Markets Live chat transcript for the chat ending at 12:22 on 5 Dec 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT
NH
Hola Rabble
NH
welcome to ML
NH
we are back to our usual line up
NH
Bryce has returned to work
NH
although I seem to have caught
NH
what he had
NH
so could be out for the rest of the week
BE
Hi – and thanks for all the cards, flowers, muffin baskets ….
BE
Milky
(@Milky: yellow.)
BE
I was overcome by the show of emotion at my absence, rabble.
BE
(Ie. no-one noticed)
BE
(Except one person who asked if I had “Wham flu”)
BE
Anyway, it’s good to be back.
11:07AM
NH
While you were away
NH
well
NH
have a look at the FTSE
NH
up another 22 points to 5,575
BE
Right. Need I ask why?
NH
well
NH
because
NH
there’s going to be a solution to the Eurozone debt crisis by Friday
NH
the 17 member states
NH
are going to agree to closer fiscal union
NH
and budgetary discipline
NH
and a guy in Brussels who can fine them
NH
if they break the rules
BE
No we’re not.
NH
of course we aren’t
NH
it will be another Eurofudge
NH
and the market will rattle back off to 5,000
NH
but ahead of that
NH
it could drift higher
NH
a triumph of hope over bitter experience
NH
I reckon it’s fully priced in already
NH
and I don’t buy this Santa rally crap
NH
there’s no way these 17 countries
NH
are going to get their act together
NH
The Irish are already making noises
NH
Ireland would have to hold a referendum on any new European treaty that involved a transfer of power from Dublin to the European Union level, the Irish government has warned.
The Irish government is anxious to ensure that any changes to EU treaties agreed at a crucial summit on Friday are sufficiently limited in scope to avoid a referendum which it could struggle to win. Memories of the rejection of the Lisbon treaty in 2007 are still fresh and Dublin would face real difficulties in passing a complicated text strengthening EU oversight of budgetary affairs.
The Irish government is anxious to ensure that any changes to EU treaties agreed at a crucial summit on Friday are sufficiently limited in scope to avoid a referendum which it could struggle to win. Memories of the rejection of the Lisbon treaty in 2007 are still fresh and Dublin would face real difficulties in passing a complicated text strengthening EU oversight of budgetary affairs.
NH
only 16 more issues like that to tackle
NH
before Friday
BE
But Merkel still says no, right? No joint issuance?
BE
So it ain’t going to happen.
BE
At least in this round.
NH
well
NH
the hope seems to be
NH
whatever they cobble together
NH
will impress the ECB
NH
so much
NH
that they wade into the market and buy bonds
NH
loads of bonds
NH
but I don’t think they will come up with something that will wow the ECB
NH
the ECB will do its bit on Thursday
NH
but cutting rates
NH
and making even more liquidity available
NH
anyway
NH
I have some comment on this
NH
here’s Citi
NH
The market has been battling between hopes (especially around Europe) and reality in the context of positioning.
NH
From a “no coordination” attitude across Central Banks, the actions on Swaps line and RRR decrease in China have shown some willingness to act together last week and reinforced the market’s view that a solution is now around the corner in Europe.
Hopes are high going into this week European summit
Hopes are high going into this week European summit
NH
. The dynamics seem to indicate some hopes of a “Fiscal Union” where Germany would engage in Fiscal transfer under the right conditions (restructuring measures in several southern European countries / Italy’s technical government did pass a $40bn budget deficit reduction program over the weekend – Italy 10Y yields coming in 53bps today to 6.13%).
NH
Questions remain between what Germany will demand and what other countries/ like France, will accept (still differences between Short term measures without enforcing framework – France’s goal – minimizing the power of Brussels, especially ahead of May 2012 elections) and what Germany requires (involvement of European court, more powers in Brussels…).
NH
We continue to believe that the “solution” will either fall short of market’s expectations or will imply a lot more pain/austerity in 2012 and 2013 which does not bode well for Equities in Q1 2012.
There is a chance that if France/Germany do get to an agreement, the other European countries will follow and the ECB will show some help to the system (rate cut next week – 25bps priced in and liquidity injection).
There is a chance that if France/Germany do get to an agreement, the other European countries will follow and the ECB will show some help to the system (rate cut next week – 25bps priced in and liquidity injection).
NH
Here here
NH
Regardless of what gets announced this week, the sovereign issuance in January and February will continue to test the willingness of bond buyers in the new year.
Putting together the lack of positioning (and therefore fears of a Q4 rally) with a decent probability of a disappointment still advocate a long gamma position (to the upside to take advantage of skew positioning). December and January are the months to own.
Putting together the lack of positioning (and therefore fears of a Q4 rally) with a decent probability of a disappointment still advocate a long gamma position (to the upside to take advantage of skew positioning). December and January are the months to own.
NH
and that’s the problem for me
NH
even if we get closer fiscal union
NH
the medicine the Germans are prescribing
NH
it austerity
NH
will probably kill the patient
NH
I have a bit more
NH
if you want it
NH
Here’s Gary Jenkins
NH
at Evo
NH
There is a real danger that anything agreed this week will be watered
down as it goes through the process of approval at national levels and what we
end up with is less of a fiscal union more of a strengthened stability pact.
down as it goes through the process of approval at national levels and what we
end up with is less of a fiscal union more of a strengthened stability pact.
NH
A
stronger stability and growth pact is good, but given a history of non-compliance
even by the major countries it could take a long time to regain market confidence
that the measures are sufficient to deal with both budgetary discipline and
Europe’s economic growth problem.
stronger stability and growth pact is good, but given a history of non-compliance
even by the major countries it could take a long time to regain market confidence
that the measures are sufficient to deal with both budgetary discipline and
Europe’s economic growth problem.
NH
That leaves the problem of what happens in
the short term. ECB President Draghi last week hinted that the ECB could step up
its purchases if politicians did their part, a firm commitment by the ECB could
drive down yields from what is still uncomfortably high levels despite last week’s
rally. Let’s hope he thinks they have done enough on Thursday or else there may
be very few buyers of Euro area bonds. That said, would he really step away from
the market and watch it melt in order to force more change? That would be one
brave central banker…
the short term. ECB President Draghi last week hinted that the ECB could step up
its purchases if politicians did their part, a firm commitment by the ECB could
drive down yields from what is still uncomfortably high levels despite last week’s
rally. Let’s hope he thinks they have done enough on Thursday or else there may
be very few buyers of Euro area bonds. That said, would he really step away from
the market and watch it melt in order to force more change? That would be one
brave central banker…
BE
Perhaps I’ve been away too long.
BE
I’m just not understanding this.
BE
The consensus on everything I’ve read this morning is that it’s now or never for saving the eurozone
BE
And the consensus is also that we’ll get some budgetary reform
BE
A bit of tinkering
BE
No proper fiscal union.
BE
And …… we’re up.
