Markets Live chat transcript for the chat ending at 12:02 on 3 Feb 2012. Participants in this chat were: Paul Murphy Bryce Elder/FT
PM
Morning
PM
Welcome to Markets Live
PM
Morning
PM
tad worried about whether people are able to log in
PM
We’ve had some tech probs this morning
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Caused by problems with the FT’s registration system
PM
Sorry about that
PM
Supposed to be fixed now….
BE
Indeed. The drawbridge to FT.com got jammed.
BE
So they let everyone into the castle for free.
BE
But AV remained stuck behind the moat.
BE
Isn’t it useful I’m here to explain this technical stuff?
BE
Anyway, we seem to be having the usual slow start for the ROTR.
BE
If you’re struggling to get in, try refreshing. We appreciate your presence.
11:02AM
BE
So – wider market remains rangebound at the six-month high.
BE
FTSE’s ahead 26 points at pixel time.
PM
US jobs figs later
PM
Things on hold ahead of those
PM
Generally
PM
But we do have some bid action!
BE
Well, sort of.
PM
More bid action
PM
You smoked this one out Bryce
PM
Finally
BE
Can’t take sole credit. Think the White Times had a line as well.
BE
But Misys have maintained their record
Strange software outfit, seemingly controlled by US investor ValueAct Capital.
BE
Of being rather recalcitrant when it comes to shareholder communication.
BE
The news, in case anyone missed it …..
BE
Is that Misys is in talks with Temenos
PM
But Misys shars currently off 2.6p at 323p
PM
shares
BE
Yup – this is really not the deal the hot money had wanted to see.
PM
Some burn fingers here
PM
PM
remember this was trading close to 350p earlier in the week
PM
Before Temenos made their approach….
BE
Hm. Yes. Of course.
BE
(@FST: PLEASE DON’T SHOUT.)
BE
Have to remember that Misys has rattled up nearly 50% in a couple of months.
BE
The idea being that one of the dozen companies linked with them last year was going to come in.
PM
Clairvoyant dealings
PM
BE
Hm. And that idea’s still around this morning.
BE
Some suggestions that this sensible but rather unpopular proposal
BE
May shake out further interest.
BE
Would note, however, that Misys was in talks for a long time last year with FIS
BE
Without anyone else showing their hand
PM
This year we’d expect the company to actually follow the new Panel rules
PM
maybe
BE
Fair point.
BE
Also, management look silly if they accept lower than 400p, having knocked back 420p or thereabouts last year.
BE
And there’s also the Sophis acquisition
BE
Bought last year during the takeover talks
BE
Which has been a dog. It’s hard to imagine anyone wants that bit, never mind paying 20x times group earnings to inherit it.
BE
Anyway, those are my thoughts. Here’s some from the sellside.
PM
yes, do share
BE
Numis no like.
BE
After all the noise and rumours of a bid, the news that Misys is simply in talks with Temenos for an all-share merger is disappointing. Furthermore, it appears to us to be something of an admission that the only way for Misys to eat Temenos’s lunch with its new products is to buy Temenos’s lunch. Despite the somewhat adversarial relationship between the companies we see this deal as likely to complete, not least as it will enable a whole slew of exceptional charges to offset the balance sheet and operational restructuring that is likely to be necessary anyway. Whilst it would be easy to assume that this process puts Misys back into play for other bidders, we think Misys has already been in play for 6-9 months now.
BE
Further bidders? In our view Misys has been firmly in the shop window for over 6 months now and has not attracted any firm bids. In our view management would be unlikely to entertain talks with arch-rival Temenos unless they felt that other avenues were exhausted. To enter such talks in order to flush out another bidder would be a very high risk strategy given the potential disruption to the customer base from today’s announcement.
BE
Cost savings. Since TEMN really only overlaps with the Misys banking division (about a third of Misys’s profits) the scope for cost savings here may be a little limited.
BE
Exceptionals could be very helpful. We have commented on Misys’s accrued income before; Temenos also has relatively high debtors, and Misys has Sophis on its balance sheet at a full valuation. The opportunity to clean the balance sheets up through an M&A process must be tempting to both management teams, and it would also provide a way for both companies to restructure operationally to face the challenges of a tougher trading environment.
BE
Valuation. MSY trades on 17x CY12 EV:NOPAT, close to Fidessa’s rating and only a touch below AVEVA. Our back-of-the-envelope numbers suggest a similar multiple for Temenos although this is tax-rate sensitive. We move to under review whilst we evaluate the situation, but our fundamental stance remains negative.
BE
David Toms is your analyst there, who we rate quite highly over here.
BE
And here’s Investec.
BE
Misys has announced it is in talks with Temenos regarding a potential all
share merger. With Bank Fusion having at last arrived, offering Misys the path
to migrate its large installed base to a market-leading product, it seems a
strange time join with Temenos. Cost synergies could protect against a
difficult trading backdrop, but would fail to create shareholder value implied
by the recent Misys rally, in our view. More important is whether further cash
bids arise from elsewhere., such as FIS.
share merger. With Bank Fusion having at last arrived, offering Misys the path
to migrate its large installed base to a market-leading product, it seems a
strange time join with Temenos. Cost synergies could protect against a
difficult trading backdrop, but would fail to create shareholder value implied
by the recent Misys rally, in our view. More important is whether further cash
bids arise from elsewhere., such as FIS.
