Markets Live chat transcript for the chat ending at 12:06 on 7 Feb 2012. Participants in this chat were: Paul Murphy Bryce Elder/FT
PM
Morning
PM
Welcome to Markets Live
PM
Prompt at 11
PM
Thought we might offer a sound track for today’s session.
PM
That’s Homs Live.
PM
If you’ve got your volume turned down, youll have to turn it up. Otherwise just get a view of the roothtops.
PM
Chilling sound track.
PM
Bryce is here
BE
Woh … cheery start.
PM
Yes
BE
And good morning, rabble.
PM
on to more upbeat stuff
PM
We’re going to formally join the Get Greece campaign today
PM
DEFAULT!
PM
DEFAULT!
PM
DEFAULT!
PM
Everyone’s onboard.
PM
Or at least the right people are on board.
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Bryce
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Willem Buiter
PM
Finbar Taggit
PM
Neelie Kroes
PM
Here’s the finbar link
http://www.fintag.com/2012/02/greece-prepares-to-leave-euro.html
http://www.fintag.com/2012/02/greece-prepares-to-leave-euro.html
PM
And now Bryce and myself.
PM
Actually I haven’t asked Bryce whether he’s happy signing up for this, but anyway.
BE
…….. um.
BE
Actually, I think Finbar sums up the thinking in the snappiest manner.
BE
A bit like watching a Hollywood couple with the perfect marriage that we all know is not so and yet we are still shocked when a Tweet or two tell the world it was a sham and it’s all over.
BE
Greece. The longest running and most boring soap opera is coming to an end. Here is a leaked Tweet that has come our way via tor-megaupload-wikileaks-scribd-recycle-bin:
BE
@theworld Greece has decided to enter a new era of the Drachma. It would like to thank the IMF, the IFF, the hedge funds, the technocrats, for providing us with free biscuits and coffee during …. [Ed: > 140]
BE
Greece is going to leave the Euro. You know this and I know this. My hedge fund mates know this and all the Greeks know this except a few “jobs for the boys” politicians who are still moving their assets abroad before tweeting like crazy.
BE
Personally, I’m not wild about the logic underpinning “Greece has to default because we’re bored with it not defaulting.”
PM
Hey, you can’t back out now!
PM
BE
I’m wavering. I’m a floater in the Get Greece campaign.
PM
You want to condemn the good Greek people to like 50 years of ruin and starvation and sitting around ???
PM
outside cafes
BE
Smoking extremely strong cigarettes.
BE
Dipping flatbreads in very thin chickpea paste.
PM
BE
Enough of that. What’s actually happening in Athens watch?
PM
we’ve had a little sale of Greek T bills this morning
PM
800m of 6 month paper at 4.86 – same yield as the last short term sale.
PM
Otherwise its radio silence
PM
Nothing fresh on this escrow proposal
PM
Bound to wind the Greeks up
PM
Can’t be trusted to hold the money
BE
Anyway, since we all agree that we’re awfully bored with Greece.
BE
Let’s have a look at somewhere that’s not Greece.
BE
Namely Portugal.
PM
Ooh
PM
Ok
BE
Good note from Merrill just dropped in.
BE
Portugal is not Greece
BE
Hang on. There’s more to it than that.
BE
Although Portugal is receiving praise from both the Troika and the IMF, market
pessimism is rising as illustrated by CDS and long-term yields. So far Portugal
has respected the Troika adjustment programme. As a result, investors seem to
be reacting more to the way that private sector involvement (PSI) is being handled
in Greece. Although strongly opposed by the ECB, PSI was introduced last July
as a component of the new Greek package. From the initially moderate haircuts
which could have attracted high participation, PSI is now reportedly being
expanded to a 70% NPV loss. In addition, the PSI debate on public sector
participation underscores the risk that the private sector will remain junior and
suffer further higher haircuts, thus weighing on investors’ appetite for periphery
debt.
pessimism is rising as illustrated by CDS and long-term yields. So far Portugal
has respected the Troika adjustment programme. As a result, investors seem to
be reacting more to the way that private sector involvement (PSI) is being handled
in Greece. Although strongly opposed by the ECB, PSI was introduced last July
as a component of the new Greek package. From the initially moderate haircuts
which could have attracted high participation, PSI is now reportedly being
expanded to a 70% NPV loss. In addition, the PSI debate on public sector
participation underscores the risk that the private sector will remain junior and
suffer further higher haircuts, thus weighing on investors’ appetite for periphery
debt.
