Markets Live chat transcript for the chat ending at 12:28 on 7 Nov 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT
NH
Morning rabble
NH
welcome to another week of ML
NH
with me and Bryce
NH
and it’s all rather gloomy this morning
NH
FTSE down quite sharply
NH
Italian bond yields rising
NH
and Silvio still in denial
NH
“Italy does not feel the crisis,” Mr Berlusconi said after the G20 summit of industrial powers. He described the Italian bond sell-off was “a passing fashion”, adding “the restaurants are full, the planes are fully booked and the hotel resorts are fully booked as well”.
NH
he actually said that
BE
What a man. What a remarkable, dangerous man.
BE
(Hello, Neil. And hello, rabble.)
NH
right
NH
let’s just a price on the Italian 10-year
NH
yield at 6.6%
NH
in the danger zone
NH
well and truly in the danger zone
NH
Shift focus from Greece to Italy: with key trigger being spread between Italy 10yr BTP (at 6.42% last tick) and German bunds (1.81%) = 461bp now. If the spread stays wider than 450bp for 5 consecutive trading days then the LCH Clearnet’s rules would impose 15% higher collateral requirements. This hike in collateral requirements was what pushed Ireland and Portugal yields up another 100-300bp, leading to IMF bailouts. Italy obviously is a much bigger problem potentially. UKBanks read across to BARC and RBS on further writedowns.
NH
although do be slightly careful with this LCH stuff
NH
the spread is not over German bunds
NH
but
NH
It’s a spread to an AAA benchmark index comprised of Ger, Fr and Dutch
NH
but still
NH
at 6.6%
NH
Italy is in big trouble
BE
Though ………………..
NH
we’ve rallied
BE
The rumour — and please note RUMOUR ……
NH
Market is well off lows on rumours Berlusconi to step down. Euro has halved losses. S&P futures, too.
BE
Hm.
NH
If Berlusconi goes, will the rally that accompanies it be called the “Berlusconi Bounce”? I really hope not -mental images I don’t need..
NH
Reports Berlusconi will resign tomorrow and propose a Letta-led government #Italy (via @francobechis) via @AlbertoNardelli
NH
Reports Berlusconi will resign tomorrow and propose a Letta-led government. #Italy (via @francobechis)
NH
some of the headlines going through Twitter right now
NH
and look at the FTSE 100 go
NH
we are now only off 26 points
NH
at 5,500
NH
a few minutes ago
NH
we were down 90 points
NH
what’s Silvio wiped on to global markets?
BE
(Charming phrase.)
BE
But let’s inject a bit of rationality into this.
BE
Berlusconi faces a confidence vote tomorrow night.
NH
he does
BE
If he lost that, he’d call a snap election.
NH
(Italian 10-year yield has come in a bit 6.52%)
BE
Are we to believe that he’s had wind of how the vote’s going to go …..
BE
So he’s going to step down rather than hang around to fight an election?
BE
I’m not saying it can’t happen, it just doesn’t seem his style.
NH
it’s going to be another day
NH
of rumour
NH
and craxzy counter rumour
NH
stand back
NH
and watch the fun
BE
And Berlusconi remained confident of winning the confidence vote over the weekend.
BE
Bluster? I dunno.
NH
OK then, here’s the report
NH
from La Repubblica
NH
via Google translate
NH
Governo sempre più in bilico
Ferrara: “Berlusconi si dimette”
Il direttore del Foglio: “Questione di ore, forse minuti”. Domani il voto a Montecitorio. Voci di nuove defezioni nel Pdl. Sullo sfondo la legge di Stabilità e gli equilibri cambiati in commissione bilancio. Cicchitto: “Passo indietro di Berlusconi? Fantasie”. Letta: “Anche se cambia gli impegni restano”
Ferrara: “Berlusconi si dimette”
Il direttore del Foglio: “Questione di ore, forse minuti”. Domani il voto a Montecitorio. Voci di nuove defezioni nel Pdl. Sullo sfondo la legge di Stabilità e gli equilibri cambiati in commissione bilancio. Cicchitto: “Passo indietro di Berlusconi? Fantasie”. Letta: “Anche se cambia gli impegni restano”
NH
Ferrara: “Berlusconi has resigned”
The Director of the sheet: “A matter of hours, maybe minutes.” Deputies vote tomorrow. Voices of new defections in the PDL. In the background of the law changed in stability and balance the budget committee. Cicchitto: “Step back to Berlusconi? Fantasies.” Read: “Although the commitments are changing”
Ferrara: “Berlusconi has resigned”
The Director of the sheet: “A matter of hours, maybe minutes.” Deputies vote tomorrow. Voices of new defections in the PDL. In the background of the law changed in stability and balance the budget committee. Cicchitto: “Step back to Berlusconi? Fantasies.” Read: “Although the commitments are changing”
BE
Ok – the Ferrara they’re quoting is I assume this chap
BE
He came from a family of Communists and was active in the Italian Communist Party until his twenties. In 1982 he broke with the party and became vocal as an ex-Communist. He initially gravitated toward socialism, but later moved toward social conservatism. He was in the Berlusconi I Cabinet and founded the newspaper Il Foglio.
NH
right
BE
So anyway, where’s the FTSE at the minute?
NH
Right
NH
we are now down 36 points at 5,490
NH
I have a few bits of comment
NH
on the Italian situation
NH
it’s a bit out of date
NH
given these rumours
NH
but still not a bad preview of what might happen this week
NH
Italy – “…competitive economy; credibility problem” (French Finance Minister, Mr Baroin): Italy is now at the epicentre of the rolling crisis. According to Ansa, Italy’s Democratic Party – the biggest opposition party – will present a no-confidence motion against PM Mr Berlusconi, even if he wins the routine vote on the 2010 budget report this Tuesday. Meanwhile, Mr Berlusconi is facing revolt from his own party, with up to 20 MPs reportedly dissenting
BE
(OPEC Money: *** off.)
NH
A senator from his own party, Mr Pisanu, has called for a government of “national unity and salvation” (Ansa). Overall, there seems to be major doubts on the PM’s ability to implement the required structural reforms. Although Italy has agreed for the EU and IMF to monitor implementation of these planned reforms, a change in government could produce an unstable (political) vacuum for several months, and that in our opinion, worsen the crisis. Italy has heavy financing requirements and unfortunately, faced with issuing the equivalent of 22% of its GDP in 2011, the rising yields become self full-filling. Italian banks and insurance firms are also very exposed to the sovereign, and this risks amplifying the crisis. Our Economists forecast the Italian economy entered recession in Q3’11, and the planned fiscal austerity measures, although designed to boost growth, are likely to deepen the recession in the immediate term.