NH
yep
NH
mad
NH
nice piece by Wolfgang Münchau in the paper this morning
NH
outlining why the French won’t back it
NH
Mr Sarkozy’s proposal could not be more different. He has said that he is not prepared to cede any sovereignty to the centre. He wants to retain the inter-governmental approach that has so abysmally failed in the past. He opposes any attempts to strengthen the European Commission, or to involve the European Court of Justice in adjudicating on breaches of the rules. While rejecting Ms Merkel’s obsession with austerity, he is not interested in a genuine fiscal union either. He is open to a eurozone bond and to the European Central Bank having the role of lender-of-last resort. I would surmise that this is because France would stand to benefit from both.
NH
every man
NH
or woman
NH
for themselves
NH
Mario Draghi, meanwhile, insists politicians deliver their part of the bargain before he does. The ECB’s president has so far resisted pressure on him to provide an unlimited backstop to the system, either by backing the European bail-out fund or through a direct guarantee of long-term bond market prices.
NH
anyway
NH
let’s stay with Europe for a moment
NH
and a few more signs of stress in the system
NH
Eurozone banks continue to hoard cash
NH
deposit levels at the ECB rose to
€332.705B, up from €313.763B on the previous day. At the same time banks
borrowed €7.002B at the marginal lending rate. This suggests ongoing
problems in the interbank market, but also highlights that the ECB’s
generous liquidity supply is not necessarily boosting bank lending, and that
banks prefer to hoard cash amid uncertainty about the future of the
eurozone.
€332.705B, up from €313.763B on the previous day. At the same time banks
borrowed €7.002B at the marginal lending rate. This suggests ongoing
problems in the interbank market, but also highlights that the ECB’s
generous liquidity supply is not necessarily boosting bank lending, and that
banks prefer to hoard cash amid uncertainty about the future of the
eurozone.
NH
- This hampers the monetary policy transmission mechanism and the risk is that
even with ultra-long tenders, which are reportedly being discussed at the
ECB, may not change that.
even with ultra-long tenders, which are reportedly being discussed at the
ECB, may not change that.
NH
and
NH
have a look at this
NH
GERMAN BUBILL AUCTION: YES..YIELD IS TO 4TH DECIMAL
——————————————————————————–
■ GERMANY SELLS €2.68B IN NEW 6M BUBILLS; AVG YIELD 0.0005% V 0.0800% PRIOR;
BTC: 3.8X V 2.2X PRIOR
——————————————————————————–
■ GERMANY SELLS €2.68B IN NEW 6M BUBILLS; AVG YIELD 0.0005% V 0.0800% PRIOR;
BTC: 3.8X V 2.2X PRIOR
NH
Yields and BTC indicative of the “fear” that continues to exist. The German
debt agency suggesting that the strong demand underlines the “benchmark role
of bunds” – I would suggest it underlines the risk averse sentiment over the
year end/new year period now very clear.
debt agency suggesting that the strong demand underlines the “benchmark role
of bunds” – I would suggest it underlines the risk averse sentiment over the
year end/new year period now very clear.
NH
that’s how desperate people are for sarefy
NH
and collateral
NH
it’s seem an unholy mess out there
BE
The system’s gummed up. It’s transpiring that the brief period it wasn’t — between 2009 and 2010, basically — was exceptional.
BE
It’s the same crunch. We never left it, because we never fixed it.
NH
just papered over the cracks
NH
kicked the can down the road
NH
zombie economics
BE
The world’s most expensive sticking plaster, according to this morning’s Guardian.
BE
Another good piece, if you’re overloading on doom.
NH
yes
NH
by Larry Elliot
BE
Do grab, if you can.
NH
hang on
NH
oh
NH
it’s got a great picture
NH
A scene from Shaun of the Dead. Hayek would say that the zombie-like state of affairs has been due to the refusal to allow banks that lent irresponsibly to go bust. Photograph: Allstar/Cinetext/Universal
NH
NH
A eurozone that somehow stays afloat but can’t be reformed, banks awash with cash that don’t lend, and incoherent economic policy. We’ve only found a sticking-plaster solution to our crisis
NH
The longer the economic crisis goes on, the less credible sticking plaster solutions become. Four years in, Europe is heading into a nasty recession, China is flirting with a hard landing, the governor of the Bank of England is warning of a systemic banking crisis and George Osborne has announced spending cuts that will continue for the next six years. The United States is the one part of the world where the news has been better recently, with signs of life returning to the housing market and a welcome fall in unemployment.
What’s happening in America – where the Federal Reserve has used two rounds of quantitative easing (QE) to boost the money supply and announced its intention to keep interest rates low – has encouraged the belief that recovery will eventually come, provided the policy response is big enough for long enough.
NH
It remains to be seen whether this is indeed the case, since there have been false dawns galore since the financial system froze in 2007. The real strength of the US economy will be revealed early next year, when tax breaks supporting consumption and investment are removed and when the world’s biggest economy starts to feel the impact of the slowdown on this side of the Atlantic.
BE
Enjoyed that. Well, not enjoyed, but …. you know.
BE
Ok – let’s move on to some movers.
11:26AM
NH
Start
NH
with the banks then
Lloyds Banking Group plc (LLOY:LSE): Last: 27.48, up 2.09 (+8.21%), High: 27.59, Low: 25.77, Volume: 108.70m
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 22.77, up 1.14 (+5.27%), High: 22.90, Low: 21.93, Volume: 51.93m
Barclays PLC (BARC:LSE): Last: 194.86, up 4.21 (+2.21%), High: 199.20, Low: 193.60, Volume: 26.86m
NH
Euromess resolution hopes?
BE
Looks that way to me.
NH
can’t see any other explanation
NH
most banks in Europe are up today
NH
with the exception
NH
of CommedyBank
NH
off 7% at pixel time
BE
What’s the story there?
NH
Germany is making contingency plans for nationalizing Commerzbank, the nation’s second-largest bank, in the event that it fails to raise enough cash to meet new capital requirements by the June 2012 deadline, reports Der Spiegel magazine.
NH
Der Spiegel reports that Germany is readying to nationalise one if its largest domestic bank via the state rescue fund, SoFFin, if the lender fails to raise the required capital shortfall by the next summer.
NH
and just think
NH
they had a cash call
NH
not long ago
BE
Hm.
NH
a note has just landed on this
NH
from RBC
NH
In our opinion, it has become clearer that it will be a challenge for CBK to close
the potential capital shortfall under the EBA sovereign stress test without taking
more state aid. A potential sale of Eurohypo to the German government seems to
be off the agenda for now, according to the press. Lower capital generation on the
back of a weaker macro outlook is an additional headwind. We cut our 2013E net
profit by 18% mainly on higher loan losses. Therefore, we believe that the risk of
dilution and increased government ownership is high. Compared to our revised
PT of EUR1.4, the risk-reward is not attractive and we downgrade CBK shares to
Underperform, Above Average Risk. The EBA update and CBK’s strategy on
capital are key.
the potential capital shortfall under the EBA sovereign stress test without taking
more state aid. A potential sale of Eurohypo to the German government seems to
be off the agenda for now, according to the press. Lower capital generation on the
back of a weaker macro outlook is an additional headwind. We cut our 2013E net
profit by 18% mainly on higher loan losses. Therefore, we believe that the risk of
dilution and increased government ownership is high. Compared to our revised
PT of EUR1.4, the risk-reward is not attractive and we downgrade CBK shares to
Underperform, Above Average Risk. The EBA update and CBK’s strategy on
capital are key.
