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Markets Live transcript 16 Nov 2011

Posted by Neil Hume on Nov 16 11:05.

Markets Live chat transcript for the chat ending at 12:46 on 16 Nov 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT

Ciao Rabble

sorry we are late

been looking at the BoE inflation report

Prepare the printing presses

more QE is coming

and also

I’ve been trying to make sense

of these Unicredit headlines

UNICREDIT CEO, IN MEETING WITH ECB, TO ASK FOR MORE ACCESS TO ECB FUNDING FOR ITALIAN BANKS BY WIDENING TYPE OF COLLATERAL USED-SOURCE CLOSE TO BANK

which on the face of it

look rather worrying

They do, on the face of it.

Should we start with Merv the Dove, however?

the wider market

we have been all over the place this morning

but a trend seems to be developing

and its down

Opened down for no obvious reason, rallied for no good explanation, and now we’re back where we’ve started.

FTSE’s currently down 0.9%

Off 50 points at 5467, give or take.

hmmm

is this on the inflation report?

Unicredit

US futures

Italian bond yields?

Yes. All of those.

hang on

Italian 10-year had a big rally at the start of the day

giving it back now

yield almost back at 7%

and the Spanish equivalent

that’s at 6.28%

Ok – so we’re playing the “panic at the heart of the eurozone” card yet again.

dunno

I have some more on the Unicredit story

via Reuters

MILAN, Nov 16 (Reuters) – The CEO of Italy’s UniCredit will ask the European Central Bank at a meeting on Wednesday to extend access to ECB funding for Italian banks by widening the range of collateral that can be offered to get funds, a source close to UniCredit said.
Italian banks have increased their reliance on the ECB for cheaper funding since the summer as Italy was sucked ever depeer into the euro zone debt crisis and its lenders faced sharply higher funding costs.

the are out of assets to pawn

is that how to read that

we need to have a look at their balance sheet

to see what can be used

Yup. Running out of useful stuff to bring down to the ECB’s branch of Cash Converters.

hmm

not a great headline

to hit the tape

just days after you launch a big rights issue

actually on Unicredit

looks like that were the selling

of the remaining interest in CCG

the Italian clearing business the LSE owns

London Stock Exchange Group PLC (LSE:LSE): Last: 836.00, up 6 (+0.72%), High: 852.31, Low: 833.00, Volume: 213.79k

this business has been coining it in

but Unicredit

still sold it

The LSE also revealed that it had acquired a remaining 13.6 per cent minority interest in CC&G for €62m (£53m). A spokesman said the seller was UniCredit, the Italian bank.

Good FT report on the results from Jeremy Grant

for those interested

http://www.ft.com/cms/s/0/bed1f018-102d-11e1-8010-00144feabdc0.html#axzz1dfh58AUH

London Stock Exchange Group PLC (LSE:LSE): Last: 836.50, up 6.5 (+0.78%), High: 852.31, Low: 833.00, Volume: 215.19k

I must admit I never knew

Hm. It all plays into the “bubble in repo” theme, doesn’t it.

well

I never knew that central counterparties

keep fees low

because they take the client margin and collateral

and use it elsewhere

in the LSE’s case

overnight deposits in Italian banks

which are desperate for cash

Treasury income through the central counterparty business continued the strong performance in the immediately preceding H2 period last year, rising from £34.6 million to £54.3 million as a result of stronger trading levels, with a resulting higher quantum of cash margin held, and rising deposit yields. The Group has achieved a significant and sustainable step up in performance, although the high returns achieved in recent months have been elevated by both volatility in Italian markets and continuing low liquidity in the Italian interbank market with consequent high demand for cash from CC&G.

that’s from the results statement

high demand for cash from CC&G.

Unicredit?

Quite so.

Have to say, there are lots of questions to be answered about this side of the business.

apparently this is standard practice in the industry

Goldman’s note on LSE yesterday really was an excellent primer, for those who missed it.

Usual place, if you did.

yes, good note that

although the LSE

would say it’s alarmist

and that if an Italian bank went down

the BoI

would

backstop them

Oh right. The clearing house is too big to fail.

That’s reassuring.

well, it would mean the end of Italy’s securities market

if it did

things would stop working

however,

it’s not the sort of thing

you’d want to put to the test

Yeah – tricky to play that particular crisis I guess.

Anyway, we can come back to LSE.

We should move to Merv.

11:19AM

More QE next year.

February seems to be the idea.

Because we’re stagnating

And will be for the next few quarters

With activity picking up only in the back end of the year.

yep

good summary

inflation coming down

1.3% on a two year view

growth of less than 1% next year

on top of that

today’s employment figures were not good

so the only way to read today’s inflation report

is as a

softening up excercise

for another splurge of QE

£50bn early in the New Year?

I’m going for £75bn

crikey

Somewhere around Valentines Day.

I’d suggest this is more than softening up, it’s priming.

