Markets Live chat transcript for the chat ending at 12:09 on 9 Feb 2012. Participants in this chat were: Paul Murphy Bryce Elder/FT
PM
Yo!
PM
Welcome to Markets Live
PM
Bryce is here
PM
We
PM
are
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raring t
PM
o
PM
go
BE
“Yo”?
PM
Lots going on
PM
We’ve got the draft memorandum from the Greek side to share with you this morning
PM
Not our exclusive
PM
Belongs to Capital.gr
PM
Which Joseph says have a fine record on this front
PM
This could be out of date of course
PM
In fact, it WILL be out of date
PM
But will give you a first hand sense of what is being discussed
PM
Discussed by all these officials “scrambling” on thursday morning
PM
Here you go…..
PM
That’s a scan so i cant share blocks of text
PM
You’ll ahve to follow the link
BE
So ………..
BE
Is the Greece finally coming to a head?
PM
Who knows
PM
Days over due on agreeing fresh cuts.
BE
Fresh stumbling block overnight.
BE
Lots of “officials scrambling” this morning.
PM
(Jarvis2009 — only just got that, no time)
PM
How is it news when officials have to scramble?
PM
We have to scramble every morning here on AV.
PM
But that’s cos we get up to late.
PM
Or have to deal with bloody kids.
PM
Or deal with London transport.
PM
Scrambling is hard-baked into our daily routine.
PM
Daily schedule…
PM
1. Scramble
PM
Anyways Euro officials are scrambling.
PM
That’s the news.
PM
Representatives of eurozone bail-out lenders were scrambling on Thursday to finalise an agreement with the Greek government after last-minute demands by Athens threatened to upend the deal.
According to people briefed on the talks between lenders and Greek leaders, which ended early on Thursday morning, Lucas Papademos, the Greek prime minister, has insisted on revising budget targets for 2014 and only informed European negotiators at 6am.
According to people briefed on the talks between lenders and Greek leaders, which ended early on Thursday morning, Lucas Papademos, the Greek prime minister, has insisted on revising budget targets for 2014 and only informed European negotiators at 6am.
PM
That’s from the Eurozone live blog at the FT
PM
here’s the link — http://blogs.ft.com/the-world/2012/02/eurozone-crisis-live-blog-23/#axzz1lsgS3cfL
BE
And, since we’re on it …..
BE
Bit later we’ve got ECB rates decision.
BE
They’re just not going to say anything fresh while everyone’s scrambling.
BE
And also BOE
BE
Which we should be on air for.
BE
We are expecting some pre-scramble action there.
BE
Namely £50bn or more of QE.
PM
Even if it doesn’t work
BE
Well, it puffs up equity prices.
PM
Of course, yet forgot
11:09AM
PM
To the wider market….
PM
Footsie?
BE
We’re stuck.
BE
Day four, I think.
PM
Hmm
BE
Of absolutely zip all happening on the big board.
BE
FTSE currently ahead 18 points at 5894
BE
Milky.
(@Milky: yellow.)
BE
Oils strong. Anything with results isn’t.
BE
So we’re stretched flat.
BE
Difficult to stick a narrative to it.
BE
So I won’t. Because I don’t have to. As I don’t work for a wire.
11:11AM
PM
Lets get the banks out the way
PM
As Milky says… surging
PM
lloyds up 1.15p
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at 36p…
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RBS up 0.55p
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at 29.4
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Credit Agricole, comedy bank danske
PM
all up
PM
This just forth onthe back of the forthcoming LTRO II no?
BE
Yup. Precisely.
BE
They are, as we keep saying, just penny stocks
BE
Albeit with very large market caps
BE
But underowned by the institutions
BE
So they race up and down on sentiment and speculation rather than actual valuation work.
BE
If you want to get involved, whatever.
BE
I’ve nothing much to say about the domestic pair.
BE
Should mention Barclays, however.
BE
Ahead of results tomorrow.
BE
And expectations have been well and truly tempered.
BE
Up 3p at 236-7p at the moment.
PM
Note tahta we’ve had disappointing figs from UBS, CS and Deutsche already
PM
Also, Barc got done over int he Journal overnight
BE
While you’re digging that out ….
BE
Here’s what to expect from Barclays tomorrow.
BE
Via WestLB
PM
Here’s link quickly http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0CEAQqQIwAw&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052970203315804577211181132229906.html&ei=c6szT_34JaLK0QXk_4y6Ag&usg=AFQjCNE65L3Ptk-L40P45lSsXWYJBBkyoQ
PM
Back to WestLB
BE
(Via Google. Neat. You don’t have to get stopped by WSJ’s paywall.)
BE
We maintain our Add rating on Barclays (BARC) ahead of Q4 2011 results on
10 February. Our Q4 2011 PBT estimate of £1.29bn compares with £1.04bn
consensus (source: BARC), albeit assisted by one-off items. We expect Q4 PBT
to be held back (vs Q3) by a decline in top line income at BarCap and higher
costs (e.g. UK bank levy). Nevertheless, we maintain our Add rating as BARC
trades on a 2013E P/TNAV discount to the sector of c.35%.
10 February. Our Q4 2011 PBT estimate of £1.29bn compares with £1.04bn
consensus (source: BARC), albeit assisted by one-off items. We expect Q4 PBT
to be held back (vs Q3) by a decline in top line income at BarCap and higher
costs (e.g. UK bank levy). Nevertheless, we maintain our Add rating as BARC
trades on a 2013E P/TNAV discount to the sector of c.35%.
