Markets Live chat transcript for the chat ending at 12:07 on 24 Feb 2012. Participants in this chat were: Paul Murphy Bryce Elder/FT
PM
Morning
PM
Welcome to ML
PM
It’s Friday
PM
Lots to discuss
PM
Bryce is here
BE
Ning.
PM
i was late in
BE
As was I.
PM
Aren’t you bored with road works
PM
?
PM
How negative would GDP be without them digging 1000 holes in the road?
PM
Or is it the otherway round
BE
That’s only half the problem for my commute.
BE
The bigger problem is the bloody shopkeepers in Holland Park
BE
Parking their vans outside.
BE
Cutting two lanes to one at rush hour.
PM
London is generally too full
BE
The Lidgate Buchers van adds half an hour to my journey each morning.
BE
I mean, they do good sausages.
BE
But still … it’s a high price to pay.
BE
So anyway
BE
(@Anthrax: Holland Park West, also known as SheBu.)
BE
We should push on
BE
Quite a lot to talk about today
BE
In spite of it being a Friday.
PM
We doing Lloyds first?
BE
If we must.
PM
Well we now know how/why the ceo got sick
PM
António Horta-Osório
PM
We can’t knight Antonio cos he’s not a brit
PM
Well, we can give him a plastic gong
PM
Like Bob Geldhof
PM
Actually, these Lloyds figs
PM
Unlike Barclays, they are not full of good citizenship
PM
We get actual numbers
PM
Except we can’t add em up
PM
And neither can Lloyds
PM
look…
PM
(Loss) profit before tax (3,542) 281
BE
Ok …..
PM
Profit before tax 2,685 2,212
BE
Eh?
PM
Profit before tax 6,349 6,152
BE
Um.
BE
Is this multiple choice?
PM
Yep
PM
first is “statutory”
PM
Second is “Combined businesses basis”
PM
third is Combined businesses basis — core
BE
Right. I’m already feeling like checking myself into the Priory for a month.
PM
So that is the first page sumamry of the results — bank made/lost somewhere between (3.5bn) and 6.3bn
BE
Wide spread.
PM
And so from the first page it sends you to page 95 of the press release
PM
(and that’s only half way thru the release…)
(@Milky: yellow.)
BE
Which says?
PM
Well it’s no help whatsoever
PM
1. Basis of preparation of combined businesses information
Comparisons of results on a statutory basis are of limited benefit due to a number of factors. In order to provide
more meaningful and relevant comparatives, the results of the Group and divisions are presented on a ‘combined
businesses’ basis. The key principles adopted in the preparation of the combined businesses basis of reporting
are described below.
In order to reflect the impact of the acquisition of HBOS, the following adjustments have been made:
– the amortisation of purchased intangible assets has been excluded; and
– the unwind of acquisition-related fair value adjustments is shown as one line in the combined businesses
income statement.
Comparisons of results on a statutory basis are of limited benefit due to a number of factors. In order to provide
more meaningful and relevant comparatives, the results of the Group and divisions are presented on a ‘combined
businesses’ basis. The key principles adopted in the preparation of the combined businesses basis of reporting
are described below.
In order to reflect the impact of the acquisition of HBOS, the following adjustments have been made:
– the amortisation of purchased intangible assets has been excluded; and
– the unwind of acquisition-related fair value adjustments is shown as one line in the combined businesses
income statement.
PM
In order to better present the business performance the effects of liability management, volatile items and asset
sales are shown on a separate line in the combined businesses income statement and ‘underlying income’ is
total income less these effects. The following items, not related to acquisition accounting, have also been
excluded:
– integration, simplification and EC mandated retail business disposal costs;
– volatility arising in insurance businesses;
– insurance gross up;
– the provision in relation to German insurance business litigation;
– the payment protection insurance provision;
– the customer goodwill payments provision;
– curtailment gains and losses in respect of the Group’s defined benefit pension schemes; and
– the loss on disposal of businesses in 2010.
sales are shown on a separate line in the combined businesses income statement and ‘underlying income’ is
total income less these effects. The following items, not related to acquisition accounting, have also been
excluded:
– integration, simplification and EC mandated retail business disposal costs;
– volatility arising in insurance businesses;
– insurance gross up;
– the provision in relation to German insurance business litigation;
– the payment protection insurance provision;
– the customer goodwill payments provision;
– curtailment gains and losses in respect of the Group’s defined benefit pension schemes; and
– the loss on disposal of businesses in 2010.
BE
I’m happy to concede that I’m not smart enough to make sense of that.
PM
Messy results does not even begin to describe them
BE
However did we let banks become …. well … THIS.
PM
Do we know anyone who can work out the figures?
BE
There’s plenty of comment around.
BE
But I’m not sure how much value it is.
BE
Because, like our invested friend on the right, the analysts are just picking whichever number matches their argument.
BE
And there are plenty to choose from.
BE
Actually, that may be over cynical.
BE
I’ll let you judge for yourself.
BE
Here’s Deutsche, which thinks it’s a beat with a warning.