And there’s no clarity whatsoever in inflation projections.

Merv admits it.

guesswork

He’s basically thrown in the towel.

“How far and how fast inflation is likely to fall remain uncertain.”

how can blame him

but based on those fan charts

inflation falls below target

growth flatlines

we all worry about deflation

and the printing presses spew out another £75bn

or even

£100bn

even though

it seems to be doing nothing to stimulate demand

You use the weapons you have.

even if they don’t work

because what else can you do

Yes – that may as well be the motto of the British Empire.

right

some comment

First up

the Archer

sorry

he’s only published on the jobs data

but we can have a look

Overall, this is another nasty and worrying set of labour market data. While the claimant count measure showed unemployment rising in October at the slowest rate since February, this is at odds with the other data which we suspect portrays a more realistic picture of the labour market. There was a very sharp drop of 197,000 in employment and a marked rise of 129,000 in unemployment in the three months to September on the International Labour Organization measures. And particularly depressingly youth unemployment rose above one million. Meanwhile, wage growth remained muted in September, reinforcing the squeeze on consumers’ purchasing power but reinforcing belief that underlying inflationary pressures will remain muted.

Persistent economic weakness, lower business confidence and mounting public sector job cuts are combining to take an increasing toll on jobs. Meanwhile, ongoing muted wage growth is maintaining the serious squeeze on consumers’ purchasing power. Indeed, underlying earnings growth actually dipped to just 1.6% in August itself. The muted wage growth supports belief that underlying inflationary pressures are limited and that the Bank of England has scope to engage in further Quantitative Easing early in 2012 should the economy fail to show significant improvement.

back to the inflation report

what have we got on that

I’ve got Ross Walker at RBS

The MPC’s central projection for CPI inflation has been lowered, to around 1.5% at the forecast horizon (end-2014) compared to a mode projection of 1.74% and a mean projection of 1.94% in the August Report.

The MPC’s ‘ribbon chart’ (Chart 4, p.8) – which shows that the probability of inflation being above target – has fallen substantially vs the August Report, despite the fact that this forecast is conditioned on additional monetary stimulus. Whereas in August there was judged to be a relatively even probability of inflation being below or above target, the November Report shows a sub-40% probability of CPI being above 2% throughout the 2-3 year forecast period.

The implied widening between the mode (central) and mean (risk-weighted) projections emphasises the more marked downside risks, despite the fact that the Committee still has not fully factored-in the single biggest downside risk on the horizon (Euro meltdown) .

Nicely put, that.

In short, the inflation forecasts are unmistakably dovish – probably more dovish than expected (certainly the mean projection) – so the near-term policy signal is that further QE purchases are more likely than not. The November Inflation Report indicates that the risks are skewed to more stimulus, earlier. Our forecast is for an additional £50bn of QE in February 2012. The risks of that extension to QE happening before then have increased significantly, as have the chances of the extension being in larger size. The logical conclusion is that several members of the Committee have already voted for more – most obviously Adam Posen and Paul Fisher (we will learn more about this in the Minutes next week).

This lower inflation profile reflects the sharp downward revisions to GDP in the near-term. The Bank’s GDP forecasts are now more in line with our own expectations – near stagnation around the turn of the year and a sluggish pick-up in the first half of 2012. The MPC’s central projection for GDP shows an acceleration in late 2012 and 2013 with % y/y rates reaching 3% in around H1 2013. Still, the level of GDP is significantly lower than in August.

thanks for that

I have something from Nomura

Philip Rush

he Inflation Report confirmed to us that the MPC is so concerned about the escalating sovereign-debt crisis that the £25bn QE extension we originally pencilled in for February no longer appears sufficient. We now expect £50bn of new gilt purchases to be announced in February and another £25bn in May. The MPC is also likely to be dissuaded from hiking rates for longer: we push back our forecast for the first hike by six months, taking it into 2014.

Absent another sizeable shock, we still expect the MPC to delay announcing an extension to its restarted QE programme until February, when it can calibrate its response alongside the Inflation Report, as it did with QE1. But the greater weakness in demand means it is likely to be more aggressive than the £25bn we initially expected. Indeed, with the Bank of England forecasting inflation to be below target in the medium term, it is signalling that it expects more QE to be the next step, and not just in a way that tapers off the flow effects. Moreover, the government’s credit-easing policy is likely to deliver up to £20bn of new gilts into the market, which would offset QE’s downward effect on gilt yields unless QE2 was ramped up further

As such, we now expect the MPC to announce a £50bn extension of QE2 in February. The announcement could come earlier, but we do not think that would change it from being implemented over the three months to the May meeting. We then expect a final £25bn extension, leaving the stock at £350bn by August. That would be a similar tapering off in the weekly run rate to QE1, although with issuance probably lower over this period, it would have a bigger impact on net issuance.

and the impact on gilts

While net issuance is so low (in fact, negative at the moment), we think the Bank’s asset purchases will be able to keep yields unusually low across the curve. The short end is aided by the current easing stance, essentially ruling out any rate hikes for at least a couple of years. Indeed, we now do not expect the first rate hike to come until 2014 (from August 2013).