BE
Rumoured for years, but why now? In the past this deal would have made
sense. Misys did not have a credible next generation Core Banking product, but
had a large installed base. Temenos had a leading product, but not the deep
customer base. However at last Misys has the new competitive Bank Fusion
offering and early take-up signs are very positive. On this basis the benefits of
merging with Temenos are not as clear cut as they were previously and as such it seems strange timing for Misys to ‘need’ to merge. However there will likely be potentially material cost savings and current trading may be pressuring both companies to talk.
sense. Misys did not have a credible next generation Core Banking product, but
had a large installed base. Temenos had a leading product, but not the deep
customer base. However at last Misys has the new competitive Bank Fusion
offering and early take-up signs are very positive. On this basis the benefits of
merging with Temenos are not as clear cut as they were previously and as such it seems strange timing for Misys to ‘need’ to merge. However there will likely be potentially material cost savings and current trading may be pressuring both companies to talk.
BE
Flushing out a bid: due to the very early stages of these annoucements, it
seems to us that there is a prospect that another bidder may come into the fray. A
cash offer would surely be more attractive to shareholders.
seems to us that there is a prospect that another bidder may come into the fray. A
cash offer would surely be more attractive to shareholders.
BE
ValueAct: It is worth considering that ValueAct own c22% of Misys and their
intentions will also need to be considered in any debate around Misys M&A, in
terms of wanting to own paper of both companies.
intentions will also need to be considered in any debate around Misys M&A, in
terms of wanting to own paper of both companies.
BE
Valuation: Temenos has a current market cap of c£850m versus £1.1bn for
Misys, with the latter having had a very strong run in recent weeks. A price above
400p would equate to 20x plus PER for the various parts of the group. However
central costs are c10% of Misys profits and we would suspect there would be
further material overlaps.
Misys, with the latter having had a very strong run in recent weeks. A price above
400p would equate to 20x plus PER for the various parts of the group. However
central costs are c10% of Misys profits and we would suspect there would be
further material overlaps.
BE
Investment view: We place our TP under review in light of the bid activity. We
expect the stock to go higher as the company is now in play and, with longer term
value in the Misys business, this could attract a buyer; however in our view, near
term valuation multiples would be a stretch at prices above 350p.
expect the stock to go higher as the company is now in play and, with longer term
value in the Misys business, this could attract a buyer; however in our view, near
term valuation multiples would be a stretch at prices above 350p.
BE
On a more general level ….
BE
How often do nil-premium mergers work?
BE
How often are they actually consummated?
BE
I’m struggling to think of many.
PM
er..
PM
Do ask difficult questions Bryce
PM
It’s Friday
BE
I ask because it may well be the subject of my column for Saturday’s paper.
BE
Assuming the editor nixxes yet another “wither mining” piece.
PM
Ah, right
BE
I’ll leave that one open for the rabble.
PM
Crowd source your column — good idea
PM
Might be asking the wrong crowd tho…
PM
Lets push on
11:16AM
PM
Quick mention of Greece
PM
We are supposed to get the PSI details soon — like last Friday
PM
Are the wire snaps are confusing
PM
maybe today
PM
maybe tomorrow
PM
maybe monday
PM
What does seem to be firming up is this E15bn gap that no one wants to fill
PM
Here’s some stuff from BNY
PM
Just noting the news flow
PM
Euro-zone: Greek government spokesman Pantelis Kapsis states that “The
exact time of the meeting [of Greek political leaders] has not yet been
finalized, but it is likely that it will be Friday afternoon … At the
latest, it will take place Saturday.” Officials from the IIF are also due
to join them in Athens over the weekend.
exact time of the meeting [of Greek political leaders] has not yet been
finalized, but it is likely that it will be Friday afternoon … At the
latest, it will take place Saturday.” Officials from the IIF are also due
to join them in Athens over the weekend.
Greek finance minister Angelos Venizelos states that ‘official’
participation is the final hurdle in the PSI negotiations. Venizelos said
“In parallel with negotiations with private creditors, there must be
negotiations for the official sector involvement. This means that the ECB
must be mobilized, and we must resolve issues pertaining to national
central banks”.
German Finance Minister Wolfgang Schäuble tells German broadcaster NTV,
“Greece needs a reduction of private debt claims of around 50% … An
additional contribution from the public sector is not needed.”
German Economy Minister Philipp tells Dow Jones and the WSJ that calls to
involve the ECB in efforts to reduce Greece’s debt are not justified,
noting “This is not currently an issue for us … The current discussion is
primarily about private sector involvement. European states and their
taxpayers already make a massive contribution to Greece’s restructuring
process though their support efforts.”
PM
Actually, just in the inbox
PM
A competitor of Misys
PM
well sort of
PM
risk management softwaare
PM
Sungard
PM
Here’s the modeling on eurozone shocks.
PM
SunGard’s APT risk system has modelled different Euro breakup scenarios, using a global factor model incorporating macro-economic factors to estimate cross-asset class effects. The results cover the impact of five main Euro breakup scenarios across FX, interest rates, equities, oil and credit spreads.
SunGard’s APT risk system has modelled different Euro breakup scenarios, using a global factor model incorporating macro-economic factors to estimate cross-asset class effects. The results cover the impact of five main Euro breakup scenarios across FX, interest rates, equities, oil and credit spreads.
In creating the scenarios, APT drew on a variety of leading recent economics research and focused on the mechanisms by which shocks are transmitted between different asset classes, reviewing the two most recent sovereign debt shocks to markets, in March 2010 and August 2011. These historical scenarios helped APT calibrate the relative scale of expected volatility shocks for each explanatory factor. Scenarios are described by a set of shocks to both level and volatility of any set of macro variables (explanatory factors) which can be represented within the factor model.