BE
Combined business PBT 22% ahead of DBe
BE
Combined business PBT of £2685m is 22% ahead of DBe, 24% ahead consensus;
revenues 4% ahead of DBe, costs 1% higher, impairments 1%
lower, and despite smaller FV unwind. Significant adjusting items so expect
a range of views on actual underlying result. Capital beat with core tier at
10.8% compared with 10.3% DBe. Full-implementation Basel 3 core tier 1
of 7.1% is in line with our 7.2% estimate. TNAV of 58.6p puts the stock on
0.6x historic TNAV. Non-Core shrinkage is proceeding really well, with Non-
Core assets down another £10bn in 4Q11 to £141bn. This bank will be very
long capital and liquidity in 2013/14.
revenues 4% ahead of DBe, costs 1% higher, impairments 1%
lower, and despite smaller FV unwind. Significant adjusting items so expect
a range of views on actual underlying result. Capital beat with core tier at
10.8% compared with 10.3% DBe. Full-implementation Basel 3 core tier 1
of 7.1% is in line with our 7.2% estimate. TNAV of 58.6p puts the stock on
0.6x historic TNAV. Non-Core shrinkage is proceeding really well, with Non-
Core assets down another £10bn in 4Q11 to £141bn. This bank will be very
long capital and liquidity in 2013/14.
PM
But they didnt make profits
BE
Details.
BE
The outlook statement will likely see consensus Combined Business PBT
fall by around £600-700m in 2012 in our view, ~1p a share, driven primarily
by Non-Core: (i) Management expect net interest margin in 2012 will be
below 2%, falling by ~ the same 14bps YoY as in 2011, seeing total income
down YoY. Consensus revenue expectations are for flat, a 3% YoY decline
(anything less would hardly be worth flagging) is £600m in cuts; (ii) Helpful
for confidence, management expect bad debts to fall by about the same
amount as in 2011 in % terms, implies £7,267m of LLPs in 2012, consensus
is £7,202m. Management have upgraded cost targets, adding to run-rate
benefits of costs cut during 2011. Overall – no surprise here – management
expect rate and economic environment will see 2014 ROE targets missed.
fall by around £600-700m in 2012 in our view, ~1p a share, driven primarily
by Non-Core: (i) Management expect net interest margin in 2012 will be
below 2%, falling by ~ the same 14bps YoY as in 2011, seeing total income
down YoY. Consensus revenue expectations are for flat, a 3% YoY decline
(anything less would hardly be worth flagging) is £600m in cuts; (ii) Helpful
for confidence, management expect bad debts to fall by about the same
amount as in 2011 in % terms, implies £7,267m of LLPs in 2012, consensus
is £7,202m. Management have upgraded cost targets, adding to run-rate
benefits of costs cut during 2011. Overall – no surprise here – management
expect rate and economic environment will see 2014 ROE targets missed.
BE
Overall looks like a beat in 2011 but with guidance implying that 2012
group EPS will likely be in range of 0.5-1p (current consensus 1.3p). With
the stock up 41% YTD and 67% over 3m we think it likely to see some profit
taking.
group EPS will likely be in range of 0.5-1p (current consensus 1.3p). With
the stock up 41% YTD and 67% over 3m we think it likely to see some profit
taking.
BE
The longer term thesis is enhanced by today’s release in our view. Non-core
is shrinking faster and capital has beat, Core NIM at 2.42% in 2011 was
ahead of our 2.39% estimate. If we take 4Q11 Core underlying net interest
income and cut this by 5% in 2012, grow 4Q11 u/l non-interest income by
2%, cut expenses by 3%, hold loan losses flat at 4Q11 run rate, deduct tax
and minorities, we get Core attributable profit in 2012 of £4.2bn – £4.3bn,
putting the stock on 5.7x 2012 Core earnings. Given the attractiveness of
the UK retail banking industry we think this cheap.
is shrinking faster and capital has beat, Core NIM at 2.42% in 2011 was
ahead of our 2.39% estimate. If we take 4Q11 Core underlying net interest
income and cut this by 5% in 2012, grow 4Q11 u/l non-interest income by
2%, cut expenses by 3%, hold loan losses flat at 4Q11 run rate, deduct tax
and minorities, we get Core attributable profit in 2012 of £4.2bn – £4.3bn,
putting the stock on 5.7x 2012 Core earnings. Given the attractiveness of
the UK retail banking industry we think this cheap.
BE
And here’s Investec
BE
Which think it’s a miss with a reassurance.
BE
Unlike RBS, we believe Lloyds will return to (modest) profit in 2012E, and
today’s numbers, whilst grim and a small underlying “miss” in our view,
underpin that expectation. However, we believe consensus remains too
optimistic for 2012/13E, and with confirmation of accelerated balance sheet
shrinkage and 2012 Banking NIM set to fall to the low 190bps (from 2.07% in
2011), the downgrade cycle is likely to continue. LLOY trades on 0.62x 2011
tNAV (58.6p) – a small premium to BARC and RBS (both Holds). Take profits.
today’s numbers, whilst grim and a small underlying “miss” in our view,
underpin that expectation. However, we believe consensus remains too
optimistic for 2012/13E, and with confirmation of accelerated balance sheet
shrinkage and 2012 Banking NIM set to fall to the low 190bps (from 2.07% in
2011), the downgrade cycle is likely to continue. LLOY trades on 0.62x 2011
tNAV (58.6p) – a small premium to BARC and RBS (both Holds). Take profits.