BE
Portugal has started adjustment, but the journey is long
BE
Looking at fundamentals, Portugal has made good progress with its adjustment
but the road to achieve debt sustainability appears long. The 2011 fiscal target
has been respected, but partly thanks to one ad hoc measure on pension
accounting. Unit labour costs have started receding, but they need to decline
much further. The trade balance and the current account are improving, though
this goes with a contraction of demand that will put Portugal in a deep recession
this year (we project a contraction of 3.3%). Overall the key to Portugal’s success
is a rapidly growing economy. Yet, Portugal’s economic momentum is impaired by
low potential growth, in part due to lower qualification of the labour force that will
take time to correct.
but the road to achieve debt sustainability appears long. The 2011 fiscal target
has been respected, but partly thanks to one ad hoc measure on pension
accounting. Unit labour costs have started receding, but they need to decline
much further. The trade balance and the current account are improving, though
this goes with a contraction of demand that will put Portugal in a deep recession
this year (we project a contraction of 3.3%). Overall the key to Portugal’s success
is a rapidly growing economy. Yet, Portugal’s economic momentum is impaired by
low potential growth, in part due to lower qualification of the labour force that will
take time to correct.
BE
Portugal: a test case for the ESM?
BE
Our debt sustainability analysis rests on two pillars: a standard IMF type of
analysis and a stochastic evaluation of the risks to this standard scenario. On the
former, we find that the Troika assumptions rest on a sanguine hypothesis that
Portugal can reach 2% growth rapidly and remain there. Our own assumption of a
return to trend growth (1%) in 2014 and thereafter does not yield debt
sustainability, all else being equal. Our stochastic tests confirm this analysis.
analysis and a stochastic evaluation of the risks to this standard scenario. On the
former, we find that the Troika assumptions rest on a sanguine hypothesis that
Portugal can reach 2% growth rapidly and remain there. Our own assumption of a
return to trend growth (1%) in 2014 and thereafter does not yield debt
sustainability, all else being equal. Our stochastic tests confirm this analysis.
BE
Portugal is insulated from market funding until second half 2013. By then
however, if growth has not been as buoyant as assumed by the Troika, the
market may not be convinced of Portugal’s debt sustainability and Portugal might
need an extension of the current programme. If so, this would likely happen under
the new euro area crisis resolution mechanism (the ESM). It is difficult to exclude
the possibility that further help might go with a debt restructuring, although this
would likely be on different terms that what is currently being applied to Greece.
however, if growth has not been as buoyant as assumed by the Troika, the
market may not be convinced of Portugal’s debt sustainability and Portugal might
need an extension of the current programme. If so, this would likely happen under
the new euro area crisis resolution mechanism (the ESM). It is difficult to exclude
the possibility that further help might go with a debt restructuring, although this
would likely be on different terms that what is currently being applied to Greece.
BE
There. The argument for the contagion firewall.
PM
Must note Portugal’s incredible shrinking yields — 3 year down from 34.5 to 17.3 over past few sessions
BE
Yup – remarkable correction.
PM
And just while we are on sovv paper
PM
IT and ES are on a collision course
PM
Spain still widening, Italy tightening
PM
5.11 – 5.72 currently
PM
Let’s move on
11:13AM
PM
Wider market here?
BE
Holding steady.
BE
FTSE still within a few points of the July highs.
BE
Adrift 17 points at 5877 or thereabouts at the moment.
BE
China plays on the fallers board.
BE
Which, apparently, is because China predicted its industrial output will slow. Apparently.
BE
Yeah, really. That’s today’s excuse.
PM
And Chinese economic predictions always come true
PM
China take
The Truth! Unvarnished. The price of rice always falls. Shanghai investors do not sell stocks. Torch protestors are vile.
PM
Actually ive got a bunch of stuff from Caz on how we should all be buying into this bul market
PM
S&P up 22% since October, apparently
BE
(@HELLO55: if I knew that, I’d be typing this from a yacht moored off Capri.)
PM
So now’s the time to 
PM
This is Caz
PM
6 reasons to buy this bull market
PM
Bear with us
PM
Risk-Reward for stocks favourable – 6 key arguments
_ 1) Global activity continues to pick up, Jan Global manufacturing PMI is at the highest level since June
’11. Importantly, new orders to inventories ratio is still increasing. US leads and the widely entrenched
pushback that this recovery is not sustainable because it is “jobless”, “creditless” and “without housing” is
getting seriously challenged from all 3 fronts.
_ Eurozone is not the odd one out. Even there activity is coming in better than expected with composite PMI
now up for 3 months in a row. EMU EASI has turned positive and it is well correlated to Eurozone EPS
revisions. (p.48)
_ 2) Bank and sovereign cost of funding has improved dramatically. We believe ECB stands ready to
deliver further liquidity, if required. This should provide a floor for bonds and take off the table the key tail
risk of a “Lehman style” financial dislocation.