PM
This approach helped APT generate five different potential scenarios of concern:
1. One country leaves – Greece
2. Two countries leave – Greece & Portugal
3. Five countries leave – Greece, Portugal, Ireland, Italy, Spain
4. One country leaves – Germany
5. Total collapse of Euro zone
1. One country leaves – Greece
2. Two countries leave – Greece & Portugal
3. Five countries leave – Greece, Portugal, Ireland, Italy, Spain
4. One country leaves – Germany
5. Total collapse of Euro zone
PM
Full shock scenario values chart attached below, highlights include:
• The departure of Greece and Portugal would lead to a 15% rise in the Euro against the dollar, a 20% fall in Eurozone yields (ie the swap curve), a 15% fall in Eurozone equities and a 20% increase in credit spreads (ITRAXX Europe).
• The PIIGS five country scenario would see a 25% rise in the Euro against the dollar, a 40% drop in the Euro yield curve, a 20% drop in Euro equities and a 15% drop in US equities. In addition EU banking stocks would fall by 25% and ITRAXX Financials credit spreads would increase by 100%, which would imply downgrades and losses of up to 20% in high-grade corporate debt. This scenario also predicts losses of up to 15% for global equities with near-doubling of volatility and the VIX over 50.
• A total collapse scenario would see European equities down 40%, US and global equities down 30%, Euro yields down 75% and ITRAXX Europe and ITRAXX Financials credit spreads up 150% and 200% respectively.
• Oil would fall across the scenarios, ranging from 5% from a Greece departure through to a 50% decline from a complete breakup.
• Sterling would strengthen against the Euro by between 5-25% across the scenarios.
• Volatility would increase across all assets across the scenarios (with even a Greece exit resulting in volatility increasing by between 25% and 50% across equities).
The results seek to model the impact of each scenario over three months, looking eight weeks before and six weeks after the shock to form a balanced picture.
• The departure of Greece and Portugal would lead to a 15% rise in the Euro against the dollar, a 20% fall in Eurozone yields (ie the swap curve), a 15% fall in Eurozone equities and a 20% increase in credit spreads (ITRAXX Europe).
• The PIIGS five country scenario would see a 25% rise in the Euro against the dollar, a 40% drop in the Euro yield curve, a 20% drop in Euro equities and a 15% drop in US equities. In addition EU banking stocks would fall by 25% and ITRAXX Financials credit spreads would increase by 100%, which would imply downgrades and losses of up to 20% in high-grade corporate debt. This scenario also predicts losses of up to 15% for global equities with near-doubling of volatility and the VIX over 50.
• A total collapse scenario would see European equities down 40%, US and global equities down 30%, Euro yields down 75% and ITRAXX Europe and ITRAXX Financials credit spreads up 150% and 200% respectively.
• Oil would fall across the scenarios, ranging from 5% from a Greece departure through to a 50% decline from a complete breakup.
• Sterling would strengthen against the Euro by between 5-25% across the scenarios.
• Volatility would increase across all assets across the scenarios (with even a Greece exit resulting in volatility increasing by between 25% and 50% across equities).
The results seek to model the impact of each scenario over three months, looking eight weeks before and six weeks after the shock to form a balanced picture.
PM
A total collapse scenario would see European equities down 40%, US and global equities down 30%,
PM
That’d be fun
PM
OPEC — you know the APT system?
PM
It’s new to us
BE
Interesting read …
BE
Though without seeing their working it’s hard to give much weight to the conclusions.
BE
You can replace nearly any number in there with the first one you think of and it reads just as plausibly.
BE
Which is, of course, the nature of uncertainty.
BE
[/Friday waffle]
11:22AM
PM
FST — re banks
PM
Quick obsservation
PM
Banks have been going up and down by circa 5% a day for the past fortnight
PM
It’s nuts
BE
Yeah – see earlier Friday Waffle observation.
BE
The buyside is still hugely underweight financials
BE
So you’ve got price moves being determined by quick money flowing in and out
BE
Based on whichever tape bomb the algobot’s just read.
BE
It’s rather difficult to report on, from our perspective.
PM
Sure is
BE
Nevertheless, the scribblers are still scribbling.
BE
Deutsche, for instance.
BE
Which turns cautious on RBS this morning.
BE
RBS down 0.6% at 28.2p at pixel time.
BE
(@LordByron: so it is. Opposite side of the bridge to us. Horrible place.)
BE
Here’s Deutsche.
BE
RBS presents FY11 results at 7am on Thurs 23 Feb. We expect Core PBT of
£6.3bn ex own debt, broadly equating to 4.1p of core EPS, compared with 4.9p in 2010. RBS is trading on 0.5x historic TNAV against our 13% forecast Core RoTE for 2012, 5.6x 2013e EPS. Our target price of 30p, set at 7x 2012 Core EPS, is unchanged. However, given a c.40% YTD rally, proximity to our TP, and significant political and practical risks around the ibank restructuring, downgrade to Hold.
£6.3bn ex own debt, broadly equating to 4.1p of core EPS, compared with 4.9p in 2010. RBS is trading on 0.5x historic TNAV against our 13% forecast Core RoTE for 2012, 5.6x 2013e EPS. Our target price of 30p, set at 7x 2012 Core EPS, is unchanged. However, given a c.40% YTD rally, proximity to our TP, and significant political and practical risks around the ibank restructuring, downgrade to Hold.