NH
We continue to hold that any rescue effort without the ECB at the core is dead before arrival. A large scale QE by the ECB could provide the major backstop, but both Germany and the ECB have so far resisted the proposal. We should note that some of Italy’s fiscal metrics (e.g. bank assets as a %ge of GDP, required fiscal retrenchment etc.) are better than those of some EU countries – the UK, Sweden and France included. The UK and Sweden have their own central banks, and we suspect this to be why the market gives them credit in our fiscal attack theme. If the ECB continues to resist QE, we suspect questions on EMU structure; integrity and credibility will gain momentum, including possible break-up of the Euro-zone.
NH
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.
NH
the first one of the morning
NH
feels good to get it
NH
out of the way
NH
stupid comment
BE
Indeed. We could pretend to have inside knowledge of Italian politics, like everyone else does ….
NH
and speak Italian
NH
but we don’t
BE
Or we could simply report what’s moving markets. Which is what we do.
BE
Anyway, let’s kick on.
NH
OK
NH
FTSE 100 now down 21 points at 5,507
11:19AM
NH
Right then
NH
to some stocks
NH
actually
NH
before we do
NH
I had a little something from Goldman on Italy
NH
sort of the worst case sceanrio
NH
let me fetch it
NH
and we can move on
NH
A different, more problematic scenario would instead be
the one in which the Italian government proves
recalcitrant (or politically incapable) to seize the
initiative, notwithstanding increased pressures from the
markets, peer EMU countries and the IMF. This could
result in unilateral decisions by the authorities to
nationalize banks, and/or restrict market activity in
government securities. Under these circumstances, which
we judge as very unlikely given current information but
by no means impossible, the ECB would likely interrupt
the SMP and retreat to refunding of depository
institutions. This would leave the fiscal authorities (the
IMF, the EFSF) to deal with the adverse primary and
secondary market implications. Clearly, such a low
probability outcome would be an extremely costly one,
both for BTPs, equities, and for systemic risk more
generally.
the one in which the Italian government proves
recalcitrant (or politically incapable) to seize the
initiative, notwithstanding increased pressures from the
markets, peer EMU countries and the IMF. This could
result in unilateral decisions by the authorities to
nationalize banks, and/or restrict market activity in
government securities. Under these circumstances, which
we judge as very unlikely given current information but
by no means impossible, the ECB would likely interrupt
the SMP and retreat to refunding of depository
institutions. This would leave the fiscal authorities (the
IMF, the EFSF) to deal with the adverse primary and
secondary market implications. Clearly, such a low
probability outcome would be an extremely costly one,
both for BTPs, equities, and for systemic risk more
generally.
BE
Oh, and Merrill had a good note on Italy as well.
BE
Pressure is mounting on Italy, which is being put under IMF review to enhance its
credibility, as ECB support seems weaker. More specifically, these events have
renewed tensions for Italy. Since the EFSF in its current form is not large enough
to cope with Italy’s funding needs (roughly €250bn a year) Italy will have to cope
with rising yields by itself and cannot rely on EFSF help alone. As Italy has kept
access to financial markets, there has so far been no need to ask for external
help. That said, we note that Italy’s access to financial markets has been
supported by ECB interventions.
credibility, as ECB support seems weaker. More specifically, these events have
renewed tensions for Italy. Since the EFSF in its current form is not large enough
to cope with Italy’s funding needs (roughly €250bn a year) Italy will have to cope
with rising yields by itself and cannot rely on EFSF help alone. As Italy has kept
access to financial markets, there has so far been no need to ask for external
help. That said, we note that Italy’s access to financial markets has been
supported by ECB interventions.
BE
Over the past few days two developments will have put Italy under renewed
tensions, aside from the Greek turmoil: first, several ECB board members have
said sovereign debt purchase could only be temporary and for countries
implementing structural reforms, which in our view sounded as a warning.
Second, Italy has agreed to quarterly IMF/EU monitoring, which looks to us the
premise of Italy being put under the new IMF precautionary credit line (PCL)
programme. This programme is designed for countries with sound fundamentals,
temporary vulnerabilities, and who cannot meet all the criteria of the Flexible
Credit Line. It has also the advantage of offering larger funding than other IMF
programme, for up to two years and is conditional on the countries implementing
the reforms identified during the qualification review. In this respect, we note an
IMF mission is starting this week in Italy. If Italy is put under such a PCL
programme, it could increase its credibility in the market.
tensions, aside from the Greek turmoil: first, several ECB board members have
said sovereign debt purchase could only be temporary and for countries
implementing structural reforms, which in our view sounded as a warning.
Second, Italy has agreed to quarterly IMF/EU monitoring, which looks to us the
premise of Italy being put under the new IMF precautionary credit line (PCL)
programme. This programme is designed for countries with sound fundamentals,
temporary vulnerabilities, and who cannot meet all the criteria of the Flexible
Credit Line. It has also the advantage of offering larger funding than other IMF
programme, for up to two years and is conditional on the countries implementing
the reforms identified during the qualification review. In this respect, we note an
IMF mission is starting this week in Italy. If Italy is put under such a PCL
programme, it could increase its credibility in the market.
BE
However, as we have noted in the past, another possibly effective way for Italy to
increase its credibility would be a government shuffle bringing in a technocratic
government. The probability of such a scenario increases as Italy faces more
headwinds in financial markets and domestically, but it is difficult to predict
whether such an outcome could unfold quickly. Overall, we note that steps are
being put in place for Italy to increase credibility of its commitment to an agenda
of reforms with a view of enhancing debt sustainability. We also note that Italy
under a PCL would be given access to IMF funds which are larger than EFSF
(c.$385bn are currently available at the IMF).
increase its credibility would be a government shuffle bringing in a technocratic
government. The probability of such a scenario increases as Italy faces more
headwinds in financial markets and domestically, but it is difficult to predict
whether such an outcome could unfold quickly. Overall, we note that steps are
being put in place for Italy to increase credibility of its commitment to an agenda
of reforms with a view of enhancing debt sustainability. We also note that Italy
under a PCL would be given access to IMF funds which are larger than EFSF
(c.$385bn are currently available at the IMF).
BE
Italy can face rates of double digits for a couple of years before the average rate
on its debt becomes so high it threatens debt sustainability, given the amount of
outstanding debt and average maturity. But the risk for Italy is rather that demand
for sovereign bonds wanes even at rates below double digit (certainly rates at
8pct or so, even if they had a marginal impact on the total interest rate burden,
would raise market anxiety up to a point that demand for sovereign bonds could
potentially be reduced notably).
on its debt becomes so high it threatens debt sustainability, given the amount of
outstanding debt and average maturity. But the risk for Italy is rather that demand
for sovereign bonds wanes even at rates below double digit (certainly rates at
8pct or so, even if they had a marginal impact on the total interest rate burden,
would raise market anxiety up to a point that demand for sovereign bonds could
potentially be reduced notably).