Meanwhile, the Bank’s purchases are proving effective in the long end, where there is natural demand from real money investors reluctant to relinquish their holdings. The revised gilt remit on 29 November might make this a bit easier for the Bank by increasing long-end supply, but the market as a whole looks likely to remain tight for quite some time. In this environment, we believe some of the more extreme QE2 forecasts being bandied about are not feasible over the next year or so absent considerable additional issuance. We think they would merely be met with a mixture of failed reverse auctions and an illiquid, malfunctioning gilt market.

and the conclusion

We remain sceptical about the suitability of this emphatic easing programming – though not because we are more optimistic about growth. Rather, we maintain our long-held negative view of potential growth and are concerned that the MPC’s policy of persistently pulling forward demand to the present is based on overly optimistic views of what such demand management can achieve.

Moreover, it has not kept its powder dry, so it has little ammunition available to target any severe scenarios that require a serious stabilising shock. Nonetheless, we still expect the MPC to plough ahead with extending QE2. In our view, the counterintuitive saving grace of this approach is that it is probably much less effective than the MPC currently assumes, so it should not deliver runaway inflation

Indeed, the rough impact of QE2′s cumulative £150bn of gilt purchases in our forecast is short of 1% to the price level. Yet, with the associated impact on real GDP less than half that, we expect the MPC to remain distinctly disappointed at the demand it delivers.

Well there we are.

Monument comment also mentioned on the right.

Will see if we have that to hand.

looking now

don’t seem to have that

I do have

Approaching the end-game

but that’s few days old

hang on

breaking news

Italy won’t publish prelim GDP for Q3 as usual, ISTAT says number of revisions to previous data

The EU/IMF inspectorate moves in, and the first thing we get is delayed stats due to revisions of previous data.

that’s not good

is it?

Italy stats agency says revisions being drawn up to previous data and this has prevented the calculation of its preliminary estimate

Oh ………………………

……………….. Dear.

Bad numbers take longer to add up than good ones.

One of the core rules of finance, that.

yep

Murphy spent years

drumming it into me

here’s the full report

via Reuters

ROME, Nov 16 (Reuters) – Italy will not issue preliminary data for third quarter gross domestic product, so the performance of the economy for the period will only be known when final GDP data is issued on December 21, national statistics institute ISTAT said.

ISTAT normally issues a preliminary estimate for growth more than a month before the final numbers.
The institute said a series of revisions were being drawn up to previous data and this procedure had prevented the calculation of its customary preliminary estimate for the third quarter.

The euro zone’s third largest economy is widely expected to have contracted between July and September and a further decline in GDP is expected for the fourth quarter. That would provide further fuel for a bond market sell-off that is already driving Italy to the verge of having to seek international aid.
Eurostat reported on Tuesday that aggregate GDP for the 17 nation euro zone rose a preliminary 0.2 percent in the third quarter. Italy’s larger neighbours Germany and France posted growth of 0.5 percent and 0.4 percent respectively.

Greece 2.

well

I didn’t want to say that

but…

It seems I just have.

Italian 10-year yield

still just below 7%

Hm.

Oh, and just to tie up loose ends …

FTSE 100 off 56 points at 5,461

…. Here’s Marc Ostwald on pensioners getting stamped in the face by Merv’s jackboot.

(I’m paraphrasing.)

perhaps the most pressing question for Mr King should be about one of the (presumably) unintended consequences of QE, namely the crushing of Index-Linked Gilt real yields to zero across the whole of the curve (the new 2029 IL Gilt to be sold next will come with a “no return” coupon of 0.125%), which in effect leaves pension funds staring into the abyss, given that regulation says that index-linked bonds are the best asset match for pension funds long-term liabilities. As with the daylight robbery that the persistently high level of inflation and near zero interest rates inflicts on savers, and the impoverishing level of annuity rates available to those coming up to retirement, there is a lot of collateral damage being inflicted by QE, which does not get sufficient discussion in the public domain.

Ok. Time for some stocks to cheer us up?

why not

11:40AM

actually before we do

job cuts

in the City of London

this really is as bad

as I have ever known it

not just people being fired

but companies being shut

Altium went last night

Please see below a press release issued earlier today in respect of our UK Securities business. Following a strategic review, we have decided to consider the closure of our UK Securities business which has now entered a consultation period, to focus on building on our core and profitable international advisory business in the UK and Europe. Since January 2010, Altium have completed 70 transactions with a value in excess of £5 billion.

We believe that our strong balance sheet, track record and platform of international offices provides us with an exciting opportunity to further grow our advisory business and we look forward to continuing to work with you in the future.