BE
We forecast Core bank PBT of £6.3bn ex own debt for 2011, equivalent to an
11.3% RoTE. We expect CT1 to be 10.5% under B2.5, including a c.1.7% APS
benefit. We expect key issues will be: 1) Restructuring of GBM, 2) performance
and outlook of the Irish book, 3) Non-core run off/losses. We expect the following 4Q11 one-offs: 1) own debt losses of £300m, 2) UK bank levy charge of £330m, 3) disposal losses on non-core of £500m. We have £1bn restructuring charge for BM in 2012 estimates; it is possible this may be taken partly/wholly in 4Q11.
11.3% RoTE. We expect CT1 to be 10.5% under B2.5, including a c.1.7% APS
benefit. We expect key issues will be: 1) Restructuring of GBM, 2) performance
and outlook of the Irish book, 3) Non-core run off/losses. We expect the following 4Q11 one-offs: 1) own debt losses of £300m, 2) UK bank levy charge of £330m, 3) disposal losses on non-core of £500m. We have £1bn restructuring charge for BM in 2012 estimates; it is possible this may be taken partly/wholly in 4Q11.
BE
We think RBS management are doing a solid job of reshaping the bank into a more stable, attractive ROE, predominantly UK-based institution. Notwithstanding a volatile environment, we estimate that Core RBS delivered EPS of 4.8p, 4.9p and 4.1p in 09, 10 and 11 respectively. We forecast 4.5p and 5.0p for 12 and 13. But with Eurobanks on roughly 8x 12e and 6.5x 13e, a parity P/E rating suggests a fair value between 32p and 36p, assuming no losses/capital release from Non-core. We think in time that the bank will be able to release significant capital from Non- Core, but given the regulatory and practical environment in which the bank is currently operating, we think the stock is clearly now more up with events.
BE
Our estimates are left broadly unchanged, despite a slight increase in Ulster loss estimates and lower assumed GBM earnings. This leaves RBS at 0.5x historic
TNAV and 5.6x 2013e Core bank EPS. Our TP remains unchanged at 30p or 7x
core 2012e EPS. We see future share price potential upside as greater clarity
around capital and ibank restructuring is had. We expect a return of capital to
shareholders to be ignored near term, with a stronger economy the key catalyst
for a change in view. Given a 40% price rally YTD, 30% since Aug 2011, we think it right to move RBS to a Hold. We have Buy’s on Barclays and LBG.
TNAV and 5.6x 2013e Core bank EPS. Our TP remains unchanged at 30p or 7x
core 2012e EPS. We see future share price potential upside as greater clarity
around capital and ibank restructuring is had. We expect a return of capital to
shareholders to be ignored near term, with a stronger economy the key catalyst
for a change in view. Given a 40% price rally YTD, 30% since Aug 2011, we think it right to move RBS to a Hold. We have Buy’s on Barclays and LBG.
PM
cheers for that Bryce
11:29AM
PM
We should run tho these other gainers
PM
Admiral for instance
PM
Big move — ran up to 10.66
PM
currently 10.25, up 6.5%
PM
readacross from Munich Re it seems
PM
Theyve also extended a UK car insurance deal with all their partners
PM
Car insuance excuse to print money currnelty
PM
Or so it feels from my ennd
BE
Hannover Re also provided good news regarding reinsurance renewals earlier in the week.
BE
All positive for the Lloydsers as well.
BE
And, for Admidal specifically
BE
There’s also an extension of proportional reinsurance premiums
BE
I don’t know what this means, but KBW does.
BE
Admiral announced that they had extended the proportional reinsurance of 75% of
premiums out to 2014, which is a positive as some commentators felt that they would
struggle here due to the recent spike in bodily injury (BI) claims. Importantly, the
contracts have been extended on the same lucrative (KBWe) terms as before, even
after the reinsurance companies have seen the books. This, we believe, shows that
management have had success in jettisoning the bad cohort of business picked up
from RSBI. We believe that they shifted their pricing by 15-20% (KBWe) relative to
peers in 2Q11 to produce this impact. Although we see downside risks at the
upcoming FY11 results release (7 March), we are well ahead of consensus for 2012
and thus are buyers of the stock. We see the company further increasing it 2009-2011
underwriting year loss ratios at the upcoming results, as traditionally once a cohort
of business goes bad it gets worse rather than better. However, as we demonstrated
in our research notes last year, we see the lucrative nature of reinsurance contracts
driving profits up in the 2012 accident year, even after taking into account a
significant reduction in vehicle growth numbers.
premiums out to 2014, which is a positive as some commentators felt that they would
struggle here due to the recent spike in bodily injury (BI) claims. Importantly, the
contracts have been extended on the same lucrative (KBWe) terms as before, even
after the reinsurance companies have seen the books. This, we believe, shows that
management have had success in jettisoning the bad cohort of business picked up
from RSBI. We believe that they shifted their pricing by 15-20% (KBWe) relative to
peers in 2Q11 to produce this impact. Although we see downside risks at the
upcoming FY11 results release (7 March), we are well ahead of consensus for 2012
and thus are buyers of the stock. We see the company further increasing it 2009-2011
underwriting year loss ratios at the upcoming results, as traditionally once a cohort
of business goes bad it gets worse rather than better. However, as we demonstrated
in our research notes last year, we see the lucrative nature of reinsurance contracts
driving profits up in the 2012 accident year, even after taking into account a
significant reduction in vehicle growth numbers.
