FT Alphaville » Markets Live transcript 15 Jul 2011

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Markets Live transcript 15 Jul 2011

Posted by Neil Hume on Jul 15 11:04.

Markets Live chat transcript for the chat ending at 11:33 on 15 Jul 2011. Participants in this chat were: Neil Hume, FT bryce.elder

hola markets rabble

and welcome to ML

sorry for being late

Bryce has been giving me a crash course

in bookmaking tax

and the levy

very complicated

no wonder the bookies have some many regulatory issues

Well, I’m testing the outer envelope of my knowledge of bookie tax.

To be honest, I doubt anyone understands it entirely.

It’s like trying to grasp The Totality.

Anyway, we can move onto such issues later.

Should we begin at the top?

good idea

we were down

but are now up

not by much

2.5 points higher at 5,849

ahead of the stress tests

how many will fail?

will anyone care?

will it be a giant fudge?

I’d be offering a 4-7 spread on that.

A 4-7 fudge spread.

It’s generally agreed that they’re not particularly stressful

PIGS unemployment forecasts optimistic, for starters.

I can believe that

actually there’s a few funny note doing the rounds for RBS

they really have had enough

stress tests

ECB

Greece

they are totally depressed

So then, tonight we can be finally put out of our misery. If the stress test results on their own aren’t enough for you, however, there’s a conference call tomorrow morning that might well be worth tuning into if only to hear the market vent spleen at what will likely be another pointless exercise (can forward the details if interested). If there are some ‘Alex Zimmerman’ style stream of consciousness rants (see the attached ICB response), it should brighten up the weekend.

Expectations are very low indeed, so there’s something of a trading call around the event, with the (fading) hope of a periphery announcement over the weekend to help trigger a sector rally. We’ve been here before, and trying to time these things is never easy, so would sooner not participate either way right now.

There are growing expectations of a ‘shock and awe’ package for the periphery, backstopped by an expanded EFSF/ESM. Problem is, we heard ‘shock and awe’ with QE1 in the US (under-delivered) as well as the Greek crisis in June last year (ultimately pointless), so aside from anything else, the authorities need to beef up the hyperbole, as well as the package. Shock and Awesomeness? Shock, Awe, and Indestructibility?

More importantly on timing, is the relentless disappointment involved in sitting around waiting for answers. Despite the busy looking politicians we see shuffling across our rolling news screens, and promises of ‘commitment’ and ‘determination’, so far the responses to Greece and beyond have been pretty underwhelming, and only seem to trigger another confidence drop. Where’s the sense of urgency? In the absence of any definitive and credible resolution, the market tends to navel gaze and drift into a state of bearish paralysis.

Note the rise in bank sector funding costs (as referenced by CDS or sovereign debt yields), interbank spreads (FRA/OIS – chart attached), and the collapse in debt issuance, all of which are critical to the health of the banking sector and, by extension, the real economy. The longer the broader market sits waiting for a sign from on high that the world is safe again, the greater the chances this current bout of fear turns into something more systemic. Once again it feels as if the cries for help from the banking sector are being ignored in the broader market, as was the case through 2007, but should we see financial system pressure increase, then pigeon-holing the periphery as a ‘banks sector problem’ will no longer be tenable. That said, everyone is pretty beaten up and miserable these days, so perhaps the consensus bearishness might be enough to drive a sector rally on its own. Clutching at straws here

clutching at straws

sums things up

“the relentless disappointment involved in sitting around waiting for answers”

Nicely put. And sadly accurate.

So, chin up.

At least we get 10 pages on all 90 banks to read over the weekend.

There MIGHT be something qualitative to learn from that.

Though, in truth …………

Anyway, what’s the sector doing?

not a great deal really

Lloyds Banking Group plc (LLOY:LSE): Last: 45.99, up 0.17 (+0.37%), High: 46.05, Low: 44.88, Volume: 42.06m

Barclays PLC (BARC:LSE): Last: 227.20, up 1.35 (+0.60%), High: 227.80, Low: 221.85, Volume: 12.30m

Royal Bank of Scotland Group PLC (RBS:LSE): Last: 35.59, up 0.16 (+0.45%), High: 35.69, Low: 34.90, Volume: 15.04m

actually

where is Milky

is it school sports day?

is he running the egg and spoon?

(@cousin jack: Temenos warning. We’ll get to that.)

Sack race would be more appropriate.

(@DBE: snap. And apologies for Cheggers-ing.)

anyway

talking of bearish notes

you seen this piece out of Deutsche Bank today?

Please find attached a report published overnight by our valuations team, estimating that if the Eurozone crisis worsens, we could see world stocks (the MSCI World index) lose up to 35% of their value.

Erk.

35%

Markets are increasingly concerned about the lack of unity among European politicians in the face of the worsening sovereign debt crisis in the euro zone. The failure of the various measures taken so far to build confidence among investors has already pushed up the equity risk premium (ERP), on our calculations.

We believe that a continuation of this trend is the primary risk that could see world stocks (the MSCI World index) lose up to 35% of their value if the situation deteriorates into a full-blown financial crisis on the scale of the fallout from the collapse of Lehman Brothers in 2008.

the scale of Lehman Brothers!!!

The majority of the fall in prices would come from a rise in the ERP to the peaks of March 2009. The rest would be a consequence of lower profitability resulting from the inevitable economic slowdown associated with a disorderly adjustment.