BE
PBT of £1.29bn (Q4E) following £2.42bn (Q3A). Our Q4 estimate is stated after
(a) £1.2bn gains on debt repurchases, and (b) £0.4bn UK bank levy costs. Our Q4
estimate is above consensus of £1.04bn (source: BARC).
(a) £1.2bn gains on debt repurchases, and (b) £0.4bn UK bank levy costs. Our Q4
estimate is above consensus of £1.04bn (source: BARC).
BE
Focus on BarCap revenues. We expect Q4 2011 total income at BarCap to have
declined 3% (vs Q3) to £2.18bn (in line with consensus, source: BARC) given the
difficult market conditions, including a 7% decline in FICC revenues to £1.34bn.
declined 3% (vs Q3) to £2.18bn (in line with consensus, source: BARC) given the
difficult market conditions, including a 7% decline in FICC revenues to £1.34bn.
BE
………….. which’d be a bit better than peers, as it happens.
BE
Though costs will remain absurd in relation to revenues.
BE
Will Bob do anything about that?
BE
Outlook. We expect a cautious outlook statement, and potential for the current
ROTE target (15% by 2013) to be adjusted (e.g. to 14% by 2014). But there may
also be room for a cautiously optimistic outlook for Q1 2012 revenues at BarCap.
ROTE target (15% by 2013) to be adjusted (e.g. to 14% by 2014). But there may
also be room for a cautiously optimistic outlook for Q1 2012 revenues at BarCap.
BE
And, for the rest of the sector …………
BE
If we really NEED an excuse for Lloyds to be up this morning.
BE
Here it is, from SocGen.
BE
Further risk reduction. We expect over £5bn non-core asset shrinkage at Lloyds Banking
Group and RBS, and a US$2bn fall in Barclays legacy assets despite a raft of banks across
Europe now announcing deleveraging plans. While deleveraging from other banks is
undoubtedly a negative, the UK banks are somewhat protected by the fact that they are
shedding different assets for different reasons on a different timetable.
Group and RBS, and a US$2bn fall in Barclays legacy assets despite a raft of banks across
Europe now announcing deleveraging plans. While deleveraging from other banks is
undoubtedly a negative, the UK banks are somewhat protected by the fact that they are
shedding different assets for different reasons on a different timetable.
BE
Core returns okay but outlook tough. For all the gloom, the core (ongoing) businesses at
each bank are likely to remain strongly profitable. We expect strong corporate credit quality
to be a bright spot, but perhaps with the first few signs of deterioration in retail unsecured
credit quality. With a tough macro outlook, guidance will likely be cautious across the sector.
each bank are likely to remain strongly profitable. We expect strong corporate credit quality
to be a bright spot, but perhaps with the first few signs of deterioration in retail unsecured
credit quality. With a tough macro outlook, guidance will likely be cautious across the sector.
BE
Macro trumps micro. In our view, sentiment on the European bank sector in general is likely
to be a larger influence on UK bank share prices than their results. In particular, the outcome
of the ECBs second three-year LTRO will be published on Wednesday 29 February, and we
are also inching closer to the end-game on Greek government debt.
to be a larger influence on UK bank share prices than their results. In particular, the outcome
of the ECBs second three-year LTRO will be published on Wednesday 29 February, and we
are also inching closer to the end-game on Greek government debt.
BE
Lloyds our top pick. As the sector benefits from the continuing shrinkage of non-core assets
and confidence-boosting ECB liquidity provisions, the focus should shift from balance sheet
safety towards sustainable returns. Lloyds scores well on this front given its leading UK retail
banking market share and limited exposure to investment banking. In addition, we think that
seeing the CEO present results will help the market move on from his leave of absence last
year. We see good long-term value in Barclays, but we note that other investment banks
have highlighted that Q1 12 is still difficult; this may hurt the share price given that investment
banking revenues tend to be the key sentiment swing factor on results days.
and confidence-boosting ECB liquidity provisions, the focus should shift from balance sheet
safety towards sustainable returns. Lloyds scores well on this front given its leading UK retail
banking market share and limited exposure to investment banking. In addition, we think that
seeing the CEO present results will help the market move on from his leave of absence last
year. We see good long-term value in Barclays, but we note that other investment banks
have highlighted that Q1 12 is still difficult; this may hurt the share price given that investment
banking revenues tend to be the key sentiment swing factor on results days.
BE
There. Bored with banks.
11:21AM
PM
Cheers for that
PM
Quick snap back to greece
PM
Greece’s jobless rate rose to a fresh record of 20.9 percent in November 2011 from 18.2 percent in October, statistics service ELSTAT said on Thursday, as the debt crisis and austerity measures took their toll on the labour market.
This rise takes the number of unemployed in Greece to 1,029,587 people. It also represents an increase of 7 percent since November 2010, when unemployment was at 13.9 percent.
The number of employed fell by 9.4 percent (405,786 people) year on year and by 4 percent (164,506 people) month on month.
The unemployment rate for people under the age of 25 reached 48 percent in November 2011.
Greek unemployment figures are not adjusted for seasonal factors.