BE
Reinsurers show confidence in Admiral. The 25% of NWP to be retained (27.5% 2011)
in 2012 by Admiral was set previously and is equal to the minimum amount under the
Munich Re contract. In 2013, the 25% was a function of management having an option to
allocate 8.75% between one or more of a group of 3 reinsurance companies. However,
excluding the 40% that goes to Munich Re, all the 2014 reinsurance is new, which is a
vote of confidence in Admiral. Swiss Re and Mapfre re are even increasing their exposure.
in 2012 by Admiral was set previously and is equal to the minimum amount under the
Munich Re contract. In 2013, the 25% was a function of management having an option to
allocate 8.75% between one or more of a group of 3 reinsurance companies. However,
excluding the 40% that goes to Munich Re, all the 2014 reinsurance is new, which is a
vote of confidence in Admiral. Swiss Re and Mapfre re are even increasing their exposure.
BE
External auditing of claims done. Admiral’s management at a number of recent buy/sell
side company visits has been reiterating what it mentioned at investor day late last year -
that in the latter part of 2011 they had brought in external lawyers to review their large
bodily injury claims reserves. The lawyers confirmed that, for the 2009-2011 accident
years, on a scale of 1-10 in terms of range of potential claim outcome, Admiral is now
reserved between 6-7 – the higher the number, the stronger the reserves. They said that
previously they were reserved at the 6 level and felt that others reserved at the 5 level.
Management emphasised that this study was only done on a small sample, that these
reserves take years to settle so investors should not expect any major new news in the
March 2011 results release, and that maybe there has been a secular shift implying that the
new level is actual best estimate.
side company visits has been reiterating what it mentioned at investor day late last year -
that in the latter part of 2011 they had brought in external lawyers to review their large
bodily injury claims reserves. The lawyers confirmed that, for the 2009-2011 accident
years, on a scale of 1-10 in terms of range of potential claim outcome, Admiral is now
reserved between 6-7 – the higher the number, the stronger the reserves. They said that
previously they were reserved at the 6 level and felt that others reserved at the 5 level.
Management emphasised that this study was only done on a small sample, that these
reserves take years to settle so investors should not expect any major new news in the
March 2011 results release, and that maybe there has been a secular shift implying that the
new level is actual best estimate.
BE
Though I feel the rabble may be less interested in motor insurance than they are in EC1 battle cruisers.
BE
(I quite like The Fox, on Leonard Street)
PM
Cheers for that
11:33AM
PM
ok……..
PM
RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
BE
Hm.
PM
dot dot dot
BE
Well.
PM
Go for it Bryce
PM
I know you are on a tear
BE
Well, there ain’t any.
PM
BE
Not really, anyway.
BE
The only story I’ve head that’s plausible over the past 24 hours
BE
Is a bit of a slow burner
BE
International Power ….
BE
The idea, needless to say, is that Suez are keen to buy the 30% they don’t already own.
BE
Which they probably are.
BE
Given they’ve just poached International Power’s FD to come into the mothership.
BE
And failing to tidy up the minorities doesn’t make much sense
BE
However …………
BE
Suez is locked out until August.
BE
Can’t bid. Takeover Panel says so.
PM
Unless someone else expresses interest…
BE
Well, I guess.
BE
Though who’s going to want 30% of International Power?
BE
Apart from Suez.
BE
Otherwise ……………..
BE
This Hays story seems to be getting very little play.
BE
Hays currently up 1% at 80.7p
BE
Surged on huge volume yesterday.
BE
Triggering the old “Adecco to bid” theory.
BE
Which may happen, one day, possibly.
BE
But there’s no reason whatsoever to think it’s happening now.
BE
Yesterday was much more likely to be a bit of mischief making to coincide with a big seller being cleared out.
BE
And there endeth the raw.
BE
Such as it is.
11:39AM
PM
M&A wise it has been sllim pickings
PM
Bar Xstrata/Glencore
PM
And Misys
PM
Here’s some slightly out of date numbers from retuers
PM
GLOBAL M&A AT LOWEST YTD LEVELS SINCE 2003
· As of February 2, 2012 Global Announced M&A has totaled US$ 120 billion, down 62 percent in deal value and 36 percent in deal count from the same period in 2011 and the lowest levels since 2003 when announced M&A totaled just US$ 89 billion.
· As of February 2, 2012 Global Announced M&A has totaled US$ 120 billion, down 62 percent in deal value and 36 percent in deal count from the same period in 2011 and the lowest levels since 2003 when announced M&A totaled just US$ 89 billion.
· European year-to-date M&A totaled just US$ 22.1 billion, down 67 percent from 2011 and the lowest year-to-date levels since 1996.
· Highlighted by this week’s largest deal, the $3.9 billion purchase of Exxon Mobil’s Japanese arm, deal activity in Japan has been a bright spot year-to-date up 85 percent from 2011.
11:40AM
PM
Do BT numbers quickly?
BE
Sure
BE
With the caveat that I haven’t read the statement yet.
PM
BE
But it seems that there’s good demand for fast-fast broadband
BE
And decent demand for superfast broadband.
BE
And potential demand for hyperfast broadband, according to our story overnight.
BE
Fibre straight into your living room.
PM
Which would be great
PM
when its available
PM
2017?
BE
Not sure I quite understand the point yet.
BE
HD video, I guess.
BE
Sure services will be invented to fill the pipe.
BE
Much as broadband facilitated Youtube.
PM
I still have my US itunes account
PM
So access films early and certain US shows — but it clogs up the line
PM
Btw — why isnt Breaking Bad on UK tv
PM
Best TV since the Wire
BE
We’ve got Danish murder series instead.
BE
With women in jumpers.
BE
(Which I’ve not seen either.)
BE
So, returning to the subject ….
BE
Here’s a snap on BT’s results.
