FT Alphaville » Markets Live transcript 25 Nov 2011

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Markets Live transcript 25 Nov 2011

Posted by Neil Hume on Nov 25 11:05.

Markets Live chat transcript for the chat ending at 12:22 on 25 Nov 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT

That’s better

no bug

right let’s try again

……

Hola

and welcome to Markets Live

sorry we are left

brief technical glitch

and I was trying to find a Deutsche note on Vedanta

which has pushed the stock price lower this morning

Vedanta Resources PLC (VED:LSE): Last: 901.00, down 54 (-5.65%), High: 956.19, Low: 901.00, Volume: 585.47k

and I have found it

called Sailing Close to the wind

but we can come back to that

Bryce

scores please

Hello!

We’re down!

Again!

Tenth day!

is that a record?

Nope.

We did 11 straight in 2003.

hmm

2003 post dot.comedy bubble sell off

when Standard Life

were sucked into the death spiral of selling

great times

That’s the one. Mid-2003 was the capitulation point.

When you knew it was the bottom because everyone had just given up hope.

(I say “knew” … certain amount of retrospective judgement is involved here.)

This, however, doesn’t feel like that.

it doesn’t

Anyway, FTSE’s down 0.6%

Off 29 points at 5098 give or take.

and here

are some fun FTSE factiods

Sentiment remains decidedly bearish with the FTSE 100 closing down again today – the 9th consecutive negative finish for the UK’s headline index
This is the second longest losing streak in the history of the FTSE 100 (11 days of consecutive loses is the record, from January 2003)

Today’s Performance –0.24% equivalent to a loss of £3.1 Billion in market capitalization.

The total drawdown for this losing streak has been -7.78% equivalent to about -£107 Billion in market capitalization.

WIPING £X.XX BILLION OFF THE VALUE OF ….

An easy headline if ever there was one.

So – what’s the driver today? Hungary?

Italy?

all of those

and Merkel’s refusal

to allow money printing or Eurobonds

however

I can see circumstances where a deal is done

Germany gets to rule Europe

fiscally of course

then we get the eurobonds

until then

we wait

and markets go down

and today’s

Italian auction was not good

not good at all

they got their money I suppose

but they really had to pay up

three times more for 6 month money than German paid for 10 year money

RTRS-ITALY 6-MTH BOT BILL AUCTION YIELD 6.504, UP FROM 3.535 PCT AT END-OCT. SALE-BANK OF ITALY
10:12 25Nov11 RTRS-ITALY RAISES FULL TARGETED AMOUNT OF 10 BLN EUROS AT SHORT-TERM DEBT AUCTION-BANK OF ITALY
10:13 25Nov11 RTRS-ITALY 2-YR CTZ BOND AUCTION YIELD 7.814 PCT, UP FROM 4.628 PCT AT END-OCT. SALE-BANK OF ITALY
10:14 25Nov11 RTRS-ITALY 6-MTH BOT BILL AUCTION BID-TO-COVER RATIO 1.47 (1.57)
10:15 25Nov11 RTRS-ITALY 6-MTH BOT BILL AUCTION YIELD OF 6.504 PCT IS NEW EURO ERA HIGH
10:15 25Nov11 RTRS-ITALY 2-YR ZERO-COUPON CTZ BOND AUCTION BID-TO-COVER RATIO 1.59 (2.01)
10:16 25Nov11 RTRS-ITALY 2-YR ZERO-COUPON CTZ BOND AUCTION YIELD IS NEW EURO LIFETIME HIGH

humenm is mobile 10:28am
humenm 10:49 am
(10:49:59): 1 RTRS-GERMAN BUND FUTURES EXTEND LOSSES, HIT SESSION LOW AT 134.49, DOWN 54 TICKS ON DAY
10:46 25Nov11 RTRS-BELGIAN 5-YEAR CDS RISES 13 BPS TO NEW RECORD HIGH OF 407 BPS – MARKIT
10:46 25Nov11 RTRS-GERMAN 5-YEAR CDS RISES 6 BPS TO MATCH RECORD HIGH OF 115 BPS – MARKIT
10:47 25Nov11 RTRS-BELGIAN/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD HITS HIGHEST SINCE AT LEAST 2008 AT 368 BPS-TRADEWEB
10:47 25Nov11 RTRS-ITALIAN 2-YEAR GOVERNMENT BOND YIELDS RISE ABOVE 8 PERCENT, UP 40 BPS AT 8.03 PCT – TRADEWEB

milky

(@Milky: yellow.)