NH
The Q3 report confirms, in our view, that the initial estimate
of a EUR2.9bn capital deficit under the EBA test might have increased by
EUR1.3bn from the end of June to the end of September. There is no room for
error as an additional EUR30bn of RWA reduction and estimated capital
generation (including the announced hybrid buyback) only just bring CBK to the
9% benchmark by H1 2012. It should take time to get certainty on capital.
of a EUR2.9bn capital deficit under the EBA test might have increased by
EUR1.3bn from the end of June to the end of September. There is no room for
error as an additional EUR30bn of RWA reduction and estimated capital
generation (including the announced hybrid buyback) only just bring CBK to the
9% benchmark by H1 2012. It should take time to get certainty on capital.
NH
Running out of options: According to Der Spiegel, the German government
does not intend to buy Eurohypo. Additional steps considered by CBK (hybrid
buyback, asset sales) are likely to take time and come with execution risk.
High risk of dilution: CBK might have to act faster on capital to provide
comfort to equity and debt investors than waiting until H1 2012. The risk that the
German government has to inject more capital than its current 25% stake is
relatively high, in our view
does not intend to buy Eurohypo. Additional steps considered by CBK (hybrid
buyback, asset sales) are likely to take time and come with execution risk.
High risk of dilution: CBK might have to act faster on capital to provide
comfort to equity and debt investors than waiting until H1 2012. The risk that the
German government has to inject more capital than its current 25% stake is
relatively high, in our view
NH
Downgrading to Underperform: We believe that CBK’s shares do not
adequately reflect the challenges and at current share price levels are above our
revised price target of EUR1.4ps. Our price target adjusts for capital but does not
include unrealised sovereign bond losses and is therefore not dependent on the
EBA test. CBK’s COE should be a function of any change in ownership structure
and developments in the European sovereign crisis. Every 50bp change in our
COE impacts our fair value by 5% each way
adequately reflect the challenges and at current share price levels are above our
revised price target of EUR1.4ps. Our price target adjusts for capital but does not
include unrealised sovereign bond losses and is therefore not dependent on the
EBA test. CBK’s COE should be a function of any change in ownership structure
and developments in the European sovereign crisis. Every 50bp change in our
COE impacts our fair value by 5% each way
NH
another zombie bank
NH
being propped up by the state
BE
Also, I note Comedybank has been buying back T1 toxic paper at less than 50% of par.
BE
Which you can read both ways, I guess.
NH
deckchairs
NH
Titanic
BE
Well, yes, indeed. Bailing out with a leaky bucket.
BE
Here’s Goldman on that.
BE
Commerzbank announced today (December 5) its intention to buy back, for
a cash consideration, a mix of selected Tier 1 hybrid equity instruments. The
offer intends to accept investors’ tenders up to an aggregate amount of
€600 mn. In the event that tender offers exceed this amount, tender offers
will be accepted according to a pro-ratio factor. The tender offer period
starts on December 5, 2011 and is expected to end on December 13, 2011.
a cash consideration, a mix of selected Tier 1 hybrid equity instruments. The
offer intends to accept investors’ tenders up to an aggregate amount of
€600 mn. In the event that tender offers exceed this amount, tender offers
will be accepted according to a pro-ratio factor. The tender offer period
starts on December 5, 2011 and is expected to end on December 13, 2011.
BE
The transaction would allow Commerzbank to monetize the potential gains
(the difference between the nominal value of the debt instruments and the
buyback price offered to investors) to reinforce its capital base. The buyback
price stands at 49.9% on average (a 24% premium to the last closing price
on December 2, although the relatively low liquidity of these instruments
could limit BBG pricing relevance). By limiting the cash consideration to
€600 mn, Commerzbank could buy back up to c.€1.2 bn of outstanding
instruments (€2.2 bn current outstanding amount). The potential €600 mn
gains would imply a maximum potential uplift on Core Tier 1 capital ratio of
c.23-25 bp (CT1 at 9.4% in 3Q11 and 8.6% excl. €1.9 bn silent participation).
(the difference between the nominal value of the debt instruments and the
buyback price offered to investors) to reinforce its capital base. The buyback
price stands at 49.9% on average (a 24% premium to the last closing price
on December 2, although the relatively low liquidity of these instruments
could limit BBG pricing relevance). By limiting the cash consideration to
€600 mn, Commerzbank could buy back up to c.€1.2 bn of outstanding
instruments (€2.2 bn current outstanding amount). The potential €600 mn
gains would imply a maximum potential uplift on Core Tier 1 capital ratio of
c.23-25 bp (CT1 at 9.4% in 3Q11 and 8.6% excl. €1.9 bn silent participation).
BE
Today’s announcement does not come as a major surprise in our view
given similar transactions announced by other major European peers.
However, what we see as a relative surprise is the fact that Commerzbank
would be able to buy back these instruments and take advantage of
potential gains without being asked by regulators to replace these
instruments with fresh equity as happened in January 2011 – i.e. full
benefits with no dilution. However, the potential capital benefit only
partially addresses Commerzbank’s capital gap to comply with EBA
requirements: a €2.9 bn capital buffer (39% of market cap) was announced
on October 27, which according to press reports (Reuters, November 22)
could be revised up to €5 bn (68% of market cap) when the EBA publishes
final figures. Our price target is unchanged.
given similar transactions announced by other major European peers.
However, what we see as a relative surprise is the fact that Commerzbank
would be able to buy back these instruments and take advantage of
potential gains without being asked by regulators to replace these
instruments with fresh equity as happened in January 2011 – i.e. full
benefits with no dilution. However, the potential capital benefit only
partially addresses Commerzbank’s capital gap to comply with EBA
requirements: a €2.9 bn capital buffer (39% of market cap) was announced
on October 27, which according to press reports (Reuters, November 22)
could be revised up to €5 bn (68% of market cap) when the EBA publishes
final figures. Our price target is unchanged.
BE
And – returning to Lloyds for a moment …..
NH
go on
NH
I was about to ban Milky
NH
for no good reason
BE
Oh, he mentioned the pandas costing Scottish taxpayers earlier.
BE
That’s as good a reason to ban as any.
BE
(Milky: red.)
NH
staying with the banks
NH
have you seen this
NH
HSBC fine
NH
from the FSA
NH
they have been rolling over grannies
NH
in fact it’s worse than that
NH
really really old people
NH
about to die
NH
it’s been flogging them
NH
complex bond investments
NH
The Financial Services Authority (FSA) has issued its largest ever retail fine of £10.5 million to HSBC because of inappropriate investment advice provided by one of its subsidiaries, NHFA Limited (NHFA) to elderly customers. HSBC estimates that the amount of compensation to be paid to NHFA customers will be approximately £29.3 million in addition to the fine.