BE
Despite a statutory reported loss of £3.5bn, “Combined Businesses” PBT of
£2.7bn represents, we believe, only a small miss vs underlying market
expectations. After stripping out accounting noise (including an unexpected and
temporary £0.7bn boost to NII), cost performance was usefully £0.2bn better than
consensus – almost fully offsetting modest underlying income/impairment
disappointment (vs consensus).
£2.7bn represents, we believe, only a small miss vs underlying market
expectations. After stripping out accounting noise (including an unexpected and
temporary £0.7bn boost to NII), cost performance was usefully £0.2bn better than
consensus – almost fully offsetting modest underlying income/impairment
disappointment (vs consensus).
BE
tNAV recovered to 58.6p in Q4, (down 0.6p yoy), benefiting from £1.3bn of liability
management gains in Q4, (£0.7bn of which will reverse out over 5 years).
management gains in Q4, (£0.7bn of which will reverse out over 5 years).
BE
The outlook statement contains quite a few home truths. 2014 RoE targets will
not be met and are deferred. Surely this should not surprise? We expect to see
further downgrades to what we believe are unrealistic consensus expectations of
RoE of 5% in 2012 and 8% in 2013. We are currently on 2% in 2012E and 5% in
2013E. We do not expect to make material changes to our forecasts and retain
our 38p tNAV-based TP and Hold recommendation, but would suggest investors
look to lock in profits after the strong recent run in the shares.
not be met and are deferred. Surely this should not surprise? We expect to see
further downgrades to what we believe are unrealistic consensus expectations of
RoE of 5% in 2012 and 8% in 2013. We are currently on 2% in 2012E and 5% in
2013E. We do not expect to make material changes to our forecasts and retain
our 38p tNAV-based TP and Hold recommendation, but would suggest investors
look to lock in profits after the strong recent run in the shares.
PM
accounting noise
PM
nice phrase
BE
Good writer, Ian Gordon.
BE
One of the few readable banks analysts.
PM
What happened to Gordon’s mate?
PM
james Eden
PM
The singing bank analyst
BE
Good question. I’m not sure. Let’s crowdsource that.
PM
Was top rated bank analyst
PM
Until he didn’t see the crunch
PM
A Crunch-denyer
PM
I digress
PM
Ive got Carla Antunes da Silva
PM
From CS
PM
Overall results were ok but 2012 outlook is weaker than what consensus
was estimating. In particular we would highlight the guidance that the NIM
margin will drop to c.192 bps – vs. consensus at 201bps and CS at 189bps.
Otherwise good progress made especially in deposit gathering and the run
off of non core, the latter which helped the capital ratio. Trading on 0.65x last
reported TNAV we remain Neutral and expect the stock to be weaker.
■
A very messy set of results with a lot of exceptionals. Headline Q4 net
attributable profit of £110mn inline with our £111mn expectation. Adjusted
for a series of exceptional items underlying PBT came in better at £197mn
compared to CSe -£202mn, excluding FV unwind and the bank levy.
was estimating. In particular we would highlight the guidance that the NIM
margin will drop to c.192 bps – vs. consensus at 201bps and CS at 189bps.
Otherwise good progress made especially in deposit gathering and the run
off of non core, the latter which helped the capital ratio. Trading on 0.65x last
reported TNAV we remain Neutral and expect the stock to be weaker.
■
A very messy set of results with a lot of exceptionals. Headline Q4 net
attributable profit of £110mn inline with our £111mn expectation. Adjusted
for a series of exceptional items underlying PBT came in better at £197mn
compared to CSe -£202mn, excluding FV unwind and the bank levy.
BE
(@TK: that’s Mr Gordon.)
PM
Group income £5,102mn vs. CSe £4,692mn. Within the income mix the NII
was inline with our expectations NIM of 197bps in Q4 vs. 205bps in Q3.
Other income was significantly higher at £2,286mn net of insurance claims
as a result of higher gains from liability asset management. Operating
expenses of £2,523mn (ex levy) compare to CSe of £2,442mn. Impairments
in Q4 were in line with our estimates at £2,409mn vs. £1,956mn in Q3.
■
CT1 came in slightly better as a result of lower RWAs at 10.8% vs CSe
10.5%. In terms of slotting we think this could add £10bn to RWAs on a CRE
loan book of £85bn. NAV per share at 58.6p small up on Q3 of 58.3p.
Deposit growth of 2% QoQ and 6% YoY to £406bn posting an LDR 135% vs.
140% in Q3 and 154% a year ago. LDR of 109% in core.
■
Medium term targets were reiterated but new guidance for 2012 points to a
fall in NIM of c.15bps (with pressure front loaded in the year). Costs are to
decline by a similar amount of in 2012 which implies a fractional increase in
cost saves by £200mn Following £53bn reduction in non core assets in 2011
to £141bn they are targeting a £25bn reduction in 2012.
was inline with our expectations NIM of 197bps in Q4 vs. 205bps in Q3.
Other income was significantly higher at £2,286mn net of insurance claims
as a result of higher gains from liability asset management. Operating
expenses of £2,523mn (ex levy) compare to CSe of £2,442mn. Impairments
in Q4 were in line with our estimates at £2,409mn vs. £1,956mn in Q3.