The average jobless rate in the 17 countries sharing the euro rose slightly to a seasonally adjusted 10.4 percent in November from 10.3 in October.
PM
that’s from ekathimerini.com
PM
So just about half of those under 25 out of work
BE
Sounds bad, when you put it that way.
PM
Arab spring type situation id say
PM
danger of
BE
Hellenic winter.
PM
25 year olds unemployed looking at a decade of austerity. great!
PM
Least they can travel to Germany and clean houses or something
PM
While they are still in the euro
11:23AM
PM
Right back to corporate
PM
How abotu some of these big names reporting?
BE
Getting grief on the right because we’ve not mentioned BG yet.
PM
BG up 2.5% currrently
PM
14.82
BE
I’m failing to see much that’s amazing in the strategy update.
BE
Though it’s solid enough.
BE
Lucy Haskins at BarCap provides a good summary.
BE
As we had hoped BG’s strategy update has focused on the upside offered by its LNG business. The 30% uplift to profit guidance to $2.6-2.8bn EBIT from LNG in 2012 is a nice to have. We see more significant upside offered as the group’s hedges unwind in 2013 and expect the company to focus on the “excellent profit momentum” offered by this business in years to come. Company consensus expectations for mid decade LNG EBIT are currently $3.8bn; we see upside to as much as $5bn (Henry hub not all doom and gloom). This is before we price in any incremental profits from the Cheniere contract, which allows BG to exploit its LNG edge without a concomitant lift in capex.
BE
On that note its was reassuring that the group has not lifted its spending guidance for 2012-13 despite tougher forex assumptions for Australia. We would also see the $5bn of planned non-core divestments over the next 1-2 years as helpful as spending peaks. In this afternoon’s strategy update we also expect the group to focus on value release from the core. Production estimates for Brazil for end-decade have been lifted 9% to >600k b/d net. Within our 1700p price target we currently ascribe 683p/share to Brazil. This is based on 5.3bn boe of resources being delivered before licence expiry. If BG can persuade us that 6bn boe of resources can be extracted then this would imply 40p/share uplift to net asset value.
BE
So it’s all marginal stuff, really. Targets are made deliberately vague and capex spending has a lid on it.
BE
E&P’s a bit weak
BE
Costs are a bit better.
BE
Can I use the word “reassuring”? It appears I just have.
PM
hehe
BE
Neill Morton at Berenberg’s worth reading.
BE
Every year, it gets increasingly difficult for BG Group to pull rabbits out of the hat. However, to its credit, it has managed a few more this year, even if there are some offsetting (but not entirely unexpected) factors.
BE
The positives: 1) Guiding to LNG operating profit in 2012 of $2.6bn-2.8bn. Our existing forecast ($2.85bn) is well ahead of current consensus ($2.5bn). Moreover, the vast majority of BG’s LNG portfolio is hedged in 2012. These roll off next year, implying a further uptick in profits in 2013. 2) Well on track to exceed its 20m tpa LNG supply by 2015. With the potential for a third train in Australia (Queensland Curtis), its own plans to export LNG from the US and the possibility of LNG exports from Tanzania, BG is well on track to exceed its 30m tpa target in 2020. 3) The long-term production target of 1.4m b/d in 2020 from existing projects is unchanged. This represents 7% pa growth, but BG hopes to increase this to 8% pa growth via future exploration success. 4) There is a modest upgrade to BG’s production target in Brazil (from 550k b/d to 600k b/d). Development plans seem to be proceeding as scheduled. 5) BG’s Queensland two-train LNG project remains on track for start-up in late 2014, despite the effects of heavy flooding in the region a year ago. 6) Is looking to sell $5bn of assets over the next two years. This should allay concerns on BG’s gearing, given its heavy capex programme. Likely disposals are the remnants of BG’s power business and gas distribution assets (e.g. Gujara Gas).
BE
The negatives: 1) BG is not giving production guidance for 2012 (wisely!). Instead, it gives a planned start-year (650k b/d) and end-year (750k b/d) rate. The average implies 9% growth, which is line with consensus. But most of BG’s bigger projects in 2012 are back-end loaded, implying that growth forecasts
will likely be tweaked lower. 2) Given low US natural gas prices, there is an expected downgrade to BG’s
US shale gas targets – 2015 is cut from 190k b/d to 80k b/d. This represents around 10% of BG’s 2015 production target. While there will likely be some offsetting effects, it implies that medium-term growth has been lowered somewhat. 3) Capex for 2012-13 is seen at $22bn. The previous plan for 2012 was $11bn, implying a flat spend in 2013. Clearly, US shale gas spending plans have been reduced. But, for the first time, BG is highlighting an increasing spend on finance leases, largely relating to LNG shipping. These will total $2.3bn over this period.
will likely be tweaked lower. 2) Given low US natural gas prices, there is an expected downgrade to BG’s
US shale gas targets – 2015 is cut from 190k b/d to 80k b/d. This represents around 10% of BG’s 2015 production target. While there will likely be some offsetting effects, it implies that medium-term growth has been lowered somewhat. 3) Capex for 2012-13 is seen at $22bn. The previous plan for 2012 was $11bn, implying a flat spend in 2013. Clearly, US shale gas spending plans have been reduced. But, for the first time, BG is highlighting an increasing spend on finance leases, largely relating to LNG shipping. These will total $2.3bn over this period.
