Markets Live chat transcript for the chat ending at 11:07 on 11 Jul 2011. Participants in this chat were: Neil Hume, FT bryce.elder
NH
Hola
NH
and welcome to ML
NH
hang on a moment
NH
where did that advert come from
NH
The Banker Database
BE
I’m reliably informed that The Banker offers a versatile solution to your research needs.
NH
I’m sure it does
NH
anyway
NH
sorry we are late
NH
I was just reading the Odey Asset Management disclosure in Sky
NH
looks like he caught the falling knife on Friday
NH
Class of relevant security Purchase/sale Number of securities Price per unit
50p Ords Purchase 1,000,000 7.4800
50p Ords Purchase 3,386,400 7.8050
50p Ords Purchase 396,700 7.7775
British Sky Broadcasting Group PLC (BSY:LSE): Last: 705.50, down 44.5 (-5.93%), High: 710.06, Low: 693.00, Volume: 20.05m
NH
(@Milky – sadly not. We own the Banker)
NH
Class of relevant security: Ord
Interests Short positions
Number % Number %
(1) Relevant securities owned and/or 44,858,205 2.56
controlled:
(2) Derivatives (other than options): 347,990 0.02
(3) Options and agreements to purchase/sell:
48,338,105 2.58
BE
… And was in one of the papers over the weekend talking their book.
NH
he was
BE
Telegraph, was it?
NH
could have been
NH
anyway
NH
let’s have a look at today’s price action
British Sky Broadcasting Group PLC (BSY:LSE): Last: 706.50, down 43.5 (-5.80%), High: 710.06, Low: 693.00, Volume: 20.24m
NH
so Odey is a bit offside
NH
but we might have seen the worse in the Sky price
NH
OK the deal might not happen
NH
and the arbs might be getting killed
NH
but 700p for Sky?
NH
a bargain surely
NH
(Warning I have the reverse midas touch)
BE
Well …………………….
BE
Ignoring the fact that Milky’s buying, which makes me automatically negative ……
NH
BE
We’ve got two questions to answer
BE
What’s the probability of the deal getting done?
BE
And what would be the price if it didn’t?
BE
I’m not convinced by any of the bullish reasoning I’ve heard on either point, quite frankly.
NH
well
NH
a couple of thoughts
NH
pre-bid Sky was trading at 600p
NH
since then the market is up 20%
NH
and earnings from Sky have outpaced the market by 15%
NH
so it must be worth 750p at least
NH
on fundamentals
NH
regardless of what happens with the bid
NH
and my view here is that the government won’t be able to approve it
NH
until 2013
NH
that said
NH
the arbs
NH
are getting killed in this
NH
and I reckon only a third of the position has been cleared out
NH
so they could go lower
NH
some people were buying in at 820p-30p
NH
expecting Hunt to let it go
NH
through
BE
Hm.
BE
Couple of questions
BE
…. how much of the likelihood of a Murdoch buyout was already in the price at 600p?
BE
And will the deal be as attractive to Murdoch by 2013 as it is in 2011?
BE
A lot changes in two years.
BE
I’d be extremely cautious about News Corp simply abandoning the bid.
BE
Blocked or otherwise.
NH
true
NH
but he needs the company
NH
he needs the cashflow
NH
it’s key to News Corp’s strategy
NH
this is a pay TV company now
NH
he needs it
BE
Though the logic of media cross selling — which seems to be the only strategic reason to buy BSkyB, as far as I can work out — may not hold by 2013.
BE
We’ll have a new media regulator, for starters.
BE
As I say, I’m cautious.
BE
Even when the arb money’s moved out.
BE
However, that’s just my opinion.
BE
Anything more reasoned from the scribblers?
NH
hang on
NH
I have something from Citi
NH
but first
NH
the letter Jeremy Hunt sent to Ofcom today
NH
deft political footwork
NH
from the Culture Secretary
NH
kick the bid into the long grass
NH
and get someone else to decide
NH
Dear Ed
As you are aware, my consultation on the revised undertakings in lieu offered by News Corporation closed on Friday at midday. I am now considering the responses to that consultation, but, as I stated on Friday, I anticipate this taking some time. Prior to the completion of that process, I would be grateful if you could let me know whether the events that followed your letter of 22 June change in any way the advice you offered, particularly with respect to three areas:
NH
point three
NH
the most relevant bit
NH
3. Given the well-publicised matters involving the News of the World in the past week that led to its closure, I would be grateful if you could let me know whether you consider that any new information that has come to light causes you to reconsider any part of your previous advice to me including your confidence in the credibility, sustainability or practicalities of the undertakings offered by News Corporation
NH
in other words
NH
can News Corp
NH
be trusted to spin off Sky News?
NH
right
NH
and not to some comment
NH
Citi
NH
What’s Changed Since We Last Wrote? — A lot. A week ago the regulatory preapproval process seemed to be a formality. On Wednesday, however, the News International phone hacking scandal escalated to another level. We look at investor FAQs and assess how this affects the fundamental investment case for BSkyB.
NH
Question #1: Will the UK Government Block a BSkyB/News Corp Merger? — Technically, as the government has consistently indicated, the regulatory pre-approval process is quasi-judicial. While the number of submissions (reports suggest 150k-200k) could delay a final decision, a sober assessment of the situation would suggest nothing has changed. In reality, though, a febrile political atmosphere is a likely factor.
NH
Question #2: What’s Next? — The Opposition Day motion on Wednesday challenging a BSkyB/News Corp merger will be important. Once again, technically it is not clear this will be able to derail a bid even if it were successful. It would, however, significantly crank up the political pressure for a delay. The threat of a ‘fit and proper’ test with a clearly defined framework could be the politicians’ way of achieving this.