so 6 month yield was 6.5%

2 year 7.8%

and the 10 year

currently trading at 7.32%

well and truly back in the danger zone

Hm. Any comment to drop in here?

not yet

just a bit of copy from Reuters

i get the impression

lots of people not in today

because

they know Wall Street will be digesting its turkey today

MILAN, Nov 25 (Reuters) – Italy paid a record 6.5 percent to borrow over six months on Friday and its longer-term borrowing costs soared far above levels seen as sustainable for public finances, raising the pressure on the euro zone’s debt-stricken third biggest economy.
The yield on the six-month paper almost doubled compared to a month earlier and showed the appointment of an emergency government to tackle the debt crisis had failed to put a brake on Rome’s spiralling borrowing costs.

Though Italy managed to raise the full planned amount of 10 billion euros, weaker demand and the highest yields since the country joined the euro frightened investors, pushing Italian stocks lower and bond yields higher on the market.
Yields on two-year Italian BTP bonds soared to more than 8 percent in response, also a euro lifetime high, despite reported purchases by the European Central Bank.
“The pricing is awful,” said Padhraic Garvey, rate strategist with Dutch bank ING in Amsterdam.
“The object of the exercise this morning was to get the job done and they’ve done that, but that’s about the only positive thing to say.”

And, for those who want a quick summary of the current state of the clusterflux ….

Citigroup provides a wrap each morning.

And here it is.

The meeting of Heads of State and Government of the three largest euro
area countries Germany, France and Italy came up with three main – although
not breathtaking – results and one open dissent. i) German Chancellor Angela
Merkel, French President Sarkozy and Italian Prime Minister Mario Monti
announced they would make proposals for EU Treaty changes before the EU
Summit on 9 December. (Yesterday, EU Council President Van Rompuy
announced that the Summit will start earlier, with a dinner on 8 December.)
According to Mr. Sarkozy the Treaty changes should be comprehensive and not
only focus on fiscal issues. According to Angela Merkel, the Treaty changes
would not change the ECB’s mandate. The agreement to keep quiet about the
role of the ECB came after strong demands from the French side for larger ECB
involvement. ii) The EMU-3 leaders agreed to respect fully the independence of
the ECB and refrain from making “positive or negative comments” on the ECB. iii) Germany and France welcomed the reform initiates of the new Italian
government.

Dissent on Stability Bonds – While all the three leaders want closer
cooperation of euro area countries, in the end amounting to a fiscal union, as Ms Merkel has proposed, there is huge divergence regarding the issuance of
common euro area bonds – or Stability Bonds as the EU Commission now calls them. While Mr Monti clearly is in favour of the introduction of such bonds, Ms Merkel yesterday repeated German opposition to such instruments, highlighting that removing interest rate pressure would undermine incentives to implement sound fiscal policies in the member countries.

Comment: The outcome of yesterday’s meeting suggests that there is
progress regarding changes in the EU treaty. While Germany is not willing to
agree to Stability bonds at the moment (nor most likely at the 9 December
summit), if additional steps for tighter fiscal rules and stricter governance are
taken at the euro are level, Germany’s opposition to Stability bonds is likely to
diminish.

that’s the end game here

Merkel playing chicken

reform

or no eurobonds

let’s just hope

someone blinks

before we fall off into the abyss

Quite so. The Berlin Backstop Bond talks do seem to be evolving a little into something more formed.

Ok – we should power on.

yes

11:20AM

So it’s Black Friday in the States

and Black Friday in the UK

if you are a Blacks Leisure shareholder

what’s the bloody ticker for this one

Blacks Leisure Group PLC (BSLA:LSE): Last: 3.56, down 0.812 (-18.56%), High: 3.56, Low: 1.71, Volume: 779.63k

bingo

wow

it’s rallied

was off 50% earlier

following the latest profits warning

not sure why it has rallied

sales falling off a cliff

in talks with lenders

needs to raise £20m in equity

and has a market cap of around £3m

please explain why it has rallied

Er …….. Rescue hope?

why would you both

surely the equity is worthless

That’s the way I see it.