BE
Overall, high uncertainty and the risk of an accident as described in “What if
scenarios” has increased. We noted then that a disorderly default in Greece could
trigger Greece’s exit. Other type of accidents (involving Spain, Italy, the banking
sector) would rather accelerate surrender of sovereignty at the Euro Zone level in
our view, with a (partial) delegation of budgetary decision as described in our
paper “Constructing the Eurobond”.
scenarios” has increased. We noted then that a disorderly default in Greece could
trigger Greece’s exit. Other type of accidents (involving Spain, Italy, the banking
sector) would rather accelerate surrender of sovereignty at the Euro Zone level in
our view, with a (partial) delegation of budgetary decision as described in our
paper “Constructing the Eurobond”.
BE
Right – loads to read there.
NH
indeed
NH
and a couple of French tape bombs
NH
have just landed
NH
further cost cutting measures
NH
*FILLON SAYS FRANCE TO ACCELERATE HEALTH SPENDING CUTS
*FILLON SAYS PUBLIC SPENDING WILL FALL EU1 BLN A YEAR FROM 2013
*FILLON SAYS BUDGET MEASURES WON’T IMPACT GROWTH
*FILLON SAYS 2016 BALANCED BUDGET TARGET `PERFECTLY REACHABLE’
*FILLON CONFIRMS BALANCED FRENCH STATE BUDGET BY 2016
*FILLON SAYS BUDGET CAN’T COME JUST FROM RAISING TAXES
*FRANCE’S FILLON SAYS COSTS 100 BILLION EUROS TO BALANCE BUDGET
*FILLON SAYS FRANCE MUST AVOID HAVING POLICIES DICTATED
*FILLON SAYS FRANCE PAYING FOR 30 YEARS OF `LIVING ON CREDIT’
*FRENCH PRIME MINISTER FILLON SPEAKS TO REPORTERS IN PARIS
*FRANCE’S FILLON SAYS SOLE DEBT OBJECTIVE IS TO PROTECT FRANCE
*FILLON SAYS FRANCE TO ACCELERATE HEALTH SPENDING CUTS
*FILLON SAYS PUBLIC SPENDING WILL FALL EU1 BLN A YEAR FROM 2013
*FILLON SAYS BUDGET MEASURES WON’T IMPACT GROWTH
*FILLON SAYS 2016 BALANCED BUDGET TARGET `PERFECTLY REACHABLE’
*FILLON CONFIRMS BALANCED FRENCH STATE BUDGET BY 2016
*FILLON SAYS BUDGET CAN’T COME JUST FROM RAISING TAXES
*FRANCE’S FILLON SAYS COSTS 100 BILLION EUROS TO BALANCE BUDGET
*FILLON SAYS FRANCE MUST AVOID HAVING POLICIES DICTATED
*FILLON SAYS FRANCE PAYING FOR 30 YEARS OF `LIVING ON CREDIT’
*FRENCH PRIME MINISTER FILLON SPEAKS TO REPORTERS IN PARIS
*FRANCE’S FILLON SAYS SOLE DEBT OBJECTIVE IS TO PROTECT FRANCE
NH
To stocks then
BE
Guess so. Milky.
(@Milky: yellow.)
11:23AM
BE
Right — where to start?
BE
The failed Best Buy experiment?
NH
why not
Carphone Warehouse Group PLC (CPW:LSE): Last: 350.00, up 5 (+1.45%), High: 383.25, Low: 349.00, Volume: 1.30m
NH
stock has barely budged on the news
NH
that Carphone is shutting the 11 Best Buy Europe stores
NH
“The eleven Best Buy UK ‘Big Box’ stores have performed exceptionally at the level of customer satisfaction, but they do not have the national reach to achieve scale and brand economies. Due to the lack of visibility of an acceptable rate of return on historical and future potential investment we have decided against rolling out more ‘Big Box’ stores and we will be closing our existing stores, subject to consultation with our employees. Our immediate focus is our people and we are confident that the large majority will be offered alternative positions elsewhere in our UK business.
BE
“performed exceptionally at the level of customer satisfaction ….”
BE
That’s nice.
BE
Didn’t make any money though.
NH
no
NH
all back to Dixons then
NH
where there isn’t
NH
an exceptional level of customer satisfication
NH
anyway,
NH
in addition to that news
NH
Carphone is selling out of its US JV
NH
with Best Buy
NH
which has been successful
NH
and returning the cash to sharheolders
NH
Best Buy shares our vision of the Connected World strategy and the transactions will enable Best Buy to market the full range of mobile phones, tablets and related devices through Best Buy Mobile, and unlock the potential for both parties to exploit growth potential in this broader category in other jurisdictions outside North America and Western Europe through the Global Connect agreement.
NH
The consideration for our share of Best Buy Mobile is £838m in cash, comprising an upfront payment of £813m ($1,303m) and annual consulting payments of £5m over the following 5 years. Our current intention is to return up to £813m of cash to shareholders via a B share scheme which will give shareholders the choice of receiving income or capital. Best Buy Europe will receive no further profit share from Best Buy Mobile US and Canada beyond September 2011. The Group’s post-tax share of Best Buy Mobile profit share was £35m for the year ended 31 March 2011 and £17m for the six months ended 30 September 2011. There were no gross assets associated with Best Buy Mobile on the Group’s balance sheet at either date.
NH
Now
NH
why haven’t the shares budged
NH
would have thought that’s all good news?
BE
I’m unsure it’s good news ….
NH
go on
BE
Well, what’s left?
NH
fair point
NH
why are they selling out of the US
NH
which has been succesful?
BE
Perhaps — and I’m speculating here — Best Buy wasn’t entirely happy with the JV
NH
so Carphone is now
NH
a business focused on the slow growing UK market
NH
in that case
NH
the shares should be down
NH
not up
BE
Indeed. We’re left witha retailer in a hugely competitive, saturated market.
BE
With the growth angle chopped off.
NH
not appetising is it
NH
just scouring the statement
NH
to see why they agreed to exit the US
NH
I can’t find a sensible explanation
NH
The disposal accelerates the delivery of value to our shareholders. The cash consideration received represents very significant value creation for our shareholders in the 5 years since the original agreement was put in place, particularly in view of the absence of any capital investment, and reflects the Group’s success in contributing to the rapid and profitable growth of Best Buy Mobile in North America.
BE
A price they couldn’t refuse?
BE
Hm.
NH
possibily
NH
perhaps the market there too
NH
is saturated
NH
a strategic call?
BE
So shareholders get 178p each in exchange for going ex growth.