On a milder scenario, under which the crisis is contained and does not spill over to the real economy, we would still expect the MSCI World to fall by around 12%. This has been our central expectation for some time and would be driven by a small and temporary rise in the ERP compared to our worst-case scenario. The temporary nature of the rise in ERP would provide equity investors with an attractive entry point, in our view.

That’d be the FTSE at ……

3,800.

back to the March 2009 lows

dash for trash and all that

Yes – as it happens. Back to the pre-QE trough.

Prompt action from European authorities could avert this worst-case outcome, however. But the downside risks to our relatively mild scenario have undoubtedly increased recently.

* In the worst-case scenario, we would expect a significant underperformance of the financial sector (a fall of as much as two-thirds) and the financially levered sectors such as Utilities, Industrials, Telecoms and Consumer Discretionary. At a sector level, Healthcare, Consumer Staples and Energy are most protected under this scenario, we think. Operationally levered regions such as Asia, Japan and Europe would likely be worst impacted. We therefore favour the S&P and companies with healthy balance sheets.

doom and gloom

(@Milky: yellow for tardiness.)

right

then

on to some stocks?

before we do

Murphy wanted me to plug a story in Tilt

seems quite interesting

Paul Murphy

Former FT Alphaville editor and founder of the site. Now in charge of something called FT Tilt.

And do sign up, because it’s very good.

What’s the story?

Can you give us a shout out on a story? It’s a good story — Moscow is facing a credit rating downgrade cos Gazprom is planning to move its export arm to St Petersburg.

Formal S&P warning. Big news for Moscow. traditionally HUGE rivalry between moscow and st Petersburg.

Stands to lose $3.6bn of revenue i think.

Credit crisis jumping to unlikely locations…

here’s the link

http://tilt.ft.com/#!posts/2011-07/25336/just-how-powerful-is-gazprom-ask-pushkin?vfts=1310722581&sig=cb76ba315011d728ed751e1d20914e25

Yes, you did read that correctly. If Gazprom Export leaves Moscow, S&P might cut the current BBB rating of Russia’s biggest city.

The reason is that Gazprom Export is Moscow’s biggest taxpayer by far – OAO Gazprom, the overall holding company, at present pays the bulk of its taxes through its export subsidiary. Moscow’s 2011 budget estimated that Gazprom Export paid around 100bn roubles ($3.6bn) in tax in 2010, and S&P predicted the firm will pay Rbs110bn in 2011.

Here’s a better link.

http://tinyurl.com/62um553

thanks for that

Right – returning to today’s events, where to begin?

what about Reckitt Beckit?

Reckitt Benckiser Group PLC (RB.:LSE): Last: 3,469, up 26 (+0.76%), High: 3,469, Low: 3,428, Volume: 390.12k

RTRS-CARL ICAHN -ON JULY 14 SENT A LETTER CLOROX CEO PROPOSING TO ACQUIRE ALL OUTSTANDING SHARES NOT OWNED BY ICAHN FOR $76.50/SHARE
11:05 15Jul11 RTRS-ICAHN -DISCLOSED HIS AFFILIATES OBTAINED LETTER FROM JEFFERIES & COMPANY, ON ABILITY TO PROVIDE FINANCING FOR PROPOSED DEAL

that just hit the tape

haven’t they been linked before

or have i made that up?

Colorox sold a business to Reckitt.

Insecticides, many years ago.

At Clorox, we know that home is where the heart is. Whether you’re using Clorox® Regular-Bleach or Clorox® Disinfecting Wipes you can be sure that the quality and safety of our products is always a top priority.

http://www.clorox.com/products/

And there’s been rather low-grade rumours of Samuel Beckett moving for Clorox over the years.

Take a look at this, for example.

Should Reckitt Benckiser buy Clorox?
I am preparing a (fake) pitch for Reckitt Benckiser buying Clorox, assuming Reckitt never acquired SSL. Do you think that’s a good target?

Thanks!

Answer by Samuel S
Weird question, Clorox and Reckitt won’t have any synergies, and Clorox was one of the early target in the pitchbooks at the SSL time, the management figured out that even if it was slightly undervalued that wouldn’t make sense at all to buy a US focused group for them.

usually Icahn doesn’t buy anything. he just puts the thing into play and someone else comes along and buys the company

where was that from?

http://www.gonanala.com/should-reckitt-benckiser-buy-clorox/

I’ve no clue about why anyone would write such nonsense.

And mention it simply in passing.

well

(@Lorkan: sorry, in joke. Contact calls Reckitt Benckiser “Reckitt Beckett”, hence ..)

Clorox is in play

and it has some read across for Reckitt Beckitt

11:23AM

Moving on

top of the FTSE 100 pops today

Fresnillo PLC (FRES:LSE): Last: 1,626, up 31 (+1.94%), High: 1,626, Low: 1,574, Volume: 386.01k

presumably that because all the muppets are piling back into silver

Yep. QE3.

And results yesterday (?) were okay.

what else is moving

Burberry Group PLC (BRBY:LSE): Last: 1,537, up 23 (+1.52%), High: 1,537, Low: 1,506, Volume: 407.38k

there’s no stopping this thing

up and up it goes

Hugo Boss upgraded this morning I think

is that a record high for Burberry?