Mike Ashley might buy it

out of administration

but that’s it

Yeah, true. If your best hope of survival depends on Mike Ashley …..

…. Well, not the most comfortable of positions.

So take us back to the statement.

What’s getting the blame?

Weather?

not this time

the economy is blamed

rather than the company itself and increased competition

from the likes of

Mountain Warehouse

Go Outdoors

Cotswold Outdoors

Snow & Rock

all of which have staff

that go outside

and climb mountains at weekends

actually

Lisa used to work in a Blacks

in Cambridge

Did she. Well I never.

enjoyed it

Also, where are the Occupy LSE folk buying their tents?

If not Blacks?

(Carl C: bye.)

(Carl – never ever come back)

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.

I feel better for that

right

let’s have some reaction

starting with Peter Smedley

at Charles Stanley

Our View: Today’s unscheduled IMS is a profit warning and will be particularly poorly received by the stock market as the company has indicated it needs to sort out its capital structure before the Xmas period ahead of its bank financing renegotiations prior to its financial year-end at the end of February 2012. The group is simply running out of time and options, albeit management states that its bankers BoS remains supportive. We would avoid the stock, seeing little equity value left in the company.

 In recent days, we have noticed massive and unprecedented store-wide and online price reductions (even on stock already on promotion) which no doubt attests to the extreme difficult trading that the group has been experiencing.
 .Whilst the detailed strategic recovery plan has yet to be unveiled by the new CEO, essentially it centres around a back-to-basics, increasingly own-label product offering (with a broader offer online), combined with enhanced retail disciplines and a revitalised store estate (which is of course dependent on how much money the company can obtain from an equity fund raising).

 Operators such as Mountain Warehouse, Go Outdoors, Cotswold Outdoors and Snow & Rock (all with a different combination of store format, geographic location, product range, marketing spend and helpful balance sheets) have contributed to Blacks’ and Millets’ long and possible terminal decline. Discounting and margin pressure remain rife in the outdoors sector, so layered onto the ongoing difficult retail environment, this continues to thwart Blacks and Millets which both remain poorly positioned for now.

Valuation: Current EV/Sales FY2012 of 0.2x and a market cap of only £4m shows the firm is now in financially distressed territory. We move our 10p PT to 1p. We now see virtually no scope for the group’s return to profitability.

Nick Bubb is quite good as well on this

Go on.

Poor old Blacks is always mocked when it talks about “the weather” (see the upcoming White Paper on the subject from the prestigious KPMG-Synovate Retail Think-Tank), so it wisely decided against blaming the mild weather for the latest profit warning today, focusing on “the economy” instead. “Conditions have weakened in the last few weeks as a result of continuing downward pressure on consumer discretionary spending and consumer confidence. As a result, the Group is experiencing lower than expected sales and we now expect the full-year outcome to be below expectations”.

In other words, losses are going to be even greater than Blacks had feared and they hope their “supportive” banks don’t pull the plug. It looks like 1 of our recent “12 Forecasts for 2012”, that Blacks will be the first major retail casualty of the year, is on track…

and he might be right

HMV will challenge

HMV Group PLC (HMV:LSE): Last: 3.80, up 0.25 (+7.04%), High: 3.88, Low: 3.80, Volume: 314.25k

what about JJB?

JJB Sports PLC (JJB:LSE): Last: 7.75, down 1.65 (-17.55%), High: 9.40, Low: 7.55, Volume: 1.29m

I’d say that’s a banker.

How’s Clinton Cards?

good one

Game Group?

The Game Group PLC (GMG:LSE): Last: 6.95, up 0.4 (+6.11%), High: 7.16, Low: 6.68, Volume: 1.80m

lots of runners and riders

Clinton Cards PLC (CC.:LSE): Last: 13.88, no change, Volume: 0.00

While I scrape my brain for more distressed retailers …..