BE
Mark James at Liberum
BE
Whilst Q3 numbers are broadly in line with expectations (revenues a little light; FCF a small beat) we can’t help feeling the stock has already arrived. BT has outperformed the FTSE by c. 15% in the last 12 months, outperforming Vodafone (Buy) by a similar amount. Guidance has been raised for FY13E (EBITDA to be over £6bn)– but only to a level that consensus is already expecting. Ultimately, we think there is better value elsewhere in the sector. BT to our mind is expensive vs. its peers, and upside to shareholder returns is likely to be constrained by the pension deficit (IAS numbers increased from £2.5bn at end Q2 to over £4bn).
BE
In line numbers but revenues still falling. Revenues fell 5% to £4.77bn (expectations £4.79bn). Management continue to do a great job extracting costs: EBITDA was up 3% yoy to £1.5bn, in line with expectations, but we remain concerned that this trend may prove unsustainable unless the revenue trajectory improves.
BE
Better guidance but expectations already there? The company has stated it will meet its 2013 target of EBITDA > £6bn a year early. But consensus expectations for FY12E are already at £6bn: upgrades may be muted.
BE
Better value elsewhere. We think Vodafone and TalkTalk offer better value and better income potential to BT after its recent run. On our numbers, BT is on a FY13E FCF yield of 8%. Vodafone – allowing for another VZW special – is on 10% as is the sector. TalkTalk (Buy) is on 14%. Both TalkTalk and Vodafone also have higher dividend yields and greater potential, in our view, for upside surprises in terms of shareholder returns.
BE
And I’ll try and find someone positive to balance that.
BE
…. ah. Jeffries is positive.
BE
EBITDA/EPS 1.5%/7.0% ahead of cons on accelerated cost cutting. Revs a touch
light with BT now tracking at low end of FY guidance. Pension deficit c.£0.5bn
higher than estimated on higher inflation. Expect 3.5% upgrade to cons FCF in
FY12e. Scope for similar upgrade to FY13 depends on confidence levels in the
return to rev growth that BT has previously guided to.
light with BT now tracking at low end of FY guidance. Pension deficit c.£0.5bn
higher than estimated on higher inflation. Expect 3.5% upgrade to cons FCF in
FY12e. Scope for similar upgrade to FY13 depends on confidence levels in the
return to rev growth that BT has previously guided to.
BE
3Q headlines. Group revs £4,774m (0.4% below cons), EBITDA £1,524m (1.5% ahead),
PBT £628m (6.3% ahead), adj EPS 6.1p (7.0% ahead), FCF before pension/specific items
£634m (5.1% ahead). Pace of cost cutting picked up in 3Q to -£314m (from -£108m 2Q, -
£69m 1Q). Underlying rev growth ex-transit was -3.0% y/y (now -1.8% YTD at 9M stage)
without slowdown reflecting GS milestones (revs b/fwd into 2Q from 3Q) and tougher y/y
comp in Retail this quarter (bad weather last year). The £30m FCF was attributable to higher
EBITDA and slightly lower capex (3% below expectations).
PBT £628m (6.3% ahead), adj EPS 6.1p (7.0% ahead), FCF before pension/specific items
£634m (5.1% ahead). Pace of cost cutting picked up in 3Q to -£314m (from -£108m 2Q, -
£69m 1Q). Underlying rev growth ex-transit was -3.0% y/y (now -1.8% YTD at 9M stage)
without slowdown reflecting GS milestones (revs b/fwd into 2Q from 3Q) and tougher y/y
comp in Retail this quarter (bad weather last year). The £30m FCF was attributable to higher
EBITDA and slightly lower capex (3% below expectations).
BE
Guidance raised. FY13 EBITDA target of “above £6bn” brought forward to this year,
something we believe was widely anticipated. At the FCF level, BT issues new guidance of
“around £2.4bn” vs. previous target of “above FY11 level”. New target is 3.4% ahead of
current cons (£2.322bn). Expect cons to edge up to the new level on a combination of c.
£50m higher EBITDA (cons currently £6,014m), c.£50m higher Other income offset by a
bit more tax. Capex guidance of c.£2.6bn (cons £2.62bn) is unchanged. Underlying rev
growth (ex transit) still guided -2% to flat this year. Clearly BT is tracking at the low end of
that range at present.
something we believe was widely anticipated. At the FCF level, BT issues new guidance of
“around £2.4bn” vs. previous target of “above FY11 level”. New target is 3.4% ahead of
current cons (£2.322bn). Expect cons to edge up to the new level on a combination of c.
£50m higher EBITDA (cons currently £6,014m), c.£50m higher Other income offset by a
bit more tax. Capex guidance of c.£2.6bn (cons £2.62bn) is unchanged. Underlying rev
growth (ex transit) still guided -2% to flat this year. Clearly BT is tracking at the low end of
that range at present.
BE
Implications for FY13 forecasts. Cons currently forecasting FCF of £2,274m in FY13e,
5% below new FY12 target. BT has previously guided that FY13 FCF should be above
FY11 (£2,223m). We would expect Other income to be c.£100m lower in FY13 than FY12,
reflecting timing factors that temporarily depress cash pension payments this year. BT is
likely to indicate that FY13 FCF should remain below FY12 (which seems fair) but with scope
for EBITDA to edge up £50-70m y/y and capex likely flat, it seems reasonable to think that
the y/y FCF decline may not be as steep as the -£130m implicit in current cons. Subject to
the key caveat that rev momentum improves (BT still guiding for flat to +2% rev growth ex
transit), a c.3% FCF upgrade to c.£2.35bn in FY13 appears feasible.