NH
that’s about the size of it
NH
just looking at the losses from these big box stores
NH
there was one a Lakeside I think
NH
Best Buy Europe intends to close the stores by the end of the calendar year. The closure of Best Buy UK will eliminate significant ongoing losses within Best Buy Europe. The business incurred operating losses of £62m in the year ended 31 March 2011 and £47m in the 6 months to 30 September 2011. We anticipate further operating losses of approximately £25m-£30m through to closure. The cash costs of closure are expected to amount to a further £65-75m post-tax. Non-cash asset write downs are expected to be approximately £40m-£45m. We estimate that the Group’s share of the total net cash investment from inception to closure will be in the region of £100m. Best Buy Europe is confident that it will be able to offer alternative roles to the large majority of the employees affected, within other areas of its UK business.
BE
Yeah – that’s been coming for a long time.
NH
show what an awful market retailing electricals is
NH
what does this mean for Comet?
NH
surely no one is going to buy it?
Kesa Electricals PLC (KESA:LSE): Last: 97.20, down 1.2 (-1.22%), High: 98.75, Low: 95.00, Volume: 235.08k
NH
hard to argue the market has improved because a big player has withdrawn
NH
because it’s such an awful market
BE
Best Buy has admitted today that it didn’t have the scale to compete.
BE
So it’s impossible to see that as a sector positive.
NH
not sure I believe that
NH
I reckon with Best Buy behind they could buy competitively
NH
anyway
NH
do we have some comment?
BE
Sure. UBS quite interesting on the disposal price ….
BE
Consensus estimates for the value of BBM (7 brokers) was c£950m. UBSe was
£1bn. However, these were struck on a 1-2 year forward basis and incorporated
into price targets of up to 500p. This deal gives the certainty of cash now whilst
ceding upside in the fastest growing part of the business. The £200m gap between
our SOP value and the proceeds amounts to c40p per share.
£1bn. However, these were struck on a 1-2 year forward basis and incorporated
into price targets of up to 500p. This deal gives the certainty of cash now whilst
ceding upside in the fastest growing part of the business. The £200m gap between
our SOP value and the proceeds amounts to c40p per share.
BE
H1 EPS was 1.2p, vs cons of 2.1p. The shortfall was from Big Box losses of £47m.
CPW Europe EBIT of £20m was as expected down 50%, after £4m charge in
Germany. BBM EBIT of £45m was in line with consensus with H1 connections
+8%. Virgin Mobile EBITDA also halved, as expected, after higher H1 SAC.
CPW Europe EBIT of £20m was as expected down 50%, after £4m charge in
Germany. BBM EBIT of £45m was in line with consensus with H1 connections
+8%. Virgin Mobile EBITDA also halved, as expected, after higher H1 SAC.
BE
The news affects our SOP by c50p per share, including the higher Big Box exit
costs. The back-out value of CPW Europe falls to c8x cal 12E PE.
costs. The back-out value of CPW Europe falls to c8x cal 12E PE.
NH
so
NH
they have sold the fast growing bit of the business
NH
for seemingly no premium
BE
Tough to get a JV partner to bid up, I suspect. Look at Vodafone.
NH
true
BE
Any more reaction?
NH
hang on
NH
Espirito Santo Retail Team
NH
Carphone Warehouse (CPW LN, 345p; not covered) has announced alongside its interim results this morning that it will close its UK Best Buy big box stores after generating a loss of £46.7m over the last six months, 62% higher than a loss of £28.8m for the same period last year. It is anticipated that the business will generate further loss of £25m-£30m before closure, which will cost £65m-£75m in cash and £40m-£45m in non-cash asset writedowns.
NH
This news brings to an end the much anticipated, but ultimately unsuccessful venture into the highly competitive UK electricals market. The original intention was to open as many as 200 stores, but the first was opened in 2010 almost two years after the announcement of the JV between Carphone and Best Buy in 2008, and only 11 stores were ever opened.
NH
The Best Buy big box format has suffered from a lack of traction with UK consumers, with few recognising the brand. Macro pressures have remained challenging, with the consumer electricals market in the UK down double digits over the last year, but competitive pressures have also remained intense as market leader Dixons (DXNS LN, 10.8p, Neutral FV 12.5p) has embarked on an extensive refurbishment program.
NH
The closure of Best Buy UK does not come as a surprise given the slow rate of store openings, management departures and operating losses, but the news will likely be positive for sentiment towards Dixons. However, this news is not transformational for the UK electricals market as Best Buy only held minimal market share. The biggest potential change in the industry could come when we hear from Kesa (KESA LN, 98p; Sell FV 75p) what it intends to do with Comet which we forecast will generate a loss of €17m this year (€10m last year) and holds just under 10% market share in the UK.
In separate news, Carphone also announced that Best Buy Europe will dispose its 50% stake in Best Buy Mobile US.
In separate news, Carphone also announced that Best Buy Europe will dispose its 50% stake in Best Buy Mobile US.
NH
surprisingly
NH
little interest in this deal
NH
or the company
BE
Didn’t they bring results forward by 24 hours?
BE
Perhaps the retail scribblers all arrived at their desks this morning, opened up the spreadsheet for tomorrow then …. oh damn.
BE
It does happen, I guess.
NH
unlike
NH
the notes that were pinged out this morning
NH
for companies like Taylor Wimpey
Taylor Wimpey PLC (TW.:LSE): Last: 37.15, down 0.31 (-0.83%), High: 37.86, Low: 36.20, Volume: 3.08m
BE
The pre-writes. Yes. A grey area.
11:38AM
NH
moving on
Premier Foods PLC (PFD:LSE): Last: 3.74, up 0.376 (+11.17%), High: 4.21, Low: 3.50, Volume: 13.32m
NH
some good news
NH
Premier Foods today announces that it has obtained agreement from its banking syndicate to a deferral of the company’s forthcoming financial covenant test from 31 December 2011 to 31 March 2012. This agreement forms part of the company’s discussions about longer term refinancing of the Group’s debt and confirms ongoing bank support for the business.
The company announced in October that it was in constructive discussions with its banks to put in place refinancing facilities beyond their current maturity of December 2013. These discussions continue to be constructive and the banking syndicate has confirmed that it remains supportive both of the business and the continued discussions.
NH
Commenting on progress, Michael Clarke, Chief Executive Officer, said:
“This is an important step towards securing a longer term financial foundation for the business. I am very pleased that after sharing our vision and high-level plans, our banking syndicate has confirmed its support.”
“In recent weeks, we have set out our priorities and made significant leadership changes to strengthen our focus. We are now moving quickly to finalise our detailed growth plans to ensure we continue to build momentum in the business.”
NH
spin
NH
spin
NH
and more
NH
spin
NH
how is this good news?
BE
Well, it’s a waiver, right?
NH
yep
BE
And waivers are brilliant.
BE
While they’re in place.