NH
Between 2005 and 2010 NHFA advised 2,485 customers to invest in asset-backed investment products, typically investment bonds, to fund long-term care costs for elderly customers. The products were sold to individuals entering, or already in, long-term care and in many cases these elderly customers were reliant on the investments to pay for their care. Typically these investments are recommended for a minimum period of five years.
NH
The advice and sales were unsuitable because in a number of cases the individual’s life expectancy was below the recommended five-year investment period. As a result customers with shorter life expectancies had to make withdrawals from these investments sooner than is recommended. The combination of withdrawals and product charges led to faster reduction of capital than should have been the case if customers had received the right advice. A review by a third party of a sample of customer files found unsuitable sales had been made to 87% of customers involving these types of investments.
BE
NHFA is HSBC’s specialist pensioner wing.
NH
The average customer age was almost 83 and they therefore had limited means or opportunity to make up any financial loss resulting from an unsuitable sale;
NH
do they ever learn?
BE
Or, rather, it was. It was closed in July.
BE
That really is rather shocking behaviour.
NH
It is
NH
selling them something
NH
or rather their families
NH
which
NH
only cashed out when the bond matured
NH
or the last person dies
NH
shabby
NH
very shabby
BE
HSBC Bank plc, which includes the NHFA business division, decided to close NHFA to new business from 1 July 2011. Giving advice on financial provision for long term care needs is a specialised service which HSBC no longer feels is consistent with its main banking business.
NH
NH
priceless
BE
“a specialised service which HSBC no longer feels is consistent with its main banking business.”
NH
service???
NH
I’d question the use of that word
NH
these banks never learn
NH
they just can’t be trusted
NH
I popped into my local HSBC branch on Friday
NH
and they are still selling these equity linked products
NH
all over the branch
NH
were massive posters saying
NH
you can make 18% over 4 years
NH
if the FTSE 100 goes up
NH
and a load of small print
NH
as I seem to remember
NH
these products
NH
are funded by writing lots of options
NH
and use the cash to punt
NH
very dangerous
BE
Quite so.
BE
Anyway, before we leave the banks.
BE
I do have an explanation of sorts for Lloyds
BE
It seems Tim Tookey was out seeing the sellside this morning.
BE
And I have a bit of feedback
BE
Via Deutsche
BE
Predictably the main topic of conversation was LBG’s funding position and plans for 2012. Management were very robust in their view that the
bank is in good shape here notwithstanding market turmoil and last week’s
comments from the Bank of England on balance sheet encumbrance and capital adequacy (both covered in our note last night on the Financial Stability Review). At 0.46x 3Q11 TNAV we think the share is attractive, remain Buy.
bank is in good shape here notwithstanding market turmoil and last week’s
comments from the Bank of England on balance sheet encumbrance and capital adequacy (both covered in our note last night on the Financial Stability Review). At 0.46x 3Q11 TNAV we think the share is attractive, remain Buy.
BE
(i) Funding position is strong going into 2012: LBG expect a third of 2012’s £20-
25bn of planned term funding complete by end of 2011; (ii) Round number
potential picture for 2012: 3% deposit growth is £12bn, PPP run rate in 2011 YTD
is £10 p.a., non-core run off ~£50bn in 2011, assume half in 2012 £25bn, leaves
term requirement of £13bn of LBG’s £60bn sub-one year old term funding (other
£80bn of sub 1 yr wholesale is shorter duration money market); if non-core
contraction anywhere near 2011 performance, could conceivably do without term next year other than for maintenance of duration (iii) Hence management think
LBG could fund through 2012 without unsecured term debt issuance, especially given released collateral from SLS could be sold/repo’d; (iv) On BoE balance sheet encumbrance concerns (See: Too much to read…too important to miss #3, 4 Dec 11), management say even if LBG only utilised secured financing in 2012, encumbrance would be less at end 2012 than end 2010: LBG doesn’t see encumbrance as a constraint; (v) On Governor King’s comments that banks should “consider raising external capital”, management confirmed had no conversations with BoE on this; we were reminded that BoE and FSA leadership unchanged from those who signed off 2009 LBG recap which got bank to 8.1% CT1, set to allow LBG to withstand a recession and near halving of residential and commercial property prices; end 3Q11 core tier 1 ratio was 10.3%; (vi) Non-core run off proceeding well, though more slowly in 4Q11, with sales of risky assets in Australia, New Zealand and Ireland rightly cited as progress; “Generally speaking, everything we’re selling in the UK, is taking place within marks”, losses in AU & NZ sale included in reiterated guidance that LBG comfortable with consensus 2011 LLPs of £9.9bn (DBe £9.8bn).
25bn of planned term funding complete by end of 2011; (ii) Round number
potential picture for 2012: 3% deposit growth is £12bn, PPP run rate in 2011 YTD
is £10 p.a., non-core run off ~£50bn in 2011, assume half in 2012 £25bn, leaves
term requirement of £13bn of LBG’s £60bn sub-one year old term funding (other
£80bn of sub 1 yr wholesale is shorter duration money market); if non-core
contraction anywhere near 2011 performance, could conceivably do without term next year other than for maintenance of duration (iii) Hence management think
LBG could fund through 2012 without unsecured term debt issuance, especially given released collateral from SLS could be sold/repo’d; (iv) On BoE balance sheet encumbrance concerns (See: Too much to read…too important to miss #3, 4 Dec 11), management say even if LBG only utilised secured financing in 2012, encumbrance would be less at end 2012 than end 2010: LBG doesn’t see encumbrance as a constraint; (v) On Governor King’s comments that banks should “consider raising external capital”, management confirmed had no conversations with BoE on this; we were reminded that BoE and FSA leadership unchanged from those who signed off 2009 LBG recap which got bank to 8.1% CT1, set to allow LBG to withstand a recession and near halving of residential and commercial property prices; end 3Q11 core tier 1 ratio was 10.3%; (vi) Non-core run off proceeding well, though more slowly in 4Q11, with sales of risky assets in Australia, New Zealand and Ireland rightly cited as progress; “Generally speaking, everything we’re selling in the UK, is taking place within marks”, losses in AU & NZ sale included in reiterated guidance that LBG comfortable with consensus 2011 LLPs of £9.9bn (DBe £9.8bn).
BE
Ok – that’s nearly unreadable.
NH
gawd
BE
Though no more nor less than Lloyds’ results statement.