Here’s Numis on Blacks

Current trading weaker than expected: Blaming the weak consumer environment the
Group has announced sales in the three months since 27-Aug have been weaker than
expected despite taking action on margins. Having already provided an 8 week update
when LFLs were down -14% with margin down -300bp we envisage that trading has
deteriorated further through November.

n Pressure on forecasts: While results for the year to Feb-12 clearly depend on
Christmas trading, the company now expects the outcome to be below expectations. As
stated at the interims, the Group acknowledges the need for additional funding in order
to execute its strategic plans and is considering various option. In our opinion the
current weak trading puts additional pressure on the company to raise cash and we are
unconvinced that investors and lenders will be willing to provide support. At this stage
we maintain our Feb-12 loss before tax forecast of £23.3m and continue to believe that
Blacks will struggle to contend with growing competition. To reflect the weaker than
anticipated current trading we lower our TP to 3.5p.

the news from Blacks hasn’t helped the rest of the retail sector

look

Supergroup PLC (SGP:LSE): Last: 441.40, down 33.6 (-7.07%), High: 472.90, Low: 441.22, Volume: 86.00k

didn’t last long

And, as noted on the right, the John Lewis figures are not promising.

of which note

I have Bubb

As we flagged on Monday, John Lewis releases its weekly sales figures to the press on Sunday evening at this time of year, rather than Friday morning, so last week’s figures are “old news” now, but the detail today on the website is interesting. The upbeat headline of the Gazette commentary is “Stores start countdown to Christmas in style”, but overall the w/e Nov 19th was down by 3.3% gross on last year and down by 5.2% on an ex-VAT basis.

Take out the new space contribution, however (which we think is nearly 5%, although JLP don’t give the figure), and that would be basically 10% down LFL. The booming Online business was not on better form again, with a 16.3% gross increase, which meant that every branch was down, even on a VAT-inclusive basis, and about 17 branches were double-digit down. In sales mix terms, the three main areas of Electricals, Home and Fashion were all very even, although iPads and tablets were the star area.

This week John Lewis faces another tough comp, but it reported yesterday morning that, helped by strong toy sales, it is running “flat” on last year after 4 days of the week, which is not as bad as the -5% we’d feared, but would still be nearly 7% down LFL (ex VAT)…

JOHN LEWIS DOWN 10% LFL

that’s it

we are all doomed

And that’s in spite of that damn advert with the dog’s head in a box.

not a dog

a local retailer

carved up

John Lewis evil category killer

in my town at least

leaving a trail of devastation in its wake

they declared war on the toy shop last weekend

by hiring Darth Vader and Three Storm Troopers

and NOT charging for the photos

how sick is that?

this week

it’s free minces pies and wine

these people are evil

If you’re using “sick” in the same sense that 17-year-olds do, then I agree.

I’d quite like my photo taken with a stormtrooper.

Anyway, we should probably move on.

11:35AM

Talking of businesses in trouble

Thomas Cook Group PLC (TCG:LSE): Last: 18.97, up 2.62 (+16.02%), High: 23.50, Low: 16.25, Volume: 122.49m

the rally continues

but why

yes

there’s a Goldman upgrade today

but only to hold

and since when did anyone follow a Goldman stock tip

I read that, yeah. It’s not even slightly positive.

There’s not a line in it that says “this is a functional business”

It was simply “this has fallen 90% – you might want to close your shorts.

There is, however, a frantic game of bank-spinning going on in the press.

oh yes

that banks will save them

and not ask for anything in return

here you go Thomas Cook

another £100m for you

just remember to pay it back

once everyone has given you the deposits

I mean

at the very least

and I mean very least

there will have to be a huge fee

and warrants

and a promise to do a cash call

in return for the cash

surely

and yet the price

does not reflect the dilution threat

(FJP73: no there’s not.)

(didn’t TCG buy the Co-op travel business?)

anyway

this is all spin

by the

to make out TCG is still viable

and people should continue to book holidays

and it might be viable

but

the equity ain’t worth a bean

this is going to go the way of MyTravel

and if you don’t remember that

here’s what happened

this is from 2004

MyTravel will on Thursday present an ambitious debt-for-equity swap proposal to its main lenders in an attempt to safeguard the future of the beleaguered tour operator.