BE
There. Comprehensive.
PM
That’ll learn ‘em on the right to ask for BG updates
BE
Yeah, quite.
BE
The punters, meanwhile ….
BE
Have been talking about BG on the back of this news.
PM
(Waterloo — write downs already done, by and large)
BE
BUENOS AIRES/NEW YORK, Feb 8 (Reuters) – YPF, the
Argentine arm of Spanish oil major Repsol, said its Vaca Muerta
shale prospect holds 22.8 billion barrels of oil and gas
resources, a staggering amount that may double Argentina’s oil
and gas output within a decade.
The announcement sent YPF shares up 8 percent to 165.25
pesos ($38) on the Buenos Aires exchange.
Argentine arm of Spanish oil major Repsol, said its Vaca Muerta
shale prospect holds 22.8 billion barrels of oil and gas
resources, a staggering amount that may double Argentina’s oil
and gas output within a decade.
The announcement sent YPF shares up 8 percent to 165.25
pesos ($38) on the Buenos Aires exchange.
BE
Does this have a readthrough for Santos?
BE
I don’t think so.
BE
However, it has the words “shale” and “South America” in it.
BE
Therefore, buy BG.
BE
That’s the logic.
PM
hmm
11:31AM
PM
How abotu Rolls Royce
PM
Great British name
BE
Better to travel than arrive with Rolls.
BE
Appropriate, really.
BE
It’s had a good run ahead of the earnings.
BE
And, as hoped, full-year was fine.
BE
Better than fine, in fact.
BE
Small beat.
BE
But there’s caution for 2012
BE
Civil’s ok, but military spending is tricky.
BE
Which is no surprise.
BE
Oh, speaking of no surprises …….. TAPE BOMB
PM
dot dot dot
BE
*EU DECLINES TO CONFIRM EXTENSION OF DEADLINE FOR GREECE
BE
Bloomberg red sticky.
BE
Meaning it MUST be important.
BE
Though, taken at face value, there’s a bit of “when did you stop beating your wife” logic going on there.
PM
A Reader was suggesting we collect together all the funny bloomie headlines and then have a competition
BE
Anyway, back to Rolls.
BE
Civil fine, military not, 2012 iffy.
BE
Here’s Caz.
BE
Headline EPS was 6% ahead of expectations, but underlying there was an
earnings miss in all divisions ex Defence made up for by an unexpected
£36m from Tognum and a lower tax rate (23% vs JPMe 26%). While 2012
should be a busy year for RR with Tognum and IAE, with Civil aerospace
the only real driver of growth, it feels like our 57.1p of EPS (including
Tognum and IAE) could be difficult to achieve.
earnings miss in all divisions ex Defence made up for by an unexpected
£36m from Tognum and a lower tax rate (23% vs JPMe 26%). While 2012
should be a busy year for RR with Tognum and IAE, with Civil aerospace
the only real driver of growth, it feels like our 57.1p of EPS (including
Tognum and IAE) could be difficult to achieve.
BE
Outlook – is for good growth in sales and underlying profit (ex Tognum
and IAE) this is largely driven by “strong growth” in Civil aerospace
with modest underlying growth expected in Defence and Marine (and a
24% tax rate). If we assume strong growth means +15% yoy (and we
allow £100m for IAE) and a £44m contribution from Tognum it feels
like 2012E EPS could be more like 55-6p.
and IAE) this is largely driven by “strong growth” in Civil aerospace
with modest underlying growth expected in Defence and Marine (and a
24% tax rate). If we assume strong growth means +15% yoy (and we
allow £100m for IAE) and a £44m contribution from Tognum it feels
like 2012E EPS could be more like 55-6p.
BE
Changes to forecasts – we currently forecast EPS of 57.1p in 2012E and
64.6p in 2013E the forecasts reflect 50% of Tognum and the IAE
transaction closing at the end of Q1 2012. While we will need to reduce
our tax rate from 26% to 24% going forward, it feels like our 2012E
could be 2-3% too high.
64.6p in 2013E the forecasts reflect 50% of Tognum and the IAE
transaction closing at the end of Q1 2012. While we will need to reduce
our tax rate from 26% to 24% going forward, it feels like our 2012E
could be 2-3% too high.
BE
Valuation – Rolls-Royce is currently trading on a 2012E PER of 13.7x
and EV/EBITA of 9.9x compared top the sector on 10.6x and 8.0x
respectively and its civil aerospace peers on 12x and 8.8x. We do not
foresee major upgrades (other than to reflect IAE and Tognum in
numbers).
and EV/EBITA of 9.9x compared top the sector on 10.6x and 8.0x
respectively and its civil aerospace peers on 12x and 8.8x. We do not
foresee major upgrades (other than to reflect IAE and Tognum in
numbers).
BE
(You’ll remember Tognum earnings were very good, underlining the travel/arrive principal.)
BE
(Sorry. Principle. Self yellow.)
BE
Here’s Citi.
BE
Summary – We believe that a small underlying beat in FY11 at the PBT level should
result in modest consensus upgrades for FY12 and beyond, plus we still believe that
consensus EPS needs to rise to fully reflect the Tognum and IAE deals done last year.