Most days it is, yes.

could be a few new highs to come

we are into reporting season for the luxury good co’s

* Hugo Boss has pre-released 2Q results, 2 weeks earlier for German regulatory reasons, they have raised guidance for the year from “at least 12% sales growth” to 15% to 17% (constant FX). EBITDA before special items is expected to rise by 25% to 30% (previously: increase of at least 15%). Burberry +5% and more on it’s numbers.

Hermes due Tues 19 July

Luxottica Mon 25 July

LVMH Tues 26 July

Puma Wed 27 July

PPR Fri 29 July

Tods 5 Aug

Swatch 11 Aug (but likely to be pre-released)

that was from Citi

if people are interested

11:26AM

let’s revisit the mining sector again

and this BHP deal

Bhp Billiton PLC (BLT:LSE): Last: 2,346, down 40.5 (-1.70%), High: 2,353, Low: 2,326, Volume: 3.17m

not very exciting is it?

No.

But it is, at least, something.

doesn’t really move the needle

pricey

and they are a wee bit late to the shale gas party

And it’s not as exciting as potash.

Or as strategically important as the iron ore JV.

And it’s certainly not a patch on a Rio merger.

However ………………….. it’s something.

And for that, Kloppers must be relieved.

true

Bit surprised to see the shares lower this morning.

I liked this fact

Increases shale gas to ~25% of oil production, but Energy increases only marginally from 21% to 26% of overall portfolio – not enough to really matter

Yeah – as you say, it’s a relatively small deal.

I’d assumed a lot of the BHP discount was that they’d attempt a relatively large and stupidly expensive deal.

fair point

And that risk seems to be off the table for a while.

although any stupid large deal in the mining sector

seems to get blocked

right then, a couple of notes on this deal

first up Collins Stewart

US shale gas target: Aspirations of larger scale buy back program took a set back overnight as BHP Billiton announced a $15bn acquisition of US shale gas developer Petrohawk Energy. The cash offer for the $12.1b in equity at $38.75/share represents a whopping 65% premium to yesterday’s close. Marius Kloppers, keen to close a deal after a couple of high profile failures, now starts the big sell on the deal to shareholders. The deal also demonstrates the difficulties BHP faces in buying tier 1 assets in scale in core mining commodities segments, requiring the group to expand market share into oil & gas and potentially potash. While shale gas production is poses different technical challenges, the development timeline and expansion potential of shale gas is seen to complement the offshore business.

and here’s Liberum

BHP Billiton has announced an agreed $15bn acquisition of US shale gas producer Petrohawk. The acquisition comes at the end of a run of three major failed M&A initiatives (Rio, the iron ore JV and Potash) and though the market in Oz has acted in a muted way (-0.7%) we feel it the deal is sensible and removes perceptions of acquisition risk in BHPB. We feel BHP are slightly late to the party on this one, although the deal is all about upside growth potential given the 5.9 billion boe net risked resources, and therefore substantially superior to a return on cash. The transaction may not be cheap (+65% premium to yesterday’s close) but it looks like it will be at worse earnings neutral in the short term, has longer term optionality, is within an interesting sector and is in a low jurisdiction risk location. Set alongside a very accretive $10bn buy-back, we feel the shareholders have been relatively well-served by the board of late.

any more to say on this?

or shall we move on

to something techie?

11:32AM

Misys PLC (MSY:LSE): Last: 373.50, down 13.9 (-3.59%), High: 377.51, Low: 353.00, Volume: 3.47m

down following a profits warning

from its closest competitor

is that right?

Quite so.

Temenos warns again.

does this mean

the takeover of Misys

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

is off?

will FIS walk?

Um ……….. that’s the fear, obviously.

It’s a tough market.

if they do

the break will be horrible

given underlying trading looks very weak

And how much of the bid was in the price pre bid?

It went up in a straight line on the “rumour”

(@Yes please Milky – I might do a post on it)

Here’s the detail of Temenos’s warning.

Via Panmure

Q2 licence revenue in a range of US$38.5m-39.5m implies like-forlike
growth of -2% to 1%, and reported growth of 12% to 15%. Given this, and an
uncertain outlook, Temenos is guiding down FY licence outlook. Temenos now expects
like-for-like licence growth of 5% to 10%, giving an implied range of US$176m to
US$184m. This compares to previous outlook from 19% to 24% (US$197m to
US$205m).

Says new Temenos CEO, Guy Dubois: “Currently, the uncertainty facing banks,
particularly in Europe, is impacting their willingness to take decisions about large capital projects. . . we
are seeing a longer sales cycle and we have taken the prudent decision to lower our full year licence
outlook. Banks are deferring not cancelling decisions (investors will need convincing) . . we see good
pipeline build up and there is no reason at this stage to change the medium to long term view of our
business and its prospects.”

However ………………..

Misys isn’t a perfect proxy for Temenos.

I see

Misys more defensive?

Well, the pair compete for new banking customers.

Though there’s very little overlap in the current customer base.

Panmure again

Misys shares
have been weak, as investors fret that the deal with Fidelity National
Information Services will be scuppered by current capital market
uncertainties and FIS less keen on add to its US$5bn debt. In truth, the lack
of news simply means no news – however, fear has overtaken greed and hot
money will continue to come out of Misys.

Expect FIS to be whooping it up
today – it will see Misys as a strategic asset and now has the opportunity to
pick it up for less.