NH
Question #3: What Is The Likelihood Of A Deal Now? — The candid answer is that a potential BSkyB/News Corp merger no longer looks as certain as we thought it was a week ago. At the same time, the actions taken to date by News Corp suggest that its ambition to own 100% of BSkyB is undimmed. Barring the most dramatic of outcomes from the criminal investigations, we still see it as a matter of ‘when’ not ‘if’.
NH
Question #4: What Is BSkyB Worth Without A Deal? — The slight irony is that we don’t think any of this has any direct bearing on what BSkyB is worth. The undisturbed price of Sky was 600p. Add in c.20% for the movement in the FTSE over the past year and BSkyB’s EPS outperformance vs. the market (another 15%), that would suggest it would be trading at 810p, c.8% above today’s price.
NH
Buyers With or Without a Deal — Clearly a wall of recent arb selling (we estimate that volume traded since Wednesday represents 1/3rd of outstanding arb positions) is unhelpful. But, as we argued last week, our PT of 999p is valid with or without a deal. We see the drop as a good opportunity for fundamental investors and stick with a Buy.
NH
and a bit from Panmure
NH
The end?
Probability of deal now reduced to 10% only. Clearly a political hot potato.
Shares already very weak, so some of this priced in. Time to consider
standalone valuation. Target price reduced to 690p (730p).
Probability of deal now reduced to 10% only. Clearly a political hot potato.
Shares already very weak, so some of this priced in. Time to consider
standalone valuation. Target price reduced to 690p (730p).
BE
Wow – 10%
NH
Probability of deal failure at all the time high. All of the above underlines the
massive downside risk to the deal going ahead at all. On Friday we cut our probability of
the deal going ahead to 50:50 (‘evens’) from 90:10 in favour. This seems very optimistic
now. Our new assessment is 10:90 in favour. In other words, we believe the deal is all
but dead.
massive downside risk to the deal going ahead at all. On Friday we cut our probability of
the deal going ahead to 50:50 (‘evens’) from 90:10 in favour. This seems very optimistic
now. Our new assessment is 10:90 in favour. In other words, we believe the deal is all
but dead.
NH
What is downside floor for shares? The company is clearly in special situations
territory. The shares have already fallen c12% in the last few days. On fundamentals
alone, we have valued BSY in the 675p-725p range. This is still well ahead of the 500p-
600p trading range the shares were in prior to the original deal announcement. Therefore
we see about another 8% downside, other things being equal.
territory. The shares have already fallen c12% in the last few days. On fundamentals
alone, we have valued BSY in the 675p-725p range. This is still well ahead of the 500p-
600p trading range the shares were in prior to the original deal announcement. Therefore
we see about another 8% downside, other things being equal.
NH
Valuation on BSY as standalone. At 690p, the shares would be trading on 17x P/E
2011, falling to 14x P/E 2012. The company does have a strong balance sheet, and there
might be an argument for a share buyback to appease dissatisfied shareholders. Interest
cover is >9x.
2011, falling to 14x P/E 2012. The company does have a strong balance sheet, and there
might be an argument for a share buyback to appease dissatisfied shareholders. Interest
cover is >9x.
NH
and here’s an interesting point
NH
I don’t think it will happen
NH
Murdoch might not scare MP’s
NH
like he used to
NH
but….
NH
Nuclear option. To date, we have not really considered the probability of a forced
divestiture of News Corp’s 39% minority shareholding in BSY. However, if the ‘fit and
proper’ test is applied rigidly by Ofcom and events elsewhere worsen, it could become a
factor. This could be a significant overhang on BSY too.
divestiture of News Corp’s 39% minority shareholding in BSY. However, if the ‘fit and
proper’ test is applied rigidly by Ofcom and events elsewhere worsen, it could become a
factor. This could be a significant overhang on BSY too.
NH
and note
NH
Sky were forced to sell down the ITV holding
BE
True.
BE
Though I think it’s right to talk about that as the nuclear option.
NH
yeah
NH
thermo nuclear
NH
(@Milky – nice scalp. Is that trader speak or something?)
BE
(@TK: balance sheet looks fine when viewed as a utility, which is probably BSky’s closest proxy.)
BE
Right – couple more comments and then we should move on.
BE
Though I don’t expect the rabble to.
BE
Here’s RBS
BE
1 – Deal is approved in Sept/Oct (before criminal investigation)- 30% probability
BE
The government’s current position is that its role in this process is ’quasi-judicial’ – ie the EU
has approved the deal from a competition perspective, the UK is only approving the deal on
grounds of ’media-plurality’, and NewsCorp has offered terms (spinning off Sky News) which
both OFCOM and the OFT are happy with. Culture Secretary Jeremy Hunt is legally obliged
to look at all 200k or so submissions he received during the second consultation process
(which ended on Friday), and this process will take until September/October, but this is largely
a rubber-stamping process and approval is given once this is completed
has approved the deal from a competition perspective, the UK is only approving the deal on
grounds of ’media-plurality’, and NewsCorp has offered terms (spinning off Sky News) which
both OFCOM and the OFT are happy with. Culture Secretary Jeremy Hunt is legally obliged
to look at all 200k or so submissions he received during the second consultation process
(which ended on Friday), and this process will take until September/October, but this is largely
a rubber-stamping process and approval is given once this is completed
BE
Deal approval delayed until 2013 (after criminal investigation)- 55% probability
BE
The FT reports that ’Government insiders confirmed Mr Cameron was desperately trying to
find a way to see off Mr Miliband’s motion by finding a way of delaying the bid before the
parliamentary debate gets under way.’ The question is whether a way can be found to do this
legally given the government’s rather narrow ’quasi-judicial’ role in this process.