Guidance for FY12 was largely as expected, bar the outlook for cash, which was
slightly disappointing. Most divisions were ahead of consensus in FY11, bar Marine
(OE weakness) and Energy. We retain our Buy rating with an 840p Target Price.
result in modest consensus upgrades for FY12 and beyond, plus we still believe that
consensus EPS needs to rise to fully reflect the Tognum and IAE deals done last year.
Guidance for FY12 was largely as expected, bar the outlook for cash, which was
slightly disappointing. Most divisions were ahead of consensus in FY11, bar Marine
(OE weakness) and Energy. We retain our Buy rating with an 840p Target Price.
BE
2011 Group Highlights – FY11 results were generally encouraging, with EBIT / PBT
3% ahead of consensus and EPS 7% ahead (on a lower tax rate of 22.5% vs. 25%
expected) on sales 1% below consensus. The only real disappointment was weaker
Average Net Cash than expected. Revenues £11.28bn vs. Citi £11.65bn, consensus
(source RR) £11.40bn, £10.87bn last year. Underlying EBIT £1,206m (10.7% margin)
vs. Citi £1,190m (10.2% margin), consensus £1,174m (10.3% margin), £1,010m (9.3%
margin) last year. Underlying PBT £1,157m vs. Citi £1,136m, consensus £1,124m,
£955m last year. Underlying EPS 48.5p vs. Citi 46.1p, consensus 45.3p, 38.7p last
year. DPS 17.5p vs. Citi 17.6p, consensus (source Reuters) 17.3p, 16.0p last year.
Average net cash £320m vs. Citi £730m, £960m at FY10 and £780m at 1H11. Order
book £62.2bn vs. Citi £63.4bn, £59.2bn last year.
3% ahead of consensus and EPS 7% ahead (on a lower tax rate of 22.5% vs. 25%
expected) on sales 1% below consensus. The only real disappointment was weaker
Average Net Cash than expected. Revenues £11.28bn vs. Citi £11.65bn, consensus
(source RR) £11.40bn, £10.87bn last year. Underlying EBIT £1,206m (10.7% margin)
vs. Citi £1,190m (10.2% margin), consensus £1,174m (10.3% margin), £1,010m (9.3%
margin) last year. Underlying PBT £1,157m vs. Citi £1,136m, consensus £1,124m,
£955m last year. Underlying EPS 48.5p vs. Citi 46.1p, consensus 45.3p, 38.7p last
year. DPS 17.5p vs. Citi 17.6p, consensus (source Reuters) 17.3p, 16.0p last year.
Average net cash £320m vs. Citi £730m, £960m at FY10 and £780m at 1H11. Order
book £62.2bn vs. Citi £63.4bn, £59.2bn last year.
BE
2012 Outlook – We expect modest consensus upgrades at the EPS level to reflect the
3% beat at the PBT level in FY11 and an expected tax rate of 24% in FY12 (vs.
consensus 25%). However, cash guidance of break even before Tognum and IAE is
slightly disappointing, given longstanding investor concerns on cash conversion and
John Rishton’s “Cash, Customers and Costs” focus. At the group level, RR guide for
good growth in revenue and profit in 2012. The divisional picture is mixed, with growth
in all segments expected bar Marine. The guidance for Civil Aerospace of good
underlying revenue growth and strong underlying profit growth in 2012 implies some
margin improvements, which is helpful, in our view. Additionally, FY11 group results
saw an EBIT margin of 10.7% vs. consensus 10.3%.
3% beat at the PBT level in FY11 and an expected tax rate of 24% in FY12 (vs.
consensus 25%). However, cash guidance of break even before Tognum and IAE is
slightly disappointing, given longstanding investor concerns on cash conversion and
John Rishton’s “Cash, Customers and Costs” focus. At the group level, RR guide for
good growth in revenue and profit in 2012. The divisional picture is mixed, with growth
in all segments expected bar Marine. The guidance for Civil Aerospace of good
underlying revenue growth and strong underlying profit growth in 2012 implies some
margin improvements, which is helpful, in our view. Additionally, FY11 group results
saw an EBIT margin of 10.7% vs. consensus 10.3%.
BE
2011 Divisional Results – Most divisions were ahead of consensus, bar Marine and
Energy, which were slightly below. Unlike its US peers, Civil Aero aftermarket growth of
+10% (Citi +11%) in FY11 implies a relatively strong 2H vs. +8% in 1H11A. Civil Aero
Underlying EBIT £499m vs. Citi £500m, consensus £498m, £392m last year. Defence
Underlying EBIT £376m vs. Citi £370m, consensus £370m, £309m last year. Marine
Underlying EBIT £323m vs. Citi £340m, consensus £330m, £332m last year. Marine
OE sales -23% vs. Citi -6% and -5% in FY10 (-25% in 1H11). Energy Underlying EBIT
£24m vs. Citi £30m, consensus £30m, £27m last year.
Energy, which were slightly below. Unlike its US peers, Civil Aero aftermarket growth of
+10% (Citi +11%) in FY11 implies a relatively strong 2H vs. +8% in 1H11A. Civil Aero
Underlying EBIT £499m vs. Citi £500m, consensus £498m, £392m last year. Defence
Underlying EBIT £376m vs. Citi £370m, consensus £370m, £309m last year. Marine
Underlying EBIT £323m vs. Citi £340m, consensus £330m, £332m last year. Marine
OE sales -23% vs. Citi -6% and -5% in FY10 (-25% in 1H11). Energy Underlying EBIT
£24m vs. Citi £30m, consensus £30m, £27m last year.