And a bit more.

FIS has a long running track record in
acquisitions, and particularly in buying Banking assets. So, the first question to think
about is, why would it break its very successful ‘stick to the knitting’ strategy and move
to Capital Markets? Last year, FIS very smartly out-bought Temenos to acquire
Metavante for US$2.9bn – this derailed Temenos’ attempts to break into the US market.
Previously, FIS acquired eFunds Corp. (2007 for US$1.8bn electronic processing and
risk management) and merged with Certegy Inc. in 2006 (this added credit and debit
processing, check risk management and check cashing services for financial institutions,
retailers and consumers.)

The thinking at FIS appears to be to consolidate products
which may prove attractive to financial institutions as they emerge from the recession.
We still have a view that Fidelity might still just attempt to buy Misys banking – it would
pay for the 160p – 180p?

Misys results are due July 19

thanks for that

I have a few bits to add

Here’s Olivetree

making the point on the break

and the last thing those evil hedge funders needs is another deal break

especially after BSkyB

Temenos, generally perceived to be the best comp to Misys, cut their Q2 and FY license revenue forecast last night. They cut Q2 to the $38.5-39.5m and their FY forecast to 5-10%, implying $176-184m in licenses compared to their previous guidance of 19-24% growth and $197-205m.

In the second reference this week alone to slowing bank IT spending (after Computacenter CCC LN) they say that banks are now quite clearly deferring decisions. They particularly reference banks in Europe. These indications obviously continue to have particular read across to Misys.

We would expect MSY LN to be weaker again on the back of these comments, most of the weakness this week has been attributed to a deteriorating organic picture – with a negative theme right the way through their sector (other than a vague rumour of FIS walking away from the due diligence process). The perceived break (ex M&A) price for Misys has clearly moved down somewhat throughout the course of this deterioration.

As a reminder, FIS numbers are next Tuesday, with Misys’ own numbers next Thursday.

(Rabble – I might have to step in and stop the fight. Milky is on the ropes and taking blow after blow to the head.)

right one more bit of comment onthis

from Jefferies

Key Takeaway. As Temenos gets punished for yet again cutting guidance, its troubles should serve as a timely reminder of the attractions of owning a banking systems installed base. Misys is far less dependent on new name business, focusing on selling upgrades. We believe that Misys bid discussions will come to fruition and, consequently, the weakness caused by the Temenos profit warning has created an outstanding buying opportunity.

The timing of the announcement is noteworthy as it came soon after Software AG’s profit warning. However, given contrasting data points from elsewhere in the sector, it is worth revisiting some of the company-specific strategic issues that Temenos has been busy resolving of late.

hese issues highlight the value of owning a legacy installed base and customer relationships, into which new modules can be sold over time as part of a phased systems replacement. If Temenos does not succeed in acquiring Misys Core Banking and it goes to a rival vendor, such as Infosys, TCS or Fidelity National Information Services (FIS), the competitive landscape will become that much tougher.

We continue to believe that it is unlikely that FIS will walk away with Misys uncontested. Misys Core Banking is perhaps the last opportunity for one of the heavyweights to acquire a fully-fledged installed base comprising end-to-end installed systems. Meanwhile, Misys Capital Markets commands 40% market share in global wholesale banking (as measured by IBS) and offers a direct route to market leadership for any acquirer. We reiterate our Buy rating on Misys with an unchanged £5.00 price target.

500p

now that is bullish

Hm.

(Sorry, distracted. Prince “Old Spice” Alwaleed’s on CNBC.)

one last thing to say on tech

ARM Holdings PLC (ARM:LSE): Last: 565.00, down 9.5 (-1.65%), High: 576.55, Low: 558.50, Volume: 2.24m

are weak today

Morgan Stanley worried about the chip makers

putting some downgrades through

Over in Semis, Francois has been getting more nervous around the cycle every day as he sees too many warning signals. So today, he cuts back his Infineon numbers (3Q) and PT trimmed from €8.8 to €8.0. He also gets off his STMicro OW call, downgrading to EW and takes his PT from €10 to €6.5. He takes his 2011 EPS down hard from $1.01 to $0.77 and his 2012 from $1.40 to $1.05 with the Street at $1.10

Francois’ concern is that the Autos & Distribution markets are rolling over to add to an already weak Consumer mkt (PC, Printers etc). He flags warnings from Microchip and Premier Farnell as important indicators of weakness and inventory build, and his conversations with Autos component makers suggests that Auto chipmakers have come off a period of allocation (demand>supply) and sees this slowing fundamentals there despite still strong OEM sales. He also points to warnings from Equipment makers likely to mean lower capacity utilisation, pressuring GMs. He sees this as likely to impact 3Q guidance at STM and IFX. Francois is only left with an OW call now on ASML in his group.

there you go

some excellent points in there

Poor set of numbers from Sony Ericsson overnight too, which hasn’t helped the mood.

Sony Ericsson?

does that still exist?

do they still make phones?

They’ve gone Android, like everyone else.

I see

still never seen anyone using one

Their new Xperia Arc actually looks pretty decent.

I’ll take your word for that

But, unfortunately, it’s not got an Apple on the back or an HTC price tag, so it’s doomed.

Ok – don’t let me nerd out on this stuff. Let’s return to the movers.