NH
postponing the inevitable – again
BE
Yes – precisely. Kicking the micro-can down the micro-road.
BE
Until the waiver’s not in place any more.
NH
and then…
BE
At which point you call in KPMG.
BE
Luminar had a waiver, didn’t it?
BE
And then it didn’t.
NH
Precisely
NH
although this case is different
NH
in that the banks have a much bigger problem
NH
they are owed hundreds of millions
NH
and they want to pretend
NH
to the world
NH
that one day they will get it back
NH
of course
NH
they won’t
NH
Premier can’t trade its way out of this mess
NH
impossible
NH
to its extend and pretend
BE
Hovis: too big to fail.
BE
Mr Kipling, whose debts are krippling.
NH
This sums up the mess
NH
rather well
NH
its from Nils Pratley at the Guardian
NH
The group was expected to be carrying £850m at new year. Post-warning that might be £890m. Now look at the profits. At the top line, call it £190m. After paying interest, pension contributions, capital expenditure and tax there is virtually nothing left to pay down debt
BE
(@Vintage: accepted.)
BE
So it needs fire sales.
NH
but can they get enough from these tired old brands
NH
to make dent
NH
and remember selling the decent bits
NH
means less profits to service debt
NH
I repeat
NH
the only way out is debt for equity swap
NH
the equity is worthless
BE
Though, while the stock’s still zombified …..
BE
You might still get a 12% pop on some incremental bit of news like today.
BE
Can understand why that may appeal to traders.
BE
But it ain’t an investment any more.
NH
that’s the statement referred to on the right
NH
Premier Foods, home to some of Britain’s favourite food brands, today announced changes to its Executive Director and leadership team to strengthen focus on the company’s renewed growth plan.
In the new structure, commercial leadership responsibilities will be split between the Grocery and newly configured Bakery businesses with the creation of two new Group Executive roles of Managing Director reporting directly to Chief Executive Officer, Michael Clarke.
BE
Oh – the good food/bad food statement.
NH
hang on
NH
is one bit of the business good?
NH
I thought it was all toxic
BE
It’s all soaked in the toxic miasma of leverage. So, yes.
NH
heritage brands supposedly
NH
short hand for
NH
washed out brands
BE
Needing investment, reinvention, Reckitt-under-Brecht style advertising … and you can’t do that when you’re in hock to the bank.
NH
as for the Greencore bid
NH
rumour in the market
NH
is that its pitched at Eur1.10
NH
no idea if that’s true
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
sounds high to me
NH
even if Terry Leahy is somehow involved
11:49AM
NH
Let’s cut back to the market for a moment
NH
FTSE 100 down 26 points at 5,500
NH
and this
NH
has just landed from the WSJ
NH
Italian Prime Minister Silvio Berlusconi is meeting family members in Milan to discuss whether or not he should resign, people familiar with the matter said.
A spokesman for Mr. Berlusconi declined to comment. The people said Mr. Berlusconi will meet his children and Fedele Confalonieri, chairman of Mediaset, Italy’s largest television broadcaster, which is controlled by the Berlusconi family.
NH
While resignation is a possibility, the prime minister is seriously considering going to Parliament for a critical budget vote Tuesday, which could confirm he no longer commands a majority, the people said.
Several once-faithful members of Mr. Berlusconi’s party have threatened to vote against the government or abstain from voting during Tuesday’s budget vote.
NH
So he’s going to ask his children
NH
nice touch
NH
a real family guy
BE
Indeed. He likes families so much he has several.
BE
And back to the movers, I guess.
11:52AM
NH
Moving on
Homeserve PLC (HSV:LSE): Last: 308.60, down 13.8 (-4.28%), High: 320.19, Low: 308.00, Volume: 516.18k
NH
I’m keeping close tabs on this one
NH
I reckon its CPP 2.0
NH
in fact everything I read points to that
NH
The company is reviewing 48,000
compensation claims after a customer services employee
contacted the FSA to ‘blow the whistle’ earlier in the year.
compensation claims after a customer services employee
contacted the FSA to ‘blow the whistle’ earlier in the year.
NH
some more
NH
from the Guardian
NH
An internal document sent to HomeServe staff in September reveals that the company is reviewing 48,000 complaints from last winter. The review will be overseen at HomeServe’s cost by PricewaterhouseCoopers.
The document also shows that FSA staff were due to visit the company’s Walsall head office on 24-26 October. Three days later the firm announced it was suspending its entire sales operation, although HomeServe is adamant that the decision was entirely coincidental and unrelated.
News of the problems will not surprise anyone who tried to get the firm to fix their boiler last winter. Several weeks of sub-zero temperatures in many parts of the country led to a huge number of call outs, and the company was unable to cope.
BE
Hm. 48k complaints.
NH
(@Carl anyone can join. but if we don’t like you. we ban you)
NH
yep
NH
and the FSA was on its way
NH
before the statement
NH
not good
NH
not good at all
NH
Henry Carver
NH
at Peel Hunt
NH
seems to be the analyst all over this
NH
he’s got a bit of comment out
NH
What happened? A complete internal review of HSV’s customer complaints
process earlier in the year was prompted by a member of the customer services
department, who contacted the FSA to ‘blow the whistle’ on complaints being
ignored by the company.
process earlier in the year was prompted by a member of the customer services
department, who contacted the FSA to ‘blow the whistle’ on complaints being
ignored by the company.
NH
Bad timing. It is not the volume of compensation claims being reviewed by
Homeserve that worries us, but rather the timing. This news comes to light
directly after the suspension of all outgoing sales calls in relation to mis-selling
fears, and we believe it will add to concerns that potential US business partners
may already have about signing a deal.
Homeserve that worries us, but rather the timing. This news comes to light
directly after the suspension of all outgoing sales calls in relation to mis-selling
fears, and we believe it will add to concerns that potential US business partners
may already have about signing a deal.
NH
Pressure on all fronts. The company now needs to deal with serious issues
related to complaints coming in, as well as to sales calls going out. According to
The Guardian, 12,652 complaints about Homeserve were made to the FSA last
winter
related to complaints coming in, as well as to sales calls going out. According to
The Guardian, 12,652 complaints about Homeserve were made to the FSA last
winter
NH
No impact to numbers anticipated. The compensation claims are being
reviewed in terms of the process, rather than the amount paid out (or not paid
out), so at this stage we do not expect significant additional compensation to
have to be paid. However, the company has made it clear to us that if it finds
any customer complaint to have been mis-handled, it will offer appropriate
redress in line with company policies.
reviewed in terms of the process, rather than the amount paid out (or not paid
out), so at this stage we do not expect significant additional compensation to
have to be paid. However, the company has made it clear to us that if it finds
any customer complaint to have been mis-handled, it will offer appropriate
redress in line with company policies.