11:42AM
NH
Moving in
NH
let’s have a look at Michael Page
Michael Page International PLC (MPI:LSE): Last: 318.70, down 46.3 (-12.68%), High: 347.00, Low: 313.10, Volume: 3.42m
NH
profit warning
NH
blamed on Europe
NH
and I think this is especially worrying
NH
because aren’t Michael Page more on the permanant side
NH
than Hays
Hays PLC (HAS:LSE): Last: 69.15, down 2.05 (-2.88%), High: 71.00, Low: 66.75, Volume: 2.09m
NH
to my mind it shows
NH
what lies ahead
NH
for the European economy next year
NH
especially if Germany gets her way
NH
Fee growth in October and November was 15.5%, compared to our forecast of
20%, according to Merrill
20%, according to Merrill
BE
This is interesting.
BE
Page, as you say, is more white collar than Hays.
BE
And — perhaps counter-intuitively — US white collar hiring has been bouncing back quite strongly of late.
BE
Usually, the rest of the world follows the US very closely, albeit with a delay of a quarter or two.
BE
Some may conclude from Page’s warning that it’s not happening that way this time.
NH
the UK looks very weak
NH
hang on
NH
here’s a summary from Merrill
NH
Michael Page haw warned that FY 2011 results will be slightly below the bottom
end of the analysts range (PBTA £86.5-114m). BofAML £90m PBTA.
Fee growth in October and November was 15.5%, compared to our forecast of
20%. At our recent conference, management stated that ‘growth was slowing
everywhere’ but not falling off a cliff. Growth rates in Oct/Nov were EMEA +18%
(BAML 20%), UK 1% (BAML -2%), Asia Pac 21% (BAML 33%) and Americas
28% (BAML 45%).
end of the analysts range (PBTA £86.5-114m). BofAML £90m PBTA.
Fee growth in October and November was 15.5%, compared to our forecast of
20%. At our recent conference, management stated that ‘growth was slowing
everywhere’ but not falling off a cliff. Growth rates in Oct/Nov were EMEA +18%
(BAML 20%), UK 1% (BAML -2%), Asia Pac 21% (BAML 33%) and Americas
28% (BAML 45%).
NH
In the slowing market, Page’s fees per FTE have been falling. Whilst the group
states that it adjusts headcount to market conditions, it is too late to make a
difference in Q4 and year end heads are likely to be around 5450, +21% (+26%
on an average FTE basis).
This means that 2H EBITA is likely to be around £39-40m v £45.4m in 1H,
implying EPS of 18p for 2011 (BAML 19p). There is a wide range of potential
outcomes for 2012 (BAML currently 21p)
The shares trade on 1x EV/sales v a long run average of 1.4x, low of 0.6x and
high of 2.2x. They could fall today.
states that it adjusts headcount to market conditions, it is too late to make a
difference in Q4 and year end heads are likely to be around 5450, +21% (+26%
on an average FTE basis).
This means that 2H EBITA is likely to be around £39-40m v £45.4m in 1H,
implying EPS of 18p for 2011 (BAML 19p). There is a wide range of potential
outcomes for 2012 (BAML currently 21p)
The shares trade on 1x EV/sales v a long run average of 1.4x, low of 0.6x and
high of 2.2x. They could fall today.
NH
usually a good early warning system
NH
the recruiters
BE
Yup. Early cyclicals, no visibility.
BE
Surprisingly, Page is blaming the Americas and APac.
BE
Bit more comment.
BE
Then we can turn to the tape bombs.
BE
Seymour Pierce.
BE
Following this morning’s trading update from Michael Page which warned
that Net Fee Income growth rates had continued to slow in October and
November and that FY11e PBT would come in marginally below the lower
end of consensus range (£86.5m-£114.1m), we have cut out FY111e
estimates by 21% and our FY12e by 18%. We’ve reduced our target price
from 350p to 300p based on a 15x through the cycle P/E (FY2012).
Recommendation remains REDUCE.
that Net Fee Income growth rates had continued to slow in October and
November and that FY11e PBT would come in marginally below the lower
end of consensus range (£86.5m-£114.1m), we have cut out FY111e
estimates by 21% and our FY12e by 18%. We’ve reduced our target price
from 350p to 300p based on a 15x through the cycle P/E (FY2012).
Recommendation remains REDUCE.
BE
Michael Page has warned this morning that the continued Eurozone crisis and
increased macroeconomic uncertainty across the world had reduced clients and
candidate confidence levels resulting in a slowing of its NFI growth rates to 16% (for
Oct/Nov) from the 22% reported at the time of its 3Q11 trading update (covering the
3 months to Sep). Growth rates have slowed sharply in the second half (1Q11: 29.3%;
2Q11 29.6%). The slowdown was broad based across all geographies and across all
disciplines with banking the weakest sector. Reflecting the more uncertain outlook,
headcount is expected to be flat/slightly down in 4Q11 (1Q11 headcount up by 354,
2Q11 +269, 3Q11 +229). Michael Page has warned that FY PBT is expected to come in
marginally below the bottom end of the current range (£86.5m to £114.2m). We have
cut out FY111e estimates by 21% and our FY12e by 18 to £85m and £94m
respectively.
increased macroeconomic uncertainty across the world had reduced clients and
candidate confidence levels resulting in a slowing of its NFI growth rates to 16% (for
Oct/Nov) from the 22% reported at the time of its 3Q11 trading update (covering the
3 months to Sep). Growth rates have slowed sharply in the second half (1Q11: 29.3%;
2Q11 29.6%). The slowdown was broad based across all geographies and across all
disciplines with banking the weakest sector. Reflecting the more uncertain outlook,
headcount is expected to be flat/slightly down in 4Q11 (1Q11 headcount up by 354,
2Q11 +269, 3Q11 +229). Michael Page has warned that FY PBT is expected to come in
marginally below the bottom end of the current range (£86.5m to £114.2m). We have
cut out FY111e estimates by 21% and our FY12e by 18 to £85m and £94m
respectively.
BE
Today’s news as well as Friday’s cautious outlook statement from Sthree (which
reported weakening demand for the Group’s services in a number of markets flagging
poor demand in the investment banking market) does not bode well for both Robert
Walters and Hays given their exposure to financial services. We remain positive on
some of the smaller capitalisation stocks which, although not immune to the economic
conditions, operate in our view in niche markets with strong fundamentals. This was
proved by Harvey Nash’s recent trading update which reported 17% growth in adj PBT
in 3Q11. The staffing sector as whole is trading on a 1 year prospective P/E of 13.5x
compared with 7.2x for the smaller cap stocks. We continue to be positive on Harvey
Nash, Networkers and Matchtech which have limited exposure to financial services
markets operating in the more attractive and resilient IT/Telecoms and engineering
markets.
reported weakening demand for the Group’s services in a number of markets flagging
poor demand in the investment banking market) does not bode well for both Robert
Walters and Hays given their exposure to financial services. We remain positive on
some of the smaller capitalisation stocks which, although not immune to the economic
conditions, operate in our view in niche markets with strong fundamentals. This was
proved by Harvey Nash’s recent trading update which reported 17% growth in adj PBT
in 3Q11. The staffing sector as whole is trading on a 1 year prospective P/E of 13.5x
compared with 7.2x for the smaller cap stocks. We continue to be positive on Harvey
Nash, Networkers and Matchtech which have limited exposure to financial services
markets operating in the more attractive and resilient IT/Telecoms and engineering
markets.