■
CT1 came in slightly better as a result of lower RWAs at 10.8% vs CSe
10.5%. In terms of slotting we think this could add £10bn to RWAs on a CRE
loan book of £85bn. NAV per share at 58.6p small up on Q3 of 58.3p.
Deposit growth of 2% QoQ and 6% YoY to £406bn posting an LDR 135% vs.
140% in Q3 and 154% a year ago. LDR of 109% in core.
■
Medium term targets were reiterated but new guidance for 2012 points to a
fall in NIM of c.15bps (with pressure front loaded in the year). Costs are to
decline by a similar amount of in 2012 which implies a fractional increase in
cost saves by £200mn Following £53bn reduction in non core assets in 2011
to £141bn they are targeting a £25bn reduction in 2012.
PM
Anyway
PM
what’s Lloyds price doing
Lloyds Banking Group plc (LLOY:LSE): Last: 36.13, down 0.445 (-1.22%), High: 37.32, Low: 35.36, Volume: 140.43m
BE
Down a bit.
BE
But really, expecting anyone to make sense of the press release in four hours and 20 minutes is not going to happen.
BE
And that includes us.
BE
Should we move on?
11:22AM
BE
OK!
BE
Wider market!
BE
Doing nothing!
BE
Again!
BE
Up 4 points
BE
On the FTSE
BE
At 5942
PM
Just kinda stuck
BE
Has been for three weeks.
PM
You should repurpose your gag about the market having found a perfect price for everything
PM
Still makes me laugh
BE
I’ll save it for later.
BE
So the interest is elsewhere.
BE
Namely forex.
PM
Euro thru 1.34
PM
as we type
BE
Why’s the dollar getting hammered?
BE
Anyone? ROTR?
PM
Cos it’s had a good run
BE
Hm.
PM
Seems to be the best explanation
PM
remember the ING forex operation used to run adverts saying…
PM
Play the dollar – It’s easy!
PM
No it’s not
PM
It’s damn hard
BE
Hang on – I’ll turn to a specialist.
BE
Adrian Schmidt at Lloyds.
BE
USD traded lower as risk sentiment improved and the good jobless claims numbers further supported risk appetite
BE
That’ll do.
PM
hehe
BE
For today, there could be some interest in new homes sales, but U.of Michigan confidence is a revision and will unlikely draw much market attention. USD will likely be largely influenced by risk appetite, the push higher in EUR/USD overnight, saw the USD index break convincingly through the recent support at 78.80 and the next area of support looks to be around the 78.30 area.
PM
Senior muppet on the right reckons its a bear squeeze
BE
This is why I try to avoid forex.
BE
The game of “pin the reason on the move” is even more arbitrary than for equities.
BE
EUR/USD rallied following better than expected German IFO numbers; the weak Eurozone PMIs released a few
days ago likely weighed on market expectations so the better print helped markets rally. However, downward
revisions from the European commission put pressure on EUR/USD, Euro area growth was revised to -0.3% for
2012, down from +0.5% forecasted in November. Growth was revised lower broadly lower across Eurozone
countries with Spain, Italy and Netherlands now forecasted to contract in 2012. EUR/USD continued higher
overnight, and while the upcoming LTROs could provide some upside to EUR, we think EUR/USD will remain
range bound ahead of this weekend’s G20 meeting. Little is expected from the meeting, but talk will likely be
dominated by the European debt crisis, and could involve discussions on IMF contributions, however we doubt
any commitment or figures will be announced at this stage. EUR upside bias will likely continue today, but will
likely see some resistance around the 1.34 level.
days ago likely weighed on market expectations so the better print helped markets rally. However, downward
revisions from the European commission put pressure on EUR/USD, Euro area growth was revised to -0.3% for
2012, down from +0.5% forecasted in November. Growth was revised lower broadly lower across Eurozone
countries with Spain, Italy and Netherlands now forecasted to contract in 2012. EUR/USD continued higher
overnight, and while the upcoming LTROs could provide some upside to EUR, we think EUR/USD will remain
range bound ahead of this weekend’s G20 meeting. Little is expected from the meeting, but talk will likely be
dominated by the European debt crisis, and could involve discussions on IMF contributions, however we doubt
any commitment or figures will be announced at this stage. EUR upside bias will likely continue today, but will
likely see some resistance around the 1.34 level.
BE
That’s Lloyds FX chap again.
PM
okay
PM
thanks
PM
Way out of our comfort zone here
PM
The only thing i know abotu re forex is is how the spread betters rip off clients
PM
with leverage of 200-1
PM
Should be jailed
PM
Although their customers also need to be taken out of the gene pool
BE
Someone’s emailing me now about an opportunity in the EUR/GBP vega …. I feel I’ve wandered into dangerous territory.
BE
Let’s return to safer ground.
11:29AM
BE
Ok – so the rabble are getting smallcap-itchy.
PM
Yeah, it’s friday
BE
So …………
BE
Starting at the top.
BE
Cove.
BE
Shares up at 197.5p in the middle.
BE
Versus a 195p bid on the table from Shell.
BE
Now, I had approximately a billion calls last night saying there was a counter offer for Cove coming.