5% below new FY12 target. BT has previously guided that FY13 FCF should be above
FY11 (£2,223m). We would expect Other income to be c.£100m lower in FY13 than FY12,
reflecting timing factors that temporarily depress cash pension payments this year. BT is
likely to indicate that FY13 FCF should remain below FY12 (which seems fair) but with scope
for EBITDA to edge up £50-70m y/y and capex likely flat, it seems reasonable to think that
the y/y FCF decline may not be as steep as the -£130m implicit in current cons. Subject to
the key caveat that rev momentum improves (BT still guiding for flat to +2% rev growth ex
transit), a c.3% FCF upgrade to c.£2.35bn in FY13 appears feasible.
BE
Hold on, will skip to the pension stuff. Because it interests me.
BE
Pension. IAS19 deficit £4.1bn net vs. JEFe £3.6bn and cons £3-4bn. The slightly higher
deficit reflects an increased inflation rate applied to the next annual pension increase in April,
which results in higher liabilities (£41.1bn vs. JEFe £40.7bn). BT uses actual 3Q inflation rates,
and these came out at 4.8% (RPI) and 5.2% (CPI).
deficit reflects an increased inflation rate applied to the next annual pension increase in April,
which results in higher liabilities (£41.1bn vs. JEFe £40.7bn). BT uses actual 3Q inflation rates,
and these came out at 4.8% (RPI) and 5.2% (CPI).
BE
So. Not pretty.
BE
But the market doesn’t care.
BE
Shares up 3% at 212p.
11:49AM
PM
(They’ve kicked the Greek can again — RANsquawk: Eurogroup meeting tentatively set for Monday may be postponed according to a source)
PM
Smalls?
BE
(@TK: I didn’t celebrate Burns Night. I drunk rough blended whisky alone in front of rubbish TV, which is how he would’ve wanted it.)
BE
Yup – sure – smalls.
PM
Game group
PM
survived near death experience
PM
for now
BE
Yeah – living by the grace of its bankers
PM
Stock back at 7p this morning
PM
up 33%
PM
People still don’t like it tho, no?
BE
Still suffers from HMV syndrome.
BE
Which can be summarised as, “if it didn’t exist would you invent it?”
BE
Game still needs to figure out what it can sell.
BE
But I guess it has some breathing space to do so now.
BE
Perhaps it can reinvent itself. Not sure why anyone would want to gamble either way though.
BE
Comment-wise?
PM
Here’s execution on the matter
PM
For a moment, we take off our cold analytical hats and say: phew! Game has earned itself some breathing space with the banks. As we discussed in our 11 January note ‘What is the endgame?’ the issue here was not Game’s current level of debt. Rather it was the high level of losses and the banks’ willingness to finance Game in the run-up to next Christmas.
Game now expects to meet its covenant tests for the period to 31 January, having received ‘support from its stakeholders and lenders.’ Revised guidance for FY12E is for a loss of £18m, compared with our estimate of £30m, which was broadly in line with consensus. We await further details as to what exactly has driven this improved guidance.
Our view was that Game would have to come up with a compelling strategic plan to convince the banks to look through any potential covenant breach. Today’s update suggests that the details of that plan are still to be fleshed out and approved ‘in part’ by the banks.
Game now expects to meet its covenant tests for the period to 31 January, having received ‘support from its stakeholders and lenders.’ Revised guidance for FY12E is for a loss of £18m, compared with our estimate of £30m, which was broadly in line with consensus. We await further details as to what exactly has driven this improved guidance.
Our view was that Game would have to come up with a compelling strategic plan to convince the banks to look through any potential covenant breach. Today’s update suggests that the details of that plan are still to be fleshed out and approved ‘in part’ by the banks.
PM
Meanwhile, Game has agreed to operate within ‘lower limits of its existing facilities than was previously available.’ The facility as it stood was for £160m to May 2014.
We discussed the possibility of Game selling some of its overseas operations in our previous note. The issue here is whether there will be much appetite for the struggling businesses in France or Australia, where Gamestop (the most likely acquirer in our view) already has substantial presence. The strongest part of Game’s overseas business is in Iberia (c. £300m of sales from >290 stores), where it is market leader and Gamestop has a smaller presence.
We discussed the possibility of Game selling some of its overseas operations in our previous note. The issue here is whether there will be much appetite for the struggling businesses in France or Australia, where Gamestop (the most likely acquirer in our view) already has substantial presence. The strongest part of Game’s overseas business is in Iberia (c. £300m of sales from >290 stores), where it is market leader and Gamestop has a smaller presence.
BE
(@anteos: that was reported by reputable people in reputable places. Personally, I don’t know.)
PM
We expect the shares to react positively (and quite possibly strongly) today. However, the trading environment remains tough and there is little sign of imminent respite.
PM
And Singer
PM
they had a 1p target price
PM
GAME (Sell,TP 1p) – Revised Guidance and Financing Update
Following yesterday’s announcement regarding discussions with its lenders GAME has announced that discussions have concluded and revised terms for its facilities have been agreed. These include operating within lower limits of the existing facilities and the development of an updated strategic plan, including a review of overseas operations. On receiving support from its lenders and stakeholders the Board now believes that the business will now meet its covenant tests due at the end of the month, in contrast to the announcement made on 10th January. Adjusted PBT is now expected to be c.£18m. Having increased our forecast loss to £30m from £15m following the Xmas IMS our estimates are back under review.