11:48AM
BE
Ok – grenades hitting the tape.
NH
boom
NH
RTRS-SEVERAL EU MEMBER STATES URGING GERMANY TO DROP DEMAND FOR TREATY CHANGE TO ACHIEVE FISCAL UNION — EU SOURCES
11:46 05Dec11 RTRS-MEMBER STATES SAY MOST OF WHAT GERMANY WANTS ON FISCAL INTEGRATION CAN BE ACHIEVED WITHOUT CHANGING TREATY — EU SOURCES
11:46 05Dec11 RTRS-MEMBER STATES SAY MOST OF WHAT GERMANY WANTS ON FISCAL INTEGRATION CAN BE ACHIEVED WITHOUT CHANGING TREATY — EU SOURCES
NH
it’s coming apart already
NH
they want a Eurofudge
NH
nothing set in stone
NH
just some promises
NH
like the Growth & Stability Pact
NH
that everyone can sign up to
NH
and ignore
NH
when it suits them
NH
oh dear
NH
this is so sad
NH
and so predictable
NH
and yet
NH
the FTSE 100 moves higher
NH
up 33 points at 5,585
NH
the equity market really is thick
NH
there’s no getting away from it
NH
dumb
BE
Agree. There is no chance of good news.
BE
Or at least, news as good as is being anticipated.
BE
Because it’s impossible. Politics is the roadblock in front of all potential action.
BE
Short FTSE.
BE
That’s not advice, it’s just logic.
11:52AM
NH
Right
NH
someone is boring on about Home Retail
NH
and this bid rumour
Home Retail Group PLC (HOME:LSE): Last: 98.90, up 0.5 (+0.51%), High: 99.25, Low: 97.47, Volume: 578.39k
NH
it was played down to us
NH
and as they was no statement
NH
we can assume
NH
it was rubbish
NH
and who
NH
is going to buy a retailer before Xmas?
NH
and a retailer
NH
focused on the demographically challenged?
BE
And it’s not as if it’s all that cheap.
NH
nope
NH
I suppose they might come back next year
NH
and I guess Stuart Rose might fancy running it
NH
it sounds a better job than F1
NH
and dealing with Bernie
NH
but this must be a long shot
BE
And, as you say, timing’s wrong.
BE
Argos needs to trade through Christmas.
BE
And the signs are not good.
NH
the only attraction I can see
NH
is the consumer finance business
NH
and I believe CVC
NH
one of the rumoured bidders
NH
has businesses in this area
NH
so its possible
NH
just not this side of Xmas
NH
and I also note
NH
Stuart Rose
NH
did go to ground when this rumour came round
NH
which is odd
NH
shall we move on?
BE
Hold on – I’ve just had a note through from BarCap
BE
Saying Argos is 10% more expensive than Dixons for electronics
BE
And it’s overcharging for toys as well.
BE
I think that’s its two main categories this time of year.
BE
Amazon took the lead from Dixons.co.uk last week as the price leader of the electronics basket we monitor. Both retailers increased their prices over the week, with prices on Amazon up 1.6% and up 2.2% on Dixons.co.uk. Tesco and John Lewis kept their prices flat. Argos remains 10% more expensive than Dixons, and 11.5% more expensive than Amazon. Availability remains good so far with only the Apple iPod touch out of stock in both Argos and John Lewis.
NH
oh dear
BE
Tesco is now 2% cheaper on the complete basket than Toys R Us and 9.5% cheaper than Argos. Prices in Asda increased by 33% last week but still remain 12% cheaper than Argos and 11% cheaper than John Lewis on a comparable basket. Total basket cost across all retailers increased by 4.4% last week and remains 2.5% higher than 3 weeks ago. The number of toys out of stock climbed to 42%, with Doggie Doo and the Moshi Monsters Treehouse proving to be hardest to get hold of. John Lewis stated earlier in the week that sales of app-inspired toys, such as the Moshi Monsters
Treehouse, had rocketed 65% w/w in the run-up to Christmas. Amazon was the only retailer to stock the most popular items, but charges a hefty 25% premium for Doggie Doo and 50% premium for the Treehouse.
Treehouse, had rocketed 65% w/w in the run-up to Christmas. Amazon was the only retailer to stock the most popular items, but charges a hefty 25% premium for Doggie Doo and 50% premium for the Treehouse.
BE
There we go. If you want a good investment going into Christmas, buy Doggie Doo.
BE
I’ve nothing further to add to that statement.
11:58AM
NH
Where now?
NH
what about
Pace PLC (PIC:LSE): Last: 65.75, up 8.5 (+14.85%), High: 65.75, Low: 58.68, Volume: 1.75m
BE
Ok …..
BE
Don’t tell me …..
BE
Bid rumours?
NH
wrong
BE
Good. I’m glad. The sector’s pretty much bid proof.
BE
So what’s the reason?
NH
well
NH
their major supplier of hard disks
NH
in Thailand
NH
well
NH
it’s recovering quicker than expected
NH
according to Numis
NH
Western Digital (WD), which supplies most of Pace’s hard drives, has restarted
production at one of its Thailand facilities ahead of schedule. WD has suffered
significant damage from the flooding in Thailand. It said it restarted one facility’s
operations a week ahead of schedule. Other operations remain under about two feet of
water but are expected to be pumped dry within 10 days, then decontaminated and
refurbished. As a consequence of this WD has raised its Q4 revenue forecast by 56%
to “at least $1.8bn” from its Oct view of “$1.05-1.25bn”.
production at one of its Thailand facilities ahead of schedule. WD has suffered
significant damage from the flooding in Thailand. It said it restarted one facility’s
operations a week ahead of schedule. Other operations remain under about two feet of
water but are expected to be pumped dry within 10 days, then decontaminated and
refurbished. As a consequence of this WD has raised its Q4 revenue forecast by 56%
to “at least $1.8bn” from its Oct view of “$1.05-1.25bn”.
NH
The news is positive for Pace as it is likely to be less impacted by shortages of hard
drives than has been feared. Pace uses hard drives in its PVR (personal video
recorder, like Sky+) products, which represent c35% of revenues. There had been
severe concern that it would have been constrained from supplying PVRs through H1
FY12E. While it still looked able to meet its debt covenants despite this, it was clear
that any further disruption to the business (of which there have been multiple in the past year) could put Pace in an uncomfortable place.
drives than has been feared. Pace uses hard drives in its PVR (personal video
recorder, like Sky+) products, which represent c35% of revenues. There had been
severe concern that it would have been constrained from supplying PVRs through H1
FY12E. While it still looked able to meet its debt covenants despite this, it was clear
that any further disruption to the business (of which there have been multiple in the past year) could put Pace in an uncomfortable place.