11:45AM

Some good news for the knife catchers

British Sky Broadcasting Group PLC (BSY:LSE): Last: 706.00, up 10 (+1.44%), High: 708.62, Low: 695.00, Volume: 3.18m

not sure if the move has anything to do with the departure of Brooks

I’m guessing not

Interesting resignation letter.

“If it falls to me to start a fight to cut out the cancer of bent and twisted journalism in our country with the simple sword of truth and the trusty shield of British fair play, so be it. I am ready for the fight. The fight against falsehood and those who peddle it. My fight begins today.”

Oh – hang on.

Sorry, that was Jonathan Aitken’s resignation letter.

My mistake.

a classic

a CLASSIC

is this one any good?

This is Bruno’s.

As you can imagine recent times have been tough. I now need to concentrate on correcting the distortions and rebutting the allegations about my record as a journalist, an editor and executive.

My resignation makes it possible for me to have the freedom and the time to give my full cooperation to all the current and future inquiries, the police investigations and the CMS appearance.

(@Milky you’re limit has been increased)

there was a line in there

about how the resignation was accpeted

i thought that was interesting

Therefore I have given Rupert and James Murdoch my resignation. While it has been a subject of discussion, this time my resignation has been accepted.

So she tried to leave, but they kept dragging her back in.

actually

this made me laugh

http://www.youtube.com/watch?v=UPw-3e_pzqU

best line of the morning

Rebecca_Bream Rebecca Bream
Happy to see the back of Rebekah – it has always annoyed me how she mis-spells her name…

that’s one of our news editors

An excellent and valid point.

Returning to the knife catching.

hang on

breaking news

RTRS-COMMERZBANK SAYS EMPLOYEES OF COMMERZBANK CURRENTLY HAVE NO ACCESS TO IT SYSTEMS OF THE BANK
11:49 15Jul11 RTRS-COMMERZBANK ARE CURRENTLY STILL ABLE TO TRADE IN FINANCIAL MARKETS

err that doesn’t sound good

and

impossible

no systems but still trading??

And the entire bank? Not just an office?

That’s a colossal failure.

I can’t quite understand how that’s even possible.

Surely they’re not centralised to that extent.

not even we have an IT outage like that

right

back to Sky

I think the share price is getting a boost today

from Deutsche Bank

which are house broker

and can start following the stock again

now BSkyB is out of an offer period

Media commotion presents a buying opportunity: resuming coverage. The withdrawal
of the News Corp bid for BSkyB and the 18% stock price fall over the last week
provides an opportunity to buy exposure to one of the highest quality media
franchises, in our view. The current stock price seems to barely reflect the rise in the
FTSE100 and the relative earnings outperformance of BSkyB from before the bid.
Since then, we believe both the quality of forward earnings and the prospects for
cash returns have improved, justifying a premium. This report marks the change in
primary coverage of BSkyB to Laurie Davison.

The quality of earnings seems to have improved…. The perennial fear on BSkyB has been a major new investment phase pushing out earnings and cash returns. The
News Corp bid has indicated that no such investment is likely to be forthcoming near
term. Furthermore, pay-TV’s defensive credentials and the macro environment
certainly seem no worse than 12months ago.

so no big cap-ex planned

as well as the prospects for cash returns. Another year of strong earnings growth
has left dividend cover very strong and the balance sheet looking under geared. Net
debt/EBITDA should be just 0.6x by the end of June/fiscal year end. Raising leverage
to just 1.5x FY2012E would offer 113p per share for cash returns. Consensus is
currently assuming stable payout ratio from 2011E and we believe this may be
conservative.

At minimum, the FTSE100 rise and Sky EPS outperformance implies 775p. The
improvement in earnings quality and scope for cash returns justifies a premium to prebid valuation in our view. But merely taking the pre-bid BSkyB stock price of 574p in June 2010 and reflecting the 15% rise in the FTSE100 and the 12% relative
outperformance of BSkyB earnings versus the index justifies 775p backstop valuation, already 10% above the current stock price.

What happens now? We assume there is no prospect of any early resumption of a bid from NewsCorp, bearing in mind the likely length of UK media inquiries. But we also assume that NewsCorp is not likely to be a seller of its stake. We therefore expect the stock to revert to fundamentals, although the likely transition of shareholder register and exit of event/merger arbitrage funds looks likely to cause further volatility

New price target 850p. Our 850p target is DCF based (WACC 10%, long-term growth 2%) given the relative long-term subscriber contracts and upfront costs of subscriber acquisition. Risks: subscriber growth, ARPU pressure, investment, further regulatory investigation and consequent media discussion attracting negative sentiment

sorry

didn’t manage to get that in a quote box

now

cash returns at Sky

how will that work?

can’t do a buyback

because of Murdoch creeping control?

special dividend?

Can’t see Rupert wearing that.

What of the warning in the “no bid” statement that, if the divi policy changed, he’d be whitewashed to bid again?

That looked to me like a threat to keep away from the cash.

if I ran Sky, I’d use the free cash to buy TalkTalk

get some most customers

bolt it on to easynet

There’s a fair bit of Sky/Talktalk overlap.

and it wouldn’t solve their problem with lack of fibre.

true

they need better broadband speed

merger with BT?

Great idea. Personally, if I were Murdoch, I’d bid for BT’s Openreach division.

That’d get people properly excited.

The phone hackers owning the phone lines.

done with Sky?