! The BBC’s Robert Peston reports this morning that Jeremy Hunt will write to OFCOM and the
OFT, asking them if they still accept NewsCorp’s undertakings in light of recent
developments. This suggests the government is seeking ’wriggle room’ to postpone approval.
! OFCOM might be able to create this wriggle room: perhaps it could revise its recently given
view on the plurality issue (ie BSkyB spinning off Sky News) subject to the outcome of the
criminal investigation (thus enabling Jeremy Hunt to effectively freeze the process); perhaps
OFCOM could announce an investigation into whether NewsCorp is a ’fit and proper’ holder of
a broadcasting licence (with this investigation to run concurrently with the criminal
investigation into News International).
! Today’s FT reports there may be a legal loophole through which Jeremy Hunt could ask the
Competition Commission to investigate the ’fit and proper’ issue.
! Another alternative (albeit unlikely in our view) is that NewsCorp is persuaded to put the
process on hold while the criminal investigation takes place
! Under this scenario, we still see NewsCorp eventually getting approval, but perhaps not until
2013. We believe NewsCorp may be prepared to exit its remaining UK newspaper operations
in order to facilitate a deal, and will eventually be able to convince that it is a ’fit and proper’
owner for 100% of BSkyB.
find a way to see off Mr Miliband’s motion by finding a way of delaying the bid before the
parliamentary debate gets under way.’ The question is whether a way can be found to do this
legally given the government’s rather narrow ’quasi-judicial’ role in this process.
! The BBC’s Robert Peston reports this morning that Jeremy Hunt will write to OFCOM and the
OFT, asking them if they still accept NewsCorp’s undertakings in light of recent
developments. This suggests the government is seeking ’wriggle room’ to postpone approval.
! OFCOM might be able to create this wriggle room: perhaps it could revise its recently given
view on the plurality issue (ie BSkyB spinning off Sky News) subject to the outcome of the
criminal investigation (thus enabling Jeremy Hunt to effectively freeze the process); perhaps
OFCOM could announce an investigation into whether NewsCorp is a ’fit and proper’ holder of
a broadcasting licence (with this investigation to run concurrently with the criminal
investigation into News International).
! Today’s FT reports there may be a legal loophole through which Jeremy Hunt could ask the
Competition Commission to investigate the ’fit and proper’ issue.
! Another alternative (albeit unlikely in our view) is that NewsCorp is persuaded to put the
process on hold while the criminal investigation takes place
! Under this scenario, we still see NewsCorp eventually getting approval, but perhaps not until
2013. We believe NewsCorp may be prepared to exit its remaining UK newspaper operations
in order to facilitate a deal, and will eventually be able to convince that it is a ’fit and proper’
owner for 100% of BSkyB.
NH
30% for point one. That’s crazy.
BE
3 – Deal is blocked altogether- 15% probability
BE
We believe that NewsCorp will ultimately still get approval to acquire 100% of BSkyB, so an
outright blocking of the deal (which in any case could only come after the criminal
investigation) looks unlikely to us.
outright blocking of the deal (which in any case could only come after the criminal
investigation) looks unlikely to us.
BE
Yeah – rather too bullish for my tastes.
NH
way too bullish
NH
I would assign 0%
NH
to this deal being done by September
NH
right
NH
to finish up on this topic
NH
(they are other things going on today)
NH
(Cityunslicker – go on then back up the truck and buy loads of Sky. Go on)
NH
and finally
NH
Goldman has weighed in
NH
Source of opportunity
We see the 14% downward move in BSkyB’s share price in the last two days as an attractive entry point to buy a company with top quartile industry positioning and returns. While news flow surrounding the News Corp bid to acquire the shares in BSkyB it does not already own is unpredictable, the long-term fundamentals remain strong in our view. We expect the company to deliver high single-digit revenue growth and a 160 bp increase in EBITA margins in FY12 which should drive strong cash flow generation and 26% EPS growth. We upgrade the shares to Buy (from Neutral).
We see the 14% downward move in BSkyB’s share price in the last two days as an attractive entry point to buy a company with top quartile industry positioning and returns. While news flow surrounding the News Corp bid to acquire the shares in BSkyB it does not already own is unpredictable, the long-term fundamentals remain strong in our view. We expect the company to deliver high single-digit revenue growth and a 160 bp increase in EBITA margins in FY12 which should drive strong cash flow generation and 26% EPS growth. We upgrade the shares to Buy (from Neutral).
NH
Catalyst
In the near term, we believe BSkyB’s share price will be driven by news flow surrounding the bid by News Corp. On Friday (July 8), OFCOM indicated that it would monitor the investigation surrounding the News of the World phone tapping allegations to assess whether News Corp is a “fit and proper” person to hold a broadcast license. Our base case assumes that, ultimately, News Corp is able to acquire BSkyB but with a significant time delay, and we maintain our 12 month price target of 900p.
In the near term, we believe BSkyB’s share price will be driven by news flow surrounding the bid by News Corp. On Friday (July 8), OFCOM indicated that it would monitor the investigation surrounding the News of the World phone tapping allegations to assess whether News Corp is a “fit and proper” person to hold a broadcast license. Our base case assumes that, ultimately, News Corp is able to acquire BSkyB but with a significant time delay, and we maintain our 12 month price target of 900p.