_ 3) EM policy is generally turning towards easing (p.29). EM equities have underperformed DM by 13%
in 2011 (USD), largely due to their adverse Growth-Inflation tradeoff. In 2012 we see EM outperforming
DM due to a shift in policy stance away from Inflation and towards Growth stimulation. Brazil is expected
to show the biggest delta in growth out of larger EM countries.
_ 1) Global activity continues to pick up, Jan Global manufacturing PMI is at the highest level since June
’11. Importantly, new orders to inventories ratio is still increasing. US leads and the widely entrenched
pushback that this recovery is not sustainable because it is “jobless”, “creditless” and “without housing” is
getting seriously challenged from all 3 fronts.
_ Eurozone is not the odd one out. Even there activity is coming in better than expected with composite PMI
now up for 3 months in a row. EMU EASI has turned positive and it is well correlated to Eurozone EPS
revisions. (p.48)
_ 2) Bank and sovereign cost of funding has improved dramatically. We believe ECB stands ready to
deliver further liquidity, if required. This should provide a floor for bonds and take off the table the key tail
risk of a “Lehman style” financial dislocation.
_ 3) EM policy is generally turning towards easing (p.29). EM equities have underperformed DM by 13%
in 2011 (USD), largely due to their adverse Growth-Inflation tradeoff. In 2012 we see EM outperforming
DM due to a shift in policy stance away from Inflation and towards Growth stimulation. Brazil is expected
to show the biggest delta in growth out of larger EM countries.
PM
4) Equities are underowned (p.34) and trading at undemanding valuations, with MSCI World at 11.6x
forward P/E and 1.7x P/B, a 32% and 33% discount to historical respectively. Asset allocators are UW
equities; regionally they are especially UW Europe.
_ 5) Price of “safety” is too high within equities, exceeding ’08/’09 worst levels (p.9). We find majority still
hiding in “Quality” and “Defensive Growth”. The median P/Book of the quintile of stocks with the lowest
ROE is lower today than at the last two inflection points, in March ’03 and March ’09.
_ 6) Profit margins in this cycle have been much higher than most thought (p.40) and balance sheets
are robust. One of our key indicators, US profit margins, have not peaked yet. Equities historically did not
tend to record a high for the cycle before margins peaked. We think the same will hold again, and
continue to believe that 1350 on S&P500 is significantly below the eventual peak of the market in
this cycle. We also maintain a non-consensus call that US margins will continue to expand in 2012.
forward P/E and 1.7x P/B, a 32% and 33% discount to historical respectively. Asset allocators are UW
equities; regionally they are especially UW Europe.
_ 5) Price of “safety” is too high within equities, exceeding ’08/’09 worst levels (p.9). We find majority still
hiding in “Quality” and “Defensive Growth”. The median P/Book of the quintile of stocks with the lowest
ROE is lower today than at the last two inflection points, in March ’03 and March ’09.
_ 6) Profit margins in this cycle have been much higher than most thought (p.40) and balance sheets
are robust. One of our key indicators, US profit margins, have not peaked yet. Equities historically did not
tend to record a high for the cycle before margins peaked. We think the same will hold again, and
continue to believe that 1350 on S&P500 is significantly below the eventual peak of the market in
this cycle. We also maintain a non-consensus call that US margins will continue to expand in 2012.
PM
That’s from Mislav Matejka,
PM
Apparently they are acknowledging 25% run, but reckon it is too early to fade it
PM
Frothy stuff this.
PM
Suppose I should also share the pre-amble to those six reasons to buy
PM
Eurostoxx50, EM equities and S&P500 have moved up 26%, 27% and 22% respectively since last
September’s trough. Just ytd Autos are up as much as 29%, Mining 23% and Dax 15%. It might appear
reasonable to call for a pause following such a strong market move, “locking in gains” would seem a
logical thing to do and would give the impression that one is trying to be ahead of the market. Indeed, we
are seeing most recently a number of pundits who have called for a pause/correction. However, it could
also prove to be costly to cut exposure too early if the rally continues.
September’s trough. Just ytd Autos are up as much as 29%, Mining 23% and Dax 15%. It might appear
reasonable to call for a pause following such a strong market move, “locking in gains” would seem a
logical thing to do and would give the impression that one is trying to be ahead of the market. Indeed, we
are seeing most recently a number of pundits who have called for a pause/correction. However, it could
also prove to be costly to cut exposure too early if the rally continues.
PM
We maintain the view that one should not fade the rotation out of Defensives and Quality into Beta and
Value for the following reasons, among other:
1) The sector leadership has followed macro momentum almost perfectly in the last few years (p. 8), we
think until ISM is in high 50-ies it would be too early to look for a correction. Assuming ISM is near 60 by
April-May could mean another 15%-20% price relative for Cyclicals from here.