NH
Adds to concerns. This news adds to the concerns outlined in our note last
week (FSA investigation looms…, 3 November 2011; click here to see the note),
principally about the possible impact on US growth. US utilities tend to be highly
sensitive to reputational damage and we believe that the news to have emerged
about Homeserve in the last week could make winning new partners much
harder. Growth overseas, particularly in the US, is a core part of the HSV
investment case and, with that coming under increasing pressure, we maintain
our Sell recommendation.
week (FSA investigation looms…, 3 November 2011; click here to see the note),
principally about the possible impact on US growth. US utilities tend to be highly
sensitive to reputational damage and we believe that the news to have emerged
about Homeserve in the last week could make winning new partners much
harder. Growth overseas, particularly in the US, is a core part of the HSV
investment case and, with that coming under increasing pressure, we maintain
our Sell recommendation.
NH
(@Milky. Off. I wish i could say it was fun. But that would an outright lie. Cya tomorrow)
BE
Yeah – think you’re probably right.
BE
It’s potentially too big an issue for the FSA to ignore.
BE
Would be surprised to see them fail to pull the trigger now.
11:59AM
NH
RTRS-ITALY’S BERLUSCONI SAYS RUMOURS OF HIS RESIGNATION UNFOUNDED-ANSA NEWS AGENCY
BE
Berlusconi: “you’ll have to claw power from my cold, dead hands.”
NH
and off the market comes again
BE
(Approximately.)
NH
FTSE 10 down 50 points at 5,472
NH
this is madness
BE
I did say. Didn’t I say? I did say.
NH
off 57 points
NH
and falling
BE
Despite not being able to read Italian or understand the three-ring circus that is Italian politics …..
NH
RTRS-SENIOR BERLUSCONI PARTY MEMBER SAYS PRIME MINISTER DENIED HE WILL RESIGN
NH
rumour
NH
counter rumour
NH
and more rumour
NH
welcome to markets in 2011
NH
and while we are talking things Europe
NH
there were indeed
NH
some horrible
NH
industrial production numbers today
NH
GERMANY SEPT INDUSTRIAL PRODUCTION M/M: -2.7% V -0.9%e; Y/Y: 5.4% V 7.2%e
- Prior M/M revised higher from -1.0% to -0.4%
- Prior Y/Y revised higher from 7.7% to 8.4%
- Prior M/M revised higher from -1.0% to -0.4%
- Prior Y/Y revised higher from 7.7% to 8.4%
NH
A horrible German indutrial production number. We have had weak factory
orders, Ifo and PMI readings since then so not too much of a surprise.
- It is yet another indicator that that Germany has now been dragged full into
the crisis and seeped into the real economy.
- Last week Germany saw the first rise in the unemployment rate since
June 2009. The rate remains at historically low levels and the labour
market is still tight, but the unexpected uptick highlights that even
Germany cannot escape the crisis, with the risk of recession rising.
orders, Ifo and PMI readings since then so not too much of a surprise.
- It is yet another indicator that that Germany has now been dragged full into
the crisis and seeped into the real economy.
- Last week Germany saw the first rise in the unemployment rate since
June 2009. The rate remains at historically low levels and the labour
market is still tight, but the unexpected uptick highlights that even
Germany cannot escape the crisis, with the risk of recession rising.
NH
excellent news
NH
just what’s needed
NH
actually
NH
it’s one of the reasons Graham Secker
NH
Morgan Stanley’s very readable
NH
European strategist
NH
has downgraded equities to underweight this morning
NH
Four reasons to downgrade
equities to underweight
equities to underweight
NH
We downgrade European equities to underweight to
reflect fears over inadequate policy response,
weakening economic growth, falling margins and
less constructive readings from our market timing
indicators. We take more money out of financials
and add more to defensives.
reflect fears over inadequate policy response,
weakening economic growth, falling margins and
less constructive readings from our market timing
indicators. We take more money out of financials
and add more to defensives.
NH
Four reasons to downgrade European equities
Post a double-digit rally from the lows, we take the
opportunity to downgrade European equities to
underweight to reflect the following four points.
Post a double-digit rally from the lows, we take the
opportunity to downgrade European equities to
underweight to reflect the following four points.
NH
#1 – Policy response not yet sufficient – We do not
believe that the ongoing policy response is yet at a level
where it can stabilize equity markets. QE from the ECB
would be the key positive game changer for stocks in our
opinion.
believe that the ongoing policy response is yet at a level
where it can stabilize equity markets. QE from the ECB
would be the key positive game changer for stocks in our
opinion.
NH
#2 – Economic growth deteriorating – Key economic
indicators suggest that the Euro-zone economy is
slowing with the prospect of additional austerity and
bank deleveraging to come. We doubt the recent
improvement in US newsflow is sustainable into 2012.
indicators suggest that the Euro-zone economy is
slowing with the prospect of additional austerity and
bank deleveraging to come. We doubt the recent
improvement in US newsflow is sustainable into 2012.
NH
#3 – Corporate margins are falling – In addition to
weak economic growth, corporate profits are coming
under increasing pressure from deteriorating margins.
weak economic growth, corporate profits are coming
under increasing pressure from deteriorating margins.
NH
#4 – Market timing indicators now less constructive
– We have seen a meaningful rise in our key market
timing indicators and, although not particularly high, they
are no longer in ‘buy’ territory.
– We have seen a meaningful rise in our key market
timing indicators and, although not particularly high, they
are no longer in ‘buy’ territory.
NH
We increase our UW in financials and add to
Pharmaceuticals and Staples. At the sector level, we
reduce our financials underweight further and add to
Pharmaceuticals and Consumer Staples. At the stock
level, we are adding AB-Inbev, African Barrick Gold and
Unibail-Rodamco to the model portfolio and removing
Adidas, Alstom, Storebrand, Telefonica, and Xstrata.
Pharmaceuticals and Staples. At the sector level, we
reduce our financials underweight further and add to
Pharmaceuticals and Consumer Staples. At the stock
level, we are adding AB-Inbev, African Barrick Gold and
Unibail-Rodamco to the model portfolio and removing
Adidas, Alstom, Storebrand, Telefonica, and Xstrata.
NH
There you are
BE
As ever, it’s a sane and rational call from Secker.
BE
But we’re in a market where a political hack with an anonymous source in a broom cupboard of the the Palazzo Montecitorio can shift a market by 100 points.
NH
quite
NH
a market to avoid
NH
To use seasonal parlance, we believe the market’s strong
bounce in October will prove to be more of a trick than a treat.