Think so.

11:59AM

Right

bear story doing the rounds in Aggreko

Aggreko PLC (AGK:LSE): Last: 2,014, down 20 (-0.98%), High: 2,044, Low: 2,010, Volume: 358.37k

this is read 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.

not checked etc

AGK: Press reports that Uganda has binned 100MW of power generation from AGK in favour of cheaper hydropower plant. Contract was equivalent to c.8% of last year’s IPP wins

If this is true should they have put out an RNS?

Ticker

surprisingly

not RAW today

not a thing

no silly Friday bid stories that I can report

Looks like the Aggreko news is fact

really

KAMPALA -(Dow Jones)- Uganda’s government will stop buying expensive power from two thermal plants owned by London-listed Aggreko PLC (AGK.LN), in a bid to reduce its electricity subsidy burden, Minister of Energy and Minerals Irene Muloni said Friday.

The government will terminate its contract with the Kiira and Mutundwe plants–which have a combined capacity of 100 megawatts–by November, when the first unit of the 250 MW Bujagali Hydropower Project is commissioned.

Power from the Bujagali project will be cheaper and eliminate the need for expensive thermal power, Muloni said.

The Bujagali project is jointly owned by Sithe Global Power LLC and the Aga Khan Fund for Economic Development.

Aggreko officials couldn’t comment immediately.

statement needed I think

Oh, there’s a Tullow angle too ………

what’s that?

Uganda, which contracted thermal generators in 2006 to supplement hydropower, is expected to retain some heavy oil-fired plants that will be using crude oil produced in the Lake Albertine rift basin during an extended well testing program expected to commence before the end of the year.

UK-based Tullow Oil PLC (TLW.LN) is expected to conduct the program in three blocks in the Lake Albertine rift, where at least 1 billion barrels of oil have been discovered.

Tullow Oil PLC (TLW:LSE): Last: 1,281, up 12 (+0.95%), High: 1,282, Low: 1,247, Volume: 863.57k

12:02PM

Right then

what is wrong with Betfair this morning

has a

and then bash

back down again

Betfair Group PLC (BET:LSE): Last: 637.50, down 44.5 (-6.52%), High: 684.00, Low: 635.00, Volume: 445.09k

Yeah – this change to the offshoring legislation seems to have seriously spooked people.

Basically, for those who missed it, offshore bookies will now need a UK gaming licence to tap UK punters.

and the levy?

(Or rather, that’s the proposal)

is that important?

Well, this is a tad more complicated.

great

At the moment, onshore bookies pay a levy to support the horseracing industry.

But offshore ones don’t.

but Betfair does though?

It makes a voluntary contribution to cover its back.

Because …………

If the government decides that betting exchanges should be paying the levy ….

It’s effectively be a tax taken directly from the punters’ winnings.

i see

Which is unheard of. You don’t tax winnings.

but that’s bad for everyone across the industry

not just Betfair

Ladbrokes PLC (LAD:LSE): Last: 143.70, down 0.4 (-0.28%), High: 144.40, Low: 142.85, Volume: 1.05m

William Hill PLC (WMH:LSE): Last: 219.50, up 3.6 (+1.67%), High: 220.00, Low: 212.80, Volume: 1.48m

Well, the levy uncertainty is yet another potential spanner in the ointment for Betfair’s business model.

Though we should stress these are proposals only.

And a tax change would take extra legislation.

true

but a government in need to revenues

the bookies should look out

(@Justeverything: should you be declaring an interest here?)

not straight forward this

hang on

there’s a good note from Numis on the levy

Last night John Penrose, junior minister, was discussing the future of the Levy
(which funds British horse racing) in the House of Commons. We believe the risk of
a change with negative implications for Betfair is low but the Minister did not rule
out such a change pending the conclusion of a consultation

Betfair makes a voluntary contribution to the Levy based on Betfair’s revenue,
which is the same basis on which it paid Levy when it was onshore and legally obliged
to pay.

Betfair critics say Levy should be charged to horse race betting customers based
on the customers’ winnings. Given that the Levy is currently 10% and commission on
Betfair ranges from 5% to 2% the imposition of the Levy would be a major change in
the structure of horse race betting on Betfair.

We believe the risk of a change is low because i) UK gamblers do not pay tax on
their winnings and imposing the Levy would be a major change to that principle, ii) we
cannot see why betting exchange winners on horse race bets should have to pay a tax
which winners with bookmakers do not, and, iii) it would be negative for the “pricing” of
sporting odds to the consumer

When asked if a change would be made the Minister said “As for whether people
using betting exchanges should or should not pay the levy, that is precisely what we
are in the middle of consulting on, so it would be rather premature for me to prejudge
that”.
n While this is probably appropriate ministerial language and the risk to Betfair has
not changed it would have been reassuring to have an outright denial.

Yeah – the levy’s the potential for structural change.

Then you have the uncertainty over an offshore gaming tax, which even if it didn’t appear for several years, would still consume rather a lot of Betfair’s earnings.

Shore reckons 70%.