BE
Buy Rating and 840p Target Price Retained — We base our TP on 10.5x 12E
EV/EBIT. Rolling forward to 13E would suggest a valuation of >900p.
EV/EBIT. Rolling forward to 13E would suggest a valuation of >900p.
BE
Hope that helps.
11:38AM
PM
Quick cut to @rupertmurdoch
PM
What’s he had for breakfast this morning?
BE
Babies.
BE
As usual.
BE
Go on, what’s he said?
PM
12m Rupert Murdoch @rupertmurdoch Reply Retweet Favorite · Open
Exceptalism or decline. That is the choice. Maybe too late but can we gather forces to return social cohesion? Close the divide.
26m Rupert Murdoch @rupertmurdoch Reply Retweet Favorite · Open
Re-reading Charles Murray. Profound. Can Santorum lead moral regeneration and restoration of original American dream? Tall order!
30m Rupert Murdoch @rupertmurdoch Reply Retweet Favorite · Open
KRudd been promising imminent knifing for months. Believe it when we see it.
8 Feb Rupert Murdoch @rupertmurdoch Reply Retweet Favorite · Open
I have nothing to do with Sky News.
12m Rupert Murdoch @rupertmurdoch Reply Retweet Favorite · Open
Exceptalism or decline. That is the choice. Maybe too late but can we gather forces to return social cohesion? Close the divide.
26m Rupert Murdoch @rupertmurdoch Reply Retweet Favorite · Open
Re-reading Charles Murray. Profound. Can Santorum lead moral regeneration and restoration of original American dream? Tall order!
30m Rupert Murdoch @rupertmurdoch Reply Retweet Favorite · Open
KRudd been promising imminent knifing for months. Believe it when we see it.
8 Feb Rupert Murdoch @rupertmurdoch Reply Retweet Favorite · Open
I have nothing to do with Sky News.
PM
Sorry for formatting
PM
Jsut read yourself
PM
https://twitter.com/#!/rupertmurdoch
BE
“I have nothing to do with Sky News.”
PM
Exceptalism or decline. That is the choice. Maybe too late but can we gather forces to return social cohesion? Close the divide
PM
Canton-esque
BE
Seagulls and trawlers? Yeah ,a bit.
BE
I don’t actually know what exceptalism means.
BE
Does it mean anything?
PM
i dont know
11:41AM
PM
back to the markets
PM
We should mention GKP
PM
Gulf Keystone
PM
Brought in Perella Weinberg as joint corporate advisers – alongside Stand Hanson, who are the Nomad
BE
Oh, do we have to?
PM
yep
PM
The company has said specifically that Perella wil be working on the sale of the Akri-Bijeel block in Kurdistan – which the company is selling to fund its other prospects there.
PM
But it’s just another excuse for the stock to have a run .
PM
Price up 15p at 331 earlier
PM
Now at 338
BE
Did you catch that compilation of Google traffic Lisa put together the other day?
BE
Interesting.
PM
This is traffic to AV
BE
Yup. Seems we get a good amount of traffic from people searching for “GKP”
BE
……. unfortunately ……..
BE
…….. or perhaps fortunately …………
BE
They only stay on the site for 22 seconds, on average.
PM
BE
Those wishing to read about LTRO and suchlike hang around forever, read loads of stories.
PM
Ah Bryce, it’s jsut that they’re fast readers
PM
the GKP lot
PM
take in the information quickly
BE
Yes. It’s not that they’re a monotheistic cult.
BE
I’d never suggest such a thing. Except just then.
PM
GKP baiting
PM
So so easy
PM
CLick-tastic
PM
This is our version of the Business Insider slide show
PM
Or the Huffington Post’s Walrus having sex post
BE
(“YOU WERE WRONG! YOU SAID SELL AT 14P!!!!” BITTER MUPPETS!!!” etc.)
PM
click
PM
click
PM
click
BE
Anyway, I was reading on something on GKP this morning, as it happens.
BE
From RenCap.
PM
Gon on
BE
Who are not keen.
BE
Gulf Keystone Petroleum (HOLD: GBP2.10, 33% downside potential). While we acknowledge that part of the 63% share run YtD is due to operational results, we believe that the majority of it is in the market’s anticipation of the sale of the company. However, the surge in the share price could have the opposite effect, in our view. The company now appears expensive to us compared with its peers and it is difficult to imagine that a potential acquirer would assign a significant additional premium to the current price. However, if the M&A does not happen for a while, we may see a downward revision in the market’s takeout premium expectations. Therefore, at these levels, we believe that the risk/reward characteristics of this M&A play are not that attractive. Other than M&A, the next big operational catalyst, in our view, is results from the Ber Bahr exploration well, expected in mid-February
BE
A radical idea.
BE
Something becomes less attractive to a buyer when it gets more expensive.
BE
Not sure the Cultists will agree with that.
BE
(Emails to the usual place, thanks.)
BE
So, anyway, the news today?
PM
Actually, should say that it does seem to be good news – bringing Perella on board helps with the professional profile.
PM
Perella onboard alongside Strand hanson
PM
Strand Hanson are …
PM
A maverick name in corporate finance circles.
BE
?
PM
Nothing wrong with calling a firm maverick.
PM
How else would you describe Strand?