The group, formerly known as Airtours and the owner of brands such as Cresta, Bridge and Direct Holidays, hopes to restructure its balance sheet and cut its crippling £1.3bn debt burden.

MyTravel has made significant inroads into streamlining itself by disposing of non-core operations, such as its cruise and car hire businesses. It also sold FTi, its lossmaking German division.

Investors are expecting the debt for equity swap. In March Peter McHugh, chief executive, warned them that “any restructuring may result in a significant dilution of the interests of shareholders”.

MyTravel shares closed up 0.17p at 5.43p

anyway

I blame the Rednapps for all this

that advert

has ruined Thomas Cook

I’d argue that it hit the iceberg that was MyTravel.

Though I’m not exonerating the Rednapps, obviously.

http://www.youtube.com/watch?v=2Z23jLO1Yk0

http://www.youtube.com/watch?v=J5rB-7Yr8LI

Now, just a quick word before we adjourn for the weekend. The Jamie and Louise Redknapp Thomas Cook ad has been in existence for almost a fortnight – though it obviously feels like it has been playing on the inside of your eyelids since 1986 – and now that the initial feelings of hopelessness and despair it engendered have given way to Category 5 rage, thoughts inevitably turn to how to destroy it.

this is from the Guardian

in 2010

Interesting to think that Thomas Cook saved itself in …. 1974, was it? …..

By inventing the “consumer guarantee”

really

Yeah – all the competitors were going bust

So they put a “guarantee” sticker on their brochures and mopped up the market.

what goes around…

Quite. The package holiday industry does seem to experience confidence runs quite often.

And that’s what we’re in right now.

Which is why the mountain of press with regards the debt really needs to be taken with a bit of caution.

spin

(He says as shares are up 25% ….)

Right, anyway, what’s next?

11:47AM

Premier Foods PLC (PFD:LSE): Last: 4.99, up 0.453 (+9.99%), High: 5.20, Low: 4.52, Volume: 8.35m

the FD leaves

in the middle of debt financing talks

the FD

let’s not forget

who was quite good

and sorted out those toxic swaps

and the shares rise

what is it about today?

I am dreaming all this?

Oh, I give up.

I just don’t get this at all.

nor me

I’d have been concerned it’s a fall out between the top brass.

me too

even the bloke at Investec with that daft target price is worried

and yet the shares are up

why/

CFO Jim Smart is to leave Premier to be replaced by Mark Moran, formerly
CFO of SSL plc. We don’t know Moran and rated Smart highly, so this is an
uncertain event for us. And changing CFO in the middle of a delicate
refinancing negotiation is a risk. The benefit, however, is that new CEO Clarke
now has a leadership team fashioned entirely on his own last. We retain an
open mind and our Buy recommendation.

This announcement has come as a surprise that creates some uncertainty for us.
We rated Smart highly and saw him as central to resolving Premier’s immediate
financial priorities of a debt refinancing and the disposal of non-core assets.

We can only speculate on the reasons for the change. Perhaps the chemistry
between Clarke and Smart wasn’t working. Perhaps Smart had ambitions for the
top job. Or perhaps he sees himself as a financial crisis and turnaround manager
whose job is now largely done.

you job is not done

turnaround?

what turnaround?

Whatever the reason, Premier’s band of frustrated shareholders owe him a debt
of gratitude. During a period in which confidence in Premier’s former CEO, Robert
Schofield, was eroding, we found him to be a steadying influence. His signal
achievements, in our view, were the closing out of Premier’s toxic digital swap
arrangements and the disposals of the Quorn and Canning businesses.

But now we must focus on Mark Moran. We don’t know him, but are
open-minded. We didn’t cover SSL when it was a quoted company but our
perception was of a well-run business that delivered good growth and an eventual
valuable exit for shareholders. So he is starting with the right credentials. And
bringing some fresh legs.
n Good job, too, because he will need to get to grips rapidly with a crisis situation.
Premier is presumably deep into refinancing negotiations and (one hopes) a
disposal process around non-core assets. Moran will need to win rapidly the
confidence of Premier’s banking syndicate, other advisors and counterparties

and, ultimately, potential investing institutions.