In what is, to be fair, a very balanced note on the subject.

let’s have a look then

Hope this meets with your approval, @justeverything

Yesterday, the Government issued proposals for regulation of UK online gambling, which has been in the pipeline of a number of years and isn’t an totally unexpected development, in our view. The regulation is expected to force offshore operators to apply for UK online gambling licences in order to offer wagers to UK residents. The proposals are designed to ‘level the playing field’ between operators and eliminating the ‘cowboys’ in the industry. Comments from John Penrose, the Minister for Tourism and Heritage, indicates that companies that already hold a gambling license from an approved country including Gibraltar, Guernsey and Alderney will be entitled to an automatic transitional license to prevent them having to cease trading and a “light-touch” approach to avoid duplicating regulation.

After speaking to a number of gambling companies, it seems several points can be drawn from yesterday’s announcement, notably:

· The proposals by the UK Govt are for regulation not taxation.

· It’s unlawful in relation to EU law to implement regulation for the purpose of taxation. Regulation has to be implemented for consumer protection.

· To implement taxation, the UK Govt has to create new primary legislation. This could take a number of years and would likely face significant opposition.

· Even assuming tax is the most likely outcome from regulation eventually, we believe the tax is likely to be set upon on the current gambling tax of a 15% gross profit tax.

· Whilst initially taxation would be negative, we believe the larger players in the UK online market would gain share at the expense of the smaller online gambling companies, unable to pass regulatory approval and absorb the online tax. Furthermore, there remains the potential to adjust the odds and rake on sports and poker

· The biggest impact would be on 888^ (888, Hold at 33p) and Betfair^ (BET, Hold at 670p) with a potential loss of £13m (100% of PBT) and £30m (70% of PBT) and the land-based bookmakers William Hill^ (WMH, Buy at 215p), Ladbrokes^ (LAD, Hold at 145p) and Paddy Power^ (PAP, Buy at €36), a £30m (or £21m after adjusting for minority (7% PBT)) impact on Hills, £26m (15% PBT) Ladbrokes and a £14m (14% PBT) for Paddy Power. Furthermore, Sportingbet^ (SBT, Buy at 52p) and Bwin.Party^ (Buy at 140p) which have very small UK exposure would see some marginal negative impact.

thanks for that

balanced piece

not sure why Betfair is being hit hardest

but anyone

on to the small caps

12:12PM

Yell

Yell Group PLC (YELL:LSE): Last: 7.35, down 1.05 (-12.50%), High: 8.40, Low: 6.67, Volume: 40.88m

That short-covering rally doesn’t look all that smart any more, does it?

nope

It occurred to me coming in on the Tube this morning that Yell’s SME customer relationships aren’t actually all that valuable.

Given they publish all the names in a big yellow book every year.

Not exactly a top-secret client base.

Anyway, are we any clearer to knowing what the reinvention plan is?

thanks to the Guardian i am.

I know what he’s up to

http://www.guardian.co.uk/business/2011/jul/14/yell-michael-pocock-bank-debts-emarketplaces

Yell wants to move from selling classified advertising to selling everything digital that small to medium-sized enterprises need.

This could be building their websites – which it does successfully already. By the end of this year, 400,000 of its 1.3m customers will have a Yell-built website. Pocock wants them to have online shops too, and this week bought a business called Znode which builds them. And he wants his 6,000-strong sales force, of which 1,200 are based in Britain, to sell other products. Through an alliance with Microsoft, they will offer deals on anything from accounting and payroll software to Microsoft Office.

And there will be new services for shoppers: “On my first day, I told every–one that I view Yell as a consumer company.” He has trademarked the term Yell e-Marketplace. Pocock believes people want to shop locally. Yell will sign up a town or neighbourhood’s shops to discount schemes and customer loyalty schemes that allow shoppers to earn points, and even local credit cards.

nitially, the idea will go on trial in the Hispanic community – 20% of Yell’s customers speak Spanish – and on university campuses. There will be local newsletters that carry advertising produced by community bloggers or freelance journalists. It sounds like a lot of work: “One of the things we had to guard against was doing too much too soon. But we couldn’t make a cautious move, you have to be bold and aggressive if you’re going to transform your business.”

He has trademarked the term Yell e-Marketplace

well i never

Yell e-Marketplace TM

A copyright on an already widely used phrase.

That may well be the most valuable thing Yell has in the current portfolio.

Plenty of scope for nuisance lawsuits.

http://www.google.co.uk/search?q=%22e-Marketplace%22

more small caps

WARNING!Crowded long. Every hedge fund in London owns this Greek gold play, even though it doesn’t have a permit to mine.

European Goldfields Ltd (EGU:LSE): Last: 859.00, up 41 (+5.01%), High: 859.00, Low: 787.00, Volume: 136.52k

some good news out this morning

and they have also hired Goldman

to take them onto the main market

and into the FTSE 250

That disclaimer needs an edit. They now have rights to cut down all the trees.

Corporate Development

European Goldfields is reviewing its corporate structure with a view to facilitating better access to, and servicing of, the UK and international capital markets. The Company has appointed Goldman Sachs International to assist with this review which will include the evaluation of a potential upgrade of the current AIM Listing to the Main Market of the London Stock Exchange and a potential re-domiciliation of the Company. Lazard & Co., Limited will also provide financial advice in connection with such evaluation.

yes

must change that

what to???

Suggestions welcome, rabble.

£1.5bn company

that has produced NO GOLD

board stuffed full of investment bankers

looking to sell it

Currently Canadian registered. Wonder where they’ll re-domicile?