While the market may hope this is the start of a longer-lasting
rally into year-end, we suspect this is just a traditional
counter-trend rally in an ongoing bear market. We believe
investors should look to use any residual strength in stocks and
sectors as an opportunity to construct an even safer and more
secure portfolio – at this time the prime goal of investors should
be wealth preservation rather than wealth generation. In this
regard, we are making some changes to our European model
portfolio, increasing our underweight in Financials, and putting
more funds into defensives
bounce in October will prove to be more of a trick than a treat.
While the market may hope this is the start of a longer-lasting
rally into year-end, we suspect this is just a traditional
counter-trend rally in an ongoing bear market. We believe
investors should look to use any residual strength in stocks and
sectors as an opportunity to construct an even safer and more
secure portfolio – at this time the prime goal of investors should
be wealth preservation rather than wealth generation. In this
regard, we are making some changes to our European model
portfolio, increasing our underweight in Financials, and putting
more funds into defensives
NH
wealth preservation rather than wealth generation
NH
agree with that
12:07PM
BE
(@WIWY …. addressing your earlier question, I didn’t see the Intel story. Perhaps it ran in the Irish edition only.)
BE
(But I’d be surprised if there was a pullback from Irish investment, given they already have 14nm on the roadmap.)
BE
Ok – what now?
NH
HPC 2011
NH
The Halifax reported that house prices jumped 1.2% month-on-month in October.
BE
Oh good.
NH
why?
BE
Er……. London inflator?
BE
An estate agent I was stuck opposite this weekend was talking about a huge amount of Greek money coming into the London market recently.
BE
For obvious reasons.
NH
I heard that too
NH
from no less a person that Michael O’leary
NH
he was talking on the radio
NH
post the very good Ryanair numbers
NH
he reckons Greece leaving the euro
NH
would be great news for the airline
NH
Greece would be a tourist hotspot after a devaluation
NH
before that
NH
he can bank on loads of Greeks
NH
flying to London
NH
to deposit cash
BE
Hm. Speak to an estate agent or Michael O’Leary. I’m not sure which is the worse prospect.
NH
anyway
NH
Howard Archer reckons
NH
this month’s rise
NH
needs to be seen in context
NH
While this was a surprise, it needs to be put in the contest that house prices had previously fallen by 0.3% in September and 1.1% in August. Consequently, house prices were still down by 0.3% in the three months to October compared to the three months to July and by 1.8% year-on-year in the three months to October.
We hugely doubt that October’s spike up in house prices heralds the start of a sustainable pick up in house prices. We suspect it will prove to be a temporary spike.
NH
House prices can be notoriously volatile on a month to month basis and there are often significant fluctuations around a trend. So October’s jump in prices does little to change our view that house prices are headed down over the coming months and are likely to fall by 5% from current levels by mid-2012. Indeed, we believe that there are serious downside risks to this forecast and that house prices could well fall by more than 5% given the current deteriorating economic situation and outlook
BE
What’s the sample size for this 1.2% rise? Is there liquidity in the market?
BE
Does Halifax provide those data?
NH
that’s always the question
BE
Because, if it doesn’t then sorry Halifax, but your survey’s bunk.
BE
Just like your adverts.
BE
And your customer service.
BE
[/Halifax customer]
BE
And, since we’re on property ………
BE
We must make mention of DTZ
DTZ Holdings PLC (DTZ:LSE): Last: 3.25, down 18 (-84.71%), High: 6.00, Low: 2.00, Volume: 12.00m
NH
incredible statement
NH
we are in talks
NH
and the bidders have told us
NH
we are worthless
NH
On 19 October 2011, DTZ announced that it was evaluating preliminary expressions of interest from parties potentially interested in acquiring DTZ by implementing a formal sale process of the company.
That formal sale process is ongoing and has attracted considerable interest in the business which DTZ continues to evaluate.
Based on the valuation of DTZ derived from proposals received to date, however, and, given the level of debt within DTZ, there is minimal value, if any, that may be attributed to the ordinary shares of DTZ, although the exact value is uncertain.
NH
brokers i have been speaking to
NH
reckon
NH
if you own them
NH
you keep on selling
NH
there really is nothing left for shareholders
NH
and the pace at which this situation has developed is frightening
NH
it was in talks with its biggest shareholder a few weeks back
NH
ends those
NH
hoists the for sale sign
NH
and now this
NH
surely it’s end markets aren’t that bad?
BE
Is debt the problem?
NH
it would appear so
NH
at the end of April that had net debt of £63m
NH
net assets were £43m
NH
there was an undrawn facilities of £25m
NH
but we don’t know what happened in the interim
NH
this is a pretty geared business
NH
that much we do know
NH
so if they are struggling
BE
Acquisition machine, of course. International expansion. China. Vietnam.
NH
well.
NH
yes
NH
although
NH
apparently the deal that saddled them with lots of debt was
NH
Donaldsons
NH
which was a rival
NH
bought it
NH
just before the crunch
NH
and just before Paul Idzik
NH
a slightly eccentric formed Barclays executive
NH
took the helm
NH
Isn’t Idzik, while at Barclays, the guy who used to cut bag straps and snap pens if they weren’t official BARC merchandise? And he also did things like jumping over the entrance turnstiles to test the security guards…
Strange chap.
NH
that’s from Murphy
BE
Always good for a bit of colour, is Murphy. As well as a legally valid question mark.
BE
When did they last raise cash? 2009, wasn’t it?
NH
DTZ Holdings plc, a leading global real estate adviser, confirms that it is in
discussions with regard to the potential acquisition of Donaldsons LLP, a
privately owned, UK-based property consultancy with particular expertise in the
retail and property management sectors. This move is consistent with DTZ’s
strategy of developing its business across key markets and, if completed, would
further consolidate the company’s position as a premier real estate adviser in
Europe.
discussions with regard to the potential acquisition of Donaldsons LLP, a
privately owned, UK-based property consultancy with particular expertise in the
retail and property management sectors. This move is consistent with DTZ’s
strategy of developing its business across key markets and, if completed, would
further consolidate the company’s position as a premier real estate adviser in
Europe.
The negotiations are progressing but there can be no certainty as to whether any
transaction will be completed. A further announcement will be made in due
course, as appropriate.
NH
that was from 2007
NH
as for the cash call
NH
hang on
BE
27p per share I think
BE
In 2009
NH
On 19 December 2008, DTZ Holdings plc announced details of a Firm Placing and Placing and Open Offer to raise minimum gross proceeds of £40 million and up to £55.0 million through the issue of up to 203,772,569 New Shares at the Issue Price of 27 pence per New Share, subject to Shareholder approval and certain other conditions, including clearances being obtained from the competition authorities in France and Germany. As announced to Shareholders on 14 and 15 January 2009, these clearances have now been obtained.