Regards

Phil Adams

Group CEO

I’m hearing that Religare, owners of Hichens, Harrison

have put their UK business under strategic review

and if management don’t buy it

it will be shut

there’s rumours of more jobs losses at Nomura and some new ones at BNP

Investec are apparently about to a programme

it’s everywhere

I won’t have any contacts left by Xmas

Uncredit – that’s gone

As it happens, I’d heard Religare had basically told all ops outside Asia that it was over.

Though I’m not sure what kind of scale they have beyond London.

Sad to see Hichens Harrison go, if that’s what happens.

Likewise Ambrian, Arbuthnot, Ambrian ….

Evo ….

yes

it does seem to be the A’s getting it

So the demise of Altium means 3 out of 4 brokers beginning with “A” have been closed or sold in the last month – Ambrian, Arbuthnot, and Ambrian. Just Arden left beginning with A. And there a bit of action at the other end of the alphabet with Unicredito closing London operations and UBS looking to cut investment banking significantly

that’s from a sector watcher

and on UBS

we get the strategic review

on Thursday

at the annual investor day

and with a new CEO in place

I reckon we can expect another bloodbath

So, please, if you know anyone who works at a London brokerage.

Make sure you check on them every morning.

Look for milk bottles stacked up outside the door, mail sticking out of the slot, etc.

Anyway, to stocks.

actually one more thing

UBS

do we have any comment

there was a note a few weeks back

from JP Morgan

arguing for a Credit Suisse/UBS JV in investment bankinig

it promised massive costs savings

and 13,000 job losses

now I don’t expect to see that tomorrow

but we are going to get shrinkage, right?

Of course. That’s a foregone conclusion, surely.

UBS needs to reinvent itself.

For obvious reasons.

Right

we are back

sorry about that

one of our usual outages

Milky

(@Milky: yellow.)

Yes, before we were rudely interupted

UBS

here’s a little primer

from Huw Van Steenis

at Morgan Stanley

Go on.

We think UBS will need to shrink SFr110-130bn of FICC/legacy RWA and restructure significantly in a very tough market, constraining earnings and dividend. The headwinds for UBS (1.1x TNAV) and CS (1.2x) are enormous, but we believe UBS over time should be better placed.

Our proprietary model suggests EUR1.5-2.5trn of European bank deleveraging to come, and with its large amount of legacy assets, we think UBS will look to de-risk carefully. This means it could take 3-5 years, constraining payout. But should UBS be able to de-lever without major capital hits, we think it would have sufficient capital to support SFr225-250bn RWA and so restart the divi over time – we forecast 45c divi in 13e while maintaining CT1 under B3 of >13% in 13e.

We think the restructuring will have minimal negative impact on
trends within the core businesses and may even help WM as
the i-bank will now be largely focused on supporting WM. Even
after the trading loss and subsequent news of the upcoming
restructuring, UBS still maintained respectable ~2% net new
money annualised in Q3 despite weak markets, fallout from the
unauthorized trading incident, and outflows from a past
acquisition. Underlying margins remained resilient at 97bps.

By refocusing on WM and de-emphasizing the i-bank, the WM
may even benefit if clients see lower perceived risk at the firm
and if the focus of the i-bank will be for WM clients. We think
net new money in WM will remain subdued at ~2% in
2012e-13e with only incremental improvement in margins to
97-98bps (see our note: Relentless headwinds: beta
continues to trump alpha, 9 September 2011). However, a
renewed focus in the firm on WM will hopefully offset some of
the headwinds private banking is facing (i.e. lower trading
activity, interest income, client risk aversion, etc.).

on to some UK stuff now

I think so. We’ve done 52 minutes of preamble.

11:53AM

what shall we look at?

part of the reason

for waffling on 52 minutes

is there isn’t much to say

ICAP PLC (IAP:LSE): Last: 350.50, down 16.5 (-4.50%), High: 360.00, Low: 345.50, Volume: 2.79m

curious outlook comment with their results

which I think has spoooked the market

Look at this

While it is not possible to correlate fixed income, credit and commodities revenues at investment banks directly with financial performance at ICAP, we are not immune from changes in financial market activity. As banks approach the end of their financial year we are seeing a reduction in their appetite for risk resulting in disappointing core voice volumes in October and November to-date.

We expect to see a return to normalised activity at the start of the next calendar year

and then

The Group expects that customers’ risk appetite will return to more normal levels in the new year and that the political and economic uncertainty will continue to drive high levels of volatility in the financial markets into our traditionally strong fourth quarter trading period. We expect ICAP’s pre-tax profit for the full year to 31 March 2012 to be within the current analyst range of £358 million to £390 million based on the assumption that markets normalise in the last quarter I.

will they normalise?

(@Milky: back that statement up with valid historical precedence within 2 minutes or you’re getting a red. The clock starts now.)