Following yesterday’s announcement regarding discussions with its lenders GAME has announced that discussions have concluded and revised terms for its facilities have been agreed. These include operating within lower limits of the existing facilities and the development of an updated strategic plan, including a review of overseas operations. On receiving support from its lenders and stakeholders the Board now believes that the business will now meet its covenant tests due at the end of the month, in contrast to the announcement made on 10th January. Adjusted PBT is now expected to be c.£18m. Having increased our forecast loss to £30m from £15m following the Xmas IMS our estimates are back under review.
PM
You can really get caught targeting penny dreadfuls
BE
Yup. The market can be etcetera for longer than you can stay etcetera.
PM
(senior muppet – for what? greece?)
BE
Caz also negative.
BE
Which I’ll post here simply for the novelty of Caz covering a penny dreadful.
BE
Game group has this morning announced updated guidance and now
expects the FY12E LBT to be better than market expectations.
Furthermore it will now meet its next covenant test and has agreed revised
terms with lenders. Given the extent of downgrades to estimates post the
recent profit warning in January and the fear that covenants would be
breached we expect this news to be received with relief and for the shares
to react positively today. However, we would note the very limited
visibility that remains on the outlook for FY13E. Furthermore, the ability
of the group to trade through next Christmas is dependent on revised
facilities being once again increased to their full levels. Considerable risk
still remains in our view and we retain our underweight stance.
expects the FY12E LBT to be better than market expectations.
Furthermore it will now meet its next covenant test and has agreed revised
terms with lenders. Given the extent of downgrades to estimates post the
recent profit warning in January and the fear that covenants would be
breached we expect this news to be received with relief and for the shares
to react positively today. However, we would note the very limited
visibility that remains on the outlook for FY13E. Furthermore, the ability
of the group to trade through next Christmas is dependent on revised
facilities being once again increased to their full levels. Considerable risk
still remains in our view and we retain our underweight stance.
BE
LBT to be better than expected. The loss before tax for the year to
January 2012 is now guided to £18m. This is some way better than BBG
consensus expectations for a loss of £23.7m (JPMCe LBT £32m). Given
ongoing weak trends seen in the video games market this is most likely a
result of some gross margin improvement in the final 3 weeks of the year
versus Christmas trading, volume rebates from suppliers and some
incremental cost savings.
January 2012 is now guided to £18m. This is some way better than BBG
consensus expectations for a loss of £23.7m (JPMCe LBT £32m). Given
ongoing weak trends seen in the video games market this is most likely a
result of some gross margin improvement in the final 3 weeks of the year
versus Christmas trading, volume rebates from suppliers and some
incremental cost savings.
BE
Covenants will be met at next test. Given the updated guidance, and
having received support from lenders, management now expects the
group to meet its covenant tests for the period to 31 January (tested on 27
February). Management had flagged in early January that, given the
deterioration in trading, there was a likelihood that it would breach
covenants. Whilst the shares reacted positively following the news that
HMV had received support from lenders, confirmation that the group
will meet tests should still be received with much relief.
having received support from lenders, management now expects the
group to meet its covenant tests for the period to 31 January (tested on 27
February). Management had flagged in early January that, given the
deterioration in trading, there was a likelihood that it would breach
covenants. Whilst the shares reacted positively following the news that
HMV had received support from lenders, confirmation that the group
will meet tests should still be received with much relief.
BE
Revised terms agreed – facilities reduced. The group has agreed to
operate within lower limits of its existing facilities. Management
comments that the revised facilities will “allow the company to continue
to trade”. Whilst we are past the key Christmas trading period, working
capital will clearly have to be managed extremely tightly over the
coming months. Furthermore, it is our understanding that the group
requires the full facilities in the months ahead of the key Christmas
trading period and hence ability to trade through December 2012 will
depend upon revision of facilities back to their full levels. This is
dependent in part on the outcome of the updated strategic plan and in our
view significant risk remains. As announced yesterday the plan is likely
to include a potential sale of the overseas business.
operate within lower limits of its existing facilities. Management
comments that the revised facilities will “allow the company to continue
to trade”. Whilst we are past the key Christmas trading period, working
capital will clearly have to be managed extremely tightly over the
coming months. Furthermore, it is our understanding that the group
requires the full facilities in the months ahead of the key Christmas
trading period and hence ability to trade through December 2012 will
depend upon revision of facilities back to their full levels. This is
dependent in part on the outcome of the updated strategic plan and in our
view significant risk remains. As announced yesterday the plan is likely
to include a potential sale of the overseas business.
11:56AM
BE
Otherwise in smalls …………….
BE
Falklanders drifting lower
BE
In celebration of Prince William’s arrival on the island.
BE
(Alternatively; they’ve had a good run, there’s a rig in place for Borders and the other one, and there’s no news today. Take your pick.)
BE
And I don’t think there’s anything else terrible interesting down there.
BE
So, Paul, favourite boozer in the square mile?
PM
er
BE
It’s all the rabble seem to care about today.
PM
No
BE
Fair answer.
PM
I’m lunching at Sweetings tho
PM
tk — can’t stand the Lamb im afraid
BE
Should possibly mention the The Artillery Arms, if only for old-timer readers.
BE
Was the pub opposite Bunhill Fields.
BE
And next door to AFX News.
BE
I assume it closed down when AFX did.
PM
hehe
BE
Anyway, I think we’re done here.
BE
(@Bertie: St John’s is a wonderful place. Say hello to Thomas from me.)
PM
Jarvis is right. Seeya
BE
Obv. Right. Thanks for the comments. Bye.
PM
Thanks for joining us today.
PM
back Monday