NH
Valuation
In the absence of a bid, we value BSkyB at 816p (16x FY12E EPS, in line with historical average) but should it lever its balance sheet to 1.5x net debt/EBITDA through a share buyback, FY12 EPS would rise c.14% and valuation would increase to over 900p. Following today’s 7% intraday price move, BSkyB trades at 13.7x CY12E P/E (close to a trough multiple) and 9x EV/EBITDA. Our price target is based on 17.7x CY12E P/E and 9.7x EV/EBITDA, consistent with its organic revenue and earnings growth.
In the absence of a bid, we value BSkyB at 816p (16x FY12E EPS, in line with historical average) but should it lever its balance sheet to 1.5x net debt/EBITDA through a share buyback, FY12 EPS would rise c.14% and valuation would increase to over 900p. Following today’s 7% intraday price move, BSkyB trades at 13.7x CY12E P/E (close to a trough multiple) and 9x EV/EBITDA. Our price target is based on 17.7x CY12E P/E and 9.7x EV/EBITDA, consistent with its organic revenue and earnings growth.
BE
(@Lemmy: it didn’t “announce” any such thing. It sent a memo that Greenslade interpreted as a move to a seven-day newsroom. Every newspaper in the land has a memo like that once every six months for the past 10 years.)
BE
Ok – we should really move on now.
BE
Media talking about media becomes tiring, after a while.
NH
yes
NH
wider market then
11:28AM
NH
We are down
NH
off 15 points at 5,975
NH
surprised it’s not more
NH
given that EU finance ministers are meeting
NH
and they seem to have ripped up the French proposal
NH
and are now looking at defaults
NH
that said
NH
the real worry has to be Italy
NH
surely
NH
the banks are being hammered
NH
the CDS is at a record
NH
and the 10-year yield is approaching 7%
NH
and on top of
NH
they have clamped down on short selling
BE
Have they? Well, that’ll help.
NH
yeah
NH
find a scapegoat
NH
and shoot it
NH
By Lorenzo Totaro
July 10 (Bloomberg) — Italy’s financial-market watchdog,
Consob, is requiring investors who sell equities short to
disclose their positions in an effort to increase market
transparency.
The measure, which takes effect starting tomorrow, follows
similar action take in other European countries, including
Germany, Rome-based Consob said in a statement posted on its
website.
July 10 (Bloomberg) — Italy’s financial-market watchdog,
Consob, is requiring investors who sell equities short to
disclose their positions in an effort to increase market
transparency.
The measure, which takes effect starting tomorrow, follows
similar action take in other European countries, including
Germany, Rome-based Consob said in a statement posted on its
website.
NH
Consob’s commissioners met today after shares of Italy’s
biggest banks fell to the lowest in more than two years on July
8, and government bonds dropped, driving 10-year yields to a
nine-year high.
Short selling involves the sale of securities borrowed from
the owner, and generates profit when the trader repurchases them
at a lower price and returns them to the owner. The amount of
shorting is limited by the willingness of owners to lend.
On July 5, European lawmakers voted in favor of a ban on
short selling of government bonds in the EU unless traders have
at least “located and reserved” in advance the securities they
intend to sell. The European Union Parliament in Strasbourg,
France, also called for restrictions on traders’ use of credit-
default swaps to profit from defaults on sovereign debt they
don’t own.
biggest banks fell to the lowest in more than two years on July
8, and government bonds dropped, driving 10-year yields to a
nine-year high.
Short selling involves the sale of securities borrowed from
the owner, and generates profit when the trader repurchases them
at a lower price and returns them to the owner. The amount of
shorting is limited by the willingness of owners to lend.
On July 5, European lawmakers voted in favor of a ban on
short selling of government bonds in the EU unless traders have
at least “located and reserved” in advance the securities they
intend to sell. The European Union Parliament in Strasbourg,
France, also called for restrictions on traders’ use of credit-
default swaps to profit from defaults on sovereign debt they
don’t own.
BE
So the rumours on Friday were that several Italian banks will fail the stress tests.
BE
Which are due Wednesday, right?
NH
they are
NH
and there are perfectly good reasons for shorting italian banks and bonds
NH
but clearly the Italian government wants to name and shame em
NH
good populous stuff
NH
US hedge funds are placing large bets against the value of Italian government debt, directly shorting the bonds of the eurozone’s third-largest economy.
The funds have increased the size of short positions in the last month, speculating that investor concerns over the country’s ability to fund itself may spread from Europe’s periphery to Italy, according to investors in the funds briefed on the strategy.
The funds have increased the size of short positions in the last month, speculating that investor concerns over the country’s ability to fund itself may spread from Europe’s periphery to Italy, according to investors in the funds briefed on the strategy.
NH
that’s from today’s FT
NH
(@WWY – before me time. please explain)
NH
Right
NH
just to go back to the Italian bond thing
NH
that pedant
NH
Eoghan has picked up on
NH
when we saying approaching
NH
WE KNOW IT’S A LONG WAY FROM 7%
NH
but these things spiral out of control quickly
NH
here’s Gary Jenkins of Evo Securities to explain
NH
What will really concentrate the mind of the finance ministers will be the recent upward trend in Italian government bond yields; From 4.62% to 5.26% in just 5 weeks. What would keep me awake at night if I was a European finance minister is that we are only about 2% away from a potential disaster scenario.
NH
After all it seems that people have become fixated on the 7% figure and in recent times when a European government has witnessed its bond yields hit that level then the market has closed to and the next step is a bail. Now Italy is still a long way away from the tipping point but it is worth remembering how quickly bond yields can get out of control by looking at what happened to Greek, Irish and Portuguese 10 year yields.