2) “Quality” premium has managed to retrace only 1/4th of its huge run last year (p. 9), we think at least
half of the “Quality” rerating should be taken back before we can say investors have repositioned.
3) US/German yields remain below 2%, which is a big difference to the start of the last year, when 10Y US
yields were as high as 3.5%, a level which offered the scope for disappointment. Not this time, and we
would wait until yields potentially move towards 2.5% before we would think that complacency has set in.
_ Our top picks remain Autos, Mining, Construction Materials, Banks and Dax.
_ The tightening lending standards by Eurozone banks, as seen in last week’s Q4 loan officer survey, is one
of the increasing pushbacks to constructive view. We note that the survey was taken in December, before
the significant fall in sovereign yields and before the fall in cost of funding for banks. Many banks have
since managed successfully to tap the market, unsecured as well as secured. In addition, January PMIs
were sequentially higher vs Dec, and they tended to be well correlated to lending standards (p. 64).
Finally, Jan EC survey of corporates with respect to access to financing has not shown deterioration.
_ US EASI has peaked in early Jan, but our past work has shown that this was not a good sell signal (p. 11).
We believe Euro EASI will continue to close the gap with US EASI, supporting our call to reallocate from
US equity OW into Europe.
Value for the following reasons, among other:
1) The sector leadership has followed macro momentum almost perfectly in the last few years (p. 8), we
think until ISM is in high 50-ies it would be too early to look for a correction. Assuming ISM is near 60 by
April-May could mean another 15%-20% price relative for Cyclicals from here.
2) “Quality” premium has managed to retrace only 1/4th of its huge run last year (p. 9), we think at least
half of the “Quality” rerating should be taken back before we can say investors have repositioned.
3) US/German yields remain below 2%, which is a big difference to the start of the last year, when 10Y US
yields were as high as 3.5%, a level which offered the scope for disappointment. Not this time, and we
would wait until yields potentially move towards 2.5% before we would think that complacency has set in.
_ Our top picks remain Autos, Mining, Construction Materials, Banks and Dax.
_ The tightening lending standards by Eurozone banks, as seen in last week’s Q4 loan officer survey, is one
of the increasing pushbacks to constructive view. We note that the survey was taken in December, before
the significant fall in sovereign yields and before the fall in cost of funding for banks. Many banks have
since managed successfully to tap the market, unsecured as well as secured. In addition, January PMIs
were sequentially higher vs Dec, and they tended to be well correlated to lending standards (p. 64).
Finally, Jan EC survey of corporates with respect to access to financing has not shown deterioration.
_ US EASI has peaked in early Jan, but our past work has shown that this was not a good sell signal (p. 11).
We believe Euro EASI will continue to close the gap with US EASI, supporting our call to reallocate from
US equity OW into Europe.
PM
done
BE
Righty ho. Stock broker says buy stocks.
PM
(very good tk and anthrax)
11:19AM
BE
Ok – to the main news of the day.
BE
Week, month and possibly year.
BE
The terms of Glencore’s takeover of Xstrata are public.
PM
Confirmed
BE
By which I mean more public than when they were leaked yesterday.
BE
And, nobody likes it.
PM
How hard do we go on this one
PM
is it a foul up
PM
Pur?AIA ???
PM
Pru / AIA even
PM
That’s going too far
PM
at this stage
BE
Hm. Probably.
PM
But lets backtrack and explain what’s happened
BE
Ok then. So introducing Glenstrata ….
BE
Or GXI as they want us to call it
BE
Glencore Xstrata International.
PM
According to my intrawebs GXI = D-Glucose/Xylose Isomerase
PM
Which is an enzyme.
PM
apparently
PM
Glencore came out with previewed terms – 2.8 shares for every 1 Xstrata
PM
fair to say this has not gone down terribly well.
PM
Glencore off a tad at 458
PM
Xstrata down 36p at 12.25
BE
And both Standard Life and Schroders have come straight out saying it’s not good enough.
BE
Standard Life have 4% plus.
BE
Not sure immediately about Schroders.
BE
Less than 1%, by memory.
BE
Page wont come up on Reuters.
PM
Ive got it up now
PM
Names we are looking at are
PM
Blackrock
PM
L&G
PM
State Street
PM
Usual suspects
PM
Who else might cause trouble?
PM
Scottish Widows?
PM
Alliance Bernstein?
BE
Well, everyone really.
BE
It’s in no-one’s interests to keep quiet is it?
PM
hehe
BE
(@TT: thanks. Double counting between two funds I think.)