The positive aspect is that Mike Clarke is now in command of a senior team that
he has been able to fashion entirely around his own imperatives and
requirements. That, in our view, should be good for shareholders in the medium
term.
n Ultimately we retain an open mind…and our Buy recommendation on the stock.
But life with Premier is certainly eventful, with a surprise Directorate change
coming hot on the heels of a surprise food contamination scandal coming hot on
the heels of an explosion in the share price following news of a covenant deferral
and Director share purchases.
n When we signed on as Buyers on November 9, we did so in the expectation of a
bumpy ride. We are certainly getting one.

Ah – the new chap is ex Durex.

SocGen liked him there.

But still ….

Mark Moran, whom we regarded as a ‘steady pair of
hands’ at SSL, will join in December, while Jim Smart will stay on until early 2012 to ensure a smooth handover. The statement says Smart ‘agreed with the company that 2012 would be the right time to step down as the company’s new business plan is finalised and as its new financing arrangements are put in place.’

Timing raises questions. Jim Smart is relatively new to Premier, having only joined in late
2009; as such the timing of his replacement seems perplexing to us. Premier are in the midst
of crucial negotiations with their banking syndicate to refinance debt facilities, which expire in 2013, and relax their covenants which we think are currently at risk of being breached in March 2012. As a result Smart’s departure could signal that Premier’s negotiations with the banks are struggling. Having spoken to the Premier this morning, the company dismissed this notion, saying that CEO Mike Clarke, who has an accounting background, has been at the forefront of negotiations with banks so the change in CFO will not significantly impact talks. On the potential refinancing timetable, Premier point out that they are dealing with 30 different lending banks which means getting all to an agreement is taking time, and we think is likely to take months not weeks

High debt & pension deficit leave little value left for shareholders. Refinancing its £1bn debt and relaxing covenants are necessary conditions for Premier to avoid liquidation. However even if they are successful it would not guarantee shareholder upside from these levels. The net debt and pension deficit combined are c£1.6bn which is c6.5x 2012e EBITDA which leaves minimal EV leftover for shareholders. Premier’s organic cash generation has been poor (underlying EBITDA has been in decline since the RHM acquisition in 2007) and disposals are likely to be at distressed multiples and result in operational dis-synergies in the near term.

so Smart

has been elbowed aside

by the new man from Kraft

hmmm

this isn’t what you want to hear

11:53AM

Where now?

Back to Vedanta

Vedanta Resources PLC (VED:LSE): Last: 908.00, down 47 (-4.92%), High: 956.19, Low: 895.78, Volume: 815.69k

You mentioned Deutche are negative.

Let me guess ….

Too much debt that it might not be able to service if metals prices continue on their downward path?

hang on

There are risks to parent level debt servicing, but these are priced in. We believe the key
question for investors is whether Vedanta will breach covenants and whether the subsidiaries
can service the parent level debt. In our view this depends increasingly on a robust oil price, as
Cairn India will need to provide the majority of dividends to service parent level interest
payments. We estimate commodity prices will need to fall by another 15% and stay at these
levels for FY’13 before Vedanta is likely to breach covenants. Much of this risk is priced in
already in our view. BUY

funny buy recommendation

not sure people will be lining up for that

in fact

they aren’t

Vedanta Resources PLC (VED:LSE): Last: 906.00, down 49 (-5.13%), High: 956.19, Low: 895.78, Volume: 818.39k

Worth digging a bit further into that I think.

Given the concerns about Vedanta’s structure.

Which, come to think of it, reminds me a bit of Punch Taverns.

more complex than anything dreamt up by Nat Rothschild

Cash seems to get trapped in odd places, never flowing back to the PLC.

Here’s Deutsche again.

VED have provided better disclosure on each of their entities and this has allowed
us to model potential cashflows between entities. The cash cows in Vedanta’s
portfolio are Cairn India (once the acquisition is approved), HZL and surprisingly Konkola (as the capex hump comes to an end). Sesa Goa also generates spare cash, but is likely to hoard for its West African iron ore project. These cash cows can supply sufficient dividends to meet the interest payments of the cash hungry aluminium and power divisions, as well as meeting the substantial c.700 to 800m annual interest charge at the parent level, under our base case commodity assumptions. However should oil fall to US$73/bbl ceteris paribus, dividends may fall short, and additional special dividends may have to be declared.