(@Milky – we are still waiting for your guest post)

Why would they normalise?

pass

What does Icap know that we don’t?

pass

I think most big banks have a November year end

And why would risk appetite return after that ticks over?

(@Milky: you’ve misunderstood the words “precedence,” “historical” and “valid”. Farewell for today.)

Right

a bit of comment

Numis

As expected the outlook statement was weak. ‘We are not immune from changes in financial market activity. As banks approach their financial year end we are seeing a reduction in their appetite for risk resulting in disappointing voice volumes in October and November to-date.

We expect ICAPs pre-tax profit for the year to 31 March 2012 to be within the current analyst range of GBP358 million to GBP390m based on the assumption that markets normalise in the last quarter.’ We expect banks risk appetite to remain weak into 2012 and expect to leave our £341.4m forecast for the full year unchanged – expect market downgrades. Our EPS forecast for this year on an adjusted basis is 36.3p, 9.3% below the consensus of 40.0p.

and from RBC

The outlook says activity in October and November has been disappointing but they expect normal levels to return at the start of the next calendar year. With a year end in March that means the H2 is likely to be down on last year after a flat H1. Bloomberg suggests revenue consensus is for £918m in H2 against £853m last year. I would therefore expect at least £100m of revenue to come off revenue forecasts, which assuming it maintains the 22% margin would equate to £20m off the £372m consensus which is a 5% downgrade for 2011. If revenue was flat into 2012 this would be a 15% downgrade to the £414m consensus expectation.

Valuation The shares trade on 8.3 X 2012, which look 15% too high. IF downgraded EPS is 35p then the shares trade on 10X the downgraded number. Given market uncertainties this appears about 20% too high. The shares should trade closer to 300p.

Worth noting that Icap has outperformed this year

well run operation

And the idea that volatility is good.

but markets are tough

too much vol can be a very bad thing

and we have had way too much vol

That’s exactly it. There’s a big difference between day-to-day blowouts and permanent motion sickness.

And we’re suffering from the latter at the moment.

quite

staying with the financials for a moment

our new bete noire

Provident Financial Plc (PFG:LSE): Last: 1,052, up 2 (+0.19%), High: 1,071, Low: 1,046, Volume: 67.89k

Should I don my tin hat?

we now know how their sub prime credit card makes money

they offer some sort of payment protection plan

that’s not regulated by the FSA

Payment freezes? Indeed they do.

from a sector watcher

It seems apparent that substantially all the profits from Vanquis bank come from the selling of Repayment Option Plans. This is a policy which allows customers to freeze repayments at a cost of 1.29% per month.

More than half the customers take out this policy

As such is not an insurance product and so is not covered by FSA regulation. A brief search of the internet suggests this is useful to Vanquis as customers can’t complain to the FSA Ombudsman over mis selling. It seems they have sold it to self employed people who would be unable to use it (poor TG from Mold). Fortunately for Vanquis the FSA Ombudsman has no scope to regulate this product.

Bottom line is I am amazed to see apparently sane analysts arguing this sub prime credit card business warrants a premium valuation to most other listed companies.

Yeah – Collins Stewart noted this yesterday.

Basically, 14% of the top line comes from the “other” category.

Which is the “repayment option plan” along with ID theft insurance and the like.

And I reiterate, the FSA’s taking an interest in these plans.

Here’s Collins Stewart again, for those who missed it.

Questions revealed that three quarters of new accounts take R.O.P., that over half
existing accounts pay R.O.P. and the UK Regulators (FSA & OFT) will soon provide
new guidance on how PPI and non-insurance products (like R.O.P.) should be sold..

Vanquis’ website reveals standard terms and conditions (see page 3 for details) price ROP at “£1.29 per £100 (1.29% per month) of your monthly outstanding balance”. We estimate that almost all the other income relates to R.O.P. While the product is clearly described and Vanquis’ account opening procedures ensure R.O.P. is correctly sold, shareholders should recognise that this products’ contribution to Vanquis’ profits (FY: £26.7m) and r.o.e. is very material.

fascinating

a business well worth watching

sub prime credit cards

and before we move on

to something different

one more bit of comment on Icap

and its divi

IAP – the comment on use of free cash is revealing. “The free cash generated was used towards funding the final dividend and the purchase of six million treasury shares”. Wait-a-moment !!! Free cash flow was £82m … final dividend £96m ….. the cost of share buyback (at an average price of 467p a share) was £28m. I think the final dividend was excessive!!! I think the buy back was at too high a price!!! I think the free cash flow was inadequate!!! IAP share price of 367p is too high.

that’s from another sector watcher

12:06PM

Right – quite a bit among the smallcaps today.