BE
(@nick1212: how outrageously cynical.)
PM
One point to make here — Glencore has a lot of old skool fund mangers that are really quite fed up
PM
They were sold GLEN at the wrong price — and they are still wearing that
PM
favour bank is empty
PM
These old skool brit fund managers
PM
Default position it to stand there with their arms crossed.
BE
Floated at 530p, of course.
BE
Still nearly a quid under water.
BE
But the point is how quickly this has happened ….
BE
Normally there’s a bit of polite waiting around while the management teams come in and present – and then you cay, “Give us better terms’
BE
But today they’ve just come straight out.
PM
Less than 17% needed to block this.
PM
Point has been made that the parties could switch from a scheme of arrangement to a regular bid.
PM
But….
PM
That would send everyone white with range – and probably encourage a group of investors to stage a sit in.
PM
With a scheme you can go straight to 100% I think if you get 75% of the votes.
PM
With a regular bid, you may have control at 50%
PM
But you’ve got to get to 90% to buy out the minorities.
BE
(@tk: agree.)
BE
Pricey, though.
PM
(Nick1212 — gardening columns 
)
)BE
With a scheme they’d be paying £180m in stamp duty.
BE
So I guess it’s the nuclear option.
BE
Anyway, this seems to me all very long game.
BE
Why would Glencore bump the bid before getting through antitrust?
PM
That’s a good point
BE
Now, I know the press seem united in the theory that antritrust will be a breeze.
PM
How can it be? Australians, Chinese, lots of people will have a view on this
BE
Yes, exactly. China unlikely to play ball.
BE
And the press was also united in the theory that Xstrata shareholders would accept their 20% takeover premium quietly.
BE
By the way, the arbs are telling me that Glencore’s at a discount to terms simply because the borrow’s very expensive.
BE
So, just to wrap up on this, here’s some sellside.
BE
(@Horvillak: had heard as high as 15%)
BE
Liberum reckon everyone should be happy.
BE
(They were on the ticket of the Glencore float, of course. But that’s irrelevant.)
BE
The much-anticipated ‘merger of equals’ between Glencore ans Xstrata has been announced this morning.
We think the key points are 1) the price has been confirmed at 2.8x Glencore shares per Xstrata share,
equivalent to a 20% market cap premium 2) Key managerial positions will be held by Xstrata executives
with Mick Davis CEO, Trevor Reid CFO and John Bond as Chairman and 3) Synergies have been flagged at
$500m which are predominantly marketing, we think this is conservative.
We think the key points are 1) the price has been confirmed at 2.8x Glencore shares per Xstrata share,
equivalent to a 20% market cap premium 2) Key managerial positions will be held by Xstrata executives
with Mick Davis CEO, Trevor Reid CFO and John Bond as Chairman and 3) Synergies have been flagged at
$500m which are predominantly marketing, we think this is conservative.
BE
With Xstrata getting the three top jobs and a small premium we fail to see how Xstrata shareholders have
come out poorly here. They gain access to some very fast growing assets and a world class trading
platform and the shareholder tensions that have dogged the company since the failed sale to Vale in 2008
have been killed once and for all. For Glencore, it looks to be an almost accretive deal and strategically
completes their move from the private world. Using the flagged $500m in EBITDA synergies we estimate
the deal will be 4% dilutive for Glencore shareholers on 2012 EPS, but 23% accretive for Xstrata
shareholders. As such, we think only a marginal bump would be palatable to Glencore shareholders and
therefore see Glencore as the lower risk entry point into the deal given the asymmetric downside under a
deal-break scenario.
come out poorly here. They gain access to some very fast growing assets and a world class trading
platform and the shareholder tensions that have dogged the company since the failed sale to Vale in 2008
have been killed once and for all. For Glencore, it looks to be an almost accretive deal and strategically
completes their move from the private world. Using the flagged $500m in EBITDA synergies we estimate
the deal will be 4% dilutive for Glencore shareholers on 2012 EPS, but 23% accretive for Xstrata
shareholders. As such, we think only a marginal bump would be palatable to Glencore shareholders and
therefore see Glencore as the lower risk entry point into the deal given the asymmetric downside under a
deal-break scenario.
BE
A done deal? On these terms and team composition we feel the deal will be passed by Xstrata shareholders.
Voting it down is simply too destructive – shareholders would get no synergies, no premium and be left with two
big problems a) what to do with management (the logic of “back or sack” implies succession/leadership issues)
b) how resolve a heightened problem with its biggest shareholder Glencore. With the leak marking up both
shares to an extent the market has already ‘approved’ of this deal.