Here?

index trackers

gotta love em

they have to buy

anyway

some comment

here’s Liberum

EGU has updated NI 43-101 reserves and resources at its Greek development projects Olympias and Skouries, plus it has appointed David Cather as COO to oversee ramp-up to first production. The headline is a 0.14Moz increase in attributable gold reserves (+2%), a 1.2Moz increase in resources (+13%), a 51kt fall in copper reserves (-7%) offset by a 427kt increase in resources (+43%). Highly positively capex inflation has been avoided; Olympias stands at US$165m and Skouries US$300m (2011-2015 capex spend actually appears c.US$85m lower than our 2010 estimate). EGU now has 9.2Moz of total attributable gold reserves or a huge 18.1Moz gold equivalent, meaning its current EV/reserve valuation stands at US$204/oz gold or a ridiculously cheap US$127/oz gold equivalent (US$435/oz is the average for North American producers).

Forecast Greek operating costs of US$350-400/oz completes a long list of plaudits for these assets. To our mind the 5 year permitting process that was concluded last Friday, froze in time a suite of high quality projects that by comparable standards today will be highly coveted by investors and competitors. We will now re-model our LoM forecasts, but today’s announcement and suggestion of a Main Market LSE listing reaffirms our belief that EGU should initially trade to our £12.63/shr fair value. A high conviction BUY.

and Collins Stewart

Resource increase: Following the granting of the environmental permits for the Greek projects EGU has updated its resource/reserve calculation. This has added an additional 13% to the contained metal in reserves at Olympias, a polymetallic (Au, Pb, Zn, Ag, ) ore body and tailings project. 4.06M oz gold, 58.8m oz silver 599 kt Lead and 796 kt zinc. The Skouries project has seen a 6% increase in resources of copper and gold to 5.34 m oz and 1.2 mt respectively in measured and indicated resources @ 0.67g/t Au and .49% Cu. There has also been a new inferred resource of 0.83m oz gold and 288kt Cu. However there has been a slight decrease in Reserves as the company has tied some of the resource up in pillars which may be available for mining at the end of the mine life. The operation will begin as an open pit and transition to an underground sublevel stoping operation with back fill after six years.

apital Requirement: The Company estimates that Olympias will require a capital investment of $15m for the tailings retreatment facility up to Q2 2012. Refurbishment of the underground mine requires $150m out to Q4 2015 and an additional $108m between 2016 and 2020 for expansion. With first production from Skouries expected in Q1 2014 the company expects to invest $300m as previously stated. The company currently has $57m in cash and signed an agreement with a group of lenders back in December 2010 to provide $300m of finance for the projects.

Moving up: EGU has appointed Goldman Sachs to advise it on a move to the main board in London. This is a transformational time for the company not least because it will finally become a gold producer we expect to see upward momentum in the stock as it delivers on its plans through to next year and we enter the strong season for gold in the Autumn

(@Vintage: Well done. Gold star for that.)

one more smaller to mention

Blacks Leisure

more bad news

I can’t believe they are so bad at making money

What’s the problem this time?

Blacks Leisure (not under coverage): Poor old Blacks is way off most people’s radar-screens, with a market cap of only £14m at last night’s close, but today’s new disaster should not pass unnoticed. Despite reasonable trading in the last 6 weeks, cumulative LFL sales over the last 19 weeks are down by a worse than expected 9.7%, which has caused net debt to balloon, forcing the company to renegotiate its banking facilities again and investigate the potential for yet another capital raising…Ouch. We wish them luck.

that’s from Nick Bubb

Blacks Leisure Group PLC (BSLA:LSE): Last: 13.17, down 3.08 (-18.96%), High: 16.50, Low: 13.17, Volume: 45.50k

another cash call

banking covenants

gawd

and one more to mention

Future

publishes Play Station Magazine

Future PLC (FUTR:LSE): Last: 13.50, down 4 (-22.86%), High: 15.75, Low: 13.50, Volume: 410.46k

And lots of other stuff.

And the problem is a relapse of issues in the US.

Where management don’t seem to be doing very well.

i see

Too many magazines coming back unsold.

And it’s the second time Future’s warned on overstock in the US side in the past couple of years.

Not enough buyers of Crochet Today!

(Their exclamation mark, not mine.)

http://crossstitcher.themakingspot.com/

So is there any comment on this one? It’s a serial profit warner.

are we done?

I’m hungry

Hang on – Future comment, then we’re out.

Altium won’t cut and paste properly, so here’s Investec.

Future’s Q3 IMS notes more problems in the US, with EBITA in that business
now expected to be £2m lower than previously expected. A £2m cut sees our
EBITA in 2011E reduce by 27%, adjusted EPS likely to fall to around 1p from
1.44p. Forecasts and target under review. Whilst restructuring intentions look
sensible, we think rebuilding management credibility will be a challenge from
here given the nature of the issue that has hit again in the US.

Right – we’re done.

Thanks for all your comments today.

yes

and all week

comment count going back up

nice to see

Should we send Milky off in the last minute, just for the sake of it?

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.

yeah

He’s gone.

Milky

OFF

Churlish, unprovoked and random act of abuse, but there we are.

Ok – as to the rest of you, have a good weekend.

and enough of the Citizen Kane references

goodnight

This entry was posted by Neil Hume on Friday, July 15th, 2011 at 11:04 and is filed under Uncategorized. Edit this entry.

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Markets Live transcript 15 Jul 2011

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