NH
The three sovereigns spent an average 43 consecutive days trading over 5.50% before they went north of 6.00% on a consistent basis; this fell to an average of 24 consecutive days trading over 6.00% before they began trading over 6.50%, and just 15 days trading over 6.50% before the 7.00% level was breached on consistent basis. Taking that into consideration if I was at the meeting today then common European bond issuance would be on the agenda…
NH
European Council President Herman Van Rompuy, ECB President Jean-Claude Trichet, EU Commission President Jose Manuel Barroso, EU Commissioner Olli Rehn and Luxembourg’s Jean-Claude Juncker as head of the euro group meet today ahead of the finance ministers’ meetings today and tomorrow. Last week’s market moves will probably cause give some urgency to the meetings; Italy 10 year yields up 40bps to 5.26%, Spain’s 10 year yield increased 29bps to 5.66% and the Italian stock market fell over 7% on the week, with the two largest banks, Unicredito and Intesa SanPaolo down 19.8% and 15.3% respectively. The contagion does not seem to have been enough to convince European politicians to abandon plans for private sector participation in a second bailout.
NH
he French plan of roll overs seems to have lost its appeal and it appears that faced with the almost inevitability of a Greek default at some stage that the EU is thinking of something along the lines of a default on an orderly basis and on terms that might actually help the Greek debt burden rather than appear like a punishment for past bad behaviour. Thus the German plan of maturity extensions may be back on the table together with debt buy-backs. Buy-backs could go some way in reducing Greek indebtedness, but require a change in mind about the use of EFSF funds. Issuing through the EFSF to buy back national debt will bring the euro zone one step closer to fiscal union and joint bond issuance which might be the only way out of this mess.
BE
(@WIWY, Deep Breath: that was Debbie Harry solo, not Blondie. Yellow for both of you.)
NH
that’s what we meant
NH
and yes
NH
Italy has a massive refinancing to come this year
NH
Meanwhile, the Italian government still has more than half its 2011 total debt issuance to go, a greater amount at this stage of the year than normal. Italy has a budget deficit below zero, but the country must refinance €900bn ($1,280bn) of maturing debt over the next five years.
BE
Hm.
BE
Italy: gross debt 120% of GDP.
BE
Not good.
NH
anyway
NH
the equity market doesn’t seem that bothered
NH
so perhaps we shouldn’t be
NH
and should move on
11:36AM
NH
Right
NH
Betfair
NH
something of milestone this morning
Betfair Group PLC (BET:LSE): Last: 651.00, down 31 (-4.55%), High: 968.00, Low: 648.50, Volume: 114.14k
BE
halved since the IPO.
NH
it has
NH
down 50%
NH
what a disaster
NH
Not sure what’s pushed the price down today
NH
because the only bit of newsflow I say
NH
looked vaguely positive
NH
July 10 (Bloomberg) — European Union regulators are
preparing to tell German states that their draft gambling rules
would violate EU rules and can’t be adopted as planned, Die Welt
reported, citing unidentified people at the EU.
The draft rules, intended to take effect at the beginning
of 2012, would limit the number of licenses for private sports
betting operators to seven and would impose an additional 16.66
percent sales tax. Both issues are problematic, the EU is
preparing to tell the states in a letter, according to the
preview of a story to be published in tomorrow’s newspaper.
preparing to tell German states that their draft gambling rules
would violate EU rules and can’t be adopted as planned, Die Welt
reported, citing unidentified people at the EU.
The draft rules, intended to take effect at the beginning
of 2012, would limit the number of licenses for private sports
betting operators to seven and would impose an additional 16.66
percent sales tax. Both issues are problematic, the EU is
preparing to tell the states in a letter, according to the
preview of a story to be published in tomorrow’s newspaper.
NH
(@DBE – Yellow rescinded and then another one is produced for arguing with the ref)
BE
(Friday’s coach training session is paying dividends, Neil.)
BE
There is one bit of Betfair news out this morning.
BE
Betfair Group plc (LSE:BET), one of the world’s largest international online sports betting providers, has today announced the appointment of Matt Robinson as Emerging Markets Director.
BE
Matt will begin at Betfair in the coming months and will report to Niall Wass, Betfair’s Chief Commercial Officer. The role is a new position and reflects Betfair’s commitment to driving growth on an international basis, particularly in emerging markets.
NH
EM director?
NH
they need to crack Europe first
BE
Yeah – perhaps they’re going to be like Phorm
BE
Find a market that’ll tolerate the technology
NH
(@Javis – old from Friday)
NH
haha
NH
yeah
NH
there must be some country out there
NH
which wants a betting exchange
NH
Brazil perhaps?
BE
Well, apart from Britain you mean.
BE
Um ………….
NH
(@Oilwatcher – the UK obviously. Yellow)
BE
Where doesn’t have an effective state monopoly controlling the gambling industry?
BE
Anyone?
BE
This new director’s got his work cut out.
NH
he has
NH
and who would have thought
NH
Betfair would have halved from its issue price
NH
and Ocado would be above
An internet food retailer that many believe is the second coming of Webvan. Loss making yet valued at close to £1bn on flotation.
NH
it’s a funny world
Ocado Group PLC (OCDO:LSE): Last: 187.80, down 4 (-2.09%), High: 197.86, Low: 184.90, Volume: 132.74k
Betfair Group PLC (BET:LSE): Last: 651.00, down 31 (-4.55%), High: 968.00, Low: 648.50, Volume: 114.14k
11:42AM
NH
staying with things that are going down
Laird PLC (LRD:LSE): Last: 188.00, down 16 (-7.84%), High: 194.30, Low: 185.10, Volume: 3.80m
NH
more pain for the hedge fund community
NH
BE
And this is after Cooper said it has no intention of paying more.