PM
(Jarvis — much worse than a casino — http://ftalphaville.ft.com/blog/2009/11/02/80866/the-100bn-fx-hustle/)
BE
Unfortunately, 999,999,999 of those calls came from the same person, so I’m a tad cautious.
PM
Why aren’t the punters just happy with 195p
PM
Great premium
BE
I think they are.
BE
The consensus was that Shell’s offer was to knock it out of the park.
BE
And it’s been an open auction.
BE
So, while noting that there’s talk going round of someone coming out with a bid in excess of 220p, I’m framing it inside the RAW warning.
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
Would also note on Cove, however …..
BE
That Statoil’s come out with excellent drill results
BE
In a neighbouring patch.
BE
Statoil ASA (STL), Norway’s largest oil producer, said a natural gas find in the waters off off Tanzania with Exxon Mobil Corp. (XOM) “is a high impact discovery.”
BE
Logging from the Zafarani exploration well in offshore block 2 shows at least 5 trillion cubic feet of gas in place, the company said in a statement in Oslo. The well encountered 120 meters (390 feet) of reservoir with high porosity and high permeability, it said.
Logging from the Zafarani exploration well in offshore block 2 shows at least 5 trillion cubic feet of gas in place, the company said in a statement in Oslo. The well encountered 120 meters (390 feet) of reservoir with high porosity and high permeability, it said.
BE
“This discovery is the first Statoil-operated discovery in east Africa,” said Tim Dodson, Statoil’s vice-president for exploration. “It is also a demonstration of how Statoil’s exploration strategy of early access and high-impact opportunities strongly supports the company’s ambition for international growth.”
Statoil is joining the race to find gas in east Africa so it can be turned into liquid and shipped to China and India, the world’s fastest-growing major economies. Royal Dutch Shell (RDSA) Plc this week bid $1.6 billion for Cove Energy Plc, a company with a stake in a 30 trillion-cubic-feet gas find in Mozambique, just south of Tanzania.
“This discovery is the first Statoil-operated discovery in east Africa,” said Tim Dodson, Statoil’s vice-president for exploration. “It is also a demonstration of how Statoil’s exploration strategy of early access and high-impact opportunities strongly supports the company’s ambition for international growth.”
Statoil is joining the race to find gas in east Africa so it can be turned into liquid and shipped to China and India, the world’s fastest-growing major economies. Royal Dutch Shell (RDSA) Plc this week bid $1.6 billion for Cove Energy Plc, a company with a stake in a 30 trillion-cubic-feet gas find in Mozambique, just south of Tanzania.
Disclaimer: FT Alphaville does not endorse Paul Murphy’s idyllic holiday retreat on the secluded, unspoilt Barra beach near Inhambane, Mozambique, where availability is strictly limited so book now to avoid disappointment. http://kayamj.com/
BE
Statoil operates the license on Block 2 on behalf of Tanzania Petroleum Development Corporation (PETD) and has a 65 percent interest. Exxon holds the remaining 35 percent. TPDC has the right to a 10 percent working interest if the project moves to development.
“This discovery could potentially be a catalyst for large scale natural gas developments in Tanzania,” said Yona Killaghane, managing director of TPDC.
Statoil operates the license on Block 2 on behalf of Tanzania Petroleum Development Corporation (PETD) and has a 65 percent interest. Exxon holds the remaining 35 percent. TPDC has the right to a 10 percent working interest if the project moves to development.
“This discovery could potentially be a catalyst for large scale natural gas developments in Tanzania,” said Yona Killaghane, managing director of TPDC.
PM
Really is the new energy frontier
PM
Indian ocean
BE
East Africa is where it’s at.
BE
Ophir off to the races on that, yet again.
Ophir Energy PLC (OPHR:LSE): Last: 396.90, up 21.9 (+5.84%), High: 398.00, Low: 376.70, Volume: 1.45m
BE
Though, in general, the largely speculative rally among oilers continues.
BE
………. Otherwise ………
BE
Bellzone strong
BE
Iron ore
BE
Going into production soon
PM
(Cockers — yellow)
BE
We expect Bellzone to exit 2012 at a production run rate of 4Mtpa from Forecariah. We value this at 62p/share on the basis it can get process plant in place to sustain this rate from the non-DSO material until Kalia starts up (~2015). We would expect a re-rating as the company demonstrates that equipment is on site, permits are obtained and material is moving down the road. We expect port stockpiling to start in March and first exports in April.
BE
That’s from Canaccord last week
BE
And all that is to wander around the fact that I’ve not heard today’s story, if there is one.
BE
Can we move back up the market please?
Bellzone Mining PLC (BZM:LSE): Last: 31.25, up 1.5 (+5.04%), High: 31.25, Low: 29.75, Volume: 8.59m
PM
Ah, plenty of fun has been had amongst these oilers
PM
can’t knock it
BE
I’m not knocking it. I’m apparently writing about it for the weekend column.
BE
Major risk of upsetting those suffering Muppetism.
Muppetism (n). a dogmatic belief in True Value of your investment, to the point that anyone holding a different view is regarded part of an organised conspiracy.
BE
But we’ll see.
PM
hehehe
PM
look forward to reading
BE
Anyway, back up the market please.