Such as another profit warning from Game Group

The Game Group PLC (GMG:LSE): Last: 11.75, down 7.25 (-38.16%), High: 15.75, Low: 11.15, Volume: 13.31m

The hit and hope retailer

and proving once again

that just because management are dumb enough to buy stock

in a broken business

investors should not follow

and I say that

because

Yell Group PLC (YELL:LSE): Last: 5.15, down 0.41 (-7.37%), High: 6.89, Low: 5.03, Volume: 76.81m

was up this morning

because the chairman bought a load of bonds

Yell chairman Bob Wigley has taken the unusual step of buying the bonds of the indebted directories company as it attempts to convince lenders to accept changes to its debt’s terms.

Mr Wigley bought Yell senior debt on Tuesday with a face value of $1m (£625,260) for about £200,000, as well as increasing his stake in the struggling company with the purchase of shares worth £100,485.

Huge move on Yell yesterday. 50%-ish.

A move that depends on you believing that Bob Wigley is shrewd.

And I’m not sure what evidence you’d be basing that opinion on.

He did, after all, take a job at Yell.

quite

although

he probably felt guilt

Merrill brought it to market

did all the acquisitions

and the spectacularly unsuccessful cash call

he owes investors

anyway

back to Game

unscheduled trading update

because things are dire

full year guidance revised

for sales, gross margins and costs

net result

big downgrades

and that’s before Xmas trading

Yeah – that’s the big problem here.

We’re into pre-Christmas period when the AAA-rated titles are released.

Modern Warfare wotsit and so forth

so why are Game struggling

if there’s so many decent titles around

it’s not the internet it is?

and the supermarkets?

if so

this sounds a little bit

HMV Group PLC (HMV:LSE): Last: 4.20, up 0.2 (+5.00%), High: 4.49, Low: 4.14, Volume: 925.17k

why are they up??

That’s one I can’t answer. It was down yesterday, I guess.

The backdrop here seems to be weaker spending across the board, not just at Game.

The early adopters bought, but there’s been no follow-through.

At least according to UBS ….

Trading in last 7 weeks has seen an improvement to -3% LFL as the big hitting
titles have been released but management previously expected a positive LFL.
Trading for 41 weeks is -8.6% LFL. Guidance for FY is moved from 0% to -3%
LFL and gross margin -100bp to at least -7% LFL and gross margin at least -150bp partially offset by operating costs at £8-10m lower from £6-9m.

Headline new games launches have initially gone well but have tailed off quickly
as mainstream gamers have been more cautious in spending. Footfall has been
lower and consumer purchases have been very deal driven which, along with a
lower pre-owned participation and less accessory attachment, has impacted the
gross margin. Game has continued to take market share during the period.

For FY12 we lower our group LFL to -7% (from -3.2% LFL) and gross margin to -
160bp (from -80bp) and increase cost savings to £10m. We had already assumed a
dividend cut and this view is reinforced. For FY13 we roll through the downgrade
but assumptions remain unchanged and we now expect a small gross margin
increase in FY13 as promotions normalise. No changes to the balance sheet.

We change our methodology from a DCF given the earnings uncertainty. To take
into account its current losses and cyclical nature we now value Game on a 50%
discount to Cal 13 sector PE.

I have some more downgrades

from Singer Capital Markets

GAME has today issued an IMS covering the 41 weeks to 12 November. This was an
unscheduled update and has been brought forward due to worse than expected
trading. Management have revised their full year guidance around sales, gross
margins and costs and the net impact is likely to see significant downgrades to
consensus and losses reported for the full year to end January’12.

As a consequence of the weak market and competition management are downgrading FY
guidance:- now to -7% LFL or worse (from flat to -3%), with gross margins down at least 150bps
(from -100bps), offset only by £2m additional cost savings.

This revised guidance is at lease
£20m less EBIT than they previously guided to. Prior to today consensus forecast was £17.5m
PBT (vs SCMe £15.0m). We would expect market expectations to reduce to a loss before tax of
between £5m-£10m.

massive downgrade

massive

Ahead of today GAME trades on a cal’12 PER of 4.6x, or 1.9x on an EV/EBITDA basis. A forecast
halving of the dividend yields 15.2%. We continue to believe that a sizable sector discount is
justified. We remain cautious on earnings prospects given the competitive pricing pressures
from the grocers and mass merchants along with the medium term threat from digital
distribution.

ah yes

the dividend yield

surely that can’t survive

Don’t buy yield on the basis of a management whose guidance involved hit and hope.

Another very simple rule.

Home Retail Group PLC (HOME:LSE): Last: 74.95, down 3.65 (-4.64%), High: 79.05, Low: 74.50, Volume: 3.00m

Oh, and look at Kesa.

Kesa Electricals PLC (KESA:LSE): Last: 84.30, down 4.35 (-4.91%), High: 89.00, Low: 83.40, Volume: 716.47k

Deary me. Paying people to take Comet away really hadn’t helped a bit.

and that’s because

its decent business

is in France

and er that’s in the Eurozone

and things are too good there

Well, quite. It’s now pretty much exclusively a play on French TVs and white goods.