Voting it down is simply too destructive – shareholders would get no synergies, no premium and be left with two
big problems a) what to do with management (the logic of “back or sack” implies succession/leadership issues)
b) how resolve a heightened problem with its biggest shareholder Glencore. With the leak marking up both
shares to an extent the market has already ‘approved’ of this deal.
BE
And that’s about the lot, really.
BE
Everyone else of note’s restricted.
BE
As there are about eight banks in the advisory pool here.
BE
(Milky.)
(@Milky: yellow.)
11:37AM
PM
cheers for tht
PM
where now
PM
Can i share this Russian Elections video?
PM
Made me laugh anyway
PM
Dunno how old it is
11:38AM
PM
And so to Shire
BE
It was a hot subject among the boys yesterday.
BE
From 
all the way down to 
all the way down to BE
The latter was talking about a £35 bid.
PM
BE
The former was merely noting some shrewd money going in ahead of results on Thursday.
PM
BE
And, with this one, I’m probably in ‘s camp.
‘s camp.BE
To recap ……
BE
America has a shortage of pep pills.
BE
Because the amphetamine that goes into them is restricted.
BE
So there’s a big shortage in the lowest end of the market
BE
Confusingly called Adderall.
BE
Luckily, Shire no longer has anything to do with Adderall.
BE
It only sells the relative premium stuff.
BE
And have said it’s had no shortages whatsoever.
BE
So it’d be no surprise to see Q4 results edge past forecasts.
BE
Anyway, that was yesterday’s story.
PM
Stock is up 4.4% at 22.20 mind
BE
And that’s on the back of a push from Goldman Sachs.
PM
(Auto price still on blink)
BE
Sector review, which I’ll dig out if you can give me a moment of air cover.
PM
(Vintage — the Long Room? You just have to fill out a little form and prove you are not a muppet)
A term of endearment used to describe BB share promoters on FT Alphaville.
PM
Air cover for Bryce….
PM
I posted that russian election vid in the long room — cos can’t upload movies to the main site
PM
It’s on Monkey’s table
BE
Ok – got Goldman’s morning email.
BE
We continue to view long-term industrial positioning (as measured by the GS SUSTAIN scorecard) as one of
the best indicators of long-term growth and return matrices for the Pharma industry. We introduce our 2011-
16 (prior 2010-15) scorecard. Unsurprisingly (given the long-term nature of this analysis) Novo Nordisk,
Roche and Shire score as the best positioned companies in the industry. Novo Nordisk and Roche are on the
GS SUSTAIN Focus List of global industry leaders.
the best indicators of long-term growth and return matrices for the Pharma industry. We introduce our 2011-
16 (prior 2010-15) scorecard. Unsurprisingly (given the long-term nature of this analysis) Novo Nordisk,
Roche and Shire score as the best positioned companies in the industry. Novo Nordisk and Roche are on the
GS SUSTAIN Focus List of global industry leaders.
BE
Roche (12-month price target increased to SFr200 from SFr180) offers the best long-term sustainability and
visibility among its peers. In addition, Roche’s attractive (admittedly risky) pipeline is on the cusp of maturing
and, if successful, could meaningfully improve Roche’s long-term growth outlook – none of these factors are
reflected in current market valuation.
visibility among its peers. In addition, Roche’s attractive (admittedly risky) pipeline is on the cusp of maturing
and, if successful, could meaningfully improve Roche’s long-term growth outlook – none of these factors are
reflected in current market valuation.
BE
Shire (12-month price target increased to 2600p from 2500p), offers the best growth profile and CROCI
expansion among its peers, but currently trades at a 0.7x 2013 PE/G, which we view as very attractive. We
see upside to 2012 estimates driven by strong US ADHD market growth and Replagal approval in the US.
Novo Nordisk (12-month price target increased to Dkr775 from Dkr675) is supported by strong demographic
tailwinds, best-in-class manufacturing capabilities (competitive advantage in low-price geographies), and a
product portfolio that we believe is very well placed.
expansion among its peers, but currently trades at a 0.7x 2013 PE/G, which we view as very attractive. We
see upside to 2012 estimates driven by strong US ADHD market growth and Replagal approval in the US.
Novo Nordisk (12-month price target increased to Dkr775 from Dkr675) is supported by strong demographic
tailwinds, best-in-class manufacturing capabilities (competitive advantage in low-price geographies), and a
product portfolio that we believe is very well placed.
BE
We upgrade our rating on UCB to Neutral (from Sell) to better reflect its improved industry positioning driven
by a lower exposure to patent expiries following the loss of Keppra/XR exclusivity in 2H11. We also upgrade
Recordati to Neutral (from Sell), given recent underperformance and lack of downside potential implied by our
12-month price target of €6.
by a lower exposure to patent expiries following the loss of Keppra/XR exclusivity in 2H11. We also upgrade
Recordati to Neutral (from Sell), given recent underperformance and lack of downside potential implied by our
12-month price target of €6.