BE
How about Michael Ashcroft’s long-time advisers.
PM
PM
That’s good. Ashcroft is a very successful businessman.
PM
Lets move on.
11:48AM
BE
Ok. Scratching around now.
BE
Sorry, Doug, I didn’t have time to read Catlin results this morning.
BE
Haven’t given Tate a proper look either.
BE
Though there was sniffy buying of that earlier in the week, so it may be another travel/arrive story.
BE
Tate currently off 3.3% at 672p.
BE
And nothing much to say on the rumour front either.
BE
Kenmare, last night’s 4pm bid story, looks questionable.
BE
Good company, nice asset …..
BE
Big volume yesterday, which looked to me like a seller getting cleared.
BE
As to this bid story … Well, no reason to believe it.
PM
Kenmare has titaniam assets in mozambique of course
PM
BE
Ah, we should put that on a Mozambique autoticker.
PM
We should
BE
Nice this time of year, I imagine.
BE
And, as we wait for QE …..
BE
How about another wee look at Misys.
Strange software outfit, seemingly controlled by US investor ValueAct Capital.
BE
Down another 4%, nearly.
PM
I really hadn’t focused properly on this departure of Mike Lawrie from Misys yesterday.
PM
What’s he doing? It’s as tho he can’t wait to get out the door? Leave end of March.
PM
Joining Computer Sciences Corp of course.
PM
There’s a real sense of Lawrie having spend a year asking too much for Misys, he’s just thought , ah sod it, im off – merge it with Temenos.
BE
Yeah, the exact timeline is not entirely clear.
BE
Whether he quit so Valueact sold …..
PM
(taxloss — no time, promise to fix this weekend)
BE
Or whether he quit and Valueact sold ….
BE
Whichever way, it’s not good news to have a CEO walk out the door
BE
(With a payoff of £1.8m, I think.)
BE
For failing to do the job he was put in to do.
BE
Yet still managing to earn the maximum performance bonus.
BE
Rejecting a bid above 400p.
BE
And leaving the stock, at pixel, at 287p.
PM
A good point
BE
It’s been glorious, really.
BE
Oh, and then there’s this odd confusion about exclusivity.
BE
Like a teenager trying to work out whether they’re going steady or not.
BE
David Toms at Numis has been following this case.
BE
We indicated in our note yesterday that there was a 30 day exclusivity clause in the
Misys-Temenos merger agreement whereby ValueAct would negotiate only with
Temenos. This was stated clearly in the first version of the news release associated
with the deal, and directly confirmed by the company to us first thing in the
morning “You can be assured that the exclusivity period does exist “. Misys has
subsequently reversed this view and yesterday evening stated to us that there is
NO exclusivity since the merger will fall under Takeover Panel rules (we believe
Misys had originally been expecting to negotiate outside the Panel’s rules) which
would preclude such an arrangement. In our view this does make it easier for a
counterbidder to emerge, although we remain of the view that this is unlikely and
that ValueAct would not have agreed to such a clause if they thought a
counterbidder was likely.
Misys-Temenos merger agreement whereby ValueAct would negotiate only with
Temenos. This was stated clearly in the first version of the news release associated
with the deal, and directly confirmed by the company to us first thing in the
morning “You can be assured that the exclusivity period does exist “. Misys has
subsequently reversed this view and yesterday evening stated to us that there is
NO exclusivity since the merger will fall under Takeover Panel rules (we believe
Misys had originally been expecting to negotiate outside the Panel’s rules) which
would preclude such an arrangement. In our view this does make it easier for a
counterbidder to emerge, although we remain of the view that this is unlikely and
that ValueAct would not have agreed to such a clause if they thought a
counterbidder was likely.
BE
What does this mean? The absence of exclusivity makes it easier for a counterbidder
to emerge, although we retain our view that Misys has effectively been for sale for over
6 months now and there have been no such bidders. Furthermore, the fact that
ValueAct was prepared to agree such a clause (even if it was eventually removed)
suggests a counterbid is unlikely. Finally, Mike Lawrie’s departure in our view might
weaken Misys’s negotiating position for further deals.
to emerge, although we retain our view that Misys has effectively been for sale for over
6 months now and there have been no such bidders. Furthermore, the fact that
ValueAct was prepared to agree such a clause (even if it was eventually removed)
suggests a counterbid is unlikely. Finally, Mike Lawrie’s departure in our view might
weaken Misys’s negotiating position for further deals.
BE
Cost synergies are the upside, but unclear. We think the investment case will hinge
on the level of cost savings rather than (seldom achieved) revenue synergy targets.
Clearly there is potential for cost synergies, but with the vast majority of costs related to
staff, this requires either product lines to be dropped (saving R&D and marketing),
sales quotas to be increased (saving sales costs) or operating efficiencies to be gained.
Temenos reports a mere £12m pa of rent and other occupancy costs, suggesting the
easy win of sharing office space would make little impact on the kind of synergies
required here. We still believe our £26m net cost savings expectation is sensible,
although we expect the company will announce larger numbers on a gross basis,
before reinvesting some of this back in the business.
on the level of cost savings rather than (seldom achieved) revenue synergy targets.
Clearly there is potential for cost synergies, but with the vast majority of costs related to
staff, this requires either product lines to be dropped (saving R&D and marketing),
sales quotas to be increased (saving sales costs) or operating efficiencies to be gained.