Given the recent sharp fall in commodity prices, we have conducted a stress-test to ascertain at which commodity prices; Vedanta will breach its 2.75x net debt to EBITDA covenant condition in 2013F. These are: Oil (Brent) at US$85/bbl (25% below spot), Iron ore fines (FOB, 63%) of US$100/t (22% below spot), Copper at 280c/lb (15% below spot), zinc at 80c/lb (10% below spot) and aluminium at
95c/lb (2% above spot). Under this scenario, we estimate that Vedanta’s net debt will rise over the next two years to +US$12bn, and the net shortfall in attributable interest payments is likely to bec.US$260m pa.

hmmm. might make a good ‘Bear of the Year stock’ for 2012

Our GBP16.70 PT is a c30% discount to our DCF valuation of £23.90 using a
10.7% WACC (Cost of equity 12.8%, post-tax cost of debt 6% and target gearing
30%: RFR 4.5%, ERP 5.5%) on life of mine cash flows. This discount takes into
account the complicated corporate holding structure and high interest payments. Downside risks include lower than expected commodity prices, and further delays in approvals for the company’s growth projects, and the final approval of the Cairn India acquisition.

That’s one of the most bearish buy notes I’ve ever seen.

yes

don’t look at what the recommendation says

look at what the report says

11:59AM

Right

now for something positive

from HSBC

on European equities

which are cheap, apparently

We identify the three key value drivers that underpin valuations: the spread between
return and cost of capital, the gap between real earnings growth and real bond yields and
the equity risk premium. We assume all three deteriorate relative to history. Specifically
we assume the spread halves, real earnings growth dips below real bond yields and the
risk premium rises above its 40-year average. Even after making these assumptions we
find that the operating profit multiple can be sustained in the mid teens, well above its
current level of 12x.

We stress that valuations can remain away from their long-term equilibrium values for
many years. To discuss valuation when the Europe is in crisis might seem like worrying
about the next ice age when a tsunami is approaching. However, we believe the answer to
the value question is relevant today when deciding how to structure a portfolio. If
European equities offer attractive value then an outright risk-averse stance is itself risky
and there is more of a case for selected financials and cyclicals

given the vol in equities

in recent years

and the robots etc

I don’t know what the equity risk premium is anymore

rabble any thoughts what it should be?

… which is what also undermines the commonly made yield argument.

Sure – the megacaps are yielding >6% PA.

They’re also losing ~6% per day.

I’m not sure how you square those two factors.

12:03PM

and here

for those interested

are the super stocks

HSBC has selected for its portfolio

AXA CS FP Insurance EUR8.7 OW(V) Kailesh Mistry EUR21.0
Experian Ltd EXPN LN Commercial Services 774p OW Rajesh Kumar 965p
K+S SDF GR Materials EUR37.5 OW Jesko Mayer-wegelin EUR58.5
Morrison MRW LN Food & Staples Retailing 311p OW Jerome Samuel 370p
Rio Tinto RIO LN Materials 2986p OW Andrew Keen 4700p
Rolls-Royce RR/ LN Industrials 657p OW Harry Nourse 825p
Saipem SPM IM Energy EUR28.8 OW David Phillips EUR45.0
Total FP FP Energy EUR35.3 OW Paul Spedding EUR48.0
UBS UBSN VX Diversified Financials CHF9.8 OW Robert Murphy CHF19.0
Vodafone Group VOD LN Telecoms 166p OW Howard Stephen 225p

not sure how UBS got on there

or Axa

but the rest seem fine

12:04PM

where now?

Quick jump into the smallcaps I guess.

what’s moving then?

Cosalt is

Cosalt PLC (CSLT:LSE): Last: 0.23, down 0.12 (-34.29%), High: 0.13, Low: 0.12, Volume: 4.32m

And it looks like David Ross is getting his way.

Taking the company back into his family’s control.