11:40AM
PM
How abotu Reckits?
PM
And unilver
PM
both off this morning
PM
What’s going on there?
BE
Ok …………….
BE
Lots of stuff.
PM
reckits boss not paid enough?
BE
Compared with Brecht, no-one is paid enough.
BE
So …………..
BE
It’s “pick your reason for the fall” time.
BE
First, January Nielsen data for the FMCGs was awful.
BE
And I mean AWFUL.
PM
hmm
BE
Reckitt sales down 8.9% versus 1.2% in Q4.
BE
Unilever down 5.4% in January.
PM
hmm
PM
those are bad numbers
PM
weirdly bad
BE
Yes, exactly, and it’s not clear why.
BE
However
BE
That does lead us onto the second of the reasons.
BE
Which is Procter & Gamble’s statement yesterday.
BE
Big unexpected restructuring.
BE
Which is being interpreted as parking its tanks on the lawns of competitors.
PM
Hmm
PM
interesting
PM
Can’t be pleasant, having P&G on your lawn
BE
One of the analysts was calling it “Procter Thursday”
BE
Here’s WestLB ING with the summary of what P&G said.
BE
Yesterday at CAGNY, P&G announced a surprising major restructuring plan. P&G announced it would cut up to 5,700 jobs by 2013 in an effort to cut overall costs by
US$10bn by 2016. Included in this US$10bn, P&G wants to cut up to US$1bn in marketing costs and another US$3bn in overhead costs.
US$10bn by 2016. Included in this US$10bn, P&G wants to cut up to US$1bn in marketing costs and another US$3bn in overhead costs.
BE
P&G highlighted it will make use of, among other things, less expensive packaging, a reduction of complexity and open innovation going forward in order to get quicker rollouts. P&G will be creating more flexibility that could impact peers, such as Unilever. P&G is aiming to gain more access into emerging markets and with a lower cost base that is more agile, this will be easier to do.
BE
P&G is clear about stepping up innovations and a US$10bn cost savings programme in relation to US$42bn in gross profit is significant, in our view. We believe P&G could make another leap forward with this plan just as Unilever was about to catch up.
BE
Three negative read-across points for Unilever, in our view:
BE
1. More aggressive innovation plans by P&G to be expected and quicker roll-outs
2. More flexibility to compete and be less dependent on pricing actions going forward
3. Push into EM can be financed in our view by this major plan targeting EM consumers more directly
2. More flexibility to compete and be less dependent on pricing actions going forward
3. Push into EM can be financed in our view by this major plan targeting EM consumers more directly
BE
We believe this plan might hurt sentiment for Unilever investors. This will be a concern for performance as well. At a PER of 15.1x for FY13F, Unilever has no room to disappoint.
BE
Unilever’s not cheap.
Unilever PLC (ULVR:LSE): Last: 2,033, down 57 (-2.73%), High: 2,100, Low: 2,026, Volume: 1.81m
PM
See what you mean
BE
And, for the Reckitt take, here’s Collins Stewart to add some context.
BE
Procter & Gamble’s presentation at the annual CAGNY conference yesterday included a new target of $10bn of cost savings over the next 5 years – from
overhead and COGS reductions and marketing efficiencies. This $10bn compares with $3bn over the last 5 years, and equates to circa 950bps of operating margin. Procter noted that the 950bps affords it “operating margin flexibility…before reinvestments.” The last 2 words are ominous for Reckitt, given that it has just announced a major strategic shift itself, but clearly lacks comparable cost-cutting potential. Our scepticism around Reckitt’s ability to deliver on its new strategy is compounded by Procter’s further aggression in its key markets.
overhead and COGS reductions and marketing efficiencies. This $10bn compares with $3bn over the last 5 years, and equates to circa 950bps of operating margin. Procter noted that the 950bps affords it “operating margin flexibility…before reinvestments.” The last 2 words are ominous for Reckitt, given that it has just announced a major strategic shift itself, but clearly lacks comparable cost-cutting potential. Our scepticism around Reckitt’s ability to deliver on its new strategy is compounded by Procter’s further aggression in its key markets.
BE
Furthermore, January Nielsen data, just released, indicates a worsening negative share trend for Reckitt. As an aside, while Procter’s announcement is scarcely good news for Henkel, Unilever and L’Oreal, the first two named at least have some mitigation in the form of their own cost savings (some as yet unannounced) and are at a less mature phase in their development. Procter also stated that its price component should remain at +4% in cal H112, as it was in cal H211 – though almost certainly not where it overlaps with Reckitt. L’Oreal has improved its cost cutting efforts, but is still behind the curve; however, its overlap with P&G is more limited.
Reckitt Benckiser Group PLC (RB.:LSE): Last: 3,426, down 74 (-2.11%), High: 3,440, Low: 3,371, Volume: 1.70m
BE
And lastly …..
BE
Though it seems to be having no effect if you’re taking Unilever as the benchmark
BE
It’s worth noting in passing the Goldman’s downgraded Reckitt
BE
Reckitt’s newly appointed CEO gave a strategic update on February 8, 2012. There was little incremental news to change our view on Reckitt’s growth prospects; the drivers highlighted were in line with our expectation and the group remains in Q2 based on GS SUSTAIN industry positioning. The incremental news was that cost savings are to be redeployed in A&P, which may facilitate share gains. Since adding Reckitt to the Buy List on Oct. 25, 2010 the shares are up 2.4% vs. FTSE World Europe -6.6%. Over the last 12 months the shares are up 7.9% vs. FTSE WE -8.1%.