Temenos reports a mere £12m pa of rent and other occupancy costs, suggesting the
easy win of sharing office space would make little impact on the kind of synergies
required here. We still believe our £26m net cost savings expectation is sensible,
although we expect the company will announce larger numbers on a gross basis,
before reinvesting some of this back in the business.
BE
No change to our stance. In our view putting Misys and Temenos together doubles
the size of the challenges facing the two companies as well as creating a host of new
ones around product roadmap, customer communication and sales process; i.e. near
term we risk revenue dis-synergies.
the size of the challenges facing the two companies as well as creating a host of new
ones around product roadmap, customer communication and sales process; i.e. near
term we risk revenue dis-synergies.
BE
It’s all a bit unsatisfactory, and the dissatisfaction is being felt by shareholders.
11:59AM
BE
Ok – brace yourself.
BE
BOE helicopters incoming.
BE
*BOE RAISES ASSET PURCHASE TARGET TO 325 BLN PNDS
PM
50bn QE
BE
*BANK OF ENGLAND MAINTAINS BENCHMARK INTEREST RATE AT 0.50%
PM
and rates on hold
PM
No news there then
PM
BE
As expected, flagged, prepared and guided.
BE
FTSE unbudged.
BE
Still 16 points higher.
BE
Shire also hitting the tape ….
BE
Looks like a beat.
PM
BoE “significant margin of slack likely to continue”
BE
Right. Here’s the statement.
BE
In the light of its most recent economic projections, the Committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2% target in the medium term. The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves, by £50 billion to a total of £325 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take three months to complete. The scale of the programme will be kept under review.
PM
Krona up at 1.5855 on that
BE
LETTERS!
PM
of course
BE
Actually, singular.
BE
The Chancellor’s letter to the Governor is currently a broken link.
BE
Perhaps that’s symbolic.
BE
You’ll never guess who’s first out of the traps with some comment.
PM
Now, let me think
BE
Take a bow, Howard Archer.
BE
Britain’s best hope for Olympic gold.
BE
Assuming wonkism’s an Olympic event.
BE
There were compelling reasons for the Bank of England to provide further support to the economy through an additional £50 billion of Quantitative Easing now that last October’s £75 billion dosage has been spent. Despite overall signs that activity picked up in January after GDP contracted 0.2% in the fourth quarter of 2011, the economy is far from out of the economic woods and it continues to face major obstacles to developing sustainable, decent growth. This was acknowledged by the Bank of England in their statement, which highlighted tight credit conditions, the fiscal squeeze and ongoing concerns about some Eurozone countries. However, it may well be that January’s overall improved news on the economy led the MPC to decide on £50 billion of Quantitative Easing rather than £75 billion as was favoured in October.
BE
Indeed, it is far from certain that January’s apparent pick up in economic activity can be sustained and relapses remain a very real risk given still appreciable domestic and international (mainly Eurozone) headwinds. Consumers’ purchasing power is currently still being squeezed markedly, unemployment is rising, fiscal tightening is biting, , businesses are scaling back their investment plans in an uncertain and worrying environment, weakened global growth is a threat to exports, money supply is worryingly weak and credit conditions could well tighten appreciably. The Eurozone sovereign debt crisis is far from resolved and remains an ongoing source of uncertainty and concern.
BE
Meanwhile, markedly retreating consumer price inflation, ongoing muted wage growth and evidence that people’s inflation expectations are waning gave the Bank of England increased scope to provide further help to the economy.
BE
We doubt that the Bank of England is done yet on Quantitative Easing and expect another £50 billion dosage in May which would take the total up to £375 billion. This reflects our belief that the economy will essentially flat-line during the first half of the year before starting to grow modestly in the third quarter. We also expect consumer price inflation to head down markedly further through the first half of 2012 after retreating to 4.2% in December from 4.8% in November and a peak of 5.2% in September, thereby facilitating further Bank of England stimulative action. Indeed, we believe that consumer price inflation is on course to be down to 2.0% by the end of the year.
BE
Meanwhile, interest rates remain highly unlikely to move from the current level of 0.50% for many, many months to come. It is notable that the minutes of the MPC’s January meeting once again did not reveal any discussion within the committee over the possibility of trimming interest rates from the current record low level of 0.50%. This suggests that interest rates are unlikely to go down lower. Indeed, it is significant that even at the height of the 2008/9 recession, the Bank of England did not take interest rates below 0.50%, which reflected doubts within the MPC that even lower interest rates would have a net beneficial impact.
BE
While interest rates are unlikely to go any lower, it seems highly probable that they will not rise during 2012 and at least the first half of 2013. We currently forecast the first rise to occur in the fourth quarter of 2013 but it is very possible that the Bank of England could keep interest rates down at 0.50% through to 2014.
PM
(Osborne – via reuters — BoE analysis has provided evidence of QE’s effecitveness in supporting demand )
)PM
We are done
PM
Just share one piece of news
BE
Go on.
PM
John McDermott is now Executive Comment Editor at the Financial Times. He was previously based in FT’s New York bureau
PM
That’s young John that we used to have here on AV
BE
“Executive Comment Editor”? Blimey.
BE
He was doing Rally Monkey posts a couple of months ago.
BE
Impressive.
PM
PM
We’re off!
PM
Seeya