Limpopo region which is a world heritage site and thus extremely environmentally sensitive. Specific conditions for which the company will be required to fulfill are contained within the authorization, although the exact detail of this is unclear from the RNS. Clearly very positive.

but the best performer in small cap land today

Axis Shield PLC (ASD:LSE): Last: 488.00, up 153 (+45.67%), High: 490.25, Low: 463.00, Volume: 1.06m

I haven’t looked at the company in years

and it’s rejected an approach

Any idea from whom? Do they say?

Alere

one of the leading players in diagnostics

and

one of Axis’ main competitors in the lipid POC testing market

whatever that is

…….. pass.

and once again we have a company

that’s been sitting on a bid

from a credible buyer

and not telling the market

Alere Inc. (NYSE: ALR) (“Alere”) announces that on 7th June 2011, it made an indicative non-binding proposal to the Board of Axis-Shield plc, (“Axis-Shield”), to acquire the entire issued and to be issued share capital of Axis-Shield by way of a cash offer of 460p per Axis-Shield ordinary share. The Proposal represents approximately a 37% premium to yesterday’s closing price. The Board of Axis-Shield rejected the Proposal and has declined to enter into further discussions with Alere.

Alere is keen to work towards a recommended takeover offer for Axis-Shield and would welcome the opportunity to discuss a possible transaction with Axis-Shield in a constructive manner. Alere is therefore announcing its Proposal as a means to facilitate discussions with Axis-Shield and its shareholders. Alere believes the Proposal, which would be an all cash offer, represents a compelling value proposition for Axis-Shield shareholders, offering a high degree of certainty and a substantial premium to the current market price.

June 7th!!

Indefensible.

If shareholders weren’t informed, they should be livid.

lipid even

If shareholders were informed, that’s illegal.

(NH: yellow.)

and this is a credible bidder according to Investec

even if the offer

might be a lowball one

Cash offer from a credible bidder – Alere has enough cash and debt facilities to
fund the offer and it is a credible bidder, with a good track record of completing
deals to acquire UK listed companies (BBI in Feb 2007 for £84m, representing
3.3x revenue, and Concateno in June 2009 for £236m, 3,1x revenues), as well as
a number of US acquisitions, including the acquisition of Cholestech, one of
Axis’s competitors in POC lipid testing in 2007 for $326m, 3.3x revenues.

But undervalues Axis – in our view, the initial approach undervalues the equity.
The lipid panel transforms Axis and with the question being one of when rather
than if, we believe it is correct to include some value for the lipid panel in any
valuation for the business. With lipids expected to launch in Europe late this year
and in the US late next year, one needs to look to FY2013E to start seeing a
material impact. Our FY2013E SoTP valuation for Axis suggests a fair value of
530p, which when discounted back to today equates to 410p today. Adding a
circa 30% premium for control would suggest a fair take-out price of closer to
530p or £265m. This would equate to around 2.4x revenues, still a discount to
comparable transactions in the sector (which is probably fair given that Axis has
around £30m of lower margin third party distribution revenues), but not factoring
in full value for the lipid panel.

and there’s a chance of a counterbid

We may also see other bidders emerge – with Alere putting Axis into play, other
bidders may well emerge, including possibly Siemens, whose DCA platform also
competes with Axis, and Abaxis, which has a lipids offering. We may also see interest from ‘left field’ bidders, such as Danaher which has been active in the
sector.

lots of names to choose from there

market cap before today’s move was around £170m

here’s some comment

via Numis

Alere, the US diagnostics consolidator, has bid 460p/share cash for Axis-Shield
(37% above yesterday’s close). Axis-Shield’s board has rejected the proposal, but
Alere has made the offer public. As stated in yesterday’s note, our prior 360p/ share
price target was highly risk-adjusted for the value of the company’s Lipid panel for
the Afinion, which is already in >10,000 doctor’s surgeries worldwide. Factoring in
the test in Europe, we see fair value up to 500p/share, and if we include the US as
well (launch would likely be 1-2 years behind Europe), our fair value is
600-700p/share.

We have rolled our valuation forward to end-2012, and have
upgraded our price target to 535p. Whilst shareholders may prefer the ‘bird in the
hand’, we understand why ASD’s Board rejected the proposal. We believe that Alere
could factor more of the potential Lipid value into its bid, particularly in light of the
potential synergies with (or defence for) one of its portfolio companies, Cholestech,
which is market leader in Point of Care Lipid tests. With a bid that in our view leaves
value on the table, we believe that Alere may have left an opportunity for a
counter-bid from one of the many other companies in the diagnostics market, such
as Abbott, Siemens or Beckman Coulter, or a company that may view Axis-Shield is
an attractive way of entering the space.

Right. This is all very informative.

But what does the company actually do?

Creates and supplies in-vitro and point of care diagnostics for cardiovascular, autoimmune, and alcohol related, and infectious diseases,

does that help?

In-vitro – in a vial.

Point of care – given by GPs and nurses.

The rest — still not clear.

anything else to mention?

I have a lunch in Mayfair

and could really do with heading off

Anywhere nice?

Boundin Blanc

So …. nowhere nice.

Anything to wrap up with?

yes, this.

Numis Securities Limited (“Numis”) today announces that it has reached an agreement to settle a claim brought against Numis by CQS Convertible and Quantitative Strategies Master Fund Limited, Fidelity Funds, Fidelity Institutional Funds, Fidelity Investment Funds, Oceanic Small Cap Fund and St Peter Port Capital Limited (the “Claimants”). The claim related to a private placing of shares in Rock Well Petroleum Inc. (“Rock Well”) in 2007 during which Numis acted as placing agent.

The claim against Numis was in respect of a decision by Rock Well not to refer in the 2007 placing documents to a law suit that had been threatened against Rock Well by a third party. In respect of the claim which was valued at $95m, Numis has agreed to pay $8m without any admission of liability. The Claimants have withdrawn their claim.

Numis and Fidelity are pleased to put an end to this distracting litigation and look forward to a continuing and mutually beneficial commercial relationship.

Numis Corp PLC (NUM:LSE): Last: 113.75, up 9.5 (+9.11%), High: 114.44, Low: 109.75, Volume: 90.74k

$8m settlement

and no admission of guilt

result

given the plaintiffs

Yeah, good result for them. Bullet dodged.

more like cruise missile

not a great idea to annoy Fidelity

when you are mid cap broker

doing floats and placings

and with a large research operation

Very true.

Ok – let’s end this.

Since you’re off to be sneered at by French waiters from Poland.

Thanks for all your comments, everyone.

This entry was posted by Neil Hume on Wednesday, July 6th, 2011 at 11:05 and is filed under Uncategorized. Edit this entry.

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Markets Live transcript 6 Jul 2011

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