BE
We have taken a fresh look at Reckitt’s growth prospects, with a focus on potential share gains. To achieve this we have identified Reckitt’s Powermarkets, which we believe consist of 14 EMs and the US and UK. Overall, we estimate growth from share gains of 1.4% over a 5-year period, on top of 4.6% category growth (i.e. total organic growth of 6%). Our organic growth forecasts already reflect acceleration to this level by 2015, which assumes not all share gains are achieved immediately but rather build in momentum. We have reduced our margin assumptions following flat guidance for 2012, resulting in reductions of 4% and 5% to our EPS estimates for 2012 and 2013, respectively. Due to the reduction in margin assumptions, Reckitt’s returns profile is flattened. Although in absolute terms Reckitt remains ranked Q1 on returns, the average expansion is reduced from over 80 bp per year to 64 bp, which no longer screens as Q1 within our coverage. Our 12-month price target falls to 3,520p (from 3,850p) and is based on a target EV/EBITDA multiple of 10.2x, below its long run average (11.0x) to reflect lower growth and returns vs. history. We downgrade to our rating to Neutral following a period of share outperformance. Key risks to our view include: (1) accelerated share gains (2) the emergence of a generic for Suboxone, (3) cost savings in excess of increased investment and (4) further competitive pressures in home care.
BE
There. All you wanted to know about the competitive environment for soap and/or scag substitutes.
11:49AM
PM
cheers for that
BE
Hi, rabble. We run a financial markets blog on this side of the page.
BE
I’m not sure you’ve noticed.
PM
Ah, leave em to it Bryce
PM
Where next?
PM
I was tryign to track down this euro comments from Benoit Coeure
PM
Talking about zero interest rates causing credit contraction
PM
banks becoming addicted etc
PM
Been reading Mojo obv
BE
A lot of unintended consequences to zero percent.
PM
Ah got it here
BE
(@LorcanRK: that’s slander. I also wrote it to make the Cluedo joke in the headline.)
PM
Let me mention two further areas where risks could emerge from zero or even negative interest rates.
PM
First, money market activity might suffer beyond the trading incentives effect. Important market intermediaries, such as money market funds, could be driven out of business, as their business model loses profitability, for both domestic and foreign investors with excess liquidity may shift their investments to alternative, more profitable market segments.
PM
Second, zero or negative interest rates may produce adverse effects on the profitability of commercial banks and financial intermediaries more broadly. In a financial crisis this can result in a credit contraction. The reason is well known. Commercial banks may have to keep retail deposit rates unchanged to preserve their deposit base in a context of increased retail funding competition and substitution by banknotes [11]. But, with lending rates reduced, this hurts banks’ profitability, especially in countries where variable rates predominate. This impact could be particularly pronounced in the case of a widening of the policy rate corridor, with the main refinancing rate remaining unchanged and the remuneration of the deposit facility being adjusted to zero or below. Commercial bank equity debasement, in turn, can reduce the effectiveness of “non-standard” monetary policy and may even provide incentives for money creation to take place in the shadow banking system. Other channels – going in the opposite direction – are also conceivable, with search-for-yield considerations prevailing and leading to higher short-term profitability. All in all, the impact of zero rates on the profitability of banks remains uncertain and highly dependent, among other determinants, on parallel regulatory response.
PM
Its quite a long detailed speech
PM
need to go thru it properly later
PM
Or more likely get one of the team to go thru it properly
PM
BE
Ok – ta for that.
11:53AM
BE
Couple more things to mention before we shuffle off.
BE
First, I’m becoming progressively more interested in Reed.
BE
Elsevier, that is.
Reed Elsevier PLC (REL:LSE): Last: 558.00, up 6 (+1.09%), High: 558.50, Low: 553.00, Volume: 826.02k
BE
Not affecting shares any, this story.
BE
But they’re facing a class action in the States.
BE
Against LexisNexus
PM
oh really
BE
For infringing copyright
BE
On legal briefs
BE
The summaries of arguments lawyers put forward in court.
PM
Seriously profitable business for Elsevier — LexusNexus
BE
Yup
BE
And the argument seems to be that LexisNexus breaches copyright by selling access to what’s said in a public hearing.
BE
It may be an interesting test case
BE
Though the people who claim to know reckon the action doesn’t have a change.
PM
chance
BE
Yes, that too.
BE
To avoid further typing borks, I’ll turn to Natixis.
BE
A number of specialist blogs say the case has little chance of succeeding since the copyright (recognised for legal briefs) concerns the unlawful reproduction of a text, not its distribution, even though the case reveals that there is still a legal vacuum in this specific instance. Although we are not legal specialists, the mere fact that the case has been deemed admissible by the New York Court of Justice means that we cannot draw conclusions about how this class action will turn out (the case is referred to as “Edward White et al v. West Publishing Corp. et al, No. 12-cv-1230, Southern District of New York”).