BE
We also modestly revise our price targets for GSK (to 1425p), Ipsen (to €22), Orion (to €15.30), Lundbeck (to
Dkr93); details inside.
Dkr93); details inside.
BE
That’s all I can face of that.
11:45AM
PM
hehe
PM
martingredo trying to get us to do Monitise
PM
Can we bear that
PM
Mobile money
PM
Monitise plc (LSE: MONI.L) is a technology and services company delivering mobile banking, payments and commerce networks worldwide with the proven technology and expertise to enable financial institutions and other service providers to offer a wide range of services to their customers in developed, hybrid and emerging markets.
The British company has a global reach. As well as partnerships with most UK high street banks, Monitise provides services to over 250 financial institutions in the United States, has more than 5.5 million users worldwide and has a global partnership with Visa Inc to deliver its services to more than 1.9 billion card-holders.
With live operations in the UK, the US, India and Africa, we are working with international partners to extend trusted and secure mobile banking, payment and commerce services in territories worldwide, including Europe, Asia Pacific and Latin America.
BE
Haven’t heard this one talked about for nearly a year.
PM
nuff said
PM
Sorry, that’s unfair
BE
It used to be an ML favourite.
PM
Did it
BE
Someone or other was pushing them yesterday.
BE
Oh, Canaccord.
BE
We believe the mobile money market has reached an inflection point.
BE
A
growing number of companies are starting to commit to multi-year, multimillion
dollar contracts and we believe many companies are starting the
second phase of investment in mobile money. After initial implementation
of first generation services, often built in-house, we think companies are
planning to invest in a second generation of mobile commerce technologies
with third-party technology providers led by Monitise
growing number of companies are starting to commit to multi-year, multimillion
dollar contracts and we believe many companies are starting the
second phase of investment in mobile money. After initial implementation
of first generation services, often built in-house, we think companies are
planning to invest in a second generation of mobile commerce technologies
with third-party technology providers led by Monitise
BE
The growing urgency in the market has driven financial institutions,
mobile operators, merchants and online commerce players to target the
mobile money market with differing products and strategies. However,
all four groups require critical technology infrastructure to facilitate
mobile commerce transactions and Monitise’s technology platform can
support all four groups with common services. This differentiates
Monitise against the many niche mobile application providers.
mobile operators, merchants and online commerce players to target the
mobile money market with differing products and strategies. However,
all four groups require critical technology infrastructure to facilitate
mobile commerce transactions and Monitise’s technology platform can
support all four groups with common services. This differentiates
Monitise against the many niche mobile application providers.
BE
That kind of thing.
PM
ok
PM
But we don’t know anything about some bid, right?
BE
I haven’t heard such a thing mentioned.
BE
The idea that they’d bring in Canaccord and Goldman Sachs on the Monday to act as a bid defence seems ….
BE
er …. implausible, quite frankly.
PM
Fine, letss move on
11:50AM
PM
Requests for BP
PM
Can’t avoid
PM
Numbers seem to be inline — and in th eprice
BE
Yes – exactly.
BE
Come up a long way.
PM
Quote 482
PM
down 7.5p this morning
BE
Travel & arrive, innit.
PM
Talking abotu earnigns momentum returning
PM
about earnings
BE
Numbers were talked down ahead
PM
(Vintage — hadn’t noticed that, interesting)
BE
And there was a lot of discussion about the dividend….
BE
In the months preceding.
BE
Even from morons such as this.
BE
So it must’ve been well flagged.
BE
So anyway, here’s what the sellside makes of it.
BE
Fair summary from SocGen.
BE
Main surprises Positives: (1) a reassuring 14% Q4 dividend increase from 7 cents to 8 cents per share; (2) Q4 Downstream profit of $759m (vs Shells losses), +2% year on year we read this as evidence of the improvement in the R&M divisions performance since 2007 and the viability of Downstreams target of $2bn earnings improvement by 2012 benchmarked against 2009.