NH
unless
NH
it get access to the books
NH
which ain’t happening at the moment
NH
hence today’s statement
NH
appealing to shareholders to put pressure on the board of Laird to open up the DD room
NH
Not sure what to make of this
NH
Laird’s track record hardly suggests Copper should pay up
NH
and I always wondered how Laird has managed to close that antennae business
NH
and rid themselves of Nokia is such a pain free way
NH
Copper makes the same point
NH
Cooper continues to believe there would be strategic merit in it acquiring Laird. Cooper also believes that a cash offer at a significant premium to the standalone value of the Company, as it has put forward, is something that merits the engagement of the Board of Laird. Since the announcement of the possible offer, there has been no new information which has improved Cooper’s view of the value of Laird or which, in Cooper’s opinion, would improve the value of Laird as an independent company. In fact Cooper has significant concerns about the closure of the handset antennae business, and the impact this will have on the wider group, its employees, its relationship with an important customer and the possible resultant negative impact on the value of the Laird business.
NH
any comment on this?
BE
Almost none.
BE
Curiously.
BE
And what there is seems to echo what the FT wrote this morning.
BE
Which is that an offer has to begin with a two.
NH
201p?
BE
Worth a shot.
BE
Larkam from Arden
BE
Who downgrades to neutral, albeit with very little working.
BE
Cooper Industries have made an update announcement on the potential bid for Laird. Cooper would appear to be putting pressure on shareholders to persuade management to open the books. Talking of not inclined to pay up but might increase the offer a little if the management open the books. Also commenting that the closure of the antennae business could negatively impact the rest of the group – albeit management would no doubt argue less so than if it had moved into a loss position. Cooper does not like hostile bids but is disciplined on price – note the comment that they need to generate a return for their shareholders.
BE
We still see the Cooper 185p offer as too low but any increase currently sounds as if likely to be limited. Without this support the shares are likely to trade lower short term. Medium term we see greater value although management will need to have a far more convincing presentation / strategy with the interim figures.
NH
indeed they will
BE
So August 1 is the deadline here.
BE
And there have been unnamed shareholders quoted as suggesting a 220-240p offer could be sufficient.
NH
and in other bid news
Northumbrian Water Group PLC (NWG:LSE): Last: 447.70, up 21.4 (+5.02%), High: 448.70, Low: 440.00, Volume: 9.22m
NH
looks done and dusted this
NH
sale of Cambridge Water already up and running
NH
offer price at a decent premium to RAB
NH
can’t the Canadian’s bulking at this
NH
sorry
NH
that Ontario Teachers Pension Plan
NH
although
NH
they have been very quiet through all of this
NH
and if they block this
NH
that would seriously hurt the merg arb funds
NH
anyway
NH
here’s a quick piece from Merrill
NH
NWG has announced today that CKI has made a revised non-binding cash offer
at 465p per share, 9% above Friday’s close price.
at 465p per share, 9% above Friday’s close price.
NH
A 465p offer represents a 28% EV premia to 2012 RAV, we estimate, above the
average 25% takeout multiple in previous UK water deals from back in 2006-07.
NWG has agreed for CKI to now undertake due diligence. Existing shareholders
will also be entitled to the 9.57p final dividend to be paid in September.
average 25% takeout multiple in previous UK water deals from back in 2006-07.
NWG has agreed for CKI to now undertake due diligence. Existing shareholders
will also be entitled to the 9.57p final dividend to be paid in September.
NH
Positive for UK water peers: This is a significantly positive development for the
other UK water stocks. Severn Trent (SVTRF, A-1-7, GBP1,499), being the
cheapest UK water utility, remains our favourite UK water name but clearly
Pennon (PEGRF, A-2-7, GBP713.5) and United Utilities (UUGWF, A-1-7,
GBP607) are also likely to benefit from the above average takeout multiple
implied by the CKI offer.
other UK water stocks. Severn Trent (SVTRF, A-1-7, GBP1,499), being the
cheapest UK water utility, remains our favourite UK water name but clearly
Pennon (PEGRF, A-2-7, GBP713.5) and United Utilities (UUGWF, A-1-7,
GBP607) are also likely to benefit from the above average takeout multiple
implied by the CKI offer.
NH
Current trading multiples of water peers: In terms of 2012 EV/RAV premia,
Severn Trent is trading at 5.5%, UU at 6.3% and Pennon at 11.4% premia.
15% EV/RAV Scenario: As highlighted in our scenario analysis earlier, even
applying a conservative 15% EV/RAV premia would suggests upside of 18% for
SVT and UU. Pennon is already trading at 11% premia, so a 15% scenario would
imply 4% upside and a 10% premia would imply 9% upside from current levels.
Severn Trent is trading at 5.5%, UU at 6.3% and Pennon at 11.4% premia.
15% EV/RAV Scenario: As highlighted in our scenario analysis earlier, even
applying a conservative 15% EV/RAV premia would suggests upside of 18% for
SVT and UU. Pennon is already trading at 11% premia, so a 15% scenario would
imply 4% upside and a 10% premia would imply 9% upside from current levels.
NH
We remain Buyers of SVT and UU and maintain our Neutral on Pennon, although
Pennon is also clearly likely to benefit from this newsflow.
Pennon is also clearly likely to benefit from this newsflow.
NH
here’s a few more share prices from the sector
Severn Trent PLC (SVT:LSE): Last: 1,503, up 4 (+0.27%), High: 1,523, Low: 1,500, Volume: 262.74k
Pennon Group PLC (PNN:LSE): Last: 715.00, up 1.5 (+0.21%), High: 720.76, Low: 710.50, Volume: 166.71k
United Utilities Group PLC (UU.:LSE): Last: 608.00, up 1 (+0.16%), High: 615.00, Low: 605.50, Volume: 881.89k
NH
(@finlay sorry RAV)
11:53AM
BE
Ok – what now?