NH
some good news
NH
now it just has to sell them
NH
and er
NH
that’s it on Pace
NH
really
NH
apart from this
NH
We were somewhat underwhelmed with Pace’s strategic review, which seemed to be a
combination of defence of the status-quo combined with a reliance on some nascent
product lines gaining meaningful traction to protect the business from commoditisation.
Consequently we continue to have long term structural concerns in relation to Pace’s
business. However in the short term, concerns regarding Pace’s balance sheet look to
be alleviated from the WD news. We upgrade to Hold from Reduce and cut TP to 60p
from 70p (we had not yet updated TP post strategic review).
combination of defence of the status-quo combined with a reliance on some nascent
product lines gaining meaningful traction to protect the business from commoditisation.
Consequently we continue to have long term structural concerns in relation to Pace’s
business. However in the short term, concerns regarding Pace’s balance sheet look to
be alleviated from the WD news. We upgrade to Hold from Reduce and cut TP to 60p
from 70p (we had not yet updated TP post strategic review).
BE
Is that Numis again?
NH
yes
12:04PM
NH
Time for a bit of small cap corner?
BE
Of course.
NH
Gulfsands
NH
been interested in this one
NH
for some time
NH
given that it operates in Syria
NH
and some of the biggest shareholders
NH
are close to the regime in the country
NH
and have sanctions against them
Gulfsands Petroleum PLC (GPX:LSE): Last: 186.50, down 20.75 (-10.01%), High: 205.34, Low: 185.00, Volume: 606.42k
BE
And what’s the latest?
NH
EU sanctions this time
NH
prohibition on
the supply of key equipment and technology to the oil and gas industry in Syria.
the supply of key equipment and technology to the oil and gas industry in Syria.
NH
which is pain
NH
if you are an oil producer
BE
This is the EU sanction against Syria’s General Petroleum Corporation …
BE
Which buys 100% of Gulfsands’ oil.
BE
As well as prohibition of equipment supply
BE
Where does this leave Gulfsands?
NH
well
NH
it’s not good
NH
i’d sell out to the Chinese
NH
if i were them
NH
Sinochem
NH
already owns
NH
50% of their main asset
NH
here’s the sector watcher
NH
The latest escalation of sanctions against Syria continues to impact GPX, with new measures announced on December 2nd that there is now a prohibition on the supply of key equipment and technology to the oil and gas industry. Also the General Petroleum Corporation (GPC) has been added to the list of proscribed organisations being targeted by the UN/US. GPX is saying that it is now reviewing the manner in which it does business in terms of its relationship with GPC and its planned production activities, and will make a further announcement soon. Whilst this initially sounds quite negative news for GPX, I’m not entirely sure it comes as a great surprise. Presumably the group is producing very little oil at the moment, given the likely lack of storage capacity and also the fact that it is not being paid. The shares have held up well recently, in part because a couple of Russian-backed funds have been building a large position, with Waterford and Soyuzneftegas now holding a combined 17% of the group. Our NAV for GPX remains at close to 400p/share i.e. around double the current price.
NH
also on Gulfsands
NH
been some stake building
NH
by the Russian guy
NH
who used to be the biggest shareholder in Emerald Energy
NH
Emerald was Gulfsands’ partner in Syria
NH
before it sold out to Sinochem
NH
I think they have 12% now
NH
can’t think why they would be buying at this time
NH
unless there’s something happening in the back ground
NH
sorry 17%
12:11PM
NH
Any more small caps to look at?
BE
Someone on the right mentioned the Greencore bid collapse.
NH
oh yes
NH
private equity bid wasn’t it?
BE
We believe so.
BE
Quick line from Goodbody, not really saying much.
BE
Greencore announced this morning that previously announced discussions that might have led to an offer for the company have ceased. Both parties agreed to end discussions regarding a potential offer for the company, “given the Boards unanimous view on the strong underlying value of Greencore and the current dislocation in global equity and debt capital markets”.
BE
In its Q3 IMS (to July 1st), Greencore noted a 9% rise in same currency sales growth (6% excluding US acquisition), while Uniq saw an 11% rise in its Food-to-Go sales in the first 21 weeks of its FY11 period. Greencore will release its FY11 results tomorrow. We are forecasting eps of 11.8c (stg 10.2p), based off UK sales and profits increasing by 6% and 3% respectively.
BE
Greencore’s rating remains very low, with calendarised 2012 PER of 5.7x and EV / EBITDA of 5.0x. As a result of the announcement this morning, we are re-instating our Buy recommendation on the stock.
NH
and just for Student
NH
here are the thoughts of Shore Cap
NH
Offer talks ended – Greencore has today announced it is no longer engaged in discussions, which were initially reported on 25th October, which could lead to an offer for the company. The statement confirms that “Given the Board’s unanimous view on the strong underlying value of Greencore and the current dislocation in global equity and debt capital markets, both parties have agreed to end discussions. Accordingly, the Board can confirm that the Company is no longer engaged in any discussions regarding a potential offer for the Company”. Greencore is expected to release preliminary results to year ending 30th September 2011, tomorrow 6th December, Shore Capital forecasts CPTP of £39.6m, EPS of 11.7c. Trading on a September 2012 PER of 5.8x, EV/EBITDA of 4.9 and yield support of 7.0% (2.5x covered) we believe Greencore’s stock is significantly undervalued and reiterate our BUY recommendation.
NH
and Investec
NH
Greencore has announced that bid talks have ended. We are now able to publish forecasts and recommendation and these remain unchanged. We are Buyers of the stock with a target price of 77c. Full year 2011 results are due to be announced tomorrow.
Greencore has announced today that bid talks have ended by mutual agreement of both parties. It talks of dislocation of debt and equity markets and the board’s view of the value of the business.
Greencore has announced today that bid talks have ended by mutual agreement of both parties. It talks of dislocation of debt and equity markets and the board’s view of the value of the business.
NH
As a result we are now able to publish forecasts and recommendation today and these remain unchanged. The key profit numbers are shown above and we remain Buyers of the stock with a target price of 77cents (EV/EBITDA based).
The group is due to report full year numbers tomorrow so we will shortly receive an update on trading and how the integration of the Uniq business is progressing. The group will report figures in sterling for the first time tomorrow (note figures above are shown in €s still).
The group is due to report full year numbers tomorrow so we will shortly receive an update on trading and how the integration of the Uniq business is progressing. The group will report figures in sterling for the first time tomorrow (note figures above are shown in €s still).
12:13PM
NH
OK
NH
to finish
TUI Travel PLC (TT.:LSE): Last: 169.80, up 0.2 (+0.12%), High: 185.58, Low: 167.50, Volume: 1.19m
NH
trading has slowed
NH
but they are still on track to meet forecasts
NH
which is very different to
Thomas Cook Group PLC (TCG:LSE): Last: 16.71, up 0.5 (+3.08%), High: 18.00, Low: 14.83, Volume: 12.64m
NH
and that makes me wonder why
NH
the boss of Tui
NH
says that people are still spending on holidays
NH
because those two weeks in Spain
NH
are one of the last thing people will give up
NH
along with
NH
carpets
NH
SkyTV
NH
eating out
NH
etc
NH
I hate that argument
NH
the last thing people will cut
NH
if we listened to CEOs
NH
no one would cut back on anything
NH
anyway
NH
do we have any comment on this?