NH
ouch
NH
anyway
NH
we can expect the retail punters
NH
to keep them at around 3p
NH
until the inevitable
NH
always amazes me
NH
that people continue to punt on these bombed out companies
NH
just because they look cheap
BE
True. And it becomes an odd market where shorting’s impossible as there’s no cheap borrow.
BE
So you end up with price anomalies.
BE
Until they disappear. That’s DTZ’s future, sadly.
NH
hang on, some breaking news
NH
RTRS-ITALY’S BERLUSCONI SAYS ON HIS FACEBOOK PAGE THAT RUMOURS OF HIS RESIGNATION ARE UNFOUNDED
12:22PM
NH
Right
NH
I have a lunch to run to
NH
didn’t have time to do Ryanair
NH
or Weir
NH
but on Ryanair
NH
I can leave a quick note from Merrill
BE
(I’d have assumed Berlusconi would’ve been on Bebo.)
BE
Go on then.
NH
Beat on both revenues and costs, outlook raised
Ryanair has released an upbeat Q2 statement, beating on both revenues and
costs. Q2 total revenue rose +21% (BofAMLe +19% YoY) including total rev. per
pax +14% while unit costs (including fuel) rose 12% (BofAMLe +13%). Operating
profit was €480mn (BofAMLe €430mn) and net income was €404mn (cons.
€396mn & BofAMLe €374mn) vs. €313mn last year. For FY03/12E, management
has raised its guidance. Management has stated that “based on current Q3
bookings…we now expect H2 yields will rise by up to 14%, slightly better than the
12% previously guided…we are raising our FY net profit guidance by 10% from
€400mn to €440mn” (cons. is for €421mn; BofAMLe €478mn). Management
guidance also includes FY traffic up 4% YoY (BofAMLe 4.5%).
Ryanair has released an upbeat Q2 statement, beating on both revenues and
costs. Q2 total revenue rose +21% (BofAMLe +19% YoY) including total rev. per
pax +14% while unit costs (including fuel) rose 12% (BofAMLe +13%). Operating
profit was €480mn (BofAMLe €430mn) and net income was €404mn (cons.
€396mn & BofAMLe €374mn) vs. €313mn last year. For FY03/12E, management
has raised its guidance. Management has stated that “based on current Q3
bookings…we now expect H2 yields will rise by up to 14%, slightly better than the
12% previously guided…we are raising our FY net profit guidance by 10% from
€400mn to €440mn” (cons. is for €421mn; BofAMLe €478mn). Management
guidance also includes FY traffic up 4% YoY (BofAMLe 4.5%).
NH
Revenue – passenger yields +17%
Q2 passenger volumes rose +6% to 23mn, with load factor broadly flat at 87%.
Scheduled revenue rose +24% (BofAMLe +19%) to €1,318mn. This included a
17% rise in average fares (BofAMLe +14.0%) in Q2, driven primarily by improved
mix of routes & bases and more moderate volume growth. Ancillary revenues
increased 9% (BofAMLe +4%) and reflected improved mix, higher on-board spend
and higher internet-related revenues.
Operating costs – up 18% YoY, fuel up 29%
Q2 operating costs increased 18% to €1,076mn, slightly below our forecast for
€1.1bn (specifically: lower staff, fuel and route charges vs. our forecast). Q2 unit
costs (including fuel) rose 12% and (excluding fuel) were up 5%. The company
has updated its fuel hedging guidance and is now 90% hedged in FY12 at c. $82
per barrel (a 12% increase from last year), 90% hedged in H1 FY’13E at c. $99
per barrel and 50% hedged in H2 FY’13E at $98 per barrel. Q2 staff costs rose
+13%, depreciation rose +13% (higher proportion of owned aircraft) and route
charges +13% (increase in sectors flown and pricing). The operating margin
increased 150bp to 30.8%.
Q2 passenger volumes rose +6% to 23mn, with load factor broadly flat at 87%.
Scheduled revenue rose +24% (BofAMLe +19%) to €1,318mn. This included a
17% rise in average fares (BofAMLe +14.0%) in Q2, driven primarily by improved
mix of routes & bases and more moderate volume growth. Ancillary revenues
increased 9% (BofAMLe +4%) and reflected improved mix, higher on-board spend
and higher internet-related revenues.
Operating costs – up 18% YoY, fuel up 29%
Q2 operating costs increased 18% to €1,076mn, slightly below our forecast for
€1.1bn (specifically: lower staff, fuel and route charges vs. our forecast). Q2 unit
costs (including fuel) rose 12% and (excluding fuel) were up 5%. The company
has updated its fuel hedging guidance and is now 90% hedged in FY12 at c. $82
per barrel (a 12% increase from last year), 90% hedged in H1 FY’13E at c. $99
per barrel and 50% hedged in H2 FY’13E at $98 per barrel. Q2 staff costs rose
+13%, depreciation rose +13% (higher proportion of owned aircraft) and route
charges +13% (increase in sectors flown and pricing). The operating margin
increased 150bp to 30.8%.
NH
Valuation – the preferred low cost carrier
We are forecasting FY03/12 operating profit of €590mn (consensus of €550mn),
PBT of €537mn (consensus of €485mn) and adjusted EPS of 32.2c (consensus
29c). Ryanair trades on a FY03/12E EV/CE of 0.56x, at a c.40% discount to its
average five-year multiple (0.90x). We think this discount is too wide and expect
this to narrow, given the airline’s strong history of value creation. Our €4.00 PO is
based on an EV/CE of 0.70x, a c.25% discount to its five-year average. Our EPS
forecasts suggest a FY03/12E P/E multiple of 10.4x, at a slight premium to EZJ
(9.0x), justified given the clearer strategic outlook. We reiterate our Buy.
We are forecasting FY03/12 operating profit of €590mn (consensus of €550mn),
PBT of €537mn (consensus of €485mn) and adjusted EPS of 32.2c (consensus
29c). Ryanair trades on a FY03/12E EV/CE of 0.56x, at a c.40% discount to its
average five-year multiple (0.90x). We think this discount is too wide and expect
this to narrow, given the airline’s strong history of value creation. Our €4.00 PO is
based on an EV/CE of 0.70x, a c.25% discount to its five-year average. Our EPS
forecasts suggest a FY03/12E P/E multiple of 10.4x, at a slight premium to EZJ
(9.0x), justified given the clearer strategic outlook. We reiterate our Buy.
NH
and going back to Silvio
NH
here is the page
NH
203 comments
BE
Right. Well then.
BE
I’m sure those who know how to navigate Facebook can find it for themselves.
BE
I’m not one of those people.
BE
So let’s wind this up.
BE
Thanks everyone for your comments today.
BE
Oh – Iphone5 wants some comment pre Sainsbury on Wedensday.
BE
Tune in tomorrow and we’ll see what we can do.
BE
[/Teaser]
BE
In the meantime, have a good Monday. And farewell.