NH
Ok
NH
from RAB
NH
to RAV
NH
to
NH
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
rumours kicking around
NH
that BHP
NH
is interesting in buying Tullow Oil
Tullow Oil PLC (TLW:LSE): Last: 1,317, up 14 (+1.07%), High: 1,318, Low: 1,302, Volume: 840.86k
BE
Leftfield.
NH
via the Australian Financial Review
NH
BHP approached Potash Corp of Saskatchewan last year just ahead of the release of its results in August,
relieving pressure to return cash to shareholders at the time.
With that in mind, there is industry chatter that it may be sniffing around African oil opportunities.
The Big Australian has large petroleum businesses in the US and Australia, but it has been notably absent from
the major finds offshore from West Africa (and Brazil for that matter).
relieving pressure to return cash to shareholders at the time.
With that in mind, there is industry chatter that it may be sniffing around African oil opportunities.
The Big Australian has large petroleum businesses in the US and Australia, but it has been notably absent from
the major finds offshore from West Africa (and Brazil for that matter).
NH
One idea being floated in the market is a bid for Tullow Oil, which among its assets owns 36.5 per cent of the
giant Jubilee oilfield offshore Ghana. Tullow has a market value of £11.8 billion ($17.6 billion), with 37 million
barrels of oil-equivalent production expected this year. (Locally, Tullow is perhaps best known for buying
Australian-listed Hardman Resources for $1.5 billion in 2006, which gave it promising ground in Uganda).
BHP’s $US4.75 billion ($4.41 billion) acquisition of the Fayetteville shale gas assets has helped fill a hole in its
production caused by drilling delays in the Gulf of Mexico, but the Arkansas field produces lower-margin gas
rather than higher-margin oil.
Adding Tullow’s existing production – and its extensive growth prospects – could therefore be an interesting
proposition for BHP. But it might also spark competition from cashed-up Chinese state-owned oil companies.
giant Jubilee oilfield offshore Ghana. Tullow has a market value of £11.8 billion ($17.6 billion), with 37 million
barrels of oil-equivalent production expected this year. (Locally, Tullow is perhaps best known for buying
Australian-listed Hardman Resources for $1.5 billion in 2006, which gave it promising ground in Uganda).
BHP’s $US4.75 billion ($4.41 billion) acquisition of the Fayetteville shale gas assets has helped fill a hole in its
production caused by drilling delays in the Gulf of Mexico, but the Arkansas field produces lower-margin gas
rather than higher-margin oil.
Adding Tullow’s existing production – and its extensive growth prospects – could therefore be an interesting
proposition for BHP. But it might also spark competition from cashed-up Chinese state-owned oil companies.
NH
Should BHP decide to make a smaller entry into the region, another option would be the purchase of Kosmos
Energy, which owns 23.49 per cent of the Jubilee oilfield. Kosmos rejected a $US5 billion bid from CNOOC and
Ghana National Petroleum Corp last year in favour of a float. It now has a market value of $US6.7 billion.
The Australian Financial Review
Energy, which owns 23.49 per cent of the Jubilee oilfield. Kosmos rejected a $US5 billion bid from CNOOC and
Ghana National Petroleum Corp last year in favour of a float. It now has a market value of $US6.7 billion.
The Australian Financial Review
NH
not sure about that
NH
the BHP has a big oil division
NH
and should do a deal story
NH
has been kicking around for a long while
NH
without ever happening
NH
still at least they wouldn’t face a massive competition inquiry
BE
Woodside would be cheaper, would be lower risk and make more sense strategically.
BE
Plus, what’s the shareholder overlap between Tullow and BHP? Considerable, I’d imagine.
NH
well
BE
Perhaps they’re interested in Jubilee. But Tullow? Doubt it.
NH
Right
NH
I need to leave in 5mins
NH
lunch at the Don
NH
with a world famour Bear
NH
BE
Classy.
BE
In that case, any more raw before you depart?
NH
yes
NH
slightly obscure this one
NH
Oerlikon
NH
swiss stock
NH
makes solar panels and other things
BE
Oerlikon. Right.
NH
The Oerlikon group is focusing its competencies in the six different Segments Oerlikon Textile, Coating, Solar, Vacuum, Drive Systems and Advanced Technologies. The core competency is the thin-film surface and interface coating in nanometer range. With our products and services we are in leading positions in the respective markets: No. 1 in coating solutions, production plants for thin-film silicon solar modules, textile machinery and niches for drive systems; No. 2 in the area of vacuum technology.
NH
Has a big Russian shareholder
NH
(Eoghan – don’t creep to Lemmy)
NH
Viktor Vekselberg’s Renova Group
NH
anyway
NH
to cut a long story short
NH
someone is rumoured to be looking at them
NH
one idea is Sulzer
NH
another Swiss engineer
NH
but that’s too obvious
NH
another is Applied Materials in the US
NH
to be honest
NH
I need to some more work on this
NH
but it’s today RAW
BE
For a Monday, that ain’t bad at all. Cheers.
NH
and with that I am done
NH
off to see Paddington for lunch
NH
with Murphy for company
NH
FTSE 100 selling off a bit now
NH
down 28 ppoints at 5,962
BE
Don’t let him bring his own marmalade sandwiches. Murphy I mean.