Right …. what else is there among the smallers?

quite a bit

the Premier Food apologists

at Investec

have rushed out a buy note

telling everyone

not to worry about

the killer curry sauce

(Legal disclaimer: not killer curry sauce.)

They’re the “20p in 200 days” folks, right?

Last week’s share price advance has been part-reversed by the news that a batch of Loyd Grossman sauce has been contaminated and is being recalled. To say that this is a setback for Premier and our Buy case is an understatement. We do however think that the problem is both finite and containable. We elect to remain Buyers, but think that interested investors should wait a further few days for the situation to clarify before taking any action.

Back to square one. Premier’s penchant for snatching defeat from the jaws of victory continues. Last week the share price nearly doubled on the back of news that the company’s December covenant test would be deferred. Since the open on Monday 14 November, the shares have fallen by c.20% as the media have reported that a batch of Loyd Grossman cooking sauce has been contaminated with clostridium botulinum, the bacterium associated with botulism, a treatable but harmful infection.

Ultimately a finite and containable problem? We have waited 48 hours prior to publishing in order to get as good a read on the issue as we can. Our understanding is that the contamination is limited to a single batch of Loyd Grossman Korma Sauce, which is now the subject of a full recall numbering some thousands of jars. Mercifully, there appear to be only two victims (children of 8 and 10 living in Scotland, according to a report in the Daily Mail) who are said to be ‘serious but improving’ in hospital.

Consumer and sales impact likely to be limited? We are in the early stages of the crisis and much remains uncertain. However, as analysts and buyers of the stock, we think it behoves us to attempt a risk assessment. The best documented precedent we have for a ‘food scare’ impacting a UK food brand is Cadbury’s disclosure of the presence of the salmonella montivideo bacterium in certain of its chocolate brands in June 2006.

jesus

this goes on forever

let’s skip to the most important bit

buy Premier

because it’s going to 20p

# Staying Buyers. The nexus of our Buy case on Premier last week was that, at 3.8p and with a covenant deferral agreed, the equity was an under-priced option. With the shares back to 5p and apparently now finding some stability at this level, we think this thesis remains in place. But our patience and goodwill has been tested.
# We assume that Premier won’t update on Q4 trading until January. It is however conceivable that the debt refinancing and/or asset disposals could be announced ahead of that. So the logic of our position has been that interested parties should invest soon. However, given the uncertainty created by the botulism incident, we advise investors to wait a further few days for the picture to clarify further.

# We therefore formally re-state our Buy recommendation and 15p target price. This target assumes that Premier can execute successfully a ‘200 day plan’ embracing a debt refinancing, selected asset disposals and stabilisation of trading. We projected the value of this plan at 20 pence per share after six months, against which our target of 15p reflects a caution factor.
# Risks to our price target. Premier Foods remains a risky situation of relevance to special situation investors only, in our view. There is a material risk that the equity could be worthless. A re-financing might be achieved only on punitive terms that are detrimental to equity holders relative to today’s price of c.5p. Trading might continue to deteriorate, although consensus forecasts have been heavily downgraded. Asset disposals at the requisite target multiple of around 6x EBITDA might be difficult to achieve.

Well, there are a lot of intellectual hoops to jump through for anyone who chooses to recommend a food company that poisons its customers.

I’d suggest that was a fundamental flaw in the business.

But then, I’m not an analyst.

the fundamental flaw is the debt

too big

must be reduced

via debt for equity swap

Well, quite. The equity’s basically just a flea living on the back of an elephant of debt.

Anyway, what else? We’re running out of time.

12:24PM

Cruse of the UK IPO strikes again

3LEG:LSE

3LE:LSE

the company is called 3Leg Resources

Oh – European shale.

yep

Poland

shale gas licences in the onshore Baltic Basin in northern Poland where it is drilling with US partner ConocoPhillips.

Chaired by Tim Eggar, the former UK Conservative party energy minister

listed in June at 190p

now

yours for just 90p a share

Do any floats rise? Any?

So what’s gone wrong with this one?

I knew you would ask that

this is the best I have

via a broker

3Legs Resources (3LEG LN) has announced that the Warblino LE-1H2 horizontal well in Poland flowed at an initial rate of 60 to 90 mscf/d of natural gas and over 1,000 bbl/d of fracture fluid, declining after five days of testing to approximately 18 mscf/d of natural gas and 300 bbl/d of fracture fluid, when the well was shut-in. The Company considers that the well could benefit from being shut in for an extended period of several months to recover from the fracture stimulation and to enable the fracture treatment fluid, potentially obstructing the flow of natural gas, to dissipate.

I guess that means

gas isn’t flowing

Not enough of it, certainly.

Right – hang on ………….

We’ve got eurozone tape bombs going off all over the place.

Can you bring some of this over to the left, Neil?