For, basically, nothing.

nice

Ross frozen foods

from great Grimsby

The independent board agrees to his 0.1p offer.

Valuing the equity at …. wait for it …. £400,000.

nice

any other small caps moving?

I know

got told to look at this company today

hang on

trying to find the ticker

Dongfang Shipbuilding (Group) Company Limited (“Dongfang” or the “Group”), the international shipping company and shipbuilder, today announces its intention to seek admission of its shares to trading on the AIM market of the London Stock Exchange. Dealings are expected to commence on AIM on 18 August 2011.

The Group’s principal business is in shipbuilding; manufacturing small and medium size vessels such as chemical tankers and multi-purpose container ships at its two shipbuilding yards in Anhui and Zhejiang provinces, PRC. In recent years Dongfang has diversified into shipping, owning and operating six 9,000 dead weight tonnes (‘DWT’) chemical tankers and one 9,200 DWT chemical tanker, out of Singapore and Hong Kong. The Group currently has approximately 530 full time employees across the two businesses.

So its listed in August

and then a week ago

it issue a profits warning

which was quite an eye opener

Dongfang Shipbuilding China Ltd (DFS:LSE): Last: 44.00, no change, Volume: 0.00

The Board of Dongfang (AIM:DFS) announces a trading update in respect of the nine months ended 30 September 2011. As announced in the Company’s interims on 20 September 2011, the third quarter started particularly slowly in the shipbuilding division, with no new shipbuilding orders having been contracted between then and 30 June 2011. More recently, the Company has signed shipbuilding contracts worth approximately US$14.5 million in total, however, to date, the Company is yet to receive any advance payment without which it will not commence work on the contracts.

no orders

and no one paying

nice

I hope all that was in the prospectus

right

other small caps

Bowleven PLC (BLVN:LSE): Last: 63.50, down 3.5 (-5.22%), High: 70.56, Low: 60.25, Volume: 7.54m

the sector watcher

still watching that one

We are cutting our target price by 18% from 280p/share to 229p/share, i.e. our new target is more than three times yesterday’s closing price. Clearly there was some disappointment in yesterday’s drilling update that the group was unable to flow-test Sapele-3, despite encountering an additional 8 metres of net oil pay in a deeper zone than the original well had found.

However in our view this does not necessarily mean that Sapele is unlikely to be commercial, a view which equity markets appear to have taken given the 10% fall in the shares to a 2-year low yesterday. Indeed at yesterday’s close of 67p/share, we estimate the market is affording only $150m for BLVN’s entire portfolio of assets, after netting off the $170m or so of cash that it has. On an unrisked basis we believe that the Sapele and IE/IF discoveries could be worth $1.3bn, or a total of 333p/share, i.e. 5x the current price. The group will return to the licences Q2 next year to appraise both Sapele and IE/IF, and hopefully prove that both are indeed commercial. Hence, despite the dreadful performance of the shares this year (-82%), I’d say that on a risk/return basis this is worth owning on a twelve-month basis.

any more from you?

Profit warning from YCO

a leading provider of specialist services to superyachts

what

does that mean

what I think it means

are their clients

oligarchs in the south of france?

or is this about the nuts and bolts of the boat

Actually, saying you provide “specialist services” to superyachts makes it sound like something Max Moseley would use …..

However, it appears to charter them.

http://www.ycoyacht.com

Sell them. Manage them. It’s an interesting website to browse, if you want to be appalled.

And here’s the warning.

Despite 2011 being a year of difficult economic and challenging market conditions, Y.CO has completed a successful restructuring, refocus and rebranding of the Company. The Board has focused on increasing market share in its core service areas through brand and marketing initiatives and the recruitment of key personnel. This has required a significant level of cost and investment, that, combined with the delay of certain contracted revenues into early 2012, will result in profits for the year ending 31 December 2011 being significantly lower than market expectations.

YCO Group PLC (YCO:LSE): Last: 6.50, down 3.13 (-32.47%), High: 7.00, Low: 6.00, Volume: 216.69k

12:16PM

Right

Milky

are you still there?

got something for you

it’s quite rare

Markets Live transcript 25 Nov 2011

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