NH
I don’t have much for smalls
NH
you could mention
International Power PLC (IPR:LSE): Last: 313.30, up 12 (+3.98%), High: 316.10, Low: 300.10, Volume: 4.38m
NH
on the Aussie carbon tax
NH
and the Mittal bid for MacArthur Coal
BE
Neutral, I thought.
NH
that should have some read across
BE
(The tax that is)
BE
Ok – here’s Deutsche on the carbon compensation scheme.
BE
International Power has this morning issued a statement in response
to the carbon pricing proposal published yesterday by the Australian
government. Although the final impact of the proposal remains somewhat
uncertain, we believe the announcement will be a net positive
for sentiment towards the company, following weakness in the shares
last week. The proposal includes provision for five years of free carbon
credits, and there is a possibility of a voluntary agreement with the
government for early closure of brown coal units in return for compensation
payments. Risks remain but suggested compensation
mechanisms should reduce fears of a worst-case outcome.
to the carbon pricing proposal published yesterday by the Australian
government. Although the final impact of the proposal remains somewhat
uncertain, we believe the announcement will be a net positive
for sentiment towards the company, following weakness in the shares
last week. The proposal includes provision for five years of free carbon
credits, and there is a possibility of a voluntary agreement with the
government for early closure of brown coal units in return for compensation
payments. Risks remain but suggested compensation
mechanisms should reduce fears of a worst-case outcome.
BE
The government proposal involves a carbon price starting at A$23/tonne on
July 1 2012 and rising to A$29/tonne by 2016. Many details from the 2009
plan have been retained, including free permits for electricity generators for
five years. The compensation pot for generators of A$5.5bn is lower than
the previous A$7.3bn, but brown coal stations may also be entitled to receive
compensation for early closure. Legislation is expected in August or
September, followed by a Senate inquiry later this year. If the Government’s
agreement with the Australian Greens and key independents holds, legislation
is expected to pass in November.
July 1 2012 and rising to A$29/tonne by 2016. Many details from the 2009
plan have been retained, including free permits for electricity generators for
five years. The compensation pot for generators of A$5.5bn is lower than
the previous A$7.3bn, but brown coal stations may also be entitled to receive
compensation for early closure. Legislation is expected in August or
September, followed by a Senate inquiry later this year. If the Government’s
agreement with the Australian Greens and key independents holds, legislation
is expected to pass in November.
NH
OK
NH
I am off
NH
and TFT1
NH
there will be more headlines like this
NH
the BSY price
NH
to remain volatile
NH
cya
BE
And with that, he was gone.
BE
Oh, did mean to mention Diageo.
Diageo PLC (DGE:LSE): Last: 1,295, down 5 (-0.38%), High: 1,305, Low: 1,288, Volume: 1.27m
BE
Valuation downgrade from Bernstein
BE
Not thrilling, but it’s a Monday and it isn’t a satellite broadcaster.
BE
Over the last five years, Diageo has delivered strong out-performance, with Total Shareholder Returns of
63% compared the MSCI Europe broadly flat (and just ahead of the average European Beverages TSR of
61%). Diageo’s stock has been a particularly strong performer this year, up c. 9% relative to the MSCI
Europe and 6.5% vs peers, as the market has factored in the upside from the emphasis on emerging
markets, the prospect of cost-cuts and potential upside from future M&A.
63% compared the MSCI Europe broadly flat (and just ahead of the average European Beverages TSR of
61%). Diageo’s stock has been a particularly strong performer this year, up c. 9% relative to the MSCI
Europe and 6.5% vs peers, as the market has factored in the upside from the emphasis on emerging
markets, the prospect of cost-cuts and potential upside from future M&A.
BE
Although we support the re-rating of both the sector and Diageo, we believe that the upside is now fully
built into Diageo’s share price and are downgrading the stock to Market Perform. Specifically, on our
estimates, Diageo is trading at a 4% premium to peers, even though we expect below-average EPS
growth (12.1% vs 15.3%), below average TSR (15.0% vs 17.3%) and below average Tangible ROIC
(33% vs 39%).
built into Diageo’s share price and are downgrading the stock to Market Perform. Specifically, on our
estimates, Diageo is trading at a 4% premium to peers, even though we expect below-average EPS
growth (12.1% vs 15.3%), below average TSR (15.0% vs 17.3%) and below average Tangible ROIC
(33% vs 39%).
BE
In summary, we view that Diageo has some fantastic assets in Scotch, Latin America and Africa.
However, there are a number of other areas where we see structural disadvantages, compounded by a
certain ‘lack of stretch’, not least in its margin development model. We endorse many of the strategic
initiatives that are underway. However, we believe that an EPS profile which is slower than peers, and a
Tangible ROIC which is lower than peers, does not warrant the current premium vs peers. For all these
reasons, we are now downgrading Diageo from Outperform to Market-perform with 8% upside to our
new Target Price of £14.00, based on revised EPS estimates which include the expected integration of
Mey İçki.
However, there are a number of other areas where we see structural disadvantages, compounded by a
certain ‘lack of stretch’, not least in its margin development model. We endorse many of the strategic
initiatives that are underway. However, we believe that an EPS profile which is slower than peers, and a
Tangible ROIC which is lower than peers, does not warrant the current premium vs peers. For all these
reasons, we are now downgrading Diageo from Outperform to Market-perform with 8% upside to our
new Target Price of £14.00, based on revised EPS estimates which include the expected integration of
Mey İçki.
BE
Ok – done.
BE
And can NH and PM stop using the comment box as their own MSN chat service please?
BE
Thanks, actual rabble, for all your comments.
BE
We’ll see you tomorrow.
BE
Bye.
BE
(@PM, @NH: never apologise, never explain. Yellow.)