Oh, net’s having a wobble.

here we go

Nov. 16 (Bloomberg) — Germany is prepared to cede some
national sovereignty to the European Union to achieve closer
economic and political ties, Chancellor Angela Merkel said.
“Germany wants a strong European Union with 27 members,”
Merkel told reporters in Berlin today. It also “also wants a
17-member euro zone as strong and that inspires confidence,”
she said. “We are prepared to give up a piece of national
sovereignty” to achieve that.

So its some sovereignty

not all

“some” was the detail missing from the earlier flash.

MERKEL SAYS GERMANY READY TO GIVE UP NATIONAL SOVEREIGNTY TO EU

panic over

bad flash that

the Reuters one

was much more accurate

RTRS-MERKEL SAYS GERMANY THEREFORE WILLING TO GIVE UP SOME NATIONAL SOVEREIGNTY

market seems to like it

now down just 17 points on the day

in spite of most bond markets in Europe

ex Germany

pushing wider

Spain at 6.4%

Italy 7.08%

even Belgium being smacked

Ok – should we return to smalls? I know it’s past 12:30, but a couple of things need noted before we close for the day.

Belgian 10y thru 5%

go on

I have a few things to mention

hearing a very big seller in the US

has been cleared out

actually the seller is from Canada

and connected to management

and some really sad news

What company’s this?

San Leon Energy

Ah.

god knows what the ticker is

and I can’t be bothered to find out

they are never like the Reuters ones

and also

the Scum of North London

Right. This is a football thing I guess.

The North London Whites are delisting.

Tottenham Hotspur PLC (TTNM:LSE): Last: 33.10, down 12.9 (-28.04%), High: 40.25, Low: 33.10, Volume: 49.67k

Which, I think leaves the Glasgow Greens as the only football club to have a proper listing.

Though The London Reds have a listing on Plus.

Along with the Glasgow Blues, for however long they might survive.

(I’m really testing the outer limits of both my knowledge and interest here.)

Neil’s machine has crashed in protest at a mention of Tottenham, it appears.

Just waiting for him to come back and share his thoughts.

As I, frankly, have none.

Does Ossie Ardiles still play for Tottenham?

He seemed a nice man.

(Casper: will upload as soon as we’re off air.)

I’m back

yes the Scum are leaving

because they can’t raise money on Aim for their new white elephant stadium

on Tottenham High Road

so what happens next

is that Joe Lewis funds its construction

and they change the name

from White Hart Lane

to the Joe Lewis Arena

right

are we done?

Not quite.

There is one last thing to clarify.

It appears an RNS has gone out in error this morning.

On some Swedish miner called Beowulf.

Because here’s what they said on Monday ….

Beowulf (AIM: BEM; Aktietorget: BEO), the mineral exploration company which owns several exploration projects in Sweden, notes weekend press speculation and confirms that the Company, as is normal for an exploration company, is always considering its options with regards to an equity fund-raising though strongly denies that any placing, if undertaken at the present time, would be concluded at such a large discount to the current share price.

“Such a large discount” refers to rumours it could’ve been priced as low as 12p.

Yet two days later we have …………

Beowulf (AIM: BEM; Aktietorget: BEO), the AIM and Aktietorget traded mineral exploration company which owns several exploration projects in Sweden, is pleased to announce that it has completed a placing and subscription with new UK and Swedish institutional and other investors in respect of a total of 44,638,890 new ordinary shares of 1p each in the capital of the Company (the “Placing Shares”) at an issue price of 15 pence per share (together, the “Placing”) to raise approximately £6.7 million before expenses. The Company intends to use the net proceeds from the Placing to finance its planned additional drilling, analysis, economic/conceptual and environmental impact studies on its wholly owned Kallak iron ore projects (Kallak North and Kallak South), its planned drilling on its Ballek copper/gold joint venture project and for general working capital purposes.

that’s disgraceful and almost smacks of creating a false market

I’d agree.

make it sound like nothing is happening

and then do it

digusting

this company should never be trusted again

no one should go near it

The CEO also said the placing rumour was “nonsense” …..

….. via his Facebook page.

I think the FSA needs to call these guys in for a bit of a word.

not on that sort of thing

and what makes it worse

is to have the PR

calling up and abusing us

not on

poor poor work

in fact so poor

this deserves flagging on the blog

Well, we just don’t talk to the PR again. We operate an information meritocracy.

Simple really.

Anyway, that’ll do us for today I think.

it will

thanks all

And goodbye.

sell

Beowulf Mining PLC (BEM:LSE): Last: 20.00, up 2.13 (+11.89%), High: 21.45, Low: 17.98, Volume: 6.78m

that’s it from us

cya

This entry was posted by Neil Hume on Wednesday, November 16th, 2011 at 11:05 and is filed under Uncategorized. Edit this entry.

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Markets Live transcript 16 Nov 2011

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