It even seems most likely that the plaintiffs (the lawyers, joining forces in a class action) will have done their utmost to ensure the case is deemed admissible. In other words, given the preliminary information at our disposal, it seems unlikely at this stage that the case will succeed and the short-term risk therefore seems negligible (or even nil).
It even seems most likely that the plaintiffs (the lawyers, joining forces in a class action) will have done their utmost to ensure the case is deemed admissible. In other words, given the preliminary information at our disposal, it seems unlikely at this stage that the case will succeed and the short-term risk therefore seems negligible (or even nil).
BE
Nonetheless, the timing of this case does not strike us as being entirely innocent, just when Elsevier (a scientific publisher, 58% of group EBIT) is already facing a boycott campaign in the USA by researchers (who are both the users and authors of the texts distributed by Elsevier). Another dispute, this time with lawyers (i.e. the users and suppliers of legal content), would be rather unwelcome. More generally, questions are being raised about revaluing content written by professionals (researchers and lawyers) and exploited by publishers “for free”.
BE
Embattled Elsevier.
PM
They are embattled
PM
They’ve also got this boycott by academics picking up steam
PM
See this
PM
And this
PM
Crooked Timber is a great blog IMO
PM
There is much that remains unknown about Elsevier’s internal processes of decision making, and how they have brought this corporate publishing behemoth, and the academic publishing industry that it has sought so assiduously to reshape) to the state that it is now in.
PM
That debate about academic journals btw has been going on for years
PM
But it is still deeply troubling for REE E
PM
REED Elsevier
BE
(ROTR: Bernares: lovely room, charming people. Delauney: your mileage may vary.)
12:00PM
BE
Ok – midday.
BE
We should wind up – I have loads of stuff to do this afternoon.
BE
And Paul has consumption.
BE
Or similar. We’re not sure, but he’s still not well.
BE
Oh, should mention Aquarius in passing.
Aquarius Platinum Ltd (AQP:LSE): Last: 133.70, down 12.4 (-8.49%), High: 141.80, Low: 128.70, Volume: 3.69m
BE
Zimbabwe wants their mine back.
PM
Oh dear
BE
Rejected a JV plan.
BE
To fall into line with indigenous rights law.
BE
And here’s what it means.
BE
(@Mo again: Daquise: yes, but they’ve changed kitchen and poshed up a bit.)
BE
Right – sorry. PDFail.
BE
Got it now.
BE
Here’s Liberum.
BE
AQP has announced Zimbabwe’s government has rejected AQP’s empowerment plan, which was
submitted in November 2011, has been rejected. The Minister of Youth Development, Indigenisation and
Empowerment has stated that unless an agreement is reached in respect of full compliance, enforcement
mechanisms may be activated after 30 days. A clear and present danger of expropriation now exists for
Mimosa (owned 50% by AQP and 50% by Impala), a risk which has dogged AQP since 2009. Since 2009
AQP has underperformed its South African peers by 35-45%, a significant reason being its’ greater
exposure to Zimbabwe. We still feel seizure of Mimosa represents a worse case scenario and that a
compromise may be reached. At current spot prices, a loss of AQP’s 50% stake in Mimosa would reduce
our NAV from £1.85/shr to £1.25/shr. What is clear however is that nationalisation of Zimbabawe’s platinum
sector is hugely bullish for the platinum price and the key beneficiaries will be Lonmin and Anglo Platinum,
which have negligible near term earnings from Zimbabwe.
submitted in November 2011, has been rejected. The Minister of Youth Development, Indigenisation and
Empowerment has stated that unless an agreement is reached in respect of full compliance, enforcement
mechanisms may be activated after 30 days. A clear and present danger of expropriation now exists for
Mimosa (owned 50% by AQP and 50% by Impala), a risk which has dogged AQP since 2009. Since 2009
AQP has underperformed its South African peers by 35-45%, a significant reason being its’ greater
exposure to Zimbabwe. We still feel seizure of Mimosa represents a worse case scenario and that a
compromise may be reached. At current spot prices, a loss of AQP’s 50% stake in Mimosa would reduce
our NAV from £1.85/shr to £1.25/shr. What is clear however is that nationalisation of Zimbabawe’s platinum
sector is hugely bullish for the platinum price and the key beneficiaries will be Lonmin and Anglo Platinum,
which have negligible near term earnings from Zimbabwe.
BE
Ok – and that’s us done I think.
PM
thanks for taht
BE
If you wish to carry on the restaurant chat then I can recommend Oil & Vinegar in the Long Room.
BE
We, however, have actual jobs to return to.
PM
Mr O and Mr V — professional diners
BE
So thanks for approximately 33% of your comments today.
BE
Do join us next week.
PM
Cheers
PM
and we will be back on Monday
BE
Oh, sorry …. Re Cove
BE
S&P Marketscope picks up on a DR piece, saying Cove Energy remains a potential bid target for Chinese state-owned enterprise energy groups despite the bid from Royal Dutch Shell. Notes Cove’s gas assets are quite attractive to PetroChina, and a source believes it could make an offer soon. Cites a separate source as saying China National Offshore Oil Corporation is still reviewing a feasability study on a bid for Cove, with transportation costs the key issue.
BE
Yada yada.
BE
Right – close now.
BE
Bye.