BE
Negatives: (1) weak 2011 organic reserve replacement at 83% (Shells was 120%); (2) Q4 group adjusted aggregate RC EBIT at $7,179m was 5.2% below consensus but with a much lower Q4 tax rate (26.8% vs 32% SGe); Bottom line adj LIFO profit of $4,986m is 2.4% ahead of expectations (and marginally ahead of Shells weak Q4 profit). Operationally, E&P EBIT of $6.9bn missed consensus by 2.7%; it was encouraging that production rose 5.1% sequentially, as signalled by CEO Dudley at the Q3 stage. As expected there was a partial reversal of the Macondo provision to account for the $4.1bn settlement with Anadarko and Cameron. TNK-BP paid a $1.7bn Q4 dividend ($3.7bn for the full year). We note that post Macondo disposals to date amount to $21bn out of a targeted $38bn (having been raised to $45bn the target was cut following a decision not to sell the c. $7bn stake in Argentinas Pan American)
BE
Potential impact on forecasts While Q4 results were only slightly shy of expectations, guidance of a $1.0bn rise in the 2012 depreciation charge and for a higher Other & Corporate quarterly charge of $500m (raised from $400m) has negative implications for estimates, all else equal.
BE
Potential impact on share price/recommendation Todays strategy presentation will be watched closely for data points to support the strategic targets unveiled in October by BP: a 50% increase in cash from operations under $100/bbl by 2014 (from the 2011 base). With the Macondo civil trial due to start on 27 February, we think the dividend increase is a clear sign of managements confidence in the underlying cash generation momentum.
BE
And BarCap
BE
Lucy Haskins is your analyst, who’s very good.
BE
There were some clear positives from BP’s 4Q earnings. At $4.986bn of clean net income this was the first quarter since end 2010 that the group reported a stronger bottom line than RD Shell. Admittedly net income was helped by a lower than expected tax charge in the quarter but the company’s confidence that the group has reached an inflection point in terms of operations would seem to be borne out by the 14% increase in the quarterly dividend. The group outlook statement remains a reminder however that there are still challenges ahead in terms of moving on from Macondo. Whilst the 15% increase in organic capex is in line with our estimates for 2012, the group’s implied production guidance of a 3% fall in volumes is 4% below our current expectation – and we had assumed a higher net divestment impact. We continue to see 27 February as the critical date for the group. This is the date set for the class actions to be heard against the group. Today BP has reiterated its willingness to settle on “fair and reasonable” terms. Whilst settlement is still possible when the case is in progress, markets may be minded to think that if there is no settlement pre the commencement of the case, that settlement terms were unacceptable to BP. It could then be several years before the full cost can be quantified, which may prove a drag on performance. We rate the shares 2- Equal Weight with a price target of 550p.
PM
thanks for all that
11:56AM
BE
Ok – Glaxo dropping in a moment.
PM
Up a tad ahead of those figures
PM
14.29, up 9p
BE
And so, we wait.
PM
We’ve got a 2 min gap
BE
Um ……… TalkTalk’s self explanatory.
BE
User numbers stable despite being undercut by several all its rivals.
BE
So, relief rally agogo. Up 10% at pixel.
PM
I’m on Talk Talk broadband
PM
Doesnt feel particularly fast
PM
Want this bt infinity thing
PM
but dont think it wil arrive in my road till circa 2017
PM
Here’s the 12 oclock rush…
PM
Glaxo disappoints a tad
PM
taht’s the knee jerk
BE
Four-part RNS …..
PM
EPS 28.4
PM
consensus 29
BE
GLAXOSMITHKLINE PLC GSK.L – EXPECTS UP TO 30
PROGRAMMES TO MOVE INTO LATE-STAGE DEVELOPMENT OVER NEXT 3 YEARS -
PROGRAMMES TO MOVE INTO LATE-STAGE DEVELOPMENT OVER NEXT 3 YEARS -
BE
GSK READY TO FILE RELOVAIR FOR COPD, PROMACTA
FOR HEPATITIS C, MEK INHIBITOR FOR MELANOMA AND QUADRIVALENT FLU
VACCINE – RTRS
FOR HEPATITIS C, MEK INHIBITOR FOR MELANOMA AND QUADRIVALENT FLU
VACCINE – RTRS
BE
Ok – no shortage of confusion over the headline number.
BE
Q4 at 28.4p …… Consensus was 29p
BE
But that’s not really a proper consensus because restructuring costs are a mess.
PM
GSk seling off pretty fast now
PM
down 15 at 14.04
PM
And the Footsie has also taken a knock
PM
dpwm 34 at 5858
BE
There’s no obvious warning in there.
BE
(GLAXOSMITHKLINE PLC GSK.L TOTAL DIV 70 PENCE/SHR – RTRS)
BE
Looks middling rather than disappointing, unless the folk who deign to speak to me are missing something huge.
BE
Right, anyway, it’s lunchtime.
PM
it is
PM
we are done
12:05PM
PM
Thanks for joining us today
PM
Thanks for all your comments
PM
We will be back tomorrow
PM
11am sharp
PM
And Neil Collins is calling in
PM
You can question him onShale Gas
PM
He’s latest expert on the matter
PM
We’re off
PM
Seeya