BE
Hold on ….
BE
How about Citi.
BE
FY11 results beat. EBIT has come in at £471m, 2% above our forecast of £460.5m,
PBT has come in at £360m, +6% above our forecast of £341.4m and EPS has come in at 23.6p, +7% above our forecast of 22.0p.
PBT has come in at £360m, +6% above our forecast of £341.4m and EPS has come in at 23.6p, +7% above our forecast of 22.0p.
BE
Current trading weak. As expected current trading is weak. Winter bookings have deteriorated in most key markets: UK -12% (were -11%) Nordics Flat (were +1%), Germany -8% (were -3%) and France -12% (were -7%). Summer bookings are still – 11% from UK (unchanged) but importantly capacity has been cut to -9% (was -4%) clearly indicating the companies desire to defend margins. We currently assume capacity for summer -5% from UK. Nordics are -14% for summer. Other markets are not on sale yet.
BE
TUI AG selling Hapag Lloyd? According to German newspaper Die Welt on 3-Dec (but subsequently denied by NOL), NOL (NEPS.SI; S$1.09; 3) has resumed talks with TUI AG (TUIGn.DE; €4.20; Not Rated) a 38% shareholder in Hapag-Lloyd and 55% Shareholder in TUI Travel, about buying its stable Hapag Lloyd. Whilst NOL says it is not currently in talks to buy Hapag Lloyd it is likely to increase speculation about a disposal and possible buyout of the minorities in TUI Travel.
BE
Reaction. Although the FY11 beat is positive we expect that the weaker trading will
mean that consensus numbers need to fall 2-4% to reflect the greater than expected capacity cut. If successful this prudent approach should allow margins to be maintained limiting the downside to estimates but risks remain.
mean that consensus numbers need to fall 2-4% to reflect the greater than expected capacity cut. If successful this prudent approach should allow margins to be maintained limiting the downside to estimates but risks remain.
BE
Valuation. Based on our FY12 forecasts (EBIT of £479m, PBT of £358m, EPS of
23.1p) the stock trades at 7.3x PE. This is off the lows of c6.5x as some investors
perceive that the TCG distress will play into the hands of TT. We are not convinced and see equal and opposite risks.
23.1p) the stock trades at 7.3x PE. This is off the lows of c6.5x as some investors
perceive that the TCG distress will play into the hands of TT. We are not convinced and see equal and opposite risks.
NH
so there has been a slowdown, but it’s just the Tui have seen it coming and planned accordingly
NH
is that the message from this
BE
More or less, yes. They’re better managed than their direct competition.
BE
That’s not news.
BE
Meanwhile, anyone buying on the “Tui to bid after selling Hapag” theory wants their head examined.
NH
quite
BE
Bit more comment, from Deutsche.
BE
TUI Travel has reported underlying 2011 EBIT of £471m which compares to
our forecast of £470m (and having started 2011 at £478m) – this is also after
an unexpected £9m provision for African contracts (prepayments to hotels
which now wont be used). Full year dividend raised 3% to 11.3p (yield
6.7%).
our forecast of £470m (and having started 2011 at £478m) – this is also after
an unexpected £9m provision for African contracts (prepayments to hotels
which now wont be used). Full year dividend raised 3% to 11.3p (yield
6.7%).
BE
(Decent divi, given the cover.)
BE
Group net debt was just £4m (DBe £40m) at year end – as a reminder over
the past four years since merger the group’s net debt has fallen by over
£200m – the largest driver of this are £1.4m off operating cashflow, less
£300m of aircraft lease capitalisation, and the group spending £400m on
acquisitions and £400m on dividends. Thus highlighting that, despite the
MENA crisis (£70m P&L hit in 2011),and the volcanic ash incident (£104m)
last year, this is a highly cash generative business.
the past four years since merger the group’s net debt has fallen by over
£200m – the largest driver of this are £1.4m off operating cashflow, less
£300m of aircraft lease capitalisation, and the group spending £400m on
acquisitions and £400m on dividends. Thus highlighting that, despite the
MENA crisis (£70m P&L hit in 2011),and the volcanic ash incident (£104m)
last year, this is a highly cash generative business.
BE
At the start of the year the plan was longer term for £129m of self help profit
improvement (£89m of turnaround, £40m UK central and UK cost savings).
The group has realised £41m of this in 2011, thus implying £78m of remaining
potential benefit. But the group has extended this today by £29m
to £107m of self-help benefit, which will be achieved broadly over the next
three years. Furthermore, in the medium term we would expect MENA to
recover as a destination although we only forecast £20m recovery in 2012E
for this.
improvement (£89m of turnaround, £40m UK central and UK cost savings).
The group has realised £41m of this in 2011, thus implying £78m of remaining
potential benefit. But the group has extended this today by £29m
to £107m of self-help benefit, which will be achieved broadly over the next
three years. Furthermore, in the medium term we would expect MENA to
recover as a destination although we only forecast £20m recovery in 2012E
for this.
BE
Two accounting adjustments to 2010 balance sheet (-£45 +£38m) largely
offset each other.
Bookings remain weak, and so UK capacity for Summer 2012 reduced from
-4% to -9% – they can still increase this back up (UK is only 19% sold,
Nordics 12% sold), but as we have said in recent research (see our weekly
note “The Leisure Centre”, 7th November 2011) the key is to keep supply
prudent in order to maintain margins. As such, we have not changed our
forecasts and expect consensus 2012E to remain unchanged. This is despite
an incremental £15m cost spent on development of the group’s online
Accomodation & Destination business internationally, which will limit divisional
profit growth (2011E EBIT £72m – 15% of group) in a valuable
business.
offset each other.
Bookings remain weak, and so UK capacity for Summer 2012 reduced from
-4% to -9% – they can still increase this back up (UK is only 19% sold,
Nordics 12% sold), but as we have said in recent research (see our weekly
note “The Leisure Centre”, 7th November 2011) the key is to keep supply
prudent in order to maintain margins. As such, we have not changed our
forecasts and expect consensus 2012E to remain unchanged. This is despite
an incremental £15m cost spent on development of the group’s online
Accomodation & Destination business internationally, which will limit divisional
profit growth (2011E EBIT £72m – 15% of group) in a valuable
business.
NH
right that’s enough for today rabble
NH
thanks for joining us today
BE
Quick FTSE before we depart.
BE
Up 0.8% now.
BE
Ahead 46 points at 5598
NH
NH
NH
NH
BE
It’s gained 30 or so points since I said “short” half an hour ago.
NH
that sums up today’s move
BE
This is why I don’t, won’t and will never trade.
BE
Cheers for the comments everyone.
BE
Do join us tomorrow.
NH
cya